| ENTRAVISION COMMUNICATIONS CORP ITEM 1A RISK FACTORS We have a history of losses that, if continued, could adversely affect the market price of our securities and our ability to raise capital |
| Although we had a net profit for the years ended December 31, 2004 and 2003, we had a net loss of approximately dlra9dtta7 million for the year ended December 31, 2005 |
| In addition, we had net losses applicable to common stockholders of dlra9dtta7 million, dlra9dtta7 million and dlra9dtta1 million for the years ended December 31, 2005, 2004 and 2003, respectively |
| If we cannot generate profits in the future, our failure to do so could adversely affect the market price of our securities, which in turn could adversely affect our ability to raise additional equity capital or to incur additional debt |
| If we cannot raise required capital, we may have to curtail existing operations and our future growth through acquisitions |
| We may require significant additional capital for future acquisitions and general working capital and debt service needs |
| If our cash flow and existing working capital are not sufficient to fund future acquisitions and our general working capital and debt service requirements, we will have to raise additional funds by selling equity, refinancing some or all of our existing debt or selling assets or subsidiaries |
| 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 |
| In addition, our ability to raise additional funds is limited by the terms of the credit agreement governing our syndicated bank credit facility |
| Our failure to obtain any required new financing may, if needed, prevent future acquisitions |
| Our substantial level of debt could limit our ability to grow and compete |
| As of December 31, 2005, we had dlra500 million of debt outstanding under our syndicated bank credit facility |
| A significant portion of our cash flow from operations will be dedicated to servicing our debt obligations, and our ability to obtain additional financing may be limited |
| 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 to repay outstanding indebtedness if we are unable to meet our debt service obligations |
| If the amounts outstanding under our syndicated bank credit facility are accelerated, our assets may not be sufficient to repay in full the money owed to such lenders |
| Our substantial indebtedness could have important consequences to our business, such as: • limiting our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our growth strategy or other purposes; and • placing us at a disadvantage compared to those of our competitors who have less debt |
| 27 ______________________________________________________________________ [55]Table of Contents The credit agreement governing our syndicated bank credit facility contains various covenants that limit management’s discretion in the operation of our business and could limit our ability to grow and compete |
| The credit agreement governing our syndicated bank credit facility contain various provisions that limit our ability to: • incur additional debt and issue preferred stock; • pay dividends and make other distributions; • make investments, capital expenditures and other restricted payments; • create liens; • sell assets; and • enter into certain transactions with affiliates |
| These provisions restrict management’s ability to operate our business in accordance with management’s discretion and could limit our ability to grow and compete |
| If we fail to comply with any of our financial covenants or ratios under our financing agreements, our lenders could: • elect to declare all amounts borrowed to be immediately due and payable, together with accrued and unpaid interest; and/or • terminate their commitments, if any, to make further extensions of credit |
| Any failure to maintain our FCC broadcast licenses could cause a default under our syndicated bank credit facility and cause an acceleration of our indebtedness |
| Our syndicated bank credit facility requires 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 syndicated bank credit facility to be immediately due and payable |
| If our indebtedness is accelerated, we may not have sufficient funds to pay the amounts owed |
| Cancellations or reductions of advertising could adversely affect our results of operations |
| 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 |
| We have a significant amount of goodwill and other intangible assets and we may never realize the full value of our intangible assets |
| Goodwill and intangible assets totaled dlra1dtta3 billion at December 31, 2005, primarily attributable to acquisitions in recent years |
| At the date of these acquisitions, the fair value of the acquired goodwill and intangible assets equaled its book value |
| At least annually, we test our goodwill and intangible assets for impairment |
| Impairment may result from, among other things, deterioration in our performance, adverse market conditions, adverse changes in applicable laws and regulations, including changes that restrict the activities of or affect the products or services sold by our businesses and a variety of other factors |
| The amount of any quantified impairment must be expensed as a charge to operations |
| Depending on future circumstances, we may never realize the full value of our intangible assets |
| Any future determination of impairment of a significant portion of our goodwill and other intangibles could have an adverse effect on our financial condition and results of operations |
| 28 ______________________________________________________________________ [56]Table of Contents Univision’s ownership of our Class U common stock may make some transactions difficult or impossible to complete without Univision’s support |
| Univision is the holder of all of our issued and outstanding Class U common stock |
| Although the Class U common stock has limited voting rights and does not include the right to elect directors, Univision does have the right to approve any merger, consolidation or other business combination involving our company, any dissolution of our company and any assignment 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 Univision’s support |
| Univision’s future divestiture of a portion of its equity interest in our company could adversely affect the market price of our securities |
| Univision currently owns less than 15prca of our common stock on a fully-converted basis |
| In connection with Univision’s merger with Hispanic Broadcasting Corporation in September 2003, Univision entered into an agreement with DOJ pursuant to which Univision agreed, among other things, to ensure that its percentage ownership of our company will not exceed 10prca by March 26, 2009 |
| Univision’s required divestiture of a significant portion of its remaining equity interest in our company over the next several years, whether in a single transaction or a series of transactions, could depress the market value of our Class A common stock |
| Our television ratings and revenue could decline significantly if our affiliation relationship with Univision or Univision’s programming success changes in an adverse manner |
| If our affiliation relationship with Univision changes in an adverse manner, or if Univision’s programming success diminishes, our ability to generate television advertising revenue on which our television business depends could be negatively affected |
| Univision’s ratings 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 Univision’s television networks |
| Univision’s relationships with Televisa and Venevision are important to Univision’s, and consequently our, continued success |
| Univision and Televisa are currently involved in litigation over programming provided to Univision by Televisa, and we cannot predict the outcome of their litigation or the effect that the outcome might have on our business or our results of operations |
| In addition, in February 2006, Univision announced that it is exploring strategic alternatives including but not limited to the sale of Univision to, or its merger with, another entity, and we cannot predict the effect that any such sale or merger would have on our business or our results of operations |
| Because three of our directors and officers, and stockholders affiliated with them, hold the majority of our voting power, they can ensure the outcome of most matters on which our stockholders vote |
| As of December 31, 2005, Walter F Ulloa, Philip C Wilkinson and Paul Zevnik together hold approximately 82prca of the combined voting power of our outstanding shares of common stock |
| Each of Messrs |
| Ulloa, Wilkinson and Zevnik is a member of our board of directors, and Messrs |
| Ulloa and Wilkinson also serve as executive officers of our company |
| In addition to their shares of our Class A common stock, collectively they own all of the issued and outstanding shares of our Class B common stock, which have ten votes per share on any matter subject to a vote of the stockholders |
| Accordingly, Messrs |
| Ulloa, Wilkinson and Zevnik have the ability to elect each of the members of our board of directors |
| Ulloa, Wilkinson and Zevnik have agreed contractually to vote their shares to elect themselves as directors of our company |
| Ulloa, Wilkinson and Zevnik, acting in concert, also have the ability to control the outcome of most matters requiring stockholder approval |
| 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 the company |
| 29 ______________________________________________________________________ [57]Table of Contents Stockholders who desire to change control of our company may be prevented from doing so by provisions of our second amended and restated certificate of incorporation and the credit agreement governing our syndicated bank credit facility |
| In addition, other agreements contain provisions that could discourage a takeover |
| Our second amended and restated certificate of incorporation could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders |
| The provisions of our certificate of incorporation could diminish the opportunities for a stockholder to participate in tender offers |
| In addition, under our certificate of incorporation, our board of directors may issue preferred stock on terms 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 certificate of incorporation may have the effect of discouraging or preventing an acquisition or sale of our business |
| In addition, the credit agreement governing our syndicated bank credit facility contains limitations on our ability to enter into a change of control transaction |
| Under this agreement, the occurrence of a change of control, in some cases after notice and grace periods, would constitute an event of default permitting acceleration of our outstanding indebtedness |
| Displacement of any of our low-power television stations could cause our ratings and revenue for any such station to decrease |
| A significant portion of our television stations is licensed by the FCC for low-power service only |
| Our low-power television stations operate with less power and coverage than our full-power stations |
| The FCC rules under which we operate provide that low-power television stations are treated as a secondary service |
| If any or all of our low-power stations are found to cause interference to full-power stations, we would be required to eliminate the interference or terminate service |
| As a result of the FCC’s initiation of digital television service and actions by Congress to reclaim broadcast spectrum, channels 52-69, previously used for broadcasting, will be cleared and put up for auction generally to wireless services or assignment to public safety services |
| In a few urban markets where we operate, including Washington, DC and San Diego, there are a limited number of alternative channels to which our low-power television stations could migrate as they are displaced by full-power digital broadcasters and non-broadcast services |
| If we are unable to move the signals of our low-power television stations to replacement channels to the extent legally required, or such channels do not permit us to maintain the same level of service, we may be unable to maintain the viewership these stations currently have, which could harm our ratings and advertising revenue or, in the worst case, cause us to discontinue operations at these low-power television stations |
| Our conversion to digital television, as required by the FCC, may not result in commercial benefit unless there is sufficient consumer demand |
| The FCC required full-power television stations in the United States to begin broadcasting a digital television, or DTV, signal by May 1, 2002 |
| The FCC has allocated an additional television channel to most such station owners so that each full-power television station can broadcast a DTV signal on the additional channel while continuing to broadcast an analog signal on the station’s original channel |
| As part of the transition from analog to DTV, full-power television station owners may be required to stop broadcasting analog signals and relinquish their analog channels to the FCC no later than February 17, 2009 |
| FCC rules allowed us initially to satisfy the obligation for our full-power television stations to begin broadcasting a DTV signal by broadcasting a lower-powered signal that serves at least each full-power television station’s applicable community of license |
| In most instances, this rule permitted us to install temporary DTV facilities of a lower power level, which does not require the degree of capital investment that we had anticipated would be necessary to meet the requirements of our stations’ DTV authorizations |
| Our initial cost of converting our full-power stations to DTV, therefore, has been considerably lower than it would have been if we were required to operate immediately at the full signal strength provided for by our DTV authorizations |
| 30 ______________________________________________________________________ [58]Table of Contents We are currently broadcasting DTV signals for nearly all of our full-power television stations at lower power levels by means of temporary DTV facilities, pursuant to FCC authorization |
| The FCC has required us to reach full-power operation, in order to protect the service contours we have sought for our full-service stations, on or before July 1, 2006 |
| All on-air digital full-service stations currently must be simulcasting 100prca of the video programming of their analog channels or their DTV channels |
| Until commercial demand for digital television services increases, these digital operations may not prove commercially beneficial |
| Our stations may continue to broadcast analog signals until the February 17, 2009 deadline for conversion to digital-only operations |
| Because our full-service television stations rely on “must carry” rights to obtain cable carriage, new laws or regulations that eliminate or limit the scope of our cable carriage rights could have a material adverse impact on our television operations |
| Under the Cable Act, each full-service broadcast station is required to elect, every three years, to exercise the right either to require cable television system operators in its local market to carry its signal, or to prohibit cable carriage or condition it upon payment of a fee or other consideration |
| Under these “must carry” provisions of the Cable Act, a broadcaster may demand carriage on a specific channel on cable systems within its market |
| These “must carry” rights are not absolute, and under some circumstances, a cable system may be entitled not to carry a given station |
| Our television stations, for the most part, elected “must carry” on local cable systems for the three-year election period that commenced January 1, 2006, and, except for isolated cases, have obtained the carriage they requested |
| Under current FCC rules, once we have relinquished our analog spectrum, cable systems will be required to carry our digital signals |
| The FCC’s current rules require cable operators to carry only one channel of digital signal from each of our stations, despite the capability of digital broadcasters to broadcast multiple program streams within one station’s digital allotment |
| The FCC has not yet set any rules for how direct broadcast satellite, or DBS, operators must handle digital station carriage, but we do not expect that they will be materially different from the obligations imposed on cable television systems |
| The extent of the “must carry” rights television stations will have after they make the transition to DTV could still be changed as the DTV transition is implemented |
| New laws or regulations that eliminate or limit the scope of our cable carriage rights could have a material adverse impact on our television operations |
| We cannot predict what final rules the FCC ultimately will adopt or what effect those rules will have on our business |
| Our low-power television stations do not have cable “must carry” rights |
| Some of our low-power television stations are carried on cable systems as they provide broadcast programming the cable systems desire |
| We may face future uncertainty with respect to the availability of cable carriage for our stations in seven markets where we currently hold only a low-power license |
| The policies of direct broadcast satellite companies may make it more difficult for their customers to receive our local broadcast station signals |
| The Satellite Home Viewer Improvement Act of 1999, or SHVIA, allows DBS television companies, which are currently DirecTV and EchoStar/Dish Network, for the first time to transmit local broadcast television station signals back to their subscribers in local markets |
| In exchange for this privilege, however, SHVIA requires that in television markets in which a DBS company elects to pick up and retransmit any local broadcast station signals, the DBS provider must also offer to its subscribers signals from all other qualified local broadcast television stations in that market |
| Our broadcast television stations in markets for which DBS operators have elected to carry local stations have sought to qualify for carriage under this “carry one/carry all” rule |
| A controversy has arisen in the manner in which EchoStar/Dish Network has implemented the carry one/carry all rule |
| In order to get signals from all local stations, including the signals from our stations, EchoStar/Dish 31 ______________________________________________________________________ [59]Table of Contents Network subscribers were being required to install a second receiving dish to receive all of the local stations in some markets |
| This was an inconvenience for the typical DBS subscriber and, as a result, limited the size of the viewership for our stations available only on the “second dish” under the carry one/carry all rule |
| The FCC has determined that EchoStar/Dish Network cannot require use of a second dish for carriage of local signals |
| EchoStar/Dish Network must implement alternative methods of complying with its SHVIA obligations, which has resulted in EchoStar/Dish Network not delivering certain of our stations to its customers’ primary dish |
| EchoStar/Dish Network has petitioned the FCC for reconsideration of this decision, and other parties have asked for review as to whether EchoStar/Dish Network was entitled to comply by any means other than by placing all television stations on the same dish |
| At this time, we cannot predict the outcome of this dispute or its effect on our stations’ ability to reach viewers who subscribe to EchoStar/Dish Network services |
| The SHVIA expired in 2004 and Congress adopted the Satellite Home Viewer Extension and Reauthorization Act of 2004, or SHVERA The SHVERA legislation requires the elimination of any second dish service by June of 2006 |
| The FCC’s new ownership rules could lead to increased market power for our competitors |
| On June 2, 2003, the FCC revised its national ownership policy, modified television and cross-ownership restrictions, and changed its methodology for defining radio markets |
| The future of the FCC’s ownership rules remains uncertain due to the decision of the federal courts to remand the FCC’s decision for further review by the FCC, except for provisions dealing with how the FCC determines the number of stations in local radio markets which were permitted to go into effect |
| Congress has also indicated its concern over the FCC’s new rules and legislation has been considered to restrict the changes |
| To date, however, only a reduction in the nationwide television cap, to 39prca of the viewing public, has been the subject of federal legislation |
| Accordingly, the impact of changes in the FCC’s restrictions on how many stations a party may own, operate and/or control and on our future acquisitions and competition from other companies is difficult to predict at this time, but could result in our competitors’ ability to increase their presence in the markets in which we operate |
| entravision |
| com, the following reports, and amendments to those reports, filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC: • our annual report on Form 10-K; • our quarterly reports on Form 10-Q; • our current reports on Form 8-K; and • changes in the stock ownership of our directors and executive officers |
| The information on our website is not, and shall not be deemed to be, a part of this report or incorporated by reference into this or any other filing we make with the SEC |