ENTRAVISION COMMUNICATIONS CORP - Quarter Report: 2005 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005

OR

FOR THE TRANSITION PERIOD FROM                      TO                    

COMMISSION FILE NUMBER 1-15997

ENTRAVISION COMMUNICATIONS CORPORATION

(Exact name of registrant as specified in its charter)

2425 Olympic Boulevard, Suite 6000 West

Santa Monica, California 90404

(Address of principal executive offices) (Zip Code)

(310) 447-3870

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES x  NO ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x  No ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No x

As of November 4, 2005, there were 59,766,087 shares, $0.0001 par value per share, of the registrant’s Class A common stock outstanding, 27,678,533 shares, $0.0001 par value per share, of the registrant’s Class B common stock outstanding and 36,926,600 shares, $0.0001 par value per share, of the registrant’s Class U common stock outstanding.

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ENTRAVISION COMMUNICATIONS CORPORATION

FORM 10-Q FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2005

TABLE OF CONTENTS

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Forward-Looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. Some of the key factors impacting these risks and uncertainties include, but are not limited to:

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see the section entitled “Risk Factors” beginning on page 29 of our Annual Report on Form 10-K for the year ended December 31, 2004.

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PART I

FINANCIAL INFORMATION

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

See Notes to Consolidated Financial Statements

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ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

See Notes to Consolidated Financial Statements

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ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

See Notes to Consolidated Financial Statements

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ENTRAVISION COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2005

1. BASIS OF PRESENTATION

Presentation

The consolidated financial statements included herein have been prepared by Entravision Communications Corporation (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2004 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. The unaudited information contained herein has been prepared on the same basis as the Company’s audited consolidated financial statements and, in the opinion of the Company’s management, includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the information for the periods presented. The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2005 or any other future period.

2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Related party

Univision currently owns approximately 30% of the Company’s 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 the U.S. Department of Justice (“DOJ”), pursuant to which Univision agreed, among other things, to ensure that its percentage ownership of the Company will not exceed 15% by March 26, 2006 and 10% by March 26, 2009.

Also pursuant to Univision’s agreement with the DOJ, Univision exchanged all 36,926,623 of its shares of the Company’s Class A and Class C common stock that it previously owned (14,943,231 shares of Class A common stock and 21,983,392 shares of Class C common stock) for 369,266 shares of the Company’s Series U preferred stock in September 2003. The Series U preferred stock was mandatorily convertible into common stock when and if the Company created a new class of common stock that generally had the same rights, preferences, privileges and restrictions as the Series U preferred stock (other than the nominal liquidation preference). The Company’s stockholders approved the creation of such a new class of common stock, the Class U common stock, during the second quarter of 2004, and the 369,266 shares of the Company’s Series U preferred stock held by Univision were converted into 36,926,600 shares of the Company’s new Class U common stock effective as of July 1, 2004. Neither the original exchange of Univision’s Class A and Class C common for Series U preferred stock, nor the subsequent conversion of such Series U preferred stock into Class U common stock, changed Univision’s overall equity interest in the Company, nor did either have any impact on the Company’s existing television station affiliation agreements with Univision.

The Class U common stock has limited voting rights and does not include the right to elect directors. However, as the holder of all of the Company’s issued and outstanding Class U common stock, Univision currently has the right to approve any merger, consolidation or other business combination involving the Company, any dissolution of the Company and any assignment of the Federal Communications Commission, or FCC, licenses for any of the Company’s Univision-affiliated television stations. Each share of Class U common stock is automatically convertible into one share (subject to adjustment for stock splits, dividends or combinations) of the Company’s Class A common stock in connection with any transfer to a third party that is not an affiliate of Univision.

Univision acts as the Company’s exclusive sales representative for the sale of all national advertising aired on Univision-affiliate television stations. During the nine-month periods ended September 30, 2005 and 2004, the amount paid by the Company to Univision in this capacity was $7.1 and $7.0 million, respectively.

In July 2005, the Company entered into a definitive agreement to sell the assets of radio stations KBRG-FM and KLOK-AM, serving the San Francisco/San Jose, California market, to Univision for $90 million. It is currently anticipated that Univision will pay the full amount of the purchase price in the form of shares of the Company’s Class U common stock held by Univision. This transaction is currently expected to close during the first quarter of 2006, and is currently expected to reduce Univision’s percentage ownership in the Company to approximately 20%, based on the Company’s current capital structure and subject to the price of the Company’s Class A common stock at the closing of the transaction.

In September 2005, the Company and Univision entered into an agreement under which the Company has agreed, at Univision’s request, to sell in an underwritten public offering up to a specified number of shares of the Company’s Class A common stock

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previously registered with the SEC, and concurrently with the consummation of that public offering, to repurchase the same number of shares of the Company’s Class U common stock owned by Univision, for an amount equal to the gross proceeds of the offering minus underwriting discounts and commissions (the “Sale Transaction”). Under this agreement, Univision has agreed to refrain from exercising any right to demand the registration of the sale of such common stock provided to it under an investor rights agreement, as amended, between the Company, Univision and the other stockholders named therein until a period of time after giving notice to the Company of its request to consummate a Sale Transaction.

Stock-based compensation

Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock option plans and stock purchase plans. As allowed by SFAS No. 123, the Company has elected to continue to account for its employee stock-based compensation plans using the intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations, which does not require compensation to be recorded if the consideration to be received is at least equal to the fair value of the common stock to be issued at the measurement date. Under the requirements of SFAS No. 123, non-employee stock-based transactions require compensation to be recorded based on the fair value of the securities issued or the services received, whichever is more reliably measurable.

The following table illustrates the effect on net loss and net loss per share had employee compensation costs for the stock-based compensation plan been determined based on grant date fair values of awards under the provisions of SFAS No. 123, for the three- and nine-month periods ended September 30, 2005 and 2004 (in thousands, except per share data):

The Company granted 3,070,000 stock options to employees and directors and 123,000 stock options to non-employees during the nine-month period ended September 30, 2005. These stock options have a weighted average exercise price of $7.84 per share and a weighted average fair value of $4.57 per share.

Beginning in the first quarter of 2006, the Company will adopt SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”). See “Pending Accounting Pronouncements” below. In October 2005, the Company authorized accelerating the vesting of certain of the Company’s outstanding unvested stock options granted under the Company’s equity incentive plans. See “Subsequent Event” below.

Loss per share

Basic loss per share is computed as net loss applicable to common stockholders divided by weighted average number of common shares outstanding for the period. For 2004, net loss applicable to common stockholders is net loss reduced by accretion of preferred stock redemption value, premium paid on early redemption and accrued dividends on Series A mandatorily redeemable convertible preferred stock outstanding during that period. Diluted loss per share reflects the potential dilution, if any, that could occur from shares issuable through stock options and convertible securities.

For the three- and nine-month periods ended September 30, 2005 and 2004, all dilutive securities have been excluded as their inclusion would have had an anti-dilutive effect on loss per share.

For the nine-month period ended September 30, 2005, the securities whose conversion would result in an incremental number of shares that would be included in determining the weighted average shares outstanding for diluted earnings per share if their effect was not anti-dilutive is 206,305 equivalent shares of stock options. For the nine-month period ended September 30, 2004, the securities whose conversion would result in an incremental number of shares that would be included in determining the weighted average shares

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outstanding for diluted earnings per share if their effect was not anti-dilutive is as follows: 284,073 equivalent shares of stock options, 12,308,867 equivalent shares of Series U convertible preferred stock and 5,027,078 equivalent shares of Series A mandatorily redeemable convertible preferred stock.

For the three-month period ended September 30, 2005, the securities whose conversion would result in an incremental number of shares that would be included in determining the weighted average shares outstanding for diluted earnings per share if their effect was not anti-dilutive is 232,992 equivalent shares of stock options. For the three-month period ended September 30, 2004, the securities whose conversion would result in an incremental number of shares that would be included in determining the weighted average shares outstanding for diluted earnings per share if their effect was not anti-dilutive is as follows: 232,540 equivalent shares of stock options and 3,323,096 equivalent shares of Series A mandatorily redeemable convertible preferred stock.

As discussed above, the Series U preferred stock held by Univision was converted into shares of the Company’s new Class U common stock on July 1, 2004. If the Series U preferred stock had been treated as common stock outstanding, the basic weighted average common shares outstanding would have been 124,103,535 for the nine-month period ended September 30, 2004. The basic net loss per share would have changed from $(0.12) to $(0.10) for the nine-month period ended September 30, 2004.

Acquisition of assets

In February 2005, the Company acquired the assets of radio station KAIQ-FM in the Lubbock, Texas market for approximately $1.7 million. Also in February 2005, the Company acquired the assets of television stations KVTF-CA and KTFV-CA in the McAllen, Texas market and television station KETF-CA in the Laredo, Texas market, for an aggregate of approximately $3.8 million.

In June 2005, certain of the Company’s Mexican affiliates acquired all of the outstanding capital stock of the television licensee of XHRIO-TV in Matamoros, Tamaulipas, Mexico, serving the McAllen, Texas market, as well as substantially all of the assets related to such station, for an aggregate of approximately $13.2 million. In August 2005, XHRIO-TV was launched as a Fox affiliate in that market.

The approximate value of depreciable equipment and non-amortizable FCC licenses purchased as a result of these acquisitions were $0.9 million and $17.8 million, respectively. The Company evaluated the transferred set of activities, assets, inputs, outputs and processes in each of these acquisitions and determined that none of these acquisitions constituted a business.

Pending transaction

In July 2005, the Company entered into a definitive agreement to sell the assets of radio stations KBRG-FM and KLOK-AM, serving the San Francisco/San Jose, California market, to Univision for $90 million. It is currently anticipated that Univision will pay the full amount of the purchase price in the form of shares of the Company’s Class U common stock held by Univision. This transaction is currently expected to close during the first quarter of 2006.

The assets in the San Francisco/San Jose, California market are classified as assets held for sale and are no longer being depreciated or amortized. Summarized balance sheet data as of September 30, 2005 is as follows (in millions):

Subsequent event

On October 6, 2005, the Compensation Committee of the Board of Directors of the Company authorized accelerating the vesting of all of the Company’s outstanding unvested stock options granted under the Company’s 2000 Omnibus Equity Incentive Plan and the 2004 Equity Incentive Plan with an exercise price greater than $7.80 per share, the closing price of the Company’s Class A common stock on the New York Stock Exchange as of that date. As a result of the vesting acceleration, options to acquire approximately 4.7 million shares of the Company’s Class A common stock (the “Accelerated Options”), which otherwise would have vested from time to time over the next four years, become immediately exercisable. All other terms and conditions applicable to the Accelerated Options remain in effect.

The Compensation Committee’s decision to accelerate the vesting of the Accelerated Options was based upon the issuance by the Financial Accounting Standards Board (“FASB”) of SFAS No. 123R, which will require the Company to treat unvested stock options as compensation expense effective January 1, 2006. The Compensation Committee believes that the acceleration of vesting of these “out-of-the-money” stock options will reduce the Company’s compensation charges in subsequent periods, and such reductions

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may be significant. In addition, the Compensation Committee believes that these “out-of-the-money” stock options currently have limited economic value and are not achieving their original objectives of incentive compensation and employee retention because the exercise price is currently in excess of the market price of the Company’s Class A common stock.

The Company believes that the acceleration of vesting of the approximately 0.3 million Accelerated Options granted to non-employees will accelerate approximately $0.6 million of non-cash stock-based compensation expense into the fourth quarter of 2005 that otherwise would have been recognized over the next four years. Since the Company accounts for its stock options granted to employees using the intrinsic-value method, under the guideline of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” the Company will report the compensation expense related to the approximately 4.4 million Accelerated Options granted to employees for disclosure purposes only in its year-end 2005 financial statements as permitted by Statement of Financial Accounting Standard No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of SFAS No. 123.” The Company believes that acceleration of vesting of the Accelerated Options will eliminate the need for recognizing future compensation expense of approximately $17 million in the aggregate over the remaining option terms in its financial statements after the Company adopts SFAS No. 123R on January 1, 2006. While the Company believes that it will not be required to recognize any compensation expense in future periods associated with the Accelerated Options, there can be no assurance that the acceleration of vesting of the Accelerated Options may not result in some future compensation expense.

Bank credit facility

In September 2005, the Company refinanced the Company’s former bank credit facility with a new $650 million senior secured bank credit facility consisting of a 7  ¹/2-year $500 million term loan and a 6  ¹/2-year $150 million revolving facility. The term loan under the new bank credit facility has been drawn in full, the proceeds of which were used (i) to refinance outstanding borrowings under the Company’s former bank credit facility, (ii) to complete a tender offer for the Company’s previously outstanding $225 million senior subordinated notes, and (iii) for general corporate purposes.

The term loan matures in 2013 and is subject to automatic quarterly reductions of $1.25 million starting on January 1, 2006. The revolving facility expires in 2012. The Company’s ability to make additional borrowings under the bank credit facility is subject to compliance with certain financial covenants, including financial ratios, and other conditions set forth in the bank credit facility.

The bank credit facility is secured by substantially all of the Company’s assets, as well as the pledge of the stock of substantially all of the Company’s subsidiaries, including the special purpose subsidiary formed to hold the Company’s FCC licenses.

The term loan bears interest at LIBOR plus a margin of 1.50%, for a total interest rate of 5.34% as of September 30, 2005. The revolving facility bears interest at LIBOR plus a margin ranging from 1% to 2% based on leverage covenants. In addition, the Company pays a quarterly unused commitment fee ranging from 0.25% to 0.50% per annum, depending on the level of facility usage. As of September 30, 2005, $500 million was outstanding under the bank credit facility and $147 million was available under the revolving facility for future borrowings. The Company had approximately $3 million in outstanding letters of credit as of that date, which reduced the amount otherwise available for future borrowings.

The bank credit facility contains customary events of default. If an event of default occurs and is continuing, the Company might be required to repay all amounts then outstanding under the bank credit facility. Lenders holding more than 50% of the loans and commitments under the bank credit facility may elect to accelerate the maturity of loans upon the occurrence and during the continuation of an event of default.

The loss on debt extinguishment was $28.0 million for the three- and nine-month periods ended September 30, 2005. The loss on debt extinguishment was primarily attributable to the premium that the Company paid for the completion of the tender offer for the Company’s $225 million senior subordinated notes, the extinguishment of the costs associated with those notes, the extinguishment of the costs associated with the former $400 million bank credit facility and a portion of the fees associated with the new $650 million senior secured bank credit facility. On September 28, 2005, the Company completed a tender offer for all of the Company’s $225 million senior subordinated notes. The purchase price for the senior subordinated notes was $1,057.61 per $1,000 principal amount tendered, which included a consent payment of $20.00 per $1,000 principal amount tendered, for a total of approximately $238 million.

Derivative Instruments

In September 2005, the Company entered into three interest rate swap agreements with a $500.0 million aggregate notional amount that expire on October 1, 2010. These interest rate swap agreements convert the variable rate term loan into a fixed rate obligation of 5.96%. Under these interest rate swap agreements, the Company makes fixed-rate interest payments and receives interest payments based on LIBOR. As of September 30, 2005, the fair value of the interest rate swap agreements was $1.0 million.

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Statement of Financial Accounting Standard No. 133 (“SFAS No. 133”), “Accounting for Derivative Instruments and Hedging Activities,” requires the Company to recognize all of its derivative instruments as either assets or liabilities in the consolidated balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. As of September 30, 2005, these interest rate swap agreements were not designated for hedge accounting treatment under SFAS No. 133, and as a result, changes in their fair values are classified as other assets on the Company’s balance sheet and as a reduction of interest expense on the Company’s statements of operations. For the three- and nine-month periods ended September 30, 2005, the Company recognized a reduction of $1.0 million in interest expense related to the increase in fair value of the interest rate swap agreements.

Pending accounting pronouncements

In December 2004, the FASB issued SFAS No. 123R, which replaces SFAS No. 123, and supersedes APB No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R requires that the measurement of all share-based payment transactions, including grants of employee stock options and stock purchased through an employee stock purchase plan, be recognized in the financial statements using a fair value-based method.

SFAS No. 123R is required to be implemented as of the beginning of the Company’s next fiscal year, and will therefore be effective for the Company’s first quarter of 2006. The Company anticipates an increase in non-cash stock-based compensation beginning in the first quarter of 2006 as a result of the Company’s adoption in that quarter of SFAS No. 123R, and such increases may be significant. The impact of SFAS No. 123R on the Company in 2006 and beyond will depend upon various factors, including its future compensation strategy. The pro forma compensation costs presented in the table above and in prior filings for the Company have been calculated using the Black-Scholes option pricing model and may not be indicative of the expense in future periods.

3. SEGMENT INFORMATION

The Company operates in three reportable segments: television broadcasting, radio broadcasting and outdoor advertising.

Television broadcasting

The Company owns and/or operates 48 primary television stations located primarily in the southwestern United States, consisting primarily of Univision affiliates.

Radio broadcasting

The Company owns and operates 54 radio stations (41 FM and 13 AM) located primarily in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas.

Outdoor advertising

The Company owns approximately 11,100 outdoor advertising faces located primarily in Los Angeles and New York.

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Separate financial data for each of the Company’s operating segments is provided below. Segment operating profit (loss) is defined as operating profit (loss) before corporate expenses, loss (gain) on sale of assets and non-cash stock-based compensation. There were no significant sources of revenue generated outside the United States during the three- and nine-month periods ended September 30, 2005 and 2004. The Company evaluates the performance of its operating segments based on the following (in thousands):

4. LITIGATION

The Company is subject to various outstanding claims and other legal proceedings that arose in the ordinary course of business. The Company is a party to one dispute, which management does not believe is material, from plaintiffs seeking unspecified damages for certain employment-related claims. An appropriate accrual has been made in the consolidated financial statements. While the Company’s legal counsel cannot express an opinion on this matter, management believes that any liability of the Company that may

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arise out of or with respect to this matter will not materially adversely affect the financial position, results of operations or cash flows of the Company.

Overview

We are a diversified Spanish-language media company with a unique portfolio of television, radio and outdoor advertising assets, reaching approximately 75% of all Hispanics in the United States. We operate in three reportable segments: television broadcasting, radio broadcasting and outdoor advertising. Our net revenue for the three-month period ended September 30, 2005 was $75.5 million. Of that amount, revenue generated by our television segment accounted for 50%, revenue generated by our radio segment accounted for 38% and revenue generated by our outdoor segment accounted for 12%.

As of the date of filing this report, we own and/or operate 48 primary television stations that are located primarily in the southwestern United States. We own and operate 54 radio stations (41 FM and 13 AM) located primarily in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas. Our outdoor advertising segment consists of approximately 11,100 advertising faces located primarily in Los Angeles and New York.

The comparability of our results between 2005 and 2004 is affected by acquisitions and dispositions in those periods. In those years, we primarily acquired new media properties in markets where we already owned existing media properties. While new media properties contribute to the financial results of their markets, we do not attempt to measure their effect as they typically are integrated into existing operations.

We generate revenue from sales of national and local advertising time on television and radio stations and advertising on our billboards. Advertising rates are, in large part, based on each medium’s ability to attract audiences in demographic groups targeted by advertisers. We recognize advertising revenue when commercials are broadcast and when outdoor advertising services are provided. We do not obtain long-term commitments from our advertisers and, consequently, they may cancel, reduce or postpone orders without penalties. We pay commissions to agencies for local, regional and national advertising. For contracts directly with agencies, we record net revenue from these agencies. Seasonal revenue fluctuations are common in the broadcasting and outdoor advertising industries and are due primarily to variations in advertising expenditures by both local and national advertisers.

Our primary expenses are employee compensation, including commissions paid to our sales staffs and national representative firms, as well as expenses for marketing, promotion and selling, technical, local programming, engineering, leasing and general and administrative. Our local programming costs for television consist primarily of costs related to producing a local newscast in most of our markets.

Highlights

Despite a relatively difficult general advertising environment, we experienced solid growth in all of our segments for the third quarter of 2005, with net revenue of $75.5 million. Our television segment had another solid quarter, contributing $37.8 million in net revenue, as we continued to sustain solid ratings across our station group. We launched an aggressive local sales initiative in 2004, and as a result, local advertising revenue growth has exceeded national advertising revenue growth in each quarter of 2005. Our television results were driven by continued growth in our top advertising categories, including automotive, services, healthcare and media.

We were particularly pleased with the success of our TeleFutura group in the third quarter of 2005. TeleFutura is now competing with Telemundo to be the second-ranked Spanish-language station in several of our markets, behind our top-ranked Univision affiliates in those markets. Revenue from our TeleFutura stations in the third quarter of 2005 increased by 38% over the third quarter of 2004. Although this contribution is still relatively small compared to our overall television revenue, we believe that it is an important source of future growth for our company. In the first quarter of 2005, we launched new TeleFutura affiliates in the two important border markets of McAllen and Laredo, Texas, giving us Univision-TeleFutura duopolies in 18 of our 23 television markets.

In addition, in June 2005, certain of our Mexican affiliates acquired all of the outstanding capital stock of the television licensee of XHRIO-TV in Matamoros, Tamaulipas, Mexico, serving the McAllen, Texas market, as well as substantially all of the assets related to such station, and we provide the programming and related services to the station under a time brokerage arrangement. In August 2005, XHRIO-TV was launched as a Fox affiliate, which we expect to complement our existing media properties, including our Univision and TeleFutura affiliates, and to further expand our reach among key young adult demographic groups in that market.

Our radio segment also had a solid third quarter of 2005, contributing $28.4 million in net revenue as we concentrated our efforts on local sales, which constituted 77% of our radio segment’s total revenue for the third quarter of 2005. Early in 2004 we successfully completed the relocation of our radio network headquarters to Los Angeles and consolidated our outdoor division’s corporate offices in that same facility. This move has based our radio division in the nation’s largest Hispanic market, and its proximity to our outdoor division has increased opportunities for cross-selling and cross-promotion between these two segments.

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During 2004 we completed the divestiture of non-core radio stations in Chicago and Fresno, two markets where we did not see the opportunity to grow to scale and build out full clusters. In addition, in July 2005 we entered into a definitive agreement to sell KLOK-AM and KBRG-FM, serving the San Francisco/San Jose market, to Univision. The sale of these properties, along with the disposition of a non-core AM radio station in Dallas, allows us to redeploy capital to markets with greater growth and earning potential. In October 2004, we acquired an FM radio station in the Sacramento, California market, which increased our cluster to four stations in this important U.S. Hispanic market. In February 2005, we acquired radio station KAIQ-FM in the Lubbock, Texas market, giving us one FM and one AM radio station in the Lubbock market in addition to our Univision affiliate.

We believe that we have made great strides over the past year by restructuring our radio programming department, including the appointment of a new vice president of programming. In total, we changed the formats of 13 of our radio stations in ten markets, with six of those stations in five markets successfully switching to our “Super Estrella” format, a pop and alternative Spanish-rock format that provides a musical home for young Hispanics. In October, we launched a new format in five markets, “José: Toca lo que Quiere” (“plays what he wants”), featuring a mix of Spanish-language adult contemporary hits from the 1970s through the present, that targets Hispanic adults ages 25-54.

Our outdoor segment contributed $9.3 million in net revenue for the third quarter of 2005 and continued to build upon the momentum established during the second half of 2004 by posting a fifth consecutive quarter of solid revenue growth. We attribute the improvement in our outdoor business to several internal factors. During the first half of 2004, we replaced the head of our outdoor division as well as senior sales management in New York, Los Angeles and Chicago in order to execute a more aggressive sales strategy. We also initiated a maintenance program during the first half of 2004 to upgrade the quality of our 8- and 30-sheet poster inventory in New York, which we believe helped to bolster advertisers’ interest in our posters.

In addition, in April 2005 we entered into a three-year agreement with the City of Sacramento to sell advertising on the city’s buses that we believe will create opportunities to provide broader coverage for national advertisers. Looking ahead, we believe that the momentum that has been created in our outdoor segment will continue into 2006.

We also took key steps in 2004 and 2005 toward improving our capital structure. In 2004, we converted all of our Series U preferred stock held by Univision into shares of our new Class U common stock and repurchased all of our Series A mandatorily redeemable convertible preferred stock, so that by the end of 2004 we had no preferred stock outstanding. In 2005, we refinanced our former $400 million bank credit facility and completed a tender offer for our $225 million senior subordinated notes with the proceeds from a new $650 million senior secured bank credit facility. We entered into three interest rate swap agreements, with a $500 million aggregate notional amount, that converted our $500 million floating rate term loan into a fixed rate obligation at a rate of 5.96% for a five-year period. In addition, upon the closing of our pending sale of radio stations KBRG-FM and KLOK-AM to Univision, we currently expect to acquire shares of our Class U common stock held by Univision for the full amount of the purchase price in that transaction.

Acquisitions and Dispositions

In February 2005, we acquired the assets of radio station KAIQ-FM in the Lubbock, Texas market for approximately $1.7 million. Also in February 2005, we acquired the assets of television stations KVTF-CA and KTFV-CA in the McAllen, Texas market and television station KETF-CA in the Laredo, Texas market, for an aggregate of approximately $3.8 million.

In June 2005, certain of our Mexican affiliates acquired all of the outstanding capital stock of the television licensee of XHRIO-TV in Matamoros, Tamaulipas, Mexico, serving the McAllen, Texas market, as well as substantially all of the assets related to such station, for an aggregate of approximately $13.2 million. In August 2005, XHRIO-TV was launched as a Fox affiliate in that market.

In July 2005, we entered into a definitive agreement to sell the assets of radio stations KBRG-FM and KLOK-AM, serving the San Francisco/San Jose, California market, to Univision for $90 million. It is currently anticipated that Univision will pay the full amount of the purchase price in the form of shares of our Class U common stock held by Univision. This transaction is currently expected to close during the first quarter of 2006.

Relationship with Univision

Univision currently owns approximately 30% of our common stock on a fully-converted basis. In connection with its merger with Hispanic Broadcasting Corporation in September 2003, Univision entered into an agreement with the U.S. Department of Justice (“DOJ”), pursuant to which Univision agreed, among other things, to ensure that its percentage ownership of our company will not exceed 15% by March 26, 2006 and 10% by March 26, 2009.

Also pursuant to Univision’s agreement with the DOJ, in September 2003 Univision exchanged all of its shares of our Class A and Class C common stock that it previously owned for shares of our Series U preferred stock. The Series U preferred stock was mandatorily convertible into common stock when and if we created a new class of common stock that generally had the same rights, preferences, privileges and restrictions as the Series U preferred stock (other than the nominal liquidation preference). Our

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stockholders approved the creation of such a new class of common stock, our Class U common stock, during the second quarter of 2004, and the shares of our Series U preferred stock held by Univision were converted into 36,926,600 shares of our new Class U common stock effective as of July 1, 2004. Neither the original exchange of Univision’s Class A and Class C common for our Series U preferred stock, nor the subsequent conversion of such Series U preferred stock into our new Class U common stock, changed Univision’s overall equity interest in our company, nor did either have any impact on our existing television station affiliation agreements with Univision.

The Class U common stock has limited voting rights and does not include the right to elect directors. However, as the holder of all of our issued and outstanding Class U common stock, Univision currently has the right to approve any merger, consolidation or other business combination involving our company, any dissolution of our company and any assignment of the Federal Communications Commission, or FCC, licenses for any of our company’s Univision-affiliated television stations. Each share of Class U common stock is automatically convertible into one share (subject to adjustment for stock splits, dividends or combinations) of our Class A common stock in connection with any transfer to a third party that is not an affiliate of Univision.

Univision acts as our exclusive sales representative for the sale of all national advertising aired on Univision-affiliate television stations. During the nine-month periods ended September 30, 2005 and 2004, the amount paid by us to Univision in this capacity was $7.1 and $7.0 million, respectively.

In July 2005, we entered into a definitive agreement to sell the assets of radio stations KBRG-FM and KLOK-AM, serving the San Francisco/San Jose, California market, to Univision for $90 million. It is currently anticipated that Univision will pay the full amount of the purchase price in the form of shares of our Class U common stock held by Univision. This transaction is currently expected to close during the first quarter of 2006, and is currently expected to reduce Univision’s percentage ownership in our company to approximately 20%, based on our current capital structure and subject to the price of our Class A common stock at the closing of the transaction.

In September 2005, we entered into an agreement with Univision under which we have agreed, at Univision’s request, to sell in an underwritten public offering up to a specified number of shares of our Class A common stock previously registered with the Securities and Exchange Commission (“SEC”), and concurrently with the consummation of that public offering, to repurchase the same number of shares of our Class U common stock owned by Univision, for an amount equal to the gross proceeds of the offering minus underwriting discounts and commissions (the “Sale Transaction”). Under this agreement, Univision has agreed to refrain from exercising any right to demand the registration of the sale of such common stock provided to it under an investor rights agreement, as amended, between Univision, the other stockholders named therein and us until a period of time after giving notice to us of its request to consummate a Sale Transaction.

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Three- and Nine-Month Periods Ended September 30, 2005 and 2004

The following table sets forth selected data from our operating results for the three- and nine-month periods ended September 30, 2005 and 2004 (in thousands):