Initial Public Offering (IPO): Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1 Registration Statement (General Form) 173 917K
2: EX-2.1 Asset Purchase Agreement - Oct. 30, 1998 30 128K
3: EX-2.2 Agreement and Plan of Merger - Dec. 21, 1999 63 255K
4: EX-2.3 Asset Purchase Agreement - Feb. 29, 2000 22 87K
5: EX-3.1 Certificate of Incorporation 3 15K
6: EX-3.2 Form of First Restated Certificate of 13 49K
Incorporation
7: EX-3.3 Form of First Amended and Restated Bylaws 14 56K
13: EX-10.12 Univision Roll-Up Agreement - March 2, 2000 7 30K
14: EX-10.13 First Amended and Restated Subordinated Note 9 41K
15: EX-10.14 Subordinated Note Purchase and Option Agreement 9 39K
16: EX-10.15 Subordinated Note Purchase & Option Agmt (3/31/99) 6 23K
17: EX-10.16 Subordinated Note Purchase & Option Agmt (3/2/00) 6 23K
18: EX-10.17 Secured Promissory Note and Pledge Agreement 6 26K
19: EX-10.24 Form of Network Affiliation Agreement 26 84K
8: EX-10.3 Amended and Restated Credit Agreement 113 502K
9: EX-10.4 Amended and Restated Credit Agreement (12/29/99) 11 39K
10: EX-10.5 Amended and Restated Credit Agreement (01/14/00) 13 42K
11: EX-10.7 Amended and Restated Security Agreement (11/10/98) 31 128K
12: EX-10.8 Amended and Restated Pledge Agreement 39 123K
As filed with the Securities and Exchange Commission on April 20, 2000
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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Entravision Communications Corporation
(Exact name of registrant as specified in charter)
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Delaware 4833 95-4783236
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Walter F. Ulloa
Entravision Communications Corporation
2425 Olympic Boulevard, Suite 6000 West
Santa Monica, California 90404
(310) 447-3870
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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Kenneth D. Polin, Esq. Richard M. Jones, Esq.
Zevnik Horton Guibord McGovern O'Melveny & Myers LLP
Palmer & Fognani, L.L.P. 1999 Avenue of the Stars, 7th Floor
101 West Broadway, 17th Floor Los Angeles, California 90067
San Diego, California 92101 (310) 553-6700
(619) 515-9600
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Proposed maximum Amount of
Title of each class of securities to be registered aggregate offering price (1)(2) registration fee
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Class A common stock,
$0.0001 par value......... $615,000,000 $162,360
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(1) Includes shares issuable upon exercise of an over-allotment option granted
to the underwriters.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall hereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to such Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by U.S. federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the Securities and Exchange Commission relating +
+to these securities has been declared effective by the Securities and +
+Exchange Commission. This prospectus is not an offer to sell these securities +
+or our solicitation of your offer to buy these securities in any jurisdiction +
+where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--APRIL 20, 2000
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Prospectus
, 2000
Entravision Communications Corporation
[JFAX LOGO APPEARS HERE]
Shares of Class A Common Stock
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Entravision: The Offering:
. We are a leading . We are offering
diversified shares of our
Spanish-language Class A common
media company in stock.
the United States
with television, . The underwriters
radio, outdoor have an option to
and publishing purchase an
operations. additional
shares from us
and one of our
stockholders to
cover over-
allotments.
Proposed Market and
Symbol:
. We have applied . This is our
for listing on initial public
the New York offering, and no
Stock Exchange public market
under the symbol currently exists
EVC. for our shares.
We anticipate
that the initial
public offering
price for our
Class A common
stock will be
between $ and
$ per share.
. This offering is
contingent upon
and will close
concurrently with
our acquisition of
Z-Spanish Media
Corporation.
. Closing: ,
2000.
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Per Share Total
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Public offering price................................... $ $
Underwriting fees.......................................
Proceeds to Entravision.................................
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This investment involves risk. See "Risk Factors."
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Neither the Securities and Exchange Commission nor any state securities
commission has determined whether this prospectus is truthful or complete. Nor
have they made, nor will they make, any determination as to whether anyone
should buy these securities. Any representation to the contrary is a criminal
offense.
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Donaldson, Lufkin & Jenrette Credit Suisse First Boston Merrill Lynch & Co.
Book Running Manager Co-Lead Manager Co-Lead Manager
-----------
Salomon Smith Barney Bear, Stearns & Co. Inc. DLJdirect Inc.
[INSIDE FRONT COVER]
[ARTWORK]
[FRONT GATEFOLD]
[A MAP OF THE UNITED STATES IDENTIFYING THE LOCATION OF EACH OF OUR MEDIA
PROPERTIES AND THE CALL LETTERS AND CHANNEL OF EACH OF OUR STATIONS]
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different.
This prospectus may only be used where it is legal to sell these securities.
The information in this prospectus may only be accurate on the date of this
prospectus.
TABLE OF CONTENTS
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Page
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Prospectus Summary....................................................... 4
Risk Factors............................................................. 10
Forward-Looking Statements............................................... 19
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Historical Financial Data....................................... 23
Selected Unaudited Pro Forma Financial Data.............................. 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 47
Management............................................................... 68
Principal Stockholders................................................... 74
Certain Relationships and Related Transactions........................... 75
Description of Capital Stock............................................. 78
Shares Eligible for Future Sale.......................................... 83
Underwriting............................................................. 85
Legal Matters............................................................ 87
Experts.................................................................. 87
Where You Can Find More Information...................................... 88
Index to Financial Statements............................................ F-1
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NOTE TO READER
We completed several acquisitions between January 1, 1999 and the date of
this prospectus. We have also agreed to acquire Z-Spanish Media Corporation
concurrently with the closing of this offering and broadcasting licenses
relating to two television stations and two radio stations before or after the
closing of this offering. We believe that you will have a better picture of us
if we present the information in this prospectus on a "what if" basis to show
how we would look as if we had completed all of our pending acquisitions as of
the date of this prospectus. Unless we indicate otherwise, all of the text of
this prospectus describes us on this "what if" basis. In addition, our
unaudited pro forma financial information shows how we would look as if we had
owned all of the businesses, licenses or assets that we have recently acquired
or agreed to acquire for all of 1999. Our audited financial statements and
summary and selected historical financial data, however, show us as we actually
were, without any "what if" changes, except for our reorganization described
elsewhere in this prospectus.
3
PROSPECTUS SUMMARY
This summary contains general discussions of our business and this offering.
We encourage you to read the entire prospectus, including "Risk Factors" and
the financial statements, for a more complete understanding of Entravision and
this offering.
ENTRAVISION
Entravision is a leading diversified media company utilizing a combination
of television, radio, outdoor and publishing operations to reach Hispanic
consumers in the United States. We operate in 32 of the top 50 U.S. Hispanic
markets. Through our operations we have the ability to reach approximately 72%
of Hispanics living in the United States, or approximately 23 million people.
For the fiscal year ended December 31, 1999, we had pro forma net revenue of
$150 million, broadcast cash flow of $46 million and EBITDA of $33 million. The
table below briefly summarizes our operations, including our recent acquisition
of Latin Communications Group Inc. and our pending acquisition of Z-Spanish
Media Corporation:
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Television Radio Outdoor Publishing
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.Own and operate .Own and operate .Own approximately .Own two Spanish-
television 60 radio stations 10,000 billboards language
stations in 18 in 24 U.S. markets concentrated in publications, El
U.S. markets high-density Diario/La Prensa
Hispanic and VEA New York
.Largest .Operate the communities in Los
Univision- largest centrally Angeles and New .El Diario/La
affiliated programmed York, the two Prensa is the
television group Spanish-language largest markets in oldest Spanish-
in the United radio network in the United States language daily
States the United States newspaper in the
United States
.Stations are .Stations are .1999 pro forma .1999 pro forma
located in 17 of located in 22 of gross revenue gross revenue of
the top 50 the top 50 of $16 million, or $19 million, or
Hispanic markets Hispanic markets 10% of total 12% of total
in the United in the United
States States
.1999 pro forma .1999 pro forma
gross revenue gross revenue
of $69 million, or of $61 million, or
41% of total 37% of total
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Television. We own and operate Univision-affiliated stations in 17 of the
top 50 Hispanic markets in the United States. Through our 25-year network
affiliation agreements, Univision Communications Inc. makes available to these
stations 24 hours a day of Spanish-language programming. Univision's prime time
schedule is all first-run programming (i.e., no reruns) throughout the year. We
combine this premier programming with our local news programming to brand each
of our stations with a strong local identity. As a result, each of our
Univision-affiliated stations ranks first in Spanish-language television
viewership in its market.
Univision has invested an aggregate of $120 million in Entravision and will
own an approximately % equity interest in us after this offering. We believe
this investment reflects Univision's endorsement of our business model and its
commitment to us as a long-term strategic partner.
Radio. Our radio operations combine national programming with a strong local
presence. Through our radio programming, which is delivered via satellite to
our stations, we provide national programming with local time slots available
for advertising, news, traffic, weather, promotions and community events. This
strategy allows us to provide higher-quality programming with significantly
lower costs of operations than we could otherwise deliver solely with
independent programming. We produce seven primary formats, the most of any
Spanish-language radio company in the United States, in order to appeal to the
diverse musical tastes of the listeners in the markets we serve.
4
Outdoor. Our billboards are concentrated in high-density Hispanic
communities in Los Angeles and New York. Because of its repetitive impact and
relatively low cost per thousand impressions, outdoor advertising attracts
national, regional and local advertisers. We believe national advertisers value
our ability to efficiently target specific demographic groups on a cost-
effective basis compared to other advertising media. In addition, we believe
local advertisers place significant value on our ability to provide marketing
solutions in close proximity to their stores or outlets.
Publishing. Our publishing operations, through El Diario/La Prensa, the
leading Spanish-language daily newspaper in New York, and VEA New York, a
tourist publication, offer advertisers another medium targeting consumers in
the second largest Hispanic market in the United States.
The Hispanic Market Opportunity
While Hispanics represent approximately 11% of the U.S. population and the
Hispanic population is growing approximately six times faster than the non-
Hispanic population, they are currently targeted by less than 1% of total
advertising dollars. Advertisers have recently begun to direct a greater
percentage of their advertising spending toward Hispanics and, consequently,
Spanish-language advertising is currently growing at more than four times the
rate of total advertising. We believe that we have benefited and will continue
to benefit from the following industry trends and attributes in the United
States:
. high Spanish-language use among Hispanic consumers;
. strong projected growth and high geographic concentration of the Hispanic
population;
. increasing Hispanic buying power;
. increasing advertising spending on Spanish-language media; and
. the attractive demographic profile of the Hispanic consumer.
Business Strategy
We seek to be the leading diversified Spanish-language media company in the
United States and to increase our advertising revenue through the following
strategies:
. use our Univision network affiliation and our leading radio network and
station brands to maximize our market share;
. invest in media research to provide advertisers with accurate measures of
our audience;
. continue to build and retain strong management teams;
. emphasize and invest in our local news and radio formats and support
community events to enhance our audience recognition, loyalty and
ratings;
. capitalize on cross-promotional opportunities created by our diverse
portfolio of media properties to maximize audience share and increase
advertising revenue; and
. continue to seek acquisitions and investment opportunities in high-growth
Hispanic markets.
Recent and Pending Acquisitions
Latin Communications Group. On April 20, 2000, we acquired Latin
Communications Group Inc., or LCG, for approximately $252 million. LCG owns and
operates 17 radio stations in nine high-growth markets, including Los Angeles,
Riverside-San Bernardino, San Francisco-San Jose, Las Vegas, Albuquerque-Santa
Fe, Sacramento, Denver-Boulder and Monterey-Salinas-Santa Cruz, and publishes
El Diario/La Prensa and VEA New York.
5
Z-Spanish Media Corporation. On April 20, 2000, we agreed to acquire Z-
Spanish Media Corporation for $475 million. Z-Spanish Media owns and operates
33 radio stations in 13 markets, including Dallas-Ft. Worth, Phoenix and
Sacramento. In addition, Z-Spanish Media is one of the largest outdoor
advertising companies in the United States focusing on the Hispanic market,
with approximately 10,000 billboards.
Other Acquisitions. We have agreed to acquire two television stations in the
Hartford and Orlando markets and we have agreed to acquire two radio stations
in the Los Angeles market for an aggregate of approximately $126 million.
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Our principal executive offices are located at 2425 Olympic Boulevard, Suite
6000 West, Santa Monica, California 90404, and our telephone number is (310)
447-3870. We operate a number of websites, including www.entravision.com,
www.zspanish.com, www.zmegahits.com, www.labonita.com, www.labuena.com,
www.casademusica.com and www.vistamediagroup.com. The information on our
websites is not a part of this prospectus.
6
The Offering
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Class A common stock offered......... shares
Common stock to be outstanding after
this offering....................... shares of Class A common stock
shares of Class B common stock
shares of Class C common stock
shares of common stock
Voting rights........................ Holders of our Class A common stock are
entitled to one vote per share. Holders
of our Class B common stock are entitled
to ten votes per share. Holders of our
Class C common stock are entitled to one
vote per share, are entitled to vote as
a separate class to elect two directors
and have the right to vote as a separate
class on material decisions involving
Entravision.
Use of proceeds...................... We intend to use the net proceeds of
this offering:
. to acquire Z-Spanish Media;
. to pay the balance of the purchase
price to acquire two radio stations
from Citicasters Co.;
. to reduce our debt; and
. for working capital and general
corporate purposes.
Proposed New York Stock Exchange
symbol.............................. EVC
Unless indicated otherwise, the information in this prospectus:
. reflects the completion of our reorganization in which direct and
indirect ownership interests in our predecessor and Univision's
subordinated note and option will be exchanged for shares of our common
stock;
. includes the issuance of shares of Class A common stock to
acquire Z-Spanish Media concurrently with the closing of this offering;
. excludes shares of Class A common stock issuable upon the exercise of
the underwriters' over-allotment option;
. excludes shares of Class A common stock reserved for issuance
upon conversion of our Series A preferred stock; and
. excludes shares of Class A common stock reserved for issuance
under our omnibus equity incentive plan.
7
Summary Historical and Unaudited Pro Forma Financial Data
(In thousands, except per share data)
The following table presents:
. our summary historical financial data as of December 31, 1999 and for
the years ended December 31, 1997, 1998 and 1999;
. our summary unaudited pro forma financial data as of and for the year
ended December 31, 1999, giving effect to our completed 1999 and 2000
acquisitions and our pending acquisition of Z-Spanish Media as if we had
owned these businesses for all of 1999, the conversion of TSG Capital
Fund III, L.P.'s convertible subordinated note into preferred stock and
the exchange of Univision's subordinated note and option for common
stock; and
. our summary unaudited pro forma as adjusted financial data giving
further effect to the sale of the shares of Class A common stock
that we are offering, assuming an initial public offering price of
$ per share, and the application of the net proceeds of this
offering, as described in "Use of Proceeds."
The summary unaudited pro forma and pro forma as adjusted financial data are
not necessarily indicative of the operating results or the financial condition
that would have been achieved if we had completed these transactions as of the
date indicated and should not be construed as representative of future
operating results or financial condition. The summary historical and unaudited
pro forma financial data should be read in conjunction with the audited
consolidated financial statements and related notes, with "Selected Unaudited
Pro Forma Financial Data" and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
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Historical
--------------------------
Year Ended
Year Ended December 31, December 31, 1999
-------------------------- ----------------------
Unaudited
Unaudited Pro Forma
1997 1998 1999 Pro Forma As Adjusted
------- ------- -------- --------- -----------
Statement of Operations
Data:
Gross revenue:
Television............... $32,701 $48,689 $ 63,842 $ 68,938
Radio.................... 718 1,183 2,362 60,861
Outdoor and publishing... -- -- -- 35,134
------- ------- -------- --------- -------
Total gross revenue...... 33,419 49,872 66,204 164,933
Less agency commissions.... 2,963 5,052 7,205 14,867
------- ------- -------- --------- -------
Net revenue................ 30,456 44,820 58,999 150,066
------- ------- -------- --------- -------
Expenses:
Direct operating......... 9,184 15,794 24,441 58,915
Selling, general and
administrative.......... 5,845 8,877 11,611 45,486
Corporate................ 3,899 3,963 5,809 12,377
Depreciation and
amortization............ 8,847 9,565 14,613 83,168
Non-cash stock-based
compensation (1)........ 900 500 29,143 29,143
Gain on sale of assets... -- -- -- (4,442)
------- ------- -------- --------- -------
Total expenses............. 28,675 38,699 85,617 224,647
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Operating income (loss).... 1,781 6,121 (26,618) (74,581)
Interest expense, net and
other..................... (5,107) (8,244) (12,091) (33,900)
Income tax (expense)
benefit (2)............... 7,531 (210) 121 27,998
------- ------- -------- --------- -------
Income (loss) from
continuing operations .. 4,205 (2,333) (38,588) (80,483)
Preferred stock dividends
(3)....................... -- -- -- 42,209
------- ------- -------- --------- -------
Income (loss) from
continuing operations
applicable to common
stock..................... $ 4,205 $(2,333) $(38,588) $(122,692)
======= ======= ======== ========= =======
Pro forma net loss from
continuing operations
applicable to common stock
(4)....................... $(2,672) $(1,796) $(35,210) $(122,692)
======= ======= ======== ========= =======
Pro forma basic and diluted
earnings per share:
Net loss from continuing
operations applicable to
common stock (4)........ $ (0.04) $ (0.03) $ (0.54)
======= ======= ======== ========= =======
8
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Historical
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Year Ended
Year Ended December 31, December 31, 1999
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Unaudited
Unaudited Pro Forma
1997 1998 1999 Pro Forma As Adjusted
------- ------- ------- --------- -----------
Other Financial Data:
Broadcast cash flow (5).......... $15,427 $20,149 $22,947 $45,665
EBITDA (6)....................... 11,528 16,186 17,138 33,288
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As of December 31, 1999
---------------------------------
Unaudited
Unaudited Pro Forma
Historical Pro Forma As Adjusted
---------- ---------- -----------
Balance Sheet Data:
Cash and cash equivalents.................... $ 2,357 $ 13,545 $
Total assets................................. 188,819 1,180,039
Long-term debt, including current portion.... 167,537 360,837
Redeemable preferred stock................... -- 345,990
Total stockholders' equity (7)............... 11,813 241,523
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(1) For 1999, non-cash stock-based compensation represents management's
estimate of the fair value of our employee stock award and our employee
stock option grant based on the estimated price of this offering.
(2) Included in the 1997 income tax expense is a $7.8 million tax benefit that
resulted from the reversal of previously recorded deferred tax liabilities
that were established in our 1997 acquisition of KNVO, McAllen, Texas.
This entity was converted from a C-corporation to an S-corporation in
1997. As a result, deferred taxes were reduced.
(3) Includes dividends on the 13.5% preferred stock that we could be required
to issue to finance our acquisition of Z-Spanish Media if this offering has
not closed by September 30, 2000 and dividends on the 8.5% redeemable
preferred stock issuable to TSG Capital Fund III, L.P. upon conversion of
its $90 million convertible subordinated note.
(4) Pro forma net loss from continuing operations applicable to common stock
and pro forma basic and diluted loss applicable to common stock per share
give effect to our conversion from a limited liability company to a
corporation for federal and state income tax purposes and assume that we
were subject to corporate income taxes at an effective combined federal
and state income tax rate of 40% before the effect of non-tax deductible
goodwill and non-cash stock-based compensation for each period presented.
(5) Broadcast cash flow means operating income (loss) before corporate
expenses, depreciation and amortization, non-cash stock-based compensation
and gain on sale of assets. We have presented broadcast cash flow which we
believe is comparable to the data provided by other companies in the
broadcast industry, because such data is commonly used as a measure of
performance for companies in our industry. However, broadcast cash flow
should not be construed as an alternative to operating income (as
determined in accordance with generally accepted accounting principles) as
an indicator of operating performance or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) as a measure of liquidity.
(6) EBITDA means broadcast cash flow less corporate expenses and is commonly
used in the broadcast industry to analyze and compare broadcast companies
on the basis of operating performance, leverage and liquidity. EBITDA, as
presented above, may not be comparable to similarly titled measures of
other companies unless such measures are calculated in substantially the
same fashion. EBITDA should not be construed as an alternative to
operating income (as determined in accordance with generally accepted
accounting principles) as an indicator of operating performance or to cash
flows from operating activities (as determined in accordance with
generally accepted accounting principles) as a measure of liquidity.
(7) The stockholders' equity data gives effect to our reorganization in which
direct and indirect ownership interests in our predecessor and Univision's
subordinated note and option will be exchanged for shares of our common
stock before the closing of this offering.
9
RISK FACTORS
You should carefully consider the risks described below, together with all
of the other information included in this prospectus, before buying shares in
this offering.
Risks Related to Our Business
If we cannot integrate the operations of companies we acquire, our business and
financial condition will be adversely affected.
To implement our strategy of growing through acquisitions, we need to:
. retain key management and personnel of acquired companies;
. successfully merge corporate cultures and business processes;
. realize sales efficiencies and cost reduction benefits; and
. operate successfully in markets in which we may have little or no prior
experience.
In addition, after we have completed an acquisition, our management must be
able to assume significantly greater responsibilities, and this in turn may
cause them to divert their attention from our existing operations. If we are
unable to completely integrate into our business the operations of the
companies that we have recently acquired or that we may acquire in the future,
our business and financial condition will be adversely affected.
Because we have no operating history as a combined company, we face risks
generally associated with combining business enterprises.
We acquired LCG on April 20, 2000, and we will acquire Z-Spanish Media
concurrently with the closing of this offering. Because we have never operated
as a combined company, we face risks generally associated with combining
business enterprises. When considering our prospects, investors must consider
the risks, expenses and difficulties encountered by companies in their early
stages of combined operations, including possible disruptions and
inefficiencies associated with rapid growth and workplace expansion. In
addition, our lack of operating history as a combined company makes it
difficult to evaluate our current business and prospects or to accurately
predict our future revenue or results of operations.
If we fail to manage our growth effectively, our business and financial
condition will be adversely affected.
We have significantly increased our business within a short period of time
through our acquisition of LCG and our pending acquisition of Z-Spanish Media.
As a result of these acquisitions, our number of full-time employees grew from
544 as of December 31, 1999 to approximately 1,100 as of March 31, 2000. If we
are to grow successfully, we must:
. attract and retain qualified personnel;
. effectively implement new operational systems, procedures and controls;
. improve our administrative and financial systems; and
. manage relationships with various advertisers.
In particular, we believe that our future success will depend on our ability
to hire, train and retain highly-skilled personnel. Competition for quality
personnel is intense in our business. We may not be able to accomplish any of
these requirements, and our failure to do so could have a material adverse
effect on our business and financial condition. In addition, our rapid growth
currently and in the future could significantly strain our management and other
resources.
10
We have a history of losses that if continued into the future could adversely
affect the market price of our Class A common stock and our ability to raise
capital.
We had net losses of approximately $2.3 million and $38.6 million for the
years ended December 31, 1998 and 1999. In addition, we had a pro forma net
loss of $122.7 million for the year ended December 31, 1999, after giving
effect to our acquisition of LCG and our pending acquisition of Z-Spanish
Media. We believe losses may continue while we pursue our acquisition strategy
and expand our radio network. Our inability to generate profits could adversely
affect the market price of our Class A common stock, which in turn could
adversely affect our ability to raise additional equity capital or to incur
additional debt.
If our strategy to grow through acquisition is limited by competition for
suitable media properties, or by other factors we cannot control, it could
adversely affect our future rate of growth.
We intend to pursue acquisitions of additional media properties as our
management believes appropriate. In order for us to succeed with this strategy,
we must be effective at quickly evaluating markets, accessing the capital
markets and obtaining the necessary regulatory approvals, including approvals
of the Federal Communications Commission, or the FCC, and the Department of
Justice, or the DOJ. We compete with many other buyers for target properties.
Some of those competitors have more money and resources than we do. We may not
succeed in making additional acquisitions. Also, our strategy includes buying
underperforming media properties and using our experience to improve their
performance. Thus, any likely benefit from any property we buy will be over
time, rather than immediately, and we may need to pay large initial costs for
these improvements.
If we cannot raise required capital, it may have a material adverse effect on
our business and our ability to grow through acquisitions.
We may require significant additional capital for future acquisitions and
general working capital needs. If our cash flow and existing working capital
are not sufficient to fund our general working capital requirements and debt
service, we will have to raise additional funds by selling equity, refinancing
some or all of our existing debt or selling assets or subsidiaries. Capital
markets are volatile and uncertain, and we may not be able to gain access to
these markets to raise additional capital. Consequently, none of these
alternatives for raising additional funds may be available on acceptable terms
to us or in amounts sufficient for us to meet our requirements. Our failure to
obtain any required new financing may have a material adverse effect on our
business and our ability to grow through acquisitions.
Our substantial level of debt and the terms of our Series A preferred stock
could limit our ability to grow and compete.
After repaying some of our outstanding indebtedness with a portion of the
proceeds from this offering, we will have approximately $200 million of debt
outstanding under our bank credit facilities, and $90 million of Series A
mandatorily redeemable convertible preferred stock. We expect to obtain a
portion of our required capital through debt financing that bears or is likely
to bear interest at a variable rate, subjecting us to interest rate risk.
Our substantial level of debt could have several important consequences,
including the following:
. a significant portion of our cash flow from operations will be dedicated
to servicing our debt obligations and will not be available for
operations, future business opportunities or other purposes;
. our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate or other
purposes may be limited; and
11
. our substantial debt could make us more vulnerable to economic downturns,
limit our ability to withstand competitive pressures and reduce our
flexibility in responding to changing business and economic conditions.
Our ability to satisfy all of our debt obligations depends upon our future
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, some of which are beyond our
control. We may not have sufficient future cash flow to meet our debt payments,
or we may not be able to refinance any of our debt at maturity. We have pledged
substantially all of our assets to our lenders as collateral. Our lenders could
proceed against the collateral granted to them to repay outstanding
indebtedness if we are unable to meet our debt service obligations. If the
amounts outstanding under the bank credit facility are accelerated, our assets
may not be sufficient to repay in full the money owed to such lenders.
The terms of our credit agreements restrict the decisions we can make about our
business.
Our bank credit facilities contains covenants that restrict, among other
things, our ability to:
. incur additional indebtedness;
. pay dividends;
. make acquisitions or investments; and
. merge, consolidate or sell assets.
Our bank credit facilities also require us to maintain specific financial
ratios. A breach of any of the covenants contained in our bank credit
facilities could allow our lenders to declare all amounts outstanding under the
bank credit facilities to be immediately due and payable.
Following this offering, our executive officers will have control over our
business, which may discourage a merger or sale of our company.
Following this offering, Walter F. Ulloa, our Chairman and Chief Executive
Officer, Philip C. Wilkinson, our President and Chief Operating Officer, and
Paul A. Zevnik, our Secretary, will own all of the shares of our Class B common
stock, and will have approximately 80% of the combined voting power of our
outstanding shares of common stock. The holders of our Class B common stock are
entitled to ten votes per share on any matter subject to a vote of the
stockholders. Accordingly, Messrs. Ulloa, Wilkinson and Zevnik will have the
ability to elect each of the remaining members of our board of directors, other
than the two members of our board of directors to be appointed by Univision,
and will have control of our policies and affairs. Messrs. Ulloa, Wilkinson and
Zevnik have agreed contractually to elect themselves, Amador S. Bustos and a
representative of TSG Capital Fund III, L.P. as directors of our company. This
control may discourage certain types of transactions involving an actual or
potential change of control of our company, such as a merger or sale of our
company.
Univision will have significant influence over our business and could make
certain transactions more difficult or impossible to complete.
Univision, as the holder of all of our Class C common stock upon
consummation of this offering, will have significant influence over material
decisions relating to our business, including the right to elect two of our
directors, and the right to approve material decisions involving our company,
including any merger, consolidation or other business combination, any
dissolution of our company and any transfer of the FCC licenses for any of our
Univision-affiliated television stations. Univision's ownership interest may
have the effect of delaying, deterring or preventing a change in control of our
company and may make some transactions more difficult or impossible to complete
without its support.
12
Our television ratings and revenue could decline significantly if our
relationship with Univision or if Univision's success changes in an adverse
manner.
If our relationship with Univision changes in an adverse manner, or if
Univision's success diminishes, it could have a material adverse effect on our
ability to generate television advertising revenue on which our television
business depends. The ratings of Univision's network programming might decline
or Univision might not continue to provide programming, marketing, available
advertising time and other support to its affiliates on the same basis as
currently provided. Additionally, by aligning ourselves closely with Univision,
we might forego other opportunities that could diversify our television
programming and avoid dependence on any one television network. Univision's
relationships with Grupo Televisa, S.A. de C.V. and Corporacion Venezolana de
Television, C.A., or Venevision, are important to Univision's, and consequently
our, continued success. For example, we could be adversely affected by a
current dispute between Univision and Televisa. Under its program license
agreements with Televisa, Univision has the first right to air Televisa's
Spanish-language programming in the United States through 2017. Televisa now
asserts that it can directly broadcast that same programming into the United
States through a direct satellite venture in Mexico.
Loss of key personnel could harm our business.
Our business depends upon the efforts, abilities and expertise of our
executive officers and key employees, including Walter F. Ulloa, our Chairman
and Chief Executive Officer, Philip C. Wilkinson, our President and Chief
Operating Officer, Jeanette Tully, our Chief Financial Officer, Amador S.
Bustos, the President of our Radio Division, and Glenn Emanuel, the President
of our Outdoor Division. The loss of any of these officers or other key
personnel could harm our business.
Cancellations or reductions of advertising could cause our quarterly results to
fluctuate, which could adversely affect the market price of our Class A common
stock.
We do not obtain long-term commitments from our advertisers, and advertisers
may cancel, reduce or postpone orders without penalty. Cancellations,
reductions or delays in purchases of advertising could adversely affect our
revenue, especially if we are unable to replace such purchases. Our expense
levels are based, in part, on expected future revenue and are relatively fixed
once set. Therefore, unforeseen fluctuations in advertising sales could
adversely impact our operating results. These factors could cause our quarterly
results to fluctuate, which could adversely effect the market price of our
Class A common stock.
In addition, our advertising revenue could be adversely affected by a
recession or downturn in the U.S. economy, since advertising expenditures
generally decrease as the economy slows down, or by the loss of a major
industry segment of our advertisers. Our results in individual geographic
markets could be adversely affected by local or regional economic downturns.
Risks Related to the Television, Radio,
Outdoor Advertising and Publishing Industries
If we are unable to maintain our FCC licenses, our television and radio
operations could be harmed.
The domestic broadcasting industry is subject to extensive federal
regulation which, among other things, requires approval by the FCC for the
issuance, renewal, transfer and assignment of broadcasting station operating
licenses and limits the number of broadcasting properties we may acquire. In
addition, the Communications Act of 1934 and FCC rules impose limits on
ownership of our capital stock by foreign persons and entities.
The success of our television and radio operations depends, in part, on
acquiring and maintaining broadcast licenses issued by the FCC, which are
typically issued for a maximum term of eight years and are subject to renewal.
Pending or future renewal applications submitted by us may not be approved, and
renewals may include conditions or qualifications that could restrict our
television and radio operations. In addition, third parties may challenge our
renewal applications. If the FCC were to issue an order denying a license
renewal application or revoking a license, we could be required to cease
operating the broadcast station covered by the license.
13
In addition, our bank credit facilities require us to maintain our FCC
licenses. If the FCC were to revoke any of our material licenses, our lenders
could declare all amounts outstanding under the bank credit facilities to be
immediately due and payable. If our indebtedness is accelerated, we may not
have sufficient funds to pay the amounts owed.
Our low-power television stations in Washington, D.C. and San Diego are
subject to frequency and power changes in full-power television authorizations
of the FCC. If we are unable to find suitable replacements without a loss in
coverage, our ratings and advertising revenue in these markets may decrease.
We must be able to respond to rapidly changing technology, services and
standards which characterize the television and radio industries in order to
remain competitive.
The FCC is considering ways to introduce new technologies to the television
and radio broadcast industries, including delivery of digital audio and video
broadcasting, and the standardization of available technologies that
significantly enhance the quality of broadcasts. Several new media technologies
are being developed for the delivery of radio programming, including the
following:
. cable television operators have introduced a service commonly referred to
as "cable radio" which provides cable television subscribers with several
high-quality channels of music, news and other information;
. the Internet offers new forms of audio programming distribution;
. the introduction of satellite digital audio technology could result in
new satellite radio services with sound quality equivalent to that of
compact discs and whose subscription programming (without commercial
advertising) is directed to specific program niches, including ours;
. the introduction of low-power, non-commercial FM radio stations into our
markets could increase competition for our radio stations; and
. the introduction of in-band, on-channel digital radio could provide
multi-channel, multi-format digital radio services in the same bandwidth
currently occupied by traditional AM and FM radio services.
We could face increased competition from these technologies if they become
broadly adopted. Our inability to respond to changes in technology on a timely
basis or at an acceptable cost could have a material adverse effect on our
business and financial condition.
The required conversion to digital television could impose significant costs on
us which may not be balanced by consumer demand.
The FCC requires us to provide a digitally transmitted signal by May 1, 2002
for all of our U.S. television stations and, generally, to stop broadcasting
analog signals by 2006. Our costs to convert our television stations to digital
television, or DTV, could be significant, and there may not be any consumer
demand for DTV services. The imposition of DTV and the removal of Channels 60-
69 from use for television broadcasting have reduced available channels, which
may affect our continued ability to operate certain of our low-power television
stations.
Changes in federal laws could result in increased competition for our broadcast
stations.
Recent and prospective actions by Congress, the FCC and the courts could
cause us to face significant competition in the future. The changes include:
. relaxation of restrictions on television and radio station ownership;
. relaxation of restrictions on the participation by regional telephone
operating companies in cable television and other direct-to-home audio
and video technologies;
. increased restrictions on the use of local marketing agreements;
14
. the establishment of a Class A television service for low-power stations
that makes such stations primary stations and gives them protection
against full-service stations;
. plans to license low-power FM radio stations that will be designed to
serve small localized areas and niche audiences; and
. permission for direct broadcast satellite television to provide the
programming of traditional over-the-air stations, including local and
out-of-market network stations.
In addition, new laws or regulations may eliminate, or at least limit the
scope of, our cable carriage rights. Because our full-power television stations
rely on "must carry" rights to obtain cable carriage, either of those changes
could have a material adverse impact on our television operations. Pursuant to
the "must carry" provisions of the Cable Television Consumer Protection and
Competition Act of 1992, a broadcaster may demand carriage on a specific
channel on cable systems within its market. However, the future of those "must
carry" rights is uncertain, especially as they relate to the carriage of DTV
stations. The current FCC rules relate only to the carriage of analog
television signals. It is not clear what, if any, "must carry" rights
television stations will have after they make the transition to DTV.
Our low-power television stations do not have "must carry" rights. In eight
markets where we currently hold only a low-power license we may face future
uncertainty with respect to the availability of cable carriage. With the
exception of the San Angelo and Amarillo markets, all of our low-power stations
reach a substantial portion of the Hispanic cable households in their
respective markets.
We may face review by the Department of Justice for additional television and
radio station acquisitions in our existing markets.
Since the passage of the Telecommunications Act of 1996, the DOJ has become
more aggressive in reviewing proposed acquisitions of television and radio
stations and television and radio station networks. The DOJ is particularly
concerned when the proposed buyer already owns one or more television or radio
stations in the market of the station it is seeking to buy. In general, the DOJ
has more closely scrutinized television and radio broadcasting acquisitions
that result in market shares in excess of 40% of local television or radio
advertising revenue. If the DOJ fails to approve our proposed acquisitions in
the future, our ability to expand our operations will be limited.
If we are unable to compete effectively for advertising revenue against other
stations and other media companies, some of which have greater resources than
we do, we could suffer a decrease in advertising revenue.
The broadcasting industry is highly competitive. The financial success of
each of our stations depends upon its audience ratings and share of the overall
advertising revenue within its geographic market and the economic health of the
market. In addition, our advertising revenue depends upon the desire of
advertisers to reach our audience demographic. Our television and radio
stations compete for audience share and advertising revenue directly with other
television and radio stations and with other media within their respective
markets, such as the following:
. newspapers;
. cable television;
. the Internet;
. magazines;
. billboard advertising;
. transit advertising; and
. direct mail advertising.
15
Some of these television and radio stations also broadcast Spanish-language
radio and television programming. Some of our competitors are larger and have
significantly greater resources than we do. In addition, the Telecommunications
Act facilitates the entry of other broadcasting companies into the markets in
which we operate stations or may operate stations in the future. If we are
unable to compete successfully in the markets we serve, we may suffer a
decrease in advertising revenue, which could adversely affect our business and
financial condition.
Increased regulation of outdoor advertising could harm our outdoor operations.
Our outdoor operations are significantly impacted by federal, state and
local government regulation of the outdoor advertising business. These
regulations impose restrictions on, among other things, the location, size and
spacing of billboards. If we are required to remove our existing billboards, or
are unable to construct new billboards or reconstruct damaged billboards, our
outdoor business could be harmed. In addition, we may not receive compensation
for billboards that we may be required to remove in the future.
Additional regulations may be imposed on outdoor advertising in the future.
Legislation regulating the content of billboard advertisements has been
introduced and passed in Congress from time to time in the past. Additional
regulations or changes in the current laws regulating and affecting outdoor
advertising at the federal, state or local level may harm the results of our
outdoor operations.
Strikes, work stoppages and slowdowns by our employees could negatively affect
our results of operations.
Our publishing business depends to a significant degree on our ability to
avoid strikes and other work stoppages by our employees. The Newspaper and Mail
Deliverers' Union of New York and Vicinity, or the NMDU, and the Newspaper
Guild of New York represent our publishing employees. Our collective bargaining
agreement with the NMDU expires on March 30, 2004. Our collective bargaining
agreement with the Newspaper Guild of New York expires on June 30, 2002.
Future collective bargaining agreements may not be negotiated without
service interruptions, and the results of these negotiations may adversely
affect our financial condition and results of operations. In addition, strikes
may occur in the future in connection with labor negotiations or otherwise. Any
prolonged strike or work stoppage could have a material adverse effect on our
results of operations and financial condition.
Risks Related to this Offering
Future sales by existing stockholders could depress the market price of our
Class A common stock.
Immediately after this offering, the public market for our common stock will
include only the shares of our Class A common stock that we are selling
in this offering. At that time, there will be outstanding an additional
shares of Class A common stock, shares of Class B common stock and
shares of Class C common stock. Shares of our Class B common stock and
Class C common stock are immediately convertible on a share-for-share basis
into Class A common stock at the option of the holder. The shares held by our
officers, directors and existing stockholders are subject to "lock-up"
agreements with Donaldson, Lufkin & Jenrette that prohibit such stockholders
from selling their common stock in the public market for 180 days after the
date of this prospectus. When the "lock-up" period expires, or if Donaldson,
Lufkin & Jenrette consents, in its sole discretion, to an earlier sale, such
stockholders will be able to sell their shares in the public market, subject to
certain legal restrictions. Upon completion of this offering, we will have
outstanding shares of Class A common stock. Of these shares, the shares
sold in this offering are freely tradeable. This leaves shares of Class A
common stock, of which will be eligible for sale in the public market after
the "lock-up" period expires, or 180 days after the date of this prospectus,
including shares of Class A common stock issuable upon conversion of
outstanding shares of Class B common stock and Class C common stock. If our
existing stockholders sell a large number of shares, the market price of our
Class A common stock could decline dramatically. Moreover, the perception in
the public market that these stockholders might sell shares of Class A common
stock could depress the market price of our Class A common stock.
16
Our investors will pay a price for our Class A common stock that was not
determined in a competitive market.
Before this offering, there has not been any market for our Class A common
stock. We do not know the extent to which investor interest in our business
will lead to the development of a trading market or how liquid that market
might be. If you purchase shares of Class A common stock in this offering, you
will pay a price that was not established in a competitive market. Rather, you
will pay a price that was negotiated between us and our underwriters. The price
of our Class A common stock that will prevail in the market after this offering
may be higher or lower than the price you pay. For a description of the factors
we considered in negotiating the public offering price, see "Underwriting."
As a new investor, you will experience immediate and substantial dilution.
We expect the initial public offering price to be substantially higher than
the pro forma net tangible book value per share of the Class A common stock
outstanding immediately after this offering. Accordingly, if you purchase
shares of our Class A common stock in this offering, you will incur immediate
and substantial dilution in pro forma net tangible book value. The pro forma
net tangible book value upon completion of this offering will be $ per
share, representing an immediate dilution to you of $ per share, based
on an assumed initial public offering price of $ per share. In addition,
if the holders of outstanding options exercise those options, you will
experience further dilution.
Our common stockholders will not receive a current return on their investment
since we do not intend to pay cash dividends.
We intend to retain any earnings to support the growth and development of
our business, and we do not intend to pay cash dividends for the foreseeable
future. Under our bank credit facilities and the terms of our preferred stock,
we are restricted in our ability to pay dividends on all classes of our common
stock.
Stockholders who desire to change control of our company may be prevented from
doing so by provisions of our charter, applicable law and our credit agreement.
Our charter could make it more difficult for a third party to acquire us,
even if doing so would benefit our stockholders. Our charter provisions could
diminish the opportunities for a stockholder to participate in tender offers.
In addition, under our charter, our board of directors may issue preferred
stock that could have the effect of delaying or preventing a change in control
of our company. The issuance of preferred stock could also negatively affect
the voting power of holders of our common stock. The provisions of our charter
may have the effect of discouraging or preventing an acquisition or sale of our
business. In addition, Section 203 of the Delaware General Corporation Law
imposes restrictions on mergers and other business combinations between us and
any holder of 15% or more of our common stock.
The transfer restrictions imposed on the broadcast licenses we own also
restrict the ability of third parties to acquire us. Our licenses may only be
transferred with prior approval by the FCC. Accordingly, the number of
potential transferees of our licenses is limited, and any acquisition, merger
or other business combination involving Entravision would be subject to
regulatory approval.
In addition, the documents governing our indebtedness contain limitations on
our ability to enter into a change of control transaction. Under these
documents, the occurrence of a change of control transaction, in some cases
after notice and grace periods, would constitute an event of default permitting
acceleration of our outstanding indebtedness.
17
Our stock price could be volatile.
The stock market in general, and the stock prices of new public companies in
particular, have experienced significant volatility that often has been
unrelated to the operating performance of any specific public company. Factors
that may have a significant impact on the market price of our Class A common
stock include:
. future announcements concerning us or Univision;
. changes in the prospects of our business partners;
. results of technological innovations;
. government regulation, including the FCC's review of our acquisition of
broadcast licenses; and
. changes in recommendations of securities analysts and rumors that may be
circulated about us or our competitors.
Our future earnings and stock price may be subject to significant
volatility, particularly on a quarterly basis. Shortfalls in our revenue or
earnings in any given period relative to the levels expected by securities
analysts could immediately, significantly and adversely affect the trading
price of our Class A common stock. In the past, following periods of volatility
in the market price of a company's securities, class action litigation has
often been instituted against such company. Litigation of this type could
result in substantial costs and a diversion of our management's attention and
resources, which could, in turn, have a material adverse effect on our business
and financial condition.
18
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, including statements
under the captions "Prospectus Summary," "Risk Factors," "Selected Unaudited
Pro Forma Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere in this
prospectus, concerning our expectations of future revenue, expenses, the
outcome of our growth and acquisition strategy and the projected growth of the
U.S. Hispanic population. Forward-looking statements often include words or
phrases such as "will likely result," "expect," "will continue," "anticipate,"
"estimate," "intend," "plan," "project," "outlook," "seek" or similar
expressions. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and other factors, some of which are
beyond our control, are difficult to predict and could cause actual results to
differ materially from those expressed in the forward-looking statements.
Factors which could cause actual results to differ from expectations include
those in the "Risk Factors" section of this prospectus. Our results of
operations may be adversely affected by one or more of these factors. We
caution you not to place undue reliance on these forward-looking statements,
which reflect our management's view only as of the date of this prospectus. We
are not obligated to update these statements or publicly release the results of
any revisions to them to reflect events or circumstances occurring after the
date of this prospectus or to reflect the occurrence of unanticipated events.
19
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of shares of
Class A common stock in this offering will be approximately $ million,
based on an assumed initial public offering price of $ per share and
after deducting the estimated underwriting fees and offering expenses. If the
underwriters exercise their over-allotment in full, we estimate that the net
proceeds will be $ million. We intend to use the net proceeds from this
offering as follows:
[Download Table]
. to acquire Z-Spanish Media................................. $ 256 million
. to repay a portion of existing indebtedness under our bank
credit facilities.......................................... 154 million
. to pay the balance of the purchase price for two radio
stations from Citicasters.................................. 68 million
. for working capital and general corporate purposes......... million
-------------
$ million
=============
For a description of our acquisitions of Z-Spanish Media and two radio
stations from Citicasters, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
On April 19, 2000, we entered into a $115 million term loan to partially
finance our acquisition of LCG. We expect to repay this debt in full with
proceeds from this offering. The interest rate on this debt was 10.5% as of the
date of this prospectus. This debt must be repaid in full by April 18, 2001 and
can be prepaid without penalty.
In addition, we assumed $39 million of the debt that we are repaying from Z-
Spanish Media under two separate credit facilities. As of the date of this
prospectus, the interest rate on $35 million of this debt was 9.6%, and the
interest rate on $4 million of this debt was 8.7%. Debt outstanding under both
of these facilities must be repaid in full by September 30, 2006, unless the
maturity of the loans is accelerated pursuant to the provisions of the credit
facilities.
Until we use the net proceeds of this offering as described above, we will
invest them in short-term, interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. Our
predecessor, Entravision Communications Company, L.L.C., made cash
distributions to its members to pay income taxes. We intend to retain future
earnings for use in our business and do not anticipate declaring or paying any
cash or stock dividends on shares of our common stock for the foreseeable
future. In addition, our bank credit facilities and the terms of our
outstanding preferred stock restrict our ability to pay dividends.
20
CAPITALIZATION
(In thousands, except per share data)
The following table shows our cash and cash equivalents and capitalization
on:
. an actual basis as of December 31, 1999;
. a pro forma basis to reflect acquisitions we made or have agreed to make
after December 31, 1999, and investments made by Univision and TSG
Capital Fund III, L.P. in 2000 totaling $200 million; and
. a pro forma as adjusted basis to further reflect the sale of the
shares of Class A common stock we are offering at an estimated initial
public offering price of $ per share, after deducting the
underwriting fees and estimated offering expenses and the application of
the net proceeds of this offering.
This table should be read together with our audited consolidated financial
statements and unaudited pro forma consolidated financial statements and the
related notes included elsewhere in this prospectus.
[Download Table]
As of December 31, 1999
--------------------------------
Unaudited
Unaudited Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
Cash and cash equivalents...................... $ 2,357 $ 13,545
======== ======== ======
Current maturities of long-term debt .......... $ 1,620 $ 24,468
Notes payable, less current maturities......... 155,917 336,369
Subordinated note--Univision (1)............... 10,000 --
Convertible subordinated note--TSG Capital Fund
III, L.P. (1)................................. -- --
-------- -------- ------
Total long-term debt.......................... 167,537 360,837
-------- -------- ------
Series A mandatorily redeemable convertible
preferred stock, $0.0001 par value, 11,000,000
shares authorized; 1999 actual no shares
issued or outstanding; pro forma and pro forma
as adjusted shares issued and
outstanding (1)............................... -- 90,000
Series B redeemable pay-in-kind preferred stock
(2)........................................... -- 255,990
-------- -------- ------
Total preferred stock......................... -- 345,990
-------- -------- ------
Stockholders' equity
Class A common stock, $0.0001 par value,
305,000,000 shares authorized; 1999 actual
9,875,708 shares issued and outstanding; pro
forma shares issued and outstanding; pro
forma as adjusted shares issued and
outstanding.................................. 1 12
Class B common stock, $0.0001 par value,
60,000,000 shares authorized; 1999 actual and
pro forma 54,858,626 shares issued and
outstanding; pro forma as adjusted
shares issued and outstanding................ 5 5
Class C common stock, $0.0001 par value,
50,000,000 shares authorized; 1999 actual no
shares issued and outstanding; pro forma and
pro forma as adjusted 45,124,619 shares
issued and outstanding (1)................... -- 5
Additional paid-in capital.................... 76,292 305,986
Accumulated deficit........................... (63,901) (63,901)
Stock subscription notes receivable (3)....... (584) (584)
-------- -------- ------
Total stockholders' equity.................... 11,813 241,523
-------- -------- ------
Total capitalization........................... $179,350 $948,350
======== ======== ======
-------
(1) The unaudited pro forma data reflects the exchange of the $120 million
subordinated note and option from Univision for shares of Class C common
stock in connection with our reorganization and the conversion of the $90
million subordinated note from TSG Capital Fund III, L.P. to Series A
mandatorily redeemable convertible preferred stock.
(2) Represents preferred stock that we could be required to issue to finance
our acquisition of Z-Spanish Media if this offering has not closed by
September 30, 2000.
(3) Represents unsecured loans made to two of our officers to purchase equity.
These loans are further described in "Certain Relationships and Related
Transactions."
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DILUTION
Purchasers of our Class A common stock offered by this prospectus will
suffer an immediate and substantial dilution in pro forma net tangible book
value per share. Dilution is the amount by which the initial public offering
price paid by the purchasers of the shares of Class A common stock will exceed
the pro forma net tangible book value per share of our common stock after this
offering. The pro forma net tangible book value per share of common stock is
determined by subtracting total liabilities from the total tangible assets and
dividing the difference by the pro forma number of shares of our common stock
deemed to be outstanding on the date the tangible book value is determined. As
of , 2000, we had a tangible book value of $ million or
$ per share, excluding this offering. Assuming the sale of
shares at an initial public offering price of $ per
share and deducting the underwriters' discounts and commissions and estimated
offering expenses, our pro forma net tangible book value as of ,
2000 would have been $ million or $ per share. This represents an
immediate increase in pro forma net tangible book value to existing
stockholders of $ per share and an immediate dilution to new investors
of $ per share. The following table illustrates this per share
dilution:
[Download Table]
Per Share
---------
Assumed initial public offering price............................ $
------
Pro forma net tangible book value before this offering...........
------
Increase in net tangible book value per share attributable to
this offering...................................................
------
Pro forma net tangible book value after this offering............
------
Dilution per share to new investors.............................. $
======
The following table summarizes, on a pro forma as adjusted basis as of
, 2000, the number of shares of Class A common stock purchased from
us, the estimated value of the total consideration paid for or attributed to
the Class A common stock and the average price per share paid by or
attributable to existing stockholders and the new investors purchasing shares
in this offering at an assumed initial offering price of $ per
share before deducting estimated underwriters' fees and offering expenses:
[Download Table]
Shares
Purchased Total Consideration Average
-------------- --------------------- Price Per
Number Percent Amount Percent Share
------ ------- --------- ---------- ---------
Existing stockholders.......
---- ---- --------- --------- ----
New investors ..............
---- ---- --------- --------- ----
Total.......................
==== ==== ========= ========= ====
22
SELECTED HISTORICAL FINANCIAL DATA
(In thousands, except per share data)
Presented below are our summary historical financial data. The data as of
December 31, 1998 and 1999 and for the years ended December 31, 1997, 1998 and
1999 were derived from our audited financial statements and related notes
included elsewhere in this prospectus, and should be read in conjunction with
this information as well as "Entravision Management's Discussion and Analysis
of Financial Condition and Results of Operations." The data as of December 31,
1995, 1996 and 1997 and for the years ended December 31, 1995 and 1996 were
derived from our audited financial statements and related notes, which are not
included in this prospectus.
[Download Table]
Year Ended December 31,
----------------------------------------------
1995(1) 1996 1997 1998 1999
------- ------- ------- -------- --------
Statement of Operations Data:
Gross revenue................. $ 7,797 $13,555 $33,419 $ 49,872 $ 66,204
Less agency commissions....... 688 1,481 2,963 5,052 7,205
------- ------- ------- -------- --------
Net revenue................... 7,109 12,074 30,456 44,820 58,999
------- ------- ------- -------- --------
Expenses:
Direct operating............ 1,846 3,819 9,184 15,794 24,441
Selling, general and
administrative............. 2,295 4,667 5,845 8,877 11,611
Corporate................... -- 564 3,899 3,963 5,809
Depreciation and
amortization............... 673 1,479 8,847 9,565 14,613
Non-cash stock-based
compensation (2)........... -- -- 900 500 29,143
------- ------- ------- -------- --------
Total expenses................ 4,814 10,529 28,675 38,699 85,617
------- ------- ------- -------- --------
Operating income (loss)....... 2,295 1,545 1,781 6,121 (26,618)
Interest expense, net......... (265) (1,035) (5,107) (8,244) (12,091)
------- ------- ------- -------- --------
Income (loss) before income
taxes...................... 2,030 510 (3,326) (2,123) (38,709)
Income tax (expense) benefit
(3).......................... (369) (145) 7,531 (210) 121
------- ------- ------- -------- --------
Net income (loss)........... 1,661 365 4,205 (2,333) (38,588)
======= ======= ======= ======== ========
Pro forma income tax (expense)
benefit (4).................. (812) (204) 654 327 3,499
======= ======= ======= ======== ========
Pro forma net income (loss)
(4).......................... $ 1,218 $ 306 $(2,672) $ (1,796) $(35,210)
======= ======= ======= ======== ========
Pro forma basic and diluted
earnings per share:
Pro forma net income (loss)
(4)........................ $ 0.02 $ 0.00 $ (0.04) $ (0.03) $ (0.54)
Weighted average common
shares outstanding......... 67,039 64,092 65,945 65,790 64,805
Other Financial Data:
Broadcast cash flow (5)....... $ 2,968 $ 3,588 $15,427 $ 20,149 $ 22,947
EBITDA (6).................... 2,968 3,024 11,528 16,186 17,138
Capital expenditures.......... 902 935 2,366 3,094 12,825
As of December 31,
----------------------------------------------
1995(1) 1996 1997 1998 1999
------- ------- ------- -------- --------
Balance Sheet Data:
Cash and cash equivalents..... $ 726 $ 2,886 $ 2,250 $ 3,661 $ 2,357
Total assets.................. 8,630 28,767 93,017 113,724 188,819
Long-term debt, including
current portion.............. 5,265 17,449 74,781 99,938 167,537
Total stockholders' equity
(7).......................... 2,322 9,743 13,122 7,304 11,813
--------
(1) The 1995 financial data presents the combined financial statements of our
broadcast properties prior to the 1996 formation of our holding company
structure.
(2) For 1999, non-cash stock-based compensation represents management's
estimate of the fair value of our employee stock award and our employee
stock option grant based on the estimated price of this offering.
23
(3) Included in the 1997 income tax expense is a $7.8 million tax benefit that
resulted from the reversal of previously recorded deferred tax liabilities
that were established in our 1997 acquisition of KNVO, McAllen, Texas. This
entity was converted from a C-corporation to an S-corporation in 1997. As a
result, deferred tax liabilities were reduced.
(4) Pro forma net income (loss) and pro forma basic and diluted net income
(loss) per share give effect to our conversion from a limited liability
company to a corporation for federal and state income tax purposes and
assume that we were subject to corporate income taxes at an effective
combined federal and state income tax rate of 40% before the effect of non-
tax deductible goodwill and non-cash stock-based compensation for each
period presented.
(5) Broadcast cash flow means operating income (loss) before corporate
expenses, depreciation and amortization and non-cash stock-based
compensation. We have presented broadcast cash flow, which we believe is
comparable to the data provided by other companies in the broadcast
industry, because such data is commonly used as a measure of performance in
our industry. However, broadcast cash flow should not be construed as an
alternative to operating income (as determined in accordance with generally
accepted accounting principles) as an indicator of operating performance or
to cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) as a measure of liquidity.
(6) EBITDA means broadcast cash flow less corporate expenses and is commonly
used in the broadcast industry to analyze and compare broadcast companies
on the basis of operating performance, leverage and liquidity. EBITDA, as
presented above, may not be comparable to similarly titled measures of
other companies unless such measures are calculated in substantially the
same fashion. EBITDA should not be construed as an alternative to operating
income (as determined in accordance with generally accepted accounting
principles) as an indicator of operating performance or to cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) as a measure of liquidity.
(7) The stockholders' equity data gives effect to our reorganization in which
direct and indirect ownership interests in our predecessor and Univision's
subordinated note and option will be exchanged for shares of our common
stock before the closing of this offering.
24
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
(In thousands)
Our selected unaudited pro forma financial data as of and for the year ended
December 31, 1999 presents:
. our summary historical financial data for the year ended December 31,
1999;
. the historical financial data of our completed and pending acquisitions
for the year ended December 31, 1999 including the period from January 1,
1999 through the acquisition dates for our 1999 acquisitions;
. our summary unaudited pro forma financial data as of and for the year
ended December 31, 1999, giving effect to acquisitions completed in 1999
and 2000 and our pending acquisition of Z-Spanish Media as if we had
owned these businesses for all of 1999, the effect of conversion of TSG
Capital Fund III, L.P.'s $90 million convertible subordinated note into
preferred stock and the exchange of Univision's $120 million subordinated
note and option for common stock; and
. our unaudited pro forma as adjusted financial data, giving further effect
to the sale of the shares of common stock that we are offering,
assuming an initial public offering price of $ per share and the
application of the net proceeds of this offering.
The summary unaudited pro forma and pro forma as adjusted financial data are
not necessarily indicative of the operating results or the financial condition
that would have been achieved if we had owned these businesses for all of 1999
and should not be construed as representative of future operating results or
financial condition. The summary historical and unaudited pro forma financial
data should be read in conjunction with the audited consolidated financial
statements and related notes and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
[Download Table]
Year Ended December 31, 1999
-----------------------------------------------
Completed Unaudited
Entravision and Pending Unaudited Pro Forma
Historical Acquisitions Pro Forma As Adjusted
----------- ------------ --------- -----------
Statement of Operations Data:
Gross revenue:
Television................... $ 63,842 $ 5,096 $ 68,938
Radio........................ 2,362 58,499 60,861
Outdoor and publishing....... -- 35,134 35,134
-------- -------- --------- ----
Total gross revenue.......... 66,204 98,729 164,933
Less agency commissions........ 7,205 7,662 14,867
-------- -------- --------- ----
Net revenue.................... 58,999 91,067 150,066
Expenses:
Direct operating............. 24,441 34,474 58,915
Selling, general and
administrative.............. 11,611 33,875 45,486
Corporate.................... 5,809 6,568 12,377
Depreciation and
amortization................ 14,613 13,954 83,168
Non-cash stock-based
compensation................ 29,143 -- 29,143
Gain on sale of assets....... -- (4,442) (4,442)
-------- -------- --------- ----
Total expenses................. 85,617 84,429 224,647
-------- -------- --------- ----
Operating income (loss)........ (26,618) 6,638 (74,581)
Interest expense, net and
other......................... (12,091) (13,244) (33,900)
Income tax benefit ............ 121 1,872 27,998
-------- -------- --------- ----
Loss from continuing
operations.................. (38,588) (4,734) (80,483)
Preferred stock dividends
(1)......................... -- -- 42,209
-------- -------- --------- ----
Net loss from continuing
operations applicable to
common stock................ $(38,588) $ (4,734) $(122,692) $
======== ======== ========= ====
[Download Table]
Year Ended
December 31, 1999
---------------------
Unaudited
Unaudited Pro Forma
Pro Forma As Adjusted
--------- -----------
Other Financial Data:
Broadcast cash flow (2)................................... $45,665
EBITDA (3)................................................ 33,288
25
[Download Table]
As of
December 31, 1999
Unaudited
Pro Forma
As Adjusted
-----------------
Balance Sheet Data:
Cash and cash
equivalents............ $
Total assets............
Long-term debt,
including current
portion................
Series A mandatorily
redeemable convertible
preferred stock........
Total stockholders'
equity (4).............
--------
(1) Includes dividends on the 13.5% preferred stock that we could be required
to issue to finance our acquisition of Z-Spanish Media if this offering has
not closed by September 30, 2000 and dividends on the 8.5% redeemable
preferred stock issuable to TSG Capital Fund III, L.P. upon conversion of
its $90 million convertible subordinated note.
(2) Broadcast cash flow means operating income (loss) from continuing
operations before corporate expenses, depreciation and amortization, non-
cash stock-based compensation and gain on sale of assets. We have presented
broadcast cash flow which we believe is comparable to the data provided by
other companies in the broadcast industry, because such data is commonly
used as a measure of performance in our industry. However, broadcast cash
flow should not be construed as an alternative to operating income (as
determined in accordance with generally accepted accounting principles) as
an indicator of operating performance or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) as a measure of liquidity.
(3) EBITDA means broadcast cash flow less corporate expenses and is commonly
used in the broadcast industry to analyze and compare broadcast companies
on the basis of operating performance, leverage and liquidity. EBITDA, as
presented above, may not be comparable to similarly titled measures of
other companies unless such measures are calculated in substantially the
same fashion. EBITDA should not be construed as an alternative to operating
income (as determined in accordance with generally accepted accounting
principles) as an indicator of operating performance or to cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) as a measure of liquidity.
(4) The stockholders' equity data gives effect to our reorganization in which
direct and indirect ownership interests in our predecessor and Univision's
subordinated note and option will be exchanged for shares of our common
stock before the closing of this offering.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We have included Management's Discussion and Analysis for each of
Entravision, LCG, which we have acquired, and Z-Spanish Media, which we have
agreed to acquire. The words "we" and "our" as used in each of these sections
refer to Entravision, LCG or Z-Spanish Media individually and not as a combined
entity. You should read these sections together with the historical audited
financial statements of Entravision, LCG and Z-Spanish Media and the related
notes contained elsewhere in this prospectus.
We agreed to acquire all of the outstanding capital stock of Z-Spanish Media
on April 20, 2000 for $475 million including the assumption of approximately
$109 million in debt. The consideration to be paid consists of approximately
$256 million in cash and shares of Class A common stock, valued at a
price of $ per share. The acquisition will be accounted for as a purchase
business combination and the excess purchase price will be allocated to
intangible assets and goodwill, which will be amortized over 15 years. The
closing of the acquisition is subject to conditions, including the receipt of
required regulatory approvals. The closing of this offering is conditioned upon
the closing of the acquisition.
We acquired all of the outstanding capital stock of LCG on April 20, 2000
for approximately $252 million. The acquisition was accounted for as a purchase
business combination and the excess purchase price was allocated to intangible
assets and goodwill, which will be amortized over 15 years.
We have agreed to acquire substantially all of the assets related to two
radio stations in the Los Angeles market from Citicasters Co. for $85 million,
of which $17 million was previously placed in escrow as a deposit. In addition,
we have agreed to acquire two television stations in Hartford, Connecticut, and
Orlando, Florida for a total of approximately $41 million. We are acquiring FCC
licenses and the entire purchase price for these acquisitions will be allocated
to intangible assets and will be amortized over 15 years. The closing of these
acquisitions is subject to conditions, including the receipt of required
regulatory approvals. We expect to close the Citicasters acquisition in the
second quarter of 2000 and the television station acquisitions in the third
quarter of 2000.
We have no operating history as a combined company on which to base an
evaluation of our business and prospects. Our business is evolving rapidly,
and, therefore, we believe that period-to-period comparisons of operating
results of Entravision, LCG and Z-Spanish Media are not meaningful, and you
should not rely on them as an indicator of our future performance as a combined
company.
27
ENTRAVISION MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We operate 31 television stations (and own the construction permits to build
two additional television stations) and ten radio stations primarily in the
Southwestern United States where the majority of U.S. Hispanics live, including
the U.S./Mexican border markets. Our television stations consist primarily of
Univision affiliates serving 17 of the top 50 U.S. Hispanic markets. Our radio
stations consist of six FM and four AM stations serving portions of the
California and Texas markets.
We were organized as a Delaware limited liability company in January 1996 to
combine the operations of our predecessor entities. We currently conduct
operations through a group of affiliated limited liability companies and S-
corporations. Before the closing of this offering we will complete a
reorganization in which all of the outstanding membership interests of our
predecessor and Univision's subordinated note and option will be exchanged for
shares of our common stock. This reorganization is described in "Certain
Relationships and Related Transactions--Reorganization."
We generate revenue from sales of national and local advertising time on
television and radio stations. Advertising rates are, in large part, based on
each station's ability to attract audiences in demographic groups targeted by
advertisers. We recognize advertising revenue when the commercials are
broadcast. We incur commissions from agencies on local, regional and national
advertising. Our revenue reflects deductions from gross revenue for commissions
to these agencies.
Our primary expenses are employee compensation, including commissions paid
to our sales staffs, marketing, promotion and selling costs, technical, local
programming, engineering costs and general and administrative expenses. Our
local programming costs consist of costs related to producing a local newscast
in each of our markets.
During 1999, we recorded an operating expense of $29.1 million for non-cash
stock-based compensation incurred in connection with an employee stock award
and option grant. We expect to continue to make stock-based awards in the
future.
We have historically not had material income tax expense or benefit
reflected in our statement of operations as the majority of our subsidiaries
have been non-taxpaying entities. Federal and state income taxes attributable
to income during such periods were incurred and paid directly by the members.
Accordingly, no discussion of income taxes is included in this section. Before
the closing of this offering we will become a taxpaying organization. We have
included in our historical financial statements a pro forma provision for
income taxes and a pro forma net loss to show what our net income or loss would
have been if we were a taxpaying entity. We anticipate that our future
effective income tax rate will vary from 40% due to a portion of our
preliminary purchase price for the LCG and Z-Spanish Media acquisitions being
allocated to non-tax deductible goodwill.
28
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
The following table sets forth selected data from our operating results for
the years ended December 31, 1998 and 1999 (dollars in thousands):
[Download Table]
Historical
-----------------
1998 1999 % Change
------- -------- ----------
Statement of Operations
Data:
Gross revenue........... $49,872 $ 66,204 32.7%
Less agency
commissions............ 5,052 7,205 42.6
------- --------
Net revenue............. 44,820 58,999 31.6
Direct operating
expenses............... 15,794 24,441 54.7
Selling, general and
administrative
expenses............... 8,877 11,611 30.8
Corporate expenses...... 3,963 5,809 46.6
Depreciation and
amortization........... 9,565 14,613 52.8
Non-cash stock-based
compensation........... 500 29,143 n/m
------- --------
Operating income
(loss)................. 6,121 (26,618)
Interest expense, net... (8,244) (12,091)
------- --------
Loss before income tax.. (2,123) (38,709)
Income tax benefit
(expense).............. (210) 121
------- --------
Net loss................ $(2,333) $(38,588)
======= ========
Other Data:
Broadcast cash flow..... $20,149 $ 22,947 13.9%
EBITDA.................. 16,186 17,138 5.9
Net Revenue. Net revenue increased to $59.0 million in 1999 from $44.8
million in 1998, an increase of $14.2 million. This increase was primarily
attributable to the acquisition of television stations in 1999 and the benefit
of 12 months of our 1998 acquisitions. On a same station basis, for stations we
owned or operated for all of 1998, net revenue increased $3.6 million, or 8%.
This increase is attributable to an increase in advertising rates of
approximately 20% in certain of our markets, offset by a $2.5 million decrease
in network compensation from Univision.
Direct Operating Expenses. Direct operating expenses increased to $24.4
million in 1999 from $15.8 million in 1998, an increase of $8.6 million. The
increase was primarily attributable to the additional operations of five
television stations in 1999. On a same station basis, for stations owned or
operated for all of 1998, direct operating expenses increased $3.2 million, or
20.3%. This increase was due to approximately $1.5 million in technical and
news costs to implement local news programming in our McAllen, Texas and Las
Vegas, Nevada markets and an additional newscast at our station in San Diego,
California. The addition of local newscasts to our television stations is
consistent with our strategy of increasing advertising revenue and viewership
by producing news programming specifically designed for each of our markets. As
a percentage of net revenue, direct operating expenses increased to 41.4% in
1999 from 35.2% in 1998. Although direct operating expenses as a percentage of
net revenue increased by 6.2%, we anticipate that these expenses as a
percentage of net revenue will return to historical levels as we integrate our
acquisitions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $11.6 million in 1999 from $8.9 million in
1998, an increase of $2.7 million. The increase was primarily attributable to
the acquisition of television stations in 1999. On a same station basis, for
stations owned or operated for all of 1998, selling, general and administrative
expenses decreased $0.7 million, or 7.9%. The decrease was due to the
elimination of duplicative costs in integrating our 1998 acquisitions as well
as volume discounts obtained due to the increase in the number of stations and
employees. This decrease was partially offset by the increase in selling costs
associated with increased sales, management and staff levels and
29
increased market research costs, all of which are consistent with our strategy
of investing in sales, management and market research. As a percentage of net
revenue, selling, general and administrative expenses decreased to 19.7% in
1999 from 19.8% in 1998.
Corporate Expenses. Corporate expenses increased to $5.8 million in 1999
from $4.0 million in 1998, an increase of $1.8 million. The increase was
primarily due to additional staffing as a result of our growth and additional
costs associated with our acquisitions. As a percentage of net revenue,
corporate expenses increased by 1% to 9.8% in 1999. We expect corporate
expenses as a percentage of net revenue to continue to increase as we hire
additional corporate personnel due to our growth and the costs associated with
being a public company.
Depreciation and Amortization. Depreciation and amortization increased to
$14.6 million in 1999 from $9.6 million in 1998, an increase of $5.0 million.
The increase was primarily attributable to the acquisition of television
stations in 1999. On a same station basis, for stations we owned or operated
for all of 1998, depreciation and amortization increased $0.3 million. This
increase was due to additional depreciation from a new facility we built in
McAllen, Texas and the capital expenditures to replace broadcast equipment for
this station.
Non-Cash Stock-Based Compensation. We have an employment agreement with an
executive vice president in which the employee was awarded 1,845,656 shares of
Class A common stock, which vested through January 2000. At December 31, 1999,
the estimated fair value of this award was $27.7 million, of which $0.9
million, $0.5 million and $26.3 million were recorded as non-cash stock-based
compensation for the years ended December 31, 1997, 1998 and 1999 respectively.
In January 1999, we entered into an employment agreement with a senior vice
president. As amended, the agreement allowed the employee to purchase 164,390
restricted shares of Class A common stock at $0.01 per share. The shares vest
ratably over three years. Non-cash stock-based compensation associated with
both of the awards was determined using an estimate by management and based
primarily on the estimated offering price of this offering. With respect to the
restricted shares, we recorded $2.8 million in non-cash stock-based
compensation during 1999. Total non-cash stock-based compensation was $29.1
million for 1999.
Operating Income (Loss). As a result of the above factors, we recognized an
operating loss of $26.6 million in 1999 compared to operating income of $6.1
million in 1998. Excluding non-cash stock-based compensation, operating income
decreased to $2.5 million in 1999 from $6.6 million in 1998, a decrease of $4.1
million. As a percentage of net revenue, operating income, excluding non-cash
stock-based compensation, decreased to 4.3% in 1999 from 14.8% in 1998.
Interest Expense, Net. Interest expense increased to $12.1 million in 1999
from $8.2 million in 1998, an increase of $3.8 million. The increase is due to
additional borrowings to fund our acquisitions, higher interest rates due to
our increased debt to cash flow ratio and $2.5 million related to the estimated
intrinsic value of the option feature of our original $10 million subordinated
note payable to Univision.
Net Loss. We recognized a net loss of $38.6 million in 1999, compared to a
net loss of $2.3 million in 1998. Excluding non-cash stock-based compensation,
our net loss increased to $9.4 million in 1999 from $1.8 million in 1998, an
increase of $7.6 million. As a percentage of net revenue, our net loss,
excluding non-cash stock-based compensation, increased to 16% in 1999 from 4.1%
in 1998.
Broadcast Cash Flow. Broadcast cash flow increased to $22.9 million in 1999
from $20.1 million in 1998, an increase of $2.8 million. The increase was
primarily attributable to the additional operations of five television stations
in 1999. On a same station basis, for stations we owned or operated for all of
1998, broadcast cash flow increased $1.1 million. The increase was attributable
to an increase in advertising rates of approximately 20% in some of our
markets, offset by a $2.5 million decrease in network compensation from
Univision and our investment in local news programming in our McAllen, Texas
and Las Vegas, Nevada markets, and additional costs to implement an additional
newscast at our station in San Diego, California. As a percentage of net
revenue, broadcast cash flow decreased to 38.9% in 1999 from 45% in 1998.
30
EBITDA. EBITDA increased to $17.1 million in 1999 from $16.2 million in
1998, an increase of $0.9 million. As a percentage of net revenue, EBITDA
decreased to 29% in 1999 from 36.1% in 1998.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
The following table sets forth selected data from our operating results for
the years ended December 31, 1997 and 1998 (dollars in thousands):
[Download Table]
Historical
----------------
1997 1998 % Change
------- ------- --------
Statement of Operations Data:
Gross revenue................................... $33,419 $49,872 49.2%
Less agency commissions......................... 2,963 5,052 70.5
------- -------
Net revenue..................................... 30,456 44,820 47.2
Direct operating expenses....................... 9,184 15,794 72.0
Selling, general and administrative expenses.... 5,845 8,877 51.9
Corporate expenses.............................. 3,899 3,963 1.6
Depreciation and amortization................... 8,847 9,565 8.1
Non-cash stock-based compensation............... 900 500 (44.4)
------- -------
Operating income................................ 1,781 6,121
Interest expense, net........................... (5,107) (8,244)
------- -------
Loss before income tax.......................... (3,326) (2,123)
Income tax benefit (expense).................... 7,531 (210)
------- -------
Net income (loss)............................... $ 4,205 $(2,333)
======= =======
Other Data:
Broadcast cash flow............................. $15,427 $20,149 30.6%
EBITDA.......................................... 11,528 16,186 40.4
Net Revenue. Net revenue increased to $44.8 million in 1998 from $30.5
million in 1997, an increase of $14.4 million. The increase was primarily
attributable to the benefit of a full year of our 1997 acquisitions of KINT and
KNVO. These acquisitions accounted for $5.5 million of the increase in 1998. In
addition, the increase was due to a rate shift from local to national
advertising and an increase in the average rate charged for national
advertising. The acquisition of television stations in 1998 accounted for $2.6
million of the increase. On a same station basis, for stations owned or
operated for all of 1997, net revenue increased $11.7 million, or 38.4%.
Direct Operating Expenses. Direct operating expenses increased to $15.8
million in 1998 from $9.2 million in 1997, an increase of $6.6 million. The
increase was partially attributable to a full year of operations from our 1997
acquisitions of KINT and KNVO. These acquisitions accounted for $2.2 million of
the increase in 1998. The acquisition of television stations in 1998 accounted
for $1.2 million of the increase. On a same station basis, for stations owned
or operated for all of 1997, direct operating expenses increased $5.4 million,
or 58.8%. As a percentage of net revenue, direct operating expenses increased
to 35.3% in 1998 from 30.2% in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $8.9 million in 1998 from $5.8 million in
1997, an increase of $3.0 million. The increase is partially attributable to a
full year of operations from our 1997 acquisitions of KINT and KNVO. These
acquisitions accounted for $0.6 million of the increase in 1998. Additional
costs of sales and research tools associated with our strategy to improve our
sales efforts accounted for an additional $0.5 million of this increase. The
acquisition of two television stations in 1998 accounted for $1.0 million of
the increase. On a same station basis, for stations owned or operated for all
of 1997, selling, general and administrative expenses increased
31
$2.1 million, or 35.9%. As a percentage of net revenue, selling, general and
administrative expenses increased to 19.8% in 1998 from 19.2% in 1997.
Corporate Expenses. Corporate expenses increased to $4.0 million in 1998
from $3.9 million in 1997, an increase of $0.1 million. The increase was
primarily associated with our acquisitions. As a percentage of net revenue,
corporate expenses decreased to 8.8% in 1998 from 12.8% in 1997.
Depreciation and Amortization. Depreciation and amortization increased to
$9.6 million in 1998 from $8.8 million in 1997, an increase of $0.8 million.
The increase was primarily attributable to a full year of operations from our
1997 acquisitions of KINT and KNVO and a partial year of depreciation and
amortization from our 1998 acquisitions.
Operating Income. As a result of the above factors, our operating income was
$6.1 million in 1998 compared to operating income of $1.8 million in 1997, an
increase of $4.3 million. Excluding non-cash stock-based compensation,
operating income increased to $6.6 million in 1998 from $2.7 million in 1997,
an increase of $3.9 million. As a percentage of net revenue, operating income,
excluding non-cash stock-based compensation, increased to 14.8% in 1998 from
8.8% in 1997.
Interest Expense, Net. Interest expense increased to $8.2 million in 1998
from $5.1 million in 1997, an increase of $3.1 million. The increase is due to
additional borrowings to fund our acquisitions.
Net Income (Loss). As a result of the above factors, we had a net loss of
$2.3 million in 1998 compared to net income of $4.2 million in 1997. Excluding
the tax benefit of $7.8 million related to KNVO's change in tax status in 1997,
the net loss decreased to $2.3 million in 1998 from $3.6 million in 1997, a
decrease of $1.3 million.
Broadcast Cash Flow. Broadcast cash flow increased to $20.1 million in 1998
from $15.4 million in 1997, an increase of $4.7 million. The increase was
partially attributable to a full year of operations from our 1997 acquisitions
of KINT and KNVO. These acquisitions accounted for $2.8 million of the increase
in 1998. In addition, the increase was due to a rate shift from local to
national advertising and an increase in the average rate charged for national
advertising of approximately 20% in some of our markets. The acquisition of
television stations in 1998 accounted for $0.4 million of the increase. On a
same station basis, for stations owned or operated for all of 1997, broadcast
cash flow increased $4.3 million, or 27.9%. As a percentage of net revenue,
broadcast cash flow decreased to 45% in 1998 from 50.7% in 1997.
EBITDA. EBITDA increased to $16.2 million in 1998 from $11.5 million in
1997, an increase of $4.7 million. The increase was partially attributable to a
full year of operations from our 1997 acquisitions of KINT and KNVO. These
acquisitions accounted for $2.8 million of the increase in 1998. The
acquisition of television stations in 1998 accounted for $0.4 million of the
increase. On a same station basis, for stations owned or operated for all of
1997, EBITDA increased $4.3 million, or 37.3%. The increase was offset by
additional technical, programming and local news costs. As a percentage of net
revenue, EBITDA decreased to 36.1% in 1998 from 37.8% in 1997.
Liquidity and Capital Resources
Our primary source of liquidity is cash provided by operations, available
borrowings under our bank credit facilities and investments made by Univision
and TSG Capital Fund III, L.P. in 2000. We have a $158 million revolving line
of credit with a group of lenders, which expires November 10, 2006 and contains
scheduled quarterly reductions in the available borrowings through such date.
Our obligations under this facility are secured by all of our stock and
substantially all of our assets, as well as a pledge of the stock of several of
our subsidiaries, including our special purpose subsidiary formed to hold our
FCC licenses. Five of these subsidiaries have also pledged their assets as
collateral for this facility and guaranteed repayment of outstanding
borrowings. The facility contains financial covenants, including a requirement
not to exceed a maximum debt to cash flow ratio
32
and interest and fixed charge coverage ratios. The facility requires us to
maintain our FCC licenses for our broadcast properties and contains other
operating covenants, including restrictions on our ability to incur additional
indebtedness and pay dividends. The balance outstanding on our revolving credit
facility as of the date of this prospectus was $150 million bearing interest at
the rate of 9%.
On March 2, 2000, Univision invested $110 million in the form of a
subordinated note. From these proceeds, we used $33 million for our investment
in a San Diego television station, $17 million to make a deposit toward our
acquisition of two FM radio stations in the Los Angeles market and $60 million
to reduce outstanding borrowings on our revolving bank credit facility.
On April 19, 2000, we entered into a $115 million term loan to partially
finance our acquisition of LCG. Amounts outstanding under this facility are due
April 18, 2001 and bear interest at LIBOR plus 4%. The facility is secured by a
pledge of all of the stock of LCG, a pledge of all of the stock of LCG's
special purpose entity formed to hold its FCC licenses, a lien on all of LCG's
assets and a secondary lien on all of our assets. This credit facility contains
a covenant that requires us to maintain a minimum level of EBITDA measured on a
quarterly basis. As of the date of this prospectus, borrowings outstanding
under this facility were $115 million, which we expect to repay in full using
proceeds from this offering.
On April 20, 2000, we acquired LCG for $252 million. We financed the balance
of the purchase price remaining after our previous deposit of $7 million using
advances of $50 million on our revolving line of credit and $105 million on our
term loan and $90 million from the issuance to TSG Capital Fund III, L.P. of a
convertible subordinated note.
On April 20, 2000, we agreed to acquire Z-Spanish Media for $475 million,
including the assumption of approximately $109 million of debt, of which
approximately $39 million will be repaid using proceeds from this offering. For
a description of the terms of this debt see "Z-Spanish Media Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
In addition, we have agreed to acquire two television stations in the
Hartford and Orlando markets and two radio stations in the Los Angeles market
for an aggregate of $126 million. We expect to use $68 million of the proceeds
from this offering to pay the balance of the purchase price for the two Los
Angeles radio stations and borrowings under our revolving credit facility and
the credit facilities that we are assuming from Z-Spanish Media to finance the
television station acquisitions.
Net cash flow from operating activities decreased to approximately $6.1
million for 1999, from approximately $7.7 million for 1998.
Net cash flow used in investing activities increased to approximately $59.1
million for 1999, compared to approximately $25.6 million for 1998. During
1999, we acquired broadcast properties for a total of approximately $46 million
(including deposits of $8.7 million for acquisitions closed in 2000) and made
capital expenditures totaling approximately $13 million, which included the
purchases of three parcels of land for $1.5 million, the building of a new
facility in McAllen, Texas for $3.5 million and the upgrade of broadcasting
equipment at all of our stations totalling $8 million. During 1998, we acquired
broadcast properties for a total of approximately $23 million and made
purchases of capital equipment totaling approximately $3 million.
During 2000, we anticipate our capital expenditures will be approximately
$18 million, including the building of three studio facilities and the
transition to DTV. During 2000, we anticipate that Z-Spanish Media's and LCG's
capital expenditures will be $5 million, including upgrades and maintenance on
broadcasting equipment and facility improvements to radio stations in some of
our markets, including Denver and Phoenix. We anticipate paying for these
capital expenditures out of net cash flow from operating activities. The amount
of these capital expenditures may change based on future changes in business
plans, our financial conditions and general economic conditions.
Net cash flow from financing activities was approximately $52 million for
1999. During 1999, we drew on our bank credit facility to acquire television
stations from LCG and a television station in Venice (Sarasota),
33
Florida. In 1998, we completed acquisitions totaling $24 million, which were
financed with borrowings under our revolving credit facility. These
acquisitions included KORO and KLDO.
We currently anticipate that funds generated from operations and available
borrowings under our credit facilities, together with the net proceeds from
this offering, will be sufficient to meet our anticipated cash requirements for
the foreseeable future. We are currently in discussions with our lenders to
refinance our existing indebtedness and increase available borrowings, which we
expect to complete before the closing of this offering.
We continuously review, and are currently reviewing, opportunities to
acquire additional television and radio stations as well as billboards and
other opportunities targeting the U.S. Hispanic market. We expect to finance
any future acquisitions through funds generated from operations and borrowings
under our credit facilities and through additional debt and equity financings.
Any additional financings, if needed, might not be available to us on
reasonable terms or at all. Failure to raise capital when needed could
seriously harm our business and our acquisition strategy. If additional funds
were raised through the issuance of equity securities, the percentage of
ownership of our stockholders would be reduced. Furthermore, these equity
securities might have rights, preferences or privileges senior to our Class A
common stock.
Seasonality
Seasonal net broadcast revenue fluctuations are common in the broadcasting
industry and are due primarily to fluctuations in advertising expenditures by
local and national advertisers. Our first fiscal quarter generally produces the
lowest net broadcast revenue for the year.
Segments
In accordance with FASB Statement No. 131, Disclosures About Segments of an
Enterprise and Related Information, we have determined that we have one
reportable segment. Furthermore, we have determined that all of our broadcast
properties are subject to the same regulatory environment because they target
similar classes of viewers and listeners through similar distribution methods.
New Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, or the Statement,
which is required to be adopted in all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. We will be required to
adopt the Statement effective January 1, 2001. The Statement will require that
we recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities or firm commitment through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will
be immediately recognized in earnings. Because of our minimal use of
derivatives, we do not anticipate that the adoption of the Statement will have
a significant effect on our or our acquired companies' earnings or financial
position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, or
SAB 101. SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the Securities and
Exchange Commission. This accounting bulletin, as amended in March 2000, is
effective for us beginning in the second quarter of our fiscal year beginning
January 1, 2000. We do not believe that the adoption of SAB 101 will have a
material impact on our or our acquired companies' financial statements.
34
Quantitative and Qualitative Disclosures About Market Risk
General
Market risk represents the potential loss that may impact our financial
position, results of operations or cash flows due to adverse changes in the
financial markets. We are exposed to market risk from changes in the base rates
on our variable rate debt. We periodically enter into derivative financial
instrument transactions such as swaps or interest rate caps, in order to manage
or reduce our exposure to risk from changes in interest rates. Under no
circumstances do we enter into derivatives or other financial instrument
transactions for speculative purposes. Our credit facilities require us to
maintain an interest rate protection agreement.
Interest Rates
Our bank revolving line of credit bears interest at a variable rate of LIBOR
(6.5% at December 31, 1999) plus 1.625%, and our term loan used to finance the
LCG acquisition bears interest at LIBOR plus 4% at April 19, 2000. At December
31, 1999 we had $143 million of variable rate bank debt. We currently hedge a
portion of our outstanding variable rate debt by using an interest rate cap.
This interest rate cap effectively converts $50 million of our variable rate
debt to a LIBOR fixed rate of 7% for a two-year period. Based on the current
level of borrowings under our credit facilities at our interest rate cap
agreements, an increase in LIBOR from the rates at December 31, 1999 to the cap
rates would not materially change our interest expense. The estimated fair
value of this interest rate cap agreement was not material and we expect to
continue to use similar types of interest rate protection agreements in the
future.
35
LCG MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
LCG has 17 radio stations which are programmed with one of our three
nationally recognized formats delivered via satellite to all of our stations,
except for KSSE-FM, Los Angeles, California, which is programmed locally using
our "Super Estrella" format, and one station which is programmed pursuant to a
time brokerage agreement. Stations using our satellite-delivered formats offer
a local sound by using time slots or inserts for news, advertising and
community affairs.
The principal source of our revenue is the sale of broadcasting time on our
radio stations to local and national advertisers. Our advertisers pay rates
that are primarily affected by our ability to attract audiences in the
demographic groups targeted by those advertisers. Ratings are measured
principally by Arbitron Radio Market Reports. Our revenue is recognized when
commercials are run.
Operating expenses primarily consist of programming expenses, salaries and
commissions and advertising and promotion expenses.
In February 1999, we sold our television broadcasting business to
Entravision. As a result, related net assets at December 27, 1998 and the
results of television broadcasting operations for the three years ended
December 26, 1999 were classified as discontinued operations. The following
discussion focuses on the continuing radio broadcasting and newspaper
publishing operations. On April 20, 2000, Entravision acquired all of our
outstanding capital stock for $252 million.
Year Ended December 26, 1999 Compared to the Year Ended December 27, 1998
The following table sets forth selected data from our operating results for
the years ended December 27, 1998 and December 26, 1999 (dollars in thousands):
[Download Table]
Historical
----------------
1998 1999 % Change
------- ------- --------
Statement of Operations Data:
Gross revenue................................. $41,588 $48,868 17.5%
Less agency commissions....................... 3,692 4,623 25.2
------- -------
Net revenue................................... 37,896 44,245 16.8
Direct operating expenses..................... 15,196 15,560 2.4
Selling, general and administrative expenses.. 17,677 18,910 7.0
Corporate expenses............................ 2,901 1,795 (38.1)
Depreciation and amortization................. 4,593 4,907 6.8
------- -------
Operating income (loss)....................... (2,471) 3,073
Interest expense and other, net............... (6,449) (5,527)
------- -------
Loss from continuing operations before income
tax benefit.................................. (8,920) (2,454)
Income tax benefit............................ 2,570 736
------- -------
Loss from continuing operations............... $(6,350) $(1,718)
======= =======
Other Data:
Broadcast cash flow........................... $ 5,023 $ 9,775 94.6%
EBITDA........................................ 2,122 7,980 n/m
Net Revenue. Net revenue increased to $44.2 million in 1999 from $37.9
million in 1998, an increase of $6.3 million. Radio advertising accounted for
about $5.8 million of the increase. The increase can be primarily attributed to
favorable ratings and a strong demand for advertising, which allowed for rate
increases ranging from 10% to 70% in our top markets.
36
Direct Operating Expenses. Direct operating expenses increased to $15.6
million in 1999 from $15.2 million in 1998, an increase of $0.4 million. The
increase was primarily due to increases in radio engineering and programming
costs. As a percentage of net revenue, direct operating expenses decreased to
35.2% in 1999 from 40.1% in 1998. For newspaper publishing, direct operating
costs remained relatively flat.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $18.9 million in 1999 from $17.7 million
in 1998, an increase of $1.2 million. The increase was primarily the result of
increased general and administrative costs related to newspaper publishing and
increased radio sales commissions. As a percentage of net revenue, selling,
general and administrative expenses decreased to 42.6% in 1999 from 46.6% in
1998.
Corporate Expenses. Corporate expenses decreased to $1.8 million in 1999
from $2.9 million in 1998, a decrease of $1.1 million. The decrease related
primarily to a one-time 1998 charge for executive severance and increased
professional fees. As a percentage of net revenue, corporate expenses decreased
to 4.1% in 1999 from 7.7% in 1998.
Depreciation and Amortization. Depreciation and amortization increased to
$4.9 million in 1999 from $4.6 million in 1998, an increase of $0.3 million.
Depreciation accounted for 77% of the increase due to the purchase of a new
fully-automated publishing system.
Operating Income (Loss). As a result of the above factors, operating income
increased to $3.1 million in 1999 from an operating loss of $2.5 million in
1998, an increase of $5.5 million. Radio operations accounted for $4.7 million
of the increase.
Interest Expense and Other, Net. Interest expense and other decreased to
$5.5 million in 1999 from $6.4 million in 1998, a decrease of $0.9 million. The
decrease in interest expense was due primarily to a decrease in outstanding
debt resulting from the sale of our television business in February 1999.
Loss from Continuing Operations. As a result of the above factors, the loss
from continuing operations decreased to $1.7 million in 1999 from $6.4 million
in 1998, an decrease of $4.7 million.
Broadcast Cash Flow. Broadcast cash flow increased to $9.8 million in 1999
from $5.0 million in 1998, an increase of $4.8 million. Radio operations
accounted for $4.7 million of the increase. As a percentage of net revenue,
broadcast cash flow increased to 22.1% in 1999 from 13.3% in 1998.
EBITDA. EBITDA increased to $8.0 million in 1999 from $2.1 million in 1998,
an increase of $5.9 million. The radio operations accounted for $4.7 million of
the increase. As a percentage of net revenue, EBITDA increased to 18% in 1999
from 5.6% in 1998.
37
Year Ended December 27, 1998 Compared to the Year Ended December 28, 1997
The following table sets forth selected data from our operating results for
the years ended December 28, 1997 and December 27, 1998 (dollars in thousands):
[Download Table]
Historical
----------------
1997 1998 % Change
------- ------- --------
Statement of Operations Data:
Gross revenue................................. $40,467 $41,588 2.8%
Less agency commissions....................... 3,472 3,692 6.3
------- -------
Net revenue................................... 36,995 37,896 2.4
Direct operating expenses..................... 15,131 15,196 0.4
Selling, general and administrative expenses.. 17,535 17,677 0.8
Corporate expenses............................ 1,713 2,901 69.4
Depreciation and amortization................. 3,762 4,593 22.1
------- -------
Operating loss................................ (1,146) (2,471)
Interest expense and other, net............... (4,511) (6,449)
------- -------
Loss from continuing operations before income
tax benefit.................................. (5,657) (8,920)
Income tax benefit............................ 2,213 2,570
------- -------
Loss from continuing operations............... $(3,444) $(6,350)
======= =======
Other Data:
Broadcast cash flow........................... $ 4,329 $ 5,023 16.0%
EBITDA........................................ 2,616 2,122 (18.9)
Net Revenue. Net revenue increased to $37.9 million in 1998 from $37.0
million in 1997, an increase of $0.9 million. Newspaper publishing accounted
for $0.8 million of the increase.
Direct Operating Expenses. Direct operating expenses were relatively flat
compared to 1997 with an increase of $0.1 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $17.7 million in 1998 from $17.5 million
in 1997, an increase of $0.2 million. Radio operations accounted for the
majority of the increase. The increase primarily resulted from increased sales,
marketing and promotion expenses. As a percentage of net revenue, selling,
general and administrative expenses decreased to 46.6% in 1998 from 47.4% in
1997.
Corporate Expenses. Corporate expenses increased to $2.9 million in 1998
from $1.7 million in 1997, an increase of $1.2 million. The increase was
related primarily to one-time charges for executive severance and increased
professional fees. As a percentage of net revenue, corporate expenses increased
to 7.7% in 1998 from 4.6% in 1997.
Depreciation and Amortization. Depreciation and amortization increased to
$4.6 million in 1998 from $3.8 million in 1997, an increase of $0.8 million.
Radio operations accounted for $0.7 million of the increase. The increase
represented increased amortization associated with the 1997 acquisition of
eight radio stations.
Operating Loss. As a result of the above factors, the operating loss
increased to $2.5 million in 1998 from $1.1 million in 1997, an increase of
$1.4 million.
Interest Expense and Other, Net. Interest expense increased to $6.4 million
in 1998 from $4.5 million in 1997, an increase of $1.9 million. The increase
was due primarily to higher interest rates in 1998 compared to 1997 and
increases in outstanding debt incurred in connection with our acquisitions.
Loss from Continuing Operations. As a result of the above factors, the loss
from continuing operations increased to $6.4 million in 1998 from $3.4 million
in 1997, an increase of $3.0 million.
38
Broadcast Cash Flow. Broadcast cash flow increased to $5.0 million in 1998
from $4.3 million in 1997, an increase of $0.7 million. As a percentage of net
revenue, broadcast cash flow increased to 13.3% in 1998 from 11.7% in 1997.
EBITDA. EBITDA decreased to $2.1 million in 1998 from $2.6 million in 1997,
a decrease of $0.5 million. The decline is due to the increase in corporate
expense. As a percentage of net revenue, EBITDA decreased to 5.6% in 1998 from
7.1% in 1997.
Segment Operations
We operate in two reportable segments, radio broadcasting and newspaper
publishing. The radio broadcasting segment has operations in the San Francisco,
San Jose, Monterey-Salinas-Santa Cruz, Riverside-San Bernardino, Sacramento,
Albuquerque-Santa Fe, Denver-Boulder and Washington D.C. The publishing segment
consists of two Spanish-language publications in New York City. Each segment is
managed separately. We evaluate performance based on several factors, of which
the primary financial measure is segment operating profit. Total revenue of
each segment represents sales to unaffiliated customers. There are no inter-
segment sales. No single customer provides more than 10% of our revenue. The
accounting policies of the segments are the same as those described in Note 2
to our audited financial statements. Corporate expenses include general and
administrative costs that are not directly related to the reportable segments.
Financial information for these business segments includes (in thousands):
[Download Table]
Historical
----------------------------
1997 1998 1999
-------- -------- --------
Net Revenue:
Radio Broadcasting............................... $ 19,200 $ 19,345 $ 25,136
Newspaper Publishing............................. 17,795 18,551 19,109
-------- -------- --------
$ 36,995 $ 37,896 $ 44,245
======== ======== ========
Operating Profit (loss):
Radio Broadcasting............................... $ (98) $ (974) $ 3,718
Newspaper Publishing............................. 672 1,411 1,150
-------- -------- --------
Total Reportable Segments....................... 574 437 4,868
Corporate expenses............................... (1,720) (2,908) (1,795)
-------- -------- --------
$ (1,146) $ (2,471) $ 3,073
======== ======== ========
Identifiable Assets:
Radio Broadcasting............................... $130,863 $131,887 $130,909
Newspaper Publishing............................. 23,308 23,827 24,563
-------- -------- --------
Total Reportable Segments....................... 154,171 155,714 155,472
Corporate........................................ 4,335 5,476 2,014
Discontinued operations.......................... 4,500 4,832 --
-------- -------- --------
$163,006 $166,022 $157,486
======== ======== ========
Depreciation and Amortization:
Radio Broadcasting............................... $ 3,023 $ 3,777 $ 3,862
Newspaper Publishing............................. 739 816 1,044
-------- -------- --------
$ 3,762 $ 4,593 $ 4,906
======== ======== ========
Capital Expenditures:
Radio Broadcasting............................... $ 672 $ 187 $ 1,061
Newspaper Publishing............................. 263 868 1,230
-------- -------- --------
Total Reportable Segments....................... 935 1,055 2,291
Discontinued Operations........................... 75 216 --
-------- -------- --------
$ 1,010 $ 1,271 $ 2,291
======== ======== ========
39
Liquidity and Capital Resources
LCG's primary source of liquidity is from its net cash flow provided by its
radio and newspaper operations and borrowings under our $35 million revolving
bank credit facility. Funds for debt service, capital expenditures and
operations historically have been provided by income from continuing
operations.
The bank credit facility is secured by a first priority lien on the capital
stock of our subsidiaries and bears interest at various interest rates
depending on our total leverage ratio. At March 31, 2000, $22.5 million of debt
was outstanding on our facility, bearing interest at the rate of 10.25%. In
connection with our sale to Entravision, all indebtedness outstanding under the
facility was paid, and the facility was terminated. As of March 31, 2000, we
had $21.5 million of senior subordinated debt outstanding held by some of our
stockholders and officers bearing interest at the rate of 5%. The unamortized
original issue discount was approximately $4.5 million at December 31, 1999.
For 1999, net cash flow provided by operating activities was $1.1 million
compared to $0.6 million for 1998 and $2.3 million for 1997. The change from
1998 to 1999 can be attributed primarily to an increase in operating income.
The change from 1997 to 1998 related primarily to a decline in operating
income.
Net cash flow provided by investing activities was $16.7 million during 1999
as compared to $2.5 million used in 1998 and $66.6 million used in 1997. During
1999, we sold our television stations to Entravision for approximately $12.9
million and sold other assets including a tower site in Portland, Oregon for
approximately $6.6 million. We had capital expenditures of $2.3 million for
1999, including the purchase of a new fully-integrated publishing system for
our newspaper business. During 1997, we acquired eight radio stations for
approximately $70 million.
Net cash flow used in financing activities was $14.1 million during 1999
compared to cash provided by financing activities of $2.0 million in 1998 and
$37.7 million in 1997. The change in net cash flow provided by financing
activities in 1999 relates to a net reduction in our debt using the proceeds
from the sale of our television stations. The increase in net cash flow
provided by financing activities in 1997 can be attributed to the borrowings
associated with our acquisition of eight radio stations during 1997.
40
Z-SPANISH MEDIA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Z-Spanish Media was formed to combine national radio programming with a
local presence. Through our four formats, which are delivered via satellite to
our stations and our affiliates, we provide a national quality radio sound
with local time slots available for news, traffic, weather, promotions and
community events.
On December 31, 1999, Z-Spanish Media merged with Vista Media Group, Inc.,
or Vista, whereby Vista became a wholly owned subsidiary of Z-Spanish Media.
Z-Spanish Media and Vista have shared a common controlling stockholder group
since August 29, 1997. As such, the business combination has been accounted
for as a common control business combination, and the accounts of Vista are
included in the accompanying combined financial statements from August 29,
1997.
The principal source of our revenue is the sale of broadcasting time on our
radio stations and network and the sale of outdoor display contracts for our
billboard operations. As a result, our revenue is affected primarily by the
advertising rates our radio stations and network charge, and the rates charged
for billboard contracts. For our radio operations, the rates are based upon a
station's and the network's ability to attract audiences in the demographic
groups targeted by its advertisers, as measured principally by Arbitron Radio
Market Reports. We recognize revenue when advertising or network programming
is broadcast. For our billboard operations, the rates are based on the
particular display's exposure in relation to the demographic of a particular
market and the location of the particular display. We recognize billboard
advertising revenue over the life of the advertising contract. Our operating
expenses primarily consist of salaries and commissions and advertising and
promotional expenses.
On April 20, 2000, we agreed to sell all of our outstanding capital stock
to Entravision for $475 million.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
The following table sets forth selected data from our operating results for
the years ended December 31, 1998 and 1999 (dollars in thousands):
[Download Table]
Historical
----------------
1998 1999 % Change
------- ------- --------
Statement of Operations Data:
Gross revenue.................................... $27,598 $38,561 39.7%
Less agency and broker commissions............... 1,740 2,523 45.0
------- -------
Net revenue...................................... 25,858 36,038 39.4
Direct operating expenses........................ 10,108 14,183 40.3
Selling, general and administrative expenses..... 6,459 8,382 29.8
Corporate expenses............................... 3,669 4,773 30.1
Depreciation and amortization.................... 6,736 8,670 28.7
Gain on sale of assets, net...................... (5,685) (4,442) (21.9)
------- -------
Operating income................................. 4,571 4,472
Interest expense, net............................ (5,324) (6,471)
------- -------
Loss before income tax and extraordinary loss.... (753) (1,999)
Minority interest................................ (86) 182
Income tax benefit (expense)..................... (394) 102
Extraordinary loss on debt extinguishment........ -- (1,047)
------- -------
Net loss......................................... $(1,233) $(2,762)
======= =======
Other Data:
Broadcast/billboard cash flow.................... $ 9,291 $13,619 46.6%
EBITDA........................................... 5,622 8,846 57.3
41
Net Revenue. Net revenue increased to $36.0 million in 1999 from $25.9
million in 1998, an increase of $10.1 million. Approximately $6.3 million of
this increase was due to the inclusion of the full year of results of the
operations of Z-Spanish Radio which we acquired on May 29, 1998. The increase
in net revenue also resulted from an increase of $5.4 million from radio
station acquisitions. Additionally, billboard sales increased $1.8 million, a
portion of which was due to the inclusion of Seaboard Outdoor Advertising Co.
Inc., or Seaboard, which we purchased on September 30, 1999. The increase in
net revenue was partially offset by a decrease of $3.4 million due to the sale
of stations in 1999 and 1998.
Direct Operating Expenses and Selling, General and Administrative
Expenses. Direct operating expenses increased to $14.2 million in 1999 from
$10.1 million in 1998, an increase of $4.1 million. Selling, general and
administrative expenses increased to $8.4 million in 1999 from $6.5 million in
1998, an increase of $1.9 million. Approximately $4.8 million of the increase
in direct operating expenses and selling, general and administrative expenses
was caused by the inclusion of the full year of Z-Spanish Radio's operations.
Additional radio stations acquired in 1999 resulted in an increase in direct
operating expenses and selling, general and administrative expenses of $2.1
million. Also, $1.7 million of the direct operating expense increase was caused
by a loss on the disposal of assets from our billboard operations. These
increases in direct operating expenses and selling, general and administrative
expenses were partially offset by a decrease of $2.6 million due to the sale of
stations in 1998 and 1999. As a percentage of net revenue, direct operating
expenses increased from 39.1% in 1998 to 39.4% in 1999. As a percentage of net
revenue, selling, general and administrative expenses decreased to 23.3% in
1999 from 25% in 1998.
Corporate Expenses. Corporate expenses increased to $4.8 million in 1999
from $3.7 million in 1998, an increase of $1.1 million. The increase in
corporate expenses resulted primarily from increases in the number of
employees, higher salary expense and higher professional fees associated with
potential acquisitions and related financings. As a percentage of net revenue,
corporate expenses decreased to 13.2% in 1999 from 14.2% in 1998.
Depreciation and Amortization. Depreciation and amortization increased to
$8.7 million in 1999 from $6.7 million in 1998, an increase of $2.0 million.
The increase in depreciation and amortization was due to the acquisitions of
radio stations and billboards.
Net Gain on Sale of Assets. Net gain on sale of assets decreased to $4.4
million in 1999 from $5.7 million in 1998, a decrease of $1.3 million. Net gain
recorded in 1999 included gain on sale of radio stations WBPS in Cambridge,
Massachusetts and WYPA in Chicago, Illinois of $2.2 million and $2.3 million,
partially offset by a loss on sale of KZNO in Nogales, Arizona of $0.1 million.
The aggregate net gain recorded in 1998 of $5.7 million resulted from the
disposition of radio stations WNJR in Newark, New Jersey, KYPA in Los Angeles,
California, KWPA in Pomona, California, KXPA in Bellevue, Washington, KOBO in
Yuba City, California, KEST in San Francisco, California, KSJX in San Jose,
California and KKMO in Seattle, Washington, as well as the disposition of
certain assets and liabilities of PAR Holdings, Inc. As a percentage of net
revenue, net gain on sale of assets decreased to 12.3% in 1999 from 22% in
1998.
Operating Income. Operating income decreased to $4.5 million in 1999 from
$4.6 million in 1998, a decrease of $0.1 million. The decrease was primarily
the result of gains on the sale of assets of $4.4 million in 1999 as compared
to $5.7 million in 1998. Excluding our 1999 and 1998 gains from sales of radio
stations, operating income for 1999 would have been $30,000 and our operating
loss for 1998 would have been $1.1 million.
Interest Expense, Net. Net interest expense increased to $6.5 million in
1999 from $5.3 million in 1998, an increase of $1.2 million. The increase was
due primarily to higher borrowings to fund acquisitions in 1999.
Net Loss. As a result of the above factors, we had a net loss of $2.8
million in 1999 compared to a net loss of $1.2 million in 1998, an increase in
net loss of $1.6 million. As a percentage of net revenue, net loss increased to
7.7% in 1999 from 4.8% in 1998. Excluding our 1999 extraordinary loss of $1.0
million related to early extinguishment of debt, net loss for 1999 would have
been $1.8 million. As a percentage of net revenue, our net loss, excluding
extraordinary loss, was 4.8% in 1999 and 4.8% in 1998.
42
Broadcast/Billboard Cash Flow. Broadcast/billboard cash flow increased to
$13.6 million in 1999 from $9.3 in 1998, an increase of $4.3 million. The
inclusion of the full year of results of Z-Spanish Radio and the effect of
station purchases accounted for an increase of $5.4 million of
broadcast/billboard cash flow, which was partially offset by a loss of $1.7
million due to the disposal of some of our billboard assets. The increase in
broadcast/billboard cash flow was also attributable to our billboard
operations, a portion of which was due to the inclusion of Seaboard. As a
percentage of net revenue, broadcast/billboard cash flow increased to 37.8% in
1999 from 35.9% in 1998.
EBITDA. EBITDA increased to $8.8 million in 1999 from $5.6 million in 1998,
an increase of $3.2 million. The inclusion of the full year of results of Z-
Spanish Radio, three months of operations of Seaboard plus the effect of
purchases of stations during the year accounted for an increase of
$5.0 million, offset by a decrease of $1.7 million due to the loss on the
disposal of assets from our billboard operations. As a percentage of net
revenue, EBITDA increased to 24.5% in 1999 from 21.7% in 1998.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
The following table sets forth selected data from our operating results for
the years ended December 31, 1997 and 1998 (dollars in thousands):
[Download Table]
Historical
----------------
1997 1998 % Change
------- ------- --------
Statement of Operations Data:
Gross revenue....................................... $13,339 $27,598 106.9%
Less agency and broker commissions.................. 297 1,740 n/m
------- -------
Net revenue......................................... 13,042 25,858 98.3
Direct operating expenses........................... 4,391 10,108 130.2
Selling, general and administrative expenses........ 5,105 6,459 26.5
Corporate expenses.................................. 2,975 3,669 23.3
Depreciation and amortization....................... 2,747 6,736 145.2
Gain on sale of assets, net......................... (2,671) (5,685) 112.8
------- -------
Operating income.................................... 495 4,571
Interest expense, net............................... (2,069) (5,324)
------- -------
Loss before income tax and extraordinary items...... (1,574) (753)
Minority interest................................... (31) (86)
Income tax benefit (expense)........................ 538 (394)
Extraordinary loss on debt extinguishment........... (568) --
------- -------
Net loss............................................ $(1,635) $(1,233)
======= =======
Other Data:
Broadcast/billboard cash flow....................... $ 3,546 $ 9,291 162.0%
EBITDA.............................................. 571 5,622 n/m
Net Revenue. Net revenue increased to $25.9 million in 1998 from $13.0
million in 1997, an increase of $12.9 million. Approximately $7.3 million of
the increase was due to the inclusion of a full year of results of Vista, and
approximately $9.2 million of the increase was due to the inclusion of seven
months of results of Z-Spanish Radio. The increase in net revenue was partially
offset by a decrease of $3.7 million due to the sale of nine radio stations in
1998 and the sale of two radio stations in 1997.
Direct Operating Expenses and Selling, General and Administrative
Expenses. Direct operating expenses increased to $10.1 million in 1998 from
$4.4 million in 1997, an increase of $5.7 million. Selling, general and
administrative expenses increased to $6.5 million in 1998 from $5.1 million in
1997, an increase of $1.4 million. Approximately $4.1 million of the increase
in direct operating expenses and selling, general and administrative expenses
was caused by the inclusion of the full year of results of Vista, and
approximately $4.8 million of the increase was due to the inclusion of seven
months of results of Z-Spanish Radio. The
43
increase in direct operating expenses and selling, general and administrative
expenses was partially offset by a decrease of $1.8 million due to the sale of
nine stations in 1998 and two stations in 1997. As a percentage of net revenue,
direct operating expenses increased to 39.1% in 1998 from 33.7% in 1997. As a
percentage of net revenue, selling, general and administrative expenses
decreased to 25.0% in 1998 from 39.1% in 1997.
Corporate Expenses. Corporate expenses increased to $3.7 million in 1998
from $3.0 million in 1997, an increase of $0.7 million. The increase in
corporate expenses was caused by higher salary expense and professional fees
associated with acquisitions and related financings. As a percentage of net
revenue, corporate expenses decreased to 14.2% in 1998 from 22.8% in 1997.
Depreciation and Amortization. Depreciation and amortization increased to
$6.7 million in 1998 from $2.7 million in 1997, an increase of $4.0 million.
The increase in depreciation and amortization was due primarily to the
additional fixed and intangible assets from the acquisition of radio stations
and billboards.
Net Gain on Sale of Assets. Net gain on sale of assets increased to $5.7
million in 1998 from $2.7 million in 1997, an increase of $3.0 million. The
aggregate net gain recorded in 1998 of $5.7 million consisted of the
disposition of radio stations WNJR in Newark, New Jersey, KYPA in Los Angeles,
California, KWPA in Pomona, California, KXPA in Bellevue, Washington, KOBO in
Yuba City, California, KEST in San Francisco, California, KSJX in San Jose,
California and KKMO in Seattle, Washington, as well as the disposition of
certain assets and liabilities of PAR Holdings, Inc. Net gain recorded in 1997
included gain on sale of radio stations WEJM in Chicago, Illinois and WVVX in
Chicago, Illinois of $1.9 million and $0.8 million, respectively. As a
percentage of net revenue, net gain on sale of assets increased to 22% in 1998
from 20.5% in 1997.
Operating Income. Operating income increased to $4.6 million in 1998 from
$0.5 million in 1997, an increase of $4.1 million. The increase was primarily
the result of gains on the sale of assets of $5.7 million in 1998, as compared
to $2.7 million in 1997. The inclusion of the full year results of Vista
accounted for $1.6 million of the increase, which was partially offset by
higher expenses from the acquisition of radio stations. As a percentage of net
revenue, operating income increased to 17.7% in 1998 from 3.8% in 1997.
Excluding our 1998 and 1997 gains from sales of radio stations, operating
losses for 1998 would have been $1.1 million and for 1997 would have been
$2.2 million.
Interest Expense. Net interest expense increased to $5.3 million in 1998
from $2.1 million in 1997, an increase of $3.2 million. The increase was due
primarily to higher borrowings to fund acquisitions in 1998.
Net Loss. As a result of the above factors, we had a net loss of $1.2
million in 1998 compared to a net loss of $1.6 million in 1997, a decrease in
net loss of $0.4 million. As a percentage of net revenue, net loss decreased to
4.8% in 1998 from 12.5% in 1997. Excluding our 1997 extraordinary loss of $0.5
million related to early extinguishment of debt, net loss for 1997 would have
been $1.1 million. As a percentage of net revenue, our net loss, excluding
extraordinary loss, decreased to 4.8% in 1998 from 8.2% in 1997.
Broadcast/Billboard Cash Flow. Broadcast/billboard cash flow increased to
$9.3 million in 1998 from $3.5 million in 1997, an increase of $5.8 million.
The inclusion of the full year results of Vista accounted for $3.2 million of
the increase. The remainder of the increase was due to the inclusion of Z-
Spanish Radio operations, offset by the station sales during 1998 and 1997. As
a percentage of net revenue, broadcast/billboard cash flow increased to 35.9%
in 1998 from 27.2% in 1997.
EBITDA. EBITDA increased to $5.6 million in 1998 from $0.6 million in 1997,
an increase of $5.0 million. The inclusion of the full year results of Vista
accounted for $2.9 million of the increase. The remainder of the increase was
due to the inclusion of Z-Spanish Radio operations, offset by the station sales
during 1998 and 1997. As a percentage of net revenue, EBITDA increased to 21.7%
in 1998 from 4.4% in 1997.
44
Segment Operations
Z-Spanish Media provides services through the following two reportable
segments:
. Radio Group--the Radio Group's portfolio consisted of 32 radio stations
(19 FM and 13 AM) at December 31, 1999, including one station operated
under a local marketing agreement.
. Outdoor Advertising--the Outdoor Advertising Group owned and operated
approximately 10,000 outdoor billboards at December 31, 1999.
The factors for determining reportable segments were based on services
provided. Each segment is responsible for executing a segment-specific business
strategy. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. We evaluate
performance based on profit or loss of operations before income taxes. The
following table summarizes the net revenue, operating income, total assets,
depreciation and amortization, and capital expenditures by segment for the
years ended December 31, 1997, 1998 and 1999 (in thousands):
[Download Table]
Historical
---------------------------
1997 1998 1999
------- -------- --------
Net Revenue:
Radio Broadcasting................................ $ 9,812 $ 15,391 $ 23,811
Outdoor Advertising............................... 3,230 10,467 12,227
------- -------- --------
$13,042 $ 25,858 $ 36,038
======= ======== ========
Operating Income:
Radio Broadcasting................................ $ 2,448 $ 5,394 $ 8,376
Outdoor Advertising............................... 1,022 2,846 869
------- -------- --------
Total Reportable Segments........................ 3,470 8,240 9,245
Corporate......................................... (2,975) (3,669) (4,773)
------- -------- --------
$ 495 $ 4,571 $ 4,472
======= ======== ========
Total Assets:
Radio Broadcasting................................ $68,076 $169,664 $218,231
Outdoor Advertising............................... 28,279 27,610 70,812
------- -------- --------
$96,355 $197,274 $289,043
======= ======== ========
Depreciation and Amortization:
Radio Broadcasting................................ $ 2,130 $ 4,785 $ 5,983
Outdoor Advertising............................... 617 1,951 2,687
------- -------- --------
$ 2,747 $ 6,736 $ 8,670
======= ======== ========
Capital Expenditures:
Radio Broadcasting................................ $ -- $ 695 $ 4,926
Outdoor Advertising............................... 855 1,346 535
------- -------- --------
$ 855 $ 2,041 $ 5,461
======= ======== ========
Segment income from operations excludes interest income, interest expense
and provision for income tax.
Liquidity and Capital Resources
Our primary source of liquidity is cash provided by broadcasting and
billboard operations, and to the extent necessary, undrawn commitments
available under our bank credit facilities. We have both term and revolving
lines of credit totaling $145 million, of which $109 million was outstanding as
of December 31, 1999.
45
We have a $30 million revolving line of credit and a $45 million term
facility with a group of lenders. The facilities expire on January 20, 2006 and
are secured by substantially all of the assets and stock of Z-Spanish Media,
except for radio stations KLNZ-FM, Phoenix, and KZMP-FM, Dallas. The term
facility contains scheduled quarterly repayments beginning March 31, 2000. The
revolving facility contains scheduled quarterly reductions in availability
beginning March 31, 2001. Both facilities contain financial covenants including
a requirement not to exceed a maximum debt to EBITDA ratio and interest and
fixed charge coverage ratios. The facilities contain other operating covenants,
including limits or our capital expenditures and restrictions on our ability to
incur additional indebtedness and pay dividends. The facilities require us to
maintain our FCC licenses for our broadcast properties. As of the date of this
prospectus, the balance outstanding on the revolving credit facility was $8.2
million and the balance outstanding on the term facility was $43.9 million. The
interest rate on these facilities was 9.1% at December 31, 1999.
Our acquisitions of KLNZ-FM and KZMP-FM were financed by a separate $20
million term facility with a group of lenders. This facility expires in full on
December 31, 2000, and is secured by the assets KLNZ-FM and KZMP-FM.
Outstanding borrowings under this facility were $18.1 million at December 31,
1999 bearing interest at 9.5%. The facility contains covenants, including
restrictions on our ability to incur additional indebtedness and pay dividends
and limits on capital expenditures. The terms of the facility also require us
to maintain the FCC licenses on the two stations.
Vista has a separate $15 million revolving credit facility and a $35 million
term facility with a single lender. Both of these facilities expire September
30, 2006 and are secured by substantially all of the assets and stock of Vista.
Vista's revolving facility contains scheduled quarterly reductions in
availability beginning March 31, 2001, and the term facility requires quarterly
repayments of principal beginning June 30, 2001. These facilities contain
financial covenants including a requirement not to exceed a maximum debt to
cash flow ratio, interest and fixed charge coverage ratios, and also limit
Vista's corporate overhead expenditures. The facilities also contain operating
covenants, including restrictions on Vista's ability to incur additional
indebtedness and pay dividends. As of the date of this prospectus, the balance
outstanding on the revolving facility was $4 million, and the balance
outstanding on the term facility was $35 million. The interest rate on these
facilities was 9.6% at December 31, 1999.
Net cash flow used in operating activities during 1999 decreased to $0.3
million compared to $4.4 million in 1998. The decrease was primarily due to
acquisitions made in 1999 along with the inclusion of a full year of operations
from acquisitions made in 1998.
Net cash flow used in investing activities was $79 million in 1999 compared
to net cash flow provided by investing activities of $32.3 million in 1998.
During 1999, we made radio acquisitions totaling approximately $56.7 million,
and Vista made acquisitions of billboard and outdoor advertising properties
totaling approximately $36.9 million. We funded these acquisitions through a
combination of proceeds from the issuance of common and preferred stock. The
funding of these acquisitions was partially offset by proceeds of approximately
$23.7 million from radio station sales during 1999.
Additionally, capital expenditures, which included broadcast equipment for
our radio stations, advertising displays, building, land, leasehold
improvements and computer and telecommunications equipment, totaled
$5.5 million in 1999 and $2.0 million in 1998. The capital expenditures in 1999
included approximately $3.0 million in purchases of land for transmitter sites
and studio/office buildings.
Net cash flow from financing activities was approximately $80.2 million
during the year ended December 31, 1999. During 1999, we entered into new
credit facilities totaling $130 million, of which approximately $70.6 million
was used to repay the existing debt facilities.
46
BUSINESS
Overview
We are a leading diversified media company utilizing a combination of
television, radio, outdoor and publishing operations to reach Hispanic
consumers in the United States. We operate in 32 of the top 50 U.S. Hispanic
markets. We currently own and operate television stations serving 18 U.S.
markets. We are the largest Univision-affiliated station group in the United
States. Univision is a key source of programming for our television
broadcasting business and is a valuable strategic partner of ours. We also
operate 60 radio stations in 24 markets, including leading Spanish-language
stations in Los Angeles, San Francisco, Phoenix and Dallas-Ft. Worth. Our
outdoor operations consist of approximately 10,000 billboards concentrated in
high-density Hispanic communities in Los Angeles and New York. We also own two
publications, El Diario/La Prensa, the oldest Spanish-language newspaper in the
United States, and VEA New York, a tourist publication.
The LCG Acquisition. Through our acquisition of LCG on April 20, 2000 for
$252 million, we added 17 radio stations to our ten existing radio stations and
LCG's publishing operations. LCG's radio stations are located in nine radio
markets, including Los Angeles and San Francisco, which are two of the top ten
U.S. Hispanic markets.
The Z-Spanish Media Acquisition. Through our pending acquisition of Z-
Spanish Media, we are acquiring the second largest group of Spanish-language
radio stations and the largest centrally programmed radio network in the United
States targeting primarily Hispanic listeners. Z-Spanish Media also operates
one of the largest outdoor advertising companies in the United States focusing
on the Hispanic market. We have agreed to purchase Z-Spanish Media for $475
million, which includes the assumption of approximately $109 million of debt.
Other Acquisitions. We have agreed to acquire two television stations in the
Hartford and Orlando markets and we have agreed to acquire two radio stations
in the Los Angeles market for an aggregate of approximately $126 million.
The Hispanic Market Opportunity
While Hispanics represent approximately 11% of the U.S. population and the
U.S. Hispanic population is growing six times faster than the non-Hispanic
population, they are currently targeted by less than 1% of total advertising
dollars. Advertisers have recently begun to direct a greater percentage of
their advertising spending toward U.S. Hispanics and, consequently, Spanish-
language advertising is currently growing at more than four times the rate of
total advertising. We believe that we have benefited and will continue to
benefit from the following industry trends and attributes in the United States:
Spanish-Language Use. Approximately 68% of all Hispanics, regardless of
income or educational level, speak Spanish at home. This percentage is expected
to remain relatively constant through 2010. The number of Hispanics who speak
Spanish in the home is expected to grow from 22.1 million in 2000 to 27.8
million in 2010. We believe that the strong Spanish-language use among
Hispanics indicates that Spanish-language media will continue to be an
important source of news, sports and entertainment for Hispanics and an
important vehicle for our marketing and advertising.
47
Hispanic Population Growth and Concentration. Our audience consists
primarily of Hispanics, one of the fastest growing segments of the U.S.
population. In 2000, the Hispanic population is estimated to grow to 32.4
million in the United States (11.8% of the total population), an increase of
36.4% from 23.7 million (9.5% of the total population) in 1990. The overall
Hispanic population is growing at approximately six times the rate of the non-
Hispanic U.S. population and is expected to grow to 42.4 million (14.2% of the
total U.S. population) by 2010.
Source: Standard & Poor's DRI.
HISPANIC POPULATION CHART
Greater Hispanic Buying Power. The Hispanic population accounted for total
consumer expenditures of $380 billion in 1999, an increase of 57% since 1990.
Hispanics are expected to account for $460 billion in consumer expenditures in
2000, and $965 billion by 2010. We believe these factors make Hispanics an
attractive target audience for many major U.S. advertisers.
Source: Standard & Poor's DRI.
Increased Spanish-Language Advertising. According to published sources,
$1.9 billion of total advertising expenditures in the United States were placed
in Spanish-language media in 1999. Approximately
48
57% of that $1.9 billion was placed in Spanish-language television advertising.
We believe that major advertisers have found that Spanish-language media is a
more cost-effective means to target the growing Hispanic audience than English-
language broadcast media.
Attractive Profile of Hispanic Consumers. We believe the demographic profile
of the Hispanic audience makes it attractive to advertisers. The larger size
and younger age of Hispanic households (averaging 3.4 persons and 27.5 years of
age as compared to the general public's average of 2.5 persons and 36.5 years
of age) leads Hispanics to spend more per household on many categories of goods
and services. The average U.S. Hispanic household spends 28% more per year than
the average U.S. household on food at home, 100% more on children's clothing,
35% more on footwear, 11.4% more on phone services and 23.2% more on laundry
and household cleaning products than the average non-Hispanic household. We
expect Hispanics to continue to account for a disproportionate share of growth
in spending nationwide in many important consumer categories as the Hispanic
population and its disposable income continue to grow.
Business Strategy
We seek to be the leading diversified Spanish-language media company in the
United States and to increase our advertising revenue through the following
strategies:
Effectively Use Our Leading Network and Media Brands. We are the largest
Univision television affiliate group, the largest operator of Spanish-language
radio stations and the largest centrally programmed radio network in the United
States. Univision reaches 92% of all Hispanic households and has an
approximately 84% share of the U.S. Spanish-language network television prime-
time audience. Univision makes available to our television stations 24 hours a
day of Spanish-language programming including a prime time schedule of
substantially all first-run programming (i.e., no reruns) throughout the year.
We operate our radio networks using seven primary formats designed to appeal to
different listener tastes. We format the programming of our network and radio
stations to capture a substantial share of the U.S. Hispanic audience.
Invest in Media Research and Sales. We believe that continued use of
reliable ratings and surveys will allow us to further increase our advertising
rates and narrow the gap which has historically existed between our audience
share and our share of advertising revenue. We use industry ratings and
surveys, including Nielsen, Arbitron, the Traffic Audit Bureau and the Audit
Bureau of Circulation, to provide a more accurate measure of consumers that we
reach with our operations. We believe that our focused research and sales
efforts will enable us to continue to achieve significant revenue growth.
Continue to Build and Retain Strong Management Teams. We believe we have one
of the most experienced management teams in the industry. Walter F. Ulloa, our
Chairman and Chief Executive Officer, Philip C. Wilkinson, our President and
Chief Operating Officer, Jeanette Tully, our Chief Financial Officer, Amador S.
Bustos, the President of our Radio Division, and Glenn Emanuel, the President
of our Outdoor Division, have an average of 20 years of media experience. We
intend to continue to build and retain our key management personnel and to
capitalize on their knowledge and experience in the Spanish-language markets.
Emphasize Local Content, Programming and Community Involvement. We believe
that local content in each market we serve is an important part of building our
brand identity within the community. By combining our local news and high
quality network programming, we believe we have a significant competitive
advantage. We also believe that our active community involvement, including
station remote broadcasting appearances at client and customer events, concerts
and tie-ins to major events, helps to build station awareness and identity as
well as viewer and listener loyalty.
Increase In-Market Cross Promotion. Our strategy is to cross-promote our
television and radio stations, outdoor and publishing properties. In addition,
we believe we will add significant value to our advertisers by providing
attractive media packages to target the Hispanic consumer.
Target Other Attractive Hispanic Markets and Fill-In Acquisitions. We
believe our knowledge of, and experience with, the Hispanic marketplace will
enable us to continue to identify acquisitions in the television, radio,
outdoor and publishing markets. Since our inception, we have used our
management expertise, programming and brand identity to improve our acquired
media properties.
49
Television
Overview
We own and operate Univision-affiliated stations in 17 of the top 50
Hispanic markets in the United States. Our television operations are the
largest affiliated group of Univision stations. Univision is the leading
Spanish-language broadcaster in the United States, reaching more than 92% of
all Hispanic households, which represents an approximately 84% market share of
the U.S. Spanish-language network television audience as of December 1999.
Univision is the most watched television network (English- or Spanish-language)
among Hispanic households and makes available to our Univision-affiliated
stations 24 hours a day of Spanish-language programming. Univision's prime time
schedule is all first-run programming (i.e., no reruns) through the year. In
each of our markets, our stations produce local news. We believe that the
breadth and diversity of Univision's programming, combined with our local news
and community-oriented segments, provide us with a competitive advantage over
other Spanish-language and English-language broadcasters in reaching Hispanic
viewers. Our local content is designed to brand each of our stations as the
best source for relevant community information that accurately reflects local
interests and needs. As a result, each of our Univision-affiliated stations
ranks first in Spanish-language television viewership in its market.
Television Programming
Univision Network Programming. Univision directs its programming primarily
toward its young, family-oriented audience. It begins daily with Despierta
America and talk and information shows, Monday through Friday, followed by
novelas. In the late afternoon and early evening, Univision offers a talk show,
a news-magazine and national news, in addition to local news produced by our
television stations. During prime time, Univision airs novelas, variety shows,
a talk show, comedies, news magazines and lifestyle shows, as well as specials
and movies. Prime time is followed by late news and a late night talk show.
Overnight programming consists primarily of repeats of programming aired
earlier in the day. Weekend daytime programming begins with children's
programming, followed by sports, variety, teen lifestyle shows and movies.
Approximately eight to ten hours of programming per weekday, including a
substantial portion of weekday prime time, are currently programmed with
novelas supplied primarily by Grupo Televisa and Venevision. Although novelas
have been compared to daytime soap operas on ABC, NBC or CBS, the differences
are significant. Novelas, originally developed as serialized books, have a
beginning, middle and end, generally run five days per week and conclude four
to eight months after they begin. Novelas also have a much broader audience
appeal than soap operas, delivering audiences that contain large numbers of
men, children and teens in addition to women.
Entravision Local Programming. We produce and broadcast local news in all of
our markets. We believe that our local news brands each of our stations and
creates a strong identity with our viewers. We shape our local news to relate
to our target audiences. In eight of our television markets, our local news is
ranked first among viewers 18-34 in any language. We have made substantial
investments in people and equipment in order to provide each of our local
communities with a top quality local newscast. Our local newscasts have won
numerous awards, and we strive to be the most important community voice in each
of our local markets.
Network Affiliation Agreements. All but four of our television stations have
entered into network affiliation agreements with Univision that provide each
station with the exclusive right to broadcast the Univision network programming
in its respective market. These affiliation agreements have initial terms of 25
years expiring in 2021. Under the affiliation agreements, Univision retains the
right to sell approximately six minutes per hour of the advertising time
available during the Univision schedule, with the remaining six minutes per
hour available for sale by our stations.
Our network affiliation agreement with the United Paramount Network, or UPN,
gives us the right to provide UPN network programming for a ten-year period on
XUPN-TV serving the Tecate/San Diego market. A related participation agreement
grants UPN a 20% interest in the appreciation of XUPN-TV above $35 million.
XHAS-TV broadcasts Telemundo network programming serving the Tijuana/San Diego
market pursuant to a network affiliation agreement which expires on December
31, 2000. We intend to renegotiate this contract when it expires.
50
Our Television Station Portfolio
The following table lists information concerning each of our television
stations and its respective market:
[Enlarge/Download Table]
Market Rank
(by Hispanic Total Hispanic % Hispanic
Market Households)(1) Households(1) Households(1) Households(1) Call Letters, Channel
-----------------------------------------------------------------------------------------------------------------
Harlingen-Weslaco- 9 254,460 206,720 81.2% KNVO-TV, Channel 48
Brownsville-McAllen,
Texas
------------------------------------------------------------------------------------------------------------------
San Diego, California 11 980,620 189,110 19.3% KBNT-LP, Channel 19
KTCD-LP, Channel 46 (2)
KHAX-LP, Channel 49 (2)
------------------------------------------------------------------------------------------------------------------
Albuquerque-Santa Fe, 12 568,650 189,050 33.2% KLUZ-TV, Channel 41
New Mexico K48AM, Channel 48
------------------------------------------------------------------------------------------------------------------
El Paso, Texas 13 276,980 177,980 64.3% KINT-TV, Channel 26
------------------------------------------------------------------------------------------------------------------
Denver-Boulder, Colorado 16 1,268,230 137,780 10.9% KCEC-TV, Channel 50
K43DK, Channel 43
K03EM, Channel 3
------------------------------------------------------------------------------------------------------------------
Washington, D.C. 18 1,999,870 103,340 5.2% WMDO-LP, Channel 30
------------------------------------------------------------------------------------------------------------------
Corpus Christi, Texas 19 184,900 98,970 53.5% KORO-TV, Channel 28
------------------------------------------------------------------------------------------------------------------
Tampa-St. Petersburg 19 1,485,980 98,970 6.7% WBSV-TV, Channel 62
(Sarasota), Florida WVEA-LP, Channel 61
------------------------------------------------------------------------------------------------------------------
Orlando-Daytona Beach- 24 1,101,920 79,000 7.2% WNTO-TV, Channel 26 (3)
Melbourne, Florida WVEN-LP, Channel 63
------------------------------------------------------------------------------------------------------------------
Las Vegas, Nevada 25 521,200 72,460 13.9% KINC-TV, Channel 15
K27AF, Channel 27
K47EG, Channel 47
------------------------------------------------------------------------------------------------------------------
Monterey-Salinas-Santa Cruz, 26 228,630 60,820 26.6% KSMS-TV, Channel 67
California
------------------------------------------------------------------------------------------------------------------
Hartford-New Haven, 28 915,940 53,740 5.9% WHCT-TV, Channel 18 (3)
Connecticut
------------------------------------------------------------------------------------------------------------------
Laredo, Texas 31 54,540 50,350 92.3% KLDO-TV, Channel 27
------------------------------------------------------------------------------------------------------------------
Colorado Springs-Pueblo, 33 290,830 45,400 15.6% KGHB-LP, Channel 27
Colorado
------------------------------------------------------------------------------------------------------------------
Santa Barbara-Santa 34 228,350 44,590 19.5% KPMR-TV, Channel 36 (3)(4)
Maria-San Luis Obispo,
California
------------------------------------------------------------------------------------------------------------------
Yuma, Arizona-El Centro, 36 86,960 43,000 49.5% KVYE-TV, Channel 7
California
------------------------------------------------------------------------------------------------------------------
Odessa-Midland, Texas 37 138,510 41,890 30.2% KUPB-TV, Channel 18 (4)
------------------------------------------------------------------------------------------------------------------
Lubbock, Texas 39 147,570 39,700 26.9% KBZO-LP, Channel 51
------------------------------------------------------------------------------------------------------------------
Palm Springs, California 42 115,070 34,260 29.8% KVER-LP, Channel 4
K05JY, Channel 5
K28ET, Channel 28
------------------------------------------------------------------------------------------------------------------
Amarillo, Texas 43 191,450 31,460 16.4% K48FR, Channel 48 (4)
------------------------------------------------------------------------------------------------------------------
San Angelo, Texas 66 51,460 13,920 27.1% K31DM, Channel 31
------------------------------------------------------------------------------------------------------------------
Tecate, Baja California, -- -- -- -- XUPN-TV, Channel 49 (5)
Mexico
------------------------------------------------------------------------------------------------------------------
Tijuana, Mexico -- -- -- -- XHAS-TV, Channel 33 (5)
(1) Source: Nielsen Media Research year 2000 population estimates.
(2) We own a 47.5% equity interest in the entity that holds the FCC license
to this station, with an option to acquire an additional 47.5%. We
provide substantially all of the programming and related services
available on this station pursuant to a time brokerage agreement.
(3) Pending acquisition.
(4) Regular broadcast operations not yet commenced.
(5) We hold a minority, non-voting interest in the entity that holds the
broadcast license for this station. We provide substantially all of the
programming and related services available on this station under a time
brokerage agreement.
51
Television Advertising
Since 1997, no single advertiser has accounted for more than 2% of our
annual gross television revenue. In 1998, 47% of our television revenue
consisted of national television advertising sales and 52% of our television
revenue consisted of local television advertising sales. National television
advertising revenue accounted for 42% of our total television advertising
revenue for 1999, with 57% being local television advertising revenue.
National Advertising. National advertising revenue represents commercial
time sold to a national advertiser within a specific market by Univision, our
national representative firm. For these sales, Univision is paid a 15%
commission on the net revenue from each sale (gross revenue less agency
commission). We target the largest national Spanish-language advertisers that
collectively purchase the greatest share of national advertisements through
Univision. The Univision representative works closely with each station's
national sales manager. This has enabled us to secure premier national
advertisers, including Ford Motor Company, General Motors, Southwestern Bell,
McDonald's, Burger King and Anheuser-Busch.
Local Advertising. Local advertising revenue is generated from commercial
air time and is sold directly by the station to an in-market advertiser or its
agency.
Television Audience Research
We derive our revenue primarily from selling advertising time. The relative
advertising rates charged by competing stations within a market depend
primarily on four factors:
. the station's ratings (households or people viewing its programs as a
percentage of total television households or people in the viewing
area);
. audience share (households or people viewing its programs as a
percentage of households or people actually watching television at a
specific time);
. the time of day the advertising will run; and
. the demographic qualities of a program's viewers (primarily age and
gender).
Nielsen ratings provide advertisers with the industry-accepted measure of
Hispanic audience television viewership and have been important in allowing us
to demonstrate to advertisers our ability to reach the Hispanic audience. We
believe that continued use of accurate, reliable ratings will allow us to
further increase our advertising rates and narrow the gap which has
historically existed between our audience share and our share of advertising
revenue. We have made significant investments in experienced sales managers and
account executives and have provided our sales professionals with state-of-the-
art research tools to continue to attract major advertisers.
The various Nielsen rating services that we use are described below:
Nielsen Hispanic Station Index (NHSI). The NHSI service measures Hispanic
household viewing at the local market level. Each NHSI sample also reflects the
varying levels of language usage by Hispanics in each market in order to more
accurately reflect the Hispanic household population in the relevant market.
NHSI only measures the audience viewing of Hispanic households, that is,
households where the head of the household is of Hispanic descent or origin.
Although NHSI offers improvements over previous measurement indices, we believe
it still underreports the number of viewers watching Entravision programming
because we have viewers who do not live in Hispanic households.
Nielsen Station Index (NSI). The NSI service measures local station viewing
of all households in a specific market. We buy NSI in all of our markets in
order to effectively position our viewing against both English- and Spanish-
language competitors. While Hispanic households are present in proportion to
their percentage of total households within a market in NSI, this rating
service is not language-stratified and generally underrepresents Spanish-
speaking households. As a result, we believe that NSI typically underreports
52
viewing of Spanish-language television. Despite this limitation, NSI
demonstrates that many of our full-power broadcast affiliates achieve total
market ratings that are fully comparable with their English-language
counterparts, with two of our full-power television stations ranking as the top
station in their respective markets.
Television Competition
We compete for viewers and revenue with English-language television stations
and networks, including the four principal English-language television
networks, ABC, CBS, NBC and Fox, and in most markets, UPN and WB, and with
other Spanish-language networks. We also compete for viewers and revenue with
independent television stations, other video media, suppliers of cable
television programs, direct broadcast satellite systems, newspapers, magazines,
radio, the Internet and other forms of entertainment and advertising.
Radio
Overview
We currently own and operate 60 radio stations in 24 markets. Our radio
stations cover in aggregate approximately 57% of the Hispanic audience and are
located in 22 of the top 50 Hispanic markets. We also provide programming to 42
affiliate stations in 38 markets. Our radio operations combine national
programming with a strong local presence. Through our radio programming, which
is delivered via satellite to our stations, we provide national programming
with local time slots available for advertising, news, traffic, weather,
promotions and community events. This strategy allows us to provide higher-
quality programming with significantly lower costs of operations than we could
otherwise deliver solely with independent programming.
Radio Programming
Radio Networks. Our national radio networks have developed a loyal listener
base, which looks to us for information and entertainment across the country.
Through our radio network, we have created the single largest U.S. Hispanic
radio market, currently with over 19 million potential listeners. Our networks
allow listeners to call a toll-free number and communicate with family and
friends across our markets. Our networks also allow clients with national
product distribution, or Internet-based companies, to deliver a uniform
advertising message to the fast growing Hispanic market around the country in
an efficient and cost-effective manner.
Although our networks have a broad reach across the United States, our
formats allow for local content. Technology allows our stations to offer the
necessary local feel and to be responsive to local clients and community needs.
Designated time slots are used for local advertising, news, traffic, weather,
promotions and community events. The audience gets the benefit of a national
quality radio sound along with important local content. Furthermore, all of our
stations can disconnect from the networks and operate independently in the case
of a local emergency or a problem with the central satellite transmission.
To further strengthen our national/local combination market presence, our
on-air personalities frequently travel to participate in local promotional
events. For example, in selected key markets we have the talent appear at
special shows on location for network-wide broadcast. We promote these events
as "broadcasting live from" to bond the national personalities to local
listeners.
Our network formats are currently used by 42 affiliates located in 38
markets across the United States. Our affiliates receive our programming in
exchange for two minutes per hour for network commercials. Affiliates are
allowed up to 16 minutes per hour for local advertisements and content. Our
affiliates receive high-quality programming at a significantly lower cost than
they could produce themselves. We benefit by having extended national coverage
without the capital expenditures necessary to buy and manage stations in those
markets. The extended coverage also allows the network to charge higher rates
as its delivery of the U.S. Hispanic market grows.
53
Radio Formats. We produce high-quality radio programming in a variety of
music formats that are simultaneously distributed via satellite with a digital
CD-quality sound to our owned and affiliate stations. We offer seven primary
formats which appeal to different listener preferences:
. Radio Romantica is an adult-contemporary, romantic ballads/current hits
format, targeting Hispanics 18-49 (primarily females).
. Radio Tricolor is a personality-driven, Mexican country-style format,
targeting Hispanics 18-49 (primarily males).
. Super Estrella is a music-driven, pop and alternative Spanish rock
format, targeting Hispanics 18-34 (males and females).
. La Zeta is a top hits Spanish format with recognizable radio
personalities. The music is primarily from the northern and central
regions of Mexico, targeting Hispanics 18-49 (primarily males).
. La Bonita is an international Spanish classic hits/nostalgia format,
targeting Hispanics 25-54 (primarily females).
. La Buena is a Spanish version of an English format called "young
country." This music-intensive format features music primarily from
central and northern Mexico, targeting Hispanics 18-34 (males and
females).
. Z MegaHits is an English-language rhythmic oldies format consisting of
70's and early 80's top 40 hits geared to second and third generation
Hispanics, targeting Hispanics 25-54 (primarily females).
54
Our Radio Station Portfolio
The following table lists information concerning each of our owned and
operated radio stations and its respective market:
[Enlarge/Download Table]
Market Rank
(by Hispanic
Market Households)(1) Station Frequency Format
--------------------------------------------------------------------------------
Los Angeles, California 1 KACD-FM 103.1 MHz Super Estrella (2)
KBCD-FM 103.1 MHz Super Estrella (2)
KSSE-FM 97.5 MHz Super Estrella
Riverside-San Bernardino, KCAL-AM 1410 kHz Radio Tricolor
California KSZZ-AM 590 kHz Radio Tricolor
----------------------------------------------------------------------------------------
Miami-Ft. Lauderdale- 3 WLQY-AM 1320 kHz Time Brokered (3)
Hollywood, Florida
----------------------------------------------------------------------------------------
San Jose, California 4 KBRG-FM 100.3 MHz Radio Romantica
KLOK-AM 1170 kHz Radio Tricolor
KZSF-AM 1370 kHz La Zeta
----------------------------------------------------------------------------------------
Chicago, Illinois 5 WRZA-FM 99.9 MHz La Zeta
WZCH-FM 103.9 MHz La Zeta
WNDZ-AM 750 kHz Time Brokered (3)
----------------------------------------------------------------------------------------
Houston-Galveston, Texas 6 KGOL-AM 1180 kHz Time Brokered (3)
----------------------------------------------------------------------------------------
Dallas-Ft. Worth, Texas 8 KRVA-FM (4) 106.9 MHz La Buena
KRVF-FM (4) 107.1 MHz La Buena
KZMP-FM 101.7 MHz La Zeta
KRVA-AM 1600 kHz La Buena
KZMP-AM 1540 kHz La Bonita
----------------------------------------------------------------------------------------
Phoenix, Arizona 10 KLNZ-FM 103.5 MHz La Zeta
KVVA-FM 107.1 MHz Spanish Contemporary
KUET-AM (5) 710 kHz --
----------------------------------------------------------------------------------------
Albuquerque-Santa Fe, New
Mexico 12 KRZY-FM 105.9 MHz Radio Romantica
KRZY-AM 1450 kHz Radio Tricolor
----------------------------------------------------------------------------------------
El Paso, Texas 13 KINT-FM 93.9 MHz La Caliente (top 40)
KATH-FM 94.7 MHz Country (English)
KOFX-FM 92.3 MHz Oldies (English)
KSVE-AM 1150 kHz Radio Unica
KBIV-AM (6) 1650 kHz --
----------------------------------------------------------------------------------------
Fresno, California 14 KZFO-FM 92.1 MHz La Zeta
KHOT-AM 1250 kHz La Bonita
----------------------------------------------------------------------------------------
Sacramento, California 15 KHZZ-FM 104.3 MHz Z MegaHits
KRCX-FM 99.9 MHz Radio Tricolor
KRRE-FM 101.9 MHz Radio Romantica
KZSA-FM 92.1 MHz La Zeta
KSQR-AM 1240 kHz La Bonita
Stockton, California KMIX-FM 100.9 MHz La Buena
KCVR-AM 1570 kHz La Bonita
Modesto, California KTDO-FM 98.9 MHz Z MegaHits
KZMS-FM 97.1 MHz La Zeta
KLOC-AM 920 kHz La Bonita
----------------------------------------------------------------------------------------
Denver-Boulder, Colorado 16 KJMN-FM 92.1 MHz Radio Romantica
KMXA-AM 1090 kHz Radio Tricolor
----------------------------------------------------------------------------------------
Washington, D.C. 18 WACA-AM (7) 1540 kHz Time Brokered (3)
----------------------------------------------------------------------------------------
Tucson, Arizona 21 KZLZ-FM 105.3 MHz La Zeta
----------------------------------------------------------------------------------------
Las Vegas, Nevada 25 KVBC-FM 105.1 MHz Radio Romantica
----------------------------------------------------------------------------------------
Monterey-Salinas-Santa 26 KLOK-FM 99.5 MHz Radio Tricolor
Cruz, California KLXM-FM (4) 97.9 MHz Z MegaHits
KLUE-FM (4) 106.3 MHz Z MegaHits
KRAY-FM 103.5 MHz La Buena
KSES-FM 107.1 MHz Super Estrella
KZSL-FM 93.9 MHz La Zeta
KCTY-AM 980 kHz La Bonita
KSES-AM 700 kHz Super Estrella
KTGE-AM 1570 kHz Regional Mexican
----------------------------------------------------------------------------------------
Brawley, California 36 KWST-FM 94.5 MHz Country (English)
El Centro, California KAMP-AM 1430 kHz News/Talk
Imperial, California KMXX-FM 99.3 MHz Radio Tricolor
----------------------------------------------------------------------------------------
Lubbock, Texas 39 KBZO-AM 1460 kHz La Zeta
----------------------------------------------------------------------------------------
Palm Springs, California 42 KLOB-FM 94.7 MHz Radio Tricolor
----------------------------------------------------------------------------------------
Reno, Nevada 51 KRNV-FM 101.7 MHz Radio Tricolor
----------------------------------------------------------------------------------------
Chico, California 69 KZCO-FM 97.7 MHz Z MegaHits
KEWE-AM 1340 kHz Time Brokered (3)
55
(1) Source: Nielsen Media Research year 2000 population estimates.
(2) Pending acquisition--intended format.
(3) Operated pursuant to a local marketing agreement under which we grant to
the operator the right to program the station.
(4) Simulcast station.
(5) Under an FCC construction permit.
(6) Not yet operating--expanded band for Station KSVE-AM.
(7) We have agreed to sell this station, the closing of which we expect will
take place after the closing of this offering.
Radio Advertising
Substantially all of the revenue from our radio operations is derived from
local, national and network advertising.
Local. This form of revenue refers to advertising usually purchased by a
local client or agency directly from the station's sales force. In 1999, local
radio revenue comprised 64% of our total radio revenue.
National. This form of revenue refers to advertising purchased by a national
client targeting a specific market. Usually this business is placed by a
national advertising agency or media buyer and ordered through one of the
offices of our national sales representative, Caballero Spanish Media. The
national accounts are handled locally by the station's general sales manager.
In 1999, 26% of our total radio revenue was from national radio advertising.
Network. This form of revenue refers to advertising that is placed on our
entire network of stations. This business is placed as a single order and is
broadcast from the network's central location. The network advertising can be
placed by a local account executive that has a client in its market that wants
national exposure. Network inventory can also be sold by corporate executives,
by our national representative or by two other entities with whom we have
network sales agreements, the Jones Radio Network and the Hispanic Broadcasting
Company Radio Network. In 1999, network radio revenue accounted for 10% of our
total radio revenue.
Radio Marketing/Audience Research
We believe that radio is a highly efficient and cost-effective means for
advertisers to reach targeted demographic groups. Advertising rates charged by
our radio stations are based primarily on the following factors:
. the station's ability to attract listeners in a given market;
. the demand for available air time;
. the attractiveness of the demographic qualities of the listeners
(primarily age and purchasing power);
. the time of day that the advertising runs;
. the program's popularity with listeners; and
. the availability of alternative media in the market.
In the smaller and mid-sized markets, Spanish-language radio continues to be
more of a concept sale. In the larger markets, Arbitron provides advertisers
with the industry-accepted measure of listening audience classified by
demographic segment and time of day that the listeners spend on particular
radio stations. Radio advertising rates generally are highest during the
morning and afternoon drive-time hours which are the peak times for radio
audience listening.
We believe that having multiple stations in a market is desirable to enable
the broadcaster to provide alternatives and to command higher advertising rates
and budget share. Historically, advertising rates for Spanish-language radio
stations have been lower than those of English-language stations with similar
audience
56
levels. We believe we will be able to increase our rates as new and existing
advertisers recognize the growing desirability of targeting the Hispanic
population in the United States.
Each station broadcasts an optimal number of advertisements each hour,
depending upon its format, in order to maximize the station's revenue without
jeopardizing its audience listenership. Our owned stations have up to
15 minutes per hour for commercial inventory and local content. Our network has
up to four additional minutes of commercial inventory per hour. The pricing is
based on a rate card and negotiations subject to the supply and demand for the
inventory in each particular market and the network.
Radio Competition
Radio broadcasting is a highly competitive business. The financial success
of each of our radio stations and markets depends on the power of each of our
stations, advertising trends and demand, audience ratings, our ability to
increase our market share of the overall radio advertising revenue and the
economic health of the market. In addition, our advertising revenue depends
upon the desire of advertisers to reach our audience demographic. Our radio
stations compete for audience share and advertising revenue directly with other
radio stations and with other media within their respective markets, such as
newspapers, the Internet, broadcast and cable television, magazines, billboard
advertising, transit advertising and direct mail advertising. Some of these
radio stations and networks also broadcast music programming aimed at a
particular Hispanic audience. In many of our markets, our primary competitors
in Hispanic radio are Hispanic Broadcasting Corporation, Radio Unica and
Spanish Broadcasting Systems. Some of our competitors are larger and may have
greater resources than we do. If a competing station within a market converts
to a format similar to that of one of our stations, or if one of our
competitors upgrades the power and reach of one of its stations, we could
suffer a reduction in ratings and advertising revenue in that market. The
audience ratings and advertising revenue of our individual stations are subject
to change and any adverse change in a particular market could have a material
adverse effect on our operations.
Outdoor Advertising/Publishing
Overview
Our outdoor and publishing operations complement our television and radio
businesses and will allow for cross-promotional opportunities. Because of its
repetitive impact and relatively low cost per thousand impressions, outdoor
advertising attracts national, regional and local advertisers. We believe
national advertisers value our ability to efficiently target specific
demographic groups on a cost-effective basis compared to other advertising
media. In addition, we believe local advertisers place significant value on our
ability to provide advertising solutions in close proximity to their stores or
outlets.
Our outdoor portfolio adds to our television and radio reach by providing
local advertisers with significant coverage of the Hispanic communities in Los
Angeles and New York. Our outdoor advertising strategy is designed to
complement our existing television and radio businesses by allowing us to
capitalize on our Hispanic market expertise. The primary components of our
strategy are to leverage the strengths of our inventory, continue to focus on
ethnic communities and increase market penetration.
Outdoor Advertising Markets
We own approximately 10,000 billboards concentrated in high-density Hispanic
communities in Los Angeles and New York, the two largest markets in the United
States. According to the Outdoor Advertising Association of America, Inc., an
industry trade association, outdoor advertising in the United States generated
total revenue of approximately $4.8 billion in 1999, compared to $4.4 billion
in 1998. We believe our outdoor advertising appeals to both large and small
businesses.
Los Angeles. The greater Los Angeles market has a population of
approximately 15.3 million, of which approximately six million or 39% are
Hispanic. As such, Los Angeles ranks as the largest Hispanic advertising market
in the United States. Approximately 87% of our billboard inventory in Los
Angeles is located in
57
neighborhoods where Hispanics represent at least 30% of the local population,
based on the 1990 Census Report. We believe that this coverage of the Hispanic
population has increased significantly since 1990 as the Hispanic community
continues to grow into communities previously populated by other demographic
groups. The Los Angeles metropolitan area has miles of freeways and surface
streets where the average commuter spends in excess of 90 minutes per day in
the car.
New York. The greater New York City area has a population of approximately
18.3 million, of which approximately 3.2 million or 17.6% are Hispanic. As
such, New York ranks as the second largest Hispanic advertising market in the
United States.
Billboard Inventory as of December 31, 1999
[Download Table]
Inventory Type Los Angeles New York
-------------- ----------- --------
8-sheet posters............................................ 6,000 3,500
City-Lights................................................ 250 0
30-sheet posters........................................... 0 165
Wall-Scapes................................................ 5 96
Bulletins.................................................. 20 24
----- -----
Total.................................................... 6,275 3,785
===== =====
Our inventory consists of the following types of billboards that are
typically located on sites that we have leased or have a permanent easement:
8-sheet posters are generally 6 feet high by 12 feet wide. Due to the
smaller size of this type of billboard, 8-sheet posters are often located in
densely populated or fast growing areas where larger signs do not fit or are
not permitted, such as parking lots and other tight areas. Accordingly, most of
our 8-sheet posters are concentrated on city streets, targeting both pedestrian
and vehicular traffic and are sold to advertisers for periods of four weeks.
City-Lights is a product we created in 1998 to serve national advertisers
with a "high-impact" advertising format both during the day and nighttime. The
format is typically used by national fashion, entertainment and consumer
products companies desiring to target consumers within proximity of local malls
or retail outlets. A City-Lights structure is approximately 7 feet by 10 feet
set vertically on a single pole structure. The advertisement is usually housed
in an illuminated glass casing for greater visibility at night and is sold to
advertisers for a period of four weeks.
30-sheet posters are generally 12 feet high by 25 feet wide and are the most
common type of billboard. Lithographed or silk-screened paper sheets that are
supplied by the advertiser are pre-pasted and packaged in airtight bags by the
outdoor advertising company and applied, like wallpaper, to the face of the
display. The 30-sheet posters are concentrated on major traffic arteries and
space is usually sold to advertisers for periods of four weeks.
Wall-Scapes generally consist of advertisements ranging in a variety of
sizes (from 120 to 800 square feet) which are displayed on the sides of
buildings in densely populated locations. Advertising formats can include
either vinyl prints or painted artwork. Because of a Wall-Scape's greater
impact and higher cost relative to other types of billboards, space is usually
sold to advertisers for periods of six to 12 months.
Bulletins are generally 14 feet high and 48 feet wide and consist of panels
or a single sheet of vinyl that are hand painted at the facilities of the
outdoor advertising company or computer painted in accordance with design
specifications supplied by the advertiser and mounted to the face of the
display. Because of painted bulletins' greater impact and higher cost relative
to other types of billboards, they are usually located near major highways and
are sold for periods of six to 12 months.
58
Outdoor Advertising Revenue
Advertisers usually contract for outdoor displays through advertising
agencies, which are responsible for the artistic design and written content of
the advertising. Advertising contracts are negotiated on the basis of monthly
rates published in our "rate card." These rates are based on a particular
display's exposure (or number of "impressions" delivered) in relation to the
demographics of the particular market and its location within that market. The
number of "impressions" delivered by a display (measured by the number of
vehicles passing the site during a defined period and weighted to give effect
to such factors as its proximity to other displays and the speed and viewing
angle of approaching traffic) is determined by surveys that are verified by the
Traffic Audit Bureau, an independent agency which is the outdoor advertising
industry's equivalent of television's Nielsen ratings and radio's Arbitron
ratings.
In each of our markets, we employ salespeople who sell both local and
national advertising. Our 1999 outdoor advertising revenue mix consisted of
approximately 60% national advertisers and 40% local advertisers. National
advertisers value our product due to our ability to efficiently target specific
demographic groups on a cost-effective basis. Local advertisers, in addition to
these factors, place significant value on our ability to provide advertising
solutions in the form of billboards in close proximity to the advertisers'
stores or outlets. We believe that our local sales force is crucial to
maintaining relationships with key advertisers and agencies and identifying
new advertisers.
Outdoor Advertising Competition
We compete in each of our outdoor markets with other outdoor advertisers as
well as other media. In addition, we also compete with a wide variety of out-
of-home media, including advertising in shopping centers, airports, stadiums,
movie theaters and supermarkets, as well as on taxis, trains and buses. In
competing with other media, outdoor advertising relies on its relative cost
efficiency and its ability to reach a broad segment of the population in a
specific market or to target a particular geographic area or population with a
particular set of demographic characteristics within that market.
Publishing
The primary publication in our publishing segment is El Diario/La Prensa,
the oldest Spanish-language daily newspaper in the United States and the
premier Spanish-language publishing franchise in the Northeast.
El Diario/La Prensa's daily paid circulation of approximately 50,000 reaches a
total daily readership of 321,000. This figure, as reported in Simmons Hispanic
Market Study, reflects the highest pass-along rates recorded by any newspaper
in the United States. El Diario/La Prensa won the award for "Outstanding
Spanish-language Daily" from the National Association of Hispanic Publications
in 1994 and 1996 and is one of only two newspapers in New York City with
growing circulation. We also own VEA New York, a Spanish-language tourist
publication serving visitors to New York from Latin America, Spain and other
Spanish-language countries. We believe our combined media provide an effective
vehicle for national and local advertisers to reach the fast growing Hispanic
population.
Material Trademarks, Trade Names and Service Marks
In the course of our business, we use various trademarks, trade names and
service marks, including our logos, in our advertising and promotions. We
believe the strength of our trademarks, trade names and service marks are
important to our business and intend to protect and promote them as
appropriate. We do not hold or depend upon any material patent, government
license, franchise or concession, except our broadcast licenses granted by the
FCC.
Employees
As of March 31, 2000, giving effect to our acquisitions of LCG and Z-Spanish
Media, we had approximately 1,100 full-time employees. As of March 31, 2000,
146 of our publishing employees were
59
represented by labor unions that have entered into collective bargaining
agreements with us. As of March 31, 2000, five of our outdoor employees were
represented by labor unions that have entered into or are currently in
negotiations for collective bargaining agreements with us. We believe our
relations with our employees are good.
Regulation of Television and Radio Broadcasting
General. The FCC regulates television and radio broadcast stations pursuant
to the Communications Act. Among other things, the FCC:
. determines the particular frequencies, locations and operating power of
stations;
. issues, renews, revokes and modifies station licenses;
. regulates equipment used by stations; and
. adopts and implements regulations and policies that directly or
indirectly affect the ownership, changes in ownership, control,
operation and employment practices of stations.
A licensee's failure to observe the requirements of the Communications Act
or FCC rules and policies may result in the imposition of various sanctions,
including admonishment, fines, the grant of renewal terms of less than eight
years, the grant of a license with conditions or, in the case of particularly
egregious violations, the denial of a license renewal application, the
revocation of an FCC license or the denial of FCC consent to acquire additional
broadcast properties.
Congress and the FCC have had under consideration or reconsideration, and
may in the future consider and adopt, new laws, regulations and policies
regarding a wide variety of matters that could, directly or indirectly, affect
the operation, ownership and profitability of our television and radio
stations, result in the loss of audience share and advertising revenue for our
television and radio broadcast stations or affect our ability to acquire
additional television and radio broadcast stations or finance such
acquisitions. Such matters may include:
. changes to the license authorization and renewal process;
. proposals to impose spectrum use or other fees on FCC licensees;
. changes to the FCC's equal employment opportunity regulations and other
matters relating to involvement of minorities and women in the
broadcasting industry;
. proposals to change rules relating to political broadcasting including
proposals to grant free air time to candidates, and other changes
regarding program content;
. proposals to restrict or prohibit the advertising of beer, wine and
other alcoholic beverages;
. technical and frequency allocation matters, including creation of a new
Class A television service for existing low-power television stations
and a new low-power FM radio broadcast service;
. the implementation of digital audio broadcasting on both satellite and
terrestrial bases;
. the implementation of rules governing the transmission of local
television signals by direct broadcast satellite services in their local
areas;
. changes in broadcast multiple ownership, foreign ownership, cross-
ownership and ownership attribution policies; and
. proposals to alter provisions of the tax laws affecting broadcast
operations and acquisitions.
We cannot predict what changes, if any, might be adopted, nor can we predict
what other matters might be considered in the future, nor can we judge in
advance what impact, if any, the implementation of any particular proposal or
change might have on our business.
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FCC Licenses. Television and radio stations operate pursuant to licenses
that are granted by the FCC for a term of eight years, subject to renewal upon
application to the FCC. During the periods when renewal applications are
pending, petitions to deny license renewal applications may be filed by
interested parties, including members of the public. The FCC is required to
hold hearings on renewal applications if it is unable to determine that renewal
of a license would serve the public interest, convenience and necessity, or if
a petition to deny raises a "substantial and material question of fact" as to
whether the grant of the renewal applications would be inconsistent with the
public interest, convenience and necessity. However, the FCC is prohibited from
considering competing applications for a renewal applicant's frequency, and is
required to grant the renewal application if it finds:
. that the station has served the public interest, convenience and
necessity;
. that there have been no serious violations by the licensee of the
Communications Act or the rules and regulations of the FCC; and
. that there have been no other violations by the licensee of the
Communications Act or the rules and regulations of the FCC that, when
taken together, would constitute a pattern of abuse.
If as a result of an evidentiary hearing, the FCC determines that the
licensee has failed to meet the requirements for renewal and that no mitigating
factors justify the imposition of a lesser sanction, the FCC may deny a license
renewal application. Historically, FCC licenses have generally been renewed. We
have no reason to believe that our licenses will not be renewed in the ordinary
course, although there can be no assurance to that effect. The non-renewal of
one or more of our stations' licenses could have a material effect on our
business.
Ownership Matters. The Communications Act requires prior approval of the FCC
for the assignment of a broadcast license or the transfer of control of a
corporation or other entity holding a license. In determining whether to
approve an assignment of a television or radio broadcast license or a transfer
of control of a broadcast licensee, the FCC considers a number of factors
pertaining to the licensee including compliance with various rules limiting
common ownership of media properties, the "character" of the licensee and those
persons holding "attributable" interests therein, and the Communications Act's
limitations on foreign ownership and compliance with the FCC rules and
regulations.
To obtain the FCC's prior consent to assign or transfer a broadcast license,
appropriate applications must be filed with the FCC. If the application to
assign or transfer the license involves a substantial change in ownership or
control of the licensee, for example, the transfer or acquisition of more than
50% of the voting stock, the application must be placed on public notice for a
period of 30 days during which petitions to deny the application may be filed
by interested parties, including members of the public. If an assignment
application does not involve new parties, or if a transfer of control
application does not involve a "substantial change" in ownership or control, it
is a pro forma application, which is not subject to the public notice and 30
day petition to deny procedure. The regular and pro forma applications are
nevertheless subject to informal objections that may be filed any time until
the FCC acts on the application. If the FCC grants an assignment or transfer
application, interested parties have 30 days from public notice of the grant to
seek reconsideration of that grant. The FCC has an additional ten days to set
aside such grant on its own motion. When ruling on an assignment or transfer
application, the FCC is prohibited from considering whether the public interest
might be served by an assignment or transfer to any party other than the
assignee or transferee specified in the application.
Under the Communications Act, a broadcast license may not be granted to or
held by persons who are not U.S. citizens, by any corporation that has more
than 20% of its capital stock owned or voted by non-U.S. citizens or entities
or their representatives, by foreign governments or their representatives or by
non-U.S. corporations. Furthermore, the Communications Act provides that no FCC
broadcast license may be granted to or held by any corporation directly or
indirectly controlled by any other corporation of which more than 25% of its
capital stock is owned of record or voted by non-U.S. citizens or entities or
their representatives, or foreign governments or their representatives or by
non-U.S. corporations, if the FCC finds the public interest will be served by
the refusal or revocation of such license. Thus, the licenses for our stations
could be revoked
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if more than 25% of our outstanding capital stock is issued to or for the
benefit of non-U.S. citizens in excess of these limitations. Our first restated
certificate of incorporation restricts the ownership and voting of our capital
stock to comply with these requirements.
The FCC generally applies its other broadcast ownership limits to
"attributable" interests held by an individual, corporation or other
association or entity. In the case of a corporation holding broadcast licenses,
the interests of officers, directors and those who, directly or indirectly,
have the right to vote 5% or more of the stock of a licensee corporation are
generally deemed attributable interests, as are positions as an officer or
director of a corporate parent of a broadcast licensee.
Stock interests held by insurance companies, mutual funds, bank trust
departments and certain other passive investors that hold stock for investment
purposes only become attributable with the ownership of 20% or more of the
voting stock of the corporation holding broadcast licenses.
A time brokerage agreement with another television or radio station in the
same market creates an attributable interest in the brokered television or
radio station as well for purposes of the FCC's local television or radio
station ownership rules, if the agreement affects more than 15% of the brokered
television or radio station's weekly broadcast hours.
Debt instruments, non-voting stock, options and warrants for voting stock
that have not yet been exercised, insulated limited partnership interests where
the limited partner is not "materially involved" in the media-related
activities of the partnership and minority voting stock interests in
corporations where there is a single holder of more than 50% of the outstanding
voting stock whose vote is sufficient to affirmatively direct the affairs of
the corporation generally do not subject their holders to attribution.
However, the FCC recently adopted a new rule, known as the equity-debt-plus
or EDP rule that causes certain creditors or investors to be attributable
owners of a station, regardless of whether there is a single majority
stockholder or other applicable exception to the FCC's attribution rules. Under
this new rule, a major programming supplier (any programming supplier that
provides more than 15% of the station's weekly programming hours) or a same-
market media entity will be an attributable owner of a station if the supplier
or same-market media entity holds debt or equity, or both, in the station that
is greater than 33% of the value of the station's total debt plus equity. For
purposes of the EDP rule, equity includes all stock, whether voting or
nonvoting, and equity held by insulated limited partners in limited
partnerships. Debt includes all liabilities, whether long-term or short-term.
Generally, the FCC only permits an owner to have one television station per
market. A single owner is permitted to have two stations with overlapping
signals so long as they are assigned to different markets. Recent changes to
the FCC's rules regarding ownership now permit an owner to operate two
television stations assigned to the same market so long as either:
. the television stations do not have overlapping broadcast signals; or
. there will remain after the transaction eight independently owned, full
power noncommercial or commercial operating television stations in the
market and one of the two commonly-owned stations is not ranked in the
top four based upon audience share.
The FCC will consider waiving these ownership restrictions in certain cases
involving failing or failed stations or stations which are not yet built.
The FCC permits a television station owner to own one radio station in the
same market as its television station. In addition, a television station owner
is permitted to own additional radio stations, not to exceed the local
ownership limits for the market, as follows:
. in markets where 20 media voices will remain, an owner may own an
additional five radio stations, or, if the owner only has one television
station, an additional six radio stations; and
. in markets where ten media voices will remain, an owner may own an
additional three radio stations.
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A "media voice" includes each independently-owned and operated full-power
television and radio station and each daily newspaper that has a circulation
exceeding 5% of the households in the market, plus one voice for all cable
television systems operating in the market.
The FCC has eliminated the limitation on the number of radio stations a
single individual or entity may own nationwide and increased the limits on the
number of stations an entity or individual may own in a market as follows:
. In a radio market with 45 or more commercial radio stations, a party may
own, operate or control up to eight commercial radio stations, not more
than five of which are in the same service (AM or FM).
. In a radio market with between 30 and 44 (inclusive) commercial radio
stations, a party may own, operate or control up to seven commercial
radio stations, not more than four of which are in the same service (AM
or FM).
. In a radio market with between 15 and 29 (inclusive) commercial radio
stations, a party may own, operate or control up to six commercial radio
stations, not more than four of which are in the same service (AM or
FM).
. In a radio market with 14 or fewer commercial radio stations, a party
may own, operate or control up to five commercial radio stations, not
more than three of which are in the same service (AM or FM), except that
a party may not own, operate, or control more than 50% of the radio
stations in such market.
The FCC staff has notified the public of its intention to review
transactions that comply with these numerical ownership limits but that might
involve undue concentration of market share.
Because of these multiple and cross-ownership rules, if a stockholder,
officer or director of Entravision holds an "attributable" interest in
Entravision, such stockholder, officer or director may violate the FCC's rules
if such person or entity also holds or acquires an attributable interest in
other television or radio stations or daily newspapers, depending on their
number and location. If an attributable stockholder, officer or director of
Entravision violates any of these ownership rules, we may be unable to obtain
from the FCC one or more authorizations needed to conduct our broadcast
business and may be unable to obtain FCC consents for certain future
acquisitions.
In connection with our acquisitions of LCG and Z-Spanish Media, we are
required to comply with the FCC rules governing multiple ownership of radio and
television stations. The addition of the Z-Spanish Media radio stations to the
LCG radio stations being acquired in the Monterey-Salinas-Santa Cruz,
California radio market, together with our existing ownership of a television
station in that market, will result in our owning up to three more radio
stations than are permitted by the FCC's radio multiple ownership rules. In
order to comply with these rules, we intend to divest of up to three stations
in the Monterey-Salinas-Santa Cruz market. In addition, the Z-Spanish Media
radio stations, when combined with the LCG radio stations in the Modesto,
California market, may result in our owning one more radio station than is
permitted by the FCC's rules. In order to comply with these rules, we may be
required to divest of one station in this market.
The Communications Act requires broadcasters to serve the "public interest."
The FCC has relaxed or eliminated many of the more formalized procedures it
developed to promote the broadcast of certain types of programming responsive
to the needs of a broadcast station's community of license. Nevertheless, a
broadcast licensee continues to be required to present programming in response
to community problems, needs and interests and to maintain certain records
demonstrating its responsiveness. The FCC will consider complaints from the
public about a broadcast station's programming when it evaluates the licensee's
renewal application, but complaints also may be filed and considered at any
time. Stations also must pay regulatory and application fees, and follow
various FCC rules that regulate, among other things, political broadcasting,
the broadcast of obscene or indecent programming, sponsorship identification,
the broadcast of contests and lotteries and technical operation.
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The FCC requires that licensees not discriminate in hiring practices,
develop and implement programs designed to promote equal employment
opportunities and submit reports to the FCC on these matters periodically and
in connection with each license renewal application.
The FCC rules also prohibit a broadcast licensee from simulcasting more than
25% of its programming on another radio station in the same broadcast service
(that is, AM/AM or FM/FM). The simulcasting restriction applies if the licensee
owns both radio broadcast stations or owns one and programs the other through a
local marketing agreement, provided that the contours of the radio stations
overlap in a certain manner.
"Must Carry" Rules. FCC regulations implementing the Cable Television
Consumer Protection and Competition Act of 1992 require each television
broadcaster to elect, at three year intervals beginning October 1, 1993, to
either:
. require carriage of its signal by cable systems in the station's market,
which is referred to as "must carry" rules; or
. negotiate the terms on which such broadcast station would permit
transmission of its signal by the cable systems within its market which
is referred to as "retransmission consent."
We have elected "must carry" with respect to each of our full-power
stations.
Time Brokerage Agreements. We have, from time to time, entered into local
marketing agreements, generally in connection with pending station
acquisitions. By using local marketing agreements, we can provide programming
and other services to a station proposed to be acquired before we receive all
applicable FCC and other governmental approvals.
FCC rules and policies generally permit time brokerage agreements if the
station licensee retains ultimate responsibility for and control of the
applicable station. We cannot be sure that we will be able to air all of our
scheduled programming on a station with which we have local marketing
agreements or that we will receive the anticipated revenue from the sale of
advertising for such programming.
Stations may enter into cooperative arrangements known as joint sales
agreements or JSAs. Under the typical JSA, a station licensee obtains, for a
fee, the right to sell substantially all of the commercial advertising on a
separately-owned and licensed station in the same market. The typical JSA also
involves the provision by the selling party of certain sales, accounting and
services to the station whose advertising is being sold. Unlike a local
marketing agreement, the typical JSA does not involve programming.
As part of its increased scrutiny of radio and television station
acquisitions, the DOJ has stated publicly that it believes that local marketing
agreements and JSAs could violate the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 if such agreements take effect prior to the expiration of the
waiting period under such Act. Furthermore, the DOJ has noted that JSAs may
raise antitrust concerns under Section 1 of the Sherman Antitrust Act and has
challenged JSAs in certain locations. The DOJ also has stated publicly that it
has established certain revenue and audience share concentration benchmarks
with respect to television and radio station acquisitions, above which a
transaction may receive additional antitrust scrutiny.
Digital Television Services. The FCC has adopted rules for implementing DTV
service in the United States. Implementation of DTV will improve the technical
quality of television signals and provide broadcasters the flexibility to offer
new services, including high-definition television and data broadcasting.
The FCC has established service rules and adopted a table of allotments for
DTV. Under the table, certain eligible broadcasters with a full-power
television station are allocated a separate channel for DTV operation. Stations
will be permitted to phase in their DTV operations over a period of years after
which they will be required to surrender their license to broadcast the analog,
or non-digital television signal. Our stations must be on the air with a
digital signal by May 1, 2002. We must return one of our channels to the
government by 2006.
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Equipment and other costs associated with DTV transition, including the
necessity of temporary dual-mode operations and the relocation of stations from
one channel to another, will impose some near-term financial costs on
television stations providing the services. The potential also exists for new
sources of revenue to be derived from DTV. We cannot predict the overall effect
the transition to DTV might have on our business.
Digital Radio Services. The FCC currently is considering standards for
evaluating, authorizing and implementing terrestrial digital audio broadcasting
technology, including In-Band On-Channel(TM) technology for FM radio stations.
Digital audio broadcasting's advantages over traditional analog broadcasting
technology include improved sound quality and the ability to offer a greater
variety of auxiliary services. In-Band On-Channel(TM) technology would permit
an FM station to transmit radio programming in both analog and digital formats,
or in digital only formats, using the bandwidth that the radio station is
currently licensed to use. It is unclear what regulations the FCC will adopt
regarding digital audio broadcasting or In-Band On-Channel(TM) technology and
what effect such regulations would have on our business or the operations of
our radio stations.
RF Radiation. The FCC has adopted rules limiting human exposure to levels of
radio frequency (RF) radiation. These rules require applicants for renewal of
broadcast licenses or modification of existing licenses to inform the FCC
whether the applicant's broadcast facility would expose people or employees to
excessive RF radiation. We believe that all of our stations are in compliance
with the FCC's current rules regarding RF radiation.
Satellite Digital Audio Radio Service. The FCC has allocated spectrum to a
new technology, SDARS, to deliver satellite-based audio programming to a
national or regional audience. The nationwide reach of SDARS could allow niche
programming aimed at diverse communities that we are targeting. Two companies
that hold licenses for authority to offer multiple channels of digital,
satellite-delivered radio could compete with conventional terrestrial radio
broadcasting. These potential competitors are expected to begin operations no
later than 2001.
Low-Power Radio Broadcast Service. On January 20, 2000, the FCC adopted
rules creating a new low-power FM, or LPFM, radio service. The rules have been
published in the Federal Register and became effective on April 17, 2000. The
new LPFM service will consist of two classes of radio stations, with maximum
power levels of either 10 Watts or 100 Watts. The 10 Watt stations will reach
an area with a radius of between one and two miles and the 100 Watt stations
will reach an area with a radius of approximately three and one-half miles. The
new LPFM stations will not be required to protect other existing FM stations on
frequencies three channels away, as currently required of full-powered FM
stations.
The new LPFM service will be exclusively non-commercial. Current broadcast
licensees or parties with interests in cable television or newspapers will not
be eligible to hold LPFM licenses. It is difficult to predict what impact, if
any, the new LPFM service will have on technical interference with our
stations' signals or competition for our stations' audiences. The new FCC rules
for LPFM services are the subject of court challenges and Congress is
considering legislation which would substantially modify the rules adopted by
the FCC.
Other Pending FCC and Legislative Proceedings. The Satellite Home Viewer Act
allows satellite carriers to deliver broadcast programming to subscribers who
are unable to obtain television network programming over the air from local
television stations. Congress in 1999 enacted legislation to amend the
Satellite Home Viewer Improvement Act to facilitate the ability of satellite
carriers to provide subscribers with programming from local television
stations. These policies do not achieve "must-carry" status until January 1,
2002, when any satellite company that has chosen to provide local-into-local
service must provide subscribers with all of the local broadcast television
signals that are assigned to the market and where television licensees ask to
be carried on the satellite system.
On November 29, 1999, Congress enacted the Community Broadcasters Protection
Act of 1999, which provides for a new Class A television service, consisting of
certain low-power television stations. Low-power
65
television stations that qualify for Class A status will no longer be secondary
in nature and will be protected against certain full-power stations. In turn,
the existence of Class A stations may impact the ability of full-power stations
to modify their facilities. The FCC has recently completed a rulemaking
proceeding to implement these rules. As the owner of both full-power and low-
power stations, we are not certain as to whether the creation of the Class A
service will, on balance, be beneficial or detrimental to us.
Regulation of Outdoor Advertising
Outdoor advertising is subject to governmental regulation at the federal,
state and local levels. Federal law, principally the Highway Beautification Act
of 1965, or the HBA, regulates outdoor advertising on federally aided primary
and interstate highways. As a condition to federal highway assistance, the HBA
requires states to restrict billboards on such highways to commercial and
industrial areas and imposes certain additional size, spacing and other
limitations. All states have passed state billboard control statutes and
regulations at least as restrictive as the federal requirements, including
removal of any illegal signs on such highways at the owner's expense and
without compensation. We believe that the number of our billboards that may be
subject to removal as illegal is immaterial. No state in which we operate has
banned billboards, but some have adopted standards more restrictive than the
federal requirements. Municipal and county governments generally also have sign
controls as part of their zoning laws. Some local governments prohibit
construction of new billboards and some allow new construction only to replace
existing structures, although most allow construction of billboards subject to
restrictions on zones, size, spacing and height.
Federal law does not require the removal of existing lawful billboards, but
does require payment of compensation if a state or political subdivision
compels the removal of a lawful billboard along a federally aided primary or
interstate highway. State governments have purchased and removed legal
billboards for beautification in the past, using federal funding for
transportation enhancement programs, and may do so in the future. Governmental
authorities from time to time use the power of eminent domain to remove
billboards. Thus far, we have been able to obtain satisfactory compensation for
any of our billboards purchased or removed as a result of governmental action,
although there is no assurance that this will continue to be the case in the
future. Local governments do not generally purchase billboards for
beautification, but some have attempted to force the removal of legal but
nonconforming billboards (billboards which conformed with applicable zoning
regulations when built but which do not conform to current zoning regulations)
after a period of years under a concept called "amortization," by which the
governmental body asserts that just compensation is earned by continued
operation over time. Although there is some question as to the legality of
amortization under federal and many state laws, amortization has been upheld in
some instances. We generally have been successful in negotiating settlements
with municipalities for billboards required to be removed. Restrictive
regulations also limit our ability to rebuild or replace nonconforming
billboards.
Under the terms of a settlement agreement among U.S. tobacco companies and
46 states, tobacco companies discontinued all advertising on billboards and
buses in the 46 participating states as of April 23, 1999. The remaining four
states had already reached separate settlements with the tobacco industry. We
removed all tobacco billboards and advertising in these states in compliance
with the settlement deadlines.
In addition to the above settlement agreements, state and local governments
are also considering regulating the outdoor advertising of alcohol products.
Alcohol related advertising represented approximately 8.4% of the total revenue
of our outdoor billboard business in 1999. As a matter of both company policy
and industry practice (on a voluntary basis), we do not post any alcohol
advertisements within a 500 square foot radius of any school, church or
hospital.
Legal Proceedings
We currently and from time to time are involved in litigation incidental to
the conduct of our business, but we are not currently a party to any lawsuit or
proceeding which, in the opinion of management, is likely to have a material
adverse effect on us.
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Properties and Facilities
Our corporate headquarters are located in Santa Monica, California. We lease
approximately 9,307 square feet of space in the building housing our corporate
headquarters under a lease expiring in 2006. The types of properties required
to support each of our television and radio stations typically include offices,
broadcasting studios and antenna towers where broadcasting transmitters and
antenna equipment are located. The majority of our office, studio and tower
facilities are leased pursuant to long-term leases. We also own the buildings
and/or land used for office, studio and tower facilities at two of our
television stations. We own substantially all of the equipment used in our
television and radio broadcasting business. We believe that all of our
facilities and equipment are adequate to conduct our present operations.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information about our executive officers and
directors upon completion of this offering. Each of our directors serves until
his or her successor is elected and is qualified.
[Download Table]
Name Age Position
---- --- --------
Walter F. Ulloa...... 51 Chairman and Chief Executive Officer
Philip C. Wilkinson.. 44 President, Chief Operating Officer and Director
Executive Vice President, Treasurer and Chief
Jeanette Tully....... 53 Financial Officer
Paul A. Zevnik....... 49 Secretary and Director
Amador S. Bustos..... 49 President of Radio Division and Director
Glenn Emanuel........ 47 President of Outdoor Division
Darryl B. Thompson... 38 Director
Andrew W. Hobson..... 38 Director
Michael D. Wortsman.. 52 Director
Walter F. Ulloa. Mr. Ulloa, the Chairman and Chief Executive Officer of
Entravision since its inception in 1996, has over 24 years of experience in
Spanish-language television and radio in the United States. Mr. Ulloa will be
elected as a member of our board of directors pursuant to a voting agreement
among Messrs. Ulloa, Wilkinson and Zevnik. From 1989 to 1996, Mr. Ulloa was
involved in the development, management or ownership of the predecessor
entities to Entravision. From 1976 to 1989, he worked at KMEX, Los Angeles,
California, as operations manager, production manager, news director, local
sales manager and an account executive.
Philip C. Wilkinson. Mr. Wilkinson, the President and Chief Operating
Officer of Entravision since its inception in 1996, has over 19 years of
experience in Spanish-language television and radio in the United States. Mr.
Wilkinson will be elected as a member of our board of directors pursuant to a
voting agreement among Messrs. Ulloa, Wilkinson and Zevnik. From 1990 to 1996,
Mr. Wilkinson was involved in the development, management or ownership of the
predecessor entities to Entravision. From 1982 to 1990, he worked at the
Univision television network and served in the positions of account executive,
Los Angeles national sales manager and West Coast sales manager.
Jeanette Tully. Ms. Tully, an Executive Vice President and the Chief
Financial Officer and Treasurer of Entravision since September 1996, has over
22 years of experience in the media industry. From 1994 until early 1996 when
the company was sold to Infinity Broadcasting, Ms. Tully was the Executive Vice
President and Chief Financial Officer of Alliance Broadcasting. From May 1986
until she joined Alliance Broadcasting, Ms. Tully was a Vice President of
Communications Equity Associates, where she advised a variety of broadcast
companies on financial matters.
Paul A. Zevnik. Mr. Zevnik has been the Secretary of Entravision since its
inception in 1996. Mr. Zevnik will be elected as a member of our board of
directors pursuant to a voting agreement among Messrs. Ulloa, Wilkinson and
Zevnik. From 1989 to 1996, Mr. Zevnik was involved in the development,
management or ownership of the predecessor entities to Entravision. Mr. Zevnik
is a partner in the Washington, D.C. office of the law firm of Zevnik Horton
Guibord McGovern Palmer & Fognani, L.L.P.
Amador S. Bustos. Mr. Bustos will be the President of our Radio Division
upon completion of this offering and our acquisition of Z-Spanish Media. Mr.
Bustos will also be elected as a member of our board of directors pursuant to a
voting agreement among Messrs. Ulloa, Wilkinson and Zevnik. From November 1992
until our acquisition of Z-Spanish Media, Mr. Bustos served as Chairman, Chief
Executive Officer and
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President of Z-Spanish Media or one of its predecessors. From December 1979
until September 1992, Mr. Bustos held various positions, including general
sales manager, senior account executive and community affairs coordinator, at
several radio stations and a television station in the San Francisco Bay area.
Glenn Emanuel. Mr. Emanuel will be the President of our Outdoor Division
upon completion of this offering and our acquisition of Z-Spanish Media. Mr.
Emanuel has over 20 years of experience in the outdoor advertising industry.
From 1997 until our acquisition of Z-Spanish Media, Mr. Emanuel served as the
President of Vista, Z-Spanish Media's outdoor advertising group. Before joining
Vista, he served as general manager of Regency Outdoor Advertising's operations
in Los Angeles for ten years.
Darryl B. Thompson. Mr. Thompson will serve on our board of directors as a
representative of TSG Capital Fund III, L.P. upon completion of this offering
and our acquisition of Z-Spanish Media, and will be elected pursuant to a
voting agreement among Messrs. Ulloa, Wilkinson and Zevnik. Mr. Thompson has
been a partner of TSG Capital Group, L.L.C. since 1993. Mr. Thompson serves on
the boards of directors of several public and private companies, including
LatinForce.Net, Inc., Pointe Communications Corporation and Millennium Digital
Media Holdings, L.L.C.
Andrew W. Hobson. Mr. Hobson, who will be a member of our board of directors
as a representative of Univision upon completion of this offering, has been an
Executive Vice President of the Univision Network since 1993. From 1990 through
1993 he was a principal at Chartwell Partners, Univision's majority owner.
Before joining Chartwell, Mr. Hobson was a Vice President in the investment
banking group of Bankers Trust Corp., where he was employed from 1984 to 1990.
Michael D. Wortsman. Mr. Wortsman, who will be a member of our board of
directors as a representative of Univision upon completion of this offering, is
the Co-President of Univision Television Group Inc. Before holding this
position, Mr. Wortsman served as the Executive Vice President of corporate
development for the Univision Television Group from 1993 to 1996.
Board Committees
The board of directors intends to establish an audit committee and a
compensation committee. Univision, as the holder of our Class C common stock,
will have the right to appoint one member to each of these committees, as well
as any other committee established by our board of directors.
The audit committee will recommend to the board of directors the selection
of independent auditors, review the results and scope of audit and other
services provided by our independent auditors and review and evaluate our audit
and control functions.
The compensation committee will review and recommend to the board of
directors the compensation and benefits of all of our officers and will
establish and review general policies relating to compensation and benefits of
our employees.
Compensation Committee Interlocks and Insider Participation
At the completion of this offering, the members of our compensation
committee will consist of , and , none of whom has ever been an
officer or employee of Entravision. None of our executive officers serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers who serve on our board or compensation
committee.
Director Compensation
We intend to establish fees for all non-employee directors within six months
after the date of this prospectus, which will include grants of stock options
to our directors. We also expect to reimburse our non-employee directors for
reasonable expenses they may incur in attending board of directors or committee
meetings.
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Executive Compensation
The following table sets forth all compensation earned in the fiscal year
ended December 31, 1999 by our Chief Executive Officer and the four other most
highly compensated officers whose annual salary and bonus exceeded $100,000.
Summary Compensation Table
[Download Table]
Annual Compensation(1)
------------------------------
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
--------------------------- ---- -------- -------- ------------ ------------
Walter F. Ulloa................ 1999 $360,000 $429,938 -- --
Chairman and Chief Executive
Officer
Philip C. Wilkinson............ 1999 360,000 429,938 -- --
President and Chief Operating
Officer
Jeanette Tully................. 1999 230,000 -- -- --
Chief Financial Officer
Amador S. Bustos............... 1999 168,000 7,560 -- --
President of Radio Division
Glenn Emanuel.................. 1999 225,000 75,000 -- --
President of Outdoor Division
--------
(1) Excludes perquisites and other personal benefits, securities or property
which aggregate the lesser of $50,000 or 10% of the total of annual salary
and bonus.
Employee Benefit Plans
2000 Omnibus Equity Incentive Plan
On , 2000 we adopted our 2000 Omnibus Equity Incentive Plan to provide an
additional means to attract, motivate, reward and retain key personnel. The
plan gives the administrator the authority to grant different types of stock
incentive awards and to select participants. Our employees, officers, directors
and consultants may be selected to receive awards under the plan. The following
summary is qualified by reference to the complete plan, which is on file with
the Securities and Exchange Commission.
Share Limits. A maximum of shares of our Class A common stock may be
issued under the plan, or approximately % of our outstanding shares after
giving effect to this offering. The aggregate number of shares subject to stock
options and stock appreciation rights granted under the plan to any one person
in a calendar year cannot exceed one million shares.
Each share limit and award under the plan is subject to adjustment for
certain changes in our capital structure, reorganizations and other
extraordinary events. Shares subject to awards that are not paid or exercised
before they expire or are terminated are available for future grants under the
plan.
Awards. Awards under the plan may be in the form of:
. incentive stock options;
. nonqualified stock options;
. stock appreciation rights;
. restricted stock; or
. stock units.
Awards may be granted individually or in combination with other awards.
Certain types of stock-based performance awards under the plan will depend upon
the extent to which performance goals set by the administrator are met during
the performance period.
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Awards under the plan generally will be nontransferable, subject to
exceptions such as a transfer to a family member or to a trust, as authorized
by the administrator.
Nonqualified stock options and other awards may be granted at prices below
the fair market value of the common stock on the date of grant. Restricted
stock awards can be issued for nominal or the minimum lawful consideration.
Incentive stock options must have an exercise price that is at least equal to
the fair market value of the common stock, or 110% of fair market value of the
common stock for any owner of more than 10% of our common stock, on the date of
grant. These and other awards may also be issued solely or in part for
services.
Administration. The plan will be administered by a committee of directors
appointed by our board of directors.
The administrator of the plan has broad authority to:
. designate recipients of awards;
. determine or modify, subject to any required consent, the terms and
provisions of awards, including the price, vesting provisions, terms of
exercise and expiration dates;
. approve the form of award agreements;
. determine specific objectives and performance criteria with respect to
performance awards;
. construe and interpret the plan; and
. reprice, accelerate and extend the exercisability or term, and establish
the events of termination or reversion of outstanding awards.
Change of Control. Upon a change of control event, any award may become
immediately vested and/or exercisable, unless the administrator determines to
the contrary. Generally speaking, a change of control event will be triggered
under the plan:
. in connection with certain mergers or consolidations of Entravision with
or into another entity where our stockholders before the transaction own
less than 50% of the surviving entity;
. if a majority of our board of directors changes over a period of two
years or less; or
. upon a sale of all or substantially all of our assets if a change in
ownership of more than 50% of our outstanding voting securities occurs.
The administrator of the plan may also provide for alternative settlements
of awards, the assumption or substitution of awards or other adjustments of
awards in connection with a change of control or other reorganization of
Entravision.
Plan Amendment, Termination and Term. Our board of directors may amend,
suspend or discontinue the plan at any time, but no such action will affect any
outstanding award in any manner materially adverse to a participant without the
consent of the participant. Plan amendments will generally not be submitted to
stockholders for their approval unless such approval is required by applicable
law.
The plan will remain in existence as to all outstanding awards until such
awards are exercised or terminated. The maximum term of options, stock
appreciation rights and other rights to acquire common stock under the plan is
ten years after the initial date of award, subject to provisions for further
deferred payment in certain circumstances. No award can be granted ten years
after adoption of the plan by our board of directors.
Payment for Shares. The exercise price of options or other awards may
generally be paid in cash or, subject to certain restrictions, shares of common
stock. Subject to any applicable limits, we may finance or offset shares to
cover any minimum withholding taxes due in connection with an award.
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Federal Tax Consequences. The current federal income tax consequences of
awards authorized under the plan follow certain basic patterns. Generally,
awards under the plan that are includable in the income of the recipient at the
time of exercise, vesting or payment, such as nonqualified stock options, stock
appreciation rights and restricted stock awards, are deductible by us, and
awards that are not required to be included in the income of the recipient,
such as incentive stock options, are not deductible by us.
Generally speaking, Section 162(m) of the Internal Revenue Code provides
that a public company may not deduct compensation, except for compensation that
is commission or performance-based paid to its chief executive officer or to
any of its four other highest compensated officers to the extent that the
compensation paid to such person exceeds $1 million in a tax year. The
regulations exclude from these limits compensation that is paid pursuant to a
plan in effect before the time that a company is publicly held. We expect that
compensation paid under the plan will not be subject to Section 162(m) in
reliance on this transition rule, as long as such compensation is paid or stock
options, stock appreciation rights and/or restricted stock awards are granted
before the earlier of a material amendment to the plan or our annual
stockholders meeting in the year 2004.
In addition, we may not be able to deduct certain compensation attributable
to the acceleration of payment and/or vesting of awards in connection with a
change of control event should that compensation exceed certain threshold
limits under Section 280G of the Internal Revenue Code.
Non-Exclusive Plan. The plan is not exclusive. Our board of directors (or
its delegate), under Delaware law, may grant stock and performance incentives
or other compensation, in stock or cash, under other plans or authority.
401(k) Plan
We offer a 401(k) savings and retirement plan to all of our employees.
Participants in the 401(k) plan may elect to contribute up to 15% of their
annual salary but may not exceed the annual maximum contribution limits
established by the Internal Revenue Service. We currently match 25% of the
amounts contributed up to a maximum of $1,000 per year by each participant. The
401(k) plan is intended to qualify under the Internal Revenue Code, so that
contributions by employees or by us to the plan and income earned on plan
contributions are not taxable to employees until distributed to them, and
contributions by us will be deductible by us when made. The trustees under the
401(k) plan, at the direction of each participant, invest such participant's
assets in the 401(k) plan in selected investment options.
As a result of our acquisition of LCG and our pending acquisition of Z-
Spanish Media, we are (or will be) the successor-in-interest to the 401(k)
plans of LCG and Z-Spanish Media. To the extent permissible, we intend to
terminate all such plans, and each of the employees covered by such plans will
have the opportunity to roll-over their investment accounts into our 401(k)
plan.
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Indemnification of Directors and Executive Officers and Limitation of Liability
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit indemnification for
liabilities, including reimbursement for expenses incurred, arising under the
Securities Act. This indemnification may, however, be unenforceable as against
public policy.
As permitted by Delaware law, our first restated certificate of
incorporation, which will become effective upon the closing of this offering,
includes a provision that eliminates the personal liability of our directors
for monetary damages for breach of fiduciary duty as a director, except for
liability:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware law regarding unlawful dividends and
stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
As permitted by Delaware law, our first restated certificate of
incorporation provides that:
. we are required to indemnify our directors and officers to the fullest
extent permitted by Delaware law, so long as the person being indemnified
acted in good faith and in a manner the person reasonably believed to be
in or not opposed to our best interests, and with respect to any criminal
action or proceeding, had no reasonable cause to believe the person's
conduct was unlawful;
. we are permitted to indemnify our other employees and agents to the
extent that we indemnify our officers and directors, unless otherwise
required by law;
. we are required to advance expenses to our directors and officers
incurred in connection with a legal proceeding to the fullest extent
permitted by Delaware law, subject to very limited exceptions; and
. the rights conferred in our first restated certificate of incorporation
are not exclusive.
Before the closing of this offering, we intend to enter into indemnity
agreements with each of our current directors and officers to give such
directors and officers additional contractual assurances regarding the scope of
the indemnification set forth in our first restated certificate of
incorporation and to provide additional procedural protections. At present,
there is no pending litigation or proceeding involving any of our directors,
officers or employees regarding which indemnification is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.
We have obtained directors' and officers' liability insurance.
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PRINCIPAL STOCKHOLDERS
The following table summarizes information regarding the beneficial
ownership of our outstanding common stock as of , 2000 based on an
estimated initial public offering price of $ for:
. each person or entity known by us to beneficially own 5% or more of our
outstanding common stock;
. our executive officers noted in the Summary Compensation Table;
. each of our directors; and
. all executive officers and directors as a group.
[Download Table]
Percentage of Shares
Beneficially
Owned (2)
-----------------------
Name and Address of Class of Number of Shares Before After
Beneficial Owner (1) Shares Beneficially Owned Offering Offering
-------------------- -------- ------------------ ---------- ----------
Walter F. Ulloa (3)..... B
Philip C. Wilkinson
(4).................... B
Paul A. Zevnik (5)...... B
Univision Communications
Inc. (6)............... C
TSG Capital Group (7)... A
Jeanette Tully.......... A * *
Amador S. Bustos........ A * *
Glenn Emanuel........... A * *
Darryl B. Thompson (8).. A
Andrew W. Hobson (9)....
Michael D. Wortsman
(10)...................
All executive officers
and directors as a
group (nine persons)... A
B
--------
* Represents beneficial ownership of less than 1%.
(1) Unless otherwise noted, the address for each person or entity named below
is c/o Entravision Communications Corporation, 2425 Olympic Boulevard,
Suite 6000 West, Santa Monica, California 90404. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table below have
sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them.
(2) Because this table assumes no exercise of the underwriters' over-allotment
option and because the selling stockholder will only sell to the extent
the option is exercised, the table does not reflect any shares he may
sell.
(3) Includes shares held by The Walter F. Ulloa Irrevocable Trust of
1996.
(4) Includes shares held by The Wilkinson Family Trust and
shares held by The 1994 Wilkinson Children's Gift Trust.
(5) Includes shares held by The Paul A. Zevnik Irrevocable Trust of
1996, shares held by The Zevnik Family L.L.C. and shares
held by The Zevnik Charitable Foundation. Mr. Zevnik has shared voting
power in The Zevnik Charitable Foundation.
(6) The address for Univision Communications Inc. is 1999 Avenue of the
Stars, Suite 3050, Los Angeles, California 90067.
(7) TSG Capital Group includes TSG Capital Fund II, L.P., TSG Capital Fund
III, L.P., TSG Associates II Inc. and TSG Associates III, LLC. The address
for each of these entities is 177 Broad Street, 12th Floor, Stamford,
Connecticut 06901.
(8) Includes shares held by TSG Capital Group. Mr. Thompson is a
principal in each of the TSG Capital Group entities. Mr. Thompson may be
deemed to exercise voting and investment power over such shares. Mr.
Thompson disclaims beneficial ownership of such shares, except to the
extent of his proportionate interest therein.
(9) Mr. Hobson is an executive officer of an affiliate of Univision
Communications Inc.
(10) Mr. Wortsman is an executive officer of an affiliate of Univision
Communications Inc.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reorganization. Before the closing of this offering, we will complete a
reorganization. As a result of this reorganization, the beneficial ownership of
Entravision will be virtually identical to the beneficial ownership of
Entravision Communications Company, L.L.C., our predecessor, immediately before
the reorganization. This reorganization will occur as follows:
. Walter F. Ulloa, Philip C. Wilkinson and Paul A. Zevnik and each of
their trusts and other controlled entities will exchange their direct
and indirect ownership interests in our predecessor for newly-issued
shares of our Class B common stock;
. each of the stockholders in the seven corporate member entities of our
predecessor (other than Messrs. Ulloa, Wilkinson and Zevnik and their
trusts and related entities) will exchange their shares in such
corporate members for newly-issued shares of our Class A common stock;
. each of the remaining individuals, trusts and other entities holding
direct membership interests in our predecessor will exchange such
interests for newly-issued shares of our Class A common stock; and
. Univision will exchange its subordinated note and option in our
predecessor for shares of our Class C common stock.
Relationship with Univision. In December 1996, Univision invested $10
million in our predecessor in exchange for a subordinated note and an option to
acquire an approximately 25% ownership interest in our predecessor. The note is
due December 30, 2021 and bears interest at 7.01% per year, for which Univision
has agreed to provide us with network compensation equal to the amount of
annual interest due. In April 1999, we acquired television stations KLUZ and
K48AM in Albuquerque, New Mexico from Univision in exchange for $1 million in
cash and a 2% increase in Univision's option to acquire an ownership interest
in our predecessor. In March 2000, Univision invested an additional
$110 million in our predecessor, which increased the subordinated note to an
aggregate of $120 million, and increased its option to the right to acquire a
40% ownership interest in our predecessor. In connection with our
reorganization, Univision will exchange its subordinated note and option for
shares of our Class C common stock, or an approximately % ownership
interest in us. As long as Univision owns at least 30% of its initial Class C
shares, it will have the right to vote as a separate class to elect two
directors, to appoint a member to any board committee and to approve material
decisions involving our company, including any merger consolidation or any
other business combination, any dissolution and any transfer of the FCC
licenses for any of our Univision-affiliated television stations. Also,
pursuant to our Univision network affiliation agreements, Univision acts as our
national advertising sales representative for our Univision-affiliated
television stations. Our director-nominee, Andrew W. Hobson, is an Executive
Vice President of the Univision Network and our director-nominee, Michael D.
Wortsman, is the Co-President of Univision Television Group Inc.
Voting Agreement. On the closing of this offering, we will enter into a
voting agreement with Walter F. Ulloa, our Chairman and Chief Executive
Officer, Philip C. Wilkinson, our President and Chief Operating Officer, and
Paul A. Zevnik, our Secretary, under which they will agree to vote all of their
shares of Class B common stock in favor of such director-nominees as Messrs.
Ulloa and Wilkinson may nominate. Mr. Zevnik will further agree to vote his
shares on all other matters in the same manner as both Mr. Ulloa and
Mr. Wilkinson, unless they vote differently, in which case Mr. Zevnik will be
free to vote his shares however he may choose. Messrs. Ulloa and Wilkinson will
irrevocably designate themselves and Mr. Zevnik as director-nominees. In
addition, Messrs. Ulloa and Wilkinson will agree to nominate as directors
Amador S. Bustos, the President of our Radio Division, and a representative of
TSG Capital Fund III, L.P. as long as Mr. Bustos and the TSG representative
continue to have a contractual right to be elected to our board of directors.
This agreement will remain in effect with respect to each of Messrs. Ulloa,
Wilkinson and Zevnik as long as he owns 30% of his initial Class B shares.
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Registration Rights. We will enter into investor rights agreements with all
of our existing stockholders and with all of the stockholders receiving Class A
common stock in connection with our acquisition of Z-Spanish Media. The
investor rights agreements provide these stockholders with rights to require us
to register their stock with the Securities and Exchange Commission. These
rights do not apply to this offering.
Transactions with Walter F. Ulloa and Philip C. Wilkinson
Employment agreements between our predecessor and Messrs. Ulloa and
Wilkinson entitle each of them to receive an annual bonus in an amount equal to
1% of our predecessor's annual net revenue. For the period from January 1, 2000
through June 30, 2000, we will pay bonuses under these agreements of
approximately $300,000 to each of Mr. Ulloa and Mr. Wilkinson. These employment
agreements will be terminated before the closing of this offering.
Mr. Ulloa is the sole shareholder of Las Tres Campanas Television, Inc., the
FCC licensee of low-power television stations K27AF and K47EG in Las Vegas,
Nevada. In 1997, Las Tres Campanas issued a note to a former shareholder in the
principal amount of $262,500. We have assumed the payment obligations of Las
Tres Campanas under the note in exchange for Las Tres Campanas's agreement to
contribute to us all of its assets, including the licenses to stations K27AF
and K47EG. As of December 31, 1999, the unpaid balance of principal and
interest under the note was approximately $231,000.
In 1996, Cabrillo Broadcasting Corporation, one of the member entities of
our predecessor, made a loan in the principal amount of $159,000 to Mr.
Wilkinson, which was used by Mr. Wilkinson to purchase equity in KSMS, Inc.,
another of our predecessor entities. When the roll-up of our predecessor was
consummated in 1997, all of the assets and liabilities of Cabrillo were
contributed to our predecessor. As payment for this obligation, Mr. Wilkinson
has agreed to transfer to us his ownership interest in the FCC license for
radio station KPVW, Aspen, Colorado.
Transactions with Paul A. Zevnik
Mr. Zevnik is a partner of Zevnik Horton Guibord McGovern Palmer & Fognani,
L.L.P., which has regularly represented us as our legal counsel and will
continue to do so.
In October 1996, we made a loan to Mr. Zevnik evidenced by a promissory note
in the principal amount of $360,366, which bears interest at a rate of 5.625%
per year and is due and payable in full in October 2001. Mr. Zevnik used the
loan to purchase 10,313 Class A units of our predecessor. As of December 31,
1999, the aggregate outstanding principal and interest amount on this loan was
$425,366.
Transactions with TSG Entities and Darryl B. Thompson
Our director-nominee, Darryl B. Thompson, is an equityholder, officer and
director of TSG Capital Fund II, L.P., TSG Capital Fund III, L.P., TSG
Ventures, L.P. and TSG Associates III, L.P.
On April 20, 2000, TSG Capital Fund III, L.P. and its affiliates invested
$90 million in our predecessor in the form of a convertible subordinated note,
which was used to fund a portion of the purchase price to acquire LCG. The note
will automatically convert upon the closing of this offering into shares
of our Series A preferred stock.
In connection with our acquisition of Z-Spanish Media, TSG Capital Fund II,
L.P. and its affiliates will receive $ in cash and shares of
our Class A common stock, and TSG Associates III, L.P. and its affiliates will
receive $ in cash and shares of our Class A common stock.
On March 31, 1998, TSG Ventures, L.P. issued a promissory note to KZSF
Broadcasting, Inc., a wholly owned subsidiary of Z-Spanish Media, in the
principal amount of approximately $1.1 million with an interest
76
rate of 12% per year, which was paid in full in January 1999. On March 31,
1998, TSG Ventures, L.P. issued a promissory note to Z-Spanish Radio Network,
Inc., a wholly owned subsidiary of Z-Spanish Media, in the principal amount of
$1.8 million with an interest rate of 15% per year, which was paid in full in
January 1999.
In December 1999, Z-Spanish Media and Vista agreed to provide an aggregate
of $5 million in advertising to LatinForce.Net Inc., an incubator for websites
targeting Hispanics in the United States and Latin America, in exchange for
shares of Series A preferred stock. Mr. Thompson is a director, and TSG
Capital Fund III, L.P. is a stockholder, of LatinForce.Net.
Transactions with Amador S. Bustos
In connection with our acquisition of Z-Spanish Media, Amador S. Bustos, the
President of our Radio Division, and his affiliates will receive $ in cash
and shares of our Class A common stock.
In October 1999, Z-Spanish Media acquired all of the outstanding capital
stock of JB Broadcasting, Inc., an entity owned by Mr. Bustos and his brother
John Bustos, for $3.4 million, of which $0.4 million was paid in cash and the
remainder was paid in shares of Z-Spanish Media's Class B common stock. From
1996 until October 1999, Z-Spanish Media operated radio station KZMS in
Modesto, California, which was owned by JB Broadcasting, under a local
marketing agreement. Total fees of $0.7 million due under this agreement were
included in the consideration paid to acquire JB Broadcasting.
During 1998, Z-Spanish Media operated radio station KZSJ in San Jose under a
local marketing agreement with KZSJ Radio LLC, an entity owned by Mr. Bustos,
pursuant to which KZSJ Radio LLC received a monthly fee of $10,000. The local
marketing agreement was terminated by mutual agreement between the parties in
December 1998, and $0.1 million remains due and payable to KZSJ Radio LLC.
Pursuant to a lease that expires in 2009, Z-Spanish Media rents a studio
building from Mr. Bustos for $42,000 per year. Pursuant to a lease that expires
in 2019, Z-Spanish Media leases a corporate office building from Mr. Bustos for
$63,000 a year. Rent increases annually by 5% per year for the term of both
leases.
Transactions with Glenn Emanuel
In connection with our acquisition of Z-Spanish Media, Glenn Emanuel, the
President of our Outdoor Division, will receive $ in cash and shares of
our Class A common stock.
In August 1997, Mr. Emanuel executed a promissory note in favor of Vista in
the principal amount of $198,315 with an interest rate of 9.75% per year, which
is due and payable in full on August 9, 2002. Mr. Emanuel used the loan to
purchase shares of Vista's common and preferred stock. The loan will be secured
by the shares of Class A common stock to be received by Mr. Emanuel in
connection with our acquisition of Z-Spanish Media. As of December 31, 1999,
the outstanding balance of principal and interest under the loan was $243,548.
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DESCRIPTION OF CAPITAL STOCK
Set forth below is a summary of the material provisions of our capital stock
as set forth in our first restated certificate of incorporation. This summary
does not purport to be complete. For a more detailed description, see our first
restated certificate of incorporation, a copy of which we have filed as an
exhibit to the registration statement, and the applicable provisions of
Delaware law.
Our first restated certificate of incorporation provides for authorized
capital stock of:
. 415 million authorized shares of common stock, $0.0001 par value per
share, which consists of 305 million shares of Class A common stock, 60
million shares of Class B common stock and 50 million of Class C common
stock; and
. 50 million authorized shares of preferred stock, $0.0001 par value per
share, which consists of 11 million shares of Series A preferred stock
to be authorized pursuant to a certificate of designations, preferences
and rights and 39 million undesignated shares.
As of , 2000, assuming our reorganization described elsewhere in
this prospectus, there will be outstanding shares of Class A common
stock held of record by stockholders, shares of Class B common
stock held of record by stockholders, shares of Class C common
stock held of record by one stockholder and shares of Series A preferred
stock held of record by one stockholder.
All of the shares of Class A common stock being issued pursuant to this
offering will be fully-paid and non-assessable.
Common Stock
General. The holders of our Class A common stock, Class B common stock and
Class C common stock have the same rights except with respect to voting,
conversion and transfer.
Dividends. Subject to the right of the holders of any class of our preferred
stock, holders of shares of our common stock are entitled to receive dividends
that may be declared by our board of directors out of legally available funds.
No dividend may be declared or paid in cash or property on any share of any
class of our common stock unless simultaneously the same dividend is declared
or paid on each share of that and every other class of our common stock; except
with respect to the payment of stock dividends, in which case holders of a
specific class of our common stock are entitled to receive only additional
shares of that class. We may not reclassify, subdivide or combine shares of any
class of our common stock without, at the same time, proportionally
reclassifying, subdividing or combining shares of the other classes.
Voting Rights. Holders of our Class A common stock and Class C common stock
are entitled to one vote per share on all matters to be voted on by
stockholders, while holders of our Class B common stock are entitled to ten
votes per share. Generally, all matters to be voted on by stockholders must be
approved by a majority of the votes entitled to be cast by all holders of our
common stock present in person or represented by proxy, voting together as a
single class, subject to any voting rights granted to holders of any class of
our preferred stock. Univision, as the holder of all of our Class C common
stock upon completion of this offering, is entitled to vote as a separate class
to elect two of our directors, and will have the right to vote as a class on
certain material decisions involving Entravision, including any merger,
consolidation or other business combination, any dissolution of Entravision and
any transfer of the FCC licenses for any of our Univision-affiliated stations.
These special voting rights will terminate upon Univision selling below 30% of
its initial ownership level of our Class C common stock.
Messrs. Ulloa, Wilkinson and Zevnik, as the holders of all of the Class B
common stock upon completion of this offering, will enter into a voting
agreement in which each of such individuals will agree, in any election of our
directors, to vote the shares of our Class B common stock held by such
individual in favor of the
78
director-nominees designated by Messrs. Ulloa and Wilkinson. Under the voting
agreement, Messrs. Ulloa, Wilkinson and Zevnik will contractually agree to
elect themselves, Amador S. Bustos and a representative of TSG Capital Fund
III, L.P. as directors of Entravision.
Liquidation Rights. The holders of each class of our common stock will share
equally on a per share basis upon liquidation or dissolution of all of our
assets available for distribution to common stockholders.
Conversion. Shares of our Class B common stock will be convertible into
shares of our Class A common stock on a share-for-share basis at the option of
the holder at any time, or automatically:
. upon the transfer to a person or entity which is not a permitted
transferee;
. upon the death of such holder;
. when such holder is no longer actively involved in the business of
Entravision; or
. if such holder owns less than 30% of his, her or its initial ownership
level.
In general, permitted transferees will include Messrs. Ulloa, Wilkinson and
Zevnik, and any of their respective spouses, legal descendants, adopted
children, minor children supported by such holder and controlled entities. In
addition, each share of our Class B common stock shall automatically convert
into Class A common stock on a share-for-share basis upon the death of the
second of Mr. Ulloa and Mr. Wilkinson or when the second of Mr. Ulloa and
Mr. Wilkinson ceases to be actively involved in the business of Entravision.
Shares of our Class C common stock will be convertible into shares of our
Class A common stock on a share-for-share basis at the option of the holder at
any time or automatically upon the transfer to a person or entity which is not
a permitted transferree or if such holder owns less than 30% of its initial
ownership level.
Other Rights. The holders of our common stock have no preemptive or other
subscription rights, and there are no redemption or sinking fund provisions
with respect to these shares.
Preferred Stock
Series A Mandatorily Redeemable Convertible Preferred Stock
Dividends. The holders of the Series A preferred stock shall have
dividends declared at the rate of 8.5% per annum compounded annually. Such
dividends accrue and are only payable upon liquidation of Entravision or
redemption of the Series A preferred stock, payable in cash. Accrued but unpaid
dividends are waived and forgiven upon conversion of the Series A preferred
stock into Class A common stock.
Liquidation Preference. The Series A preferred stock is senior to the
rights of each class of our common stock upon liquidation or distribution of
our assets in dissolution.
Voting Rights. The affirmative vote of a majority of the holders of the
Series A preferred stock is required to:
. issue any equity security that is senior to the Series A preferred
stock;
. amend our first restated certificate of incorporation or first amended
and restated bylaws in a manner that adversely affects the rights of the
Series A preferred stock; or
. enter into or engage in any transaction with an affiliate of Entravision
or its stockholders not at arms length.
Redemption. The Series A preferred stock is subject to mandatory
redemption at par value plus accrued dividends at the option of the holder of
the Series A preferred stock for a period of 90 days beginning five years after
its issuance and must be redeemed in full ten years after its issuance. The
Series A preferred stock which does not elect to convert into our common stock
is also fully redeemable at par value plus accrued dividends upon a change in
control of Entravision. We have the right to redeem the Series A preferred
stock at our option at any time one year after its issuance, provided that the
trading price of our Class A common stock is at least $ per share for 15
consecutive trading days immediately before such redemption.
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Conversion. The Series A preferred stock is convertible into our Class A
common stock at a conversion price of the lower of:
. $8.4746 per share; or
. the greater of 93% of the price per share of the Class A common stock
sold in this offering or $7.3692 per share.
Blank-Check Preferred Stock
Our board of directors is empowered, without approval of the stockholders,
to cause additional shares of preferred stock to be issued from time to time in
one or more series, and the board of directors may fix the number of shares of
each series and the designation, powers, privileges, preferences and rights and
the qualifications, limitations and restrictions of the shares of each series.
The specific matters that our board of directors may determine with respect
to additional series of preferred stock include the following:
. the number of shares of each series;
. the designation of each series;
. the rate of any dividends;
. whether any dividends shall be cumulative or non-cumulative;
. any voting rights;
. rights and terms of any conversion or exchange;
. the terms of any redemption, or any sinking fund with respect to any
redemption of each series;
. the amount payable in the event of any voluntary liquidation,
dissolution or winding up of the affairs of Entravision; and
. any other relative rights, privileges and limitations of each series.
Alien Ownership
Our first restated certificate of incorporation restricts the ownership of
our capital stock in accordance with the Communications Act and the rules of
the FCC that prohibit direct ownership of more than 20% of our outstanding
capital stock (or beneficial ownership of more than 25% of our capital stock
through others) by or for the account of aliens, foreign governments or non-
U.S. corporations or corporations otherwise subject to control by those persons
or entities. Our first restated certificate of incorporation also prohibits any
transfer of our capital stock which would cause us to violate this prohibition.
In addition, our first restated certificate of incorporation authorizes our
board of directors to adopt other provisions that it deems necessary to enforce
these prohibitions.
Delaware Anti-Takeover Law and Charter Provisions
Provisions of our first restated certificate of incorporation are intended
to enhance continuity and stability in our board of directors and in our
policies, but might have the effect of delaying or preventing a change in
control of Entravision and may make the removal of incumbent management more
difficult even if the transactions could be beneficial to the interests of
stockholders. A summary description of these provisions follows:
Change in Control. We are subject to the provisions of Section 203 of the
Delaware General Corporation Law, an anti-takeover law. In general, the statute
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business
80
combination is approved in a prescribed manner. For purposes of Section 203, a
"business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of a corporation's voting stock.
The provisions of Section 203, together with the ability of our board of
directors to issue preferred stock without further stockholder action, could
delay or frustrate the removal of incumbent directors or a change in control of
Entravision. The provisions also could discourage, impede or prevent a merger,
tender offer or proxy contest, even if this event would be favorable to the
interests of stockholders. Our stockholders, by adopting an amendment to our
first restated certificate of incorporation or our first amended and restated
bylaws, may elect not to be governed by Section 203 effective 12 months after
adoption. Neither our first restated certificate of incorporation nor our first
amended and restated bylaws currently exclude us from the restrictions imposed
by Section 203.
Authority to Issue Additional Preferred Stock. Our first restated
certificate of incorporation authorizes our board of directors, without
stockholder approval, to issue additional shares of one or more series of
preferred stock, each series having the voting rights, dividend rates,
liquidation, redemption, conversion and other rights as may be fixed by our
board of directors. The issuance of additional shares of preferred stock, or
the issuance of rights to purchase additional shares of preferred stock, could
be used to discourage an unsolicited acquisition proposal. For example, a
business combination could be impeded by issuing a series of preferred stock
containing class voting rights that would enable the holder or holders of this
series to block the transaction. Alternatively, a business combination could be
facilitated by issuing a series of preferred stock having sufficient voting
rights to provide a required percentage vote of the stockholders. In addition,
under certain circumstances, the issuance of additional shares of preferred
stock could adversely affect the voting power and other rights of the holders
of our common stock. Although our board of directors is required to make any
determination to issue any additional shares of preferred stock based on its
judgment as to the best interests of our stockholders, it could act in a manner
that would discourage an acquisition attempt or other transaction that some, or
a majority, of the stockholders might believe to be in their best interests or
in which stockholders might receive a premium for their stock over prevailing
market prices of the stock. Our board of directors does not, at present, intend
to seek stockholder approval prior to any issuance of currently authorized
stock, unless otherwise required by law or applicable stock exchange
requirements.
Limitation of Director Liability. Section 102(b)(7) of the Delaware General
Corporation Law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. Although Section
102(b) does not change directors' duty of care, it enables corporations to
limit available relief to equitable remedies such as injunction or rescission.
Our first restated certificate of incorporation limits the liability of
directors to Entravision or its stockholders to the fullest extent permitted by
Section 102(b). Specifically, our directors will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director,
except for liability:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. for any transaction from which the director derived an improper personal
benefit.
Indemnification. To the maximum extent permitted by law, our first restated
certificate of incorporation provides for mandatory indemnification of
directors and officers and discretionary indemnification of our employees and
agents against all expense, liability and loss to which they may become subject
or which they may incur as a result of being or having been our director,
officer, employee or agent, as the case may be.
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Registration Rights
All of our stockholders before the closing of this offering and all of the
stockholders receiving our Class A common stock in connection with the
acquisition of Z-Spanish Media are entitled to certain rights with respect to
registration of their shares under the Securities Act, which do not apply to
this offering.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
Listing
We have applied for listing of our Class A common stock on the New York
Stock Exchange under the trading symbol "EVC."
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SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no market for our common stock. Future
sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this
offering because of contractual restrictions on resale. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
or are released could adversely affect the prevailing market price and impair
our ability to raise equity capital in the future.
Upon completion of the offering, we will have outstanding shares of
Class A common stock, outstanding shares of Class B common stock and
outstanding shares of Class C common stock. Of the shares of Class A
common stock, the shares sold in this offering, plus any shares
issued upon exercise of the underwriters' over-allotment option, will be freely
tradable without restriction under the Securities Act, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act. In
general, affiliates include officers, directors or 10% stockholders.
The remaining shares of common stock outstanding will be
"restricted securities" within the meaning of Rule 144. Restricted securities
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144 or 701 promulgated under the
Securities Act, which are summarized below. Sales of the restricted securities
in the public market, or the availability of such shares for sale, could
adversely affect the market price of our common stock.
Each of our officers, directors and existing stockholders has entered into a
"lock-up" agreement with Donaldson, Lufkin & Jenrette Securities Corporation in
connection with this offering generally providing that they will not offer,
sell, contract to sell or grant any option to purchase or otherwise dispose of
our common stock or any securities exercisable for or convertible into our
common stock without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation. The "lock-up" restrictions will expire on the date
which is 180 days after the date of this prospectus. Notwithstanding possible
earlier eligibility for sale under the provisions of Rules 144 and 701, shares
subject to "lock-up" agreements will not be salable until such agreements
expire or are waived by Donaldson, Lufkin & Jenrette Securities Corporation.
Taking into account the "lock-up" agreements, and assuming Donaldson, Lufkin &
Jenrette Securities Corporation does not release stockholders from these
agreements, the following shares will be eligible for sale in the public market
at the following times:
. beginning on the date of this prospectus, only the shares of Class A
common stock sold in the offering will be immediately available for sale
in the public market; and
. beginning 180 days after the date of this prospectus, an additional
shares of common stock will be freely tradeable pursuant to
Rule 144(k), and an additional shares will be eligible for sale
subject to volume limitations, as explained below, pursuant to Rules 144
and 701, including, in both cases, shares of Class A common stock
issuable upon conversion of Class B common stock or Class C common
stock.
In general, under Rule 144 as currently in effect, after the expiration of
the "lock-up" agreements with Donald, Lufkin & Jenrette Securities Corporation,
a person who has beneficially owned restricted securities for at least one year
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding which will
equal approximately shares immediately after the offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
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Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice and the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been our affiliate at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares pursuant to a written compensatory plan or
contract to resell such shares in reliance upon Rule 144 but without compliance
with specific restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirement and that non-affiliates may sell such shares in reliance on Rule
144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.
In addition, we intend to file a registration statement on Form S-8 under
the Securities Act within 180 days following the date of this prospectus to
register shares to be issued pursuant to our omnibus equity incentive plan. As
a result, any options or rights exercised under our omnibus equity incentive
plan or any other benefit plan after the effectiveness of the registration
statement will also be freely tradable in the public market. However, such
shares held by affiliates will still be subject to the volume limitation,
manner of sale, notice and public information requirements of Rule 144 unless
otherwise resaleable under Rule 701.
All of our stockholders before the closing of this offering and all of the
stockholders receiving our Class A common stock in connection with the
acquisition of Z-Spanish Media are entitled to certain rights with respect to
registration of their shares under the Securities Act, which do not apply to
this offering.
We cannot predict as to the effect, if any, that sales of shares of our
Class A common stock, or the availability of shares for future sale, will have
on the market price of our Class A common stock prevailing from time to time.
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UNDERWRITING
Subject to terms and conditions of an underwriting agreement, dated as of
, 2000, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Credit Suisse First Boston
Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith
Barney Inc., Bear, Stearns & Co. Inc. and DLJdirect Inc., have severally agreed
to purchase from us the respective number of shares of Class A common stock
shown opposite their names below.
[Download Table]
Number
of
Underwriters: Shares
Donaldson, Lufkin & Jenrette Securities Corporation...................
Credit Suisse First Boston Corporation................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated ...................
Salomon Smith Barney Inc..............................................
Bear, Stearns & Co. Inc...............................................
DLJdirect Inc.........................................................
Total...............................................................
====
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of Class A common
stock included in this offering are subject to approval of legal matters by
their counsel and to customary conditions, including the effectiveness of the
registration statement, the continuing correctness of our representations and
those of the selling stockholder, the listing of the Class A common stock on
the New York Stock Exchange and no occurrence of an event that would have a
material adverse effect on us. The underwriters are obligated to purchase and
accept delivery of all the shares of Class A common stock, other than those
covered by the over-allotment option described below, if they purchase any of
the shares of Class A common stock.
The underwriters initially propose to offer some of the shares of Class A
common stock directly to the public at the initial public offering price on the
cover page of this prospectus and some of the shares of Class A common stock to
dealers, including the underwriters, at the initial public offering price less
a concession not in excess of $ per share. The underwriters may allow, and
these dealers may re-allow, a concession not in excess of $ per share to
other dealers. After the initial offering of the Class A common stock to the
public, the representatives of the underwriters may change the public offering
price and these concessions. The underwriters do not intend to confirm sales to
any accounts over which they exercise discretionary authority.
The following table shows the underwriting fees to be paid to the
underwriters by us and by the selling stockholder in this offering. These
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares of Class A common stock.
[Download Table]
No Exercise Full Exercise
Entravision:
Per share........................................ $ $
Total............................................ $ $
Selling Stockholder:
Per share........................................ $ $
Total............................................ $ $
We estimate expenses related to this offering will be $ .
We and the selling stockholder have granted to the underwriters an option,
exercisable within 30 days after the date of the underwriting agreement, to
purchase up to additional shares of Class A common stock at the initial
public offering price less underwriting fees. The underwriters may exercise
this option solely to cover over-allotments, if any, made in connection with
the offering. To the extent that the underwriters exercise this option, each
underwriter will become obligated, subject to conditions, to purchase a number
of additional shares approximately proportionate to that underwriter's initial
purchase commitment.
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We and the selling stockholder have agreed to indemnify the underwriters
against specified liabilities, including liabilities under the Securities Act,
or to contribute to payments that the underwriters may be required to make in
respect of any of those liabilities.
Entravision, our executive officers and directors and all of our
stockholders before the closing of the offering (including the selling
stockholder) have agreed, for a period of 180 days from the date of this
prospectus, they will not, without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation, do either of the following:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of Class A common stock or any
securities convertible into or exercisable or exchangeable for common
stock; or
. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any Class
A common stock.
Either of the foregoing transfer restrictions will apply regardless of
whether a covered transaction is to be settled by the delivery of Class A
common stock or such other securities, in cash or otherwise. In addition,
during this 180 day period and subject to specified exceptions, we have agreed
not to file any registration statement with respect to, and each of our
executive officers and directors and all of our stockholders have agreed not to
exercise any right with respect to, the registration of any shares of Class A
common stock or any securities convertible into or exercisable for Class A
common stock without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation.
At our request, the underwriters have reserved for sale up to shares
of Class A common stock offered by this prospectus for sale at the initial
public offering price to our employees, officers and directors and other
persons designated by us. The number of shares of Class A common stock
available for sale to the general public in this offering will be reduced to
the extent these persons purchase or confirm for purchase, orally or in
writing, these reserved shares. Any reserved shares not purchased or confirmed
for purchase will be offered by the underwriters to the general public on the
same basis as the other shares offered by this prospectus.
We have applied for listing of our Class A common stock on the New York
Stock Exchange under the symbol "EVC."
Other than in the United States, no action has been taken by Entravision,
the selling stockholder or the underwriters that would permit a public offering
of the shares of Class A common stock offered by this prospectus offering in
any jurisdiction where action for that purpose is required. The shares of Class
A common stock offered through this prospectus may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisements associated with the offer and sale of any of the shares of
Class A common stock offered through this prospectus be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that jurisdiction. You
should inform yourself and observe any restrictions relating to the offering of
the Class A common stock and the distribution of this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any shares of Class A common stock included in this offering in any
jurisdiction where that would not be permitted or legal.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation, is facilitating the distribution of the shares sold in this
offering over the Internet.
Stabilization
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A common
stock. Specifically, the underwriters may over-allot the offering, creating a
syndicate short position. The underwriters may bid for and purchase shares of
Class A
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common stock in the open market to cover a syndicate short position or to
stabilize the price of the Class A common stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if Donaldson, Lufkin & Jenrette Securities Corporation repurchases
previously distributed Class A common stock in syndicate covering transactions,
in stabilization transactions or otherwise or if Donaldson, Lufkin & Jenrette
Securities Corporation receives a report that indicates that the clients of
such syndicate members have purchased the Class A common stock and immediately
resold the shares for a profit. These activities may stabilize or maintain the
market price of the Class A common stock above independent market levels. The
underwriters are not required to engage in these activities, may end any of
these activities at any time, and in any event will discontinue these
activities no later than 30 days after the closing of this offering.
Pricing of the Class A common stock
Prior to this offering, there has been no established trading market for our
Class A common stock. The initial public offering price of our Class A common
stock will be determined by negotiation among Entravision, the selling
stockholder and the representatives of the underwriters. The factors to be
considered in determining the initial public offering price include:
. the history of and the prospects for the industry in which we compete;
. our past and present operations;
. our historical results of operations;
. our prospects for future earnings;
. the recent market prices of securities of generally comparable
companies; and
. the general condition of the securities markets at the time of this
offering.
LEGAL MATTERS
The validity of the Class A common stock being offered by this prospectus
will be passed upon for us by Zevnik Horton Guibord McGovern Palmer & Fognani,
L.L.P., San Diego, California. Paul A. Zevnik, a partner of Zevnik Horton
Guibord McGovern Palmer & Fognani, L.L.P., owns shares of our Class B
common stock. Other legal matters will be passed upon for the underwriters by
O'Melveny & Myers LLP, Los Angeles, California.
EXPERTS
The financial statements of Entravision Communications Corporation as of
December 31, 1998 and 1999, and for each of the years ended December 31, 1997,
1998, 1999, and DeSoto-Channel 62 Associates, Ltd. for the period from January
1, 1999 through September 24, 1999, included in this prospectus and
registration statement have been audited by McGladrey & Pullen, LLP,
independent accountants, to the extent and for the periods indicated in their
reports included elsewhere herein, and are included in reliance upon such
reports and upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Latin Communications Group Inc. as of December
27, 1998 and December 26, 1999, and for each of the three years in the period
ended December 26, 1999, included in this prospectus and registration statement
have been audited by Ernst & Young LLP, independent auditors, as indicated in
their report with respect thereto, and are included herein in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The combined financial statements of Z-Spanish Media Corporation and its
predecessor as of December 31, 1998 and 1999, and for each of the years ended
December 31, 1997, 1998 and 1999 included in this prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as indicated in their report
with respect thereto, and are included herein in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits, schedules and amendments thereto)
under the Securities Act with respect to the shares of our Class A common stock
to be sold in this offering. This prospectus does not contain all the
information set forth in the registration statement. Certain parts of the
registration statement are omitted as allowed by the rules and regulations of
the Securities and Exchange Commission. We refer you to the registration
statement and the exhibits to such registration statement for further
information with respect to us and the shares of our Class A common stock to be
sold in this offering. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete and in each instance we refer you to the copy of that
contract, agreement or other document filed as an exhibit to the registration
statement, and each such statement is deemed qualified in all respects by such
reference.
You may read and copy all or any portion of the registration statement or
any other information we file at the public reference room at the Securities
and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549 and at the regional offices of the Securities and
Exchange Commission located at Seven World Trade Center, 13th Floor, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of the public reference rooms. Our filings with the Securities
and Exchange Commission, including the registration statement, are also
available to you on the Securities and Exchange Commission's website
(http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act, and, in accordance with
those requirements, we will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission.
We intend to furnish our stockholders with annual reports containing audited
financial statements and with quarterly reports for the first three quarters of
each year containing unaudited interim financial information.
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INDEX TO FINANCIAL STATEMENTS
[Download Table]
Page
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ENTRAVISION COMMUNICATIONS CORPORATION (PRO FORMA)
Unaudited Pro Forma Financial Information, Basis of Presentation......... F-2
Unaudited Pro Forma Condensed Consolidated Statement of Operations....... F-4
Unaudited Pro Forma Condensed Consolidated Balance Sheet................. F-5
Notes to Unaudited Pro Forma Financial Statements........................ F-6
ENTRAVISION COMMUNICATIONS CORPORATION (HISTORICAL)
INDEPENDENT AUDITOR'S REPORT............................................... F-8
FINANCIAL STATEMENTS
Consolidated Balance Sheets.............................................. F-9
Consolidated Statements of Operations.................................... F-10
Consolidated Statements of Stockholders' Equity.......................... F-11
Consolidated Statements of Cash Flows.................................... F-12
Notes to Consolidated Financial Statements............................... F-13
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS............................................. F-30
FINANCIAL STATEMENTS
Consolidated Balance Sheets.............................................. F-31
Consolidated Statements of Operations.................................... F-32
Consolidated Statements of Stockholders' Equity.......................... F-33
Consolidated Statements of Cash Flows.................................... F-34
Notes to Consolidated Financial Statements............................... F-35
Z-SPANISH MEDIA CORPORATION
INDEPENDENT AUDITOR'S REPORT............................................... F-46
FINANCIAL STATEMENTS
Combined Balance Sheets.................................................. F-47
Combined Statements of Operations........................................ F-48
Combined Statements of Stockholders' Equity.............................. F-49
Combined Statements of Cash Flows........................................ F-50
Notes to Combined Financial Statements................................... F-51
DESOTO-CHANNEL 62 ASSOCIATES, LTD.
INDEPENDENT AUDITOR'S REPORT............................................... F-69
FINANCIAL STATEMENTS
Statement of Operations and Partners' Deficit............................ F-70
Statement of Cash Flows.................................................. F-71
Notes to Financial Statements............................................ F-72
F-1
UNAUDITED PRO FORMA FINANCIAL INFORMATION
BASIS OF PRESENTATION
The following unaudited pro forma financial information is based on our
historical financial statements and those of LCG, Z-Spanish Media and other
acquired or to be acquired companies and has been prepared to illustrate the
effects of the acquisitions described below and the related financing
transactions.
The unaudited pro forma condensed consolidated statement of operations for
the year ended December 31, 1999 gives effect to acquisitions completed between
January 1, 1999 and the date of this prospectus, including our acquisition of
LCG, and our pending acquisition of Z-Spanish Media, as if such transactions
had been completed January 1, 1999.
The unaudited pro forma condensed consolidated balance sheet as of December
31, 1999 has been prepared as if such acquisitions had occurred as of December
31, 1999.
The unaudited pro forma condensed consolidated balance sheet as of December
31, 1999 column "Univision and TSG Capital Investments" reflects an additional
$110 million investment from Univision and $90 million from TSG Capital Fund
III, L.P. For purposes of this presentation, these investments are presented as
a reduction of our existing bank debt.
These acquisitions will be accounted for using the purchase method of
accounting. The total purchase costs of these acquisitions will be allocated to
the tangible and intangible assets and liabilities acquired based upon their
respective fair values. The allocation of the aggregate purchase price
reflected in the unaudited pro forma financial information is preliminary. The
final allocation of the purchase price will be contingent upon the receipt of
final appraisals of the acquired assets. The unaudited pro forma financial
information is not necessarily indicative of either future results of
operations or the results that might have occurred if the foregoing
transactions had been consummated on the indicated dates.
The unaudited pro forma financial information should be read in conjunction
with our audited consolidated financial statements and notes thereto and those
of LCG, Z-Spanish Media and Desoto-Channel 62 Associates, Ltd. included
elsewhere in this prospectus.
Recently Completed and Pending Acquisitions
Recently Completed Acquisitions
1999 Acquisitions
El Centro/Brawley/Imperial, California Acquisition. On January 6, 1999, we
acquired certain assets of Brawley Broadcasting Company and KAMP Radio, Inc.,
which includes the radio stations KAMP (AM) El Centro, California; KWST (FM)
Brawley, California; KMXX (FM) Imperial, California for approximately
$2.5 million. This was financed with an advance under our existing bank line of
credit.
Orlando/Tampa, Florida and Washington, D.C. Acquisition. On February 4,
1999, we purchased all of the assets of Latin Communications Group Television,
Inc. relating to television stations WVEN-LP, in Orlando, Florida and WVEA-LP
in Tampa, Florida. In addition, we purchased all of the outstanding capital
stock of Los Cerezos Television Company, which operates television station
WMDO-LP in Washington, D.C. The aggregate purchase price was approximately
$14.3 million including the assumption of certain liabilities totaling $1.1
million. This was financed with an advance under our existing bank line of
credit.
Albuquerque, New Mexico Acquisition. On April 1, 1999, we acquired certain
assets of Univision affiliate television stations KLUZ and K48AM from Univision
for a purchase price of approximately $14.9 million. We provided a 2% increase
in Univision's option under its note agreement and $1 million cash.
Venice (Sarasota), Florida Acquisition. On September 20, 1999, we acquired
certain assets of DeSoto Broadcasting, Inc., DeSoto Channel 62 Associates, and
Omni Investments, Inc. for a purchase price of $17.0 million. These companies
collectively own the assets and licenses to operate television station WBSV in
Venice, Florida. This was financed with an advance under our existing bank line
of credit.
F-2
Lubbock/San Angelo/Amarillo, Texas Acquisition. On December 20, 1999, we
acquired certain assets of Paisano Communications, which includes low-power
television stations KBZO-LP, Lubbock, Texas; K31DM, San Angelo, Texas; K48FR,
Amarillo, Texas and radio station KBZO (AM), Lubbock, Texas for $2.3 million.
This was financed with an advance under our existing bank line of credit.
2000 Acquisitions
El Paso, Texas Acquisition. On January 14, 2000, we acquired substantially
all of assets relating to the operations of radio stations KATH (FM) and KOFX
(FM) from Magic Media, Inc. for approximately $14 million. This was financed
with an advance under our existing bank line of credit.
Tijuana, Mexico Acquisition. In March 2000, our 40% owned affiliate acquired
the outstanding capital stock of a Mexican corporation which holds the
necessary authorizations from the Mexican government to own and operate
television station XHAS, Channel 33. Additionally, we acquired a 47.5% interest
in Vista Television, Inc., and Channel 57, Inc. for approximately $35.2
million. Additionally, we will enter into a time brokerage agreement in
connection with this acquisition. This was financed with proceeds from the
$110 million Univision investment.
California, Colorado, New Mexico and Washington D.C. Acquisition. On April
20, 2000, we acquired all of the outstanding capital stock of LCG for
approximately $252 million. LCG operates 17 radio stations in California,
Colorado, New Mexico and Washington D.C. and also owns two Spanish-language
publications. This acquisition was financed using our bank credit facilities
and TSG Capital Fund III, L.P.'s investment of $90 million.
Pending Acquisition
California, Texas, Illinois, Arizona, New York and Florida Acquisition. On
April 20, 2000, we agreed to acquire all of the outstanding capital stock of Z-
Spanish Media for a purchase price of approximately $475 million including the
assumption of approximately $109 million of debt. Z-Spanish Media owns 33 radio
stations and an outdoor billboard business. These pro forma financial
statements also give effect to Z-Spanish Media's September 30, 1999 acquisition
of Seaboard Outdoor Advertising, as if Z-Spanish Media had owned these
operations for all of 1999. The acquisition of Z-Spanish Media will be financed
with the issuance of shares of Class A common stock valued at $110 million
and $256 million cash from offering proceeds. If this offering is not
completed, the agreement provides for the issuance of $256 million of
redeemable preferred stock with a dividend at LIBOR plus 7%.
Other Pending Transactions
The following transactions represent our purchases of FCC licenses. For
purposes of these pro forma financial statements, these transactions do not
represent business acquisitions and therefore historical financial information
is not meaningful. As a result, these transactions are not included in our pro
forma financial information.
Hartford, Connecticut Acquisition. In February 2000, we agreed to acquire
the FCC license of television station WHCT in Hartford, Connecticut for
$18 million.
Santa Monica/Newport Beach, California Acquisition. In March 2000, we agreed
to acquire from Citicasters Co., a subsidiary of Clear Channel Communications,
Inc., the FCC licenses relating to the operations of radio stations KACD (FM)
Santa Monica, California and KBCD (FM) Newport Beach, California for $85
million of which $17 million was placed into escrow as a deposit.
Orlando/Daytona Beach/Melbourne, Florida Acquisition. On April 14, 2000, we
agreed to acquire certain assets of television station WNTO-TV for $23 million.
F-3
ENTRAVISION COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(In thousands, except per share data)
[Enlarge/Download Table]
Unaudited
Historical Other Pro Forma Unaudited Unaudited
Historical Historical Z-Spanish Completed Adjust- Unaudited Offering Pro Forma
Entravision LCG Media Acquisitions ments Pro Forma Adjustments As Adjusted
----------- ---------- ---------- ------------ --------- --------- ----------- -----------
Gross revenue:
Television............ $ 63,842 $ -- $ -- $ 5,096 $ -- $ 68,938
Radio................. 2,362 29,759 26,334 2,406 -- 60,861
Outdoor and
publishing........... -- 19,109 12,227 3,798 -- 35,134
-------- ------- ------- ------- -------- --------- ---- ----
Total gross revenue.... 66,204 48,868 38,561 11,300 -- 164,933
Less agency
commissions........... 7,205 4,623 2,523 516 -- 14,867
-------- ------- ------- ------- -------- --------- ---- ----
Net revenue............ 58,999 44,245 36,038 10,784 -- 150,066
-------- ------- ------- ------- -------- --------- ---- ----
Expenses:
Direct operating...... 24,441 15,560 14,183 4,731 -- 58,915
Selling, general and
administrative....... 11,611 18,910 8,382 6,583 -- 45,486
Corporate............. 5,809 1,795 4,773 -- -- 12,377
Depreciation and
amortization......... 14,613 4,907 8,670 377 54,601 (1) 83,168
Non-cash stock-based
compensation......... 29,143 -- -- -- -- 29,143
Gain on sale of
assets............... -- -- (4,442) -- -- (4,442)
-------- ------- ------- ------- -------- --------- ---- ----
Total expenses......... 85,617 41,172 31,566 11,691 54,601 224,647
-------- ------- ------- ------- -------- --------- ---- ----
Operating income
(loss)................ (26,618) 3,073 4,472 (907) (54,601) (74,581)
Interest expense, net
and other............. (12,091) (5,527) (6,471) (1,246) (24,280)(2)
(335)(3)
16,050 (4) (33,900)
Income tax benefit..... 121 736 284 852 22,506 (5)
3,499 (6) 27,998
-------- ------- ------- ------- -------- ---------
Loss from continuing
operations............ (38,588) (1,718) (1,715) (1,301) (37,161) (80,483)
Preferred stock
dividends............. -- -- -- -- 42,209 (7) 42,209
-------- ------- ------- ------- -------- --------- ---- ----
Loss from continuing
operations applicable
to common stock....... $(38,588) $(1,718) $(1,715) $(1,301) $(79,370) $(122,692)
======== ======= ======= ======= ======== =========
Basic and diluted
earnings per share:
Net loss from
continuing operations
applicable to common
stock................
========= ====
Weighted average
common shares
outstanding..........
========= ====
F-4
ENTRAVISION COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 1999
(In thousands)
[Enlarge/Download Table]
Univision
Historical and TSG Unaudited Unaudited Unaudited
Historical Historical Z-Spanish Capital Group Pro Forma Unaudited Offering Pro Forma As
Entravision LCG Media Investments Adjustments Pro Forma Adjustments Adjusted
----------- ---------- ---------- ------------- ----------- ---------- ----------- ------------
Current assets:
Cash and cash
equivalents......... $ 2,357 $ 6,695 $ 4,493 $ -- -- $ 13,545
Receivables......... 12,665 8,184 15,971 -- -- 36,820
Prepaid expenses
and taxes........... 355 1,632 1,983 -- -- 3,970
-------- -------- -------- --------- --------- ---------- ---- ----
Total current
assets............ 15,377 16,511 22,447 -- -- 54,335
Property and
equipment............ 27,230 7,259 34,267 -- 600 (8) 69,356
Intangible assets.... 136,189 131,162 225,408 -- 554,136 (8) 1,046,895
Other assets......... 10,023 2,554 6,921 -- (10,045)(11) 9,453
-------- -------- -------- --------- --------- ---------- ---- ----
Total assets...... $188,819 $157,486 $289,043 $ -- $ 544,691 $1,180,039
======== ======== ======== ========= ========= ========== ==== ====
Current liabilities:
Accounts payable,
accrued liabilities
and other........... $ 7,479 $ 6,081 $ 12,254 $ -- $ -- $ 25,814
Long-term debt,
current portion..... 1,620 69 22,779 -- -- 24,468
-------- -------- -------- --------- --------- ---------- ---- ----
Total current
liabilities....... 9,099 6,150 35,033 -- -- 50,282
Long-term debt....... 155,917 42,037 89,066 (200,000) 251,894 (9)
(2,545)(11) 336,369
Subordinated notes... 10,000 -- -- 200,000 (210,000)(10) --
Deferred taxes and
other................ 1,990 20,331 28,554 -- 155,000 (9) 205,875
-------- -------- -------- --------- --------- ---------- ---- ----
Total
liabilities....... 177,006 68,518 152,653 -- 194,349 592,526
-------- -------- -------- --------- --------- ---------- ---- ----
Series A mandatorily
redeemable
convertible preferred
stock................ -- -- -- -- 90,000 (10) 90,000 -- --
Series B redeemable
pay-in-kind preferred
stock................ -- -- -- -- 255,990 (9) 255,990 -- --
Common stock put
options.............. -- -- 37,591 -- (37,591)(11) --
-------- -------- -------- --------- --------- ---------- ---- ----
-- -- -- -- 308,399 345,990 -- --
-------- -------- -------- --------- --------- ---------- ---- ----
Stockholders' equity:
Class A common
stock............... 1 92 251 -- 11 (9) --
(343)(11) 12
Class B common
stock............... 5 -- -- -- -- 5
Class C common
stock............... -- -- -- -- 5 (10) 5
Additional paid-in
capital............. 76,292 94,485 115,751 -- (210,236)(11)
109,699 (9)
119,995 (10) 305,986
Deferred
compensation and
other............... -- -- (5,197) -- 5,197 (11) --
Accumulated
deficit............. (63,901) (5,609) (12,006) -- 17,615 (11) (63,901)
Stock subscriptions
notes receivable.... (584) -- -- -- (584) --
-------- -------- -------- --------- --------- ---------- ---- ----
Total
stockholders'
equity............ 11,813 88,968 98,799 -- 41,943 241,523
-------- -------- -------- --------- --------- ---------- ---- ----
Total liabilities
and stockholders'
equity............ $188,819 $157,486 $289,043 $ -- $ 544,691 $1,180,039
======== ======== ======== ========= ========= ========== ==== ====
F-5
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS ADJUSTMENTS
(1) These adjustments reflect additional depreciation and amortization expense
resulting from the allocation of our purchase price of the assets
acquired, including increases in property and equipment and identifiable
intangible assets, to their estimated fair market values and the goodwill
associated with the acquisitions.
[Download Table]
Amortization Depreciation Less Pro Forma
Expense Expense Historical Adjustment
------------ ------------ ---------- ----------
LCG......................... $ 22,306 $1,037 $ (4,907) $18,436
Z-Spanish Media............. 35,181 4,895 (8,670) 31,406
Other....................... 5,136 -- (377) 4,759
--------- ------ -------- -------
$ 62,623 $5,932 $(13,954) $54,601
========= ====== ======== =======
Goodwill and other specifically identified intangibles are amortized over
15 years and fixed assets over 7 years.
(2) These adjustments conform historical interest expense to pro forma
interest expense associated with our borrowings under our existing credit
facility prior to our adjustments for our subordinated notes and LCG
credit facility which were used to finance the completed and pending
acquisitions. The pro forma interest expense adjustment is as follows:
[Download Table]
Debt After Interest Less Pro Forma
Acquisitions Expense Historical Adjustment
------------ -------- ---------- ----------
LCG............................. $245,000 $21,070 $ (5,527) $15,543
Z-Spanish Media................. 109,300 9,400 (6,289) 3,111
Other........................... 82,500 7,095 (1,469) 5,626
------- -------- -------
$37,565 $(13,285) $24,280
======= ======== =======
The assumed interest rate under our existing revolving credit facility was
8.6%, which represents our current rate.
(3) This adjustment represents the reduction or increase in interest expense on
the borrowings under our existing credit facility due to the reduced rate
associated with our 8.5% $90 million convertible subordinated note from TSG
Capital Fund III, L.P., Univision's 7% $110 million subordinated note and
option and the increase in interest rate to 10.5% associated with our $115
million term loan for our acquisition of LCG.
[Download Table]
Interest
Expense
--------
TSG Capital Fund III, L.P......................................... $ 90
Univision......................................................... 1,760
Term loan for acquisition of LCG.................................. (2,185)
------
$ (335)
======
(4) This adjustment represents the interest savings on the exchange of
Univision's 7% subordinated note and option of $120 million to Class C
common stock and the conversion of TSG Capital Fund III, L.P.'s 8.5%
convertible subordinated note of $90 million to preferred stock.
(5) To provide for the tax effect of pro forma adjustments using an estimated
effective rate of 40%. Our acquisitions of LCG and Z-Spanish Media and our
acquisitions of stations KORO and KNVO will include non-tax deductible
goodwill which is estimated to be $6.9 million for the year ended December
31, 1999.
(6) This represents the provision for income taxes on pro forma net loss to
give effect to our conversion from a limited liability company to a C-
corporation for federal and state income tax purposes as if it had
F-6
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
occurred on December 31, 1999. An effective combined tax rate of 40% was
used after giving effect to non-tax deductible goodwill of $0.8 million
and non-cash stock-based compensation of $29.1 million.
(7) This adjustment represents the 8.5% dividend on TSG Capital Fund III,
L.P.'s mandatorily redeemable convertible preferred stock and the 13.5%
dividend on our redeemable preferred stock issued in conjunction with our
acquisition of Z-Spanish Media, if this offering is not completed.
[Download Table]
Preferred Stock Dividends
--------------- ---------
Series A mandatorily redeemable convertible preferred stock..... $ 7,650
Series B redeemable pay-in-kind preferred stock................. 34,559
-------
$42,209
=======
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET ADJUSTMENTS
(8) These adjustments represent the allocation of purchase price of our 2000
acquisitions to the estimated fair market value of the assets acquired
and liabilities assumed, and the recording of goodwill and FCC license
intangibles associated with the acquisitions.
[Download Table]
FCC Licenses
and Other Less Total
Intangibles Goodwill Historical Intangibles Equipment
------------ -------- ---------- ----------- ---------
LCG................. $300,588 $34,000 $(131,162) $203,426 $ --
Z-Spanish Media..... 474,718 53,000 (225,408) 302,310 --
Other............... 43,400 5,000 -- 48,400 600
-------- ------- --------- -------- -------
$818,706 $92,000 $(356,570) $554,136 $ 600
======== ======= ========= ======== =======
(9) The adjustment represents the issuance of stock and borrowings under
credit facilities to finance acquisitions and to record related deferred
tax liabilities.
(10) This adjustment represents the exchange of Univision's 7% subordinated
note and option of $120 million to Class C common stock and the
conversion of TSG Capital Fund III, L.P.'s 8.5% convertible subordinated
note of $90 million into shares of Series A mandatorily redeemable
convertible preferred stock.
[Download Table]
Borrowings
Under Common
Credit Stock Preferred Deferred
Facilities Issued Stock Taxes
---------- -------- --------- --------
LCG.................................. $202,894 $ -- $ -- $ 82,000
Z-Spanish Media...................... -- 109,710 255,990 73,000
Other................................ 49,000 -- -- --
-------- -------- -------- --------
$251,894 $109,710 $255,990 $155,000
======== ======== ======== ========
(11) This adjustment represents the elimination of our deposit related to our
acquisition of LCG and the historical stockholders' equity of LCG and Z-
Spanish Media as these acquisitions were accounted for as purchase
business combinations.
UNAUDITED PROFORMA OFFERING ADJUSTMENTS
(12) This adjustment represents the interest savings from using the estimated
net proceeds we receive from this offering for the repayment of $ of
the pro forma borrowings.
(13) This adjustment represents the tax effect of offering adjustments using
an estimated statutory tax rate of 40%.
(14) This adjustment represents our issuance of shares of our Class A
common stock at a public offering price of $ per share, net of in
estimated offering expenses. The application of the estimated proceeds we
receive from this offering will be used to repay our credit facilities.
F-7
The accompanying consolidated financial statements of Entravision
Communications Corporation and its subsidiaries have been prepared to give
effect to an exchange transaction of the Company from a limited liability
company (LLC) to a corporation and contemporaneously with the closing of the
public offering contemplated by this prospectus the conversion of all LLC
membership units to Class A, B and C common stock as described in Note 1. On
the effective date of the registration statement covering the shares of Class A
common stock to be sold in the public offering, we will issue the following
report:
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Entravision Communications Corporation
Santa Monica, California
We have audited the accompanying consolidated balance sheets of Entravision
Communications Corporation and its subsidiaries as of December 31, 1998 and
1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Entravision
Communications Corporation and its subsidiaries as of December 31, 1998 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
As described in Note 1, the accompanying consolidated financial statements
of Entravision Communications Corporation and its subsidiaries have been
prepared to give effect to the exchange transaction as discussed in Note 1,
before the closing of the public offering contemplated by this prospectus.
/s/ McGladrey & Pullen, LLP
Pasadena, California
March 18, 2000, except for the
seventh and eighth paragraphs
of Note 11, as to which the
date is April 20, 2000
F-8
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1999
(In thousands, except share and per share data)
[Download Table]
1998 1999
-------- --------
ASSETS
Current assets
Cash and cash equivalents................................. $ 3,661 $ 2,357
Receivables:
Trade, net of allowance for doubtful accounts of 1998
$790; 1999 $979......................................... 9,143 12,392
Related parties.......................................... 284 273
Prepaid expenses and taxes................................ 268 355
-------- --------
Total current assets.................................... 13,356 15,377
Property and equipment, net................................ 16,788 27,230
Intangible assets, net..................................... 77,891 136,189
Other assets, including deposits on acquisitions of 1998
$5,533; 1999 $8,742....................................... 5,689 10,023
-------- --------
$113,724 $188,819
======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of notes and advances payable, related
parties.................................................. $ 201 $ 231
Current maturities of long-term debt...................... 943 1,389
Accounts payable and accrued expenses (including related
parties of 1998 $71; 1999 $280).......................... 6,199 7,479
-------- --------
Total current liabilities............................... 7,343 9,099
-------- --------
Long-term debt
Subordinated note payable to Univision.................... 10,000 10,000
Notes payable, less current maturities.................... 88,794 155,917
-------- --------
98,794 165,917
Deferred taxes............................................. 283 1,990
-------- --------
Total liabilities....................................... 106,420 177,006
-------- --------
Commitments and Contingencies
Series A mandatorily redeemable convertible preferred
stock, $0.0001 par value, 11,000,000 shares authorized; no
shares issued or outstanding in 1998 or 1999.............. -- --
Stockholders' equity
Class A common stock, $0.0001 par value, 305,000,000
shares authorized; shares issued and outstanding 1998
10,004,228 and 1999 9,875,708............................ 1 1
Class B common stock, $0.0001 par value, 60,000,000 shares
authorized; shares issued and outstanding 1998, 1999
54,858,626............................................... 5 5
Class C common stock, $0.0001 par value, 50,000,000 shares
authorized; no shares issued or outstanding.............. -- --
Additional paid-in capital................................ 30,711 76,292
Accumulated deficit....................................... (22,852) (63,901)
-------- --------
7,865 12,397
Less: stock subscription notes receivable................. (561) (584)
-------- --------
7,304 11,813
-------- --------
$113,724 $188,819
======== ========
See Notes to Consolidated Financial Statements.
F-9
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
[Download Table]
1997 1998 1999
----------- ----------- -----------
Gross revenue (including network
compensation from Univision of 1997
$2,947, 1998 $4,922 and 1999 $2,748)... $ 33,419 $ 49,872 $ 66,204
Less agency commissions................. 2,963 5,052 7,205
----------- ----------- -----------
Net revenue........................... 30,456 44,820 58,999
----------- ----------- -----------
Expenses:
Direct operating (including Univision
national representation fees of 1997
$1,220, 1998 $2,379 and 1999 $3,149)
..................................... 9,184 15,794 24,441
Selling, general and administrative... 5,845 8,877 11,611
Corporate expenses (including related
parties of 1997 $321, 1998 $453 and
1999 $522)........................... 3,899 3,963 5,809
Non-cash stock-based compensation..... 900 500 29,143
Depreciation and amortization......... 8,847 9,565 14,613
----------- ----------- -----------
28,675 38,699 85,617
----------- ----------- -----------
Operating income (loss)............. 1,781 6,121 (26,618)
Interest expense (including amounts to
Univision of $701 in 1997, 1998 and
1999; ............................... (5,222) (8,386) (12,190)
Interest income....................... 115 142 99
----------- ----------- -----------
Loss before income taxes............ (3,326) (2,123) (38,709)
Income tax (expense) benefit............ (254) (210) 121
Effect of change in tax status.......... 7,785 -- --
----------- ----------- -----------
Net income (loss)................... $ 4,205 $ (2,333) $ (38,588)
=========== =========== ===========
Pro forma provision for income taxes
benefit................................ 654 327 3,499
----------- ----------- -----------
Pro forma net loss...................... $ (2,672) $ (1,796) $ (35,210)
=========== =========== ===========
Pro forma per-share data:
Net loss per share:
Basic and diluted.................... $ (0.04) $ (0.03) $ (0.54)
=========== =========== ===========
Weighted average common shares
outstanding:
Basic and diluted.................... 65,944,843 65,789,604 64,804,756
=========== =========== ===========
See Notes to Consolidated Financial Statements.
F-10
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
[Enlarge/Download Table]
Stock
Number of Common Shares Common Stock Additional Subscription
Preferred ------------------------------ ----------------------- Paid-in Accumulated Notes
Stock Class A Class B Class C Class A Class B Class C Capital (Deficit) Receivable Total
--------- ---------- ---------- ------- ------- ------- ------- ---------- ----------- ------------ --------
Balance,
December 31,
1996............ $ -- 5,848,237 30,670,160 -- $ 1 $ 3 $ -- $14,312 $ (4,054) $(519) $ 9,743
Issuance of
Class A common
stock in
connection with
employee stock
award........... -- 1,845,656 -- -- -- -- -- 900 -- -- 900
Issuance of
Class A and
Class B common
stock upon
merger with
entity under
common control.. -- 2,930,046 19,713,274 -- -- 2 -- 117 -- -- 119
Issuance of
Class A common
stock upon
conversion of
stockholder note
payable......... -- 469,778 -- -- -- -- -- 240 -- -- 240
Interest earned
on subscription
receivables..... -- -- -- -- -- -- -- 21 -- (21) --
Repurchase and
retirement of
Class A common
stock........... -- (387,209) -- -- -- -- -- -- (587) -- (587)
Net income...... -- -- -- -- -- -- -- -- 4,205 -- 4,205
Dividends ($0.02
per share) paid
to members for
income taxes.... -- -- -- -- -- -- -- -- (1,498) -- (1,498)
----- ---------- ---------- ----- ----- ----- ----- ------- -------- ----- --------
Balance,
December 31,
1997............ -- 10,706,508 50,383,434 -- 1 5 -- 15,590 (1,934) (540) 13,122
Issuance of
Class A and
Class B common
stock upon
merger with
entity under
common control.. -- 536,782 4,475,192 -- -- -- -- 14,600 (14,600) -- --
Interest earned
on subscription
receivables..... -- -- -- -- -- -- -- 21 -- (21) --
Repurchase and
retirement of
Class A common
stock........... -- (1,239,062) -- -- -- -- -- -- (1,000) -- (1,000)
Compensation
expense
attributable to
employee stock
award........... -- -- -- -- -- -- -- 500 -- -- 500
Net loss........ -- -- -- -- -- -- -- -- (2,333) -- (2,333)
Dividends ($0.04
per share) paid
to members for
income taxes.... -- -- -- -- -- -- -- -- (2,985) -- (2,985)
----- ---------- ---------- ----- ----- ----- ----- ------- -------- ----- --------
Balance,
December 31,
1998............ -- 10,004,228 54,858,626 -- 1 5 -- 30,711 (22,852) (561) 7,304
Increase in
conversion
option on
subordinated
note agreement
relating to
acquisition of
business........ -- -- -- -- -- -- -- 13,915 -- -- 13,915
Intrinsic value
of subordinated
note conversion
option.......... -- -- -- -- -- -- -- 2,500 -- -- 2,500
Interest earned
on subscription
receivables..... -- -- -- -- -- -- -- 23 -- (23) --
Repurchase and
retirement of
Class A common
stock........... -- (128,520) -- -- -- -- -- -- (61) -- (61)
Compensation
expense
attributable to
employee stock
award and stock
options......... -- -- -- -- -- -- -- 29,143 -- -- 29,143
Net loss........ -- -- -- -- -- -- -- -- (38,588) -- (38,588)
Dividends ($0.04
per share) paid
to members for
income taxes.... -- -- -- -- -- -- -- -- (2,400) -- (2,400)
----- ---------- ---------- ----- ----- ----- ----- ------- -------- ----- --------
Balance,
December 31,
1999............ $ -- 9,875,708 54,858,626 -- $ 1 $ 5 $ -- $76,292 $(63,901) $(584) $ 11,813
===== ========== ========== ===== ===== ===== ===== ======= ======== ===== ========
See Notes to Consolidated Financial Statements.
F-11
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1998 and 1999
(In thousands)
[Download Table]
1997 1998 1999
-------- -------- --------
Cash Flows from Operating Activities
Net income (loss)............................... $ 4,205 $ (2,333) $(38,588)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................... 8,847 9,565 14,354
Deferred tax expense (benefit).................. 149 (83) 406
Effect of change in tax status.................. (7,785) -- --
Amortization of debt issue costs................ 373 1,295 258
Intrinsic value of subordinated note exchange
option......................................... -- -- 2,500
Non-cash stock-based compensation............... 900 500 29,143
Loss on disposal of property and equipment...... 35 15 100
Changes in assets and liabilities, net of
effect of business combinations:
(Increase) in accounts receivable.............. (3,525) (2,446) (3,249)
(Increase) in prepaid expenses and other
assets........................................ (64) (119) (87)
Increase in accounts payable, accrued expenses
and other..................................... 3,374 1,264 1,291
-------- -------- --------
Net cash provided by operating activities..... 6,509 7,658 6,128
-------- -------- --------
Cash Flows from Investing Activities
Proceeds from sale of equipment................. 7 19 116
Purchases of property and equipment............. (2,366) (3,094) (12,825)
Cash deposits and purchase price on
acquisitions................................... (59,549) (22,511) (46,354)
-------- -------- --------
Net cash (used in) investing activities....... (61,908) (25,586) (59,063)
-------- -------- --------
Cash Flows from Financing Activities
Proceeds from issuance of common stock.......... 119 -- --
Principal payments on notes payable............. (1,227) (288) (352)
Proceeds from borrowings on notes payable....... 58,079 24,407 54,913
Dividends paid to members for income taxes...... (1,498) (2,985) (2,400)
Purchase and retirement of common stock......... (587) (500) (530)
Payments of deferred debt costs................. (123) (1,295) --
-------- -------- --------
Net cash provided by financing activities..... 54,763 19,339 51,631
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................. (636) 1,411 (1,304)
Cash and Cash Equivalents
Beginning....................................... 2,886 2,250 3,661
-------- -------- --------
Ending.......................................... $ 2,250 $ 3,661 $ 2,357
======== ======== ========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest........................................ $ 3,672 $ 6,744 $ 10,542
======== ======== ========
Income taxes (refunds), 1997 $88; 1998 $274;
1999 $308...................................... $ (36) $ 51 $ 96
======== ======== ========
Supplemental Disclosures of Non-cash Investing
and Financing Activities
Conversion of note payable for Class A common
stock.......................................... $ 240 $ -- $ --
======== ======== ========
Issuance of note payable in connection with
redemption of common stock..................... $ -- $ 500 $ 30
======== ======== ========
Assets Acquired and Debt Issued in Business
Combinations
Current assets.................................. $ 636 $ 99 $ 86
Broadcast equipment and furniture and
fixtures....................................... 12,001 1,343 4,477
Intangible assets............................... 55,991 16,733 67,533
Current liabilities............................. -- (164) --
Deferred taxes.................................. (7,974) -- (2,112)
Notes payable................................... (84) (350) (12,000)
Increase in subordinated debt exchange option... -- -- (13,915)
Less cash deposits from prior year.............. (1,521) (500) (5,533)
-------- -------- --------
Net cash paid................................. $ 59,049 $ 17,161 $ 38,536
======== ======== ========
See Notes to Consolidated Financial Statements.
F-12
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS, REORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Entravision Communications Corporation (the Company or ECC), a Delaware
corporation, primarily owns and operates Spanish-language television stations
serving predominantly the Southwestern United States. Each of the Spanish-
language stations is a Univision Communications Inc. (Univision) affiliate.
Univision is the leading Spanish-language television broadcaster in the United
States and makes available to its affiliates 24-hour Spanish-language
programming. Additionally, the Company owns and operates an English-language
United Paramount Network (UPN) affiliate television station in San Diego. The
Company also operates a television station in Las Vegas under a local marketing
agreement (LMA).
The Company also owns and operates Spanish-language radio stations in the
Southwest United States. The television and radio stations are collectively
referred to as the "broadcast properties." The revenue associated with the
radio stations was $2.4 million, or approximately 4%, for the year ended
December 31, 1999. See Note 11 for a discussion of acquisitions of additional
broadcast properties subsequent to December 31, 1999.
Pursuant to Univision network affiliation agreements, Univision acts as the
Company's exclusive sales representative for the sale of all national
advertising aired on Univision television stations. National sales represent
time sold on behalf of the Company's stations by sales representatives employed
by Univision. Proceeds of national sales are remitted to the Company by
Univision, net of an agency commission and a network representative fee. The
affiliation agreements expire at various dates through December 2021.
Reorganization
On February 11, 2000, ECC was formed. The First Restated Certificate of
Incorporation authorizes both preferred and common stock. The common stock has
three classes identified as A, B and C which have similar rights and privileges
except the Class B common stock provides ten votes per share as compared to one
vote per share for all other classes of common stock. Additionally, Univision,
as the holder of all Class C common stock, is entitled to vote as a separate
class to elect two directors, and will have the right to vote as a separate
class on certain material transactions. Class B and C common stock is
convertible at the holder's option into one fully paid and nonassessable share
of Class A common stock and is required to be converted into one share of Class
A common stock upon certain events as defined in the First Restated Certificate
of Incorporation. The Series A mandatorily redeemable convertible preferred
stock has limited voting rights, and accrues an 8% dividend.
The purpose of the formation of ECC is to effect an exchange transaction
whereby direct and indirect ownership interests in Entravision Communications
Company, L.L.C. (ECC LLC) will be exchanged for Class A or Class B common stock
of ECC. The Class B common stock will be issued to Walter F. Ulloa, Philip C.
Wilkinson and Paul A. Zevnik (and their controlled entities). In addition, the
stockholders of Cabrillo Broadcasting Corporation (KBNT), Golden Hills
Broadcasting Corporation (KCEC), Las Tres Palmas Corporation (KVER), Tierra
Alta Broadcasting, Inc. (KINC), KSMS-TV, Inc. (KSMS), Valley Channel 48, Inc.
(KNVO) and Telecorpus, Inc. (KORO) (collectively, the Affiliates) will exchange
their common shares of the respective corporations for Class A common shares in
ECC. Additionally, Univision will exchange its subordinated note for Class C
common stock. The number of common shares of ECC to be issued to the members of
ECC LLC and the stockholders of the Affiliates will be determined in such a
manner that the ownership interest in ECC will equal the direct and indirect
ownership interest in ECC LLC immediately prior to the exchange.
F-13
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
This exchange transaction will become effective immediately prior to the
effective date of the Initial Public Offering of ECC expected to be consummated
during 2000. ECC LLC and Affiliates are considered to be under common control
and as such, the exchange will be accounted for in a manner similar to a
pooling of interests. Accordingly, these consolidated financial statements,
including share data and the stock option exercise price, have been presented
as if ECC LLC was incorporated and the exchange transaction took place in the
earliest period presented.
Formation of Entravision Communications Company, L.L.C.
Entravision Communications Company, L.L.C., a Delaware limited liability
company, was formed on January 11, 1996. ECC LLC was established to own and
operate broadcast properties.
ECC LLC assumed the operations of television stations KVER, KINC, KBNT, KCEC
and KSMS on November 1, 1996 under local marketing agreements (LMAs) whereby
the operating revenue and expenses of these companies accrued to the benefit of
ECC LLC. Each of these companies received membership interests in ECC LLC in
exchange for the LMAs and asset contribution agreements. These LMAs were in
effect through May 31, 1997, at which time, upon Federal Communications
Commission (FCC) approval, each of these companies and KNVO transferred all of
their operating assets, liabilities and operations to ECC LLC in accordance
with the asset contribution agreements. The operating assets, liabilities and
operations of KORO were transferred to ECC LLC in exchange for membership
interests in ECC LLC on April 21, 1998.
KBNT, KCEC, KVER and KINC operated under common control prior to the
formation of ECC LLC. Accordingly, effective upon the execution of the LMAs and
asset contribution agreements, the assets and liabilities of these companies
were recorded at their fair value to the extent of the ownership interest of
each respective company owned by minority stockholders and at historical cost
for the ownership interest under common control.
KSMS, KNVO and KORO were each acquired subsequent to January 1996 through
newly formed acquisition companies owned directly by the member corporation's
stockholders in proportion to their direct and indirect membership interest in
ECC LLC prior to each acquisition. Each of these acquisitions was with
unrelated parties at fair value with nominal equity consideration. Subsequent
to the signing of the original ECC LLC Formation Agreement in January 1996,
each of the members of ECC LLC and all of the individual stockholders of the
corporations have been considered members of a control group. Accordingly,
effective upon the execution of the LMAs and asset contribution agreements, the
assets and liabilities of these companies were recorded at their historical
cost which approximated fair value at the time.
The actual exchange of ECC common stock for the common stock of KSMS, KNVO
and KORO will result in a distribution of shares to the individual stockholders
and has been presented in the statement of stockholders' equity as a stock
dividend, stock split, and stock dividend, respectively. In determining
weighted average common shares outstanding for earnings per share purposes, the
stock dividends and stock split have been accounted for as if they had occurred
as of the beginning of the earliest period presented.
Significant accounting policies
Basis of consolidation
The consolidated financial statements include the accounts of ECC and its
subsidiaries, substantially all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.
F-14
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company's operations are affected by numerous factors including changes
in audience acceptance (i.e., ratings), priorities of advertisers, new laws and
governmental regulations and policies, and technological advances. The Company
cannot predict if any of these factors might have a significant impact on the
television and radio industries in the future, nor can it predict what impact,
if any, the occurrence of these or other events might have on the Company's
operations. Significant estimates and assumptions made by management are used
for, but not limited to, the allowance for doubtful accounts, the carrying
value of long-lived and intangible assets and the fair value of the Company's
common stock used to determine interest and compensation expense.
Cash and cash equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Interest rate cap agreements
Interest rate cap agreements are principally used by the Company in the
management of interest rate exposure. The differential to be paid or received
is accrued as interest rates change and is recorded in the statement of
operations.
Property and equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided using accelerated and straight-line methods over the following
estimated useful lives:
[Download Table]
Years
-----------------
Buildings and land improvements............................ 39
Transmission, studio and broadcast equipment............... 5-10
Office and computer equipment.............................. 5-7
Transportation equipment................................... 5
Leasehold improvements..................................... Lesser of the
life of the lease
or economic
life of the asset
Intangible assets
Intangible assets consisting of the following items are amortized on a
straight-line method over the following estimated useful lives:
[Download Table]
Years
-----
FCC licenses........................................................... 15
Univision affiliation agreements....................................... 15
Goodwill............................................................... 15
Time brokerage agreements.............................................. 15
Noncompete agreements.................................................. 2-5
Construction rights and permits........................................ 15
Other.................................................................. 1-10
F-15
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred debt costs related to the Company's credit facility are amortized
on a method that approximates the interest method over the respective life of
the credit facility.
Impairment of long-lived assets
The Company reviews its long-lived assets and intangibles related to those
assets periodically to determine potential impairment by comparing the carrying
value of the long-lived assets and identified goodwill with the estimated
future net undiscounted cash flows expected to result from the use of the
assets, including cash flows from disposition. Should the sum of the expected
future net cash flows be less than the carrying value, the Company would
recognize an impairment loss at that date. An impairment loss would be measured
by comparing the amount by which the carrying value exceeds the fair value
(estimated discounted future cash flows) of the long-lived assets and
identified goodwill.
Goodwill not identified with impaired assets is evaluated to determine
whether events or circumstances warrant a write-down or revised estimates of
useful lives. The Company determines impairment by comparing the carrying value
of goodwill with the estimated future net undiscounted cash flows expected to
result from the use of the assets, including cash flows from disposition.
Should the sum of the expected future net cash flows be less than the carrying
value, the Company would recognize an impairment loss at that date. Impairment
losses are measured by comparing the amount by which the carrying value exceeds
the fair value (estimated discounted future cash flows) of the goodwill.
To date, management has determined that no impairment of long-lived assets
and goodwill exists.
Concentrations of credit risk
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company from time to time may have bank deposits in excess of
the FDIC insurance limits. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk on cash
and cash equivalents.
The Company routinely assesses the financial strength of its customers and,
as a consequence, believes that their trade receivable credit risk exposure is
limited. Credit losses for bad debts are provided for in the financial
statements through a charge to the allowance, and aggregated $0.7 million, $0.6
million and $0.8 million for the years ended December 31, 1997, 1998 and 1999,
respectively. A valuation allowance is provided for known and anticipated
credit losses.
Disclosures about fair value of financial instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents
The carrying amount approximates fair value because of the short maturity of
those instruments.
Long-term debt
The carrying amount approximates the fair value of the Company's long-term
debt based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities
with similar collateral requirements.
F-16
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when it is determined to be more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Prior to the reorganization of the Company, as discussed above, the
organization included various taxpaying and non-taxpaying entities as discussed
below. Each of the entities files separate federal and state tax returns.
Deferred taxes have not been provided for the difference between the book
and tax basis of intangible assets, broadcast equipment, and furniture and
fixtures for the non-taxpaying entities. As a result of the reorganization, the
Company will record a deferred tax liability with a corresponding charge to tax
expense of approximately $7.5 million. At December 31, 1999, the difference
between book and tax bases of assets is approximately $18.7 million.
Entravision Communications Company, L.L.C., Entravision Holdings, LLC,
Entravision, L.L.C.,Entravision-El Paso, L.L.C. and Entravision Communications
of Midland, LLC are limited liability companies and, as such, are taxed as
partnerships.
Cabrillo Broadcasting Corporation, Golden Hills Broadcasting Corporation,
Las Tres Palmas Corporation, Tierra Alta Broadcasting, Inc., KSMS-TV, Inc.,
Valley Channel 48, Inc. and Telecorpus, Inc. have elected to be taxed under
sections of federal and state income tax law which provide that, in lieu of
corporation income taxes, the stockholders separately account for their pro
rata share of the companies' items of income, deductions, losses and credits,
and the companies will pay state taxes at a reduced rate.
Los Cerezos Television Company is taxed as a C-corporation.
Prior to January 23, 1997 Valley Channel 48, Inc. was taxed as a C-
corporation and prior to January 1, 1996, Golden Hills Broadcasting Corporation
was a C-corporation. As a result of the Tax Reform Act of 1986, these companies
and Telecorpus, Inc. are subject to a tax on any unrecognized "built-in gains"
realized during the ten-year period after their respective conversion to S-
corporation status. The built-in gains tax is a corporate tax computed by
applying the corporate tax rate to any appreciation related to assets owned at
the date of conversion to S status. Upon the 1997 filing of the election by
Valley Channel 48, Inc. to be taxed as an S- corporation, the previously
recorded net deferred tax liability was reduced to an amount that represents
taxes that might be payable due to the built-in gains tax. As a result,
approximately $7.8 million was recorded as a tax benefit representing the
reversal of previously recorded deferred taxes. Each of these companies has
provided a deferred tax liability for built-in gains that represent the
estimated liability for built-in gains tax.
Pro forma income tax adjustments and pro forma earnings per share
The pro forma income tax information included in these financial statements
is to show what the significant effects might have been on the historical
statements of operations had the Company and its affiliates not been treated as
flow-through entities not subject to income taxes. The pro forma information
reflects a provision for income taxes at the assumed effective rate in the
years ended December 31, 1997, 1998 and 1999. The pro forma net income (loss)
per share is based on the weighted average number of shares of common stock
outstanding during the period.
F-17
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising costs
Advertising costs are expensed as incurred. Advertising expense totaled
approximately $0.2 million, $0.6 million and $0.9 million for the years ended
December 31, 1997, 1998 and 1999, respectively.
Revenue recognition
Revenue related to the sale of advertising is recognized at the time of
broadcast. Network compensation is recognized ratably over the period of the
agreement.
Segment information
In accordance with Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and Related Information,
management has determined that the Company has one reportable segment.
Furthermore, management has determined that all of its broadcast properties are
subject to the same regulatory environment with their respective programs
directed toward similar classes of viewers and listeners through similar
distribution methods.
Local marketing and time brokerage agreements
The Company operates certain stations under LMAs and time brokerage
agreements whereby the Company sells and retains all advertising revenue. The
broadcast station licensee retains responsibility for ultimate control of the
station in accordance with all FCC rules and regulations. The Company pays a
fixed fee to the station owner, as well as all expenses of the station, and
performs other functions. The financial results of the LMA-operated stations
are included in the Company's statement of operations from the date of
commencement of the respective LMAs, and were not significant in any of the
years presented.
Trade transactions
The Company exchanges broadcast time for certain merchandise and services.
Trade revenue and the related receivables are recorded when spots air at the
fair value of the goods or services received or time aired, whichever is more
readily determinable. Trade expense and the related liability are recorded when
the goods or services are used or received. Trade revenue and costs were
approximately $0.4 million, $0.9 million and $1.3 million for the years ended
December 31, 1997, 1998 and 1999, respectively.
Stock-based compensation
The Company accounts for stock-based employee compensation under the
requirements of Accounting Principles Board (APB) Opinion No. 25, which does
not require compensation to be recorded if the consideration to be received is
at least equal to fair value of the shares to be received at the measurement
date. Nonemployee stock-based transactions are accounted for under the
requirements of SFAS No. 123, Accounting for Stock-Based Compensation, which
requires compensation to be recorded based on the fair value of the securities
issued or the services received, whichever is more reliably measurable.
Earnings per share
Basic earnings per share (EPS) is computed as net income (loss) divided by
the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from common stock
issuable through stock options and convertible securities.
F-18
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999, all dilutive
securities have been excluded as their inclusion would have had an antidilutive
effect on EPS. If stock options and convertible debt securities had not been
excluded, 23,001,533, 22,947,386 and 24,517,777 shares respectively of
additional common shares would have been included in the denominator, and the
loss would have been reduced by $0.7 million in the numerator for each of the
three years.
Comprehensive income
As of January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 established the requirements for the
reporting and presentation of comprehensive income and its components. For the
years ended December 31, 1997, 1998 and 1999, the Company had no components of
comprehensive income and, therefore, net income is equal to comprehensive
income.
New pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in all fiscal quarters of all fiscal years beginning after June
15, 2000. The Statement permits early adoption as of the beginning of any
fiscal quarter after its issuance. The Company will adopt the new Statement
effective January 1, 2001. The Statement will require the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the
hedged assets, liabilities or firm commitment through earnings or recognized in
other comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. Because of the Company's minimal use of derivatives,
management does not anticipate that the adoption of the new Statement will have
a significant effect on the Company's earnings or financial position.
NOTE 2. BUSINESS COMBINATIONS
During the years ended December 31, 1997, 1998 and 1999, the Company
acquired the following companies, all of which were accounted for as purchase
business combinations with the operations of the businesses included subsequent
to their respective acquisition dates. The allocation of the respective
purchase prices are generally based upon independent appraisals of the
broadcast properties and as it relates to the 1999 acquisitions reflects
management's preliminary allocation of purchase price.
1997 acquisitions
Valley Channel 48, Inc. (KNVO)
On January 23, 1997, the Company acquired all of the issued and
outstanding common stock of Valley Channel 48, Inc. for approximately $24.6
million in cash plus the assumption of certain liabilities. Valley
Channel 48, Inc. operates a Univision affiliate in the McAllen,
Harlingen/Brownsville, Texas market.
The excess purchase price over tangible net assets acquired of $28.8
million was allocated to specifically identifiable intangibles consisting
of $1.1 million to presold commercial advertising contracts, $1.7 million
to the FCC license, $13.9 million to the Univision affiliation agreement,
$0.3 million to a noncompete agreement. The remaining excess purchase price
of $11.8 million was recorded as goodwill.
F-19
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
KINT-TV
On June 4, 1997, the Company purchased substantially all of the assets
relating to television station KINT-TV which operates the El Paso, Texas
Univision affiliate and all of the stock of 26 de Mexico S.A. de C.V. (a
Mexican corporation) for approximately $25.2 million.
The excess of the purchase price over the tangible net assets of $19.0
million was allocated to specifically identifiable intangibles consisting
of $14.6 million to the Univision affiliation agreement, $3.0 million to
the FCC license, $1.1 million to presold commercial advertising contracts,
$0.2 million to the stock of the Mexican corporation and $0.1 million to
other identifiable intangibles.
KINT-FM and KSVE-AM
On September 24, 1997, the Company acquired substantially all of the
assets of KINT-FM and KSVE-AM, both Spanish-programmed radio stations
operating in El Paso, Texas, for $4.0 million. From June 4, 1997 through
September 24, 1997, ECC operated these stations under an LMA.
The excess purchase price over the tangible assets acquired of $3.4
million was allocated to specifically identified intangibles consisting of
$2.9 million to the FCC license, $0.2 million to presold commercial
advertising contracts and $0.2 million to other identifiable intangibles.
The remaining excess purchase price of $0.1 million was recorded as
goodwill.
KLDO
On August 14, 1997, the Company acquired substantially all of the assets
of Panorama Broadcasting Co., which owned and operated the Laredo, Texas,
Univision affiliate, for $6.3 million.
The excess purchase price over tangible assets of $4.5 million was
allocated to specifically identified intangibles consisting of $3.5 million
to the Univision affiliation agreement, $0.3 million to the FCC license and
$0.2 million to presold commercial advertising contracts. The remaining
excess purchase price of $0.5 million was recorded as goodwill.
1998 acquisitions
Entravision Communications of Midland, LLC
On January 22, 1998, the Company entered into an agreement with an
unrelated third party and formed Entravision Communications of Midland, LLC
(Midland). The purpose of this new entity is to construct a new UHF
television station in Midland, Texas. The Company acquired an 80% interest
in Midland for $0.3 million and advanced Midland $2.6 million to obtain the
rights to a construction permit under an auction and settlement agreement
pursuant to an FCC application. As of December 31, 1999, construction of
the station had not commenced.
The agreement also contains options whereby, commencing one year from
the date that the station begins program test operations, ECC may acquire
the remaining interest in Midland for a predetermined exercise price, as
defined in the agreement.
La Paz Wireless Corporation (KVYE)
On March 15, 1998, the Company acquired substantially all of the assets
of La Paz Wireless Corporation, which owned television station KVYE in El
Centro, California. The purchase price was $0.7 million, consisting of $0.1
million in cash, seller financing of $0.4 million and the assumption of
certain liabilities in the amount of $0.2 million. Prior to the
acquisition, the Company operated this station as a Univision affiliate
under an LMA.
F-20
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The purchase price of $0.7 million was allocated to specifically
identifiable intangibles consisting of $0.5 million to the FCC license and
$0.2 million to goodwill.
Telecorpus, Inc. (KORO)
On April 21, 1998, the Company, acquired all of the outstanding capital
stock of Telecorpus, Inc. for approximately $14.6 million. Telecorpus, Inc.
operates a Univision affiliate in Corpus Christi, Texas.
The excess purchase price over tangible net assets acquired of $13.2
million was allocated to specifically identifiable intangibles consisting
of $0.4 million to presold advertising contracts, $1.9 million to the FCC
license, $4.5 million to the Univision affiliation agreement, $5.8 million
to noncompete agreements. The remaining purchase price of $0.6 million was
recorded as goodwill.
1999 acquisitions
Brawley Broadcasting Company and KAMP Radio, Inc.
On January 6, 1999, the Company acquired substantially all of the assets
of Brawley Broadcasting Company and KAMP Radio, Inc., which include the
radio stations KAMP (AM) El Centro, California; KWST (FM) Brawley,
California; and KMXX (FM) Imperial, California. The purchase price was $2.5
million of which $0.4 million was previously deposited in escrow with the
remainder being paid in cash at closing.
The excess purchase price over tangible net assets acquired of $2.0
million was allocated to specifically identifiable intangibles consisting
of $1.4 million to the FCC license, and $0.2 million to other identifiable
intangibles. The remaining excess purchase price of $0.4 million was
recorded as goodwill.
Latin Communications Group Television, Inc.
On February 4, 1999 the Company purchased all of the assets of Latin
Communications Group Television, Inc. relating to television station WVEN-
LP, in Orlando, Florida and WVEA-LP in Tampa Florida.
Additionally, the Company, through a newly formed acquisition
corporation, Los Cerezos Acquisition Co. with no other activities other
than to complete this purchase, purchased all of the outstanding capital
stock of Los Cerezos Television Company. Los Cerezos Television Company
operates television station WMDO-LP in Washington, D.C. The aggregate
purchase price paid in connection with these acquisitions was approximately
$14.3 million including the assumption of certain liabilities totaling $1.1
million.
The excess purchase price over tangible net assets acquired of $14.2
million was allocated to specifically identifiable intangible assets
consisting of $0.9 million to presold commercial advertising contracts,
$2.2 million to FCC licenses, $7.4 million to Univision affiliation
agreements, and $0.2 million to noncompete agreements. The remaining excess
purchase price of $3.5 million was recorded as goodwill.
The Company previously operated these stations under an LMA beginning in
November 1998.
KLUZ-TV
On April 1, 1999, the Company acquired substantially all of the assets
of Univision affiliate television stations KLUZ and K48AM in Albuquerque,
New Mexico from Univision. The purchase price was $14.9 million of which
$1.0 million was cash. As part of the acquisition consideration, the
Company provided
F-21
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Univision a 2% increase in its conversion exchange option under the
subordinated note agreement (see Note 5). The incremental exchange option
has been assigned a value of $13.9 million and has been recorded as
additional paid-in capital as a result of this acquisition.
The excess purchase price over tangible net assets acquired of $13.5
million was allocated to specifically identifiable intangibles consisting
of $7.3 million to the FCC license, $0.6 million to presold commercial
advertising contracts, and $5.6 million to the Univision affiliation
agreement.
Televisora ALCO, S.A. de C.V. (XUPN)
On June 9, 1999, the Company acquired a 40% interest in Televisora ALCO
S.A. de C.V. (ALCO), a Mexican corporation which operates XHTEB-TV in
Tecate, Baja California, Mexico. The purchase price for the 40% interest
was $0.5 million in cash. The Company is accounting for this investment
under the equity method of accounting. This station began broadcasting in
November 1999 which resulted in insignificant revenue and expenses. ALCO's
assets and liabilities were not significant at December 31, 1999.
The Company also acquired all of the outstanding capital stock of
Comercializadora Frontera Norte S.A. de C.V. (CFN), a Mexican corporation,
which has a time brokerage agreement with ALCO in connection with
substantially all of the station's broadcast and advertising rights. The
aggregate consideration paid for this acquisition was approximately $19.5
million, of which $7.5 million was in cash with the remaining $12.0 million
due under a time brokerage contract payable. The entire purchase price was
allocated to the intangible asset, time brokerage agreements.
On August 10, 1999, CFN assigned all of its rights and obligations under
the time brokerage agreement to ECC. As a result, all of the operations of
this broadcast property are accounted for as a division of the Company. The
time brokerage agreement provides for a ten-year term with successive
automatic 30-year renewals.
DeSoto Broadcasting (WBSV)
On September 20, 1999, the Company acquired substantially all of assets
of DeSoto Broadcasting, Inc., DeSoto Channel 62 Associates, and Omni
Investments, Inc. These companies collectively owned the assets and
licenses to operate WBSV in Venice (Sarasota), Florida. The purchase price
was $17.0 million of which $0.9 million was previously deposited in escrow
with the reminder paid in cash at closing.
The excess purchase price over tangible net assets acquired of $15.8
million was allocated to the FCC license.
Paisano Communications (KBZO)
On December 20, 1999, the Company acquired substantially all of the
assets of Paisano Communications which includes low power television
stations KBZO-LP, Lubbock, Texas; K31DM, San Angelo, Texas: K48FR,
Amarillo, Texas and radio station KBZO (AM), Lubbock, Texas. The purchase
price, was $2.3 million in cash.
The excess purchase price over tangible net assets acquired of $2.1
million was allocated to specifically identifiable intangible assets
consisting of $0.3 million to the FCC license, $1.3 million to Univision
affiliation agreement and $0.3 million to noncompete agreements. The
remaining excess purchase price of $0.2 million was recorded as goodwill.
See Note 11 for acquisitions subsequent to year end.
F-22
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro Forma results (unaudited)
The following pro forma results of continuing operations assume the 1998 and
1999 acquisitions discussed above occurred on January 1, 1998. The unaudited
pro forma results have been prepared using the historical financial statements
of the Company and each acquired entity. The unaudited pro forma results give
effect to certain adjustments including amortization of goodwill, depreciation
of property and equipment, interest expense and the related tax effects.
[Download Table]
1998 1999
(Unaudited) (Unaudited)
(In millions of dollars except per share) ----------- ----------
Net revenue.......................................... $ 61.2 $ 63.3
Net (loss)........................................... (4.4) (37.0)
Basic and diluted net (loss) per share............... $(0.07) $(0.57)
The above pro forma financial information does not purport to be indicative
of the results of operations had the 1998 and 1999 acquisitions actually taken
place on January 1, 1998, nor is it intended to be a projection of future
results or trends.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consists of:
[Download Table]
1998 1999
(In millions of dollars) ----- -----
Buildings....................................................... $ 3.6 $ 5.3
Construction in progress........................................ 0.2 --
Land improvements............................................... 0.3 0.3
Leasehold improvements.......................................... 0.7 1.6
Transmission studio and other broadcast equipment............... 15.9 25.4
Office and computer equipment................................... 1.8 3.1
Transportation equipment........................................ 0.9 1.0
----- -----
23.4 36.7
Less accumulated depreciation and amortization.................. 7.6 11.6
----- -----
15.8 25.1
Land............................................................ 1.0 2.1
----- -----
$16.8 $27.2
===== =====
NOTE 4. INTANGIBLE ASSETS
At December 31, intangible assets consist of:
[Download Table]
1998 1999
(In millions of dollars) ----- ------
FCC licenses................................................... $17.0 $ 44.0
Univision affiliation agreements............................... 38.1 52.5
Goodwill....................................................... 22.4 27.1
Noncompete agreements.......................................... 6.3 6.8
Construction rights and permits................................ 3.7 4.0
Time brokerage agreement....................................... -- 19.5
Deferred debt costs............................................ 1.3 1.3
Other.......................................................... 1.2 3.3
----- ------
90.0 158.5
Less accumulated amortization.................................. 12.1 22.3
----- ------
$77.9 $136.2
===== ======
F-23
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 5. LONG-TERM DEBT, NOTES PAYABLE AND SUBSEQUENT EVENT
Notes payable at December 31 are summarized as follows:
[Download Table]
1998 1999
(In millions of dollars) ----- ------
Subordinated note with interest at 7.01%....................... $10.0 $ 10.0
Credit facility with bank...................................... 88.0 142.9
Financing agreement with bank, due in monthly installments of
$20,000, bearing interest at the prime rate (8.5% at December
31, 1999) plus 0.25% through July 31, 2009, secured by
building with a depreciated cost of $1,620.................... 0.1 1.6
Time brokerage contract payable, due in annual installments of
$1,000, bearing interest at LIBOR (6.5% at December 31, 1999)
through June 2011............................................. -- 12.0
Other.......................................................... 1.6 0.8
----- ------
99.7 167.3
Less current maturities........................................ 0.9 1.4
----- ------
$98.8 $165.9
===== ======
Subordinated note
On December 30, 1996, the Company issued a $10.0 million subordinated note
to Univision. This note is subordinated to all senior debt. The note is due
December 30, 2021 and bears interest at 7.01% per annum, for which Univision
has agreed to provide the Company with network compensation equal to the amount
of annual interest due. Under a separate option agreement, Univision may
exchange the note into Class C common stock, representing a 27.9% interest in
the Company, at the holder's option at any time prior to maturity. During 1999
certain conditions restricting the exchange of the note were eliminated and, as
such, the Company recorded interest expense of $2.5 million based on the
estimated intrinsic value of the option feature at the date the note was
entered into.
The note contains certain restrictions including the restriction on
dividends, acquisition of assets over a certain limit, the incurrence of debt
over certain leverage ratios, the merger or consolidation of the Company with a
third party or a sale of the Company's assets, the transfer or sale of any FCC
license for our Univision affiliate television stations, the issuance of
additional common stock and changes to the capital structure of the Company
without the consent of Univision.
Credit facility with bank
The Company has a revolving credit facility with a bank in the amount of
$158.0 million, of which $142.9 million was outstanding at December 31, 1999.
On January 14, 2000, the Company entered into an amendment to increase the
credit facility to $158 million. Additionally, the Company has a letter of
credit outstanding at December 31, 1999 in the amount of $0.4 million. The
credit facility bears interest at LIBOR (6.5% at December 31, 1999) plus 1.625%
and expires on November 10, 2006. The facility is collateralized by
substantially all the Company's assets, as well as a nonrecourse guarantee of
certain stockholders and a pledge of ECC LLC membership units and corporate
ownership interest. The credit facility contains quarterly scheduled reductions
in the amount that is available under the revolving loan commitment commencing
December 31, 2000 through November 10, 2006. These quarterly reductions range
from $1.5 million to $10.5 million. In addition, the Company pays loan
commitment fees of from 0.275% to 0.5% (per annum). The credit facility also
contains a mandatory prepayment clause in the event the Company should
liquidate any assets in excess of $5.0 million if the proceeds are not utilized
to acquire assets of the same type and use within one year, receive insurance
or condemnation proceeds which are not fully utilized toward the replacement of
such assets, or have excess cash flows (as defined in the credit facility) in
any fiscal year subsequent to December 31, 1999. However, no prepayment due to
excess cash flow is required provided that the Company's maximum total debt
ratio is less than 4.5 to 1.
F-24
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The credit facility contains certain financial covenants relating to maximum
total debt ratio, total interest coverage ratio, a fixed charge coverage ratio
and a ceiling on annual capital expenditures. The covenants become increasingly
restrictive in the later years of the facility. The credit facility also
contains restrictions on the incurrence of additional debt, the payment of
dividends, acquisitions over a certain limit and management fees or bonuses to
certain executives. The credit facility also states that the Company may not
make any equity offering without giving the bank 30 days written notice.
The Company has entered into interest rate cap agreements to reduce the
impact of changes in interest rates on its revolving credit facility. At
December 31, 1999, the Company had outstanding an interest rate cap agreement
with a bank, having a total notional principal amount of $50.0 million. The
agreement effectively changes the Company's interest rate exposure on $50.0
million of its revolving credit facility to a fixed 7%. The interest rate cap
agreements mature July 16, 2000.
The Company is exposed to credit loss in the event of nonperformance by the
counterparty to the interest rate cap agreement. However, the Company does not
anticipate nonperformance by the counterparty.
Aggregate maturities of long-term debt and notes payable as of December 31,
1999 are as follows:
[Download Table]
Years Ending December 31, Amount
------------------------- ------
(In millions of dollars)
2000................................................................. $ 1.4
2001................................................................. 9.2
2002................................................................. 16.2
2003................................................................. 22.2
2004................................................................. 28.2
Thereafter........................................................... 90.1
------
$167.3
======
NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31 consist of:
[Download Table]
1998 1999
(In millions of dollars) ---- ----
Accounts payable.................................................. $1.4 $2.4
Accrued payroll and payroll taxes................................. 1.0 1.1
Accrued interest.................................................. 0.9 0.1
Income taxes payable.............................................. 0.3 0.3
Executive employment agreement bonus.............................. 0.9 1.1
Professional fees................................................. 0.4 0.5
Syndication fees.................................................. -- 0.9
Other............................................................. 1.3 1.1
---- ----
$6.2 $7.5
==== ====
F-25
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 7. INCOME TAXES
The provision for income taxes for the years ended December 31 is as
follows:
[Download Table]
1997 1998 1999
(In millions of dollars) ---- ---- -----
Current:
Federal.................................................. $ -- $0.1 $ 0.2
State.................................................... 0.1 0.2 0.1
Deferred................................................... 0.2 (0.1) (0.4)
---- ---- -----
$0.3 $0.2 $(0.1)
==== ==== =====
The income tax provision differs from the amount of income tax determined by
applying the federal statutory income tax rate because substantially all of the
Company's operations are generated by non-taxpaying entities.
The components of the deferred tax assets and liabilities at December 31
consist of the following:
[Download Table]
1998 1999
(In millions of dollars) ----- -----
Deferred tax assets:
Intangible assets........................................... $ 0.2 $ --
----- -----
Deferred tax liabilities:
Change in accounting method................................. (0.1) --
Intangible assets........................................... -- (1.8)
Property and equipment...................................... (0.4) (0.2)
----- -----
(0.5) (2.0)
----- -----
Net long-term deferred tax liability.......................... $(0.3) $(2.0)
===== =====
NOTE 8. COMMITMENTS
The Company has agreements with Nielsen Media Research (Nielsen), expiring
at various dates through December 2004, to provide television audience
measurement services. Pursuant to these agreements, the Company is obligated to
pay Nielsen a total of $7.9 million in increasing annual amounts. The annual
commitments range from $1.4 million to $1.9 million.
Operating leases
The Company leases facilities and broadcast equipment under various
operating lease agreements with various terms and conditions, which expire at
various dates through May 2009.
The approximate future minimum lease payments under these operating leases
at December 31, 1999 are as follows:
[Download Table]
Years Ending December 31, Amount
------------------------- ------
(In millions of dollars)
2000................................................................. $2.4
2001................................................................. 1.8
2002................................................................. 1.5
2003................................................................. 1.2
2004................................................................. 0.9
Thereafter........................................................... 2.1
----
$9.9
====
F-26
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total rent expense under operating leases, including rent under month-to-
month arrangements, was approximately $1.0 million, $1.2 million and $2.0
million for the years ended December 31, 1997, 1998 and 1999, respectively.
Employment agreements
ECC LLC has entered into employment agreements (the Agreements) with two
executive officers and stockholders through October 2003. The Agreements
provide that a minimum annual base salary and a bonus of 1% of ECC LLC's annual
net revenue be paid to each of the executives, effective for years beginning
after January 1, 1997. ECC LLC accrued approximately $0.6 million, $0.9 million
and $1.1 million of bonuses payable to these executives for the years ended
December 31, 1997, 1998 and 1999, respectively.
Additionally, the Agreements provide for a continuation of each executive's
annual base salary and annual bonus through the end of the employment period if
the executive is terminated due to a permanent disability or without cause, as
defined in the Agreements. Management intends to modify these Agreements
subsequent to year end.
ECC LLC also has an employment agreement with its executive vice president
which provides for an annual base salary and bonus. Additionally, in 1997 the
employee was awarded 1,845,656 shares of Class A common stock in the Company,
which vested through January 2000.
At December 31, 1999, the estimated fair value associated with this award of
Class A common stock was $27.7 million. The Company has recorded $0.9 million,
$0.5 million and $26.3 million of compensation expense for the years ended
December 31, 1997, 1998 and 1999, respectively. This award originally provided
for a repurchase option which has been eliminated. As such, the award was
considered variable. Compensation expense for 1999 was determined using an
estimate by management based primarily on the estimated IPO price as the fair
market value.
In January 1999, the Company entered into an employment agreement with its
senior vice president which expires on January 4, 2002 and provides for an
annual base salary and bonus to be paid to the employee.
As part of this agreement, ECC LLC originally granted an option to the
employee to purchase Class D membership units. As amended in April 2000, ECC
LLC sold the employee 164,390 restricted shares of Class A common stock at
$0.01 per share. The Company may repurchase the restricted shares at $0.01 per
share. The number of shares subject to the Company's repurchase option is
eliminated proportionately over three years from the original grant date. The
intrinsic value of the original option at the grant date was determined by
management using the estimated IPO price as the fair value of the underlying
shares. In accordance with APB No. 25, the Company recorded $2.8 million in
compensation expense during 1999 attributable to the original option grant
which is reflected as non-cash stock-based compensation in the statement of
operations. This amount approximates the total intrinsic value of the amended
employee restricted stock purchase.
SFAS No. 123 requires the disclosure of pro forma net income and earnings
per share had the Company adopted the fair value method. Under SFAS No. 123,
the fair value of stock-based awards to employees is calculated through the use
of option-pricing models, even though such models were developed to estimate
the fair value of freely tradable, fully transferable options with vesting
restrictions which significantly differ from the Company's stock option award.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
value. The Company's fair value calculation was made using the Black-Scholes
option-pricing model with the following assumptions: expected life of three
years following complete vesting; stock volatility of 50%; risk-free interest
rate of 6.17% and no dividends during the expected life.
F-27
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
If the computed fair value of the award had been amortized to expense over
the vesting period of the award, proforma net loss of the Company would have
been approximately $0.1 million higher in 1999.
NOTE 9. RELATED-PARTY TRANSACTIONS
Related-party transactions not discussed elsewhere consist of the following:
The Company has unsecured advances of $0.2 million payable to related
parties, which bear interest, and are due on demand at December 31, 1998 and
1999.
The Company has unsecured stock subscriptions due from officer/stockholders
of the Company amounting to $0.6 million at December 31, 1998 and 1999. The
advances are due on demand and have been recorded as a reduction of equity.
In addition, the Company has unsecured advance receivables from related
parties amounting to $0.3 million at December 31, 1998 and 1999.
The Company utilizes the services of a law firm, a partner of which is a
stockholder and director. Total legal fees incurred with this law firm
aggregated approximately $0.3 million, $0.5 million and $0.5 million for the
years ended December 31, 1997, 1998 and 1999, respectively.
NOTE 10. 401(K) SAVINGS PLAN
During 1999 the Company established a defined contribution 401(k) savings
plan covering substantially all its employees. The Company currently matches
25% of the amounts up to a maximum of $1,000 per year by each participant.
Employer matching contributions for the year ended December 31, 1999 aggregated
approximately $0.1 million.
NOTE 11. SUBSEQUENT EVENTS
Subordinated note
On March 2, 2000, the Company received $110 million from Univision pursuant
to the existing subordinated note and option agreement (see Note 5). The note
was also amended increasing the option exchange feature from 27.90% to 40%
based on ownership prior to the additional issuance of common shares
anticipated in the IPO, and other contemplated equity transactions.
Acquisitions
The following business and/or assets were or will be acquired after December
31, 1999:
Magic Media, Inc.
On July 19 1999, the Company entered into an asset purchase agreement
with Magic Media, Inc. to acquire substantially all of the assets relating
to the operations of radio stations KATH (FM) and KOFX (FM) in El Paso,
Texas for approximately $14 million. At December 31, 1999 the Company had
on deposit $0.5 million in an escrow relating to this acquisition. The
acquisition closed on January 14, 2000.
WHCT-TV
In February 2000, the Company entered into an agreement to acquire the
FCC license of television station WHCT in Hartford Connecticut, for $18
million. Management intends to close on this transaction upon receiving FCC
and bankruptcy court approval, which it anticipates receiving in the third
quarter of 2000.
F-28
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Citicasters Co.
In March 2000, the Company entered into an asset purchase agreement with
Citicasters Co., a subsidiary of Clear Channel Communications, Inc., to
acquire the FCC licenses relating to the operations of radio stations KACD
(FM) Santa Monica, California and KBCD (FM) Newport Beach, California for
approximately $85 million. On March 3, 2000 the Company deposited $17
million in escrow relating to this acquisition. Management intends to close
this transaction upon receiving FCC approval, which it anticipates
receiving in the second quarter of 2000.
XHAS-TV
In March 2000, the Company and ALCO entered into a binding letter
agreement to acquire the stock of a Mexican corporation which holds the
necessary authorizations from the Mexican government to own and operate
television station XHAS, Channel 33, Tijuana, Mexico, and a 47.5% interest
in Vista Television, Inc., and Channel 57, Inc. Additionally, ECC has
entered into a time brokerage agreement in connection with this
acquisition. The aggregate consideration to be paid in connection with this
transaction is approximately $35.2 million of which $1 million was
deposited into escrow at December 31, 1999. This transaction closed on
March 16, 2000.
Latin Communications Group Inc. (LCG)
On April 20, 2000, the Company acquired all of the outstanding capital
stock of LCG for approximately $252 million. LCG operates radio stations in
California, Colorado, New Mexico, and Washington D.C. and also owns and
operates two Spanish-language publications. In connection with this
acquisition, the Company amended certain financial covenants related to its
credit facility to provide for this acquisition and the issuance of a $90
million convertible subordinated note. Additionally, the Company entered
into a $115 million term loan with its bank group, the proceeds from which
will be used to finance this acquisition. All amounts outstanding under
this term loan are due April 18, 2001 and bear interest at LIBOR plus 4%.
This term loan is secured by a pledge of the Company's stock and lien on
all of LCG's assets and a secondary pledge on all of the Company's assets.
Z-Spanish Media
On April 20, 2000, the Company agreed to acquire all of the outstanding
capital stock of Z-Spanish Media. Z-Spanish Media owns 33 radio stations
and an outdoor billboard business. The purchase price is approximately $475
million, including the assumption of approximately $109 million of debt.
The purchase price will be paid 70% in cash and the remaining 30% in newly-
issued Class A common stock of the Company after the reorganization as
discussed in Note 1. Management intends to close on this transaction
concurrently with the IPO.
F-29
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Latin Communications Group Inc.
We have audited the accompanying consolidated balance sheets of Latin
Communications Group Inc. and Subsidiaries as of December 26, 1999 and December
27, 1998, and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended December
26, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Latin
Communications Group Inc. and Subsidiaries at December 26, 1999 and December
27, 1998 and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 26, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
San Jose, California
March 30, 2000
F-30
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
[Download Table]
December December
27, 1998 26, 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................ $ 3,010 $ 6,695
Accounts receivable, less allowance for doubtful accounts
of $1,965 in 1998 and $1,518 in 1999.................... 5,956 8,184
Prepaid expenses and other............................... 794 344
Deferred income taxes.................................... 1,278 1,288
-------- --------
Total current assets...................................... 11,038 16,511
Net assets of discontinued operations..................... 4,831 --
Land held for sale........................................ 4,000 --
Deferred finance costs, less accumulated amortization of
$1,316 in 1998 and $751 in 1999.......................... 2,097 1,265
Property and equipment, at cost, less accumulated
depreciation of $2,337 in 1998 and $3,618 in 1999........ 6,487 7,259
Broadcast licenses and other intangible assets, less
accumulated amortization of $8,054 in 1998 and $11,583 in
1999..................................................... 137,349 131,162
Other assets (including notes receivable of $366 in 1999
from a related party).................................... 220 1,289
-------- --------
Total assets.............................................. $166,022 $157,486
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................... $ 5,136 $ 5,366
Accrued interest......................................... 1,175 715
Current portion of long-term debt........................ 4,318 69
-------- --------
Total current liabilities................................. 10,629 6,150
Long-term liabilities:
Debt..................................................... 50,541 42,037
Deferred income taxes.................................... 17,471 18,889
Other.................................................... 1,492 1,442
-------- --------
Total liabilities......................................... 80,133 68,518
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value; 15,000,000 shares
authorized; 9,235,468 shares issued and outstanding..... 92 92
Additional paid-in capital............................... 94,485 94,485
Accumulated deficit...................................... (8,688) (5,609)
-------- --------
Total stockholders' equity................................ 85,889 88,968
-------- --------
Total liabilities and stockholders' equity................ $166,022 $157,486
======== ========
See notes to consolidated financial statements.
F-31
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
[Download Table]
Years Ended
--------------------------------------
December 28, December 27, December 26,
1997 1998 1999
------------ ------------ ------------
Gross revenue:
Advertising............................ $ 33,710 $ 34,469 $ 41,814
Less agency commissions................ 3,472 3,692 4,623
---------- ---------- ----------
30,238 30,777 37,191
Circulation............................ 5,759 5,741 5,875
Other.................................. 998 1,378 1,179
---------- ---------- ----------
Net revenue............................ 36,995 37,896 44,245
---------- ---------- ----------
Expenses:
Direct operating....................... 15,131 15,196 15,560
Selling, general and administrative.... 17,535 17,677 18,910
Corporate.............................. 1,713 2,901 1,795
Depreciation and amortization.......... 3,762 4,593 4,907
---------- ---------- ----------
38,141 40,367 41,172
---------- ---------- ----------
Operating income (loss) (1,146) (2,471) 3,073
Interest expense (including amounts
associated with related parties of
$1,200 in 1997, $1,800 in 1998 and
$1,900 in 1999)....................... (4,176) (6,211) (4,895)
Interest income........................ -- 138 115
Other finance costs and related
amortization (including amounts
associated with related parties of
$250 in 1999)......................... (335) (376) (626)
Loss on sale of assets................. -- -- (121)
---------- ---------- ----------
Loss from continuing operations before
income taxes........................... (5,657) (8,920) (2,454)
Income tax benefits..................... 2,213 2,570 736
---------- ---------- ----------
Loss from continuing operations......... (3,444) (6,350) (1,718)
Income from discontinued operations, net
of income taxes of $595 in 1997, $974
in 1998 and $271 in 1999............... 1,161 1,312 418
Gain on sale of discontinued operations,
net of income taxes of $3,123 in 1999.. -- -- 5,006
---------- ---------- ----------
Net income (loss) before extraordinary
item................................... (2,283) (5,038) 3,706
Extraordinary loss from early
extinguishment of debt, net of income
tax benefits of $153 in 1997 and $415
in 1999................................ (222) -- (627)
---------- ---------- ----------
Net income (loss)....................... $ (2,505) $ (5,038) $ 3,079
========== ========== ==========
Net income (loss) per share:
Basic and diluted:
Loss from continuing operations........ $ (0.39) $ (0.69) $ (0.19)
Discontinued operations................ 0.13 0.14 0.59
Extraordinary loss..................... (0.03) -- (0.07)
---------- ---------- ----------
Net income (loss)...................... $ (0.29) $ (0.55) $ 0.33
========== ========== ==========
Weighted average common shares
outstanding:
Basic and diluted...................... 8,761,301 9,165,468 9,235,468
========== ========== ==========
See notes to consolidated financial statements.
F-32
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
[Enlarge/Download Table]
Additional
Common Paid-in Accumulated Total
Shares Stock Capital Deficit Stockholders' Equity
--------- ------ ---------- ----------- --------------------
Balance at December 29,
1996................... 7,740,468 $78 $77,084 $(1,145) $76,017
Shares issued to
purchase a business... 700,000 7 8,743 -- 8,750
Shares issued with
senior subordinated
debt.................. 525,000 5 5,210 -- 5,215
Net loss............... -- -- -- (2,505) (2,505)
--------- --- ------- ------- -------
Balance at December 28,
1997................... 8,965,468 90 91,037 (3,650) 87,477
Shares issued with
senior subordinated
debt.................. 120,000 1 1,199 -- 1,200
Shares issued in
connection with
purchase of radio
station assets........ 150,000 1 2,249 -- 2,250
Net loss............... -- -- -- (5,038) (5,038)
--------- --- ------- ------- -------
Balance at December 27,
1998................... 9,235,468 92 94,485 (8,688) 85,889
Net income............. -- -- -- 3,079 3,079
--------- --- ------- ------- -------
Balance at December 26,
1999................... 9,235,468 $92 $94,485 $(5,609) $88,968
========= === ======= ======= =======
See notes to consolidated financial statements.
F-33
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
[Download Table]
Years Ended
--------------------------------------
December 28, December 27, December 26,
1997 1998 1999
------------ ------------ ------------
Operating activities
Net income (loss)....................... $ (2,505) $(5,038) $ 3,079
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization.......... 4,435 5,343 5,279
Provision for doubtful accounts........ 994 827 558
Provision for deferred taxes........... (1,847) (1,741) 1,732
Gain on sale of discontinued
operations............................ -- -- (8,128)
Extraordinary loss on early debt
extinguishments....................... 375 -- 1,042
Loss on sale of assets................. -- -- 121
Amortization of debt discount.......... 477 733 749
Changes in assets and liabilities, net
of amounts acquired and net of
disposals:
(Increase) decrease in accounts
receivable........................... (1,095) 434 (2,786)
(Increase) decrease in prepaid
expenses and other................... (921) 130 461
(Decrease) increase in accounts
payable and accrued expenses......... 2,372 (147) (554)
(Decrease) increase in other assets
and liabilities...................... 46 57 (446)
-------- ------- --------
Net cash provided by operating
activities............................. 2,331 598 1,107
-------- ------- --------
Investing activities
Capital expenditures.................... (1,010) (1,272) (2,291)
Proceeds from sale of discontinued
operations............................. -- -- 12,949
Proceeds from disposal of assets........ -- -- 6,608
Payments for businesses acquired, net of
cash received of, $404 in 1997 and for
purchase of intangibles in 1998........ (70,015) (1,218) --
Investments in companies to be
acquired............................... 4,470 -- (603)
-------- ------- --------
Net cash provided by (used in) investing
activities............................. (66,555) (2,490) 16,663
-------- ------- --------
Financing activities
Proceeds from debt...................... 58,285 2,800 26,200
Payments on debt........................ (23,078) (1,634) (39,703)
Debt issuance costs..................... (2,728) (344) (582)
Net proceeds from sale of common stock.. 5,215 1,200 --
-------- ------- --------
Net cash (used in) provided by financing
activities............................. 37,694 2,022 (14,085)
-------- ------- --------
Net increase in cash and cash
equivalents............................ (26,530) 130 3,685
Cash and cash equivalents at beginning
of year................................ 29,410 2,880 3,010
-------- ------- --------
Cash and cash equivalents at end of
year................................... $ 2,880 $ 3,010 $ 6,695
======== ======= ========
See notes to consolidated financial statements.
F-34
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 27, 1998 and December 26, 1999
and for each of the three years in the period ended December 26, 1999
1. ORGANIZATION
Latin Communications Group Inc. (the "Company") is a Spanish language media
company that provides advertisers with radio broadcasting and newspaper
publishing for the Hispanic community. The Company operates 17 radio stations
in California, Colorado, New Mexico and Washington, D.C. Operations also
include a Spanish language newspaper in New York City. In February 1999, the
Company disposed of its Spanish language television operations (see Note 8).
On December 21, 1999, the Company entered into a plan of merger agreement
with Entravision Communications Company, L.L.C. ("ECC"), a Delaware limited
liability company engaged in the ownership and operation of television and
radio stations. The merger is expected to close by the second quarter of 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the Company and its wholly-
owned subsidiaries. Significant intercompany accounts and transactions have
been eliminated in consolidation.
Fiscal Year
The Company closes its year on the last Sunday in December.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable and accounts payable, are carried at cost which
approximates fair value due to the short maturity of these instruments. Senior
and subordinated debt bear interest at what is estimated to be current market
rates of interest. Accordingly, book values approximate fair value for these
instruments.
Original Issue Discount and Debt Issuance Costs
Original issue discounts on debt are recorded as discounts against the face
value of the debt issued and are amortized on the effective interest method
over the life of the related debt. Debt issuance costs are recorded as finance
costs and are amortized over the life of the related debt.
Property and Equipment
Property and equipment are reported at cost. Depreciation of property and
equipment is calculated on the straight-line basis over the estimated useful
lives of the assets.
F-35
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 27, 1998 and December 26, 1999
and for each of the three years in the period ended December 26, 1999
Broadcast Licenses and Other Intangible Assets
Intangible assets, which include broadcast licenses, goodwill, network
affiliation agreements and other intangibles arising from the Company's
acquisitions, are carried at cost, less accumulated amortization. These assets
are amortized on a straight-line basis, generally over 40 years.
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long Lived Assets and Changes in Long Lived
Assets to be Disposed Of, the carrying value of intangible assets is reviewed
when events or changes in circumstances suggest that the recoverability of an
asset may be impaired. If this review indicates these intangible assets will
not be recoverable, as determined based on the undiscounted cash flows over the
remaining life, the carrying value of these assets will be reduced to their
respective fair values. The cash flow estimates that will be used will contain
management's best estimates, using appropriate and customary projections at the
time. No intangible assets were considered impaired at December 26, 1999.
Revenue Recognition
Advertising, publishing and other revenue is recognized as services are
provided. Uncollectible amounts are charged to expense in the period that
determination becomes reasonably estimable.
Trade and Barter Agreements
Trade and barter agreements are recorded as revenue at the fair value of the
goods or services to be received when advertising space or time is provided.
Barter expenses are recorded when merchandise or services are received. Barter
revenue and costs were approximately $1.5 million in 1999, $1.5 million in 1998
and $1.6 million in 1997.
Advertising Costs
These costs are expensed as incurred and amounted to $0.4 million in 1999,
$0.6 million in 1998 and $0.2 million in 1997.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Concentration of Credit Risk
The Company provides advertising space and airtime to national, regional and
local advertisers within the geographic areas in which the Company operates. In
addition, the Company provides newspapers to wholesalers for distribution to
retail outlets, as well as directly to vendors. Credit is extended based on an
evaluation of the customer's financial condition and generally advance payment
or collateral is not required of creditworthy customers. Credit losses are
provided for in the financial statements and have been within management's
expectations.
F-36
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 27, 1998 and December 26, 1999
and for each of the three years in the period ended December 26, 1999
Risks and Uncertainties
The Company is party to two collective bargaining agreements in connection
with its newspaper operations. The Company is due to renegotiate a labor
agreement with one of the unions whose agreement expired on March 30, 2000. The
Company intends to continue negotiations to reach a new labor agreement.
Accounting for Stock-Based Compensation
The Company accounts for employee stock options and stock appreciation
rights in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB No. 25"), and has adopted the
"disclosure only" alternative described in Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123").
Earnings Per Share
Basic earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding. Diluted earnings per
share is computed by dividing net income (loss) by the weighted average number
of common shares and dilutive securities outstanding (none for all years
presented). Antidilutive securities relating to stock options totaled 83,178 in
1999 and 73,045 in 1998 and 1997.
Reclassifications
Certain prior years' balances have been reclassified to conform to the
current year's presentation.
New Accounting Pronouncements
In December of 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial
Statements. SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. This SAB, as
amended in March 2000, is effective for us beginning in the second quarter of
our fiscal year beginning December 27, 1999. The adoption of SAB 101 will not
have a material impact on our financial statements.
3. DETAIL OF BALANCE SHEET ACCOUNTS AND SUPPLEMENTARY CASH FLOW INFORMATION
Property and equipment consists of the following:
[Download Table]
Estimated
Useful
Life in December 27, December 26,
Years 1998 1999
(in millions of dollars) ---------- ------------ ------------
Land....................................... $0.2 $0.2
Building................................... 25 0.1 0.1
Broadcast equipment........................ 5 5.4 4.8
Machinery and equipment.................... 3-5 1.9 3.1
Leasehold improvements..................... Lease-term 1.2 1.1
Construction in progress................... -- 1.6
---- ----
8.8 10.9
Less accumulated depreciation.............. 2.3 3.6
---- ----
$6.5 $7.3
==== ====
F-37
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 27, 1998 and December 26, 1999
and for each of the three years in the period ended December 26, 1999
Broadcast licenses and other intangible assets consist of the following:
[Download Table]
December 27, December 26,
1998 1999
(in millions of dollars) ------------ ------------
Broadcasting licenses and other intangible assets.... $104.4 $101.7
Goodwill............................................. 41.0 41.0
------ ------
145.4 142.7
Less accumulated amortization........................ 8.1 11.5
------ ------
$137.3 $131.2
====== ======
In 1997, the Company acquired 100% of the stock of Embarcadero Media Inc.
(EMI), the owners and operators of eight radio stations. The acquisition was
accounted for under the purchase method. The total purchase price was allocated
to the fair market value of the net assets acquired. Included in those assets
were broadcast licenses and other intangibles totaling $83.5 million, which are
generally being amortized over forty years. Below is a summary of the
allocation of the purchase price relating to this acquisition, along with a
summary of intangible assets purchased in 1998.
[Download Table]
Years Ended
-------------------------
December 28, December 27,
1997 1998
------------ ------------
Purchase of businesses, net of cash acquired:
Working capital, other than cash and current portion
of long-term debt.................................. $ (0.7) $ --
Land held for sale.................................. (4.0) --
Property and equipment.............................. (3.2) --
Broadcast licenses and other intangible assets...... (83.5) (5.4)
Deferred income taxes............................... 13.1 --
Stock and notes payable issued for assets........... 8.3 4.2
------ -----
Net cash used to acquire businesses................. $(70.0) $(1.2)
====== =====
4. DEBT
Debt consists of the following:
[Download Table]
December 27, December 26,
1998 1999
(in millions of dollars) ------------ ------------
Senior bank debt under a term loan agreement that was
extinguished in October 1999........................ $36.5 $ --
Senior bank debt under a revolving line of credit
totaling $35 million, maturing in October 2002 and
bearing interest at 8.34% at December 26, 1999...... -- 25.0
Senior subordinated debt maturing in February 2005
and bearing interest at 5%.......................... 16.2 17.0
Other................................................ 2.1 0.1
----- -----
Total debt........................................... 54.8 42.1
Less current portion of long-term debt............... 4.3 0.1
----- -----
Long-term debt....................................... $50.5 $42.0
===== =====
F-38
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 27, 1998 and December 26, 1999
and for each of the three years in the period ended December 26, 1999
On October 22, 1999, the Company entered into a $35 million revolving bank
credit facility (the "Facility") for the purpose of refinancing its senior bank
debt. The Facility is secured by a first priority lien on the capital stock of
the Company's subsidiaries and bears interest at rates of either the London
Interbank Offered Rate (LIBOR) plus a margin ranging from 1.75% to 3.00%, or
the Prime Rate plus a margin ranging from 0.25% to 1.50% per annum depending on
the Company's total leverage ratio, as defined. The Facility contains
affirmative and negative covenants relating to the business and operations of
the Company. These include various financial and performance covenants with
respect to indebtedness, investments, liens, sale of assets, mergers,
consolidation and dividend payments, as well as leverage, cash flow and
interest coverage ratios. In connection with the refinancing, the Company also
re-paid the note payable plus accrued interest, paid current amounts due for
interest on the senior subordinated debt and began accruing interest at stated
rates.
In October 1999, debt issuance costs totaling $1.0 million were recognized
as an extraordinary loss due to the early extinguishment of the term loan.
The previously outstanding senior bank debt under a term loan agreement was
secured and incurred interest at rates of either LIBOR plus a margin ranging
from 1.5% to 3.75%, or the Prime Rate plus a margin ranging from 0.50% to 4.75%
per annum depending on the Company's total leverage ratio. The rate on the
senior bank debt at December 27, 1998 was Prime plus 4.75% or approximately
12.5%. As a result of senior bank debt covenant violations beginning on July
15, 1998, the Company was restricted from paying interest and principal on any
other outstanding debt. The Company also began accruing penalty interest on its
senior bank loans and subordinated debt.
Senior subordinated debt consists of borrowings from certain stockholders
and officers of the Company (see Note 10). It is comprised of two issuances,
Tier I and Tier II (collectively, the "senior subordinated debt"). Tier 1, was
issued in February 1997, in the amount of $17.5 million. Tier II, in the amount
of $4.0 million, was issued in February 1998. Unamortized original issue
discount on the senior subordinated debt was approximately $4.5 million at
December 26, 1999 and $5.3 million at December 27, 1998.
At December 26, 1999, scheduled maturities of long-term debt were as
follows:
[Download Table]
(in millions of dollars)
Year ending:
2002............................................................. $25.0
2005............................................................. 17.0
-----
$42.0
=====
For the years ended December 26, 1999, December 27, 1998 and December 28,
1997, interest paid was approximately $5.4 million, $5.5 million and $2.9
million, respectively.
5. STOCK OPTION AND EQUITY APPRECIATION INCENTIVE PLANS
The Company has adopted two stock option plans, which provide for the
issuance of options for the purchase of up to 835,000 shares of the Company's
common stock as incentive to key officers and employees. The term of the
options granted under the plans is generally ten years. Vesting generally
occurs on a prorated basis over a three year period.
Generally, all options become immediately exercisable in full should any of
the following events occur: termination of the optionee's employment by the
optionee for good reason, termination of the optionee's employment by the
Company without cause, death or permanent disability or the consummation of a
sale of all
F-39
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 27, 1998 and December 26, 1999
and for each of the three years in the period ended December 26, 1999
or substantially all of the assets of the Company. No compensation cost has
been recognized in connection with stock option grants because options are
issued with an exercise price equal to fair value on the date of grant.
Under SFAS No. 123, had grants been measured based on the fair market value
at the grant date for awards in 1999, 1998 and 1997, the Company's pro forma
net income in 1999 would have decreased by approximately $0.1 million, to $2.8
million, and the pro forma loss in 1998 and 1997 would have increased by
$0.1 million and $0.2 million, to $5.1 million and $2.7 million, respectively.
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over
the vesting period, and additional options may be granted or forfeited in
future years. The fair value of these options was estimated at the date of
grant using the Black- Scholes minimum value method. The minimum value method
calculates the excess of the fair value of the stock at the date of grant over
the present value of both the exercise price and the expected dividend
payments, each discounted at the risk free interest rate, over the life of the
options. The following assumptions were used in the calculation:
[Download Table]
1997 1998 1999
------- ------- ---------
Expected dividend yield......................... 0% 0% 0%
Risk free interest rate......................... 6.31% 6.31% 7.00%
Expected life of options........................ 5 years 5 years 4-5 years
The weighted average fair value of options granted during 1999, 1998 and
1997 was $1.71, $1.41 and $1.58, respectively.
Stock option activity is summarized as follows:
[Download Table]
Available Stock Weighted
for Options Average
Grant Outstanding Exercise Price
--------- ----------- --------------
Outstanding at December 29, 1996.......... 605,000 230,000 $10.75
Granted.................................. (300,000) 300,000 15.42
Forfeited................................ 10,000 (10,000) 10.00
-------- -------- ------
Outstanding at December 28, 1997.......... 315,000 520,000 13.46
Granted.................................. -- -- --
Forfeited................................ 133,332 (133,332) 16.25
-------- -------- ------
Outstanding at December 27, 1998.......... 448,332 386,668 12.49
Granted.................................. (133,332) 133,332 13.19
Forfeited................................ 48,332 (48,332) 13.15
-------- -------- ------
Outstanding at December 26, 1999.......... 363,332 471,668 $12.62
======== ======== ======
Options for 347,446, 281,667 and 108,000 shares were exercisable at December
26, 1999, December 27, 1998 and December 28, 1997, respectively.
F-40
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 27, 1998 and December 26, 1999
and for each of the three years in the period ended December 26, 1999
Following is a summary of the weighted-average exercise price and weighted-
average remaining contractual life for options outstanding at December 26,
1999:
[Download Table]
Weighted-
Weighted- # of Average
Average Options Contractual
Exercise Price Outstanding Life Remaining
-------------- ----------- --------------
$10.00--$15.00 438,334 4.6 years
$15.01--$20.00 33,334 1 year
In January 1998, the Company approved an Equity Appreciation Incentive Plan
(the "EAI Plan") for its key employees. Under the EAI Plan, key employees have
the opportunity to receive stock appreciation rights, which provide for cash
payments upon vesting amounting to the difference between the Company's common
stock value per share at the vesting date and $15.00 per share. Vesting is
automatically triggered by an initial public offering, merger of the Company,
sale of the Company or four years of continuous service by the employee. In
conjunction with the approval of the EAI Plan, the Company has 130,000
outstanding stock appreciation rights as of December 26, 1999. In 1999, the
Company recorded approximately $0.3 million of compensation expense associated
with this plan. All awards under this plan will be accelerated upon
consummation of the merger with ECC.
6. INCOME TAXES
The Company accounts for income taxes using the liability method pursuant to
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Under the liability method, deferred income taxes consist of the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial statement and income tax purposes, as determined
under enacted tax laws and rates.
Federal, state and local income taxes (benefits) consist of the following:
[Download Table]
Years Ended
--------------------------------------------------
December 28, December 27, December 26,
1997 1998 1999
---------------- ---------------- ----------------
Current Deferred Current Deferred Current Deferred
(in millions of dollars) ------- -------- ------- -------- ------- --------
Federal (benefit).......... $0.1 $(1.4) $-- $(1.8) $0.2 $ 1.7
State and local (benefit).. 0.1 (0.6) 0.1 0.1 0.6 (0.3)
---- ----- ---- ----- ---- -----
Total...................... $0.2 $(2.0) $0.1 $(1.7) $0.8 $ 1.4
==== ===== ==== ===== ==== =====
Provisions for:
Continuing operations...... $0.2 $(2.4) $0.1 $(2.7) $0.3 $(1.0)
Discontinued operations.... -- 0.5 -- 1.0 0.1 0.2
Gain on sale of
discontinued operations... -- -- -- -- 0.4 2.6
Extraordinary loss from
early debt payment........ -- (0.1) -- -- -- (0.4)
---- ----- ---- ----- ---- -----
Total...................... $0.2 $(2.0) $0.1 $(1.7) $0.8 $ 1.4
==== ===== ==== ===== ==== =====
F-41
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 27, 1998 and December 26, 1999
and for each of the three years in the period ended December 26, 1999
The differences between income tax expense for continuing operations shown
in the statements of operations and the amounts determined by applying the
federal statutory rate of 34% in each year are as follows:
[Download Table]
1997 1998 1999
----- ----- -----
Federal statutory income tax (benefit)............. (34.0)% (34.0)% (34.0)%
State and local income taxes, net of federal
benefit........................................... (8.6) 0.9 (6.0)
Nondeductible goodwill............................. 4.2 2.6 8.9
Others, net........................................ (0.8) 1.7 1.1
----- ----- -----
Total.............................................. (39.2)% (28.8)% (30.0)%
===== ===== =====
The deferred tax asset and liability at the fiscal year end consist of the
following components:
[Download Table]
1998 1999
(in millions of dollars) ------ ------
Deferred tax assets:
Accounts receivable....................................... $ 1.0 $ 0.9
Accrued compensation...................................... 1.1 1.3
Net operating loss carry forwards......................... 5.0 1.9
Other..................................................... -- 0.2
------ ------
Gross deferred tax asset.................................... 7.1 4.3
Deferred tax liability:
Depreciation and amortization............................. (23.3) (21.9)
------ ------
Net deferred tax liability.................................. $(16.2) $(17.6)
====== ======
Tax loss carryforwards totaling $5.4 million will expire by 2010 if not
utilized.
The components of deferred taxes included in the consolidated balance sheet
are as follows:
[Download Table]
1998 1999
------ ------
Current asset............................................... $ 1.3 $ 1.3
Noncurrent liability........................................ (17.5) (18.9)
------ ------
Net deferred tax liability.................................. $(16.2) $(17.6)
====== ======
For the years ended December 26, 1999, December 27, 1998 and December 28,
1997, income taxes paid were approximately $0.3 million, $0.2 million and $0.3
million, respectively.
7. EXCHANGE OF BROADCASTING ASSETS
On May 27, 1998, the Company, exchanged radio broadcasting licenses, radio
broadcasting equipment and facilities in Portland and San Jose along with a
$2.0 million short term note payable and 150,000 shares of common stock valued
at $2.25 million for similar productive assets in Sacramento and San Francisco.
Acquired assets were not self-sustaining. Integrated sets of support activities
were not transferred in the exchange, nor were programming formats, or
broadcast personalities. Acquired assets were redeployed and integrated into
broadcasting and support activities originating from the San Jose area
headquarters. The exchange was accounted for as a non-monetary exchange of
similar productive assets. Acquired assets were recorded at the value of the
assets surrendered, plus the value of the note payable and the common stock.
F-42
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 27, 1998 and December 26, 1999
and for each of the three years in the period ended December 26, 1999
8. DISCONTINUED OPERATIONS
In February 1999, the Company sold to ECC substantially all of its assets
relating to television stations WVEA, in Tampa, Florida, and WVEN, Orlando,
Florida. It also sold to ECC all of its capital stock in Los Cerezos Television
Company which operated television station WMDO in Washington, D.C. The net
proceeds in connection with these transactions was approximately $12.9 million.
9. BENEFIT PLANS
The Company sponsors two qualified 401(k) defined contribution plans, one
for the radio division and one for the print division. For all eligible
employees, the Company matches employee contributions within certain limits,
and for the print division plan, the Company also contributes a fixed minimum
annual contribution. Plan participants may make pretax contributions from their
salaries up to the maximum allowed by the Internal Revenue Code. The Company's
expense for both defined contribution plans for the years ended December 26,
1999 and December 27, 1998 was approximately $0.1 million.
The Company is obligated, through its agreement with the union that
represents employees who deliver El Diario/La Prensa, the Company's Spanish
language daily newspaper, to contribute amounts to the defined benefit pension,
welfare and 401(k) plans administered by the Publishers' Association of New
York City. The pension and welfare plans provide pension benefits and medical
insurance. The Company contributes approximately 9% and 11% of gross
compensation for each eligible employee per year to the pension plan and
welfare plan, respectively. The Company contributes $23 per shift per eligible
employee to the union's 401(k) plan. For the years ended December 26, 1999,
December 27, 1998 and December 28, 1997, the Company's expense for these multi-
employer plans was approximately $0.3 million, $0.2 million and $0.2 million,
respectively.
The Company is obligated under a union contract to make severance payments
to its union employees under certain circumstances. Non-union print division
severance pay is calculated in a similar manner. The Company does not fund
these commitments. The balance sheet accrual for severance is based on the net
present values of the projected vested benefit obligation and, accordingly,
provides for both vested and non-vested employees. The balance at December 26,
1999 and December 27, 1998 was approximately $1.4 million and $1.5 million,
respectively, and is included in other liabilities. The Company's severance
expense for the three years in the period ended December 26, 1999 was
approximately $0.2 million in each year.
10. RELATED PARTY TRANSACTIONS
During 1999, the Company paid other finance costs in the amount of $0.3
million to one of its stockholders and is committed to pay an additional $0.1
million in the year 2000.
Interest expense on senior subordinated debt held by certain stockholders
and officers of the Company amounted to $1.9 million in 1999, $1.8 million in
1998 and $1.2 million in 1997, see note 4 for a description of the terms of
this indebtedness.
During 1999, the Company assisted an officer with relocation costs by
advancing cash in exchange for two notes receivable of $0.2 million each. One
note specifies that no repayment is required if related employment continues
for four years. Both notes specify that no repayment is required if the company
is acquired. (See second paragraph of Note 1.) At December 26, 1999, the
balance due on these notes totaled $0.4 million.
F-43
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 27, 1998 and December 26, 1999
and for each of the three years in the period ended December 26, 1999
11. COMMITMENTS AND CONTINGENCIES
The Company has entered into various leases for office space and broadcast
towers. Future minimum lease payments required at December 26, 1999 are:
[Download Table]
(in millions of dollars)
2000............................................................. $ 1.8
2001............................................................. 1.6
2002............................................................. 1.4
2003............................................................. 1.2
2004............................................................. 1.0
Thereafter....................................................... 3.9
-----
$10.9
=====
Rental expense relating to these leases totaled $1.9 million, $2.0 million
and $1.6 million for the years ended December 26, 1999, December 27, 1998 and
December 28, 1997, respectively.
During 1999, the Company purchased an option to acquire the land and
buildings housing its corporate operations for an option price of $0.1 million.
On January 12, 2000, the Company signed a letter of intent to exercise the
option for $5.3 million.
In September of 1999, the Company entered a ten-year lease commitment for
facilities currently under construction in San Jose, California. The Company's
corporate headquarters will be relocated to the new facility upon its
completion and the lease is expected to begin in April 2000. Minimum monthly
rentals are subject to annual consumer price index adjustments beginning in
year three of the lease. The lease contains two five-year renewal options.
On November 21, 1999, the Company entered into agreements to acquire the
assets and licenses to operate two radio stations in Las Vegas and Reno, Nevada
for aggregate purchase consideration of $17.5 million. The sale is expected to
close by the second quarter of 2000 and is contingent upon receipt of FCC
approval. As of December 26, 1999, the Company had deposited $0.5 million in
escrow in connection with these acquisitions.
In February 2000, the Company signed a letter of intent to sell its AM radio
station in Washington, D.C. for proceeds of $2.5 million. The sale is expected
to be completed by the second quarter of 2000 and the Company expects to record
a gain in connection to the sale of approximately $1.5 million.
The Company and its subsidiaries are parties to various legal proceedings
and claims incident to the normal conduct of its business. The Company believes
that it is unlikely that the outcome of all pending litigation in the aggregate
will have a material adverse effect on its consolidated financial condition or
results of operations.
12. SEGMENT INFORMATION
The Company operates in two reportable segments, radio broadcasting and
newspaper publishing. The radio broadcasting segment has operations in the San
Francisco/San Jose bay area of California, the Salinas/ Monterey area of
California, Riverside, California, Sacramento, California, Albuquerque, New
Mexico, Denver, Colorado and Washington, DC. The newspaper publishing segment
publishes a daily newspaper in New York, New York. Each segment is managed
separately. Management evaluates performance based on several factors, of which
the primary financial measure is segment operating profit. Total revenue of
each segment represents sales to unaffiliated customers. There are no inter-
segment sales. No single customer provides more than 10% of the Company's
revenue. The accounting policies of the segments are the same as those
described in Note 2. Corporate includes general and administrative costs that
are not directly related to the reportable segments.
F-44
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 27, 1998 and December 26, 1999
and for each of the three years in the period ended December 26, 1999
Financial information for these business segments includes:
[Download Table]
Years Ended
--------------------------------------
December 28, December 27, December 26,
1997 1998 1999
(in millions of dollars) ------------ ------------ ------------
Revenue:
Radio Broadcasting...................... $ 19.2 $ 19.3 $ 25.1
Newspaper Publishing.................... 17.8 18.6 19.1
------ ------ ------
$ 37.0 $ 37.9 $ 44.2
====== ====== ======
Operating Profit (loss):
Radio Broadcasting...................... $ (0.1) $ (1.0) $ 3.7
Newspaper Publishing.................... 0.7 1.4 1.2
------ ------ ------
Total Reportable Segments.............. 0.6 0.4 4.9
Corporate............................... (1.7) (2.9) (1.8)
------ ------ ------
$ (1.1) $ (2.5) $ 3.1
====== ====== ======
Identifiable Assets:
Radio Broadcasting...................... $130.9 $131.9 $131.0
Newspaper Publishing.................... 23.3 23.8 24.5
------ ------ ------
Total Reportable Segments.............. 154.2 155.7 155.5
Corporate............................... 4.3 5.5 1.9
Discontinued operations................. 4.5 4.8 --
------ ------ ------
$163.0 $166.0 $157.4
====== ====== ======
Depreciation and Amortization:
Radio Broadcasting...................... $ 3.0 $ 3.8 $ 3.9
Newspaper Publishing.................... 0.7 0.8 1.0
------ ------ ------
$ 3.7 $ 4.6 $ 4.9
====== ====== ======
Capital Expenditures:
Radio Broadcasting...................... $ 0.7 $ 0.2 $ 1.1
Newspaper Publishing.................... 0.2 0.9 1.2
------ ------ ------
Total Reportable Segments.............. 0.9 1.1 2.3
Discontinued Operations.................. 0.1 0.2 --
------ ------ ------
$ 1.0 $ 1.3 $ 2.3
====== ====== ======
F-45
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Z-Spanish Media Corporation:
We have audited the accompanying combined balance sheets of Z-Spanish Media
Corporation and its Predecessor as of December 31, 1998 and 1999, and the
related combined statements of operations, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1999. The
combined financial statements include the accounts of Z-Spanish Media
Corporation and three related companies, Achievement Radio Holdings, Inc., PAR
Communications, Inc. and PAR Holdings, Inc., which collectively represent the
Predecessor to Z-Spanish Media Corporation. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Z-Spanish Media Corporation
and its Predecessor as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Sacramento, California
March 24, 2000
F-46
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
COMBINED BALANCE SHEETS
December 31, 1998 and 1999
(In thousands, except share and per share data)
[Download Table]
1998 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................... $ 3,602 $ 4,493
Accounts receivable, net of allowance for doubtful accounts
of $869 and $1,233 at December 31, 1998 and 1999,
respectively............................................... 5,717 8,471
Notes receivable............................................ -- 7,500
Other current assets........................................ 752 1,983
-------- --------
Total current assets...................................... 10,071 22,447
Property and equipment, net.................................. 27,049 34,267
Investments.................................................. -- 2,501
Intangible assets, net....................................... 155,243 225,408
Other assets................................................. 4,911 4,420
-------- --------
Total assets................................................. $197,274 $289,043
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK, COMMON STOCK PUT
OPTIONS AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 1,090 $ 810
Current portion of long-term debt........................... 4,056 22,779
Accrued expenses............................................ 3,854 4,636
Accrued interest............................................ 1,163 1,160
Other liabilities........................................... 2,732 5,020
Income taxes payable........................................ 521 628
-------- --------
Total current liabilities................................. 13,416 35,033
Long-term debt............................................... 62,251 89,066
Other long-term liabilities.................................. 1,003 1,101
Deferred income taxes........................................ 26,563 27,442
Minority interest............................................ 225 11
Commitments and contingencies (note 9)
Redeemable preferred stock................................... 3,870 --
Common stock put options..................................... 24,984 37,591
Stockholders' equity:
Preferred stock--$0.01 par value, 105,000 shares authorized
and 10,079 shares issued and outstanding at December 31,
1998 ($11,837 liquidation value at December 31, 1998) and
10,000 shares authorized and no shares issued and
outstanding at December 31, 1999........................... 10,523 --
Common stock--$0.01 par value; 62,000,000 shares
authorized; 15,435,157 and 25,090,000 issued and
outstanding at December 31, 1998 and 1999, respectively.... 154 251
Additional paid-in capital.................................. 59,813 115,751
Loans to stockholders....................................... (570) (1,010)
Deferred stock compensation................................. -- (4,187)
Accumulated deficit......................................... (4,958) (12,006)
-------- --------
Total stockholders' equity................................ 64,962 98,799
-------- --------
Total liabilities, redeemable preferred stock, common stock
put options and stockholders' equity........................ $197,274 $289,043
======== ========
See notes to combined financial statements.
F-47
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
COMBINED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1998 and 1999
(In thousands)
[Download Table]
1997 1998 1999
------- ------- -------
Revenue:
Revenue.......................................... $13,339 $27,598 $38,561
Less agency and broker commissions............... 297 1,740 2,523
------- ------- -------
Net revenue.................................... 13,042 25,858 36,038
------- ------- -------
Operating expenses:
Direct operating expenses........................ 4,391 10,108 14,183
Selling, general and administrative.............. 5,105 6,459 8,382
Depreciation and amortization.................... 2,747 6,736 8,670
Corporate expenses............................... 2,975 3,669 4,773
------- ------- -------
Total operating expenses....................... 15,218 26,972 36,008
------- ------- -------
Gain on sale of assets, net........................ 2,671 5,685 4,442
------- ------- -------
Operating income................................... 495 4,571 4,472
Interest expense................................... (2,425) (5,664) (7,485)
Interest and other income.......................... 356 340 1,014
------- ------- -------
Income (loss) before minority interest, income
taxes and extraordinary item...................... (1,574) (753) (1,999)
Minority interest in (loss) income of
subsidiaries...................................... (31) (86) 182
Income taxes benefit (provision)................... 538 (394) 102
------- ------- -------
Loss before extraordinary loss..................... (1,067) (1,233) (1,715)
Extraordinary loss on debt extinguishment
(Net of income tax benefit of $378 in 1997 and $699
in 1999).......................................... (568) -- (1,047)
------- ------- -------
Net loss....................................... $(1,635) $(1,233) $(2,762)
======= ======= =======
See notes to combined financial statements.
F-48
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1997, 1998 and 1999
(In thousands except share data)
[Enlarge/Download Table]
Preferred Stock Common Stock
----------------- -----------------------------
Additional Deferred
Paid-in Loans to Stock Accumulated
Shares Amount Shares Amount Capital Stockholders Compensation Deficit Total
------- -------- ---------- ------ ---------- ------------ ------------ ----------- --------
Balance at January 1,
1997................... -- -- 5,876,490 $ 59 $ 25,441 -- -- $ (1,824) $ 23,676
Issuance of common
stock.................. -- -- 4,723,814 47 20,453 -- -- -- 20,500
Issuance of stock--
Vista acquisition...... 10,079 $ 10,523 1,714,105 17 191 $ (504) -- -- 10,227
Net loss............... -- -- -- -- -- -- -- (1,635) (1,635)
------- -------- ---------- ---- -------- ------- ------- -------- --------
Balance at December 31,
1997................... 10,079 10,523 12,314,409 123 46,085 (504) -- (3,459) 52,768
Formation of Z-Spanish
Media Corporation and
acquisition of
subsidiaries........... -- -- 3,720,874 37 16,773 -- -- -- 16,810
Redeemable preferred
stock dividends........ -- -- -- -- -- -- -- (266) (266)
Purchase of common
stock.................. -- -- (600,126) (6) (3,045) -- -- -- (3,051)
Increase in loans to
stockholders........... -- -- -- -- -- (66) -- -- (66)
Net loss............... -- -- -- -- -- -- -- (1,233) (1,233)
------- -------- ---------- ---- -------- ------- ------- -------- --------
Balance at December 31,
1998................... 10,079 10,523 15,435,157 154 59,813 (570) -- (4,958) 64,962
Purchase of common
stock.................. -- -- (228,550) (2) (1,141) -- -- -- (1,143)
Issuance of common
stock.................. -- -- 5,212,120 52 29,448 -- -- -- 29,500
Stockholder common
stock purchase......... -- -- 103,618 1 517 (518) -- -- --
Issuance of stock--JB
Broadcasting
acquisition............ -- -- 681,264 7 3,350 -- -- -- 3,357
Issuance of preferred
stock.................. 11,400 11,456 -- -- -- -- -- -- 11,456
Deferred stock
compensation........... -- -- -- -- 4,333 -- (4,333) -- --
Amortization of
deferred stock
compensation........... -- -- -- -- -- -- 146 -- 146
Acquisition of minority
interests in
subsidiaries and
exchange of preferred
for common stock....... (21,479) (21,979) 3,886,391 39 32,038 -- -- (4,462) 5,636
Redeemable preferred
stock dividend
settlement............. -- -- -- -- -- -- -- 176 176
Increase in fair value
of common stock put
options................ -- -- -- -- (12,607) -- -- -- (12,607)
Decrease in loans to
stockholders........... -- -- -- -- -- 78 -- -- 78
Net loss............... -- -- -- -- -- -- -- (2,762) (2,762)
------- -------- ---------- ---- -------- ------- ------- -------- --------
Balance at December 31,
1999................... -- $ -- 25,090,000 $251 $115,751 $(1,010) $(4,187) $(12,006) $ 98,799
======= ======== ========== ==== ======== ======= ======= ======== ========
See notes to combined financial statements.
F-49
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
COMBINED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1998 and 1999
(In thousands)
[Download Table]
1997 1998 1999
-------- -------- ---------
Cash flows from operating activities:
Net loss....................................... $ (1,635) $ (1,233) $ (2,762)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 2,747 6,736 8,670
Deferred income taxes.......................... (1,223) (11,946) 879
Minority interest.............................. 31 86 (182)
Loss on debt extinguishment.................... 568 -- 1,047
Gain on sale of assets......................... (2,671) (5,685) (4,442)
Loss on write-off of advertising displays...... -- -- 1,664
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable........................... (455) 567 (2,754)
Other current assets.......................... (531) 1,144 (1,539)
Receivable from affiliate..................... (12,929) 4,637 --
Other assets.................................. (6) 180 (29)
Accounts payable and accrued liabilities...... 741 (1,109) (717)
Other liabilities............................. (1,077) 2,227 (115)
-------- -------- ---------
Net cash used in operating activities........ (16,440) (4,396) (280)
-------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of assets................... 19,396 43,600 23,710
Escrow deposits on pending acquisitions........ -- (4,335) 520
Purchase of property and equipment and
intangible assets............................. (40,042) (7,003) (103,305)
-------- -------- ---------
Net cash (used in) from investing
activities.................................. (20,646) 32,262 (79,075)
-------- -------- ---------
Cash flows from financing activities:
Repayment of notes payable..................... (2,354) -- --
Issuance of notes payable...................... 482 -- 7,100
Proceeds from long-term debt................... 26,983 -- 109,100
Repayment of long-term debt.................... (15,000) (19,018) (70,662)
Debt issuance costs............................ (857) -- (1,313)
Issuance of common and preferred stock......... 30,727 24,984 40,956
Repurchase of common stock..................... -- (3,051) (1,143)
Redemption of redeemable preferred stock....... -- -- (3,870)
Purchase of Z-Spanish Radio Network net of cash
acquired...................................... -- (30,683) --
Loans to stockholders.......................... -- (66) 78
Minority interest in subsidiary................ -- 56 --
-------- -------- ---------
Net cash from (used in) financing
activities.................................. 39,981 (27,778) 80,246
-------- -------- ---------
Net increase in cash and cash equivalents....... 2,895 88 891
Cash and cash equivalents, beginning of year.... 619 3,514 3,602
-------- -------- ---------
Cash and cash equivalents, end of year.......... $ 3,514 $ 3,602 $ 4,493
======== ======== =========
Supplemental disclosure of cash flow
information:
Interest paid.................................. $ 2,128 $ 6,221 $ 7,480
Income taxes paid.............................. 806 268 298
Non-cash investing and financing activities:
Radio station property and equipment financed
through seller notes payable.................. $ 120 -- --
FCC license and other intangibles acquired
financed through seller notes payable......... 6,150 -- --
Write off of programming library and offsetting
liability..................................... 575 -- --
Write off of network costs..................... 116 -- --
Reduction of debt obligation................... 165 -- --
Outdoor advertising assets and liabilities
assumed through seller notes payable.......... 2,176 -- --
Acquisition of net assets of Z-Spanish Radio,
net of cash acquired through issuance of
common stock.................................. -- $ 16,810 --
Acquisition of radio station assets acquired
through the cancellation of debt from seller,
and issuance of debt.......................... -- 13,292 --
Accrued dividends on redeemable preferred
stock......................................... -- 266 --
Sale of radio station assets for a note
receivable.................................... -- -- $ 7,500
Purchase of land through seller notes payable.. -- -- 2,250
Barter transaction............................. -- -- 2,501
Reversal of accrued dividends on redeemable
preferred stock............................... -- -- 176
Acquisition of radio station assets through
issuance of common stock, cancellation of debt
from seller and cancellation of LMA payable... -- -- 3,357
See notes to combined financial statements.
F-50
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS
For the years ended December 31, 1997, 1998 and 1999
1. DESCRIPTION OF BUSINESS
Basis of Presentation
The accompanying combined financial statements reflect the combined accounts
of Z-Spanish Media Corporation ("Z-Media") and its predecessor of Z-Media,
referred to as PAR, which was comprised of three companies under common
control, Achievement Radio Holdings, Inc. ("ARH"), PAR Communications, Inc.
("PARCOM") and PAR Holdings, Inc. ("Holdings").
Z-Media was incorporated on January 23, 1998 as a holding company and
subsequently obtained sole ownership of Z-Spanish Radio Network, Inc. ("Z-
Spanish") and ARH, pursuant to certain agreements entered into in May 1998.
On December 31, 1999, Z-Media acquired all the outstanding capital stock of
Vista Media Group, Inc. ("Vista"), whereby Vista became a wholly owned
subsidiary of Z-Media. Z-Media and Vista have shared a common controlling
stockholder group since August 29, 1997. As such, the business combination has
been accounted for as a common control business combination, and the accounts
of Vista are included in the accompanying combined financial statements from
August 29, 1997.
The Z-Spanish, ARH and Vista business combinations and related financial
accounting treatment are described in Note 3--Business Acquisitions and
Dispositions.
Z-Media, Vista and PAR are collectively referred to as the Company except
where otherwise noted.
Operations
Z-Media and ARH own and operate radio stations and distribute programming to
affiliates throughout the United States. Vista is engaged in operating outdoor
advertising displays and owns 10,060 billboards concentrated in the Los Angeles
and New York metropolitan areas. Vista formed Vista Joliet LLC ("Joliet"), a
80% owned subsidiary of Vista, in the state of Delaware on June 12, 1998 to
manage operations in the Chicago area.
As of December 31, 1999, the Company owned and operated 32 radio stations
including one station under a Local Marketing Agreement ("LMA"). Under an LMA,
the Company pays a fee to operate another company's radio station. The results
of operations of LMA stations are accounted for in the same manner that the
Company accounts for the operations of its owned and operated stations.
The Company's radio broadcasting operations cover five major geographic
areas: the West Coast (California), Midwest (Chicago), lower Midwest (Dallas),
Southeast (Miami) and Southwest (Phoenix). Owned and operated stations are
located in San Jose, Sacramento, Salinas/Monterey, Fresno, Stockton, Modesto,
and Chico, California; Houston and Dallas/Ft Worth, Texas; Chicago, Illinois;
Phoenix, Tucson, and Nogales, Arizona; and Miami, Florida.
As part of its radio broadcasting operations, the Company produces, controls
and distributes its own radio programs. Programming is distributed to owned and
operated stations via satellite transmission. The Company also transmits via
satellite its programming to 42 other stations ("affiliate stations")
throughout the U.S. and charges these stations network fees under affiliation
agreements. Revenue of the Company's broadcasting operations is principally
generated from the sale of advertising associated with its programming to
national accounts, local and regional retail advertisers. The Company's radio
stations are licensed by the Federal Communications Commission ("FCC").
Outdoor advertising revenue consists mainly of fees earned by selling
billboard space to advertisers.
F-51
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combination
The accompanying combined financial statements include the accounts of
companies controlled by a common stockholder group ("Controlling
Stockholders"). All intercompany balances and transactions have been eliminated
in the combined financial statements.
Cash and Cash Equivalents
The Company considers cash investments with maturities of three months or
less at the time of purchase to be cash equivalents.
Property and Equipment, Net
The Company's property and equipment is recorded at cost less accumulated
depreciation. The Company depreciates property and equipment using the
straight-line method over their estimated useful lives. The Company amortizes
leasehold improvements using the straight-line method over the lesser of the
life of the lease or the estimated useful life of the leased asset. Estimated
useful lives are as follows:
[Download Table]
Buildings and improvements......................................... 30 years
Advertising displays............................................... 15 years
Station transmitter, towers and antennas........................... 7 years
Furniture, fittings and fixtures................................... 5 years
Motor vehicles..................................................... 5 years
Computer hardware and software..................................... 3-5 years
Investments
Investments are comprised of equity securities. These securities are
classified as available-for-sale and carried at historical value as market
prices are unavailable. There were no unrealized gains or losses on these
investments recorded for the year ended December 31, 1999.
Intangible Assets, Net
Intangible assets consist primarily of FCC licenses, goodwill, deferred
charges and non-compete agreements recorded at cost. Goodwill represents the
excess of the purchase price over the fair value of the net assets at the date
of acquisition. Amortization of intangible assets and other assets is provided
in amounts sufficient to allocate the asset cost to operations over the
estimated useful lives on a straight-line basis. The estimated useful lives are
as follows:
[Download Table]
FCC licenses..................................................... 40 years
Goodwill......................................................... 15-40 years
Deferred charges................................................. 7 years
Non-competition agreements....................................... 3-5 years
Revenue Recognition
Revenue from the sale of radio advertising time and from network operations
is recognized when the advertisement or network programming is broadcast.
Outdoor advertising revenue is recognized over the life of advertising
contracts and is recorded net of discounts.
F-52
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
Barter
The Company trades commercial airtime and outdoor advertising space for
goods and services used principally for promotional, sales and other business
activities. An asset and liability is recorded at the fair market value of the
goods and services received. Barter revenue is recorded and the liability
relieved when commercials are broadcast or outdoor advertising space is
utilized. Barter expense is recorded and the asset relieved when goods or
services are received or used.
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. Advertising production costs are expensed at the first
use of the related advertising and costs of communicating an advertisement are
expensed as the communication occurs.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Credit Risk
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers and the geographic
diversification of the Company's customer base. The Company performs credit
evaluations on new customers and believes adequate allowances for any
uncollectible trade receivables are maintained. During the years ended December
31, 1997, 1998 and 1999, no customer accounted for more than 10% of net
revenue.
Stock-Based Compensation
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board No. 25, Accounting
for Stock Issued to Employees ("APB 25"). During 1999, the Company recognized
$0.1 million of compensation expense related to stock options.
Income Taxes
The Company accounts for income taxes using the asset and liability method
under which deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement basis
of assets and liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax laws and statutory rates
applicable to the periods in which the differences are expected to affect
taxable earnings. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income during the period that includes the
enactment date.
Comprehensive Income
Statement of Financial Accounting Standard ("SFAS") No. 130, Reporting
Comprehensive Income, became effective in 1998. This statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. During 1997,
1998, and 1999 the Company had no items of other comprehensive income.
Accordingly, comprehensive income equals net income.
F-53
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
Impairment of Long-Lived Assets
The Company accounts for the impairment of long-lived assets in accordance
with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. As required by the statement, the Company
evaluates its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets or intangibles
may not be recoverable. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
The Company periodically evaluates the propriety of the carrying amount of
property and equipment, investments, intangible assets and other assets as well
as the depreciation or amortization period to determine whether current events
or circumstances warrant adjustments to the carrying value and/or revised
estimates of useful lives. This evaluation involves an assessment of the
recoverability of the asset by determining whether the depreciation or
amortization of the asset balance can be recovered through undiscounted future
operating cash flows over its remaining useful life. The assessment of the
recoverability of the intangible assets will be impacted if estimated future
operating cash flows are not achieved.
Derivative Financial Instruments
The Company does not use derivative financial instruments for trading
purposes. They are used to manage interest rate risks related to interest on
the Company's outstanding debt. As interest rates change, the differential to
be paid or received under interest rate swap agreements is recognized as an
adjustment to interest expense. The Company had interest rate swap agreements
with banks as of December 31, 1998 and 1999 (see Note 7--Long-Term Debt).
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
receivables, accounts payable and certain other accrued liabilities. The
carrying amounts of these items approximate their fair values because of their
short duration to maturity.
The fair value of the interest rate swap contracts is estimated by obtaining
quotations from the counterparties. The fair value is an estimate of the
amounts that the Company would (receive) pay at the reporting date if the
contracts were transferred to other parties or cancelled by the counterparties.
Recently Issued Accounting Standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
was issued in June 1998. The Standard defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedge accounting when
certain conditions are met. The requirements of SFAS No. 133 will be effective
for the Company in the first quarter of the fiscal year ending December 31,
2001. The Company is currently evaluating the impact SFAS No. 133 will have on
its financial statements.
Presentation of Common Shares and Per Share Amounts
On February 12, 1999, the Company authorized a 10,000-to-1 reverse stock
split for all its classes of common stock.
On December 23, 1999, the Company effected a 20,000-for-1 split of its
common stock.
F-54
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
3. BUSINESS ACQUISITIONS AND DISPOSITIONS
The Company has accounted for acquisitions using the purchase method of
accounting, except where disclosed otherwise, recording assets acquired and
liabilities assumed at their fair values at the acquisition date. The excess of
purchase prices over the fair values of net tangible and intangible assets
acquired has been recorded as goodwill. The results of operations of acquired
businesses are included in the combined statements of operations from the date
of each respective acquisition.
1997 Radio Station Transactions
On February 7, 1997, PAR acquired all of the outstanding stock of KAMT, Inc.
which operated radio station KKMO in Seattle, Washington, for $0.9 million. PAR
paid cash of $0.3 million, issued a note payable to the seller of $0.6 million,
and assumed a $0.3 million capital lease obligation. The note was paid off in
December 1997.
On May 29, 1997, PAR acquired the assets of KTNO in Dallas, Texas, for $2.4
million. The Company paid $0.5 million in cash and issued two notes payable for
$0.1 million and $1.8 million. The two notes were paid off in December 1997.
On August 7, 1997, PAR sold the assets of radio station WVVX in Chicago,
Illinois, resulting in a gain of $0.8 million. The $9.5 million proceeds of
this sale, plus $1.2 million of cash, were used to purchase the assets of two
other stations in separate transactions; WEJM, in Chicago, Illinois, for $7.5
million and KKSJ, in San Jose, California, for $3.2 million.
In December 1997, PAR sold the assets of radio station WEJM in Chicago,
Illinois for $9.9 million. PAR's gain on the sale of WEJM was $1.9 million.
A summary of the gains from sales transactions recorded in 1997 is as
follows (in millions):
[Download Table]
Gain on sale of WEJM.................................................... $1.9
Gain on sale of WVVX.................................................... 0.8
----
Total................................................................... $2.7
====
The allocation of purchase price to net assets of radio stations acquired in
1997 was as follows (in millions):
[Download Table]
KKMO KTNO WEJM KKSJ Total
---- ---- ---- ---- -----
Land, property and equipment..................... $0.2 $0.1 $1.2 $0.3 $ 1.8
Goodwill and FCC licenses........................ 1.0 2.3 6.3 2.9 12.5
Liabilities...................................... (0.3) -- -- -- (0.3)
---- ---- ---- ---- -----
Total............................................ $0.9 $2.4 $7.5 $3.2 $14.0
==== ==== ==== ==== =====
F-55
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
1998--PAR Dispositions and Reorganization
Pursuant to an agreement dated May 22, 1998, PAR sold the assets of radio
stations WNJR in New Jersey, KYPA in Los Angeles, KWPA in Pomona, California,
KXPA in Bellevue, Washington, KOBO in Yuba City, KEST in San Francisco and KSJX
in San Jose, California for $41.0 million consisting of $10.0 millon in cash
and a note receivable of $31.0 million. In addition, pursuant to an agreement
dated April 7, 1998, PAR sold the assets of radio station KKMO and other assets
and liabilities remaining in Holdings, including the $31.0 million note
receivable and its investment in Douglas Broadcasting, Inc. ("DBI") through the
sale of the stock of Holdings for $34.5 million in cash. The aggregate net gain
on these dispositions was $5.7 million.
Subsequent to the PAR dispositions referred to above, and as a result of the
reorganization of certain operations within PAR earlier in 1998, the remaining
assets and liabilities and operations of PAR resided solely in ARH.
1998--Z-Spanish and ARH Business Combinations
Z-Media's ownership of Z-Spanish and ARH resulted from certain simultaneous
transactions between the former stockholders and warrant holders of Z-Spanish
and stockholders of ARH pursuant to the agreements dated May 29, 1998, the
Warrant Purchase and Contribution agreements. Under the Warrant Purchase
agreement, ARH acquired warrants ("Z-Spanish Warrants") to purchase Z-Spanish
common stock directly from Z-Spanish stockholders, for cash consideration of
$33.6 million. The Z-Spanish Warrants represented the majority of all such
warrants outstanding, except for a small number of warrants held by a lender to
Z-Spanish ("Lender"). Under the Contribution agreement, Z-Spanish and ARH
stockholders and the Lender contributed the operations of Z-Spanish and ARH to
Z-Media. The parties contributed their respective interests in ARH common
stock, Z-Spanish warrants and Z-Spanish common stock to Z-Media in exchange for
common stock of Z-Media.
For financial accounting purposes, these transactions resulted in a change
of control in Z-Spanish. As a result, the acquisition of Z-Spanish was recorded
using the purchase method of accounting. The accompanying combined financial
statements include the operations of Z-Spanish for the period from May 29, 1998
through December 31, 1999 and reflect the new basis of accounting for Z-Spanish
assets and liabilities based on their estimated fair values as of May 29, 1998.
The cost of acquiring Z-Spanish based on the purchase price was allocated to
estimated fair values of the assets and liabilities of Z-Spanish as follows (in
millions):
[Download Table]
Cash................................................................. $ 2.9
Other current assets................................................. 4.6
Property and equipment............................................... 1.6
Intangibles and other................................................ 133.0
Current liabilities.................................................. (3.3)
Long-term debt....................................................... (51.0)
Deferred income taxes................................................ (29.9)
Redeemable Preferred Stock........................................... (3.9)
------
Total costs.......................................................... $ 54.0
======
There was no change in control in ARH for financial accounting purposes as a
result of the transaction discussed above. Accordingly, Z-Media recorded ARH on
an "as pooled" basis because the contribution of ARH to Z-Media was a business
contribution between companies under common control (a "common control business
combination").
F-56
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
1998 Radio Station Transactions
On June 9, 1998, ARH acquired radio station WYPA-AM in Chicago, Illinois by
purchasing all of the outstanding stock of PAR of Illinois, Inc. (owner of
WYPA) from a stockholder by canceling $8.3 million of debt the affiliate had
borrowed from ARH to finance the original acquisition of WYPA-AM.
On July 31, 1998, Z-Media sold assets of Z-Spanish station KZWC-FM in Walnut
Creek, California for $4.5 million in cash. There was no significant gain or
loss on the sale since the assets sold had been recorded at fair value by Z-
Media on May 28, 1998.
On December 22, 1998, Z-Media acquired all of the assets of radio station
KHZZ-FM (formerly KQBR-FM) in Sacramento, California for $5.5 million,
consisting of $0.5 million in cash and notes payable totaling $5.0 million.
On December 31, 1998, Z-Media acquired the assets of two radio stations,
KZSL-FM and KTGE-AM, in Salinas, California for $1.6 million in cash.
The allocation of purchase price to net assets of radio stations acquired in
1998 was as follows (in millions):
[Download Table]
KTGE-AM
WYPA-AM KHZZ-FM KZSL-FM Total
------- ------- ------- -----
Land, property and equipment.................. $0.3 $0.2 $0.1 $ 0.5
Goodwill and FCC licenses..................... 8.0 5.3 1.5 14.9
---- ---- ---- -----
Total......................................... $8.3 $5.5 $1.6 $15.4
==== ==== ==== =====
1999 Radio Station Transactions with Third Parties
On January 8, 1999, the Company sold the assets of stations KZSF-FM and
KZSF-FM1 for $16.5 million in cash. There was no significant gain or loss on
the sale since the assets sold had been recorded at fair value by Z-Media.
On January 25, 1999, the Company purchased the assets of radio station WLQY-
AM in Miami, Florida for $5.7 million in cash.
On January 29, 1999, the Company sold the assets of station WBPS-AM,
licensed in Dedham, Massachusetts, for $4.0 million in cash. The gain on sale
of the related assets was $2.2 million.
On February 26, 1999, the Company purchased the assets of station KLNZ-FM in
Phoenix, Arizona for $22.0 million in cash.
On May 18, 1999, the Company purchased the assets of station KZMP-FM in
Dallas, Texas for $26.5 million in cash.
On May 24, 1999, the Company purchased the assets of three radio stations,
KCTY-AM, KRAY-FM and KLXM-FM, in Salinas, California for $4.5 million in cash.
On August 27, 1999, the Company sold the assets of station KZNO-AM, licensed
in Nogales, Arizona, for $0.2 million in cash. The loss on sale of the related
assets was recognized of $0.1 million.
F-57
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
On September 23, 1999, the Company sold the assets of station WYPA-AM,
licensed in Chicago, Illinois, for $10.5 million with $3.0 million in cash and
$7.5 million in notes receivable due on September 23, 2000. The gain on sale of
the related assets was $2.3 million.
A summary of the gains (loss) from sales transactions recorded in 1999 is as
follows (in millions):
[Download Table]
Gain on sale of WBPS-AM............................................... $ 2.2
Loss on sale of KZNO-AM............................................... (0.1)
Gain on sale of WYPA-AM............................................... 2.3
-----
Total................................................................. $ 4.4
=====
The allocation of purchase price to net assets of the radio stations
acquired in 1999 was as follows (in millions):
[Download Table]
KCTY-AM
KRAY-FM
and
WLQY-AM KLNZ-FM KZMP-FM KLXM-FM Total
------- ------- ------- ------- -----
Land, property and equipment......... $0.7 $ 0.9 $ 0.5 $0.3 $ 2.4
Goodwill and FCC licenses............ 5.0 21.1 26.0 4.2 56.3
---- ----- ----- ---- -----
Total................................ $5.7 $22.0 $26.5 $4.5 $58.7
==== ===== ===== ==== =====
1999 Radio Station Acquisition from Related Parties
On October 18, 1999, Z-Media acquired JB Broadcasting, Inc. ("JB"),
previously owned by two officers of the Company, for $3.4 million through the
issuance of 681,264 shares of Z-Media's Class B Common Stock pursuant to its
rights under an Option Agreement. The acquisition was accounted for using the
purchase method and the purchase price was allocated primarily to FCC licenses
and goodwill. As part of the transaction, the Company's note receivable and
accrued interest totaling $0.3 million was offset against the Company's note
payable for LMA fees and accrued interest totaling $0.7 million. The Company
had operated KZMS during 1998 and 1999 for a fee of $12,000 a month, under an
LMA. JB was owned by two officers of the Company. The Company also had $0.2
million in notes receivable with an interest rate of 12% compounded annually
from JB at December 31, 1998.
1999 Acquisitions of Outdoor Advertising Businesses
On September 30, 1999, Vista acquired all of the outstanding capital stock
of Seaboard Outdoor Advertising Co., Inc. ("Seaboard"), for $33.4 million. The
acquisition of Seaboard was recorded using the purchase method of accounting.
The accompanying combined financial statements include the operations of
Seaboard for the period from October 1, 1999 through December 31, 1999 and
reflect the new basis of accounting for Seaboard assets and liabilities based
on their estimated fair values as of September 30, 1999.
F-58
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
The purchase price was allocated to estimated fair values of the assets and
liabilities of Seaboard as follows (in millions):
[Download Table]
Cash................................................................. $ 0.5
Other current assets................................................. 1.3
Property and equipment............................................... 4.1
Intangibles and other................................................ 30.2
Current liabilities.................................................. (0.8)
Deferred income taxes................................................ (1.9)
-----
Total costs.......................................................... $33.4
=====
On December 21, 1999, Vista acquired 18 billboards of Heywood Outdoor
Advertising, Inc. for $2.0 million cash and 180 signs having a net book value
of $0.3 million. Of the purchase price, $1.6 million was allocated to goodwill
and $0.7 million was allocated to the assets acquired.
1999--Merger of Vista into Z-Media
On December 31, 1999, Vista was combined with Z-Media pursuant to a
statutory merger agreement whereby Vista stockholders exchanged their common
shares of Vista for common shares of Z-Media. The merger of Vista into Z-Media
has been accounted for as a pooling of interests with Vista's net assets
carried over at historical cost to the extent Vista was previously under common
ownership with Z-Media. The portion of Vista's net assets acquired by Z-Media
that were previously owned by minority stockholders has been accounted for as a
purchase and recorded at fair value. Furthermore, the accompanying combined
financial statements include the accounts of Vista on the basis described
above, from the date such common control existed, August 29, 1997.
Pursuant to the merger agreement, Vista preferred stockholders, who were
also the previous holders of Vista common stock, exchanged their preferred
stockholdings for additional Z-Media common stock. The difference between the
fair value of Z-Media common stock received by the preferred stockholders and
the historical cost carrying amount of the preferred stock was approximately
$4.5 million and was recorded as an increase in the Company's accumulated
deficit as of December 31, 1999.
4. NOTES RECEIVABLE
The Company received two promissory notes as partial settlement of its sale
of the assets of one of its radio stations, WYPA-AM, during 1999 (see Note 3).
The notes in the amount of $7.0 million and $0.5 million are secured and mature
on September 20, 2000, with an interest rate of 9% paid quarterly.
F-59
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31 (in
millions):
[Download Table]
1998 1999
----- -----
Land........................................................... $ 0.2 $ 0.3
Buildings and improvements..................................... 0.6 1.1
Furniture, fittings and fixtures............................... 0.9 0.4
Station, transmitters and antennas............................. 1.4 0.9
Advertising displays........................................... 24.5 27.6
Machinery and equipment........................................ 2.3 5.3
Motor vehicles................................................. 0.1 0.2
Computer hardware and software................................. 0.2 0.4
Construction-in-progress....................................... 0.3 3.8
----- -----
Total........................................................ 30.5 40.0
Less accumulated depreciation and amortization................. (3.5) (5.7)
----- -----
Property and equipment, net.................................... $27.0 $34.3
===== =====
6. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31 (in millions):
[Download Table]
1998 1999
------ ------
FCC licenses................................................. $125.7 $158.5
Goodwill..................................................... 31.2 69.2
Deferred charges............................................. 2.8 4.0
Non-competition agreements................................... 0.4 0.4
Other........................................................ 1.0 2.6
------ ------
Total...................................................... 161.1 234.7
Less accumulated amortization................................ (5.9) (9.3)
------ ------
Intangible assets, net....................................... $155.2 $225.4
====== ======
F-60
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
7. LONG-TERM DEBT
Borrowing arrangements consist of the following at December 31 (in
millions):
[Download Table]
1998 1999
----- ------
1999 Credit Agreement
Revolving credit facility of $30.0 million, interest payable
quarterly at LIBOR plus Applicable Margin, as defined
(9.075% at December 31, 1999), available through January
20, 2006................................................... -- $ 7.1
Term facility of $45.0 million, interest payable quarterly
at LIBOR plus Applicable Margin, as defined (9.075% at
December 31, 1999), quarterly principal repayments
beginning March 31, 2000 at $1.1 million, increasing to
$1.7 million on March 31, 2002 and $2.8 million on March
31, 2004 until maturity on January 20, 2006................ -- 45.0
1997 Credit Agreement
Revolving credit facility of $15.0 million, with quarterly
reductions of availability beginning March 31, 2001, as
defined, through maturity on September 30, 2006, interest
payable quarterly at LIBOR plus Applicable Margin, as
defined (8.69% at December 31, 1999), secured by
substantially all of the Company's assets.................. $ 1.2 4.0
Term facility of $35.0 million, interest payable quarterly
at LIBOR plus Applicable Margin, as defined (9.625% at
December 31, 1999), principal repayment in quarterly
installments of $0.8 million beginning June 30, 2001
increasing to $1.1 million on March 31, 2002, $1.3 million
on March 31, 2003, $1.5 million on March 31, 2004, $1.8
million on March 31, 2005 and $3.2 million on March 31,
2006 until maturity on September 30, 2006, secured by
substantially all of the Company's assets.................. 14.3 35.0
Other Borrowings
Credit line of $20.0 million, interest payable quarterly at
LIBOR plus Applicable Margin, as defined (9.5% at December
31, 1999), principal due December 31, 2000................. -- 18.1
Note payable, interest payable monthly at 9%, monthly
installments of principal and interest of $0.03 million
beginning December 1, 2004 and ending November 1, 2014,
secured by a deed of trust................................. -- 2.3
Other....................................................... 1.1 0.4
----- ------
Total....................................................... 66.3 111.9
Less current portion........................................ (4.0) (22.8)
----- ------
Long-term debt.............................................. $62.3 $ 89.1
===== ======
Senior notes at 8.34%, repaid in 1999....................... 29.9 --
Subordinated notes for $10.9 million, due to a former
stockholder of the Company, $2.9 million due to a
stockholder of the Company and $6.0 million, at rates
ranging from 12% to 13%, repaid in 1999.................... 19.8 --
F-61
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
The 1999 and 1997 credit agreements require the maintenance of specific
financial covenants, including leverage, fixed charge and interest expense
coverage ratios and certain limitations on indebtedness levels and overhead
expenses. The $20.0 million credit line also includes restrictive covenants,
which, among other things, require that the Company not incur additional debt.
The 1999 credit agreement requires under certain circumstances that the
Company enter into interest rate protection agreements to fix the Company's
floating rate debt on no less than 50% of the principal amount of total term
debt outstanding. At December 31, 1999, the Company had outstanding two
interest rate swap agreements with commercial banks, having a total notional
principal amount of $24.1 million. These outstanding swap agreements mature
August 7, 2000 and September 18, 2000, and require the Company to pay fixed
rates of 6.63% and 5.33%, respectively, while the counterparty pays floating
rate based on the three-month LIBOR. During the years ended December 31, 1997,
1998 and 1999, the Company recognized additional interest expense under its
interest rate swap agreements of $0.1 million, $0.1 million, and $0.1 million,
respectively. The aggregate fair value of the interest rate swap agreements at
December 31, 1999 was $18,000. The Company is exposed to credit loss in the
event of nonperformance by the counterparties to the interest rate swap
agreements. However, the Company does not anticipate nonperformance by the
counterparties.
As required by the 1997 credit agreement, at December 31, 1997 and 1998, the
Company had outstanding one interest rate swap agreement with a commercial
bank, having a total notional principal amount of $10.0 million. The
outstanding swap agreement matured on August 31, 1999, and required the Company
to pay a fixed rate of 6.08%, while the counterparty paid a floating rate based
on adjusted LIBOR. During the years ended December 31, 1997, 1998 and 1999, the
Company recognized additional interest expense under the interest rate swap
agreement of $7,000, $41,000, and $67,000, respectively.
Future minimum principal payments on long-term debt based on the credit
agreements and notes in place as of December 31, 1999 were as follows (in
millions):
[Download Table]
2000.................................................................. $ 22.8
2001.................................................................. 7.0
2002.................................................................. 11.0
2003.................................................................. 12.0
2004.................................................................. 17.4
Thereafter............................................................ 41.6
------
Total................................................................. $111.8
======
Company management believes that the fair value of its principal short and
long term borrowings are equal to the book value since the terms were recently
negotiated with the lenders.
F-62
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
8. INCOME TAXES
The Company's combined income tax (benefit) provision or the years ended
December 31, included the following (in millions):
[Download Table]
1997 1998 1999
----- ----- -----
Current taxes:
Federal.................................................. $ 0.1 $ 4.6 $ 0.1
State.................................................... 0.2 1.3 0.1
----- ----- -----
Total................................................. 0.3 5.9 0.2
----- ----- -----
Deferred income taxes:
Federal.................................................. (1.0) (4.5) (0.9)
State.................................................... (0.2) (1.0) (0.1)
----- ----- -----
Total................................................. (1.2) (5.5) (1.0)
----- ----- -----
Total income taxes....................................... (0.9) 0.4 (0.8)
Less income taxes related to extraordinary items......... 0.4 -- 0.7
----- ----- -----
Total.................................................... $(0.5) $ 0.4 $(0.1)
===== ===== =====
Deferred income tax assets (liabilities) resulting from tax effects of
temporary differences at December 31 are as follows (in millions):
[Download Table]
1998 1999
------ ------
Deferred income tax assets:
Net operating loss and tax credit carryforwards............... $ 5.5 $ 7.5
Allowance for doubtful accounts............................... 0.8 0.5
Other......................................................... 2.4 2.2
------ ------
Total...................................................... 8.7 10.2
------ ------
Deferred income tax liabilities:
Property, equipment and intangible assets..................... (35.3) (37.6)
------ ------
Total...................................................... (35.3) (37.6)
------ ------
Net deferred income tax liability............................. $(26.6) $(27.4)
====== ======
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows:
[Download Table]
1997 1998 1999
----- ----- -----
Federal tax at statutory
rate................... (35.0)% (35.0)% (35.0)%
State income taxes, net
of federal benefit..... (4.2) (3.2) (3.5)
Non-deductible goodwill
amortization........... 1.3 25.5 10.6
Non-deductible meals and
entertainment.......... 1.0 2.4 1.5
Other accruals.......... -- 57.3 --
Other................... 1.0 -- 3.9
----- ----- -----
Total................... (35.9)% 47.0 % (22.5)%
===== ===== =====
F-63
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
Z-Media and its subsidiaries file their federal and state tax returns on a
consolidated basis. As of December 31, 1999, the Company has federal net
operating loss carryforward of $18.3 million which will begin to expire in
2009. The Company's state net operating loss carryforward is $11.2 million at
December 31, 1999 and will begin to expire in 2001. A portion of the Company's
net operating loss carryforward may be subject to annual limitations due to
ownership changes of the Company. In addition, the Company has federal and
state tax credits of $0.1 million and $23,000, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company leases various facilities and equipment under noncancelable
operating leases expiring through 2031. Certain operating leases are renewable
at the end of the contract term. Future minimum rental commitments for
operating leases with noncancelable terms in excess of one year are as follows
(in millions):
[Download Table]
Year ending December 31:
2000................................................................. $ 1.6
2001................................................................. 1.3
2002................................................................. 1.1
2003................................................................. 0.9
2004................................................................. 0.8
Thereafter........................................................... 5.0
-----
Total................................................................. $10.7
=====
Rent expense charged to operations in 1997, 1998, and 1999 was $1.2 million,
$1.9 million, and $1.6 million, respectively.
The Company is subject to routine claims and litigation incidental to its
business operations. It is the Company's policy to accrue for amounts related
to these legal matters if it is probable that a liability has been incurred and
an amount is reasonably estimable. The management of the Company believes that
the ultimate resolutions of these matters will not have a material adverse
effect on the Company's financial statements.
10. REDEEMABLE PREFERRED STOCK
In March 1998, Z-Spanish acquired radio stations KMIX and KCVR located in
Stockton, California for $4.0 million by issuing 1,000 shares of Series A 9%
redeemable non-voting preferred stock with a fair value of $3.9 million and a
note payable with a face amount of $0.1 million. The terms of the stock
required that the Company redeem the stock by February 2001. The stock and note
were redeemed and paid by the Company at face amounts plus accrued dividends
and interest on January 20, 1999.
11. STOCKHOLDERS' EQUITY
Common Stock
As of December 31, 1999, the Company had authorized the issuance of
62,000,000 shares of Common Stock, consisting of 31,000,000 shares of Class A
Common Stock ("Class A Common"), 20,000,000 shares of Class B Common Stock
("Class B Common") 5,000,000 shares of Class C Common Stock ("Class C Common")
and 6,000,000 shares of Class D Common Stock ("Class D Common").
As of December 31, 1999, the Company had issued and outstanding 25,090,000
shares of Common Stock, consisting of 1,068 shares of Class A Common,
19,488,436 shares of Class B Common and 5,600,496 shares of Class D Common.
F-64
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
In accordance with the Company's Amended and Restated Certificate of
Incorporation in the State of Delaware, each of the classes of Common Stock
have a par value of $0.01 and have identical rights and privileges, except as
discussed below.
Voting Rights--Class A Common stockholders are entitled to vote on matters
submitted to a vote of the stockholders, with each share of Class A Common
entitled to one vote, Class D Common has 4.45 votes for every 100,000 shares.
Class B and C Common stockholders have no voting rights.
Conversion Rights--The shares of Class B Common and Class C Common are
convertible into Class A Common on a one for one basis at any time at the
option of the stockholder.
The shares of Class A Common and Class D Common are also convertible into
either Class B Common or Class C Common on a one for one basis at any time at
the option of the stockholder.
Each share of Class C Common will convert automatically on a one for one
basis into Class A Common upon the sale, gift or other transfer to a person or
entity other than the Class C Common stockholder.
Dividends may be declared and paid at the discretion of the Company's Board
of Directors in cash, property, securities or rights or otherwise. If dividends
are declared, Common Stock stockholders of record will be entitled to
participate ratably, on a share for share basis as if all shares were of a
single class in determining the amount of the dividend payable to each
stockholder, except that any dividends payable in shares of Common Stock shall
be paid with the same class of Common stock as are held by the Class A, B, C
and D Common stockholders.
Put Options--At December 31, 1998 and 1999, the Company had 4,545,454 shares
of Class C Common put options outstanding, which were issued on October 9, 1998
for $25 million. The options are exercisable by notice to the Company at a
purchase price equal to the fair market value of the Company. These options are
recorded at fair value as of December 31, 1998 and 1999. The options may be
exercised at any time after February 9, 2005 and prior to the consummation of a
public offering.
Preferred Stock
The Company has authorized the issuance of 10,000 shares of $0.01 par value
per share Preferred Stock that may be issued in one or more series subject to
the provisions of the Company's Amended and Restated Certificate of
Incorporation. At December 31, 1999, no shares of Preferred Stock had been
issued.
Stock Option Plan
At December 31, 1999, the Company has reserved an aggregate of 3,292,828
shares of Class B Common stock for issuance, at the discretion of the Board of
Directors, to officers, employees, directors and consultants pursuant to its
1999 Stock Incentive Plan (the "Plan"). The option price is determined by the
Board of Directors. Options granted under the Plan generally vest ratably over
four years, and expire ten years from the date of grant.
F- 65
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
Stock option activity under the plan is summarized as follows:
[Download Table]
Weighted Weighted
Average Average
Exercise Options Exercise
Options Price Exercisable Price
--------- -------- ----------- --------
Outstanding, January 1, 1999....... -- -- -- --
Granted (weighted average fair
value of $5.78)................... 1,696,806 $5.78 -- --
---------
Outstanding, December 31, 1999..... 1,696,806 $5.78 -- $5.78
=========
Additional information regarding options outstanding as of December 31, 1999
is as follows:
[Download Table]
Options Outstanding Options Vested
------------------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Range of Number Life Exercise Number Exercise
Exercise Price Outstanding (Years) Price Vested Price
-------------- ----------- ----------- -------- -------- --------
$5.00 to $10.00 1,696,806 9.9 $5.78 -- --
Deferred Stock Compensation
The Company recorded deferred compensation of $4.3 million to reflect the
difference between the grant price and the estimated fair value of the related
stock. This amount is being amortized over the vesting period of the individual
options, generally four years. Amortization of this compensation expense was
$0.1 million for the year ended December 31, 1999.
Additional Stock Plan Information--Since the Company continues to account
for its stock-based awards to employees using the intrinsic value method in
accordance with APB No. 25, SFAS No. 123, Accounting for Stock-Based
Compensation, requires the disclosure of pro forma net income (loss) had the
Company adopted the fair value method. The Company's calculations were made
using the minimum value pricing model which requires subjective assumptions,
including expected time to exercise, which affects the calculated values. The
following weighted average assumptions were used for 1999: expected life, four
years; no volatility; risk free interest rate of 6.5%; and no dividends during
the expected term. The Company's calculations are based on a single option
award valuation approach and forfeitures are recognized as they occur. If the
computed fair values of the 1999 awards had been amortized to expense over the
vesting period of the awards, the Company's pro forma net loss would have been
approximately $2.7 million in 1999.
12. EMPLOYEE BENEFIT PLANS
Z-Media initiated an employee 401(k) plan on September 1, 1999. Employees
can contribute 2% to 15% of their annual compensation, subject to IRC/ERISA
limitations. Eligibility requirements include three months of service and a
minimum of 1,000 hours of service per year, and the employee must be at least
21 years old. Matching is 50% of the amount of the compensation with a maximum
match of 3% of compensation with employer contributions vesting over a six-year
period. Z-Media's contributions to the plan totaled $47,000 for the year ended
December 31, 1999.
Vista has an employee 401(k) plan. Employees can contribute 2% to 15% of
their annual compensation, subject to IRC/ERISA limitations. Eligibility
requirements include one year of service and a minimum of 1,000 hours of
service per year, and the employee must be at least 21 years old. Matching is
discretionary with employer contributions vesting over a six-year period.
Vista's contributions to the plan totaled $39,000 for the year ended
December 31, 1998. There were no employer contributions in the years ended
December 31, 1997 and 1999.
F-66
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
13. SEGMENT DATA
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," in 1999. SFAS No. 131 establishes
standards for reporting information about operating segments and related
disclosures about products, geographic information and major customers.
Operating segment information for 1997 and 1998 is also presented in accordance
with SFAS No. 131.
Management has determined that there are two reportable segments consisting
of radio broadcasting and outdoor advertising. Such determination was based on
the level at which executive management reviews the results of operations in
order to make decisions regarding performance assessment and resource
allocation. Information about each of the operating segments follows:
Radio Group--The Company's Radio Group portfolio consisted of 32 radio
stations (19 FM and 13 AM) at December 31, 1999, including one station operated
under LMA.
Outdoor Advertising--The Company's Outdoor Advertising Group owned and
operated 10,060 outdoor advertising billboards and display faces in four states
at December 31, 1999.
Separate financial data for each of the Company's business segments is
provided below. The Company evaluates the performance of its segments based on
the following (in millions):
[Download Table]
1997 1998 1999
---- ----- -----
Radio broadcasting:
Net revenue................................................. $9.8 $15.4 $23.8
Operating expenses.......................................... 7.9 10.9 13.9
Depreciation and amortization............................... 2.1 4.8 6.0
Operating (loss) income..................................... (0.3) 2.2 4.1
Total assets................................................ 68.1 169.7 218.2
Outdoor advertising:
Net revenue................................................. $3.2 $10.5 $12.2
Operating expenses.......................................... 1.6 5.7 8.7
Depreciation and amortization............................... 0.6 1.9 2.7
Operating income............................................ 0.8 2.4 0.4
Total assets................................................ 28.3 27.6 70.8
14. OTHER RELATED PARTY TRANSACTIONS
During 1998 the Company operated station KZSJ-AM under an LMA with an
officer of the Company, and paid the officer $10,000 per month. The Company
also had an option to purchase KZSJ-AM from the officer pursuant to a purchase
option. The LMA and Option agreements were terminated on December 31, 1998 by
mutual consent of the parties. As of December 31, 1999, there was a payable due
to an officer of $0.1 million related to the LMA.
The Company's long-term debt at December 31, 1998 included $10.9 million of
notes payable to a former stockholder of the Company and $2.9 million to a
stockholder of the Company.
At December 31, 1999, the Company had a payable to a stockholder for $0.2
million.
Under leases that expire in 2019 and 2009, the Company rents its corporate
office building and a studio building from an officer of the Company for
$63,000 and $42,000 per year, respectively. Annual rents increase annually by
5% per year for the term of both leases.
F-67
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999
15. SUBSEQUENT EVENTS
On February 14, 2000, the Company purchased the assets of a radio station in
Soledad, California for $0.3 million in cash.
On February 24, 2000, the Company entered into a letter of intent with
Entravision Communications Corporation ("ECC") whereby ECC will acquire
directly or thorough a merger of all of the outstanding stock of the Company.
******
F-68
INDEPENDENT AUDITOR'S REPORT
To the Partners
DeSoto -- Channel 62 Associates, Ltd.
(a Florida limited partnership)
Sarasota, Florida
We have audited the accompanying statements of operations, partners'
(deficit) and cash flows of DeSoto-- Channel 62 Associates, Ltd. (a Florida
limited partnership) for the period from January 1, 1999 to September 20, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of DeSoto --
Channel 62 Associates, Ltd. for the period from January 1, 1999 to September
20, 1999 in conformity with generally accepted accounting principles.
As explained in Note 6 to the financial statements, on September 20, 1999,
the Company sold substantially all assets of the Company to Entravision
Communications Company, L.L.C. No adjustments as a result of this transaction
are reflected in these financial statements.
/s/ McGladrey & Pullen, LLP
Pasadena, California
February 25, 2000
F-69
DESOTO -- CHANNEL 62 ASSOCIATES, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
STATEMENT OF OPERATIONS AND PARTNERS' DEFICIT
Period From January 1, 1999 through September 20, 1999
(In thousands)
[Download Table]
Gross revenue......................................................... $ 879
Less agency commissions............................................... (79)
-------
Net revenue.......................................................... 800
-------
Expenses:
Direct operating..................................................... 405
Selling, general and administrative (including related-party
management fee of $130)............................................. 934
Professional fees.................................................... 410
Depreciation and amortization........................................ 366
-------
2,115
-------
Operating (loss).................................................... (1,315)
-------
Interest (income)..................................................... (230)
Interest expense (including amounts to related parties of $106)....... 1,366
-------
Net (loss).......................................................... $(2,451)
=======
PARTNERS' DEFICIT
Period From January 1, 1999 through September 20, 1999
(In thousands)
[Download Table]
General Limited
Partner Partners Total
------- -------- -------
Balance, December 31, 1998......................... $(1,505) $(5,101) $(6,606)
Net (loss)........................................ $(1,348) (1,103) (2,451)
------- ------- -------
Balance, September 20, 1999........................ $(2,853) $(6,204) $(9,057)
======= ======= =======
See Notes to Financial Statements.
F-70
DESOTO -- CHANNEL 62 ASSOCIATES, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
Period From January 1, 1999 through September 20, 1999
(In thousands)
[Download Table]
Cash Flows from Operating Activities
Net (loss)........................................................... $(2,451)
Adjustments to reconcile net (loss) to net cash provided by operating
activities:
Depreciation and amortization....................................... 366
Changes in assets and liabilities:
Decrease in accounts receivable.................................... (221)
(Increase) in prepaid expenses and other assets.................... (134)
Increase in accounts payable, accrued expenses and other
liabilities....................................................... 1,123
-------
Net cash (used in) operating activities............................ (1,317)
-------
Cash Flows from Financing Activities
Net proceeds from borrowings on notes payable........................ 303
Due to affiliates.................................................... 932
-------
Net cash provided by financing activities........................... 1,235
-------
Net (decrease) in cash and cash equivalents......................... (82)
Cash and Cash Equivalents
Beginning............................................................ 93
-------
Ending............................................................... $ 11
=======
Supplemental Disclosures for Cash Flow Information
Cash payments for interest........................................... $ 125
=======
See Notes to Financial Statements.
F-71
DESOTO -- CHANNEL 62 ASSOCIATES, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
DeSoto -- Channel 62 Associates, Ltd. (the Company), a Florida limited
partnership, was formed in 1989. The Company was formed to purchase the
construction permit for and operate Channel 62, a commercial five million-watt
television station located in Venice (Sarasota), Florida. Funding for the
Company's acquisition and development of Channel 62 was obtained from DeSoto
Broadcasting, Inc. (DBI), the Company's general partner, and a $4.0 million
offering of limited partnership interests. The partnership is set to dissolve
December 31, 2025.
Significant accounting policies
Personal assets and liabilities and partners' salaries
In accordance with the generally accepted method of presenting partnership
financial statements, the financial statements do not include the personal
assets and liabilities of the partners, including their rights to refunds on
its net (loss). In addition, the expenses shown in the income statements do not
include any salaries to the partners.
Allocation of partnership income and loss
The partnership agreement requires operating cash flow available for
distribution to first be applied to the payment of any loans by the general
partner to the partnership. The remainder, if any, is then allocated and
distributed 55% to the general partner and 45% to the limited partners.
Allocation to the limited partners is based upon the number of units held
relative to the total units held by all limited partners.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company's operations are affected by numerous factors including changes
in audience acceptance (i.e., ratings), priorities of advertisers, new laws and
governmental regulations and policies, and technological advances. The Company
cannot predict if any of these factors might have a significant impact on the
television and radio industries in the future, nor can it predict what impact,
if any, the occurrence of these or other events might have on the Company's
operations.
Cash and cash equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Revenue recognition
Revenue related to the sale of advertising is recognized at the time of
broadcast.
F-72
DESOTO -- CHANNEL 62 ASSOCIATES, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Trade transactions
The Company enters into agreements in which advertising time is traded for
various products or services. Trade transactions are reported at the normal
advertising rates in effect. Revenue or expense and a corresponding asset or
liability are reported when advertisements are aired or when goods and services
are received. Trade revenue and costs were not significant for the period from
January 1 through September 20, 1999.
Depreciation and amortization of property and equipment
Property and equipment is stated at cost. Depreciation is computed
principally by the straight-line method over the estimated lives of the assets
which range from 5 to 31 years. Improvements to leased property are amortized
over the lesser of the term of the lease or the estimated life of the
improvements.
Intangible assets
Intangible assets are amortized on a straight-line basis as follows:
[Download Table]
Years
-----
Licenses, permits and associated costs................................. 40
Other intangible assets................................................ 1-5
Deferred debt costs related to the credit facility are amortized on a
straight-line basis over the respective life of the credit facility.
Television Programming
The Company has various contracts granting the Company the right to
broadcast television programs over a period of time for a specified fee. Each
contract is recorded as an asset and liability at an amount equal to the gross
contractual commitment. The capitalized costs of each contract are amortized on
a straight-line basis, based on the estimated number of future showings over
the length of the agreement for agreements with unlimited showings. The
capitalized costs of rights to program materials are recorded at the lower of
unamortized cost or estimated realized value.
Rent expense
The Company leases its office and studio space, the tower and various
equipment under various operating lease agreements with various terms and
conditions. Total rent expense was approximately $0.2 million for the period
ended September 20, 1999.
Income taxes
The Company is a partnership, and accordingly, is not a tax paying entity.
Instead, the partners are responsible for any tax liability or benefit, based
on their respective percentages of the Company's taxable income or loss.
Impairment of long-lived assets
The Company reviews its long-lived assets and intangibles related to those
assets periodically to determine potential impairment by comparing the carrying
value of the long-lived assets and identified goodwill with the estimated
future net undiscounted cash flows expected to result from the use of the
assets, including cash flows from disposition. Should the sum of the expected
future net cash flows be less than the carrying value, the
F-73
DESOTO -- CHANNEL 62 ASSOCIATES, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Company would recognize an impairment loss at that date. An impairment loss
would be measured by comparing the amount by which the carrying value exceeds
the fair value (estimated discounted future cash flows) of the long-lived
assets. To date, management has determined that no impairment of its long-lived
assets exists.
Segment information
In accordance with Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and Related Information,
management has determined that the Company has one reportable segment.
Comprehensive income
SFAS No. 130, Reporting Comprehensive Income, established the requirements
for the reporting and presentation of comprehensive income and its components.
For the period ended September 20, 1999, the Company had no components of
comprehensive income and, therefore, net income is equal to comprehensive
income.
Advertising
Advertising costs, which are principally included in sales expenses, are
expensed as incurred.
NOTE 2. LONG-TERM DEBT
The Company has a 12% credit agreement (Agreement) with a financial
institution which provides for a maximum extension of credit of $5.0 million.
At September 20, 1999 the outstanding balance was $4.3 million. The Agreement
expires September 30, 2000 and is collateralized by all of the Company's and
DBI's assets and is guaranteed by DBI and Omni Investments International, Inc.
(OMNI) (the parent company of DBI).
The Agreement provides for monthly interest only payments of 12% and
provides for additional deferred interest at the option of the Lender equal to
either (a) 10% or (b) an amount equal to 15% of the combined net equity value
of the Company and DBI as defined by the Agreement, which option may be
exercised upon certain events including sale of the borrowers. Subsequent to
September 20, 1999, the Lender exercised the net equity proceeds option in
connection with the sale of assets as described in Note 5 to these financial
statements.
The Company also has an advance from DBI in the amount of approximately $0.6
million and bears interest at the rate of approximately 5% as of September 20,
1999. There is no stated maturity on this advance. Approximately $23,000 of
interest expense has been included in the accompanying statement of operations
in connection with this debt.
NOTE 3. RELATED-PARTY TRANSACTIONS
The Company recorded advertising revenue and incurred advertising, promotion
and certain administration expenses with vendors who are also subsidiaries of
Omni. For the period ended September 20, 1999, such income and expenses totaled
approximately $7,000.
DBI manages and administers the business and affairs of the Company.
Compensation to DBI as an annual management fee is $0.2 million plus 5% of
operating cash flows calculated monthly after deductions for interest and
depreciation. The management fee for the period ended September 20, 1999
totaled $0.1 million.
As of and during the period ended September 20, 1999, the Company had
amounts due to certain organizations related through common ownership. Interest
paid on these borrowings for the period from January 1, 1999 through September
20, 1999 was approximately $0.1 million.
F-74
DESOTO -- CHANNEL 62 ASSOCIATES, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 4. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan for all employees. Under the
terms of the plan, employees must be 21 years of age with one year of eligible
service to participate. The Company may make matching contributions equal to a
discretionary percentage, to be determined by the Company, of the participant's
salary reductions. There have been no matching contributions made by the
Company. The plan is currently in the process of being terminated in connection
with the sale of assets as described in Note 5.
NOTE 5. SALE LEASEBACK TRANSACTION
During 1998, the Company entered into a sale-leaseback transaction with an
unrelated entity. The gain from this transaction was approximately $0.9
million, recorded as deferred income and is being amortized over the subsequent
lease term of three years. Income of $0.2 million has been included in the
accompanying statement of operations during the period ended September 30,
1999.
NOTE 6. SUBSEQUENT EVENT AND SALES OF ASSETS
On September 20, 1999, the Company and DBI sold substantially all assets of
the Company and the FCC license held by DBI to Entravision Communications
Company, L.L.C. for $17.0 million in cash. Entravision did not assume any
liabilities with the exception of certain prorated expenses, leases material to
operations of the Company and liabilities associated with certain program
rights. The accompanying financial statements have been prepared without giving
effect to the transaction except for the payment or accrual of certain costs
totaling approximately $0.4 million.
F-75
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[ENTRAVISION LOGO]
ENTRAVISION COMMUNICATIONS CORPORATION
Class A Common Stock
---------------------
PROSPECTUS
---------------------
, 2000
Donaldson, Lufkin & Jenrette
Book Running Manager
Credit Suisse First Boston
Co-Lead Manager
Merrill Lynch & Co.
Co-Lead Manager
----------------
Salomon Smith Barney
Bear, Stearns & Co. Inc.
DLJdirect Inc.
--------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Entravision
have not changed since the date hereof.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of common stock may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
--------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be paid by us in connection
with the sale and distribution of the securities being registered. All of the
amounts shown are estimated except the registration fee of the Securities and
Exchange Commission, the NASD filing fee and the New York Stock Exchange
listing fee.
[Download Table]
Securities and Exchange Commission registration fee................ $162,360
NASD filing fee.................................................... 30,500
New York Stock Exchange listing fee................................ *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Printing expenses.................................................. *
Blue sky fees and expenses......................................... *
Transfer agent and registrar fees and expenses..................... *
Miscellaneous...................................................... *
--------
Total.............................................................. $ *
========
--------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
We are incorporated under the laws of the State of Delaware. Section 145 of
the Delaware General Corporation Law, as the same exists or may hereafter be
amended, provides that a Delaware corporation may indemnify any persons who
were, are or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person is or was an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the corporation's best interests and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe that his or her conduct was illegal. A Delaware corporation may
indemnify any persons who are, were or are threatened to be made, a party to
any threatened, pending or completed action or suit by or in the right of the
corporation by reasons of the fact that such person was a director, officer,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorney's fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses which such officer or director has
actually and reasonably incurred.
Section 145 of the Delaware General Corporation Law further authorizes a
corporation to purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against any liability asserted
against him or her and incurred by him or her in any such capacity, arising out
of his or her status as such, whether or not the corporation would otherwise
have the power to indemnify him or her under Section 145.
II-1
Our first restated certificate of incorporation provides that, to the
fullest extent permitted by Delaware law, as it may be amended from time to
time, none of our directors will be personally liable to us or our stockholders
for monetary damages resulting from a breach of fiduciary duty as a director,
except for (i) liability resulting from a breach of the director's duty of
loyalty to us or our stockholders, (ii) acts or omissions which are not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) unlawful payment of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law
or (iv) a transaction from which the director derived an improper personal
benefit.
Our first restated certificate of incorporation also provides mandatory
indemnification for the benefit of our directors and officers and discretionary
indemnification for the benefit of our employees and agents, in each instance
to the fullest extent permitted by Delaware law, as it may be amended from time
to time. In addition, we will enter into individual indemnification agreements
with each of our directors and officers providing additional indemnification
benefits. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors or officers or persons
controlling us pursuant to the foregoing provisions, we have been informed that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act and is therefore
unenforceable. We will also provide directors' and officers' liability
insurance coverage for our directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since our incorporation on February 11, 2000, we have issued unregistered
securities as follows:
On February 12, 2000, we issued 1,000 shares of our common stock to
Entravision Communications Company, L.L.C. for an aggregate purchase price of
$1,000, such shares to be held until and cancelled concurrently with the
reorganization described in the following paragraph. These shares were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act.
Before the closing of this offering, we will complete a reorganization in
which direct and indirect ownership interests in our predecessor and
Univision's subordinated vote and option will be exchanged for newly-issued
shares of our common stock. As part of this reorganization and our acquisition
of Z-Spanish Media, we will also issue newly-issued shares of our common stock
to the stockholders of Z-Spanish Media. All of these shares will be issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits are attached hereto and incorporated herein by
reference.
[Download Table]
Exhibit Exhibit Description
Number -------------------
-------
1.1(2) Form of Underwriting Agreement.
2.1(1) Asset Purchase Agreement dated as of October 30, 1998 by and among
Univision Television Group, Inc., KLUZ License Partnership, G.P. and
Entravision Communications Company, L.L.C.
2.2(1) Agreement and Plan of Merger dated December 21, 1999 by and among
Entravision Communications Company, L.L.C., LCG Acquisition
Corporation, Latin Communications Group Inc. and certain of its
representatives.
2.3(1) Asset Purchase Agreement dated as of February 29, 2000 by and between
Citicasters Co. and the registrant.
2.4(2) Acquisition Agreement and Plan of Merger dated April 20, 2000 by and
among the registrant, Entravision Communications Company, L.L.C., ZSPN
Acquisition Corporation, Z-Spanish Media Corporation and certain of
its stockholders.
2.5(2) Form of Exchange Agreement by and among the registrant, Entravision
Communications Company, L.L.C., certain exchanging members and
stockholders and Univision Communications Inc.
3.1(1) Certificate of Incorporation of the registrant as currently in effect.
3.2(1) Form of First Restated Certificate of Incorporation of registrant as
in effect immediately prior to the closing of the offering.
3.3(1) Form of First Amended and Restated Bylaws of the registrant as in
effect immediately prior to the closing of the offering.
4.1(2) Form of specimen Class A common stock certificate of the registrant.
5.1(2) Opinion of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P.
10.1(2) 2000 Omnibus Equity Incentive Plan of the registrant.
10.2(2) Form of Voting Agreement by and among Walter F. Ulloa, Philip C.
Wilkinson, Paul A. Zevnik and certain entities controlled by such
individuals.
10.3(1) Amended and Restated Credit Agreement dated November 10, 1998 by and
among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc. Cabrillo
Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las
Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc.,
Entravision Communications Company, L.L.C., the lender parties thereto
and Union Bank of California, N.A., as agent.
10.4(1) First Amendment to Amended and Restated Credit Agreement dated as of
December 29, 1999 by and among KSMS-TV, Inc., Tierra Alta
Broadcasting, Inc., Cabrillo Broadcasting Corporation, Golden Hills
Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel
48, Inc., Entravision Communications Company, L.L.C., the lender
parties thereto and Union Bank of California, N.A., as agent.
10.5(1) Second Amendment to Amended and Restated Credit Agreement dated as of
January 14, 2000 by and among KSMS-TV, Inc., Tierra Alta Broadcasting,
Inc., Cabrillo Broadcasting Corporation, Golden Hills Broadcasting
Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc.,
Telecorpus, Inc., Entravision Communications Company, L.L.C., the
lender parties thereto and Union Bank of California, N.A., as agent.
10.6(2) Third Amendment to Amended and Restated Credit Agreement dated April
18, 2000 by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc.,
Cabrillo Broadcasting Corporation, Golden Hills Broadcasting
Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc.,
Telecorpus, Inc., Entravision Communications Company, L.L.C., the
lender parties thereto and Union Bank of California, N.A., as agent.
10.7(1) Amended and Restated Security Agreement dated as of November 10, 1998
by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc., Cabrillo
Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las
Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc.,
Entravision Communications Company, L.L.C., the lender parties thereto
and Union Bank of California, N.A., as agent.
II-3
[Download Table]
Exhibit Exhibit Description
Number -------------------
-------
10.8(1) Amended and Restated Pledge Agreement dated as of November 10, 1998
by certain pledgors in favor of Union Bank of California, N.A., as
agent.
10.9(2) Term Loan Agreement dated April 19, 2000 by and among LCG Acquisition
Corporation, the lender parties thereto and Union Bank of California,
N.A.
10.10(2) Security Agreement dated April 19, 2000 by and between LCG
Acquisition Corporation and Union Bank of California, N.A.
10.11(2) Pledge Agreement dated April 19, 2000 by Walter F. Ulloa and Philip
C. Wilkinson in favor of Union Bank of California, N.A.
10.12(1) Univision Roll-Up Agreement dated March 2, 2000 by and between
Univision Communications Inc. and Entravision Communications Company,
L.L.C.
10.13(1) First Amended and Restated Non-Negotiable Subordinated Note dated
March 2, 2000 in the principal amount of $120 million from
Entravision Communications Company, L.L.C. in favor of Univision
Communications Inc.
10.14(1) Amended and Restated Subordinated Note Purchase and Option Agreement
dated as of December 30, 1996 by and among Univision Communications
Inc., Entravision Communications Company, L.L.C., its member
entities, Walter F. Ulloa and Philip C. Wilkinson.
10.15(1) First Amendment to Amended and Restated Subordinated Note Purchase
and Option Agreement dated as of March 31, 1999 by and among
Univision Communications Inc., Entravision Communications Company,
L.L.C., its member entities, Walter F. Ulloa and Philip C. Wilkinson.
10.16(1) Second Amendment to Amended and Restated Subordinated Note Purchase
and Option Agreement dated March 2, 2000 by and among Univision
Communications Inc., Entravision Communications Company, L.L.C., its
member entities, Walter F. Ulloa and Philip C. Wilkinson.
10.17(1) Secured Promissory Note and Pledge Agreement dated October 16, 1996
in the principal amount of $360,366.38 from Paul A. Zevnik in favor
of Entravision Communications L.L.C.
10.18(2) Form of Indemnification Agreement for officers and directors of the
registrant.
10.19(2) Convertible Subordinated Note Purchase Agreement dated as of April
20, 2000 by and among Entravision Communications Company, L.L.C., the
registrant and certain investors.
10.20(2) Subordinated Convertible Promissory Note dated April 20, 2000 in the
principal amount of $90 million from Entravision Communications
Company, L.L.C. in favor of TSG Capital Fund III, L.P.
10.21(2) Investor Rights Agreement dated April 20, 2000 by and among
Entravision Communications Company, L.L.C., the registrant and TSG
Capital Fund III, L.P.
10.22(2) Form of Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock of the registrant.
10.23(2) Form of Investor Rights Agreement by and among the registrant and
certain of its stockholders.
10.24(1) Form of Network Affiliation Agreement by and between Univision
Television Network and Entravision Communications Company, L.L.C.
10.25(2) Office Lease dated August 19, 1999 by and between Water Garden
Company, L.L.C. and Entravision Communications Company, L.L.C.
21.1(2) Schedule of subsidiaries of the registrant.
23.1(2) Consent of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P.
(included in Exhibit 5.1).
23.2(2) Consent of McGladrey & Pullen, LLP.
23.3(2) Consent of Ernst & Young LLP.
23.4(2) Consent of Deloitte & Touche LLP.
24.1(1) Power of Attorney (included on the signature page to this
registration statement).
--------
(1) Filed herewith.
(2) To be filed by amendment.
(b) Financial Statement Schedules--None.
II-4
ITEM 17. UNDERTAKINGS.
The registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Monica, State of
California, on April 20, 2000.
ENTRAVISION COMMUNICATIONS CORPORATION
/s/ Walter F. Ulloa
By: ______________________________________
Walter F. Ulloa, Chairman and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint Walter F. Ulloa and Jeanette Tully,
and each of them, with full power of substitution and full power to act without
the other, his or her true and lawful attorney-in-fact and agent to act for him
or her in his or her name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
registration statement, any and all registration statements filed pursuant to
Rule 462(b) of the Securities Act (including post-effective amendments) and to
file this registration statement, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully, to all intents
and purposes, as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the dates indicated.
[Download Table]
Signature Title Date
--------- ----- ----
/s/ Walter F. Ulloa Chairman and Chief Executive April 20, 2000
____________________________________ Officer (principal
Walter F. Ulloa executive officer)
/s/ Philip C. Wilkinson President, Chief Operating April 20, 2000
____________________________________ Officer and Director
Philip C. Wilkinson
/s/ Jeanette Tully Executive Vice President, April 20, 2000
____________________________________ Treasurer and Chief
Jeanette Tully Financial Officer
(principal financial
officer and principal
accounting officer)
/s/ Paul A. Zevnik Secretary and Director April 20, 2000
____________________________________
Paul A. Zevnik
/s/ Amador S. Bustos President of Radio Division April 20, 2000
____________________________________ and Director
Amador S. Bustos
/s/ Darryl B. Thompson Director April 20, 2000
____________________________________
Darryl B. Thompson
/s/ Andrew W. Hobson Director April 20, 2000
____________________________________
Andrew W. Hobson
/s/ Michael D. Wortsman Director April 20, 2000
____________________________________
Michael D. Wortsman
II-6
EXHIBIT INDEX
[Download Table]
Exhibit
Number Exhibit Description
------- -------------------
1.1(2) Form of Underwriting Agreement.
2.1(1) Asset Purchase Agreement dated as of October 30, 1998 by and among
Univision Television Group, Inc., KLUZ License Partnership, G.P. and
Entravision Communications Company, L.L.C.
2.2(1) Agreement and Plan of Merger dated December 21, 1999 by and among
Entravision Communications Company, L.L.C., LCG Acquisition
Corporation, Latin Communications Group Inc. and certain of its
representatives.
2.3(1) Asset Purchase Agreement dated as of February 29, 2000 by and between
Citicasters Co. and the registrant.
2.4(2) Acquisition Agreement and Plan of Merger dated April 19, 2000 by and
among the registrant, Entravision Communications Company, L.L.C., ZSPN
Acquisition Corporation, Z-Spanish Media Corporation and certain of
its stockholders.
2.5(2) Form of Exchange Agreement by and among the registrant, Entravision
Communications Company, L.L.C., certain exchanging members and
stockholders and Univision Communications Inc.
3.1(1) Certificate of Incorporation of the registrant as currently in effect.
3.2(1) Form of First Restated Certificate of Incorporation of registrant as
in effect immediately prior to the closing of the offering.
3.3(1) Form of First Amended and Restated Bylaws of the registrant as in
effect immediately prior to the closing of the offering.
4.1(2) Form of specimen Class A common stock certificate of the registrant.
5.1(2) Opinion of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P.
10.1(2) 2000 Omnibus Equity Incentive Plan of the registrant.
10.2(2) Form of Voting Agreement by and among Walter F. Ulloa, Philip C.
Wilkinson, Paul A. Zevnik and certain entities controlled by such
individuals.
10.3(1) Amended and Restated Credit Agreement dated November 10, 1998 by and
among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc. Cabrillo
Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las
Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc.,
Entravision Communications Company, L.L.C., the lender parties thereto
and Union Bank of California, N.A., as agent.
10.4(1) First Amendment to Amended and Restated Credit Agreement dated as of
December 29, 1999 by and among KSMS-TV, Inc., Tierra Alta
Broadcasting, Inc., Cabrillo Broadcasting Corporation, Golden Hills
Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel
48, Inc., Entravision Communications Company, L.L.C., the lender
parties thereto and Union Bank of California, N.A., as agent.
10.5(1) Second Amendment to Amended and Restated Credit Agreement dated as of
January 14, 2000 by and among KSMS-TV, Inc., Tierra Alta Broadcasting,
Inc., Cabrillo Broadcasting Corporation, Golden Hills Broadcasting
Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc.,
Telecorpus, Inc., Entravision Communications Company, L.L.C., the
lender parties thereto and Union Bank of California, N.A., as agent.
10.6(2) Third Amendment to Amended and Restated Credit Agreement dated April
18, 2000 by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc.,
Cabrillo Broadcasting Corporation, Golden Hills Broadcasting
Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc.,
Telecorpus, Inc., Entravision Communications Company, L.L.C., the
lender parties thereto and Union Bank of California, N.A., as agent.
10.7(1) Amended and Restated Security Agreement dated as of November 10, 1998
by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc., Cabrillo
Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las
Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc.,
Entravision Communications Company, L.L.C., the lender parties thereto
and Union Bank of California, N.A., as agent.
[Download Table]
Exhibit
Number Exhibit Description
------- -------------------
10.8(1) Amended and Restated Pledge Agreement dated as of November 10, 1998
by certain pledgors in favor of Union Bank of California, N.A., as
agent.
10.9(2) Term Loan Agreement dated April 19, 2000 by and among LCG Acquisition
Corporation, the lender parties thereto and Union Bank of California,
N.A.
10.10(2) Security Agreement dated April 19, 2000 by and between LCG
Acquisition Corporation and Union Bank of California, N.A.
10.11(2) Pledge Agreement dated April 19, 2000 by Walter F. Ulloa and Philip
C. Wilkinson in favor of Union Bank of California, N.A.
10.12(1) Univision Roll-Up Agreement dated March 2, 2000 by and between
Univision Communications Inc. and Entravision Communications Company,
L.L.C.
10.13(1) First Amended and Restated Non-Negotiable Subordinated Note dated
March 2, 2000 in the principal amount of $120 million from
Entravision Communications Company, L.L.C. in favor of Univision
Communications Inc.
10.14(1) Amended and Restated Subordinated Note Purchase and Option Agreement
dated as of December 30, 1996 by and among Univision Communications
Inc., Entravision Communications Company, L.L.C., its member
entities, Walter F. Ulloa and Philip C. Wilkinson.
10.15(1) First Amendment to Amended and Restated Subordinated Note Purchase
and Option Agreement dated as of March 31, 1999 by and among
Univision Communications Inc., Entravision Communications Company,
L.L.C., its member entities, Walter F. Ulloa and Philip C. Wilkinson.
10.16(1) Second Amendment to Amended and Restated Subordinated Note Purchase
and Option Agreement dated March 2, 2000 by and among Univision
Communications Inc., Entravision Communications Company, L.L.C., its
member entities, Walter F. Ulloa and Philip C. Wilkinson.
10.17(1) Secured Promissory Note and Pledge Agreement dated October 16, 1996
in the principal amount of $360,366.38 from Paul A. Zevnik in favor
of Entravision Communications L.L.C.
10.18(2) Form of Indemnification Agreement for officers and directors of the
registrant.
10.19(2) Convertible Subordinated Note Purchase Agreement dated as of April
19, 2000 by and among Entravision Communications Company, L.L.C., the
registrant and certain investors.
10.20(2) Subordinated Convertible Promissory Note dated April 19, 2000 in the
principal amount of $90 million from Entravision Communications
Company, L.L.C. in favor of TSG Capital Fund III, L.P.
10.21(2) Investor Rights Agreement dated April 19, 2000 by and among
Entravision Communications Company, L.L.C., the registrant and TSG
Capital Fund III, L.P.
10.22(2) Form of Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock of the registrant.
10.23(2) Form of Investor Rights Agreement by and among the registrant and
certain of its stockholders.
10.24(1) Form of Network Affiliation Agreement with Univision Network Limited
Partnership.
10.25(2) Office Lease dated August 19, 1999 by and between Water Garden
Company, L.L.C. and Entravision Communications Company, L.L.C.
21.1(2) Schedule of subsidiaries of the registrant.
23.1(2) Consent of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P.
(included in Exhibit 5.1).
23.2(2) Consent of McGladrey & Pullen, LLP.
23.3(2) Consent of Ernst & Young LLP.
23.4(2) Consent of Deloitte & Touche LLP.
24.1(1) Power of Attorney (included on the signature page to this
registration statement).
--------
(1) Filed herewith.
(2) To be filed by amendment.
(b) Financial Statement Schedules--None.
Dates Referenced Herein and Documents Incorporated by Reference
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