<PAGE> 1
As filed pursuant to Rule 424(b)(4)
under the Securities Act of 1933
Registration No. 333-6309
PROSPECTUS
SEPTEMBER 26, 1996
8,170,000 SHARES
UNIVISION COMMUNICATIONS INC.
LOGO CLASS A COMMON STOCK
All of the shares of Class A Common Stock offered hereby (the "Offering")
are being sold by Univision Communications Inc. Prior to the Offering, there has
been no public market for the Class A Common Stock of the Company. See
"Underwriting" for information relating to the factors considered in determining
the initial public offering price.
The Class A Common Stock has been approved for listing on the New York
Stock Exchange upon notice of issuance under the symbol "UVN."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
IN ORDER TO ASSIST THE COMPANY IN COMPLYING WITH THE FOREIGN OWNERSHIP
RESTRICTIONS OF THE COMMUNICATIONS ACT OF 1934, THE UNDERWRITERS HAVE AGREED
THAT THEY WILL NOT KNOWINGLY SELL ANY OF THE CLASS A COMMON STOCK OFFERED HEREBY
TO FOREIGN PERSONS OR ENTITIES. SEE "DESCRIPTION OF CAPITAL STOCK" AND
"UNDERWRITING."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share......................... $23.00 $1.55 $21.45
Total(3).......................... $187,910,000 $12,663,500 $175,246,500
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $1,055,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 1,225,500 additional shares of Class A Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds to
the Company will be $216,096,500, $14,563,025 and $201,533,475,
respectively. See "Underwriting."
The shares of Class A Common Stock are being offered by the several
Underwriters when, as and if delivered to and accepted by the Underwriters,
subject to various prior conditions, including their right to reject any order
in whole or in part. It is expected that delivery of share certificates will be
made in New York, New York, on or about October 2, 1996, against payment
therefor in immediately available funds.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
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Omitted image is a map of the United States with dots showing the
locations of the Company's stations and affiliates.
Information contained in this Prospectus contains forward-looking
statements which can be identified by the use of forward-looking terminology
such as "may," "will," "should," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The matters set forth under the caption "Risk Factors" in the
Prospectus constitute cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 3
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information, including "Risk Factors" and Consolidated Financial
Statements and notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus (i) does not give effect
to the exercise of the over-allotment option granted to the Underwriters as
described in "Underwriting" and (ii) is presented on a pro forma basis giving
effect to the Reorganization. Unless otherwise indicated, all references to the
"Company" and "Univision" refer to Univision Communications Inc. and its
consolidated subsidiaries, including its owned and operated television stations,
the Network and Galavision. Unless otherwise indicated, capitalized terms used
herein are defined in the Glossary on page G-1, all ratings and audience share
data are derived from reports produced by Nielsen Media Research and demographic
data are derived from the DRI Study.
THE COMPANY
Univision is the leading Spanish-language television broadcaster in the
U.S., reaching more than 92% of all Hispanic Households and having an
approximate 77% share of the U.S. Spanish-language network television audience.
The Company's Network, which is the most watched television network (English- or
Spanish-language) among Hispanic Households, provides the Univision Affiliates
with 24 hours per day of Spanish-language programming with a prime time schedule
of substantially all first run programming (i.e., no reruns) throughout the
year. As a leading, vertically-integrated television broadcaster, Univision owns
and operates 11 full-power and seven low-power UHF stations (the "O&Os"),
representing approximately 78% of its Network broadcast distribution. The
full-power O&Os are located in 11 of the top 14 designated market areas in terms
of numbers of Hispanic Households -- Los Angeles, New York, Chicago, Miami,
Houston, San Francisco, San Antonio, Dallas, Fresno, Albuquerque and Phoenix.
The Company has Affiliation Agreements with an additional nine full-power and 14
low-power Affiliated Stations and approximately 740 Cable Affiliates. Each of
the Company's full-power O&Os and Affiliated Stations ranks first in Spanish-
language television viewership in its DMA. The Company also owns Galavision, a
Spanish-language cable network that has approximately 1.8 million Hispanic
subscribers, representing approximately 47% of all Hispanic Households that
subscribe to cable television.
The Company believes that the breadth and diversity of its programming
provides it with a competitive advantage over both Spanish-language broadcasters
and English-language broadcasters in appealing to Hispanic viewers. The
Company's programming is similar in format to that of major English-language
networks and includes novelas (long-term mini-series), national and local
newscasts, variety shows, children's programming, mini-series, musical specials,
movies, sporting events and public affairs programs. The Program License
Agreements provide the Company with unparalleled long-term access to first rate
programming produced by Televisa and Venevision. Televisa-produced novelas are
popular throughout the world and are among the Company's highest rated programs.
Univision also produces a variety of programs specifically tailored to meet the
tastes, preferences and information needs of the Hispanic audience, including
national and local news and the highly successful programs Sabado Gigante,
Cristina and Primer Impacto. The Company has also televised World Cup Soccer
since 1978, including the widely watched 1994 World Cup, and recently began
televising the Sunday "Game of the Week" for Major League Soccer.
In 1992, A. Jerrold Perenchio, Televisa and Venevision formed the Company
and UNHP, which acquired UTG and the Network, respectively, in December 1992,
bringing extensive broadcasting, programming and production experience to
Univision. Mr. Perenchio has over 25 years of experience in the U.S. media and
communications industry and has been the chief executive officer or owner of a
number of successful entities, including Chartwell Artists, Tandem Productions,
Inc., Embassy Communications and Loews Theaters. Mr. Perenchio also owned and
operated Spanish-language television stations in Los Angeles and New York from
1975 to 1986. Televisa, which is the world's largest producer of
Spanish-language television programs, is the leading media and entertainment
company in Mexico with an approximate 80% share of Mexico's viewing audience.
Venevision is Venezuela's leading television network with an approximate 59%
share of its viewing audience.
Since the Acquisition, the Company's operating performance has improved
significantly with combined net revenues and pro forma EBITDA increasing to $321
million and $112 million, representing compound annual growth rates of 16% and
36%, respectively, from the 1992 operating results of the Company and its
predecessor. In addition, from November 1992 to May 1996 the Company increased
its audience share of Spanish-language network television viewing from 57% to
77% and increased its share of the 20 most widely watched programs among
Hispanic Households from 30% to 90%.
3
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BUSINESS STRATEGY
Univision attributes its recent success to several factors, including
increased emphasis on popular, high quality programming produced by Televisa,
Univision and Venevision, contracting with Nielsen to develop more accurate,
credible rating systems to measure Hispanic audience viewership, increasing
acceptance by advertisers of Spanish-language television, continued growth of
the Hispanic audience and the strengthening of its management team with
executives and sales managers with extensive English-language television and
advertising experience. The Company expects to continue to realize strong
revenue and EBITDA growth by capitalizing on the expected continued growth in
advertising expenditures targeted at the rapidly expanding Hispanic population.
Specifically, the Company's business strategy seeks to capitalize on the
following factors and competitive advantages:
Leading Audience Share Among Hispanics. The Company's emphasis on popular,
high quality programming has enabled it to achieve the highest ratings versus
all other broadcasters (English- or Spanish-language) among Hispanic television
viewers. For instance, for the first five months of 1996, the Company had a 77%
audience share of Spanish-language television viewers and in May 1996 had 18 out
of the top 20 most highly rated television programs (in Spanish or English)
viewed by Hispanic Households. Each of the Company's 20 full-power Broadcast
Affiliates ranks first in Spanish-language television viewership in its DMA.
Investment in Research and Sales Management. Prior to November 1992, there
were no Hispanic audience television rating services comparable to those
measuring television viewership in the general U.S. population. Beginning in
1992, the Company contracted with Nielsen to develop Nielsen ratings measuring
Hispanic viewership both at the Network and local DMA levels. Because these
Nielsen ratings provide advertisers with a more accurate and reliable measure of
Hispanic audience television viewership, they have been important in allowing
the Company to demonstrate to advertisers its ability to reach the Hispanic
audience. The Company believes that continued use of reliable ratings will allow
it to further increase its advertising rates and narrow the gap which has
historically existed between its audience share and its share of advertising
revenues. In addition, the Company has made significant investments in
experienced sales managers and account executives and has provided its sales
professionals with state-of-the-art research tools to continue to attract major
advertisers.
Highly Favorable Demographic Trends. The Hispanic population is currently
one of the fastest growing segments of the U.S. population, growing at
approximately five times the rate of the non-Hispanic population. The Hispanic
population, which consisted of 23.7 million people (9.5% of the U.S. population)
in 1990, is estimated to be 28.4 million people (10.7% of the U.S. population)
in 1996, and is expected to grow to 32.0 million people (11.6% of the U.S.
population) by 2000 and 41.5 million people (13.9% of the U.S. population) by
2010. Hispanic Households on average are larger and younger and spend a greater
percentage of their total household income on consumer products than
non-Hispanic households. Furthermore, 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. Consequently,
the number of Hispanics speaking Spanish in the home is expected to increase
significantly in the foreseeable future.
Increasing Advertiser Expenditures on Spanish-language Television. Total
advertising expenditures targeting Hispanics grew from $166 million in 1982 to
approximately $1.1 billion in 1995, representing a compound annual growth rate
of 15.6%. Approximately one-half of the $1.1 billion in advertising expenditures
in 1995 targeting Hispanics was directed towards Spanish-language television.
The Company believes that major advertisers have found that Spanish-language
television advertising is a more cost-effective means to target the growing
Hispanic audience than English-language broadcast media. Since the Acquisition,
the Company has added or substantially increased commitments from many national
advertisers, including AT&T, Sears, McDonald's, Ford, Colgate-Palmolive and
Coca-Cola. The Company believes that advertiser interest in the Hispanic
population will continue to grow primarily because Hispanic consumer
expenditures, which are expected to total approximately $325 billion in 1996,
are expected to grow at an annual rate of 8.9% over the next four years to $458
billion in 2000, far outpacing the expected growth in total U.S. consumer
expenditures.
Strategic Acquisition Opportunities. The Company believes that its
knowledge of, and experience with, Hispanic audiences will enable it to identify
strategic acquisitions and successfully integrate them into the Company's
operations. Since the Acquisition, the Company has acquired full-power stations
in two important markets, Chicago and Houston, and used its management
expertise, programming and brand identity to substantially improve the Company's
performance in those DMAs. In addition, the Company has signed a letter of
intent with Entravision to make a $10 million investment in the form of a note
and an option to acquire a 25% equity interest in Entravision. Entravision owns
seven, has an agreement to acquire one, and is negotiating to acquire another,
of the Affiliated Stations; the seven stations represent approximately 6%, and
the nine stations would represent approximately 12%, of the Network's
distribution. The Company has agreed to acquire its Sacramento Affiliated
Station for a purchase price of approximately $40 million payable in cash and
preferred stock. To complement and capitalize on the Company's existing business
and management strengths, the Company expects to explore both Spanish-language
television and other media acquisition opportunities.
4
<PAGE> 5
The Company was incorporated in Delaware in April 1992 as Perenchio
Communications, Inc. and its name was changed to Univision Communications Inc.
in June 1996. The Company's principal executive offices are located at 1999
Avenue of the Stars, Suite 3050, Los Angeles, California 90067, and its
telephone number is (310) 556-7676.
RISK FACTORS
See "Risk Factors" beginning on page 8 for factors that should be
considered in evaluating the Company and its business.
THE OFFERING
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<S> <C>
Class A Common Stock offered hereby.......... 8,170,000 shares
Common Stock to be outstanding after the
Offering
Class A Common Stock(1)(2)................. 10,396,361 shares
Class P Common Stock....................... 22,071,737 shares
Class T and Class V Common Stock(3)........ 8,918,582 shares
-----------
Total(3)........................... 41,386,680 shares
==========
Relative rights of Class A, Class P, Class T
and Class V Common Stock(1)(14)........... The Class A, Class P, Class T and Class V
Common Stock (collectively, the "Common
Stock") have identical rights with respect to
cash dividends and in the distribution of
proceeds in any sale or liquidation, but have
different voting rights. The Class A, Class T
and Class V Common Stock are entitled to one
vote per share, while the Class P Common Stock
is entitled to 10 votes per share on all
matters on which stockholders are entitled to
vote, except that in the election of
directors, holders of Class T and Class V
Common Stock, each voting as a separate class,
elect from one to three directors. Perenchio
will have 96% of the voting power of the Class
A and Class P Common Stock and 92% of the
voting power of all Common Stock outstanding
immediately after the Offering. See "Risk
Factors" and "Description of Capital Stock."
Use of proceeds............................. The net proceeds from the sale of the Class A
Common Stock, together with borrowings under
the New Bank Facility (as defined), will be
used to fund the payments to be made in
connection with the Reorganization. See
"Reorganization" and "Use of Proceeds."
Proposed New York Stock Exchange symbol..... "UVN"
</TABLE>
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(1) Excludes an aggregate of 5,500,000 shares of Class A Common Stock reserved
for future issuance under the Company's 1996 Performance Award Plan. See
"Management -- 1996 Performance Award Plan."
(2) Excludes an aggregate of 45,431,139 shares of Class A Common Stock issuable
upon conversion of all of the outstanding Class P, Class T and Class V
Common Stock (and shares issuable upon exercise of the Warrants) in
accordance with their terms. See "Certain Transactions -- Warrants" and
"Description of Capital Stock."
(3) Excludes 14,440,820 shares of Class A, Class T and Class V Common Stock
issuable upon the exercise of the Warrants. For restrictions on exercise of
the Warrants, see "Certain Transactions -- Warrants." The Warrants are
exercisable at a price of $0.13 per share. Total shares outstanding assuming
exercise of all Warrants is 55,827,500.
(4) The Class P, Class T and Class V Common Stock can be converted at any time
into Class A Common Stock and will automatically convert into Class A Common
Stock upon the occurrence of certain events. Additionally, the Class T and
Class V Common Stock will lose their special rights upon the occurrence of
certain events. See "Description of Capital Stock."
5
<PAGE> 6
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The following summary pro forma consolidated financial data of the Company
for the year ended December 31, 1995 and the six months ended June 30, 1995 and
1996 are derived from the Unaudited Pro Forma Consolidated Condensed Financial
Statements of the Company included elsewhere herein and give effect to the
Reorganization (including the consolidation of PCI and UNHP) and the sale of the
shares of Class A Common Stock offered hereby and the application of the net
proceeds therefrom as if such transactions had occurred as of January 1, 1995,
in the case of the statement of operations data, and June 30, 1996, in the case
of the balance sheet data. See "Capitalization" and "Unaudited Pro Forma
Consolidated Condensed Financial Statements" for further details regarding such
adjustments. This data is not necessarily indicative of the results of
operations that would have actually been obtained had the transactions referred
to above been consummated on the dates indicated, nor are they indicative of the
results of operations that may be obtained in the future. Such financial data
should be read in conjunction with the "Unaudited Pro Forma Consolidated
Condensed Financial Statements," "Selected Historical Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and is qualified in its entirety by reference to the consolidated
financial statements of the Company and UNHP and the respective notes thereto
included elsewhere in this Prospectus.
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
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<CAPTION>
PRO FORMA (UNAUDITED)
-------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ---------------------------------
1995 1995 1996
------------- ------------ ------------
(IN THOUSANDS)
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STATEMENT OF OPERATIONS DATA:
Net revenues................................. $321,339 $152,698 $170,856
Direct operating expenses.................... 115,821 53,495 57,281
Selling, general and administrative(a)....... 84,250 41,398 47,934
Corporate charges............................ 9,700 4,125 3,914
Depreciation and amortization................ 54,227 26,762 28,036
-------- -------- ----------
Operating income........................... 57,341 26,918 33,691
Interest expense, net........................ 42,166 21,909 20,962
Amortization of deferred financing costs..... 1,429 714 714
Nonrecurring expense of acquired station..... 1,750 -- --
Provision for taxes.......................... 4,800 1,700 --
-------- -------- ----------
Income before extraordinary loss on
extinguishment of debt.................. $ 7,196 $ 2,595 $ 12,015
OTHER DATA:
Broadcast cash flow(a)(b).................. $121,268 $ 57,805 $ 65,641
EBITDA(a)(c)............................... 111,568 53,680 61,727
Capital expenditures....................... 16,060 7,017 11,109
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30,
1996
------------
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BALANCE SHEET DATA:
Total assets................................. $882,140
Long-term debt (including current
maturities)................................ 555,686
Stockholders' equity......................... 223,196
</TABLE>
6
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<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
----------------------------------------------
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -------------------------
1995 1995 1996
------------ -------- --------
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GROWTH RATE AND MARGIN DATA:
Net revenues growth.............................. 18.2% --% 11.9%
Broadcast cash flow growth....................... 30.3 -- 13.6
Broadcast cash flow margin....................... 37.7 37.9 38.4
EBITDA growth.................................... 29.5 -- 15.0
EBITDA margin.................................... 34.7 35.2 36.1
</TABLE>
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(a) The management fee charged by the Principal Stockholders to UNHP, which will
terminate as part of the Reorganization, was $9,521, $4,559 and $5,043 for
the year ended December 31, 1995 and the six month periods ended June 30,
1995 and 1996, respectively. The management fee has been eliminated from the
appropriate data.
(b) "Broadcast cash flow" is defined as broadcast operating income before
corporate charges and depreciation and amortization. The Company has
presented broadcast cash flow data, which the Company believes are
comparable to the data provided by other companies in the industry, because
such data are commonly used as a measure of performance for broadcast
companies. 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.
(c) "EBITDA" consists of broadcast cash flow less corporate charges and is
commonly used in the broadcast industry to analyze and compare broadcast
companies on a basis of operating performance, leverage and liquidity.
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
<PAGE> 8
RISK FACTORS
The following factors should be considered carefully in evaluating the
Company and its business before purchasing the shares of Class A Common Stock
offered hereby.
RELIANCE ON LIMITED SOURCES OF PROGRAMMING
A substantial part of the Company's operating strategy depends upon the
continued availability and commercial success of programming from Televisa and
Venevision. In 1995 the Company derived approximately 40% and 8% of its gross
advertising sales from programs produced by Televisa and Venevision,
respectively, under the Program License Agreements; for the six month period
ended June 30, 1996, these percentages were 38% and 9%, respectively. Televisa
and Venevision programming represented approximately 52% and 13%, respectively,
of the Network's non-repeat broadcast hours in 1995; for the six month period
ended June 30, 1996, these percentages were 52% and 12%, respectively. If such
programming were to become unavailable or unsuccessful for any reason, including
political or economic instability, foreign government regulations, or other
trade barriers in Mexico or Venezuela, no assurance can be given that the
Company could obtain alternative programming of equivalent type and popularity
or on terms as favorable to the Company. Consequently, any significant
interruption in the supply or success of programming could have a material
adverse effect on the Company's financial condition and results of operations.
INCREASED COST OF PROGRAMMING
Royalties under the Program License Agreements (net of certain cost sharing
reimbursements which will cease upon the Reorganization) were 9.5%, 8.5%, 9.4%
and 9.5% of Combined Net Time Sales in 1993, 1994, 1995 and the six months ended
June 30, 1996, respectively. From the closing of this Offering through December
1996, aggregate royalties to Televisa and Venevision will equal 11.0% of
Combined Net Time Sales, increasing to 13.5% of Combined Net Time Sales in 1997
and to 15.0% of Combined Net Time Sales in all years thereafter. Such increase
in royalties could have a negative effect on the Company's operating margins.
See "Business -- Program License Agreements."
POTENTIAL COMPETITION WITH OTHER BROADCASTERS USING TELEVISA PROGRAMMING
The Company has enjoyed virtually exclusive access in the United States to
most of Televisa's programs, both new and from Televisa's extensive library.
Subject to the rights of one Los Angeles broadcasting station, Univision has the
right under the Televisa Program License Agreement to fill up to 24 hours of
programs per day on each of the Network's and Galavision's program schedules,
after giving effect to programs obtained from Venevision or third parties and
produced by the Network. Univision also has the right of first refusal for the
Network and Galavision on substantially all other Spanish-language programs
Televisa desires to license in the United States. Subject to these limitations,
Televisa has the right to license Spanish-language programs to other
broadcasters in the United States. Very few Televisa programs have been so
licensed. No assurance can be given that in the future other U.S. broadcasters
will not license more of Televisa's programs, consistent with the terms of the
Televisa Program License Agreement.
Televisa has agreed with several partners, each of whom has substantial
assets, to develop and operate a direct broadcast satellite ("DBS") venture,
which will have a variety of program services, including program services
supplied by Televisa. Televisa is required to offer the Company the opportunity
to acquire a 50% economic interest in Televisa's interest in the joint venture
to the extent it relates to United States Spanish-language broadcasting. While
the Company believes that the Company will be offered such an interest, the
Company has not received any indication as to what the business terms relating
to such interest would be. Accordingly, the Company is not in a position to
state whether it would accept such an offer. If the venture secures a
significant viewership among Hispanic Households, it could have a material
adverse effect on Univision's financial condition and results of operations,
even if Univision decides to acquire this 50% economic interest.
Televisa asserts that the terms and conditions of its Program License
Agreement with Univision allow it, under certain circumstances, to provide any
DBS venture uplinking in Mexico for distribution in the United States with
Televisa program services which contain programs to which Univision believes it
has an exclusive
8
<PAGE> 9
first option in the United States. Univision disagrees with Televisa's assertion
and has notified Televisa of its intention to enforce its rights by all
appropriate means including, if necessary, legal action, if Televisa provides
such programs to any such DBS venture. There can be no assurance that Televisa
will desist from providing such programming to its or other DBS ventures, or, if
Televisa were not to desist, that Univision would prevail in court.
Finally, Televisa has initiated the production and limited broadcast of
novelas originally produced in English, using the same storylines and production
facilities in Mexico which are used for novelas to which Univision has an option
for Spanish-language rights. Televisa has announced its intention to secure
broader distribution of this product throughout the United States. There can be
no assurance that Univision's bilingual viewers will not be attracted by
Televisa's English language novelas, resulting in viewership declines for
Univision.
SUBSTANTIAL COMPETITION
The broadcasting and cable business is highly competitive. The Company
competes for viewers and revenues with other Spanish-language and
English-language television stations and networks, including the four principal
English-language television networks, ABC, CBS, NBC and Fox, and in certain
cities, UPN and WB. Certain of these English-language networks and others have
begun producing Spanish-language programming and simulcasting certain
programming in English and Spanish. Several cable broadcasters have recently
commenced Spanish-language services as well. The Company also competes for
viewers and revenues with independent television stations, other video media,
suppliers of cable television programs, direct broadcast systems (including two
which are expected to start in 1996 and in which Televisa and Venevision will
have substantial interests), newspapers, magazines, radio and other forms of
entertainment and advertising. The Univision Affiliates located near the Mexican
border also compete for viewers with television stations operated in Mexico,
many of which are affiliated with a Televisa network and owned by Televisa.
Certain of the Company's competitors have greater financial resources than the
Company. Increased competition for viewers and revenues may have a material
adverse effect on the Company's financial condition and results of operations.
The Company under certain circumstances also could be required to compete
against entities using programming supplied by Televisa or Venevision. See
"-- Potential Competition with Other Broadcasters Using Televisa Programming"
and "Business -- Program License Agreements."
Prior to the Reorganization, the Company's charter documents limited its
business purpose to Spanish-language television broadcasting. The Company's
Restated Certificate of Incorporation allows the Company to engage in all media
related business. However, neither Televisa nor Venevision will be required to
offer opportunities to the Company other than those involving Spanish-language
television broadcasting or a Spanish-language television network in the United
States. Consequently, the Company could compete directly with Televisa and
Venevision, two of its Principal Stockholders, in other media and languages.
Televisa currently publishes and distributes Spanish-language publications and
sells Spanish-language recorded music in the United States. See "Certain
Transactions -- Participation Agreement."
Telemundo Group, Inc. ("Telemundo") is the Company's largest competitor
that broadcasts Spanish-language television programming. Telemundo owns and
operates eight full-power (including one in Puerto Rico) and 13 low-power
television stations and a Spanish-language television network, has affiliation
agreements with 33 stations and 88 cable systems, and reaches approximately 85%
of all Hispanic Households. In most of the Company's DMAs, the Univision
Affiliate competes directly with a station owned by or affiliated with
Telemundo. Upon emergence from bankruptcy in 1995, Telemundo hired a new
management team. The Company is unable to predict what effect, if any, such
change will have on the Company's ratings and share lead over Telemundo.
IMPACT OF NEW TECHNOLOGIES; POTENTIAL COST OF SPECTRUM
In recent years, the Federal Communications Commission ("FCC") has adopted
policies providing for authorization of new technologies and a more favorable
operating environment for certain existing technologies that have the potential
to provide additional competition for television stations. Further advances in
technology such as video compression, direct broadcast satellites and
programming delivered through fiber
9
<PAGE> 10
optic telephone lines could facilitate the entry of new channels and encourage
the development of increasingly specialized "niche" programming. In particular,
the Company may be affected by the development of advanced television technology
("ATV") and the adoption of standards and regulations for ATV by the FCC. If ATV
is adopted as anticipated, broadcasters are expected to be required to make the
transition to ATV broadcasting at the end of an extended period (currently
expected to be fifteen years). Such a transition will require significant new
capital investments in ATV broadcasting capacity, and no assurance can be given
that the Company will have adequate financial resources to make such capital
investments. Moreover, broadcasters who elect not to engage in ATV broadcasting
at an early stage could suffer a significant competitive disadvantage. In
addition, certain members of Congress from time to time have offered and
continue to offer various proposals that would require a public auction for the
spectrum necessary to effect the transition to ATV. These proposals could
require broadcasters to make a significant investment in order to obtain
spectrum for ATV, in addition to any capital investment broadcasters would have
to make for ATV-capable equipment. Although the broadcast industry has opposed
such proposals, at this time the Company cannot be assured that it will not have
to bid for the spectrum required for ATV broadcasting. If required to bid, the
Company cannot be assured that it will have adequate resources to make a
successful bid. If such an auction plan were mandated by Congress, it could have
a material adverse effect on the Company. Broadcasters who elect not to engage
in ATV broadcasting could suffer a significant competitive disadvantage. The
Company is unable to predict the effect that technological changes will have on
the broadcast television industry or on the future results of the Company's
operations. See "Business -- Competition" and "Business -- Federal Regulation
and New Technologies."
MANDATORY REDEMPTION OF CLASS A COMMON STOCK
In order to comply with the FCC foreign ownership rules, the Company's
Restated Certificate of Incorporation permits the Company to redeem any shares
of Class A Common Stock owned by foreign nationals, foreign governments, or the
representatives of either (collectively, "Foreign Interests") and to take other
actions designed to ensure its compliance with the foreign ownership
restrictions of the Communications Act of 1934, as amended (the "Communications
Act"), and related FCC rules. The redemption price for such shares is equal to
the lesser of fair market value or, if such shares were purchased within one
year of the redemption date, such stockholder's purchase price, and may be paid
in cash, securities or a combination thereof. See "Business -- Federal
Regulation and New Technologies" and "Description of Capital Stock."
FCC REGULATION
The Company's operations are subject to extensive and changing regulation
on an ongoing basis by the FCC, which enforces the Communications Act. Approval
by the FCC is required for the issuance, renewal and assignment of station
operating licenses and the transfer of control of station licensees. The FCC
licenses held by the Company will come up for renewal from time to time,
primarily within the next two and one-half years, and such renewal may be
subject to challenge on a number of grounds. The FCC also regulates ownership
and control by Foreign Interests. In connection with obtaining the FCC's
approval of the Reorganization, the Company has disclosed to the FCC the
ownership and management interests held by Televisa and Venevision. The Company
also has apprised the FCC of provisions in the Company's Restated Certificate of
Incorporation described in "-- Mandatory Redemption of Class A Common Stock."
Accordingly, the Company believes that it is in compliance with such provisions.
However, if the Company fails to comply with the foreign ownership restrictions
in its Restated Certificate of Incorporation, or if the Company departs from its
representations made to the FCC in connection with its obtaining the FCC's
approval of the Reorganization, the FCC has the ability to enforce such foreign
ownership restrictions through warnings, fines, cancellations of licenses or
other actions. While the Company seeks to comply with such restrictions, it
cannot predict the outcome of any such challenge or any other changes in
regulatory practices that may affect its business and prospects.
Congress and the FCC currently have under consideration and may in the
future adopt new laws or modify existing laws, regulations and policies
regarding a wide variety of matters, including the adoption of attribution
rules, further restricting broadcast station ownership, that could directly or
indirectly adversely
10
<PAGE> 11
affect the ownership and operation of the Company's broadcast properties, as
well as the Company's business strategies. For example, 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. All of the full-power O&Os are currently
exercising their must-carry rights. Accordingly, elimination of the must-carry
provisions could have a material adverse effect on the Company.
The adoption of various measures could accelerate the existing trend toward
vertical integration in the media and home entertainment industries and cause
the Company to face more formidable competition in the future. Such measures
could include (and, in the case of the Telecommunications Act of 1996 (the
"Telcom Act"), do include) the elimination or modification of restrictions on
the offering of multiple network services by the existing major television
networks, the removal or modification of restrictions on the participation by
regional telephone operating companies in cable television and other
direct-to-home video technologies, and the removal or modification of certain
restrictions on broadcast station ownership. The Company is unable to predict
whether these changes or other potential changes in the regulatory environment
could restrict or curtail the ability of the Company to acquire, operate and
dispose of stations or, in general, to compete profitably with other operators
of television stations and other media properties. See "Business -- Federal
Regulation and New Technologies."
LOSS OF AFFILIATED STATIONS
The Company currently provides Network programming to the Affiliated
Stations pursuant to Affiliation Agreements, most of which expire in 1998 and
1999, in exchange for the right to sell generally 50% of the total advertising
time available during such programming. The Company competes with other
broadcasters for relationships with affiliates. The ability of the Company to
cost-effectively renew its affiliations with the Affiliated Stations or attract
new affiliates depends in part on the ability of the Company to provide
programming that will attract a satisfactory viewing audience. Although the
Company expects to continue to be able to renew its Affiliation Agreements, no
assurance can be given that such renewals will be obtained on a cost-effective
basis. See "Business -- The Network -- Affiliation Agreements."
POPULAR PROGRAM LOSS
The Company's productions Sabado Gigante, a variety show hosted by Mario
Kreutzberger, and Cristina, a talk show hosted by Cristina Saralegui, are among
its most successful programs in terms of advertising revenues generated.
Approximately 15% of the total gross advertising revenues generated by Univision
in 1995 and the six months ended June 30, 1996 were accounted for by advertising
aired on these programs. Although the Company has access to replacement
programs, including programs available under the Program License Agreements,
such replacement programs might not have as much appeal to Univision's audience
or advertisers. Consequently, the loss of either of these popular programs, or a
decrease in their popularity, could have a material adverse effect on the
Company's financial condition and results of operations.
FINANCIAL LEVERAGE; RESTRICTIVE COVENANTS
The Company is highly leveraged. On a pro forma basis giving effect to the
Reorganization and the Offering, as of June 30, 1996, the Company had
outstanding total debt in an aggregate principal amount of approximately $555.7
million, representing 71% of its total capitalization. The degree to which the
Company is leveraged could have a material adverse effect on the Company's (i)
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate or other purposes, (ii)
flexibility to use its cash flow from operations since a substantial portion is
being dedicated to the payment of interest on, and the principal of, its debt,
and (iii) vulnerability to economic downturns, competitive pressures and its
ability to respond to changing business and economic conditions.
The Company's new credit agreement, expected to be entered into prior to
the closing of this Offering (the "New Bank Facility"), provides for aggregate
commitments of up to $600 million, of which $481.2 million will be outstanding
after this Offering and will impose financial and other restrictions on the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- PCI and
11
<PAGE> 12
UNHP Liquidity and Capital Resources." Since the Acquisition, the Company has
been in compliance with the covenants of its existing credit facility (the "Old
Bank Facility") and the Company believes it will be able to comply with the
covenants in the New Bank Facility, but there is no assurance that the Company
will be able to do so. Failure to do so could result in a default under the New
Bank Facility and could lead to acceleration of substantially all indebtedness
of the Company. In such a case, there is no assurance that the Company would be
able to refinance or otherwise repay such indebtedness.
RELIANCE ON SATELLITES AND OTHER EQUIPMENT
The Company broadcasts its programs to the Univision Affiliates on three
separate satellites from four transponders, one of which is owned and three of
which are leased on a long-term basis pursuant to two lease agreements. If the
satellite on which the Company-owned transponder fails, the Company has the
right to migrate to a transponder on another satellite. If the Company-owned
transponder fails and the satellite remains viable, the Company has the right to
migrate to another transponder on the same satellite. If a leased transponder
fails, under one lease agreement covering two transponders, the lessor is
required to provide a back-up for the transponders on the same satellite, and
the lessor may, subject to availability, at its option, provide alternative
transponders on other satellites. Under the other lease agreement, the lessor
may, subject to availability, at its option, provide alternative transponder
capacity. There can be no assurance that such other transponders or satellites
would be available to the Company, or if available, whether the use of such
other transponders or satellites could be obtained on favorable terms. A
disruption of transmission could have a material adverse effect on the Company's
financial condition and results of operations.
The Company owns or leases remote antenna space and microwave transmitter
space near each of the O&Os. The loss of any of these antenna tower leases could
have a material adverse effect on the financial condition and results of
operations of the Company.
RISKS ASSOCIATED WITH ACQUISITION OF NEW STATION
Univision has entered into an agreement with the owners of the Company's
Sacramento Affiliated Station, KCSO, for the acquisition of KCSO. The purchase
price, payable in cash and preferred stock, is approximately $40 million. If
consummated, the Company would pay a portion of the purchase price in cash and
issue 12,000 shares of preferred stock having one vote per share, a liquidation
preference of $1,000 per share (plus accrued and unpaid dividends) and a
cumulative annual dividend preference (commencing on the closing of the
acquisition) of 6% per share per annum ($15.00 per quarter per share),
increasing to 9% per share per annum if accrued and unpaid dividends per share
equal or exceed $30.00. The preferred stock would be convertible into Class A
Common Stock at the option of the holder until the fourth anniversary of the
closing of the acquisition at a conversion price determined by dividing the
average of closing prices of the Class A Common Stock on the NYSE for the ten
trading days preceding FCC approval of the acquisition. The preferred stock
would be redeemable at the option of the holder at any time, and by the Company
after the fourth anniversary of the issuance of the preferred stock, in each
case, for an amount equal to the liquidation preference. If the acquisition is
consummated, earnings per share would be diluted. In addition, holders of any
preferred stock issued in connection with such acquisition would have greater
rights than holders of the Class A Common Stock as described above. The Company
believes it will have sufficient borrowing capacity under the New Bank Facility
to consummate such acquisition.
The closing of the acquisition is subject to a variety of conditions
including approval of the FCC. Because of the signal overlap between the
Sacramento Affiliated Station and the Company's San Francisco and Fresno O&Os,
the Company also will need FCC waivers of an FCC rule prohibiting common
ownership of two stations with certain signal overlaps. No assurance can be
given that such FCC approval and waivers will be obtained or that the other
conditions to the closing of the acquisition will be met. See "Business -- The
O&Os" and "Description of Capital Stock -- Preferred Stock."
12
<PAGE> 13
POSSIBLE ADVERSE EFFECT OF RAPIDLY CHANGING CONDITIONS IN INDUSTRY
The Company's operations and ability to grow may be affected by numerous
factors, including changes in audience tastes, priorities of advertisers,
reductions in advertisers' budgets, new laws and governmental regulations and
policies, changes in broadcast technical requirements, technological advances,
proposals to eliminate the tax deductibility of certain advertising expenses
incurred by advertisers and changes in the willingness of financial institutions
and other lenders to finance television station acquisitions and operations. The
Company cannot predict which, if any, of these or other factors might have a
significant impact on the television broadcasting industry in the future, nor
can it predict what impact, if any, the occurrence of these or other events
might have on the Company's financial condition and results of operations.
PAYMENT OF PROCEEDS TO EXISTING STOCKHOLDERS
Out of the proceeds of this Offering and the New Bank Facility,
approximately $391.1 million will be paid to the existing stockholders. Of the
amount paid to the existing stockholders, $100.0 million will be distributed and
paid to them as partners of the Network, $131.0 million will be paid to them as
accrued dividends on certain preferred stock issued in connection with the
Acquisition and payment of certain notes issued in payment of certain accrued
dividends owed to them, $149.0 million will be paid to Televisa and Venevision
as payment in full of all amounts owed to them with respect to Sponsor Loans
made to UTG subsequent to the Acquisition, and approximately $15.3 million will
be paid to Televisa representing payment of principal and accrued interest on
the note issued by the Company to Televisa as payment for the acquisition of
Galavision. See "Reorganization" and "Use of Proceeds". The proceeds being paid
to the existing stockholders will not be available for use by the Company in its
business.
CONCENTRATION OF SHARE OWNERSHIP AND CONTROL OF COMPANY
Mr. Perenchio beneficially owns all of the Company's outstanding Class P
Common Stock which gives him 10 votes per share compared to the one vote per
share of Class A Common Stock. The Class A and Class P Common Stock vote
together on all matters. Accordingly, immediately after this Offering, Mr.
Perenchio will have 96% of the voting power of all holders of Class A and Class
P Common Stock and 92% of the overall voting power of the Company, with respect
to substantially all matters submitted to a vote, including election of
directors, proxy contests, mergers, tender offers, open-market purchase programs
and other purchases of the Company's Common Stock that could give stockholders
of the Company the opportunity to realize a premium over the then prevailing
market price for their shares of Common Stock. The Class T and Class V Common
Stock each vote as a separate class with respect to the election of directors
and with respect to other matters which would adversely affect the special
rights of such class.
Certain activities of the Company are restricted by certain supermajority
voting provisions contained in the Company's Bylaws. The Company's Bylaws
provide that the affirmative vote of a majority of the directors elected by the
holders of the Class T Common Stock (the "Class T Directors") and a majority of
the directors elected by the holders of the Class V Common Stock (the "Class V
Directors") is required for the Company to, among other things, (i) merge,
consolidate, enter into a business combination or otherwise reorganize the
Company, (ii) sell all or substantially all of the assets of the Company, (iii)
create or issue any Common Stock or securities exchangeable into, or that
participate in dividends with, the Common Stock, any preferred stock or phantom
equity or any similar securities or interests, (iv) pay any dividends or redeem
or repurchase any securities of the Company (except for redemption of shares in
accordance with the Company's Restated Certificate of Incorporation to ensure
compliance with the foreign ownership restrictions of the Communications Act),
(v) engage in any business transaction outside of the Company's ordinary course
of business or (vi) dissolve, liquidate or terminate the Company. Additionally,
the Company's Bylaws provide that without the approval of a majority of the
Class T Directors or the Class V Directors, the Company may not, among other
things, (a) acquire or dispose of any assets in any one transaction or series of
related transactions for a purchase price in excess of $50 million, (b) dispose
of any interest in any television station which broadcasts in Spanish in any of
the top 15 markets in terms of Hispanic population, (c) incur any debt (or issue
preferred stock) in excess of five times the Company's EBITDA for the preceding
12-month period, (d) produce or
13
<PAGE> 14
acquire certain new programming (unless the Company has met certain EBITDA to
sales ratios), or (e) enter into any transaction with Perenchio or any affiliate
of, or any person related to, Perenchio.
Certain of the provisions described above could delay, deter or prevent a
change in control of the Company. See "Description of Capital Stock."
NO PRIOR MARKET; VOLATILITY OF STOCK PRICE
The initial public offering price of the Class A Common Stock was
determined in negotiations between the Company and the Representatives of the
Underwriters and may not be indicative of the market price of the Class A Common
Stock after this Offering. Prior to this Offering, there has been no public
market for the Class A Common Stock, and although the Class A Common Stock has
been approved for listing on the New York Stock Exchange (the "NYSE") upon
notice of issuance, there can be no assurance that an active public market for
the Class A Common Stock will develop or be sustained after this Offering. There
can be no assurance that the market price of the Class A Common Stock will not
experience significant fluctuations that are unrelated or disproportionate to
the Company's performance.
ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON MARKET PRICE OF COMMON
STOCK
Sales of substantial amounts of Common Stock after this Offering could
adversely affect the market price of the Class A Common Stock. The Principal
Stockholders will hold 74.9% of the outstanding shares of Common Stock after
this Offering and a decision by one or more of them to sell its shares could
have a material adverse effect on the market price of the Class A Common Stock.
Following the expiration of certain lock-up agreements between the Company and
the existing stockholders and the Underwriters, all of the shares owned by the
existing stockholders will be eligible for immediate sale in the public market,
subject to compliance with Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). See "Principal Stockholders" and "Shares Eligible for
Future Sale." The existing stockholders also have various registration rights.
See "Certain Transactions -- Registration Rights Agreement." The Company's
Restated Certificate of Incorporation provides that upon any sale to a third
party, the Class P, Class T and Class V Common Stock convert into Class A Common
Stock.
ABSENCE OF DIVIDENDS
The Company does not anticipate declaring or paying any cash dividends on
its Class A Common Stock following this Offering. The New Bank Facility
restricts the payment of cash dividends on the Common Stock. Future dividend
policy will depend on the Company's earnings, capital requirements, financial
condition and other factors considered relevant to the Board of Directors.
Additionally, as described above, the approval of a majority of the Class T
Directors and a majority of the Class V Directors is required for the Company to
pay any dividends on the Common Stock. Since dividends are not payable on the
Warrants, such approval is unlikely so long as the Warrants are held by Televisa
and Venevision. See "Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors purchasing shares of the Class A Common Stock offered hereby will
incur immediate and substantial dilution of $33.48 in the net tangible book
value per share of Common Stock. See "Dilution."
14
<PAGE> 15
REORGANIZATION
In 1992, A. Jerrold Perenchio, Televisa and Venevision formed the Company
and UNHP which acquired UTG and the Network, respectively, in December 1992.
From and after the Acquisition, UTG and the Network have been operated
separately, have had different management structures and the Principal
Stockholders have controlled both, but have had different ownership interests
therein. In connection with this Offering, the operations of UTG and the Network
will be combined and the ownership thereof reorganized through the following
transactions (the "Reorganization"):
(a) The Company will enter into the New Bank Facility and will repay
$165.0 million owing under, and terminate, the Old Bank Facility;
(b) The Company will defease UTG's 11 3/4% Senior Subordinated Notes
due 2001 (the "Senior Subordinated Notes") by, among other things,
depositing $74.2 million with the trustee under the indenture governing
such notes;
(c) The Network will make a distribution to its partners in the amount
of $60.0 million;
(d) The Company will acquire UNHP, which owns the Network, from UNHP's
partners in exchange for 19,014.5 shares of Common Stock and $40.0 million
in cash. UTG will become a wholly-owned subsidiary of the Company, and the
Company will effect a dividend of 227.0 shares on each share of Class P
Common Stock, Class T Common Stock and Class V Common Stock, and the
Warrants will be adjusted to reflect the new capital structure of the
Company;
(e) The Company will pay $88.0 million to the Principal Stockholders
and their affiliates, representing payment of outstanding principal of and
accrued interest on certain debentures and accrued dividends on certain
preferred stock issued by the Company and its subsidiaries in connection
with the Acquisition and approximately $43.0 million to the Principal
Stockholders and their affiliates, representing full payment of outstanding
principal of and interest on certain notes issued in payment of certain
accrued dividends as of December 31, 1995;
(f) The Company will pay $149.0 million to Televisa and Venevision,
representing full payment of outstanding principal of, and accrued interest
on, all amounts owed to them by UTG with respect to Sponsor Loans made
subsequent to the Acquisition, and the obligations to make the Sponsor
Loans will terminate;
(g) The Company will pay $15.3 million to Televisa, representing full
payment of outstanding principal of and accrued interest on the note issued
by the Company to Televisa as payment for the acquisition of Galavision;
and
(h) The Program License Agreements will be amended, the Program Cost
Sharing Agreement (which required Televisa and Venevision to reimburse the
Company for one-half of the cost of certain productions produced or
acquired by the Company) will be terminated and the management fee to the
Principal Stockholders of 3% of Combined Net Time Sales will be eliminated.
Under the amended Program License Agreements, the royalty rate will be 11%
from the closing of this Offering through December 31, 1996 and will
increase to 13.5% for 1997 and to 15% for all years thereafter, and the
Company will receive no cost sharing reimbursements.
Immediately following the Reorganization but without giving effect to the
Closing of this Offering, Perenchio will beneficially own 22,071,737 shares of
Class P Common Stock, representing 46.3% of all fully diluted Common Stock
equivalents, Televisa will beneficially own 4,459,291 shares of Class T Common
Stock and 6,859,425 Warrants, together representing 23.8% of all fully diluted
Common Stock equivalents and Venevision will beneficially own 4,459,291 shares
of Class V Common Stock and 6,859,425 Warrants, together representing 23.8% of
all fully diluted Common Stock equivalents. See "Principal Stockholders."
For the purposes of this Prospectus, all discussion of the Company and its
ownership, business and operations and the number of shares of Common Stock
outstanding, except as otherwise indicated, are discussed on a pro forma basis,
giving effect to the transactions described above. See "Use of Proceeds,"
"Unaudited Pro Forma Consolidated Condensed Financial Statements" and "Certain
Transactions."
15
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Class A
Common Stock offered hereby will be $175.2 million ($201.5 million if the
Underwriters' over-allotment option is exercised in full). The proceeds from
this Offering, together with borrowings under the New Bank Facility, will be
used as set forth below.
The following table sets forth the anticipated sources and uses of funds:
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS(1)
- ----------------------------------------------- ---------------------------------------------
(IN MILLIONS)
<S> <C> <C> <C>
New Bank Facility...................... $ 481.2 Payment of Old Bank Facility......... $ 165.0
Defeasance of Senior Subordinated
Offering of Class A Common Stock....... 175.2 Notes(2)........................... 74.2
-------
Distribution and payment to Network
partners........................... 100.0
Payment of notes and accrued
dividends to Principal
Stockholders(3).................... 131.0
Payment of Sponsor Loans(4).......... 149.0
Payment of Galavision note(5)........ 15.3
Investment in Entravision............ 10.0
Estimated fees and expenses.......... 11.9
-------
Total Sources.......................... $ 656.4 Total Uses........................... $ 656.4
======= =======
</TABLE>
- ----------------------------
(1) See Note 5 of Notes to Consolidated Financial Statements of PCI for interest
rates and maturity of debt to be repaid.
(2) The Company intends to use this amount to effect a covenant defeasance of
the Senior Subordinated Notes which are not prepayable prior to January 15,
1997. The Company intends to prepay the notes on that date.
(3) Within the past 12 months, a portion of these notes were issued in payment
of accrued dividends. The remainder of the amounts owed relate to certain
debentures and preferred stock issued by the Company and its subsidiaries in
connection with the Acquisition.
(4) See "Certain Transactions" for use of proceeds from Sponsor Loans.
(5) Issued as of July 1, 1996 in connection with the acquisition of Galavision.
DIVIDEND POLICY
The Company has never declared or paid dividends on its Common Stock. The
New Bank Facility restricts the payment of cash dividends on the Common Stock.
The approval of a majority of the Class T Directors and a majority of the Class
V Directors is required for the Company to pay any dividends on the Common
Stock. Since dividends are not payable on the Warrants, such approval is
unlikely so long as the Warrants are held by Televisa and Venevision. The
Company currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. Future dividend policy will depend on the Company's
earnings, capital requirements, financial condition and other factors considered
relevant by the Board of Directors.
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<PAGE> 17
DILUTION
As of June 30, 1996, the Company, had a deficit in net tangible book value
of $513.9 million, or $17.79 per share of Common Stock based upon 28,881,181
shares of Common Stock outstanding. The deficit in net tangible book value per
share is determined by dividing the net tangible book value of the Company
(total tangible assets less total liabilities) on such date by the number of
shares of all classes of Common Stock outstanding as of such date giving effect
to the stock dividend and the conversion of the preferred stock into Common
Stock. After giving effect to the Reorganization and the sale by the Company of
the 8,170,000 shares of Class A Common Stock offered hereby and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company, the Company's deficit in net tangible book value as of June 30,
1996 would have been $433.8 million or $10.48 per share of Common Stock. This
represents an immediate decrease in the deficit in net tangible book value of
$7.80 per share to existing stockholders and an immediate dilution of $33.48 per
share to new investors purchasing shares in this Offering. The following table
gives effect to the stock split and the conversion of the preferred stock into
Common Stock and illustrates this per share dilution:
<TABLE>
<CAPTION>
ASSUMES NO
EXERCISE
OF
WARRANTS
----------
<S> <C>
Initial public offering price per share......................... $ 23.00
--------
Deficit in net tangible book value per share before the
Reorganization and the Offering............................ (17.79)
--------
Increase in deficit in net tangible book value per share
attributable to the Reorganization......................... (0.49)
Pro forma deficit in net tangible book value per share before
the Offering............................................... (18.28)
Decrease in deficit in net tangible book value per share
attributable to new investors............................ 7.80
Pro forma deficit in net tangible book value per share after the
Offering...................................................... (10.48)
--------
Dilution per share to new investors............................. $ 33.48
========
</TABLE>
The foregoing table excludes 14,440,820 shares of Class A Common Stock
issuable upon exercise of the Warrants. The per share dilution to new investors
assuming that all of the Warrants were exercised is $30.77. See "Certain
Transactions -- Warrants."
The following table sets forth on a pro forma basis, as of June 30, 1996,
the differences in the number of shares purchased from the Company, the total
consideration paid and the average price per share paid by the Company's
existing stockholders and new investors purchasing shares of Class A Common
Stock from the Company in this Offering.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
SHARES (ASSUMING WARRANTS (ASSUMING WARRANTS AVERAGE PRICE
PURCHASED ARE EXERCISED) ARE EXERCISED) PER SHARE
-------------------- -------------------- ------------------------ (ASSUMING WARRANTS
NUMBER PERCENT NUMBER PERCENT AMOUNT PERCENT ARE EXERCISED)
---------- ------- ---------- ------- ------------ ------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Existing
stockholders......... 28,881,181(a) 69.8% 43,322,001 77.6% $ 42,758,214 18.0% $ 0.99
Reorganization......... 4,335,499 10.5 4,335,499 7.8 7,001,902(b) 2.9 1.61
---------- ----- ---------- ----- ------------ ----- -------
Existing stockholders
after
Reorganization....... 33,216,680 80.3 47,657,500 85.4 49,760,116 20.9 1.04
---------- ----------
New investors.......... 8,170,000 19.7 8,170,000 14.6 187,910,000 79.1 23.00
---------- ----- ---------- ----- ------------ ----- -------
Total......... 41,386,680 100.0% 55,827,500 100.0% $237,670,116 100.0%
========== ===== ========== ===== ============ =====
</TABLE>
- ----------------------------
(a) Reflects the exchange of PTIH common and preferred stock for, and stock
dividend of, PCI common stock concurrent with the Offering and the 227 for 1
stock dividend to existing stockholders.
(b) Represents the consideration paid by the existing stockholders for the
Network in 1992.
The foregoing tables exclude 5,500,000 shares of Class A Common Stock
reserved for future issuance under the 1996 Performance Award Plan. See
"Management -- 1996 Performance Award Plan."
17
<PAGE> 18
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1996 and as adjusted to give effect to the Reorganization
and the sale of the 8,170,000 shares of Class A Common Stock offered hereby and
the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------------
CONSOLIDATED AS ADJUSTED
------------ -----------
(IN MILLIONS)
<S> <C> <C>
Long-term debt (including current maturities)
Old Bank Facility................................................. $173.3 $ --
New Bank Facility................................................. -- 455.1
11 3/4% Senior Subordinated Notes................................. 79.4 --
Junior Subordinated Notes......................................... 56.8 56.8
Notes payable to Principal Stockholders........................... 128.3 --
Sponsor Loans..................................................... 131.8 --
Capital leases and other.......................................... 43.8 43.8
------ -------
Total long-term debt...................................... 613.4 555.7
Stockholders' equity(deficit)(1).................................... (58.3) 223.2
------ -------
Total capitalization................................................ $555.1 $ 778.9
====== =======
</TABLE>
- ------------------------------
(1) Excludes (i) 721,970 shares of Class A Common Stock, 6,859,425 shares of
Class T Common Stock and 6,859,425 shares of Class V Common Stock issuable
upon exercise of the Warrants and (ii) 5,500,000 shares of Class A Common
Stock reserved for future issuance under the 1996 Performance Award Plan.
See "Management -- 1996 Performance Award Plan" and "Certain Transactions
-- Warrants."
18
<PAGE> 19
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed statements of
operations and unaudited pro forma consolidated condensed balance sheet
(collectively, the "Pro Forma Statements") give effect to the Reorganization and
the sale of the 8,170,000 shares of Class A Common Stock offered hereby and the
application of the net proceeds therefrom as if such transactions had occurred
as of January 1, 1995, in the case of the statements of operations data, and as
of June 30, 1996, in the case of the balance sheet data.
The Pro Forma Statements do not purport to represent what the Company's
consolidated financial position or results of operations would actually have
been if such transactions in fact had occurred on the dates assumed or to
project consolidated financial position or results of operations for any future
date or period.
The pro forma adjustments are based upon available information and upon
certain assumptions that management of the Company believes are reasonable. The
Reorganization, wherein the Company is acquiring 100% of UNHP and the 20%
minority interests of its subsidiary PTIH, will be accounted for using the
purchase method of accounting. The aggregate fair value of the minority
interests to be acquired is approximately $215 million. Accordingly, the
acquisition of the minority interests will be allocated to the individual assets
and liabilities based on their relative fair values as of the closing of this
Offering. The Pro Forma Consolidated Condensed Balance Sheet reflects
preliminary estimates of the allocation of the fair value of the minority
interests acquired and is subject to the completion of a formal appraisal.
Management has preliminarily allocated the fair value of the minority interests
acquired to intangible assets. Management does not believe that any differences
in the final purchase price allocation will have a material impact on the
Company's financial position or results of operations. Management has concluded
that a 20 year economic useful life for the acquisition of the minority
interests is appropriate based on the competitive environment in which the
Company operates, its highly leveraged nature and the historical performance of
the Company.
The Pro Forma Statements do not reflect the acquisition of Galavision, the
payment of the Galavision note, or the $10 million investment in the form of a
note and an option to acquire a 25% interest in Entravision, as such amounts
were not significant.
The Pro Forma Statements and accompanying notes should be read in
conjunction with the historical consolidated financial statements of PCI and
UNHP, including the notes thereto, included elsewhere herein.
19
<PAGE> 20
UNIVISION COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------ PRO FORMA PRO
PCI UNHP CONSOL. ADJUSTMENTS FORMA
---------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues........................................ $ 173,108 $148,231 $321,339 $ -- $ 321,339
Direct operating expenses........................... 36,193 79,628 115,821 -- 115,821
Selling, general and administrative................. 52,254 41,517 93,771 (9,521)(a) 84,250
Corporate charges................................... 7,300 2,400 9,700 -- 9,700
Depreciation and amortization....................... 33,506 9,971 43,477 10,750 (b) 54,227
---------- -------- -------- -------- ------
Operating income.................................. 43,855 14,715 58,570 (1,229) 57,341
Interest expense, net............................... 40,222 7,864 48,086 33,743 (c) 42,166
(39,663)(d)
Amortization of deferred financing costs............ 3,925 -- 3,925 1,429 (e) 1,429
(3,925)(f)
Nonrecurring expense of acquired station............ 1,750 -- 1,750 -- 1,750
Minority interest................................... 7,346 -- 7,346 (7,346)(g) --
---------- -------- -------- -------- ------
Income (loss) before income taxes................. (9,388) 6,851 (2,537) 14,533 11,996
Provision for income taxes(h)....................... -- -- -- 4,800 4,800
---------- -------- -------- -------- ------
Income (loss) before extraordinary loss on
extinguishment of debt.......................... $ (9,388) $ 6,851 $ (2,537) $ 9,733 $ 7,196
---------- -------- -------- -------- ------
Earnings (loss) per share before extraordinary loss
on extinguishment of debt......................... $ (1.61) $ 0.13
Weighted average common shares outstanding(i)....... 5,822,318 55,746,631
Other Data:
Broadcast cash flow............................... $ 84,661 $ 27,086 $111,747 $ 9,521 $ 121,268
EBITDA............................................ 77,361 24,686 102,047 9,521 111,568
</TABLE>
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------ PRO FORMA PRO
PCI UNHP CONSOL. ADJUSTMENTS FORMA
---------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues........................................ $ 82,279 $ 70,419 $152,698 $ -- $ 152,698
Direct operating expenses........................... 15,116 38,379 53,495 -- 53,495
Selling, general and administrative................. 25,743 20,214 45,957 (4,559)(a) 41,398
Corporate charges................................... 3,065 1,060 4,125 -- 4,125
Depreciation and amortization....................... 16,537 4,850 21,387 5,375 (b) 26,762
---------- -------- -------- --------- -----------
Operating income.................................. 21,818 5,916 27,734 (816) 26,918
Interest expense, net............................... 20,683 3,851 24,534 17,624 (c) 21,909
(20,249)(d)
Amortization of deferred financing costs............ 2,320 -- 2,320 714 (e) 714
(2,320)(f)
Minority interest................................... 489 -- 489 (489)(g) --
---------- -------- -------- --------- -----------
Income (loss) before income taxes................. (1,674) 2,065 391 3,904 4,295
Provision for income taxes(h)....................... -- -- -- 1,700 1,700
Income (loss) before extraordinary loss on
extinguishment of debt.......................... $ (1,674) $ 2,065 $ 391 $ 2,204 $ 2,595
---------- -------- -------- --------- -----------
Earnings (loss) per share before extraordinary loss
on extinguishment of debt......................... $ (167.40) $ 0.05
Weighted average common shares outstanding(i)....... 10,000 55,746,631
Other Data:
Broadcast cash flow............................... $ 41,420 $ 11,826 $ 53,246 $ 4,559 $ 57,805
EBITDA............................................ 38,355 10,766 49,121 4,559 53,680
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Condensed Statements of
Operations.
20
<PAGE> 21
UNIVISION COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------- PRO FORMA PRO
PCI UNHP CONSOL. ADJUSTMENTS FORMA
-------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net revenues.......................................... $91,420 $79,436 $170,856 $ -- $170,856
Direct operating expenses............................. 16,276 41,005 57,281 -- 57,281
Selling, general and administrative................... 30,759 22,218 52,977 (5,043)(a) 47,934
Corporate charges..................................... 3,484 430 3,914 -- 3,914
Depreciation and amortization......................... 17,148 5,513 22,661 5,375 (b) 28,036
------- ------- -------- -------- --------
Operating income.................................... 23,753 10,270 34,023 (332) 33,691
Interest expense, net................................. 20,300 4,799 25,099 15,870 (c) 20,962
(20,007)(d)
Amortization of deferred financing costs.............. 1,749 -- 1,749 714 (e) 714
(1,749)(f)
Minority interest..................................... 274 -- 274 (274)(g) --
------- ------- -------- -------- --------
Income before income taxes.......................... 1,430 5,471 6,901 5,114 12,015
Provision for income taxes(h)......................... 500 -- 500 (500)(h) --
------- ------- -------- -------- --------
Income before extraordinary loss on
extinguishment of debt............................ $ 930 $ 5,471 $ 6,401 $ 5,614 $ 12,015
------- ------- -------- -------- --------
Earnings per share before extraordinary loss on
extinguishment of debt.............................. $ 0.16 $ 0.22
Weighted average common shares outstanding(i)......... 5,822,318 55,746,631
Other Data:
Broadcast cash flow................................. $44,385 $16,213 $ 60,598 $ 5,043 $ 65,641
EBITDA.............................................. 40,901 15,783 56,684 5,043 61,727
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Condensed Statements of
Operations.
21
<PAGE> 22
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(a) Reverses the historical management fee of $9,521, $4,559 and $5,043 provided
by the Network for the year ended December 31, 1995 and the six month
periods ended June 30, 1995 and June 30, 1996, respectively. The pro forma
adjustment for the effect of eliminating the historical cost sharing
arrangements has not been presented because the historical license fee, net
of the historical cost sharing, approximates the license fee on a pro forma
basis.
(b) Represents the amortization of an additional $215,000 of goodwill arising
from the Company's acquisition of minority interest as if the acquisition
had occurred as of January 1, 1995. The goodwill is being amortized over 20
years.
(c) Records the interest expense of $33,743, $17,624 and $15,870 for the year
ended December 31, 1995 and the six month periods ended June 30, 1995 and
June 30, 1996, respectively, relating to the borrowings under the New Bank
Facility to be incurred in connection with the Reorganization.
(d) Represents the reversal of the historical interest expense related to the
debt that is being refinanced.
(e) Amortization of $1,429, $714 and $714 was recorded for the year ended
December 31, 1995 and the six month periods ended June 30, 1995 and June 30,
1996, respectively, related to the $10,000 pro forma deferred financing
costs related to the borrowings under the New Bank Facility to be incurred
in connection with the Reorganization.
(f) Represents the reversal of the historical amortization of deferred financing
costs relating to debt that is being refinanced.
(g) Eliminates the historical effect of preferred stock dividends to minority
stockholders of PTIH, related party debt interest expense and the minority
interest participation in the income (loss) applicable to common
stockholders.
(h) No provision for income taxes has been recorded on a pro forma basis for the
six months ended June 30, 1996 because the historical debt is assumed to be
extinguished as of January 1, 1995, resulting in the recording of an
extraordinary loss on the extinguishment of debt (net of income tax
benefits), at January 1, 1995, and the utilization of previously
unrecognized net operating losses. The provision for income taxes included
in the unaudited pro forma consolidated condensed statements of operations
for the year ended December 31, 1995, and the six months ended June 30, 1995
is based on an effective tax rate of 40%. These tax provisions, presented on
a pro forma basis, are offset by an income tax benefit arising from the
extraordinary loss on the extinguishment of debt. However, in accordance
with Article 11 of Regulation S-X under the Securities Act, the
extraordinary loss on the extinguishment of debt, net of related tax
benefits is not presented therein.
(i) See Note (d) to Selected Historical Financial Data for an explanation
regarding historical weighted average common shares outstanding. Pro forma
weighted average common shares outstanding for the year ended December 31,
1995 and the six month periods ended June 30, 1995 and June 30, 1996 include
the effects of outstanding Warrants with an exercise price of $0.13 per
share. The Warrants are considered Common Stock equivalents and impact
primary weighted average common shares outstanding by the number of shares
issuable upon exercise of the Warrants less the number of shares that could
have been repurchased by the Company with the proceeds from the exercise of
the Warrants based on the price of Common Stock described below. As there
was no market for the Common Stock during the
22
<PAGE> 23
periods presented, an assumed price of $23.00 per share (the public offering
price) was utilized for all periods. Weighted average common shares
outstanding has been calculated as follows:
<TABLE>
<S> <C> <C>
Historical weighted average common shares
outstanding...................................... 126,666
Reorganization stock dividend (227.010528 shares
for each common share)........................... 28,754,515
Reorganization shares issued....................... 4,335,499
Public offering shares issued...................... 8,170,000
-----------
Weighted average common shares before dilutive
effect of common stock equivalents............... 41,386,680
Common stock equivalents:
Warrants......................................... 14,440,820
Consideration upon exercise of Warrants ($0.1288
for each Warrant)............................. $1,859,978
Less: Repurchased shares with proceeds from
Warrants (assuming $23.00 per share).......... (80,869)
Common stock equivalents......................... 14,359,951
-----------
Pro forma weighted average common shares......... 55,746,631
===========
</TABLE>
23
<PAGE> 24
UNIVISION COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS SUBTOTAL ADJUSTMENTS
------------------------------ FOR PRIOR TO FOR PRO
PCI UNHP CONSOL. REORGANIZATION OFFERING OFFERING(A) FORMA
-------- -------- -------- --------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.... $ 14,156 $ 107 $ 14,263 $ 455,100 (f) $ 69,392 $ (54,994) $ 14,398
(399,971)(c,e,g,i,j) --
Accounts receivable, net..... 36,386 46,005 82,391 -- 82,391 -- 82,391
Other current assets......... 2,619 6,761 9,380 -- 9,380 -- 9,380
-------- -------- -------- -------- -------- --------- --------
Total current assets....... 53,161 52,873 106,034 55,129 161,163 (54,994) 106,169
Property and equipment,
net........................ 28,704 74,143 102,847 -- 102,847 -- 102,847
Intangible assets, net....... 435,272 6,769 442,041 215,000 (b) 657,041 -- 657,041
Deferred tax asset........... 2,000 -- 2,000 -- 2,000 -- 2,000
Other assets................. 13,524 660 14,184 10,000 (c) 14,083 -- 14,083
(10,101)(d)
-------- -------- -------- -------- --------- --------
Total assets............... $532,661 $134,445 $667,106 $ 270,028 $937,134 $ (54,994) $882,140
======== ======== ======== ========= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
liabilities................ $ 36,099 $ 33,245 $ 69,344 $ -- $ 69,344 $ 69,344
Current portion of long-term
debt and capital lease
obligations................ 37,477 2,195 39,672 37,250 (e) $ 42,422 $ -- 42,422
(40,000)(f) -- --
Due to (from) the Network.... 36,019 (36,019) -- -- -- -- --
Other current liabilities.... 6,465 23,671 30,136 -- 30,136 -- 30,136
Liabilities to be settled
upon Reorganization........ -- -- -- (228,341) 228,341 228,341 --
-------- -------- -------- --------- -------- --------- --------
Total current
liabilities............. 116,060 23,092 139,152 (231,091) 370,243 228,341 141,902
Bank debt.................... 136,000 -- 136,000 136,000 (e) 415,100 -- 415,100
(415,100)(f)
Capital leases and other..... 848 40,518 41,366 -- 41,366 -- 41,366
Senior Subordinated Notes.... 79,400 -- 79,400 79,400 (e) -- -- --
Related party debt........... 117,835.. -- 117,835 117,835 (e) -- -- --
Junior Subordinated Notes.... 8,247 48,551 56,798 -- 56,798 -- 56,798
Sponsor loans................ 131,763 -- 131,763 131,763 (e) -- -- --
Other liabilities............ 1,832 1,946 3,778 -- 3,778 -- 3,778
Minority interest............ 19,333 -- 19,333 19,333 (g) -- -- --
Preferred stock.............. 1 -- 1 1 (h) -- -- --
Common Stock................. -- -- -- (332)(h,i) 332 (82) 414
Paid in capital.............. -- 20,338 20,338 100,331 (i,j) 143,834 (173,265) 317,099
(223,827)(b,h,i,j)
Accumulated deficit.......... (78,658) -- (78,658) 15,659 (k) (94,317) -- (94,317)
-------- -------- -------- --------- -------- --------- --------
Total stockholders' equity
(deficit)(l)............ (78,657) 20,338 (58,319) 108,168 49,849 (173,347) 223,196
-------- -------- -------- --------- -------- --------- --------
Total liabilities and
stockholders'
equity................ $532,661 $134,445 $667,106 $ 270,028 $937,134 $ (54,994) $882,140
======== ======== ======== ========= ======== ========= ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Condensed Balance Sheet.
24
<PAGE> 25
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS)
(a) The adjustments reflected in this column represent the receipt of the
proceeds of the Offering net of related offering costs and the liabilities
incurred in connection with the Reorganization and the payment thereof.
(b) Represents recording of $215,000 of goodwill related to the acquisition of
the minority interests in PTIH and UNHP. Goodwill associated with the 20%
PTIH minority interest acquired is determined using a fair value of PCI of
approximately $763,000 plus the PCI debt of $123,000 to approximate the fair
value of PTIH. The goodwill associated with the 50% UNHP minority interest
acquired is determined using a fair value of $76,200. These fair values are
based upon the estimated market capitalization of PTIH and UNHP prior to the
Offering.
(c) Reflects the recording of $10,000 of pro forma deferred financing costs
related to borrowings under the New Bank Facility to be incurred in
connection with the Reorganization.
(d) Represents the reversal of deferred financing costs related to the debt that
is being refinanced.
(e) Eliminates the debt that is being refinanced.
(f) Records borrowings under the New Bank Facility of $455,100.
(g) Eliminates the effects of historical minority interest of PTIH.
(h) Reflects the reclassification from Preferred to Common Stock of $1.
(i) Records the issuance of Common Stock in connection with the Reorganization
and the Offering offset by the estimated stock issuance costs of $14,563.
(j) Records the $60,000 distribution from the Network to its partners as of June
30, 1996 and the $40,000 cash payment together with the issuance of
4,335,499 shares of Common Stock in exchange for the partners' interests in
UNHP.
(k) Represents the extraordinary loss on the early extinguishment of debt of
$15,659, which is comprised of the reversal of the deferred financing costs
of $10,101 and the difference between the carrying costs of the debt and the
repayment amount of $5,558. This extraordinary loss is not reflected on the
Unaudited Pro Forma Consolidated Condensed Statements of Operations since it
would be presented below income before extraordinary loss on extinguishment
of debt.
(l) Reconciliation of stockholders' equity (deficit) is as follows:
<TABLE>
<CAPTION>
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Historical balance.............................................. $ (58,319)
Issuance of Common Stock........................................ 414
Paid in Capital
Records stock proceeds........................................ 187,828
Elimination of Minority Interest.............................. 8,827
Records Goodwill.............................................. 215,000
Records Distribution to Partners.............................. (100,000)
Reclassification of reorganization share value................ (332)
Records Offering Costs........................................ (14,563)
Current Loss.................................................... (15,659)
---------
Pro Forma balance............................................... $ 223,196
=========
</TABLE>
25
<PAGE> 26
SELECTED HISTORICAL FINANCIAL DATA
Presented below are summary historical financial data of PCI and UNHP. The
data for PCI and UNHP for the years ended December 31, 1993, 1994 and 1995, were
derived from the audited financial statements and related notes included
elsewhere herein, and should be read in conjunction therewith. The data for PCI
and UNHP for the years ended December 31, 1991 and 1992 are derived from the
audited combined financial statements and related notes of the Univision Group,
and the audited financial statements and related notes of PCI for the period
from December 17, 1992 through December 31, 1992, which are not included herein.
The PCI and UNHP financial data for the six months ended June 30, 1995 and
1996 are unaudited, but in the opinion of management such statements have been
prepared on the same basis as the audited financial statements included
elsewhere herein, and include all normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for that
period. Results for the six months ended June 30, 1996 are not necessarily
indicative of the results for a full year.
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements included herein.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
(THROUGH DECEMBER
16, 1992) PCI
------------------- -----------------------------------------------------
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- ---------------------
PCI 1991 1992(a) 1993 1994(b) 1995(c) 1995 1996
--------- -------- -------- -------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
(RESTATED)
STATEMENT OF OPERATIONS DATA:
Net revenues................... $ 99,667 $105,855 $104,675 $139,007 $ 173,108 $ 82,279 $ 91,420
Direct operating expenses...... 26,646 28,795 26,107 27,129 36,193 15,116 16,276
Selling, general and
administrative............... 33,527 33,109 32,412 41,395 52,254 25,743 30,759
--------- -------- -------- -------- ---------- -------- ----------
Corporate charges.............. 1,500 1,200 3,200 4,900 7,300 3,065 3,484
--------- -------- -------- -------- ---------- -------- ----------
Depreciation and
amortization................. 11,978 12,777 33,970 31,719 33,506 16,537 17,148
--------- -------- -------- -------- ---------- -------- ----------
Operating income............. 26,016 29,974 8,986 33,864 43,855 21,818 23,753
Interest expense, net(d)....... -- 1,597 36,896 37,246 40,222 20,683 20,300
Amortization of deferred
financing costs.............. -- 130 4,580 5,419 3,925 2,320 1,749
Nonrecurring expense of
acquired station............. -- -- -- -- 1,750 -- --
Minority interest.............. -- (376) (5,309) (1,202) 7,346 489 274
Provision for taxes............ -- -- -- 140 -- -- 500
Extraordinary charges (net of
tax benefit of $500 in the
six-month period ended June
30, 1996).................... -- -- -- (4,321) (801) -- (681)
--------- -------- -------- -------- ---------- -------- ----------
Net income (loss)(d)......... $ 26,016 $ 28,623 $(27,181) $(12,060) $ (10,189) $ (1,674) $ 249
========= ======== ======== ======== ========== ======== ==========
Earnings (loss) per share
before extraordinary
charges...................... $ 2,602 $ 2,862 $ (2,718) $ (774) $ (1.61) $ (167) $ 0.16
Earnings (loss) per share...... $ 2,602 $ 2,862 $ (2,718) $ (1,206) $ (1.75) $ (167) $ 0.04
Weighted average common shares
outstanding(e)............... 10,000 10,000 10,000 10,000 5,822,318 10,000 5,822,318
--------- -------- -------- -------- ---------- -------- ----------
OTHER DATA:
Broadcast cash flow(f)....... 39,494 43,951 46,156 70,483 84,661 41,420 44,385
EBITDA(g).................... 37,994 42,751 42,956 65,583 77,361 38,355 40,901
BALANCE SHEET DATA (at end of
period)(h):
Working capital (deficit)...... $ 5,169 $(31,125) $(27,475) $(33,581) $ (11,736) $(29,658) $ (26,880)
Total assets................... 260,022 540,261 510,741 565,856 545,902 549,314 532,661
Long-term debt (including
current maturities)(d)....... 627,655 454,115 413,421 478,307 487,895 493,945 511,570
Stockholders' equity
(deficit)(d)................. (315,752) 20,328 (11,468) (29,171) (77,057) (33,671) (78,657)
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
(THROUGH DECEMBER
16, 1992) UNHP
------------------- -----------------------------------------------------
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
---------------------------------------------------- ---------------------
UNHP 1991 1992(A) 1993 1994(B) 1995 6/30/95 6/30/96
--------- -------- -------- -------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................... $ 88,776 $100,231 $109,365 $132,746 $ 148,231 $ 70,419 $ 79,436
Direct operating expenses...... 56,374 67,638 60,151 78,616 79,628 38,379 41,005
Selling, general and
administrative............... 31,064 30,906 34,036 38,749 41,517 20,214 22,218
--------- -------- -------- -------- ---------- -------- ----------
Corporate charges.............. -- -- -- 2,000 2,400 1,060 430
--------- -------- -------- -------- ---------- -------- ----------
Depreciation and
amortization................. 9,949 10,221 7,413 7,702 9,971 4,850 5,513
--------- -------- -------- -------- ---------- -------- ----------
Operating income (loss)...... (8,611) (8,534) 7,765 5,679 14,715 5,916 10,270
Interest expense, net(d)....... -- 192 4,749 6,233 7,864 3,851 4,799
--------- -------- -------- -------- ---------- -------- ----------
Net income (loss)(d)......... $ (8,611) $ (8,726) $ 3,016 $ (554) $ 6,851 $ 2,065 $ 5,471
========= ======== ======== ======== ========== ======== ==========
OTHER DATA:
Broadcast cash flow(f)....... 1,338 1,687 15,178 15,381 27,086 11,826 16,213
EBITDA(g).................... 1,338 1,687 15,178 13,381 24,686 10,766 15,783
BALANCE SHEET DATA (at end of
period):
Working capital (deficit)...... $ 14,171 $(12,497) $(54,934) $(39,598) $ (41,177) $(17,688) $ (6,238)
Total assets................... 258,392 71,289 75,121 92,761 95,860 101,631 134,445
Long-term debt (including
current maturities)(d)....... -- 32,546 36,095 53,600 65,274 63,304 91,264
Partners' equity
(deficit)(d)................. (158,968) 6,327 9,343 8,789 14,890 10,854 20,338
</TABLE>
- ------------------------------
(a) Represents the addition of the results of operations of the predecessor
company (January 1, 1992 through December 16, 1992) and PCI or UNHP, as the
case may be, for the period of December 17, through December 31, 1992.
(b) In August and September 1994, UTG acquired stations in Chicago ("WGBO") and
Houston ("KXLN"), respectively. The selected historical financial data
presented for periods preceding these dates do not include amounts for WGBO
or KXLN and are therefore not comparable to subsequent periods.
(c) The PCI 1995 historical amounts have been restated to reflect an expense of
$1,750 which had been previously accrued as part of the purchase price of
an acquired station.
(d) A stockholders' deficit of $171,060 and long-term debt of $627,475 as of
December 31, 1991 and interest expense of $71,493 for the year ended
December 31, 1991 were unallocated between the Stations Group and the
Network by the predecessor company.
(e) Pro forma weighted average common shares outstanding for the year ended
December 31, 1995 and for the six months ended June 30, 1996 have been
adjusted to give retroactive effect to the exchange of PCI preferred stock
and PTIH common and preferred stock outstanding for PCI common stock upon
the Reorganization and the pro forma per share effect of the cash
distributions of $93.0 million and dividends of $35.0 million to be paid to
the principal stockholders of the Company upon the Reorganization, at an
assumed per share price of $23.00.
(f) "Broadcast cash flow" is defined as broadcast operating income before
corporate charges and depreciation and amortization. The Company has
presented broadcast cash flow data, which the Company believes are
comparable to the data provided by other companies in the industry, because
such data are commonly used as a measure of performance for broadcast
companies. 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.
(g) "EBITDA" consists of broadcast cash flow less corporate charges and is
commonly used in the broadcast industry to analyze and compare broadcast
companies on a basis of operating performance, leverage and liquidity.
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.
(h) PCI has not paid a dividend on the Common Stock during the periods
presented.
27
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In 1992 Perenchio, Televisa and Venevision formed the Company and UNHP
which acquired UTG and the Network, respectively, in December 1992, and brought
extensive broadcasting, programming and production experience to Univision.
Under the prior owner, UTG and the Network were operated as an integrated
business and therefore reported financial statements as one entity. Although the
business operations of UTG and the Network remain substantially dependent on one
another, since the Acquisition they have been operated separately, have had
different management and ownership structures and, accordingly, have reported
financial information separately. Once the Reorganization is consummated, the
Company will report financial information on a consolidated basis. The separate
results of PCI and UNHP are not necessarily indicative of the results that would
have been obtained had PCI and UNHP reported financial statements on a
consolidated basis for the periods indicated.
Since the Acquisition, the Company's operating performance has improved
significantly with combined net revenues and pro forma EBITDA increasing to $321
million and $112 million, representing compound annual growth rates of 16% and
36%, respectively, from the 1992 operating results of the Company and its
predecessor.
Univision attributes its recent success to several factors, including
increased emphasis on popular, high quality programming produced by Televisa,
Univision and Venevision, contracting with Nielsen to develop more accurate,
credible rating systems to measure Hispanic audience viewership, increasing
acceptance by advertisers of Spanish-language television, continued growth of
the Hispanic audience and the strengthening of its management team with
executives and sales managers with extensive English-language television and
advertising experience.
The following management's discussion and analysis describes the results of
operations of PCI and UNHP for the six month period ended June 30, 1996 as
compared to the six month period ended June 30, 1995, the year ended December
31, 1995 as compared to the year ended December 31, 1994, and the year ended
December 31, 1994 as compared to the year ended December 31, 1993.
RESULTS OF OPERATIONS
PCI's major asset is its investment in UTG and substantially all of its
revenues are derived from UTG. UTG's net revenues are derived from the O&Os and
include gross advertising revenues generated from the sale of national and local
spot advertising time plus an allocation of network gross revenues, net of
agency commissions. UNHP's major asset is its investment in the Network and
substantially all of its revenues are derived from the Network. The Network net
revenues include gross advertising revenues generated from the sale of network
advertising, net of agency commissions and station compensation to the
Affiliated Stations. Based on the current Affiliation Agreements, the Network
and UTG share net advertising revenues. The net advertising revenues shared
consist of the local and national advertising revenues generated by the O&Os and
the portion of Network advertising revenues that is represented by each O&O's
percentage of total Network coverage. These revenues are allocated 62% to the
O&Os and 38% to the Network. For example, if an O&O represents 20% of the
Network's coverage, then the sum of 20% of Network advertising revenues and all
of such O&O's national and local advertising revenues would be allocated 62% to
UTG and 38% to the Network.
Direct operating expenses consist of programming and news costs and general
operating costs.
28
<PAGE> 29
The following tables set forth certain data from the respective historical
statements of operations expressed as a percentage of net revenues:
PCI
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Direct operating expenses..................... 25.1 19.6 21.0 18.5 17.9
Selling, general and administrative........... 33.9 33.2 34.3 34.9 37.4
Depreciation and amortization................. 32.5 22.8 19.4 20.1 18.8
----- ----- ----- ----- -----
Operating income............................ 8.5 24.4 25.3 26.5 25.9
Interest expense, net......................... 31.8 23.6 20.9 22.5 18.3
Interest expense on related party long-term
debt........................................ 3.4 3.2 2.3 2.6 3.9
Amortization of financing costs............... 4.4 4.0 2.3 2.8 1.9
Nonrecurring expense of acquired station...... -- -- 1.0 -- --
Minority interest............................. (5.1) (0.9) 4.2 0.6 0.3
Provision for taxes........................... -- 0.1 -- -- 0.5
----- ----- ----- ----- -----
Income (loss) before extraordinary loss on
extinguishment of debt................... (26.0) (5.6) (5.4) (2.0) 1.0
Extraordinary loss............................ -- (3.1) (0.5) -- (0.8)
----- ----- ----- ----- -----
Net income (loss)........................... (26.0)% (8.7)% (5.9)% (2.0)% 0.2%
===== ===== ===== ===== =====
OTHER DATA:
Broadcast cash flow(a)........................ 44.1% 50.7% 48.9% 50.3% 48.6%
Corporate charges............................. 3.1 3.5 4.2 3.7 3.8
----- ----- ----- ----- -----
EBITDA(b)..................................... 41.0% 47.2% 44.7% 46.6% 44.8%
===== ===== ===== ===== =====
</TABLE>
UNHP
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Direct operating expenses..................... 55.0 59.2 53.7 54.5 51.7
Selling, general and administrative........... 31.1 30.7 29.6 30.2 28.5
Depreciation and amortization................. 6.8 5.8 6.7 6.9 6.9
----- ----- ----- ----- -----
Operating income............................ 7.1 4.3 10.0 8.4 12.9
Interest expense, net......................... 4.3 4.7 5.3 5.5 6.0
----- ----- ----- ----- -----
Net income (loss)........................... 2.8% (0.4)% 4.7% 2.9% 6.9%
----- ----- ----- ----- -----
OTHER DATA:
Broadcast cash flow(a)........................ 13.9% 11.6% 18.3% 16.8% 20.4%
Corporate charges............................. -- 1.5 1.6 1.5 0.5
----- ----- ----- ----- -----
EBITDA(b)..................................... 13.9% 10.1% 16.7% 15.3% 19.9%
===== ===== ===== ===== =====
</TABLE>
- ----------------------------
(a)"Broadcast cash flow" is defined as broadcast operating income before
corporate charges and depreciation and amortization. The Company has
presented broadcast cash flow data, which the Company believes are comparable
to the data provided by other companies in the industry, because such data
are commonly used as a measure of performance for broadcast companies.
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.
29
<PAGE> 30
(b) "EBITDA" consists of broadcast cash flow less corporate charges and is
commonly used in the broadcast industry to analyze and compare broadcast
companies on a basis of operating performance, leverage and liquidity.
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.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
PCI CONSOLIDATED
Revenues. Net revenues increased to $91,420,000 for the six months ended
June 30 1996 from $82,279,000 for the same period in 1995, an increase of
$9,141,000 or 11.1%. The increase is due to higher local and national spot net
revenues of $12,092,000, led principally by Los Angeles and Miami, as well as
increases at all other O&Os except for New York, and an increase in its share of
Network net revenues of $1,899,000. These net increases were partially offset by
the Network's share of higher local and national net revenues of $4,732,000.
UTG's increase in gross advertising revenues during the six months ended June
30, 1996 primarily resulted from increased prices for advertising spots of
approximately 26%, offset by a decrease of 7% in the number of spots being sold.
A major initiative has been implemented to improve the performance of the
New York station. In addition to improvements in the station's sales and
research organizations, a significant advertising and promotional campaign has
been implemented to increase the awareness among advertisers about the New York
Hispanic community and the advertisers' ability to reach that audience through
the New York station.
Expenses. Direct operating expenses, before reduction for corporate charges
of $89,000 and $85,000, respectively, increased to $16,365,000 for the six
months ended June 30, 1996 from $15,201,000 for the same period in 1995, an
increase of $1,164,000 or 7.7%. The increase is due principally to increases in
programming and technical costs of $965,000. As a percentage of net revenues,
direct operating expenses decreased from 18.5% in 1995 to 17.9% in 1996.
Selling, general and administrative expenses, before reduction for
corporate charges of $3,395,000 in 1996 and $2,980,000 in 1995, increased to
$34,154,000 for the six months ended June 30, 1996 from $28,723,000 for the same
period in 1995, an increase of $5,431,000 or 18.9%. The increase is primarily
due to increased selling costs associated with higher sales, increases in
corporate sales support and increased research fees. As a percentage of net
revenues, selling, general and administrative expenses increased from 34.9% in
1995 to 37.4% in 1996.
Depreciation and amortization. Depreciation and amortization increased to
$17,148,000 for the six months ended June 30, 1996 from $16,537,000 for the same
period in 1995, an increase or $611,000 or 3.7%, as a result of increased
capital expenditures. As a percentage of net revenues, depreciation and
amortization decreased from 20.1% in 1995 to 18.8% in 1996.
Operating income. As a result of the factors described above, operating
income increased to $23,753,000 for the six months ended June 30, 1996 from
$21,818,000 for the same period in 1995, an increase of $1,935,000 or 8.9%. As a
percentage of net revenues, operating income decreased from 26.5% in 1995 to
25.9% in 1996.
Interest expense. Interest expense decreased to $20,300,000 for the six
months ended June 30, 1996 from $20,683,000 for the same period in 1995, a
decrease of $383,000 or 1.9%. This decrease was primarily a result of lower bank
borrowings partially offset by increased Sponsor Loan balances. As a percentage
of net revenues, interest expense decreased from 25.1% in 1995 to 22.2% in 1996.
Minority Interest. Minority interest in net income of consolidated
subsidiary decreased from $489,000 for the six months ended June 30, 1995 to
$274,000 for the same period in 1996, a decrease of $215,000 or 44.0%. Minority
interest of $489,000 for the six months ended June 30, 1995 consists of the
minority interest in the net income of subsidiary of $131,000 plus preferred
stock dividends attributable to minority stockholders of $358,000. Minority
interest of $274,000 for the six months ended June 30, 1996 consists of the
minority interest in the net income of subsidiary of $183,000 plus preferred
stock dividends attributable to minority stockholders of $91,000.
30
<PAGE> 31
Extraordinary Loss. During the six months ended June 30, 1996, UTG
purchased at a premium $12,650,000 face amount of the Senior Subordinated Notes
due 2001. The purchase resulted in an extraordinary loss, net of tax benefit, of
$681,000, including the write-off of the related deferred financing costs. As a
percentage of net revenues, the loss was .7%.
Net Income/Loss. As a result of the above factors, PCI generated net income
of $249,000 for the six months ended June 30, 1996 as compared to a net loss of
$1,674,000 for the same period in 1995, an improvement of $1,923,000. As a
percentage of net revenues, net income increased from a loss of 2.0% in 1995 to
income of .2% in 1996.
Broadcast Cash Flow. As a result of the above factors, broadcast cash flow
increased to $44,385,000 for the six months ended June 30, 1996 from $41,420,000
for the same period in 1995, an increase of $2,965,000 or 7.2%. As a percentage
of net revenues, broadcast cash flow decreased from 50.3% in 1995 to 48.6% in
1996.
Corporate Charges. Corporate charges increased to $3,484,000 for the six
months ended June 30, 1996 from $3,065,000 for the same period in 1995, an
increase of $419,000 or 13.7%. The increase was primarily due to the accrual of
additional compensation costs. These charges are comprised primarily of
corporate costs that would be duplicated and therefore eliminated if Univision
were acquired by another broadcasting company. As a percentage of net revenues,
corporate charges increased from 3.7% in 1995 to 3.8% in 1996.
EBITDA. As a result of the above factors, EBITDA increased to $40,901,000
for the six months ended June 30, 1996 from $38,355,000 for the same period in
1995, an increase of $2,546,000 or 6.6%. As a percentage of net revenues, EBITDA
decreased from 46.6% in 1995 to 44.7% in 1996.
UNHP CONSOLIDATED
Revenues. Net revenues increased to $79,436,000 for the six months ended
June 30, 1996 from $70,419,000 for the same period in 1995, an increase of
$9,017,000 or 12.8% This increase resulted from the Network's higher share of
UTG's local and national spot net revenues of $4,732,000 as well as higher
Network advertising net revenues of $5,680,000, that were partially offset by
UTG's share of higher Network sales of $1,899,000. The Network's increase in
gross advertising revenues during the six months ended June 30, 1996 resulted
from a combination of rate increases and increased volume on previously lower
demand dayparts as compared to the same period in 1995.
Expenses. Direct operating expenses increased to $41,005,000 for the six
months ended June 30, 1996 from $38,379,000 for the same period in 1995, an
increase of $2,626,000 or 6.8%. This increase was primarily due to a higher
license fee payable to Televisa and Venevision under the Program License
Agreements of $2,422,000 based on higher Combined Net Time Sales. As a
percentage of net revenues, direct expenses decreased from 54.5% in 1995 to
51.7% in 1996.
Selling, general and administrative expenses, before reduction for
corporate charges of $430,000 for the six months ended June 30, 1996 and
$1,060,000 for the same period in 1995, increased to $22,648,000 for the six
months ended June 30, 1996 from $21,274,000 for the same period in 1995, an
increase of $1,374,000 or 6.5%. The increase results primarily from a $1,045,000
increase in sales force expense and a $484,000 increase in the management fee
payable to the Principal Stockholders, offset partially by the timing of various
expenditures for all other general and administrative functions of $157,000. As
a percentage of net revenues, selling, general and administrative expenses
decreased from 30.2% in 1995 to 28.5% in 1996.
Depreciation and amortization. Depreciation and amortization increased to
$5,513,000 for the six months ended June 30, 1996 from $4,850,000 for the same
period in 1995, an increase of $663,000 or 13.7%. The increase is primarily due
to the addition of two additional transponders capitalized in January 1996. As a
percentage of net revenues, depreciation and amortization remained at 6.9% in
1995 and 1996.
Operating income. As a result of the factors described above, UNHP
generated operating income of $10,270,000 for the six months ended June 30, 1996
compared $5,916,000 for the same period in 1995, an increase of $4,354,000 or
73.6%. As a percentage of net revenues, operating income increased from 8.4% in
1995 to 12.9% in 1996.
Interest expense. Interest expense increased to $4,799,000 for the six
months ended June 30, 1996 from $3,851,000 for the same period in 1995, an
increase of $948,000 or 24.6%. The increase was due to the addition
31
<PAGE> 32
of the two Network transponder leases. As a percentage of net revenues, interest
expense increased from 5.5% in 1995 to 6.0% in 1996.
Net income. As a result of the above factors, UNHP generated net income of
$5,471,000 for the six months ended June 30, 1996 as compared to net income of
$2,065,000 for the same period in 1995, an improvement of $3,406,000 or 164.9%.
As a percentage of net revenues, net income increased from 2.9% in 1995 to 6.9%
in 1996.
Broadcast Cash Flow. As a result of the above factors, broadcast cash flow
increased to $16,213,000 for the six months ended June 30, 1996 from $11,826,000
for the same period in 1995, an increase of $4,387,000 or 37.1%. As a percentage
of net revenues, broadcast cash flow increased from 16.8% in 1995 to 20.4% in
1996.
Corporate Charges. Corporate charges decreased to $430,000 for the six
months ended June 30, 1996 from $1,060,000 for the same period in 1995, a
decrease of $630,000 or 59.4%. This decrease was primarily due to reduced costs
of the CEO position. These charges are comprised primarily of corporate costs
that would be duplicated and therefore eliminated if Univision were acquired by
another broadcasting company. As a percentage of net revenues, corporate charges
decreased from 1.5% in 1995 to .5% in 1996.
EBITDA. As a result of the above factors, EBITDA increased to $15,782,000
for the six months ended June 30, 1996 from $10,766,000 for the same period in
1995, an increase of $5,016,000 or 46.6%. As a percentage of net revenues,
EBITDA increased from 15.3% in 1995 to 19.9% in 1996.
YEAR ENDED DECEMBER 31, 1995 ("1995") COMPARED TO THE YEAR ENDED DECEMBER 31,
1994 ("1994")
PCI CONSOLIDATED
Revenues. Net revenues increased to $173,108,000 in 1995 from $139,007,000
in 1994, an increase of $34,101,000 or 24.5%. Of this increase, $16,124,000 or
47.3% is attributable to the acquisition of the Chicago and Houston stations,
which were acquired in the third quarter of 1994. This 47.3% increase is
attributable to the higher local and national spot net revenues of $14,162,000
and the stations' share of Network net revenues of $8,651,000, partially offset
by the Network's share of higher local and national net revenues from Chicago
and Houston of $6,689,000.
The remaining nine O&Os reflected higher local and national spot net
revenues of $15,801,000, led principally by Los Angeles and Miami, and an
increase in the O&Os' allocated share of Network's net revenues of $7,934,000.
These increases were partially offset by the Network's share of higher local and
national net revenues from the nine stations of $6,573,000. Since 1994 included
allocated Network compensation for the World Cup of $5,200,000, the year-to-year
comparable increase in the UTG share of Network net revenue was $21,785,000.
Excluding the increase in net revenues attributable to the Chicago and Houston
station acquisitions in late 1994, the increase in net revenues would have been
$17,977,000 or 13.3% for 1995.
The increase in gross advertising revenues during 1995 results from a
combination of increased prices for advertising spots of approximately 25%
offset in part by approximately 10% fewer number of spots being sold.
Expenses. Direct operating expenses, before reduction for corporate charges
of $170,000 and $150,000 for the years ended December 31, 1995 and 1994,
respectively, increased to $36,363,000 in 1995 from $27,279,000 in 1994, an
increase of $9,084,000 or 33.3%. Of this increase, $5,048,000 is attributable to
the acquisition of the Chicago and Houston stations in 1994 and the remaining
increase is due to news coverage, technical costs, and station promotional and
production costs. As a percentage of net revenues, direct operating expenses
increased from 19.6% in 1994 to 21.0% in 1995.
Selling, general and administrative expenses, before reduction for
corporate charges of $7,130,000 and $4,750,000 for the years ended December 31,
1995 and 1994, respectively, increased to $59,384,000 in 1995 from $46,145,000
in 1994, an increase of $13,239,000 or 28.7%. Of this increase, $6,700,000 or
50.6% is attributable to the acquisition of the Chicago and Houston stations in
1994. The remaining increase is primarily a result of increased selling and
research costs of $3,700,000 associated with increased sales and staff levels,
increased management bonuses of $1,800,000, and increased legal costs of
$3,000,000 (primarily resulting from the settlement of a lawsuit), partially
offset by severance associated with operational changes of
32
<PAGE> 33
$2,100,000. As a percentage of net revenues, selling, general and administrative
expenses increased from 33.2% in 1994 to 34.3% in 1995.
Depreciation and Amortization. Depreciation and amortization increased to
$33,506,000 in 1995 from $31,719,000 in 1994, an increase of $1,787,000 or 5.6%.
The increase is due primarily to goodwill amortization and depreciation
associated with the station acquisitions. As a percentage of net revenues,
depreciation and amortization decreased from 22.8% in 1994 to 19.4% in 1995.
Operating Income. As a result of the factors described above, operating
income increased to $43,855,000 in 1995 from $33,864,000 in 1994, an increase of
$9,991,000 or 29.5%. As a percentage net revenues, operating income increased
from 24.4% in 1994 to 25.3% in 1995.
Interest Expense. Interest expense increased to $40,222,000 in 1995 from
$37,246,000 in 1994, an increase of $2,976,000 or 8.0% . The increase is
primarily a result of higher Sponsor Loan balances and higher interest rates
which were partially offset by lower borrowing balances on the Old Bank
Facility. As a percentage of net revenues, interest expense decreased from 26.8%
in 1994 to 23.2% in 1995.
Nonrecurring Expense of Acquired Station. This expense represents a
provision for certain expenses associated with the acquisition of an Affiliated
Station in 1994 which arose subsequent to the Acquisition.
Minority Interest. Minority interest changed by $8,548,000 from a
$1,202,000 minority interest in net loss of consolidated subsidiary in 1994 to a
$7,346,000 minority interest in net income of consolidated subsidiary in 1995.
Minority interest of $1,202,000 in 1994 consists of the minority interest in the
net loss of subsidiary of $1,917,000 offset by preferred stock dividends
attributable to minority stockholders of $715,000. Minority interest of
$7,346,000 in 1995 consists of the minority interest in the net income of
subsidiary of $1,562,000 and the preferred stock dividends attributable to
minority stockholders of $8,908,000.
Extraordinary Loss. For the year 1995, during the quarters ended September
30, 1995 and December 31, 1995, UTG purchased, at a premium, $4,050,000 and
$3,500,000 face amount, respectively of Senior Subordinated Notes. The purchases
resulted in extraordinary losses of $433,000 and $368,000, respectively,
including the write off of the related deferred financing costs. For the year
1994, during the quarters ended June 30, 1994 and December 31, 1994, UTG
purchased at a premium $37,200,000 and $3,200,000 face amount, respectively, of
its Senior Subordinated Notes. The purchases resulted in extraordinary losses of
$4,081,000 and $240,000, respectively, including the write off of the related
deferred financing costs. As a percentage of net revenues, extraordinary losses
decreased from 3.1% in 1994 to 0.5% in 1995.
Net Loss. As a result of the above factors, PCI generated a net loss of
$10,189,000 in 1995 as compared to a net loss of $12,060,000 in 1994, an
improvement of $1,871,000 or 15.5%. As a percentage of net revenues, the net
loss decreased from 8.7% in 1994 to 5.9% in 1995.
Broadcast Cash Flow. As a result of the above factors, broadcast cash flow
increased in 1995 to $84,661,000 from $70,483,000 in 1994, an increase of
$14,178,000 or 20.1%. As a percentage of net revenues, broadcast cash flow
decreased from 50.7% in 1994 to 48.9% in 1995.
Corporate Charges. Corporate charges increased to $7,300,000 in 1995 from
$4,900,000 in 1994, an increase of $2,400,000 or 49.0%. This increase is
primarily attributable to additions of personnel in sales and marketing of
$1,000,000, a fully staffed legal department of $400,000, corporate staff
salaries of $400,000, and higher management bonuses of $750,000. As a percentage
of net revenues, corporate charges increased from 3.5% in 1994 to 4.2% in 1995.
EBITDA. As a result of the above, EBITDA increased in 1995 to $77,361,000
from $65,583,000 in 1994, an increase of $11,778,000 or 18.0%. As a percentage
of net revenues, EBITDA decreased from 47.2% in 1994 to 44.7% in 1995.
UNHP CONSOLIDATED
Revenues. Net revenues increased to $148,231,000 in 1995 as compared to
$132,746,000 in 1994, an increase of $15,485,000 or 11.7%. The increase resulted
primarily from higher Network advertising revenues of $17,684,000, net of agency
commissions. Furthermore, the Network had increased revenues of $13,262,000 from
its share of the O&Os local and national spot revenues which were offset by the
O&Os share of higher Network sales of $16,585,000. Net revenue reflected in 1994
is net of station compensation to UTG of
33
<PAGE> 34
$5,200,000 for coverage of the World Cup. Additionally, due to a change in the
formula with substantially all of the Affiliated Stations, the Network received
$6,571,000 less from its share of Affiliated Stations revenues in 1995 offset by
$8,048,000 less in Affiliated Stations share of Network sales during that year.
The increase in gross advertising revenues during 1995 results almost
entirely from an increase in prices for advertising spots sold.
Expenses. Direct operating expenses increased to $79,628,000 in 1995 from
$78,616,000 in 1994, an increase of $1,012,000 or 1.3%. The principal reason for
the increase was attributable to an increase in license fees of $11,586,000 due
to increased revenues and World Cup replacement programming of $1,816,000,
offset by the absence of costs to carry the World Cup games of $12,921,000. As a
percentage of net revenues, direct operating expenses decreased from 59.2% in
1994 to 53.7% in 1995.
Selling, general and administrative expenses, before reduction for
corporate charges of $2,400,000 and $2,000,000 for the years ended December 31,
1995 and 1994, respectively, increased to $43,917,000 in 1995 from $40,749,000
in 1994, an increase of $3,168,000 or 7.8%. The increase is primarily a result
of higher Management Fees to the Principal Stockholders of $2,318,000 and higher
sales compensation due to increased Network sales. As a percentage of net
revenues, selling general and administrative expenses decreased from 30.7% in
1994 to 29.6% in 1995.
Depreciation and Amortization. Depreciation and amortization expenses
increased to $9,971,000 in 1995 from $7,702,000 in 1994, an increase of
$2,269,000 or 29.5%. Depreciation increased by $2,262,000 due to a new Network
transponder capitalized in January 1995. As a percentage of net revenues,
depreciation and amortization increased from 5.8% in 1994 to 6.7% in 1995.
Operating Income. As a result of the factors described above, operating
income increased to $14,715,000 in 1995 from $5,679,000 in 1994 an increase of
$9,036,000 or 159.1%. As a percentage of net revenues, operating income
increased from 4.3% in 1994 to 10.0% in 1995.
Interest Expense. Interest expense increased to $7,864,000 in 1995 from
$6,233,000 in 1994, an increase of $1,631,000 or 26.2%. The increase is
primarily due to the interest portion of the capital lease related to the
Network's transponder launched during 1995. As a percentage of net revenues,
interest expense increased from 4.7% in 1994 to 5.3% in 1995.
Net Income/Loss. As a result of the above factors, UNHP generated net
income of $6,851,000 in 1995 as compared to a net loss of $554,000 in 1994, an
improvement of $7,405,000. As a percentage of net revenues, net income increased
from a loss of 0.4% in 1994 to income of 4.7% in 1995.
Broadcast Cash Flow. As a result of the above factors, broadcast cash flow
increased in 1995 to $27,086,000 from $15,381,000 in 1994, an increase of
$11,705,000 or 76.1%. As a percentage of net revenues, broadcast cash flow
increased from 11.6% in 1994 to 18.3% in 1995.
Corporate Charges. Corporate charges increased to $2,400,000 in 1995 from
$2,000,000 in 1994, an increase of $400,000 or 20.0%. This increase is primarily
attributable to increased compensation. As a percentage of net revenues,
corporate charges increased from 1.5% in 1994 to 1.6% in 1995.
EBITDA. As a result of the above, EBITDA increased in 1995 to $24,686,000
from $13,381,000 in 1994, an increase of $11,305,000 or 84.5%. As a percentage
of net revenues, EBITDA increased from 10.1% in 1994 to 16.7% in 1995.
YEAR ENDED DECEMBER 31, 1994 ("1994") COMPARED TO THE YEAR ENDED DECEMBER 31,
1993 ("1993")
PCI CONSOLIDATED
Revenues. Net revenues increased to $139,007,000 in 1994 from $104,675,000
in 1993, an increase of $34,332,000 or 32.8%. Of this increase, approximately
$9,300,000 or 27.1%, is attributable to the increase in sharing of revenues with
UNHP from 57% to 62% of net advertising revenues, and approximately $3,800,000
or 11.1% is attributable to the acquisition of the Chicago and Houston stations
acquired in the third quarter of 1994. In addition, net revenues in 1994
included $5,200,000 in compensation from UNHP to carry 52 World
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<PAGE> 35
Cup matches in June and July pursuant to an agreement between UTG and UNHP. The
remainder of the increase primarily results from higher local and national spot
net revenues of $24,500,000 which increased by 25.1% reflecting increases at all
the O&Os. These increases were partially offset by the Network's share of higher
local and national net revenues of $4,400,000. If the Affiliation Agreements had
not been amended, net revenues would have increased by 22.8%. Offsetting the
above net increase was a decrease in miscellaneous revenues in each of UTG's
large markets and elimination of revenues from certain special event programming
in Los Angeles, all of which totaled approximately $3,500,000.
Expenses. Direct operating expenses, before reduction for corporate charges
of $150,000 and $140,000 for the years ended December 31, 1994 and 1993,
respectively, increased to $27,279,000 in 1994 from $26,247,000 in 1993, an
increase of $1,032,000 or 3.9%. The increase is due primarily to news coverage
and technical costs in addition to the Chicago and Houston station acquisitions
which represented $345,000 of the increase during 1994, offset in part by the
elimination of certain special event programming costs. As a percentage of net
revenues, direct operating expenses decreased from 25.1% in 1993 to 19.6% in
1994.
Selling, general and administrative expenses, before reduction for
corporate charges of $4,750,000 and $3,060,000 for the years ended December 31,
1994 and 1993, respectively, increased to $46,145,000 in 1994 from $35,472,000
in 1993, an increase of $10,673,000 or 30.1%. This increase is due primarily to
increased selling costs of $2,850,000 resulting from higher sales and additional
selling staff, increased management bonuses of $2,000,000, a full year of UTG's
legal department of $1,300,000 and severance associated with operational changes
of $2,100,000. As a percentage of net revenues, selling, general and
administrative expenses decreased from 33.9% in 1993 to 33.2% in 1994.
Depreciation and Amortization. Depreciation and amortization decreased to
$31,719,000 in 1994 from $33,970,000 in 1993, a decrease of $2,251,000 or 6.6%.
Included in 1993 was the amortization of pre-sold advertising of $4,734,000 that
was fully amortized in the first quarter of 1993. This decline was partially
offset by the additional amortization related to the Chicago and Houston
acquisitions. As a percentage of net revenues, depreciation and amortization
expenses decreased from 32.5% in 1993 to 22.8% in 1994.
Operating Income. As a result of the factors described above, operating
income increased to $33,864,000 in 1994 from $8,986,000 in 1993, an increase of
$24,878,000 or 276.9%. As a percentage of net revenues, operating income
increased from 8.5% in 1993 to 24.4% in 1994.
Interest Expense. Interest Expense increased to $37,246,000 in 1994 from
$36,896,000 in 1993, an increase of $350,000 or 1.0%. The increase is primarily
a result of higher interest on Sponsor Loans and related party debt, offset in
part by lower interest on bank borrowings in 1994 as compared to 1993. As a
percentage of net revenues, interest expense decreased from 35.2% in 1993 to
26.8% in 1994.
Minority Interest. Minority interest in net loss of consolidated subsidiary
decreased to $1,202,000 for 1994 from $5,309,000 for 1993, an increase of
$4,107,000 or 77.4%. Minority interest of $5,309,000 in 1993 consists of the
minority interest in the net loss of subsidiary of $5,894,000 offset by
preferred stock dividends attributable minority stockholders of $585,000.
Minority interest of $1,202,000 in 1994 consists of the minority interest in the
net loss of subsidiary of $1,917,000 offset by preferred stock dividends
attributable to minority stockholders of $715,000.
Extraordinary Loss. For the year 1994, during the quarters ended June 30,
1994 and December 31, 1994, UTG purchased at a premium $37,200,000 and
$3,200,000 face amount, respectively, of its Senior Subordinated Notes. The
purchases resulted in extraordinary losses of $4,081,000 and $240,000,
respectively, including the write off of the related deferred financing costs.
As a percentage of net revenues, the extraordinary loss was 3.1% in 1994.
Net Loss. As a result of the above factors, PCI generated a net loss of
$12,060,000 in 1994 compared to a net loss of $27,181,000 in 1993, a decrease of
$15,121,000 or 55.6%. As a percentage of net revenues, the net loss decreased
from 26.0% in 1993 to 8.7% in 1994.
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<PAGE> 36
Broadcast Cash Flow. As a result of the above factors, broadcast cash flow
increased in 1994 to $70,483,000 from $46,156,000 in 1993, an increase of
$24,327,000 or 52.7%. As a percentage of net revenues, broadcast cash flow
increased from 44.1% in 1993 to 50.7% in 1994.
Corporate Charges. Corporate charges increased to $4,900,000 in 1994 from
$3,200,000 in 1993, an increase of $1,700,000 or 53.1%. This increase is
primarily attributable to additions in salary, bonus and travel and the staffing
of the legal department. As a percentage of net revenues, corporate charges
increased from 3.1% in 1993 to 3.5% in 1994.
EBITDA. As a result of the above, EBITDA increased in 1994 to $65,583,000
from $42,956,000 in 1993, an increase of $22,627,000 or 52.7%. As a percentage
on net revenues, EBITDA increased from 41.0% in 1993 to 47.2% in 1994.
UNHP CONSOLIDATED
Revenues. Net revenues increased to $132,746,000 in 1994 from $109,365,000
in 1993, an increase of $23,381,000 or 21.4%. The increase resulted primarily
from higher Network advertising net revenues of $33,400,000 of which the World
Cup games represented $17,800,000 or 53.3%. Furthermore, the Network had
increased revenues from its share of the O&Os' local and national spot revenues
of $4,400,000. The change in the sharing formula from 1993 to 1994 reduced this
shared amount by $6,200,000. The Network's share of Affiliated Stations revenues
increased by $1,400,000 in 1994. These increases were offset by $5,200,000 of
compensation paid to UTG to carry the World Cup games. In addition, the O&Os'
share of Network sales increased by $9,300,000, of which $4,300,000 was
attributable to the change in the sharing formula. The Affiliated Stations share
of Network sales increased by $2,400,000 in 1994 and all other miscellaneous
revenues were up $1,300,000. If the Affiliation Agreements had not been amended,
net revenues would have increased 31%.
Expenses. Direct operating expenses increased to $78,616,000 in 1994 from
$60,151,000 in 1993, an increase of $18,465,000 or 30.7%. The increase is
primarily attributable to World Cup related expenses of $12,921,000, which
consisted of rights fees and production costs and an increase in license fees of
$5,369,000, attributable to the increased revenues. As a percentage of net
revenues, direct operating expenses increased from 55.0% in 1993 to 59.2% in
1994.
Selling, general and administrative expenses, before reduction for
corporate charges of $2,000,000 and $0 for the years ended December 31, 1994 and
1993, respectively, increased to $40,749,000 in 1994 from $34,036,000 in 1993,
an increase of $6,713,000 or 19.7%. This increase is primarily a result of
additions to the management staff and general salary increases at a cost of
$2,000,000, increased management bonus awards of $1,000,000, additional
contributions of $200,000 and higher management fees to the Principal
Stockholders of $1,200,000. As a percentage of net revenues, selling, general
and administrative expenses decreased from 31.1% in 1993 to 30.7% in 1994.
Depreciation and Amortization. Depreciation and amortization expenses
increased to $7,702,000 in 1994 from $7,413,000 in 1993, an increase of $289,000
or 3.9%. Depreciation increased by $905,000 due to a new Network transponder
launched in March of 1994. Amortization decreased by $626,000 as a result of a
decrease in the amortization of pre-sold advertising of $4,626,000 (which became
fully amortized in 1993) offset by an increase in the amortization of the
Galavision management agreement with Televisa of $4,000,000 (which became
effective in 1994). As a percentage of net revenues, depreciation and
amortization expenses decreased from 6.8% in 1993 to 5.8% in 1994.
Operating Income. As a result of the factors described above, operating
income decreased to $5,679,000 in 1994 from $7,765,000 in 1993, a decrease of
$2,086,000 or 26.9%. As a percentage of net revenues, operating income decreased
from 7.1% in 1993 to 4.3% in 1994.
Interest Expense. Interest expense increased to $6,233,000 in 1994 from
$4,749,000 in 1993, an increase of $1,484,000 or 31.2%. The increase is
primarily due to the interest portion of the capital lease related to the
Network's transponder launched during 1994. As a percentage of net revenues,
interest expense increased from 4.3% in 1993 to 4.7% in 1994.
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<PAGE> 37
Net Income (Loss). As a result of the above factors, UNHP generated a loss
of $554,000 in 1994 compared to net income of $3,016,000 in 1993, a decrease of
$3,570,000, or 118.4%. As a percentage of net revenues, net income decreased
from 2.8% in 1993 to (0.4%) in 1994.
Broadcast Cash Flow. As a result of the above factors, broadcast cash flow
increased in 1994 to $15,381,000 from $15,178,000 in 1993, an increase of
$203,000 or 1.3%. As a percentage of net revenues, broadcast cash flow decreased
from 13.9% in 1993 to 11.6% in 1994.
Corporate Charges. Corporate charges increased to $2,000,000 in 1994 from
$0 in 1993. This increase is attributable to salary, bonus and travel for
executives previously paid by the partners. As a percentage of net revenues,
corporate charges increased from 0% in 1993 to 1.5% in 1994.
EBITDA. As a result of the above, EBITDA decreased in 1994 to $13,381,000
from $15,178,000 in 1993, a decrease of $1,797,000 or 11.8%. As a percentage on
net revenues, EBITDA decreased from 13.9% in 1993 to 10.1% in 1994.
PCI AND UNHP LIQUIDITY AND CAPITAL RESOURCES
Univision's primary source of cash flow is its broadcasting operations.
Funds for debt service, capital expenditures and operations historically have
been provided by income from operations and by borrowings.
The proceeds of the Offering and borrowings under the New Bank Facility,
along with cash flow from operations, are expected to provide the resources
necessary to repay the amounts owing under and to terminate the Old Bank
Facility, to defease the Senior Subordinated Notes, make a $100 million
distribution and payment to the Network partners, pay all outstanding principal
and accrued interest on all amounts loaned by the Principal Stockholders to UTG
as Sponsor Loans, reclassify the preferred stock and pay accrued dividends
thereon and repay other related party debt, pay the Galavision note, and to fund
the Entravision investment. Additional amounts under the New Bank Facility,
together with cash flow from operations, will be used for debt service, capital
expenditures, working capital and other general corporate purposes.
Capital expenditures, net of dispositions, totaled $11,109,000 and
$7,017,000 (excluding capitalized transponder lease obligations) for the six
month periods ended June 30, 1996 and 1995, respectively. Univision anticipates
that total capital expenditures for 1996 will be approximately $27,000,000. In
addition to normal capital maintenance and several tower and antenna
replacements, the Company is also in the process of upgrading and relocating
several of its television station facilities. Capital spending in 1997 may
approximate $20,000,000 to $24,000,000 pending decisions on station relocations,
while expenditures for maintenance and replacement in 1998 and 1999 are expected
to be approximately $15,000,000 plus the impact of inflation each year.
In connection with the Reorganization, the Company expects to enter into
the New Bank Facility with a syndicate of commercial banks and other lenders.
The New Bank Facility will consist of a $400 million amortizing term loan (the
"Term Facility") with a final maturity of December 31, 2003 and a $200 million
reducing revolving credit facility (the "Revolving Credit Facility") maturing on
the same date. The New Bank Facility will also permit the lenders thereunder to
advance up to an additional $250 million of term loans (the "Incremental
Facility") although there are no commitments at this time to lend any such
additional amounts.
The Term Facility will amortize quarterly commencing in 1997 with $40
million required to be repaid during 1997. The Revolving Credit Facility will
have quarterly scheduled reductions in availability beginning in 1999. If any
loans are made available under the Incremental Facility, such loans will be
amortized beginning on March 31, 1999 and will be repaid in full on or before
August 31, 2004.
In addition to the scheduled amortization of the Term Facility and
scheduled reductions of the Revolving Credit Facility described above, 66 2/3%
of "excess cash flow" of the Company (50% if certain leverage tests are
satisfied) will be applied each year first to ratably reduce loans made under
the Term Facility and the Incremental Facility and thereafter to reduce the
availability under the Revolving Credit Facility. In addition, proceeds from the
sale or other disposition of assets outside of the ordinary course of business
and 80% of the
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<PAGE> 38
proceeds of equity offerings by the Company (other than the Offering) will be
similarly applied. Any such mandatory prepayments will ratably reduce each
remaining installment or scheduled reduction of the Term Facility, the Revolving
Credit Facility or the Incremental Facility, as the case may be.
The New Bank Facility may be voluntarily prepaid by the Company at any time
without premium or penalty.
Loans made under the New Bank Facility will bear interest at rates
determined by reference to the ratio of the Company's total indebtedness to
EBITDA for the four fiscal quarters most recently concluded (the "Leverage
Ratio"). Interest rates will range from a reserve-adjusted Eurodollar rate plus
0.75% to 1.50% per annum. The Company will have the option to elect a prime rate
also determined by reference to the Leverage Ratio. Under such option interest
rates will range from the prime rate to the prime rate plus 0.25% per annum.
The New Bank Facility will be guaranteed by the Company's subsidiaries and
will be secured by a security interest in substantially all of the personal
property assets of the Company and its subsidiaries (subject to limitations of
federal law in the case of FCC licenses of the O&Os).
The New Bank Facility will contain limitations on the incurrence of debt
and liens by the Company and its subsidiaries, the payment of dividends and the
disposition of assets, financial performance tests and other restrictions
typical of leveraged credits.
In addition to customary events of default, it will be an event of default
if a change of control occurs (defined as a person or person other than A.
Jerrold Perenchio or his permitted transferees gaining voting control of the
Company).
Financing activities to fund Univision's operations are anticipated to be
favorably impacted by the increased availability of funds under the New Bank
Facility, partially offset by additional cash requirements for the New Bank
Facility in the form of debt acquisition costs, additional quarterly principal
payments and monthly interest as contrasted with semi-annual interest payments
on the Senior Subordinated Notes and deferred interest on the Sponsor Loans.
The Company expects to explore both Spanish-language television and other
media acquisition opportunities to complement and capitalize on the Company's
existing business and management. The purchase price for such acquisitions may
be paid (i) with cash derived from operating cash flow, proceeds available under
the New Bank Facility or proceeds from future debt or equity offerings or (ii)
with equity or debt securities of the Company or (iii) with any combination
thereof.
The Company has a series of long term contracts for its O&Os and the
Network with Nielsen Media Research through the end of 1999 requiring total
payments of approximately $22,700,000.
The management committee of the Network from time to time has considered
which programs are to be produced under the Program Cost Sharing Agreement. This
agreement is to be terminated upon completion of the Reorganization. For the
period commencing January 1, 1996 through the consummation of this Offering, the
Network, Televisa and Venevision have agreed that in lieu of cash payments under
the Program Cost Sharing Agreement, Univision will instead receive payment in
the form of Sponsor Loans having a principal amount equal to the costs that
would have been funded by Televisa and Venevision under the Program Cost Sharing
Agreement. As a result, the Company was not reimbursed in cash for these
programming expenditures of approximately $9,700,000 during the six months ended
June 30, 1996. For the balance of 1996, prior to the Reorganization, Univision
will similarly not be reimbursed in cash for such programming costs of
approximately $5,000,000 per quarter. Consequently, these programming costs will
be funded through the operations of the Company.
As a result of net operating loss carryforwards attributable to the
Acquisition, net operating losses since the Acquisition and anticipated tax
consequences of the Reorganization, the Company will have available a deferred
tax asset of approximately $90,000,000 to offset future taxes arising from
operations.
Future free cash flows of the Company will be substantially different from
historical free cash flows after the Reorganization and revision of the various
agreements among the Principal Stockholders due to the
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(i) amendments in the Program License Agreements, (ii) discontinuance of Sponsor
Loans to the Company, (iii) elimination of the management fee, (iv) termination
of the Program Cost Sharing Agreement, and (v) changes in debt and capital
structure.
SEASONALITY
The advertising revenues of Univision vary over the calendar year.
Historically, approximately 30% of total advertising revenues have been
generated in the fourth quarter and 20% in the first quarter with the remainder
approximately equally split between the second and third quarters. Because of
the relatively fixed nature of the costs of the Company's business, seasonal
variations in operating income are more pronounced than those of revenues.
IMPACT OF INFLATION
Management believes that the impact of inflation on the Company's business
has not been material.
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BUSINESS
Univision is the leading Spanish-language television broadcaster in the
U.S., reaching more than 92% of all Hispanic Households and having an
approximate 77% share of the U.S. Spanish-language network television audience.
The Company's Network, which is the most watched television network (English- or
Spanish-language) among Hispanic Households, provides the Univision Affiliates
with 24 hours per day of Spanish-language programming with a prime time schedule
of substantially all first run programming (i.e., no reruns) throughout the
year. As a leading, vertically-integrated television broadcaster, Univision owns
and operates 11 full-power and seven low-power UHF stations, representing
approximately 78% of its Network broadcast distribution. The full-power O&Os are
located in 11 of the top 14 DMAs in terms of numbers of Hispanic
Households -- Los Angeles, New York, Chicago, Miami, Houston, San Francisco, San
Antonio, Dallas, Fresno, Albuquerque and Phoenix. The Company has Affiliation
Agreements with an additional nine full-power and 14 low-power Affiliated
Stations and approximately 740 Cable Affiliates. Each of the Company's fullpower
O&Os and Affiliated Stations ranks first in Spanish-language television
viewership in its DMA. The Company also owns Galavision, a Spanish-language
cable network that has approximately 1.8 million Hispanic subscribers,
representing approximately 47% of all Hispanic Households that subscribe to
cable television.
The Company believes that the breadth and diversity of its programming
provides it with a competitive advantage over both Spanish-language broadcasters
and English-language broadcasters in appealing to Hispanic viewers. The
Company's programming is similar to that of major English-language networks and
includes novelas (long-term mini-series), national and local newscasts, variety
shows, children's programming, mini-series, musical specials, movies, sporting
events and public affairs programs. The Program License Agreements provide the
Company with unparalleled long-term access to first rate programming produced by
Televisa and Venevision. Televisa-produced novelas are popular throughout the
world and are among the Company's highest rated programs. Univision also
produces a variety of programs specifically tailored to meet the tastes,
preferences and information needs of the Hispanic audience, including national
and local news and the highly successful programs Sabado Gigante, Cristina and
Primer Impacto. The Company has also televised World Cup Soccer since 1978,
including the widely watched 1994 World Cup, and recently began televising the
Sunday "Game of the Week" for Major League Soccer.
In 1992, Perenchio, Televisa and Venevision formed the Company and UNHP,
which acquired UTG and the Network, respectively, in December 1992, bringing
extensive broadcasting, programming and production experience to Univision. Mr.
Perenchio has over 25 years of experience in the U.S. media and communications
industry and has been the chief executive officer or owner of a number of
successful entities, including Chartwell Artists, Tandem Productions, Inc.,
Embassy Communications and Loews Theaters. Mr. Perenchio also owned and operated
Spanish-language television stations in Los Angeles and New York from 1975 to
1986. Televisa, which is the world's largest producer of Spanish-language
television programs, is the leading media and entertainment company in Mexico
with an approximate 80% share of Mexico's viewing audience. Venevision is
Venezuela's leading television network with an approximate 59% share of its
viewing audience.
Since the Acquisition, the Company's operating performance has improved
significantly with combined net revenues and pro forma EBITDA increasing to $321
million and $112 million, representing compound annual growth rates of 16% and
36%, respectively, from the 1992 operating results of the Company and its
predecessor. In addition, from November 1992 to May 1996 the Company increased
its audience share of Spanish-language network television viewing from 57% to
77% and increased its share of the 20 most widely watched programs among
Hispanic Households from 30% to 90%.
Univision attributes its recent success to several factors, including
increased emphasis on popular, high quality programming produced by Televisa,
Univision and Venevision, contracting with Nielsen to develop more accurate,
credible rating systems to measure Hispanic audience viewership, increasing
acceptance by advertisers of Spanish-language television, continued growth of
the Hispanic audience and the strengthening of its management team with
executives and sales managers with extensive English-language television and
advertising experience. The Company expects to continue to realize strong
revenue and EBITDA growth by capitalizing on the expected continued growth in
advertising expenditures targeted at the rapidly expanding Hispanic population.
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The Company believes that its knowledge of, and experience with, Hispanic
audiences will enable it to identify strategic acquisitions and successfully
integrate them into the Company's operations. Since the Acquisition, the Company
has acquired full-power stations in two important markets, Chicago and Houston,
and used its management expertise, programming and brand identity to
substantially improve the Company's performance in those DMAs. In addition, the
Company has signed a letter of intent with Entravision to make a $10 million
investment in the form of a note and an option to acquire a 25% equity interest
in Entravision. Entravision owns seven, has an agreement to acquire one, and is
negotiating to acquire another, of the Affiliated Stations; the seven stations
represent approximately 6%, and the nine stations would represent approximately
12%, of the Network's distribution. The Company has agreed to acquire its
Sacramento Affiliated Station for a purchase price of approximately $40 million
payable in cash and preferred stock. To complement and capitalize on the
Company's existing business and management strengths, the Company expects to
explore both Spanish-language television and other media acquisition
opportunities.
THE HISPANIC AUDIENCE IN THE UNITED STATES
Management believes that Spanish-language television, in general, and the
Company, in particular, have benefited and will continue to benefit from a
number of factors, including projected Hispanic population growth, high
Spanish-language retention among Hispanics, increasing Hispanic buying power and
greater advertiser spending on Spanish-language media.
Hispanic Population Growth and Concentration. The Company's audience
consists almost exclusively of Hispanics, one of the most rapidly growing
segments of the U.S. population. The 1996 Hispanic population is estimated to be
28.4 million (10.7% of the total U.S. population), an increase of 19.7% from
23.7 million (9.5% of the total U.S. population) in 1990. The overall Hispanic
population is growing at approximately five times the rate of the non-Hispanic
U.S. population and is expected to grow to 32.0 million and 41.5 million (11.6%
and 13.9% of the total U.S. population) in 2000 and 2010, respectively.
Approximately 50% of all Hispanics are located in the seven U.S. cities with the
largest Hispanic populations, and Univision owns stations in each of these
cities.
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. Consequently the number of Hispanics
speaking Spanish in the home is expected to increase significantly in the
foreseeable future. As shown in the chart below, the number of Hispanics who
speak Spanish in the home is expected to grow from 16.2 million in 1990 to 21.9
million in 2000 and 28.5 million in 2010. The Company believes that the strong
Spanish-language retention among Hispanics indicates that the Spanish-language
media has been and will continue to be an important source of news, sports and
entertainment for Hispanics.
SPANISH LANGUAGE USE
<TABLE>
<CAPTION>
MEASUREMENT PERIOD SPEAK SPAN-
(FISCAL YEAR COVERED) POPULATION ISH AT HOME
<S> <C> <C>
1980 15.648 10.551
1985 19.335 13.230
1990 23.736 16.202
1995 27.524 18.769
2000 31.988 21.922
2005 36.622 25.146
2010 41.547 28.494
</TABLE>
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Greater Hispanic Buying Power. The Hispanic population represents estimated
total consumer expenditures of $325 billion in 1996 (6.3% of the total U.S.
consumer expenditures), an increase of 52.6% since 1990. Hispanics are expected
to account for $458 billion (7.1% of the U.S. total consumer expenditures) by
2000, and $965 billion (8.8% of the U.S. total consumer expenditures) by 2010,
far outpacing the expected growth in total U.S. consumer expenditures.
In addition to the anticipated growth of the Hispanic population, the
Hispanic audience has several other characteristics that the Company believes
make it attractive to advertisers. The Company believes the larger size
(averaging 3.4 persons per household compared to the general public's average of
2.5 persons per household) and younger age of Hispanic Households leads
Hispanics to spend more per household on many categories of goods. The average
Hispanic Household spends 20.6% more per year on food at home, 42% more on
children's clothing, 20.2% more on footwear, 11.3% more on phone services, and
27.8% more on laundry and household cleaning products than the average
non-Hispanic household. Hispanics are expected 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. These factors make Hispanics an attractive target audience for
many major U.S. advertisers.
Increased Spanish-language Advertising. According to published sources,
$953 million (an increase of 32% over 1993) of total advertising expenditures
were directed towards Spanish-language media in 1994, and an estimated $1.1
billion (an increase of 15% over 1994) of total advertising expenditures were
directed towards Spanish-language media in 1995. Of these amounts, nearly half
was targeted towards Spanish-language television advertising. The Company
believes that major advertisers have found that Spanish-language television
advertising is a more cost-effective means to target the growing Hispanic
audience than English-language broadcast media. See "-- Advertising."
HISPANIC AUDIENCE RESEARCH
Univision, like all television stations and networks, derives its revenues
primarily from selling advertising time. See "-- Advertising." The relative
advertising rates charged by competing stations within a DMA depend primarily on
four factors: (i) the station's ratings (households and/or people viewing its
programs as a percentage of total television households and/or people in the
viewing area); (ii) audience share (households and/or people viewing its
programs as a percentage of households and/or people actually watching
television at a specific time); (iii) the time of day the advertising will run;
and (iv) the demographic qualities of a program's viewers (primarily age and
gender).
Prior to November 1992, there were no Hispanic audience television rating
services comparable to those measuring television viewership in the general U.S.
population. Beginning in 1992, the Company contracted with Nielsen to develop
Nielsen ratings measuring Hispanic viewership both at the Network and local DMA
levels. Because these Nielsen ratings provide advertisers with a more accurate
and reliable measure of Hispanic audience television viewership, they have been
important in allowing the Company to demonstrate to advertisers its ability to
reach the Hispanic audience. The Company believes that continued use of
accurate, reliable ratings will allow it to further increase its advertising
rates and narrow the gap which has historically existed between its audience
share and its share of advertising revenues. In addition, the Company has made
significant investments in experienced sales managers and account executives and
has provided its sales professionals with state-of-the-art research tools to
continue to attract major advertisers.
The various rating services purchased from Nielsen are described below:
Nielsen Hispanic Television Index (NHTI). The NHTI service, which began in
November 1992, measures national network viewing in Hispanic Households. NHTI is
the Network's primary sales tool since it demonstrates Univision's significant
success in attracting Hispanic viewership against both English- and
Spanish-language competition. NHTI is stratified by language usage so that
Spanish-dominant, bilingual, and English-dominant Hispanic Households are
represented in the sample in the same proportion that exists among Hispanic
Households generally.
42
<PAGE> 43
Nielsen Hispanic Station Index (NHSI). The NHSI service is similar to the
NHTI, except that NHSI measures Hispanic Household viewing at the local market
level. Like NHTI, each NHSI sample also reflects the varying levels of language
usage by Hispanics in each DMA in order to more accurately reflect the Hispanic
Household population in the relevant DMA. The NHSI service was implemented
beginning with Los Angeles in November 1992 and was phased in at the Company's
other full-power O&Os by November 1994. Because the Company believes there is a
time lag between the availability of new rating services and advertisers'
reliance thereon, the NHSI rating service is expected to continue to have an
increasing beneficial impact on its future results.
NHSI and NHTI only measure the audience viewing of Hispanic Households,
that is, households where the head of the household is of Hispanic descent or
origin. Although the NHSI and NHTI reflect improvements over previous
measurement indices, the Company believes they still under-report the number of
viewers watching Univision programs because many of the Company's viewers do not
live in Hispanic Households.
Nielsen Station Index (NSI). The NSI service measures local station viewing
of all households in a specific DMA. The Company buys NSI in all of the DMAs in
which its full-power O&Os are located in order to effectively position its
viewing against both English- and Spanish-language competitors. While Hispanic
Households are present in proportion to their percentage of total households
within a DMA in NSI, this rating service is not language stratified and
generally under-represents Spanish-speaking households. As a result, the Company
believes that NSI typically under-reports viewing of Spanish-language
television. Despite this limitation, NSI demonstrates that many full-power
Broadcast Affiliates achieve total market ratings that are fully comparable with
their English-language counterparts, with three of the fullpower O&Os ranking
among the top two stations in their respective DMAs. See "-- The O&Os."
RATINGS
Since the beginning of the NHTI service in November 1992, Univision has
consistently ranked first in prime time among all Hispanic adults. In addition,
Univision has successfully increased its audience ratings compared to both
Telemundo and the English-language broadcast networks. Spanish-language
television prime time is from 7 p.m. to 11 p.m. Sunday through Saturday.
English-language television prime time is from 8 p.m. to 11 p.m. Monday through
Saturday and 7 p.m. to 11 p.m. Sunday. The following table shows that Univision
prime time audience ratings, Sunday through Saturday, among Hispanic adults aged
18 to 49, the age segment most targeted by advertisers, have increased compared
to the other networks:
NHTI PRIME TIME RATINGS AMONG HISPANIC ADULTS AGED 18 TO 49
<TABLE>
<CAPTION>
JANUARY 1, 1996-
NETWORK 1993 1994 1995 MAY 26, 1996
------------------------ ----- ----- ----- ----------------
<S> <C> <C> <C> <C>
Univision............... 6.6 8.6 9.6 9.3
ABC..................... 3.8 3.3 3.1 2.9
CBS..................... 2.9 2.2 1.8 1.9
FOX..................... 4.0 3.6 3.4 3.6
NBC..................... 3.3 2.7 2.9 3.3
Telemundo............... 4.1 3.1 2.6 2.3
Univision share......... 26.7% 36.6% 41.0% 39.9%
</TABLE>
43
<PAGE> 44
A further indication of Univision's growing strength against Telemundo and
its English-language competitors is its improved performance among bilingual
Hispanics. As the table below indicates, since 1993 the Network advanced from
fifth place to first place in prime time audience ratings, Sunday through
Saturday, among bilingual Hispanic adults aged 18 to 49:
NHTI PRIME TIME RATINGS AMONG BILINGUAL HISPANIC ADULTS AGED 18 TO 49
<TABLE>
<CAPTION>
JANUARY 1, 1996-
NETWORK 1993 1994 1995 MAY 26, 1996
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Univision....... 3.7 6.4 7.5 7.6
ABC............. 5.0 4.6 3.7 3.4
CBS............. 4.0 2.9 2.1 2.1
FOX............. 5.0 4.4 3.8 4.0
NBC............. 4.9 3.6 3.2 4.2
Telemundo....... 2.6 1.9 1.3 1.1
Univision
share......... 14.7% 26.9% 34.7% 33.9%
</TABLE>
In addition, as shown in the following table, the Company has increased its
share of the 20 most widely watched programs among all Hispanic Households from
30% in November 1992 to 90% in May 1996:
THE 20 MOST WIDELY WATCHED PROGRAMS
AMONG HISPANIC HOUSEHOLDS BY NETWORK
<TABLE>
<CAPTION>
PROGRAM NOVEMBER NOVEMBER NOVEMBER NOVEMBER MAY
RANK 1992 1993 1994 1995 1996
- --------- ---------- ---------- ---------- ---------- --------
<C> <S> <C> <C> <C> <C>
1 ABC FOX UVN (1) UVN UVN
2 UVN UVN UVN UVN UVN
3 FOX FOX UVN UVN UVN
4 UVN UVN UVN UVN UVN
5 FOX FOX UVN UVN UVN
6 FOX UVN UVN UVN UVN
7 FOX UVN UVN UVN UVN
8 ABC FOX UVN UVN UVN
9 FOX FOX UVN UVN UVN
10 UVN FOX UVN UVN UVN
11 ABC FOX FOX UVN UVN
12 FOX UVN FOX UVN UVN
13 UVN NBC UVN UVN UVN
14 UVN FOX UVN UVN UVN
15 UVN NBC UVN NBC UVN
16 NBC FOX UVN UVN UVN
17 FOX FOX UVN UVN NBC
18 ABC ABC FOX UVN NBC
19 TEL (2) FOX FOX UVN UVN
20 FOX FOX FOX FOX UVN
</TABLE>
- ------------------------------
Source: NHTI
(1) Univision
(2) Telemundo
44
<PAGE> 45
THE NETWORK
The Network is the leading Spanish-language television network in the U.S.
From its operations center in Miami, the Network provides the Univision
Affiliates via satellite with 24 hours of Spanish-language programming per
broadcast day with a prime time schedule of substantially all first-run
programming (i.e., no re-runs) throughout the year. The operations center also
provides extensive production facilities for the Network's news and
entertainment programming.
The Network produces and acquires programs, makes those programs available
to the Univision Affiliates, sells network advertising and represents the
Broadcast Affiliates in the sale of national spot advertising. Each Broadcast
Affiliate has a right of first refusal in its DMA to use the Network's
programming. The full-power Broadcast Affiliates together reach approximately
5.3 million, or approximately 74%, of Hispanic Households. The low-power
Broadcast Affiliates (including translators) together reach approximately
501,000, or approximately 7%, of Hispanic Households. The Cable Affiliates reach
approximately 826,000, or approximately 12%, of Hispanic Households. Through the
Company's ownership of the O&Os, it controls approximately 78% of the Network's
broadcast distribution.
Affiliation Agreements. Each Univision Affiliate has the right to preempt
(i.e., to decline to broadcast at all or at the time scheduled by the Network),
without prior Network permission, any and all Network programming that it deems
unsatisfactory, unsuitable or contrary to the public interest or to substitute
programming it believes is of greater local interest, provided that the Network
must consent to any rescheduling of preempted programming. If a Univision
Affiliate preempts a Network program and no suitable substitute broadcast time
is mutually agreed upon, the Network is permitted to offer the program to any
other television station or cable service in the DMA served by such Univision
Affiliate.
Each Affiliation Agreement grants the Univision Affiliate the right of
first refusal to the Network's entire program schedule. The Affiliation
Agreements generally provide that 50% of all advertising time be retained by the
Network for Network advertising and 50% of such time be allocated to the
Univision Affiliate for local and national spot advertising. However, this
allocation may be modified at the Company's discretion.
The Affiliated Stations retain 100% of all local advertising revenues, and
the Network retains 100% of Network advertising revenues. The Network acts as
the representative of the Univision Affiliates for national spot sales and
receives a commission of 15% of net revenues after agency commission in return
for such services from its Affiliated Stations.
The Network from time to time may enter into Affiliation Agreements with
additional stations in new DMAs based upon its perception of the market for
Spanish-language television and the Hispanic market in the station's DMA.
Cable Affiliates. The Network has historically used Cable Affiliates to
reach communities which could not support a Broadcast Affiliate because of the
relatively small number of Hispanic Households. Cable Affiliation Agreements may
cover an individual system operator or a multiple system operator. Cable
Affiliation Agreements are for the most part non-exclusive, thereby giving the
Network the right to license all forms of distribution in cable markets. Cable
Affiliates generally receive the Network's programming for a fee based on the
number of subscribers. The Network retains 100% of the allocation of Network
advertising revenues attributable to Cable Affiliates and provides certain Cable
Affiliates with two minutes of local advertising time per hour. Cable Affiliates
retain 100% of local and national advertising revenues. However, the Company
represents certain cable affiliates in national spot sales for varying fees.
45
<PAGE> 46
Univision Affiliate Coverage and Rank. The table below sets forth certain
information with respect to the Univision Affiliates' coverage and rank.
UNIVISION AFFILIATES' COVERAGE AND RANK AMONG HISPANIC HOUSEHOLDS
<TABLE>
<CAPTION>
HISPANIC SPANISH-
HOUSEHOLDS HISPANIC LANGUAGE
COVERED(B) HOUSEHOLDS TELEVISION
DMA(A) STATION (IN THOUSANDS) COVERED(B) RANK(C)
------------------------------------ ------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
FULL-POWER O&OS
Los Angeles (1)................... KMEX 1,306 18.1% 1
New York (2)...................... WXTV 913 12.7 1
Miami(3).......................... WLTV 434 6.0 1
Houston (4)....................... KXLN 278 3.9 1
San Antonio (5)................... KWEX 274 3.8 1
San Francisco (6)................. KDTV 272 3.8 1
Chicago (7)....................... WGBO 270 3.7 1
Dallas/Ft. Worth (9).............. KUVN 187 2.6 1
Albuquerque (10).................. KLUZ 185 2.6 1
Phoenix (13)...................... KTVW 149 2.1 1
Fresno (14)....................... KFTV 148 2.1 1
----- -----
Total full-power O&Os.......... 4,416 61.4
FULL-POWER AFFILIATED STATIONS
McAllen/Brownsville (8)(d)........ KNVO 193 2.7 1
El Paso (11)(e)................... KINT 168 2.3 1
Sacramento (15)(f)................ KCSO 136 1.9 1
Denver (16)(g).................... KCEC 117 1.6 1
Corpus Christi (18)............... KORO 91 1.3 1
Boston (20)....................... WUNI 81 1.1 1
Salinas/Monterey (26)(g).......... KSMS 46 0.6 1
Yuma/El Centro (29)(g)............ KVYE 40 0.6 -- (h)
Las Vegas (31)(g)................. KINC 39 0.5 1
----- -----
Total full-power Affiliated
Stations..................... 911 12.6
CABLE AFFILIATES(I)................. 826 11.5
LOW-POWER BROADCAST AFFILIATES(J)... 501 6.9
----- -----
TOTAL UNIVISION AFFILIATES........ 6,654 92.4%
===== =====
</TABLE>
- ------------------------------
(a) Numbers in parentheses represent Hispanic DMA rank by number of Hispanic
Households.
(b) Source: Nielsen Media Research, Black & Hispanic DMA Market and Demographic
Rank, January 1996.
(c) Rank within the DMA by number of viewing Hispanic Households. Source: NHSI,
May 1996.
(d) Entravision has an agreement to acquire.
(e) Entravision is negotiating to acquire.
(f) The Company has agreed to acquire this Affiliated Station. See " -- The
O&Os."
(g) Owned by Entravision.
(h) Not applicable because Affiliated Station signed on air in July 1996.
(i) Source: Company estimate derived from Nielsen Cable On-Line Data Exchange.
(j) Source: Company estimate derived from Nielsen Media Research, Black and
Hispanic DMA Market and Demographic Rank, January 1996.
46
<PAGE> 47
GALAVISION NETWORK
Galavision is the leading U.S. Spanish-language basic cable television
network, reaching approximately 6 million subscribers, of whom 1.8 million are
Hispanic. According to Nielsen, Galavision reaches over 47% of all Hispanic
Households that subscribe to cable. The Company programs Galavision so that
Galavision and the Network generally do not run the same type of show
simultaneously. For example, while the Network is running a novela, Galavision
may run sports or news. As a result of this counter-programming, many Spanish-
language television viewers have a choice of two Univision networks at any one
time. Additionally, Univision cross-promotes the Galavision service five times
daily.
From December 17, 1992 through June 30, 1996, the Company managed
Galavision (during such time, a Televisa affiliate) by generally selecting the
programming schedule, including programming supplied pursuant to the Program
License Agreements (subject to Galavision's obligation prior to January 1, 1996
to run 85 hours per week of programming of ECO, a 24-hour news, information and
entertainment service operated by Televisa), and providing sales, affiliate
relations and other services. The Company acquired Galavision as of July 1, 1996
pursuant to a 1992 Option Agreement with a Televisa affiliate. The $15 million
purchase price was paid with a note that will be due and payable immediately
following the closing of this Offering. The Company moved all Galavision
operations from Mexico to the Network's operations center in Miami in July 1996.
Galavision is the only Spanish-language cable service subscribing to
Nielsen. Nielsen uses a subset of the NHTI sample to produce the Nielsen
Hispanic Home Video Index, which reports viewing of Galavision in Hispanic
Households with cable. The Company believes that its use of Nielsen to measure
Galavision's ratings assists the Company in obtaining advertisers for the cable
network and in selecting programs that meet its audience's taste. Twenty of the
top 25 Univision advertisers advertise on Galavision.
PROGRAMMING
The Company directs its programming toward its young, family-oriented
audience. It begins daily with children's programming Monday through Friday,
followed by situation comedies, game shows and novelas. In the late afternoon
and early evening, the Network offers talk shows, a news-magazine and local and
national news. Weekend daytime programming begins with children's programming,
followed by sports, variety, teen lifestyle shows and movies in the afternoon.
During prime time, Univision airs novelas, variety shows, specials or movies.
Prime time is followed by late news and a late night talk show. Overnight
programming consists of novelas and repeats of programming aired earlier in the
day.
Eight hours of programming per weekday, including a substantial portion of
weekday prime time, are currently programmed with novelas supplied primarily by
Televisa. 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.
The Hispanic population is primarily young and family-oriented. Univision's
programming has changed dramatically over the past three years in order to
attract and retain this audience. Last year, Univision began to air the
Spanish-language version of Sesame Street, co-produced by Televisa in
cooperation with Children's Television Workshop. Plaza Sesamo now airs five
mornings per week. The Company's broadcasting of educational children's
programming has put it well ahead of the other commercial networks in meeting
the potential requirement of three hours of weekly educational programming being
considered by Congress and the FCC. The Company's success in attracting a young
audience is demonstrated by a 29% increase in NHTI ratings among Hispanic adults
aged 18 to 34, Sunday through Saturday 9 a.m. to midnight, since November 1992.
In 1995 the Company derived approximately 40% and 8% of its gross
advertising sales from programs produced by Televisa and Venevision,
respectively, under the Program License Agreements; for the six month period
ended June 30, 1996, these percentages were 38% and 9%, respectively.
Programming supplied by
47
<PAGE> 48
Televisa and Venevision under the Program License Agreements and programs
produced by the Company currently represent in the aggregate approximately 90%
of the Network's non-repeat broadcast hours. The remainder primarily consists of
movies acquired from independent third-party suppliers. Three of the Company's
own productions, Sabado Gigante, a variety show hosted by Mario Kreutzberger,
Primer Impacto, a news magazine program, and Cristina, a talk show hosted by
Cristina Saralegui, are among its most successful programs in terms of
advertising revenues generated. Approximately 45% and 46% of the Company's gross
advertising sales in 1995 and the six months ended June 30, 1996, respectively,
were generated by programs it produced.
Univision news programming is generally produced either at the Network
facility in Miami or the local stations. The Network produces an early evening
network newscast seven days per week and a late network newscast Monday through
Friday. All full-power O&Os produce local newscasts that reflect the communities
they serve. A national public affairs program, Temas y Debates, is also produced
weekly by the Network in Washington, D.C.
The Company produces a Sunday afternoon sports anthology show and a Sunday
night sports wrap-up show. Live sports programming primarily consists of boxing
and soccer. The 1994 World Cup soccer coverage broadcast by Univision garnered
the Company's highest sports ratings and the Company's current coverage of the
Sunday afternoon nationally televised Major League Soccer "Game of the Week" is
also delivering strong ratings and revenues.
PROGRAM LICENSE AGREEMENTS
Through the Program License Agreements, Univision has the first right until
December 2017 to air in the U.S. all Spanish-language programming produced by or
for Televisa and Venevision (with certain exceptions). The Program License
Agreements provide the Network and Galavision with access to programming to fill
up to 100% of their program schedules. Televisa and Venevision programming
represented approximately 52% and 13%, respectively, of the Network's non-repeat
broadcast hours in 1995 and 52% and 12%, respectively in the six months ended
June 30, 1996.
The Program License Agreements allow the Company unparalleled long-term
access to Televisa and Venevision programs and the ability to terminate
unsuccessful programs and replace them with other Televisa and Venevision
programs without paying for the episodes that are not broadcast. Accordingly,
the Company has more programs available to it and greater programming
flexibility than any of its competitors. This program availability and
flexibility have permitted the Company to adjust programming to best meet the
tastes of its viewers.
Univision's quarterly option on Televisa's programming has two components.
The Company has an initial option on all Televisa produced programs which, when
aggregated with programs obtained from Venevision, is sufficient to fill 18
hours of programming per day for the Network and Galavision combined. See,
however, "Risk Factors -- Reliance on Limited Sources and Cost of Programming."
Univision has the right to allocate these 18 hours of programming between the
Network and Galavision. In addition, this option covers all Televisa news
programs without limitation as to the number of hours of such programming. After
Univision has exercised its rights under the initial Televisa option, Televisa
is contractually obligated until December 1997 to make available to the owners
and operators of KWHY-TV Channel 22 in Los Angeles ("KWHY"), a station that,
prior to December 1992, had been a Galavision Network affiliate to which
Televisa supplied programming, all Televisa programming that is not acquired by
Univision pursuant to its initial option (other than news programs) to enable
KWHY to fill one 85-hour per week time schedule. The Company then has an
additional option on all Televisa programs not licensed by KWHY for use on the
Network and Galavision. Thus, under the Program License Agreements, Univision
may license programming from Televisa and Venevision that, when added to (i)
local programs produced by the O&Os and used on the Network, (ii) any programs
produced by Univision and (iii) any programs purchased by Univision other than
from Televisa and Venevision, will be sufficient to fill a twenty-four hour per
day, seven day per week time schedule for each of the Network and Galavision.
48
<PAGE> 49
The Company's initial and additional Televisa options and its Venevision
option are prior to all third parties' rights to obtain Televisa and Venevision
produced programming for broadcast in the U.S., except with respect to
programming licensed by Televisa to KWHY. Generally, Univision also has a right
of first refusal to acquire any program for which Univision did not exercise its
option before Televisa or Venevision can license such program to any third party
(except with respect to programming licensed to KWHY as described above). To the
extent that Televisa or Venevision uses, or licenses a third party to use, its
programming in the United States in accordance with the terms of the Program
License Agreements, the Company would compete against such entity. See "Risk
Factors -- Substantial Competition."
Televisa and Venevision programs available to Univision are defined under
the Program License Agreements as all programs produced by or for each of them
in the Spanish language or with Spanish subtitles other than programs for which
they do not own U.S. broadcast rights or as to which third parties have a right
to a portion of the revenues from U.S. broadcasts ("Co-produced Programs").
Televisa and Venevision have also agreed through their affiliates to use their
best efforts to coordinate with Univision to permit Univision to acquire U.S.
Spanish-language rights to certain Co-produced Programs and to special events
produced by others, sporting events, political conventions, election coverage,
parades, pageants and variety shows.
In consideration of access to the programming of Televisa and Venevision,
the Company pays Televisa and Venevision aggregate royalties based upon Combined
Net Time Sales. Prior to the Reorganization, the royalties (net of certain cost
sharing reimbursements which will cease upon completion of the Reorganization)
were 9.5%, 8.5%, 9.4% and 9.5% of Combined Net Time Sales in 1993, 1994, 1995
and the six months ended June 30, 1996, respectively. From the closing of this
Offering through December 31, 1996, aggregate royalties to Televisa and
Venevision will equal 11.0% of Combined Net Time Sales, increasing to 13.5% of
Combined Net Time Sales in 1997, and in all years thereafter the royalty to
Televisa and Venevision will be 15.0% of Combined Net Time Sales. The Network is
obligated to pay such aggregate royalties to Televisa and Venevision each year
throughout the term regardless of the amount of Televisa and Venevision
programming used by the Company.
The Program License Agreements are between affiliates of the Company,
Televisa and Venevision and the performance of their affiliates has been
unconditionally guaranteed by the Company, Televisa and Venevision,
respectively. Pursuant to their respective guarantees, Televisa has agreed to
use commercially reasonable efforts to continue to produce programs available to
the Network at least to the same extent in terms of quality and quantity as in
calendar years 1989, 1990 and 1991 and Venevision has agreed to use commercially
reasonable efforts to produce or acquire programming sufficient to provide at
least nine hours per day of programs to the Network.
THE O&OS
The Company owns and operates eleven full-power O&Os, each of which
broadcasts Network programming, produces local news and other programming of
local importance, covers special events and may acquire programs from other
suppliers. Each of the full-power O&Os is the leading Spanish-language
television station in its DMA.
A full-power O&O's ability to compete in terms of NSI ratings with the
English-language stations in a particular market is a function of the level of
Spanish-language use in the DMA which is affected in part by Hispanic Household
density. In DMAs where households that speak Spanish at least 50% of the time
exceed 15% of all households in the DMA, the full-power O&Os, in general, have
audience delivery comparable with the leading English-language network
affiliated stations in that DMA. In a DMA where the households that speak
Spanish at least 50% of the time is between 10% and 15% of all households in
that DMA, the full-power O&Os, in general, have audience delivery comparable
with the leading independent stations in the DMA. In a DMA where households that
speak Spanish at least 50% of the time is between 5% and 10% of all households
in that DMA, the full-power O&Os, in general, have audience delivery comparable
with the lower rated
49
<PAGE> 50
independent stations in the DMA. As shown on the following table, three of the
full-power O&Os rank among the top two stations in their respective DMAs.
FULL-POWER O&OS' COVERAGE AND RANK AMONG HISPANICS
<TABLE>
<CAPTION>
UNIVISION
SHARE ADULTS 18 TO
DMA RANK 1996 HISPANIC 1996 HISPANIC HISPANIC SPANISH- OF SPANISH- 49
(BY NUMBER OF POPULATION HOUSEHOLDS HOUSEHOLD LANGUAGE LANGUAGE TOTAL AUDIENCE
DMA HISPANICS)(A)(B) (IN THOUSANDS)(B) (IN THOUSANDS) DENSITY(C) USE(D) VIEWING(E) MARKET RANK(F)
- ------ ---------------- ----------------- ----------------- ----------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Los
Angeles... 1 5,306 1,306 27.0% 19.1% 67%(g) 1(h)
New
York... 2 2,895 913 13.6 10.1 75 7
Miami... 3 1,253 434 32.3 27.7 80 1(h)
Chicago... 4 995 270 8.7 5.6 78 7(h)
Houston... 5 982 278 17.6 11.3 89 5(h)
San
Francisco... 6 976 272 12.0 6.8 73 7(h)
San
Antonio... 7 903 274 43.0 20.4 64 6
Dallas/Ft. Worth... 9 675 187 10.2 5.9 85 7(h)
Fresno... 11 569 148 30.6 18.5 90 1
Albuquerque... 13 553 185 33.3 12.3 100 5
Phoenix... 14 519 149 12.7 6.4 92 6(h)
</TABLE>
- ----------------------------
(a) The other DMAs ranked among the top fifteen by number of Hispanics are
McAllen/Brownsville (8th), El Paso (10th), San Diego (12th) and Sacramento
(15th).
(b) Source: Nielsen Media Research, Black & Hispanic DMA Market and Demographic
Rank, January 1996. In deriving its figures, Nielsen only counts persons
present in Hispanic Households.
(c) Percentage of total households that are Hispanic Households. Source:
Nielsen Media Research, Black & Hispanic DMA Market and Demographic Rank,
January 1996.
(d) Represents the percentage of all households in a DMA where the Spanish
language is spoken at least 50% of the time by adults. Source: Nielsen
Enumeration Study 1994, which sets forth demographic attributes of Hispanic
population.
(e) Source: NHSI, May 1996.
(f) Source: NSI, adults 18 to 49, May 1996.
(g) The Los Angeles market has three full-power Spanish-language television
stations.
(h) Tied.
The following table shows the total audience share and the percentage of
total market revenues garnered by each of the O&Os. As reflected in the table,
none of the O&Os currently receives its proportionate share of advertising
revenues commensurate with its audience share. The Company believes that the
continued utilization of reliable rating services and the addition of
salespeople with English-language television and advertising expertise will
further enable the Company to demonstrate to advertisers its ability to reach
the Hispanic audience, thereby allowing the Company to narrow the gap between
its share of advertising revenues and its audience share.
50
<PAGE> 51
O&OS' SHARE OF TOTAL MARKET REVENUES AND AUDIENCE
<TABLE>
<CAPTION>
TOTAL TELEVISION O&O SHARE O&O SHARE OF
MARKET REVENUE(1) OF TOTAL SUN-SAT/9A.M.-MIDNIGHT
DMA (IN THOUSANDS) MARKET REVENUE(1) TOTAL AUDIENCE(2)
--------------------------- ----------------- ----------------- -----------------------
<S> <C> <C> <C>
Los Angeles................ $ 1,242,200 5% 14%
New York................... 1,229,000 2 4
Chicago.................... 759,500 1 4
San Francisco.............. 491,000 2 2
Dallas..................... 419,900 1 4
Houston.................... 370,800 3 8
Miami...................... 366,500 9 13
Phoenix.................... 251,000 3 5
San Antonio................ 115,300 6 4
Albuquerque................ 70,000 2 6
Fresno..................... 57,300 8 19
</TABLE>
- ----------------------------
(1) Company estimates.
(2) Source: NSI, adults 18 to 49, May 1996.
Set forth below is information, including ratings and performance
information based on most recently available data, for the Company's top five
O&Os.
Los Angeles. The Los Angeles DMA has the largest Hispanic population in the
U.S., estimated by Nielsen to be 5.3 million people as of the beginning of 1996,
and is the second largest U.S. television market overall. Between 1980 and 1990,
the Hispanic population of Los Angeles grew approximately seven times faster
than its non-Hispanic population. According to the U.S. Census Bureau, 78% of
Hispanics in Los Angeles are of Mexican origin. The Hispanic population in Los
Angeles represents 37% of that DMA's total population and 21% of the total U.S.
Hispanic population.
The Los Angeles DMA has three Spanish-language, full-power UHF television
stations. In May 1996, the Company's Los Angeles O&O, Univision-KMEX, posted a
67% share of the homes tuned to Spanish-language television from 9 a.m. to
midnight Sunday through Saturday, while Telemundo-KVEA posted a 19% share and
KWHY (which only broadcasts in Spanish from 3 p.m. to 11 p.m. and is provided
certain programming from Televisa) posted a 14% share. Compared to all general
market television stations in the May 1996 NSI Report, KMEX was tied for first
in adult aged 18 to 34 ratings and adult aged 18 to 49 ratings and was tied for
fifth in households in the Los Angeles DMA Sunday through Saturday 9 a.m. to
midnight.
A total of 20 television stations currently operate in the Los Angeles DMA.
Some of these stations simulcast their news programs and certain entertainment
programs in both English and Spanish. In addition, Nielsen estimates that cable
penetration among Hispanic Households in the Los Angeles DMA is 35%.
New York. The New York DMA has the second largest Hispanic population in
the U.S., estimated by Nielsen to be 2.9 million people at the beginning of
1996, and is the largest U.S. television market overall. The New York Hispanic
community tends to be more fragmented into groups from many different Latin
American countries, including Puerto Rico, Cuba, the Dominican Republic and
Mexico, who have settled in different neighborhoods in the DMA. This
fragmentation distinguishes the New York market from Los Angeles and Miami where
the Hispanic population is predominantly Mexican and Cuban, respectively. The
Hispanic population in New York represents 16% of that DMA's total population
and 12% of the total U.S Hispanic population.
In May 1996, Univision-WXTV was the leading station with a 75% share of the
audience watching Spanish-language television (9 a.m. to midnight, Sunday
through Saturday). While Univision-WXTV broadcasts full time in Spanish,
Telemundo-WNJU broadcasts only 15 hours per day in Spanish Monday through
Friday, and less on the weekend. The remainder of time on Telemundo-WNJU is used
for paid
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<PAGE> 52
programming and programs in a variety of other languages. Compared to general
market television stations in the May 1996 NSI Report, WXTV ranked seventh in
the New York market in adults aged 18 to 49, Sunday through Saturday, 9 a.m. to
midnight.
A total of 16 television stations service the New York DMA. In addition to
Univision-WXTV and Telemundo-WNJU, one other television station shows some
originally-produced Spanish-language programming. According to Nielsen, cable
penetration among Hispanic Households in the New York DMA is approximately 53%.
Miami. The Miami DMA has the third largest Hispanic population in the U.S.,
estimated by Nielsen to be 1.3 million people as of the beginning of 1996, and
is the sixteenth largest U.S. television market overall. According to the Census
Bureau, 56% of Hispanics in Miami are of Cuban origin. The Hispanic population
in Miami represents 37% of that DMA's total population and 5% of the total U.S.
Hispanic population.
In May 1996, the Company's Miami O&O, Univision-WLTV, had an 80% share of
the audience watching Spanish-language television from 9 a.m. to midnight,
Sunday through Saturday. Compared to all general market television stations in
the May 1996 NSI Report, WLTV was in a three-way tie for first place in adults
aged 18 to 49, tied with two other stations for first in adults aged 18 to 34
ratings while placing second in household share in the Miami market Sunday
through Saturday, 9 a.m. to midnight. WLTV is fully competitive with all
English-language stations in the Miami DMA in all major dayparts.
A total of 13 television stations service the Miami DMA. In addition to
Univision-WLTV and Telemundo-WSCV, three other television stations show some
Spanish-language programming. According to Nielsen, cable penetration among
Hispanic Households in Miami is approximately 56%.
Chicago. The Chicago DMA has the fourth-largest Hispanic population in the
U.S., estimated by Nielsen to be 995,000 people at the beginning of 1996, and is
the third largest U.S. television market overall. The Hispanic population in
Chicago represents 12% of that DMA's population and 4% of the total U.S.
Hispanic population.
In 1994, the Company acquired an English-language independent television
station, WGBO, which it converted to a Spanish-language format on January 1,
1995. In May 1996, Univision-WGBO posted a 78% share of the audience watching
Spanish-language television 9 a.m. to midnight, Sunday through Saturday. WGBO
has one Spanish-language competitor, Telemundo-WSNS. Compared to all general
market television stations in the Chicago DMA in the May 1996 NSI report, WGBO
tied for seventh with one other station. WGBO is fully competitive with certain
English-language stations in the delivery of young demographics in the Chicago
DMA, particularly adults aged 18 to 34.
A total of 13 television stations service the Chicago DMA. According to
Nielsen, cable penetration among Hispanic Households in Chicago is approximately
44%.
Houston. Houston has the fifth largest Hispanic population in the U.S.,
estimated by Nielsen to be 982,000 people, and is the eleventh largest U.S.
television market overall. The Hispanic population in Houston represents 23% of
that DMA's total population and 4% of the total U.S. Hispanic population.
In 1994, the Company acquired its Affiliated Station, KXLN, in Houston. In
May 1996, Univision-KXLN posted an 89% share of the audience watching
Spanish-language television 9 a.m. to midnight, Sunday through Saturday. KXLN
has one Spanish-language competitor, the Telemundo affiliate KTMD. In May 1996,
KXLN was tied for first with four major network affiliates in the delivery of
adults aged 18 to 34.
A total of 15 television stations service the Houston DMA. According to
Nielsen, cable penetration among Hispanic Households in Houston is approximately
37%.
The Company exercises its "must carry" rights in each DMA in which it
operates a full-power O&O.
The Company continues to analyze potential acquisitions of stations in
strategic markets. If consummated, any such acquisitions are expected to be
financed under the New Bank Facility. The Company has signed a letter of intent
with Entravision to make a $10 million investment in the form of a note and an
option
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<PAGE> 53
to acquire a 25% interest in Entravision. Entravision owns seven, has an
agreement to acquire one, and is negotiating to acquire another, of the
Affiliated Stations; the seven stations represent approximately 6%, and the nine
stations would represent approximately 12%, of the Network's distribution.
Univision has entered into an agreement with the owners of the Company's
Sacramento Affiliated Station, KCSO, for the acquisition of KCSO. The purchase
price, payable in cash and preferred stock, is approximately $40 million. If
consummated, the Company would pay a portion of the purchase price in cash and
issue 12,000 shares of preferred stock having one vote per share, a liquidation
preference of $1,000 per share (plus accrued and unpaid dividends) and a
cumulative annual dividend preference (commencing on the closing of the
acquisition) of 6% per share per annum ($15.00 per quarter per share),
increasing to 9% per share per annum if accrued and unpaid dividends per share
equal or exceed $30.00. The preferred stock would be convertible into Class A
Common Stock at the option of the holder until the fourth anniversary of the
closing of the acquisition at a conversion price determined by dividing the
average of closing prices of the Class A Common Stock on the NYSE for the ten
trading days preceding FCC approval of the acquisition. The preferred stock
would be redeemable at the option of the holder at any time, and by the Company
after the fourth anniversary of the issuance of the preferred stock, in each
case, for an amount equal to the liquidation preference. The Company believes it
will have sufficient borrowing capacity under the New Bank Facility to
consummate such acquisition.
The closing of the acquisition is subject to a variety of conditions
including approval of the FCC. Because of the signal overlap between the
Sacramento Affiliated Station and the Company's San Francisco and Fresno O&Os,
the Company also will need FCC waivers of an FCC rule prohibiting common
ownership of two stations with certain signal overlaps. No assurance can be
given that such FCC approval and waivers will be obtained or that the other
conditions to the closing of the acquisition will be met by the March 31, 1997
acquisition agreement termination date, if at all. As a result, management has
determined as of the date hereof that consummation of the acquisition is not
probable. See "Risk Factors -- Risks Associated with Acquisition of New Station"
and "Description of Capital Stock -- Preferred Stock."
Univision's seven low-power O&Os are located in Philadelphia, Hartford,
Austin, Bakersfield, Tucson, Albuquerque and Fort Worth. A low-power station is
a low-power broadcast facility that may originate programming and commercial
matter but that often transmits programming received from elsewhere (including
via satellite). The low-power O&Os, in the aggregate, accounted for less than 1%
of the Company's net revenues in 1995 and contribute 2.5% of the Network
broadcast distribution.
ADVERTISING
The Company's top 10 advertisers are Procter & Gamble, AT&T, MCI
Communications, Sears, McDonald's, Anheuser-Busch, Ford, Colgate-Palmolive, U.S.
Sprint and Coca-Cola, most of which have substantially increased advertising
commitments to the Company since the Acquisition. No single advertiser accounted
for more than 10% of the Company's gross advertising revenues. Approximately
98.5% of Univision's gross revenues for each of 1995 and the first six months of
1996, consist of Network, national spot and local advertising revenues.
Network Advertising. Network advertising revenues represented 50.6% of the
Company's gross revenues in 1995 and for the six month period ended June 30,
1996. The Company attracts advertising expenditures from diverse industries,
with advertising for food and beverages, personal care products, transportation
services, other household goods and telephone services representing the majority
of Network advertising.
Spot Advertising. National spot advertising represents time sold to
national and regional advertisers based outside a station's DMA. National spot
advertising revenues represented 14.8% and 15.8%, of the Company's gross
revenues for 1995 and for the six month period ended June 30, 1996,
respectively. National spot advertising primarily comes from new advertisers
wishing to test a market and advertisers who are regional retailers and
manufacturers without national distribution. To a lesser degree, national spot
advertising comes from advertisers who have the need to enhance network
advertising in a given market. National spot advertising is the means by which
most new national and regional advertisers begin marketing to Hispanics.
Local Advertising. Local advertising revenues are generated by both local
merchants and service providers and regional and national businesses and
advertising agencies located in a particular DMA. Local advertising revenues
represented 33.1% and 32.1% of the Company's gross revenues for 1995 and for the
six month period ended June 30, 1996, respectively.
53
<PAGE> 54
MARKETING
The Company increased by 43% the number of its marketing professionals from
146 to 209 over the past two years, including approximately 30 employees hired
in connection with the acquisition of the Chicago and Houston O&Os and
Galavision. The Company's account executives are divided into three groups:
Network sales; national spot sales; and local sales. The account executives
responsible for Network sales target and negotiate with accounts that advertise
nationally. The national spot sales force represents Broadcast Affiliates for
all sales placed from outside their respective DMAs. The local sales force
represents an O&O for all sales placed from within its DMA.
In addition, the Company's sales department utilizes research, including
both ratings and demographic information analyzed by the Company's research
department, to negotiate sales contracts as well as target major national
advertisers that are not purchasing advertising time or who are under-purchasing
advertising time on Spanish-language television.
The Company maintains Network and national sales offices in Atlanta,
Chicago, Dallas, Detroit, Irvine (California), Los Angeles, Miami, New York, San
Antonio and San Francisco.
COMPETITION
The broadcasting business is highly competitive. The Company competes for
viewers and revenues with other television networks and stations and other video
media, suppliers of cable television programs, newspapers, magazines, radio and
other forms of entertainment and advertising. Competition for advertising
revenues is based on the size of the market that the particular medium can
reach, the cost of such advertising and the effectiveness of such medium. See
"Risk Factors -- Potential Competition with Other Broadcasters Using Televisa
Programming" and "Risk Factors -- Substantial Competition." The Company believes
that it is competitive in the size of market it reaches and the cost and
effectiveness of advertising time it sells.
The rules and policies of the FCC also encourage increased competition
among different electronic communications media. As a result of rapidly
developing technology, the Company may experience increased competition from
other free or pay systems by which information and entertainment are delivered
to consumers, such as direct broadcast satellite and video dial tone services.
See "Risk Factors -- Impact of New Technologies; Spectrum Auctions."
MATERIAL PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
In the course of its business, the Company uses various trademarks, trade
names and service marks, including its logos in its advertising and promotions.
The Company believes the strength of its trademarks, trade names and service
marks are important to its business and intends to continue to protect and
promote its marks as appropriate. The Company does not hold or depend upon any
material patent, government license, franchise or concession, except the
licenses granted by the FCC to the O&Os.
EMPLOYEES
As of June 30, 1996 the Company employed approximately 1,315 full-time
employees. Approximately 10% of the Company's employees, located at its New York
and Los Angeles O&Os, are covered by collective bargaining agreements and the
Company is negotiating collective bargaining agreements with respect to its
employees at the Chicago O&O. Management believes that its relations with its
employees and their representatives are good.
FEDERAL REGULATION AND NEW TECHNOLOGIES
The ownership, operation and sale of TV stations, including those licensed
to subsidiaries of the Company, are subject to the jurisdiction of the FCC under
authority granted it pursuant to the Communications Act. Matters subject to FCC
oversight include, but are not limited to, the assignment of frequency bands for
broadcast television; the approval of a TV station's frequency, location and
operating power; the issuance, renewal, revocation or modification of a TV
station's FCC license; the approval of changes in the ownership or control of a
TV station's licensee; the regulation of equipment used by TV stations; and the
adoption and
54
<PAGE> 55
implementation of regulations and policies concerning the ownership, operation
and employment practices of TV stations. The FCC has the power to impose
penalties, including fines or license revocations, upon a licensee of a TV
station for violations of the FCC's rules and regulations.
Programming and Operation. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually has relaxed
or eliminated many of the more formalized procedures it had developed to promote
the broadcast of certain types of programming responsive to the needs of a
station's community of license. However, broadcast station licensees continue to
be required to present programming that is responsive to local community
problems, needs and interests and to maintain certain records demonstrating such
responsiveness. Complaints from viewers concerning a station's programming often
will be considered by the FCC when it evaluates license renewal applications of
a licensee, although such complaints may be filed at any time and generally may
be considered by the FCC at any time. Stations also must follow various rules
promulgated under the Communications Act that regulate, among other things,
political advertising, sponsorship identifications, the advertisement of
contests and lotteries, programming directed to children, obscene and indecent
broadcasts and technical operations, including limits on radio frequency
radiation. In addition, most broadcast licensees, including the Company's
licensees, must develop and implement affirmative action programs designed to
promote equal employment opportunities and must submit reports to the FCC with
respect to these matters on an annual basis and in connection with a license
renewal application.
While the following sets forth the material provisions of the
Communications Act and other statutes or rules, regulations and policies of the
FCC and other governmental agencies applicable to the Company and its
operations, it does not purport to be a complete summary of such provisions. In
particular, for further information, reference is made to the Communications
Act, the Telcom Act, and the rules, regulations and written policies of the FCC.
Management is unable at this time to predict the outcome of any of the pending
FCC rulemaking proceedings referenced below, the outcome of any reconsideration
or appellate proceedings concerning any of the changes in FCC rules or policies
noted below, the possible outcome of any proposed or pending Congressional
legislation, or the impact of any of those changes on Univision's television
broadcast operations.
License Renewal. Under existing FCC rules, television station licenses are
issued for an initial period of up to five years, subject to renewal upon
application therefor. FCC rulemaking is underway to implement the Telcom Act
which authorizes an initial license term and subsequent renewal terms not to
exceed eight years. In its rulemaking notice, the FCC has proposed that
broadcast licenses ordinarily should be renewed for the maximum eight-year term
(subject to short-term renewals in certain circumstances, such as those
involving serious violations of FCC rules by the licensee). The FCC has further
proposed to apply any changes resulting from the rulemaking to all license
renewals that are granted after such changes are finally adopted (regardless of
when the renewal application was filed), as well as retroactively to licenses
for which the renewal application was filed on or after October 1, 1995 if the
renewal was granted prior to the date such changes are adopted.
With respect to broadcast renewal applications filed after May 1, 1995, the
FCC adopted new rules on April 12, 1996 to implement certain statutory changes
effected by the Telcom Act. Under these new rules, no person may submit a
competing application for the frequency licensed to the renewal applicant unless
and until the FCC has determined that the incumbent is not qualified to continue
to hold the license. However, during a certain period while the renewal
application is still pending, petitions to deny the renewal application may be
filed with the FCC. In recent years, representatives of various community groups
and others often have filed petitions to deny renewal applications of broadcast
stations. The FCC will grant the renewal application and dismiss the petitions
to deny if it determines that the licensee meets statutory renewal standards
based on a review of the preceding license term.
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Set forth below are the license expiration dates of each O&O:
O&O LICENSE EXPIRATION DATES
<TABLE>
<CAPTION>
LICENSE
DMA STATION EXPIRATION DATE
----------------------------------------------- ------------ ---------------
<S> <C> <C>
Albuquerque.................................... KLUZ 10/01/98
Albuquerque.................................... K48AM(1) 8/01/97
Austin......................................... K30CE(1) 10/01/98
Bakersfield.................................... KABE-LP(1) 4/01/98
Chicago........................................ WGBO 12/01/97
Dallas/Fort Worth.............................. KUVN 8/01/98
Fort Worth..................................... KUVN-LP(1) 10/1/98
Fresno......................................... KFTV 12/01/98
Hartford....................................... W47AD(1) 6/01/98
Houston........................................ KXLN 8/01/98
Los Angeles.................................... KMEX 12/01/98
Miami.......................................... WLTV 2/01/97
New York....................................... WXTV 6/01/99
Philadelphia................................... WXTV-LP(1) 1/15/97(2)
Phoenix........................................ KTVW 10/01/98
San Antonio.................................... KWEX 8/01/98
San Francisco.................................. KDTV 12/01/98
Tucson......................................... K40AC(1) 10/18/96(3)
</TABLE>
- ------------------------------
(1) Low-power O&O.
(2) The Philadelphia station (formerly W35AB) is currently operating pursuant to
a special temporary authorization.
(3) The Tucson station is currently operating pursuant to a special temporary
authorization as K52AO.
In each case, renewal applications must be filed with the FCC at least four
months before the expiration date of the license, and any petitions to deny must
be filed at least one month prior to the expiration date. The FCC usually does
not act on renewal applications until after the expiration date, and in the
interim, the licenses remain in effect.
Ownership Restrictions. The Communications Act prohibits the assignment of
a broadcast license or the transfer of control of a broadcast license without
prior FCC approval. Under the Communications Act, a broadcast license may not be
granted to or held by a Foreign Interest if the FCC finds that the public
interest will be served by the refusal or revocation of such license. The FCC
has interpreted this provision to require an affirmative public interest finding
before a broadcast license may be granted to or held by any such Foreign
Interest. The FCC has rarely, if ever, made such an affirmative finding. As
presently organized, the Company complies with these restrictions. In
particular, the Company's Restated Certificate of Incorporation contains
provisions that permit the Company to redeem any shares of capital stock other
than Class T and Class V Common Stock owned by Foreign Interests and to take
other actions necessary to ensure its compliance with the foreign ownership
restrictions of the Communications Act and related FCC rules.
The FCC's "multiple ownership" rules generally provide that a license for a
television station will not be granted if the applicant (or a party with an
"attributable interest" in the applicant) owns, or has an "attributable
interest" in, another station of the same type which covers a similar service
area. The Telcom Act directs the FCC to conduct a rulemaking proceeding to
determine whether to retain, modify, or eliminate its limitations on the number
of television stations that a person or entity may own, operate, or control, or
have an "attributable interest" in, within the same television market. In
addition, there is an outstanding FCC proceeding addressing whether to change
local television multiple ownership rules. Under present duopoly regulations,
the FCC prohibits ownership interests in television stations with overlapping
signals of specified
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<PAGE> 57
strengths. Among the options being considered are proposals to increase the
signal strength permitted before a prohibited overlap occurs, to permit a single
entity to own two UHF television stations in the same television market, and to
permit a single entity to own one UHF and one VHF television station in the same
market. Substantially all Univision Affiliates operate in the UHF band. Whether,
or when, the FCC will adopt such changes in its regulations is unknown.
The FCC recently conformed its national television stations multiple
ownership rules with the Telcom Act. Specifically, a single entity may hold
"attributable interests" in an unlimited number of U.S. television stations
provided that those stations operate in markets containing cumulatively no more
than 35% of the television homes in the U.S. For this purpose, only 50% of the
television households in a market are counted towards the 35% national
restriction if the owned station is a UHF station (as are the O&Os). None of the
Principal Stockholders presently holds attributable interests in any other U.S.
television stations.
The FCC's rules provide that, with certain exceptions, the power to vote or
control the vote of 5% or more of the outstanding voting stock of a licensee is
the test for determining whether an entity has an "attributable interest" in a
licensee's stations for purposes of the multiple ownership rules. However, the
FCC's rules permit certain passive institutional investors (i.e., qualifying
investment companies, insurance companies or bank trust departments) to vote or
control the vote of up to 10% of the outstanding voting stock of a broadcast
company before they will be deemed to have an "attributable interest." In March
1992, the FCC initiated a proceeding to consider, inter alia proposals (i) to
increase the general "attributable interest" threshold to 10% of the outstanding
voting stock of a broadcast licensee and (ii) to increase the threshold for
certain passive institutional investors to 20%. The FCC has taken no final
action in that proceeding.
The FCC recently conformed its "dual network rule" with the Telcom Act.
Under these new rules, a broadcast licensee may affiliate with an entity that
maintains two or more networks of television broadcast stations unless such
multiple networks are composed of (i) two or more network entities meeting a
specific definition of a network as of February 8, 1996, or (ii) a network
meeting such definition and certain other English-language program distribution
services. The Network does not fall into either category.
The Telcom Act also modified the general prohibitions on network-cable
cross-ownership so as to permit television networks to own cable systems.
Network Affiliate Issues. Several FCC rules impose restrictions on network
affiliation agreements. Among other things, those rules prohibit a television
station from entering into any affiliation agreements that (i) require the
station to clear time for network programming that the station had previously
scheduled for other use, (ii) preclude the preemption of any network programs
that the station believes are unsuitable for its audience, or (iii) preclude the
station from substituting for network programming a program that it believes is
of greater local or national importance.
In addition, the FCC is currently reviewing several of its rules governing
the relationship between broadcast television networks and their affiliates.
Specifically, the FCC is reviewing four rules including (i) the "right to reject
rule," which provides that affiliation arrangements between a broadcast network
and a broadcast licensee generally must permit the licensee to reject
programming provided by the network, (ii) the "time option rule," which
prohibits arrangements whereby a network reserves an option to use specified
amounts of an affiliate's broadcast time, (iii) the "exclusive affiliation
rule," which prohibits arrangements that forbid an affiliate from broadcasting
the programming of another network, and (iv) the "network territorial
exclusivity rule," which proscribes arrangements whereby a network affiliate may
prevent other stations in its community from broadcasting programming the
affiliate rejects, and arrangements that inhibit the ability of stations outside
of the affiliate's community to broadcast network programming.
The FCC's so-called "spot sale rule" prohibits a network from representing
its affiliates in the sale of non-network advertising time unless such
affiliates are owned by or under common control with the network. In late 1990,
the FCC granted a permanent waiver to the Company's predecessor permitting
non-owned and operated affiliates of the Network to be represented by the
Network in the spot sales market. In 1992, as part of its approval of the
Acquisition, the FCC granted the Company's request to extend the permanent
waiver of
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the spot sale rule so as to permit the Network to continue to act as a national
sales representative for each Univision Affiliate.
Advanced Television Technology. At present, U.S. television stations
broadcast signals using the "NTSC" system, named for the National Television
Systems Committee, an industry group established in 1940 to develop the first
U.S. television technical broadcast standards. The FCC is presently conducting
several rulemaking proceedings in order to implement ATV, a broadcasting
technology that would constitute a significant improvement over the audio and
video quality provided by the NTSC system. In May 1996, the FCC issued its Fifth
Further Notice of Proposed Rulemaking in its ATV proceeding, wherein the FCC
proposed to adopt the ATSC DTV standard, a standard for providing ATV service
capable of offering broadcasting formats ranging from one channel with a picture
quality approaching that of 35mm film and audio quality equal to that of compact
discs to four to five channels with picture and sound quality similar to that
currently available. The ATSC DTV standard is incompatible with the existing
NTSC standard (i.e., NTSC equipment will be unable to broadcast ATV and existing
television sets will be unable to receive it without modification). Thus, ATV
broadcasting will require broadcasters electing to engage in ATV broadcasting to
make significant new capital investments in ATV broadcasting capacity. The ATSC
DTV standard has, however, not yet been adopted by the FCC. Several
Commissioners and broadcasting industry groups have voiced their concerns
regarding the adoption of a single standard for ATV, and the FCC has asked for
comment on whether the single standard requirement should sunset after several
years, thus allowing broadcasters to use different ATV standards that do not
interfere with the ATSC DTV standard.
Under the FCC's current plans as set forth in the FCC's Fourth Further
Notice of Proposed Rulemaking and Third Notice of Inquiry in its ATV proceeding
released in August 1995, existing full-power commercial stations would be
guaranteed licenses to construct and operate ATV stations so long as they
continued to operate their NTSC operations as well. Once ATV channel allocations
are determined, the FCC's current plan gives existing stations a three-year
period to apply for ATV licenses and a three-year period thereafter to complete
construction. Any existing broadcast station that fails to make the additional
investment in constructing and operating an ATV station would likely suffer
long-term adverse competitive effects, since other competing television stations
in the market (as well as other competing video delivery modes) would likely be
able to provide to consumers the more advanced ATV programming. All television
stations must convert to ATV within a defined transition period (presently
anticipated to be 15 years). During this transition period, television stations
will be required to broadcast both an NTSC and an ATV signal. At the end of the
transition period, the television station will be required to return to the FCC
its license for the NTSC signal.
However, certain members of Congress from time to time have offered and
continue to offer various proposals that would require incumbent broadcasters to
bid at a public auction for the spectrum necessary to effect the transition to
ATV. The Clinton Administration has not endorsed these proposals. Although the
broadcast industry has opposed such proposals, at this time the Company cannot
be assured that it will not have to bid for the spectrum required for ATV
broadcasting or, if required to bid, that it will have adequate financial
resources to make a successful bid. If such an auction plan were mandated by
Congress, it could have a material adverse effect on the Company. Under certain
circumstances, conversion to ATV operations may reduce a station's geographical
coverage area. In addition, the FCC's current implementation plan would maintain
the secondary status of low-power stations in connection with its allotment of
ATV channels. The FCC has acknowledged that ATV channel allotment may involve
displacement of existing low-power stations, particularly in major television
markets. Accordingly, the Company's low-power Broadcast Affiliates may be
materially adversely affected.
Direct Broadcast Satellite Systems. There are currently in operation
several DBS systems that serve the United States, and it is anticipated that
additional systems will become operational over the next several years.
Furthermore, several Spanish-language DBS systems are underway to serve Latin
America and such systems may have signals which spill over into the southern
U.S. DBS systems provide programming on a subscription basis to those who have
purchased and installed a satellite signal receiving dish and associated decoder
equipment. DBS systems claim to provide visual picture quality comparable to
that found in movie theaters and aural quality comparable to digital audio
compact discs. DBS systems do not, except in certain instances, provide the
signals of traditional over-the-air broadcast stations, and thus are generally
restricted to providing
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the programming of premium services such as HBO and other traditionally
cable-oriented satellite programming services. In the future, competition from
DBS systems could have a material adverse effect on the financial condition and
results of operations of the Company. See "Risk Factors -- Potential Competition
with Other Broadcasters Using Televisa Programming" and "Risk
Factors -- Substantial Competition."
PROPERTIES
The principal buildings owned or leased by Univision are described below:
PRINCIPAL UNIVISION PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE
SIZE OF PROPERTY OWNED LEASE
IN SQUARE FEET OR EXPIRATION
LOCATION (APPROXIMATE) LEASED DATE
-------------------------------- ---------------- ------------ ----------
<S> <C> <C> <C>
Miami, FL....................... 134,100 Owned/Leased(1) 12/31/00(2)
Los Angeles, CA................. 52,709 Leased 9/30/02(2)
New York, NY.................... 35,814 Leased 6/30/10
Secaucus, NJ.................... 29,660 Leased 6/30/09
</TABLE>
- ------------------------------
(1) Represents two separate properties, of which 112,000 square feet are owned.
(2) Option to renew available.
The Company owns or leases remote antenna space and microwave transmitter
space near each of the O&Os. Additionally, the Company leases space in public
warehouses and storage facilities, as needed, near some of the O&Os.
The Network began transmitting from its operations center in Miami, Florida
in January 1991, after acquiring approximately seven acres and an existing
50,000 square foot facility and building an additional 62,000 square feet. The
Miami facility houses Network administration, operations (including the
Network's uplink facility), sales, production, news, Galavision operations and
WLTV, the Miami station. The Company broadcasts its programs to the Univision
Affiliates on three separate satellites from four transponders, one of which is
owned and three of which are leased pursuant to two lease agreements which
expire in 2004.
The Company has recently entered into negotiations for leases to relocate
its stations in Dallas and San Francisco. The Company believes that its
principal properties, whether owned or leased, are suitable and adequate for the
purposes for which they are used and are suitably maintained for such purposes.
Except for the inability to renew any leases of property on which antenna towers
stand or under which the Company leases transponders, the inability to renew any
lease would not have a material adverse effect on the Company's financial
condition or results of operations since the Company believes alternative space
on reasonable terms is available in each city. See "Risk Factors -- Reliance on
Satellites and Other Equipment."
LEGAL PROCEEDINGS
The Company is involved in certain litigation arising in the ordinary
course of business. Management has accrued amounts it believes are reasonable
and any amounts in excess of those accruals, either alone or in the aggregate,
would not be material to the Company.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers of the Company serve at the discretion of its Board
of Directors. Each director of the Company serves until his successor is elected
and qualified or until his death, retirement, resignation or removal. Except as
set forth below, the directors of the Company do not receive any compensation
for their services in such capacity.
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- -----------------------------------------------
<S> <C> <C>
A. Jerrold Perenchio 65 Chairman of the Board, President and Chief
Executive Officer (Class A/P)
George W. Blank 45 Executive Vice President and Chief Financial
Officer
Robert V. Cahill 65 Class A/P Director, Vice President and
Secretary
Ray Rodriguez 45 Class A/P Director, President of the Network
Gustavo Cisneros 51 Class V Director
Lawrence W. Dam 49 Class T Director
Harold Gaba 50 Class A/P Director(1)
Alan F. Horn 53 Class A/P Director
John G. Perenchio 41 Class A/P Director
Alejandro Rivera 53 Alternate Class V Director
Emilio Romano 31 Alternate Class T Director
</TABLE>
- ---------------
(1) Mr. Gaba will become a Class A/P Director upon the closing of this Offering.
Mr. Perenchio has owned and been active in Chartwell Partners since it was
formed in 1983. Chartwell Partners is an investment firm that is active in the
media and communications industry. Mr. Perenchio has over 25 years of experience
in the U.S. media and communications industry. During his career, Mr. Perenchio
has been the chief executive officer of a number of successful entities involved
in the production and syndication of television programming, and from 1975 to
1986 owned and operated Spanish-language television stations in Los Angeles and
New York. A. Jerrold Perenchio is John G. Perenchio's father. For further
information regarding Mr. Perenchio, see "Business -- General."
Since the Acquisition, Mr. Blank has been Executive Vice President and
Chief Financial Officer of UTG and, since 1995, the Network. Mr. Blank joined
Hallmark Cards Incorporated in March 1987 as a consultant. In September 1987, he
became Vice President, Finance and Chief Financial Officer of Univision
Holdings, Inc., the Company's predecessor ("UHI"). In addition, from May 1992
through the Acquisition, Mr. Blank held the position of Chief Operating Officer
of UTG.
Mr. Cahill has been Executive Vice President and General Counsel of
Chartwell Partners, an affiliate of Perenchio, since 1985. While at Chartwell
Partners, he has also been the Vice President of various other corporations and
partnerships affiliated with Perenchio that, among other things, engage in
businesses in the media and communications industry. Mr. Cahill has been an
associate of Mr. Perenchio for 25 years.
Since the Acquisition, Mr. Rodriguez has been President and Chief Operating
Officer of the Network. In August 1990 Mr. Rodriguez joined the Network's
predecessor as Vice President and Director of Talent Relations. In September
1991, he became Senior Vice President and Operating Manager of the Network. In
May 1992, Mr. Rodriguez became President and Chief Executive Officer of UHI.
Prior to joining UHI, he owned and operated a management consulting and
production company which produced Spanish-language television programs. From
1983 to 1989, he was Julio Iglesias' manager and Chief Executive Officer of that
performer's organization.
Mr. Cisneros, together with other members of his family, owns a controlling
interest in Venevision as well as interests in a wide variety of other business
enterprises. For more than five years, Mr. Cisneros has been a direct or
indirect beneficial owner of interests in and a director of certain of the
companies that own or are
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engaged in a number of diverse commercial enterprises principally in Venezuela,
the United States, Brazil, Chile and Mexico (the "Cisneros Group"). Mr.
Cisneros, together with other members of his family, indirectly beneficially
owns Venevision. Mr. Cisneros is the Chairman of the Board of Directors of
Pueblo Xtra International, Inc.
Mr. Dam has been President and Chief Operating Officer of Univisa, Inc., a
wholly-owned subsidiary of Televisa, since 1993. From 1987 to 1993 he was Vice
President and General Counsel of Univisa, Inc. From 1963 to 1988, Univisa, Inc.
and its predecessors owned and operated the Network. Mr. Dam is a member of the
Boards of Directors of Verdugo Banking Company and PanAmSat Corporation.
Mr. Gaba has been President and CEO of ACT III Communications, Inc., a
multi-media communications company with interests in theatrical exhibition,
television and motion picture production, and broadcasting, since August 1990.
Since November 1992, he has also served as CEO and a director of ACT III
Theatres, ACT III Broadcasting, and certain other affiliates of ACT III
Communications. From 1988 to 1995, Mr. Gaba was a partner in Hark Television
Corporation, a broadcast management company.
Mr. Horn has been Chairman and Chief Executive Officer of Castle Rock
Entertainment since January 1994. Mr. Horn has also been a member of the
Executive Committee and the Planning Committee of Turner Broadcasting Systems,
Inc. since January 1994. From 1987 until January 1994, Mr. Horn was the Chairman
of the Management Committee of Castle Rock Entertainment. From 1985 to 1987, Mr.
Horn was the President and Chief Operating Officer of Twentieth Century Fox Film
Corporation. Prior to such time, he was an executive of Embassy Communications
and its predecessor, TAT Communications Company, and Tandem Productions. From
1982 to 1985 he served as Chief Executive Officer and Chairman of the Board of
Directors of Embassy.
Mr. John G. Perenchio has been an executive at Chartwell Partners and Vice
President of Malibu Bay Company (a real estate development and management
company) since 1990. From 1985 to 1990 he was a Business Affairs executive and
subsequently, a Director of Contemporary Music at Triad Artists, Inc. John G.
Perenchio is the son of A. Jerrold Perenchio.
Mr. Rivera has served in executive positions with companies in the Cisneros
Group, including Venevision, since 1976.
Mr. Romano joined Televisa in June 1995, and since that time he has been
responsible for mergers and acquisitions and new project development. From
January 1993 until March 1995, Mr. Romano served as General Director of Revenue
Policy and International Fiscal Affairs, and then as Federal Fiscal Attorney, in
the Mexican Ministry of Finance. Mr. Romano headed the representative office of
the Mexican Ministry of Finance in Washington D.C. from May 1991 until December
1992.
COMPOSITION OF THE BOARD OF DIRECTORS
The Board presently is composed of eight members. The Company's Restated
Certificate of Incorporation provides that the holders of the Class A Common
Stock and Class P Common Stock, voting together as a class, have the right to
elect six directors (and six alternate directors) of the Company (and no less
than 50% of the entire Board), the holders of the Class T Common Stock have the
right to elect one director (and one alternate director) and the holders of the
Class V Common Stock have the right to elect one director (and one alternate
director), subject to increase in certain circumstances. Each director of the
Company holds office until his or her term expires or until his or her successor
is elected and qualified. See "Description of Capital Stock."
The Company's Restated Certificate of Incorporation provides that an
alternate director may act in the place of the director for whom he is an
alternate if such director is absent. While so acting at such meeting, such
alternate director has all of the rights, duties, privileges and powers of the
director for whom he is acting as an alternate, including the right to vote at
such meeting, and while so acting is counted as a director elected by the same
class of stock as the director for whom he is an alternate for the purpose of
determining a quorum of the Board. Except when acting as a director as described
above, no alternate director is entitled to attend, or vote at, a meeting of the
Board of Directors and is not counted as a member of the Board for the purpose
of
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determining a quorum. Mr. Rivera is a Class V alternate director and Mr. Romano
is a Class T alternate director of the Company's Board of Directors. At the
present time, Perenchio does not intend to nominate any alternate Class A/Class
P Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Company intends to establish an Audit Committee
comprised of at least Messrs. Gaba and Horn to make recommendations concerning
the engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, review
independence of the independent public accountants, consider the range of audit
and non-audit fees and review the adequacy of the Company's internal accounting
controls.
Compensation Committee. The Company intends to establish a Compensation
Committee, consisting of at least Messrs. Gaba and Horn, to determine
compensation of the Company's executive officers and to administer the 1996
Stock Incentive Plan. The current executive officer salaries were set by the
Board of Directors prior to establishment of the Compensation Committee.
DIRECTOR COMPENSATION
In consideration for acting as a director of the Company, each director who
is not affiliated with Perenchio, Televisa or Venevision will be paid $50,000
for each year of service.
EXECUTIVE COMPENSATION
The following table shows the compensation paid or accrued by the Company
during fiscal 1995, 1994 and 1993 to each of the Company's executive officers as
of December 31, 1995 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
NAME AND -------------------------------------------------- SECURITIES
PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUSES COMPENSATION(1) OPTIONS/SARS COMPENSATION
- ---------------------- ---- -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
A. Jerrold
Perenchio(2)........ 1995 $ 0 $ 0 None None None
Chairman of the 1994 0 0 None None None
Board, President 1993 0 0 None None None
and Chief
Executive Officer
George W. Blank(3).... 1995 499,992 500,000(4) None None $4,500(6)
Executive Vice 1994 480,124 300,000(4) None $350,000(5) 3,000(6)
President and 1993 430,122 100,000(4) None 157,500(5) 4,497(6)
Chief Financial
Officer
Robert V. Cahill(7)... 1995 500,000 500,000 None None None
Vice President and 1994 300,000 500,000 None None None
Secretary 1993 300,000 0 None None None
Jaime Davila(8)....... 1995 800,000 600,000 None None None
Chairman of the 1994 600,000 600,000 None None None
Network 1993 500,000 300,000 None None None
Ray Rodriguez(9)...... 1995 574,992 600,000(4) None None 4,500(6)
President of the 1994 530,115 400,000(4) None 385,000(5) 3,000(6)
Network 1993 484,510 300,000(4) None 175,000(5) 4,497(6)
</TABLE>
- ----------------------------
(1) Other annual compensation did not exceed the lesser of $50,000 or 10% of the
total salary and bonuses of any Named Executive Officer.
(2) The services of Mr. Perenchio were provided by Perenchio pursuant to the
informal arrangement described in " -- Employment Agreements and
Arrangements." Mr. Perenchio was not compensated for
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<PAGE> 63
his services in any employment capacity at UTG or the Network. However, one
of his affiliates that was a partner of the Network received $3,174,000,
$2,401,000 and $2,043,000 in 1995, 1994 and 1993, respectively, as a
management fee from the Network. See Note 3 of Notes to Consolidated
Financial Statements of UNHP.
(3) Mr. Blank was paid by UTG.
(4) Includes a performance bonus earned in 1993, 1994 and 1995 pursuant to his
previous employment agreement.
(5) Includes deferred compensation earned in 1993 and 1994 pursuant to his
previous employment agreement.
(6) Matching contribution pursuant to 401(k) Plan. See "-- 401(k) Savings and
Thrift Plan."
(7) The services of Mr. Cahill were provided by Perenchio pursuant to the
informal arrangement among the Principal Stockholders described below. Mr.
Cahill was paid a total of $500,000, $300,000 and $300,000 by Perenchio in
1995, 1994 and 1993, respectively, for all of the services he performed for
UTG and the Network. Beginning in 1995 UTG was charged for one-half of Mr.
Cahill's salary. A bonus, earned in 1995 and 1994, of $500,000 each year was
paid in 1996 and 1995 to Mr. Cahill. See "-- Employment Agreements and
Arrangements."
(8) Mr. Davila's salary and bonus were paid by Televisa and his bonus was
reimbursed by the Company in 1993. In 1994 and 1995, Mr. Davila's salary was
paid by Televisa and reimbursed by the Company. His 1994 and 1995 bonuses
were paid directly by the Company. Mr. Davila, an officer of Televisa, has
resigned from Univision, effective upon the closing of the Offering.
(9) Mr. Rodriguez was paid by the Network.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
The Company has agreed to pay Mr. Perenchio $100,000 per month for up to a
maximum of six months following the closing of this Offering for his services as
Chief Executive Officer. The Company has commenced a search for a new Chief
Executive Officer. If a new Chief Executive Officer is found, Mr. Perenchio is
expected to continue to serve as Chairman of Board.
On January 1, 1995 Messrs. Blank and Rodriguez entered into amended
employment agreements with the Company, each of which expires on December 31,
1998. Mr. Blank's and Mr. Rodriguez's base salary under their respective amended
employment agreements is $500,000 and $600,000 for 1996 and 1997 and $550,000
and $650,000 for 1998, respectively. In addition, based upon an annual review of
each individual's performance and the results of operations and prospects of the
Company, the Company may in its sole discretion grant Mr. Blank and Mr.
Rodriguez a bonus. Each employment agreement may be terminated for cause, upon
death or disability or without cause. In the case of a termination without
cause, each of Mr. Blank and Mr. Rodriguez shall, subject to certain conditions
regarding confidentiality, trade secrets and competitive activities, be entitled
to receive his base salary for the remainder of the term of the employment
agreement.
Pursuant to an informal arrangement among the Principal Stockholders, the
services of Messrs. Cahill and A. Jerrold Perenchio were provided by Perenchio
in 1995, 1994 and 1993. Except as set forth below, neither individual was
compensated in such capacity and none of the compensation paid to the
above-named executive officers was paid by UTG in 1994 and 1993. Mr. Cahill was
paid a total of $300,000 in each of 1994 and 1993 by Perenchio for the services
he performed as an executive officer of UTG and the Network. In 1995, Mr. Cahill
was paid $500,000 by Perenchio for services as an executive officer of UTG and
the Network and one-half was charged to UTG. In addition, UTG paid a bonus to
Mr. Cahill in 1996 and 1995 of $500,000 for each year for his services in 1995
and 1994.
401(K) SAVINGS AND THRIFT PLAN
The Company presently has a retirement savings plan (the "401(k) Plan")
covering all employees who have completed one year of service. The 401(k) Plan
allows all employees to defer up to 15% of the total annual compensation that
would otherwise be paid to the employee, which deferral in 1996 can not exceed
$9,500. Employee contributions are invested in selected mutual funds according
to the direction of the employee. The 401(k) Plan permits the Company each year
to match up to the first 4% of the first 15% of the
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employee's salary, subject to certain limitations imposed by the Internal
Revenue Service. During 1993, 1994, 1995 and 1996, the Company offered matching
contributions to each eligible employee of 50%, 50%, 75% and 75%, respectively,
of the first 4% of the first 15% of such employee's salary, subject to certain
limitations imposed by the Internal Revenue Service.
1996 PERFORMANCE AWARD PLAN
The Company has established the 1996 Performance Award Plan (the "Plan") to
attract, reward and retain talented and experienced officers, other key
employees and certain other eligible persons ("Eligible Persons") who may be
granted awards from time to time by the Company's Board of Directors or the
Committee (as defined below).
Awards under the Plan may be in the form of nonqualified stock options,
incentive stock options, stock appreciation rights (SARs), restricted stock,
performance shares, stock bonuses and cash bonuses. Awards may be granted singly
or in combination with other awards, consistent with the terms of the Plan. Each
award will be evidenced by an award agreement entered into between the Company
and the recipient setting forth the specific terms and conditions applicable to
that award. Cash bonuses will be paid based upon the extent to which performance
goals set by the Committee are met during the performance period. Awards under
the Plan generally will be nontransferable by a holder (other than by will or
the laws of descent and distribution) and rights thereunder generally will be
exercisable, during the holder's lifetime, only by the holder, subject to such
exceptions as (consistent with applicable legal considerations) may be
authorized from time to time by the Committee.
Administration; Change in Control. The Plan provides that it will be
administered by the Board of Directors or a committee appointed by the Company's
Board of Directors ("Committee"); the Board of Directors intends to appoint the
Company's Compensation Committee to serve as the Committee under the Plan. The
Committee will have the authority within the terms and limitations of the Plan
to (i) designate recipients of awards, (ii) determine or modify the form,
amount, terms, conditions, restrictions, and limitations of awards, including
vesting provisions, terms of exercise of an award and expiration dates, (iii)
approve the form of award agreement for each Eligible Person, and (iv) construe
and interpret the Plan. Such authority includes the discretion to accelerate and
extend the exercisability or term and establish the events of termination or
reversion of outstanding awards.
Unless prior to a Change in Control Event the Committee determines that
benefits under awards made under the Plan will not accelerate or the Committee
provides otherwise in an award agreement, then upon a Change in Control Event
each option and SAR will become immediately exercisable, restricted stock will
immediately vest free of restrictions and the number of shares, cash or other
property covered by each performance share award will be issued to the grantee
of such award. A Change in Control Event under the Plan is defined generally to
include the acquisition of 50% or more of the outstanding voting securities of
the Company by any person other than a person who is the beneficial owner of
more than 20% of the Class A Common Stock at the time the Plan is adopted, a
transfer of substantially all of the Company's assets, the dissolution or
liquidation of the Company, or a merger, consolidation or reorganization whereby
stockholders immediately prior to such event own less than 50% of the
outstanding voting securities of the surviving entity after such event.
Plan Amendment; Termination and Term. The Company's Board will have the
authority to amend, suspend or discontinue the Plan at any time, provided that
no such action will affect any outstanding award in any manner adverse to the
participant without the consent of the participant. The Plan may be amended by
the Board without further stockholder approval unless such approval is required
by applicable law or is deemed necessary or advisable by the Board.
The Plan will remain in existence as to all outstanding awards until such
awards are exercised or terminated. The maximum term of unvested or unexercised
options, SARs and other rights to acquire Class A Common Stock under the Plan is
10 years after the initial date of award. No award can be made after the tenth
anniversary of the date on which the Board of Directors approved the Plan.
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<PAGE> 65
Authorized Shares and Other Provisions. The number of shares of Class A
Common Stock that may be issued in respect of awards under the Plan will not
exceed 5,500,000 shares (subject to certain anti-dilution adjustments). The
number of shares of Class A Common Stock subject to options and SARs granted to
any individual in any calendar year is limited to 500,000 and after 1996 the
number of shares of Class A Common Stock that may be subject to awards granted
in any calendar year may not exceed 1,375,000 (excluding any Eligible Person
hired in that year as the chief executive officer of the Company).
The number and kind of shares available for grant and the shares subject to
outstanding awards (as well as individual share and share unit limits on awards,
performance standards and exercise prices of awards) will be adjusted to reflect
the effect of a stock dividend, split, recapitalization, merger, consolidation,
reorganization, combination or exchange of shares, extraordinary dividend or
other distribution or other similar transaction. If any option or other right to
acquire shares of Class A Common Stock under or receive cash or shares in
respect of any award expires or is cancelled or terminated without having been
exercised or paid in full; or if any Class A Common Stock subject to a
restricted stock award does not vest or is not delivered, the unpurchased,
unvested or undelivered shares will again be available for award under the Plan.
No award may be granted at a price that is less than fair market value on the
date of grant.
No award, other than those described in "Grant of Options" or awards
granted in lieu of cash bonuses, may vest more quickly than 25% per year.
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 income of the recipient at the time
of award or exercise (such as nonqualified stock options, SARs, restricted stock
and performance-awards) are deductible by the Company, and awards that are not
required to be included in income of the recipient at such times (such as
incentive stock options) are not deductible by the Company.
Grant of Options. On the date hereof, the Committee granted 10-year
options relating to approximately 1.8 million shares of Class A Common Stock to
Eligible Persons. The exercise price of each option granted is the initial
public offering price per share of the Class A Common Stock offered hereby. Such
options vest in two equal installments over a period of two years.
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CERTAIN TRANSACTIONS
While the following is a description of the material terms of certain
agreements among the Principal Stockholders, certain of which are filed as
exhibits to the Registration Statement of which this Prospectus is a part, the
descriptions set forth below do not purport to be a complete summary of all such
agreements.
PROGRAM LICENSE AGREEMENTS
For a discussion of programming provisions of the Program License
Agreements, see "Business -- Program License Agreements." Additionally, pursuant
to the Program License Agreements, Televisa and Venevision have the right to
use, without charge, advertising time that is not sold to advertisers or used by
the Company. There are limitations on the ability of Televisa and Venevision to
use such time for telemarketing products and such time may be preempted to the
extent sold to a paying advertiser. Televisa and Venevision may each also
purchase for its own use non-preemptable time at the lowest spot rate for the
applicable time period.
INTERNATIONAL PROGRAM RIGHTS AGREEMENT
As part of an agreement with Televisa and Venevision to amend and restate
the Program License Agreements to reduce royalties payable by Univision
thereunder from a maximum of 20% of Combined Net Time Sales to a maximum of 15%
of Combined Net Time Sales, the Company agreed to grant foreign rights in
Univision-produced programs to Televisa and Venevision. With respect to
Univision-produced programs that are on the air as of the date of the Offering,
as well as Univision-produced programs that are deemed to replace such programs
because they share two or more characteristics such as talent, format and theme,
daypart or title with such replaced programs ("Grandfathered Programs"),
Televisa will own Mexican rights, Venevision will own Venezuelan rights and
Televisa and Venevision will each own undivided interests in the rights in all
other territories (other than the U.S. territory), including Puerto Rico. With
respect to programs produced by Univision other than Grandfathered Programs, (i)
subject to clause (ii), Univision will own worldwide rights in such programs,
and (ii) Televisa will have the exclusive right to broadcast such programs on a
royalty-free basis in Mexico, Venevision will have the exclusive right to
broadcast such programs on a royalty-free basis in Venezuela, and each of
Televisa and Venevision will have merchandising rights in such programs in their
respective territories. With respect to Grandfathered Programs, the rights
described above will revert back to the Company from Televisa or Venevision, as
the case may be, when the Program License Agreement to which Televisa or
Venevision, as the case may be, is a party terminates. With respect to other
programs, the rights described above will revert back to the Company from
Televisa or Venevision, as the case may be, when Televisa or Venevision, as the
case may be, owns less than the Required Amount.
PARTICIPATION AGREEMENT
Pursuant to a Participation Agreement (the "Participation Agreement")
Perenchio, Televisa and Venevision have agreed that none of them will enter into
certain transactions involving Spanish-language television broadcasting or a
Spanish-language television network in the U.S. (each, an "Exclusive
Transaction") without first offering the Company the opportunity to acquire a
50% economic interest. For instance, Televisa is required to offer the Company
the opportunity to acquire a 50% economic interest in Televisa's interest in the
Televisa DBS joint venture to the extent it relates to U.S. Spanish-language
broadcasting. The Participation Agreement provides that if the Company elects to
participate in an Exclusive Transaction, the offeror party will have substantial
control over management of such transaction.
To the maximum extent permitted by law, subject to the obligations of the
Principal Stockholders under the Participation Agreement and other agreements
described herein, the Principal Stockholders, their respective affiliates and
the stockholders, officers, directors and employees of the Principal
Stockholders and their respective affiliates (i) may engage in any activity,
including but not limited to competing with Univision and its subsidiaries, (ii)
may acquire, own, broker, lease or operate any business and (iii) shall not be
under any obligation to communicate or present any opportunity or potential
transaction or matter to the Company.
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WARRANTS
In connection with the Acquisition, Televisa and Venevision were issued
Warrants to purchase Common Stock, which if exercised would have increased the
ownership of each of them in the Company to 25%. The Warrants are not
exercisable unless it is lawful for the holder to own the number of shares
issuable as a result of such exercise and such exercise would not violate the
Communications Act. Subject to applicable securities laws, the Warrants are
freely transferable. The Warrants are exercisable for Class T Common Stock and
Class V Common Stock, as the case may be. However, at the option of Televisa or
Venevision, or if the Warrants are not held by Televisa or Venevision or their
permitted transferees, the Warrants are exercisable for Class A Common Stock. As
part of the Reorganization, the Warrants have been adjusted so that after the
Offering they will be exercisable for Common Stock at an exercise price of $0.13
per share and, if fully exercised, Televisa and Venevision would each own 20.3%
of the Common Stock of the Company.
REGISTRATION RIGHTS AGREEMENT
After this Offering, all existing stockholders will be entitled, upon
expiration of the lock-up agreements with the Underwriters, to certain rights
with respect to the registration of their shares under the Securities Act. Under
the terms of the Registration Rights Agreement to which each of the existing
stockholders of the Company is a party, Perenchio will have the right to cause
the Company to file registration statements with respect to Perenchio's Common
Stock on four separate occasions and each of Televisa and Venevision will have
the right to cause the Company to register their shares of Common Stock on two
separate occasions. Additionally, if the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of others, each of the Principal Stockholders is entitled, subject to
certain limitations and exceptions, to notice of such registration and is
entitled to include shares of Common Stock therein. In addition, at any time
after the Company becomes eligible to file registration statements on Form S-3
under the Securities Act, the existing stockholders may request that the Company
file a registration statement on Form S-3 with respect to their shares of Common
Stock, provided that the registration statement with respect to such offering
shall contain only the information required by such Form S-3, and the Company is
required to use its best efforts to effect such registration, subject to certain
conditions and limitations. In general, all fees, costs and expenses of such
registration (other than underwriting fees and commissions) will be borne by the
Company except for registration statements under Form S-3 in which case such
registration expenses will be borne by the persons registering securities under
such registration statements.
SPONSOR LOANS
Televisa and Venevision, pursuant to certain agreements, agreed to enhance
UTG's cash flow by providing the Sponsor Loans each quarter in an amount
required by its lenders, subject to certain limitations. Each Sponsor Loan is
subordinated to all third-party acquisition financing, has an initial term of 15
years, bears interest at the lesser of the prime rate (as defined therein) and
10% and requires no payment of interest or principal until maturity. The Sponsor
Loans have been used to repay indebtedness under the Old Bank Facility. The
Sponsor Loans will be repaid in connection with the Reorganization, and Televisa
and Venevision will have no further obligations to make Sponsor Loans subsequent
thereto. See "Reorganization" and Note 6 of Notes to Consolidated Financial
Statements of PCI.
PROGRAM COST SHARING AGREEMENT
Under the Program Cost Sharing Agreement (which will be terminated as part
of the Reorganization) the Network had the right, subject to certain exceptions,
to cause Televisa and Venevision to pay one-half of the direct and indirect
costs of any Company produced programs or programs acquired from third parties.
The Network paid the remaining one-half of such costs. The Network owns all
available U.S. rights, except in Puerto Rico, to programs produced or acquired
under the Program Cost Sharing Agreement, Televisa owns the Mexican rights,
Venevision owns the Venezuelan rights and Televisa and Venevision each own
undivided interests in the rights with respect to the rest of the world. The
Network does not share in any revenues from exploitation of these programs
outside the U.S. From January 1, 1996 through the consummation of the
Reorganization, the Network, Televisa and Venevision have agreed that in lieu of
cash payments under the
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Program Cost Sharing Agreement, UTG will receive payment in the form of notes
issued as Sponsor Loans equal to the costs to be funded under the Program Cost
Sharing Agreement by Televisa and Venevision. See Note 3 of Notes to
Consolidated Financial Statements of PCI.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of June 30, 1996 (after giving effect to the
Reorganization) by (i) each person who is known by the Company to own
beneficially 5% or more of the outstanding shares of any class of the Common
Stock, (ii) each of the Company's directors and executive officers who own any
shares of any class of the Common Stock, and (iii) all directors and executive
officers as a group. Since the Class P Common Stock has 10 votes per share on
substantially all matters submitted to stockholders, Perenchio will have, after
giving effect to the issuance of the shares offered hereby, 96% of the aggregate
voting power of the Class A and the Class P Common Stock combined and 92% of the
aggregate voting power of the Common Stock. Except as indicated in the footnotes
to the table, the persons named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned by
them, subject to community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF PERCENT OF CLASS A
SHARES CLASS A COMMON STOCK
OF CLASS A COMMON BENEFICIALLY
COMMON STOCK STOCK OWNED
BENEFICIALLY BENEFICIALLY POST-OFFERING
OWNED OWNED ASSUMING WARRANTS
NAME AND ADDRESS TITLE OF CLASS PRE-OFFERING(1)(2) POST-OFFERING(2) ARE EXERCISED(2)
- ------------------------------ -------------- ------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
A. Jerrold Perenchio Class P 22,071,737(3) 53.3% 39.5%
1999 Avenue of the Stars, Common Stock
Suite 3050
Los Angeles,
California 90067
Grupo Televisa, S.A. Class T 4,459,291(3)(4) 10.8 20.3(6)
Avenida Chapultepec, No. 28 Common Stock
06724 Mexico, D.F.
Mexico
Venevision Class V 4,459,291(3)(4)(5) 10.8 20.3(6)
c/o Finser Corporation Common Stock
550 Biltmore Way,
9th Floor
Coral Gables,
Florida 33134
The Davila Family, LLC Class A, P, T 1,065,007(3)(4) 2.6 3.2
c/o Suite 2500 and V
One New York Plaza Common Stock
New York, New York 10004
Stephen P. Rader Class A 1,161,354 2.8 2.1
1999 Avenue of the Stars, Common Stock
Suite 3050
Los Angeles,
California 90067
All directors and Class P and 26,531,028(3)(4) 64.1 59.8(6)
executive officers as a Class V
group (8 persons) Common Stock
</TABLE>
- ----------------------------
(1) Each of the listed stockholders will beneficially own 100% of their
respective class, both before and after the Offering, except The Davila
Family, LLC and Mr. Rader, who will own 10.2% and 11.2%, respectively, of
the Class A Common Stock outstanding immediately after the Offering.
(2) Assumes the Class P, Class T and Class V Common Stock are converted into
Class A Common Stock since this may be done at any time in accordance with
their terms. See "Description of Capital Stock."
(3) Perenchio, Televisa and Venevision have each formed a partnership in which
they are the general partner and The Davila Family, LLC is the managing
general and limited partner. The partnership with Perenchio owns 595,659
shares of Class A Common Stock and 6,017 shares of Class P Common Stock. The
partnerships with Televisa and Venevision each own 234,674 shares of Class A
Common Stock and 2,371 shares of Class T and Class V Common Stock,
respectively. The partnerships with Televisa and
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Venevision also each own Warrants to purchase 360,985 shares of Class A
Common Stock and 3,646 shares of Class T and Class V Common Stock,
respectively. The Davila Family, LLC has full dispositive and voting power
over the shares of Class A Common Stock owned by the partnerships and
Perenchio, Televisa and Venevision each has full dispositive and voting
power over the shares of Class P Common Stock, Class T Common Stock and
Class V Common Stock owned by the partnership in which it is a partner.
(4) Excludes 6,859,425 shares of Class T Common Stock, 6,859,425 shares of Class
V Common Stock and 721,970 shares of Class A Common Stock, issuable upon
exercise of the Warrants held by Televisa, Venevision and The Davila Family,
LLC, respectively. Such warrants may be exercised by the holder, so long as
the aggregate shares owned by Televisa, Venevision and all non-U.S. aliens
do not represent more than 25% of the outstanding stock.
(5) A trust for the benefit of the family of Gustavo A. Cisneros and a trust for
the benefit of the family of Ricardo Cisneros each owns a 50% indirect
beneficial ownership interest in the equity of the Venevision affiliates
that own these shares. Messrs. Gustavo and Ricardo Cisneros disclaim
beneficial ownership of such shares.
(6) The Warrants to purchase Class T Common Stock and Class V Common Stock are
subject to certain exercise restrictions. See "Certain
Transactions -- Warrants."
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DESCRIPTION OF CAPITAL STOCK
While the following description of the Company's capital stock is a summary
of the material terms of such stock, it does not purport to be complete and is
subject in all respects to applicable Delaware law and the provisions of the
Company's Restated Certificate of Incorporation and Bylaws, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus is
a part.
The Restated Certificate of Incorporation of the Company provides for three
classes of directors: six Directors to be elected by the holders of the Class A
Common Stock and the Class P Common Stock (the "Class A/P Directors"); one to
three Directors to be elected by the holders of the Class T Common Stock (the
"Class T Directors"); and one to three Directors to be elected by the holders of
the Class V Common Stock (the "Class V Directors").
Effective upon the closing of this Offering, the authorized capital stock
of the Company will consist of 150,000,000 shares of Common Stock, par value
$.01 per share, and 10,000,000 shares of preferred stock, par value $.01 per
share. The Common Stock is divided into four classes, Class A Common Stock,
Class P Common Stock, Class T Common Stock and Class V Common Stock. Giving
effect to the Reorganization but not this Offering, the Company's issued and
outstanding capital stock consisted of (i) 2,226,361 shares of Class A Common
Stock, none of which were owned by the Principal Stockholders, (ii) 22,071,737
shares of Class P Common Stock, all of which were owned by Perenchio, (iii)
4,459,291 shares of Class T Common Stock, all of which were owned by Televisa,
and (iv) 4,459,291 shares of Class V Common Stock, all of which were owned by
Venevision. See "Principal Stockholders." An additional 721,970 shares of Class
A Common Stock, 6,859,425 shares of Class T Common Stock and 6,859,425 shares of
Class V Common Stock are available for issuance upon exercise of the Warrants
held by The Davila Family, LLC, Televisa and Venevision, respectively. See
"Management -- 1996 Performance Award Plan" and "Certain Transactions --
Warrants."
COMMON STOCK
Class A Common Stock. Holders of Class A Common Stock are entitled to
receive such dividends as may from time to time be declared by the Board out of
funds legally available therefor. Holders of Class A Common Stock are entitled
to one vote per share on all matters on which they are entitled to vote. The
holders of the Class A Common Stock, voting together with the holders of the
Class P Common Stock (and the Class T Common Stock and the Class V Common Stock
to the extent a Voting Conversion has occurred with respect to such class),
elect the Class A/P Directors (and alternate directors) of the Company. The
Class A/P Directors presently constitute six of the eight directors of the
Corporation, but in no event will constitute less than 50% of the Board of
Directors. Holders of Class A Common Stock have no preemptive, conversion,
redemption or sinking funds rights. In the event of a liquidation, dissolution
or winding-up of the Company, holders of Class A Common Stock are entitled to
share with all other holders of any class of Common Stock equally and ratably in
the assets of the Company, if any, remaining after the payment of all debts and
liabilities of the Company and the liquidation preference of any outstanding
Preferred Stock. The outstanding shares of Class A Common Stock are, and the
shares of Class A Common Stock offered by the Company hereby when issued will
be, fully paid and nonassessable. The rights, preferences and privileges of
holders of Class A Common Stock are subject to any series of Preferred Stock
that the Company may issue in the future.
Class P Common Stock. Holders of the Class P Common Stock are entitled to
the same rights, privileges and preferences as holders of the Class A Common
Stock, except that holders of Class P Common Stock are entitled to 10 votes per
share on all matters on which they are entitled to vote; provided that at any
time that Perenchio is incapacitated (defined as Perenchio being subject to a
conservatorship of the estate under applicable state law), the holders of the
Class P Common Stock shall only be entitled to one vote per share. As mentioned
above, the holders of Class P Common Stock and the holders of Class A Common
Stock (and the Class T Common Stock and the Class V Common Stock to the extent a
Voting Conversion has occurred with respect to such class) voting together,
elect the Class A/P Directors (and alternate directors). Each share of Class P
Common Stock is convertible at the option of the holder thereof into one share
of
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Class A Common Stock. In addition, each share of Class P Common Stock will
convert automatically into one share of Class A Common Stock upon the sale of
such share of Class P Common Stock to a person that is not a Permitted
Transferee (as defined below) of Mr. Perenchio. Additionally, each share of
Class P Common Stock will convert automatically into one share of Class A Common
Stock (i) upon the death of Mr. Perenchio or (ii) if Perenchio (and his
Permitted Transferees) cease to own beneficially at least the Required Amount
(as defined).
Class T and Class V Common Stock. Holders of the Class T and Class V Common
Stock are entitled to the same rights, privileges, and preferences as the
holders of the Class A and Class P Common Stock, except (i) unless there has
been a Voting Conversion with respect to any class, holders of Class T Common
Stock and Class V Common Stock, each voting as a separate class, each elect one
director and one alternate director (but no less than 12.5% of the Board);
provided that at such time as the Communications Act permits at least 37.5% but
less than 50% alien ownership of the Company's capital stock, the holders of
Class T Common Stock and Class V Common Stock, each voting as a separate class,
each elect two directors and two alternate directors (but no less than 20% of
the Board) and at such time as the Communications Act permits 50% or more alien
ownership of the Company's capital stock, the holders of Class T Common Stock
and Class V Common Stock, each voting as a separate class, each elect three
directors and three alternate directors (but no less than 25% of the Board),
(ii) unless there has been a Voting Conversion with respect to any class,
holders of the Class T Common Stock and Class V Common Stock each votes as a
separate class on matters which would adversely affect the special rights of
such class, (iii) each share of Class T Common Stock will convert automatically
into one share of Class A Common Stock upon the sale of any such shares to a
person that is not a Permitted Transferee of Televisa and (iv) each share of
Class V Common Stock will convert automatically into one share of Class A Common
Stock upon the sale of any such shares to a person that is not a Permitted
Transferee of Venevision.
For purposes hereof, "Required Amount" with respect to a person means a
number of shares equal to 30% of the number of shares owned by such person as of
the closing of the Offering, subject to adjustments for stock splits and stock
dividends, "Permitted Transferee" means (i) any entity all of the equity of
which is directly or indirectly owned by the transferor, (ii) in the case of a
transferor who is an individual, (a) such transferor's spouse and lineal
descendants, personal representatives and heirs, (b) any trustee of any trust
created primarily for the benefit of any, some or all of such spouse and lineal
descendants (but which may include beneficiaries which are charities) or of any
revocable trust created by such transferor, (c) following the death of such
transferor, all beneficiaries under either such trust, (d) the transferor, in
the case of a transfer from any Permitted Transferee back to its transferor and
(e) any entity all of the equity of which is directly or indirectly owned by any
of the foregoing and "Voting Conversion" means with respect to the Class T
Common Stock or the Class V Common Stock that the holders of such class own less
than the Required Amount or have elected to relinquish their special voting
rights, including the right to elect Class T or Class V Directors.
PREFERRED STOCK
The Board is authorized to provide for the issuance of Preferred Stock in
one or more series and to fix the designations, preferences, powers and relative
participating, optional and other rights, qualifications, limitations and
restrictions thereof, including the dividend rate, conversion rights, voting
rights, redemption price and liquidation preference, and to fix the number of
shares to be included in any such series. Any Preferred Stock so issued may rank
senior to the Common Stock with respect to the payment of dividends or amounts
upon liquidation, dissolution or winding up, or both. In addition, any such
shares of Preferred Stock may have class or series voting rights. Issuances of
Preferred Stock, while providing the Company with flexibility in connection with
general corporate purposes, may, among other things, have an adverse effect on
the rights of holders of Common Stock, may have the effect of delaying,
deterring or preventing a change in control of the Company without further
action by the stockholders, may discourage bids for the Company's Common Stock
at a premium over the market price of the Common Stock, and may adversely affect
the market price and the voting and other rights of the holders of Common Stock.
Upon the consummation of the Reorganization, the
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<PAGE> 73
Company will not have any shares of Preferred Stock outstanding and has no plans
to issue any shares of Preferred Stock, in each case other than in connection
with the acquisition of the Sacramento Affiliated station. See "Risk
Factors -- Risks Associated with Acquisition of New Station" and
"Business -- The O&Os."
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law ("Delaware Law"). In general, Section 203
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of a corporation's outstanding voting stock) from engaging in a
"business combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares owned by persons who are both officers and directors
of the corporation and shares held by certain employee stock ownership plans);
or (iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the interested stockholder.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND THE BYLAWS RELATING
TO FOREIGN OWNERSHIP OF COMMON STOCK
The Restated Certificate of Incorporation contains provisions designed to
assist the Company in complying with the provisions of the Communications Act
regulating the ownership of broadcasting companies by aliens. See
"Business -- Federal Regulation and New Technologies." The following is a
summary of these provisions of the Restated Certificate of Incorporation and the
Bylaws.
Under the Communications Act, a broadcast license may not be granted to or
held by any corporation that is controlled, directly or indirectly, by any other
corporation more than one-fourth of whose capital stock is owned or voted by
non-U.S. citizens or their representatives, by foreign governments or their
representatives, or by non-U.S. corporations, if the FCC finds that the public
interest will be served by the refusal or revocation of such license. The FCC
has interpreted this provision to require an affirmative public interest finding
before a broadcast license may be granted to or held by any such corporation.
The FCC has rarely if ever made such an affirmative finding. For the purpose of
monitoring compliance with this provision, the Restated Certificate of
Incorporation requires the Corporation, as promptly as practicable after shares
of Common Stock are first held by more than 100 holders of record, to implement
the procedures described below in this paragraph. The Restated Certificate of
Incorporation requires the Company to maintain separate stock records for alien
stockholders and non-alien stockholders. In addition, the Restated Certificate
of Incorporation requires the Company to place on each certificate representing
shares of stock owned, voted or otherwise controlled by an alien the legend
"Foreign Share Certificate" and to place on each other stock certificate the
legend "Domestic Share Certificate." Pursuant to the Restated Certificate of
Incorporation, the holder of any shares of Company stock (other than Class T
Common Stock or Class V Common Stock) represented by a Domestic Share
Certificate is required, if such shares are owned, voted or otherwise controlled
by an alien, to deliver such certificate to the Company to be replaced by a
Foreign Share Certificate. Any holder of Foreign Share Certificates representing
shares of the Class A Common that are not owned, voted or otherwise controlled
by aliens, may deliver such Foreign Share Certificates to the Company or its
agent to be replaced by Domestic Share Certificates. Any Foreign Share
Certificates delivered to the Company for replacement with Domestic Share
Certificates must be accompanied by an affidavit stating that the shares of the
Company's stock represented by the Foreign Share Certificate are not owned,
voted or otherwise controlled by an alien.
The Restated Certificate of Incorporation provides that the Company will
have the right to determine, by vote of the Company's Board of Directors or in
conformity with regulations prescribed by the Company's
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Board, whether any person is an alien, whether any shares of stock of the
Company are owned, voted or otherwise controlled by aliens and whether any
affidavit described above is false.
Outstanding shares of Class A Common Stock held by a Disqualified Holder
(as defined below) are subject to redemption by the Company, by action of the
Board of Directors or in conformity with regulations prescribed by the Board of
Directors to the extent necessary to prevent the loss or secure the
reinstatement of any license or franchise from any governmental agency held by
the Company or any of its subsidiaries, which license or franchise is
conditioned upon some or all of the holders of the Company's stock possessing
prescribed qualifications. The Restated Certificate of Incorporation prescribes
the following terms and conditions for any such redemption: (a) the redemption
price of the shares to be redeemed shall be equal to the lesser of (i) the Fair
Market Value (as defined below) of such shares or (ii) if such stock was
purchased by such Disqualified Holder within one year of the redemption date,
such Disqualified Holder's purchase price for such shares; (b) the redemption
price of such shares may be paid in cash, securities (valued according to a
specified method) or any combination thereof; (c) if less than all the shares
held by Disqualified Holders are to be redeemed, the shares to be redeemed will
be selected in such manner as is determined by the Board of Directors or in
conformity with regulations prescribed by the Board of Directors, which may
include selection first of the most recently purchased shares thereof, selection
by lot, selection based upon failure to comply with the provisions described in
this paragraph or selection in any other manner determined by the Board of
Directors or in conformity with regulations prescribed by the Board of
Directors; (d) at least 30 days written notice of the redemption date must be
given to the record holders of the shares selected to be redeemed (unless waived
in writing by any such holder), except that the redemption date may be the date
on which written notice is given to such record holders if cash, securities or a
combination thereof sufficient to effect the redemption is deposited in trust
for the benefit of such record holders and subject to immediate withdrawal by
them upon surrender of the stock certificates for their shares to be redeemed;
(e) from and after the redemption date, any and all rights of whatever nature,
which may be held by the owners of shares called for redemption (including
without limitation any rights to vote or participate in dividends declared on
stock of the same class or series as such shares), will cease and terminate and
such owners will thenceforth be entitled only to receive the cash, securities or
a combination thereof payable in respect of such redemption; and (f) such other
terms and conditions as the Board of Directors may determine.
For purposes of the foregoing provisions of the Restated Certificate of
Incorporation, the following meanings are assigned to certain terms:
"Disqualified Holder" means any holder of capital stock (other than Class T
Common Stock or Class V Common Stock) whose holding of such stock, either
individually or when taken together with the holding of shares of any class or
series of stock of the Company by any other holders, may result, in the judgment
of the Board of Directors, in the loss of, or the failure to secure the
reinstatement of, any license or franchise from any governmental agency held by
the Company or any of its subsidiaries to conduct any portion of its business.
"Fair Market Value" of a share of any class or series of stock of the Company
means the average closing price for such a share for each of the 45 most recent
days on which shares of stock of such class or series were traded preceding the
fifth day prior to the day on which notice of redemption is given, except that
if shares of stock of such class or series are not traded on any securities
exchange or in the over-the-counter market, "Fair Market Value" is any value
determined by the Board of Directors in good faith.
The Restated Certificate of Incorporation also authorizes the Board of
Directors to adopt such other provisions as the Board of Directors may deem
necessary or desirable to avoid violation of the alien ownership provisions of
the Communications Act and to carry out the provisions of the Restated
Certificate of Incorporation relating to alien ownership.
BYLAW SUPERMAJORITY VOTING PROVISIONS
The Bylaws of the Company provide that without the approval of the Board by
a vote which includes, in addition to any other required vote of directors, the
affirmative vote of a majority of the Class T Director(s) (so long as there has
not been a Voting Conversion with respect to holders of Class T Common Stock)
and a majority of the Class V Director(s) (so long as there has not been a
Voting Conversion with respect to Class V Common Stock), the Company shall not
(subject to certain exceptions) directly or through its
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subsidiaries: (i) merge or consolidate, enter into a business combination with,
or otherwise reorganize the Company with or into one or more entities; (ii) sell
all or substantially all of the Company's assets to an entity that is not a
wholly owned subsidiary of the Company; (iii) create, designate, issue, or sell
out of treasury Common Stock of the Company or any of its subsidiaries or any
equity securities (or securities with equity features) of the Company or any of
its subsidiaries (other than to the Company or its wholly owned subsidiaries);
(iv) pay any dividend or make any distribution to holders of any equity
securities of the Company including by way of redemption or repurchase of
securities; (v) engage in any business transaction outside of the Company's
ordinary course of business (which for purposes hereof, shall mean any media,
communications and broadcast businesses) or (vi) dissolve, liquidate or
terminate the Company.
The Bylaws of the Company also provide that without the approval of the
Board by a vote which includes, in addition to any other required vote of
directors, the affirmative vote of a majority of the Class T Directors (so long
as a Voting Conversion has not occurred with respect to the Class T Common
Stock) or a majority of the Class V Director(s) (so long as a Voting Conversion
has not occurred with respect to the Class V Common Stock), the Company shall
not directly or through its subsidiaries: (i) acquire or dispose of assets in
any one transaction or series of related transactions for a purchase or sale
price in excess of $50 million, (ii) dispose of any interest in any television
station which broadcasts in Spanish in any of the top 15 markets in terms of
Hispanic population, (iii) incur debt (or issue preferred stock) (other than
capitalized lease obligations for satellite transponders) as of any date in
excess of (x) the Company's EBITDA for the twelve-month period ending on the
last day of the quarter preceding such date, multiplied by (y) five, (iv)
produce or acquire certain programs (as described below), (v) enter into any
transaction with Perenchio or any person related to Perenchio or any of their
respective affiliates, or (vi) employ or set compensation or severance levels
for (a) any relatives of any executive officer of, or consultant to, the
Company, or any employee of such consultant, or (b) any part-time executive of
the Company, or (c) any employees or relatives of Perenchio, Televisa or
Venevision or any of their respective affiliates. For purposes of subparagraph
(iii) above, EBITDA means the sum of net income, total depreciation expense,
amortization expense, interest expense and taxes as determined in conformity
with U.S. Generally Accepted Accounting Principles ("GAAP"); provided that in
the case of debt incurred for the purposes of an acquisition, EBITDA shall be
determined on a pro-forma basis giving effect to such acquisition.
Production or acquisition of programs by the Company will not require
approval of the Class T Directors or Class V Directors if such programs are
Grandfathered Programs. Moreover, such consent will not be required for the
production or acquisition of any other programs by the Company unless (i)
incremental EBITDA in any fiscal year is less than 30% of the incremental sales
in that year and (ii) total EBITDA in the year in question as a percentage of
total sales is less than the greater of (a) 30% or (b) five percentage points
below the average of the three highest consecutive years within the prior ten
years (or since 1992 if less than ten years) (the "Three Year Margin"). For
purposes of determining EBITDA and sales, only the results of the Network, the
O&Os and Galavision are included. All other businesses and certain special
programming are to be disregarded. The special voting rights set forth above
with respect to special programming are to continue in effect until the Company,
in any subsequent fiscal year, increases its overall ratio of EBITDA to sales to
the higher of (x) 2.5% or less below the Three Year Margin or (y) 32.5%. All
determinations are to be made based upon the Company's audited financial
statements.
LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS
The Company's Restated Certificate of Incorporation provides that to the
fullest extent permitted by Delaware Law, a director of the Company shall not be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director. Under current Delaware Law, liability of a
director may not be limited (i) for any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of the provisions of the Company's
Restated Certificate of Incorporation is to eliminate the rights of the Company
and its stockholders (through stockholders' derivative suits on behalf of the
Company) to recover monetary damages
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against a director for breach of the fiduciary duty of care as a director
(including breaches resulting from negligent or grossly negligent behavior),
except in the situations described in clauses (i) through (iv) above. This
provision does not limit or eliminate the rights of the Company or any
stockholder to seek nonmonetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, the Company's
Restated Certificate of Incorporation provides that the Company shall indemnify
its directors, officers, employees and agents against losses incurred by any
such person by reason of the fact that such person was acting in such capacity.
The Company has entered into agreements (the "Indemnification Agreements")
with each of the directors and officers of the Company pursuant to which the
Company has agreed to indemnify such director or officer from claims,
liabilities, damages, expenses, losses, costs, penalties or amounts paid in
settlement incurred by such director or officer in or arising out of his
capacity as a director, officer, employee and/or agent of the Company or any
other corporation of which he is a director or officer at the request of the
Company to the maximum extent provided by applicable law. In addition, such
director or officer is entitled to an advance of expenses to the maximum extent
authorized or permitted by law.
CERTAIN ANTI-TAKEOVER EFFECTS
The provisions of the Restated Certificate of Incorporation and the Bylaws
of the Company summarized above may be deemed to have anti-takeover effects and
may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider to be in such stockholder's best interest, including
those attempts that might result in a premium over the market price for the
shares held by stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Class A Common Stock is The Bank
of New York.
LISTING
There is no established public trading market for the Company's Common
Stock. The Class A Common Stock has been approved for listing on the NYSE upon
notice of issuance under the symbol "UVN."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock after this Offering could
adversely affect the market price of the Class A Common Stock and could impair
the Company's future ability to raise capital through the sale of its equity
securities. Upon the closing of this Offering, the Company will have outstanding
41,386,680 shares of Common Stock. All of the shares of Class A Common Stock
sold in this Offering will be freely tradeable under the Securities Act, unless
purchased by "affiliates" of the Company as that term is defined under the
Securities Act. Upon the expiration of lock-up agreements between the Company
and the existing stockholders and the Underwriters, which will occur 180 days
after the date of this Prospectus (the "Effective Date"), all of the shares of
Common Stock owned by existing stockholders (the "Restricted Shares") will
become eligible for sale, subject to compliance with Rule 144 of the Securities
Act as described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of: (i) 1% of the number of shares of
Class A Common Stock then outstanding (approximately 103,964 shares immediately
after this Offering) or (ii) the average weekly trading volume of the Company's
Class A Common Stock on the NYSE during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales pursuant to Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale and who has beneficially
owned Restricted Shares for at least three
76
<PAGE> 77
years is entitled to sell such shares pursuant to Rule 144(k) without regard to
the limitations and requirements described above.
The Company and the existing stockholders have agreed with the Underwriters
that until 180 days after the Effective Date they will not directly or
indirectly, issue, offer, sell, contract to sell, grant any option to purchase
or otherwise dispose of any Common Stock (including, without limitation, shares
of Common Stock which may be deemed to be beneficially owned by such person in
accordance with the rules and regulations of the Securities and Exchange
Commission (the "Commission") and shares of Common Stock which may be issued
upon exercise of a stock option or warrant) or any securities convertible into
or exercisable or exchangeable for such Common Stock or, in any manner, transfer
all or a portion of the economic consequences associated with the ownership of
the Common Stock, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation. However, the Company may issue shares of Common
Stock upon the exercise of outstanding Warrants, grant options pursuant to the
Company's stock option plans described herein and issue shares of Common Stock
upon the exercise of options described herein as outstanding on the date of the
closing of the Offering, and the existing stockholders may transfer shares of
Common Stock to affiliates or members of such stockholders' immediate family.
The lock-up agreements with the Representatives may be released at any time as
to all or any portion of the shares subject to such agreements at the sole
discretion of Donaldson, Lufkin & Jenrette Securities Corporation. After this
Offering, all existing stockholders will be entitled, upon expiration of the
lock-up agreements with the Underwriters, to certain rights with respect to
registration of their shares under the Securities Act. See "Certain Transactions
- -- Registration Rights Agreement."
77
<PAGE> 78
UNDERWRITING
Subject to certain terms and conditions contained in an underwriting
agreement (the "Underwriting Agreement"), a syndicate of Underwriters named
below (the "Underwriters") for whom Donaldson, Lufkin & Jenrette Securities
Corporation, Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Morgan Stanley & Co. Incorporated are acting as representatives
(the "Representatives"), have severally agreed to purchase from the Company an
aggregate of 8,170,000 shares of Class A Common Stock. The number of shares of
Class A Common Stock that each Underwriter has agreed to purchase is set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............. 1,242,500
Goldman, Sachs & Co............................................. 1,242,500
Merrill Lynch, Pierce, Fenner & Smith Incorporated.............. 1,242,500
Morgan Stanley & Co. Incorporated............................... 1,242,500
Bear, Stearns & Co. Inc. ....................................... 100,000
BT Securities Corporation....................................... 100,000
CS First Boston Corporation..................................... 100,000
Alex. Brown & Sons Incorporated................................. 100,000
Cowen & Company................................................. 100,000
Dean Witter Reynolds Inc. ...................................... 100,000
Deutsche Morgan Grenfell/C.J. Lawrence Inc. .................... 100,000
Dillon, Read & Co. Inc. ........................................ 100,000
Hambrecht & Quist LLC........................................... 100,000
Lazard Freres & Co. LLC......................................... 100,000
Lehman Brothers................................................. 100,000
Montgomery Securities........................................... 100,000
J. P. Morgan Securities Inc. ................................... 100,000
Nomura Securities International, Inc. .......................... 100,000
Oppenheimer & Co., Inc. ........................................ 100,000
PaineWebber Incorporated........................................ 100,000
Robertson, Stephens & Company LLC............................... 100,000
Salomon Brothers Inc ........................................... 100,000
Smith Barney Inc. .............................................. 100,000
Ambient Capital................................................. 50,000
Arnhold and S. Bleichroeder, Inc. .............................. 50,000
Crowell, Weedon & Co. .......................................... 50,000
EVEREN Securities Inc. ......................................... 50,000
Furman Selz LLC................................................. 50,000
Gabelli & Company, Inc. ........................................ 50,000
Gerard Klauer Mattison & Co., LLC............................... 50,000
Guzman & Company................................................ 50,000
Hoak Breedlove Wesneski & Co. .................................. 50,000
Interstate/Johnson Lane Corporation............................. 50,000
Janney Montgomery Scott Inc. ................................... 50,000
Johnston, Lemon & Co. Incorporated.............................. 50,000
Klein Investment Group.......................................... 50,000
Ladenburg, Thalmann & Co. Inc. ................................. 50,000
</TABLE>
78
<PAGE> 79
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Legg Mason Wood Walker Incorporated........................ 50,000
McDonald & Company Securities, Inc. ....................... 50,000
The Ohio Company........................................... 50,000
Ormes Capital Markets, Inc. ............................... 50,000
Parker/Hunter Incorporated................................. 50,000
Ragen MacKenzie Incorporated............................... 50,000
Raymond James & Associates, Inc. .......................... 50,000
Robinson-Humphrey Company, Inc. ........................... 50,000
Roney & Co., L.L.C. ....................................... 50,000
Ryan, Beck & Co. .......................................... 50,000
Sutro & Co. Incorporated................................... 50,000
Tucker Anthony Incorporated................................ 50,000
---------
Total............................................ 8,170,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Class A Common Stock are subject to the
approval of certain legal matters by counsel and to certain other conditions. If
any of the shares of Class A Common Stock are purchased by the Underwriters
pursuant to the Underwriting Agreement, all such shares of Class A Common Stock
(other than the shares of Class A Common Stock covered by the over-allotment
option described below) must be so purchased.
Prior to this Offering, there has been no established trading market for
the Class A Common Stock. The initial price to the public for the Class A Common
Stock offered hereby was determined by negotiation between the Company and the
Representatives. The factors considered in determining the initial price to the
public included the history of and the prospects for the industry in which the
Company competes, the ability of the Company's management, the past and present
operations of the Company, the historical results of operations of the Company,
the prospects for future earnings of the Company, the general condition of the
securities markets at the time of this Offering and the recent market prices of
securities of generally comparable companies.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Class A Common Stock to the public initially at
the price to the public set forth on the cover page of this Prospectus and to
certain dealers (who may include the Underwriters) at such price less a
concession not to exceed $0.93 per share. The Underwriters may allow, and such
dealers may reallow, discounts not in excess of $0.10 per share to any other
Underwriter and certain other dealers.
The Company has granted to the Underwriters an option to purchase up to an
aggregate of 1,225,500 additional shares of Class A Common Stock at the initial
public offering price less underwriting discounts and commissions solely to
cover over-allotments. Such option may be exercised in whole or in part from
time to time during the 30-day period after the date of this Prospectus. To the
extent that the Underwriters exercise such option, each of the Underwriters will
be committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment as indicated in
the preceding table.
The Company and the existing stockholders have agreed not to issue, offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for Common Stock for 180 days after
the Effective Date without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation and provided that the Company may issue shares
of Common Stock upon the exercise of outstanding Warrants, grant options
pursuant to the Company's stock option plans described herein
79
<PAGE> 80
and issue shares of Common Stock upon the exercise of options described herein
as outstanding on the date of the closing of the Offering. See "Shares Eligible
for Future Sale."
Up to an aggregate of 400,330 shares of Common Stock, or approximately 4.9%
of the shares offered hereby, have been reserved for sale to certain employees
of the Company and its affiliates and other persons designated by the Company.
The price per share of the shares to be sold to these persons is the same as the
price to the public in the Offering. The maximum investment of any such person
may be limited by the Company in its sole discretion. This program will be
administered by Donaldson, Lufkin & Jenrette Securities Corporation.
The Representatives have informed the Company that they do not expect to
make sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Class A Common Stock offered hereby.
In order to assist the Company in complying with the foreign ownership
restrictions of the Communications Act, the Underwriters have agreed that they
will not knowingly sell any of the Class A Common Stock offered hereby to any
(i) corporation, joint stock company or association organized under the laws of
a country other than the United States, (ii) individual who is a non-U.S.
citizen, (iii) mutual fund organized outside of the United States, (iv)
corporation, joint stock company or association controlled by a non-U.S.
citizen, (v) partnership that has a non-U.S. citizen as its general partner or
that has a general partner controlled by a non-U.S. citizen, (vi) limited
liability company that has a non-U.S. citizen as one of its managing members,
(vii) trust that has a non-U.S. citizen as a trustee, or (viii) other entity
controlled by non-U.S. citizens; provided, however, that the Underwriters are
under no duty to investigate the citizenship, foreign ownership or control or
any other matter with respect to the nature of any purchaser of the shares of
Class A Common Stock.
LEGAL MATTERS
The validity of the shares of the Class A Common Stock offered hereby will
be passed upon for the Company by O'Melveny & Myers LLP, Los Angeles,
California. Certain legal matters will be passed upon for the Underwriters by
Latham & Watkins, Los Angeles, California.
EXPERTS
The consolidated financial statements and schedules of Perenchio
Communications, Inc. and The Univision Network Holding Limited Partnership as of
December 31, 1994 and 1995, and for each of the years ended December 31, 1993,
1994 and 1995, included in the Prospectus have been audited by Arthur Andersen
LLP, independent certified public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement"), of which this Prospectus forms a part, covering
the Class A Common Stock to be sold pursuant to the Offering. As permitted by
the rules and regulations of the Commission, this Prospectus omits certain
information, exhibits and undertakings contained in the Registration Statement.
Such additional information, exhibits and undertakings can be inspected at and
obtained from the Commission at prescribed rates at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at certain regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 13th Floor and 7 World Trade Center, New York,
New York, 10048. The Commission maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. In addition,
the Company's Class A Common Stock has been approved for listing on the NYSE
upon notice of issuance, and reports and other information concerning the
Company may be inspected at the offices of such exchange. For additional
information with respect to the Company, the Class A Common Stock and related
matters and documents, reference is made to the Registration Statement and the
exhibits
80
<PAGE> 81
thereto. Statements contained herein concerning any such document describe the
material terms of such documents but are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement. Each such statement is qualified in its entirety by
such reference.
The Company will issue to its stockholders annual reports and unaudited
quarterly reports for the first three quarters of each fiscal year. Annual
reports will include audited consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States
and a report of its independent public accountants with respect to the
examination of such financial statements. In addition, the Company will issue to
its stockholders such other interim reports as it deems appropriate.
81
<PAGE> 82
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PERENCHIO COMMUNICATION, INC. AND SUBSIDIARIES
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets at December 31, 1994, 1995 and June 30, 1996............ F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994,
1995 and the Six Month Periods Ended June 30, 1995 and 1996...................... F-4
Consolidated Statements of Changes in Stockholders' Deficit For the Years Ended
December 31, 1993, 1994, 1995 and the Six Month Period Ended June 30, 1996....... F-5
Consolidated Statements of Cash Flows For the Years Ended December 31, 1993, 1994,
1995 and the Six Month Periods Ended June 30, 1995 and 1996...................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP AND SUBSIDIARY
Report of Independent Public Accountants............................................ F-22
Consolidated Balance Sheets at December 31, 1994, 1995 and June 30, 1996............ F-23
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994,
1995 and the Six Month Periods Ended June 30, 1995 and 1996...................... F-24
Consolidated Statements of Changes in Partners' Equity For the Years Ended December
31, 1993, 1994, 1995 and the Six Month Period Ended June 30, 1996................ F-25
Consolidated Statements of Cash Flows For the Years Ended December 31, 1993, 1994,
1995 and the Six Month Periods Ended June 30, 1995 and 1996...................... F-26
Notes to Consolidated Financial Statements.......................................... F-27
</TABLE>
F-1
<PAGE> 83
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Perenchio Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Perenchio
Communications, Inc. (a Delaware Corporation) and subsidiaries as of December
31, 1994 and 1995, and the related consolidated statements of operations,
changes in stockholders' deficit and cash flows for each of the three years in
the period ended December 31, 1995 (as restated -- see Note 1). 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Perenchio Communications, Inc.
and subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 31, 1996
(Except with respect to the
matters discussed in Notes 1 and 12, as to
which the date is September 25, 1996.)
F-2
<PAGE> 84
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994, 1995 AND JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------- ------------
1994 1995 1996
(RESTATED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 5,869 $ 14,029 $ 14,156
Accounts receivable, less allowance for doubtful accounts of
$5,090 in 1994, $3,853 in 1995 and $4,672 in 1996.......... 34,136 37,951 36,386
Prepaid expenses and other................................... 2,624 3,043 2,619
-------- -------- --------
Total current assets......................................... 42,629 55,023 53,161
Property and equipment, less accumulated depreciation of
$8,676 in 1994, $13,888 in 1995 and $16,918 in 1996........ 21,332 25,557 28,704
Intangible assets, less accumulated amortization of $58,234
in 1994, $86,498 in 1995 and $100,609 in 1996.............. 484,034 449,383 435,272
Deferred financing costs, less accumulated amortization of
$9,793 in 1994, $13,597 in 1995 and $15,103 in 1996........ 16,273 12,193 10,182
Deferred income taxes........................................ -- 2,000 2,000
Other assets................................................. 1,588 1,746 3,342
-------- -------- --------
Total assets................................................. $565,856 $545,902 $532,661
======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities..................... $ 34,135 $ 41,266 $ 36,099
Due to the Network........................................... 51,340 64,505 36,019
Accrued interest............................................. 6,943 6,281 5,488
Current portion of program rights obligations................ 5,099 1,899 977
Current portion long-term debt............................... 30,033 17,313 37,477
-------- -------- --------
Total current liabilities.................................... 127,550 131,264 116,060
Long-term debt, net of current portion and including accrued
interest................................................... 317,070 249,840 224,495
Related party long-term debt, including accrued interest and
accrued and variable dividends payable..................... 70,722 112,381 117,835
Sponsor loans, including accrued interest.................... 60,482 108,361 131,763
Program rights obligations, net of current portion........... 5,717 753 485
Other long-term liabilities.................................. 1,773 1,301 1,347
Minority interest (including subsidiary's preferred stock and
related dividends due minority stockholders of $715 in
1994, $8,908 in 1995 and $91 in 1996)...................... 11,713 19,059 19,333
Stockholders' deficit:
Common stock; $.01 par value, 10,000 shares authorized,
issued and outstanding..................................... -- -- --
Preferred stock: $.01 par value, 108,000 shares authorized,
90,000 issued and outstanding.............................. 1 1 1
Paid-in-capital.............................................. 22,297 -- --
Accumulated deficit.......................................... (51,469) (77,058) (78,658)
-------- -------- --------
Total stockholders' deficit.................................. (29,171) (77,057) (78,657)
-------- -------- --------
Total liabilities and stockholders' deficit.................. $565,856 $545,902 $532,661
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 85
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995 AND THE
THREE MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
(RESTATED) (UNAUDITED) (UNAUDITED)
Net revenues............... $ 104,675 $ 139,007 $ 173,108 $ 82,279 $91,420
Direct operating
expenses................. 26,247 27,279 36,363 15,201 16,365
Selling, general and
administrative
expenses................. 35,472 46,145 59,384 28,723 34,154
Depreciation and
amortization............. 33,970 31,719 33,506 16,537 17,148
---------- ---------- --------- -------- -------
Operating income........... 8,986 33,864 43,855 21,818 23,753
Interest expense, net...... 33,291 32,852 36,260 18,483 16,695
Interest expense on related
party long-term debt..... 3,605 4,394 3,962 2,200 3,605
Amortization of deferred
financing costs.......... 4,580 5,419 3,925 2,320 1,749
Nonrecurring expense of
acquired station......... -- -- 1,750 -- --
Minority interest in net
income (loss) of
consolidated
subsidiary............... (5,309) (1,202) 7,346 489 274
Provision for income
taxes.................... -- 140 -- -- 500
---------- ---------- --------- -------- -------
Income (loss) before
extraordinary loss on
extinguishment of debt... (27,181) (7,739) (9,388) (1,674) 930
Extraordinary loss on
extinguishment of debt
(net of tax benefit of
$500 in the six-month
period ended 6/30/96).... -- (4,321) (801) -- (681)
---------- ---------- --------- -------- -------
Net income (loss)
applicable to common
stockholders............. $ (27,181) $ (12,060) $ (10,189) $(1,674) $ 249
========== ========== ======== ======= =======
Earnings (loss) per share
before extraordinary
loss..................... $(2,718.10) $ (773.90) $ (1.44) $(167.40) $ 0.14
Earnings (loss) per
share.................... $(2,718.10) $(1,206.00) $ (1.56) $(167.40) $ 0.04
Weighted average number of
common shares outstanding
(Note 12)................ 10,000 10,000 6,526,666 10,000 6,526,666
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 86
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995 AND THE
SIX MONTH PERIOD ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PREFERRED PAID-IN- ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993.............. $ -- $ 1 $ 22,297 $ (1,970) $ 20,328
Dividends declared.................... -- -- -- (4,615) (4,615)
Net loss for the year................. -- -- -- (27,181) (27,181)
------- ------- ------- -------- --------
Balance, December 31, 1993............ -- 1 22,297 (33,766) (11,468)
Dividends declared.................... -- -- -- (5,643) (5,643)
Net loss for the year................. -- -- -- (12,060) (12,060)
------- ------- ------- -------- --------
Balance, December 31, 1994............ -- 1 22,297 (51,469) (29,171)
Dividends declared.................... -- -- (22,297) (15,400) (37,697)
Net loss for the year (as restated)... -- -- -- (10,189) (10,189)
------- ------- ------- -------- --------
Balance, December 31, 1995............ -- 1 -- (77,058) (77,057)
Dividends declared (unaudited)........ -- -- -- (1,849) (1,849)
Net income for the six month period
(unaudited)......................... -- -- -- 249 249
------- ------- ------- -------- --------
Balance, June 30, 1996 (unaudited).... $ -- $ 1 $ -- $ (78,658) $(78,657)
======= ======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 87
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995 AND THE
SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------- ---------------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
(RESTATED) (UNAUDITED) (UNAUDITED)
Net income (loss)...................................... $(27,181) $(12,060) $(10,189) $ (1,674) $ 249
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation........................................... 4,063 4,379 5,243 2,430 3,037
Amortization of intangible assets and deferred
financing costs...................................... 34,487 32,759 32,188 16,427 15,860
Accretion of interest on sponsor loans................. 629 3,125 7,298 3,140 4,642
Nonrecurring expense of acquired station............... -- -- 1,750 -- --
Minority interest...................................... (5,309) (1,202) 7,346 489 274
Extraordinary loss on extinguishment of debt........... -- 1,450 801 -- 1,181
Changes in assets and liabilities:
Accounts receivable.................................. (6,643) (1,671) (3,155) (1,827) 1,565
Due from the Network................................. 42,884 47,349 60,336 27,688 34,697
Due to the Network................................... (45,941) (61,699) (75,319) (32,388) (46,399)
Intangible assets.................................... -- -- 2,000 -- --
Deferred income taxes................................ -- -- (2,000) -- --
Prepaid and other assets............................. 173 (1,521) (264) 655 (1,172)
Accounts payable and accrued liabilities............. 6,374 5,740 4,605 (4,016) (5,960)
Accrued interest portion of long-term debt........... 4,285 5,155 4,819 2,626 4,084
Obligations for program rights....................... -- 8,069 (4,417) (2,289) (1,190)
Other, net........................................... (87) (769) 440 648 47
-------- -------- -------- -------- --------
Net cash provided by operating activities.............. 7,734 29,104 31,482 11,909 10,915
Cash flows from investing activities:
Acquisition of WGBO, including acquisition costs, net
of cash acquired................................... -- (45,042) -- -- --
Acquisition of KXLN, including acquisition costs, net
of cash acquired................................... -- (21,171) -- -- --
Acquisition of property and equipment................ (1,877) (5,379) (10,064) (4,872) (6,183)
Organizational costs................................... -- (3,000) -- -- --
-------- -------- -------- -------- --------
Net cash used in investing activities.................. (1,877) (74,592) (10,064) (4,872) (6,183)
Cash flows from financing activities:
Proceeds from issuance of long term debt............. 31,000 176,000 39,000 30,000 29,000
Proceeds from sponsor loans.......................... 22,792 33,936 45,251 20,544 23,834
Reduction in sponsor loans -- cost sharing
agreement.......................................... -- -- (4,670) -- (5,074)
Repayment of long term debt.......................... (104,014) (161,846) (120,925) (44,039) (35,499)
Advances from the Network............................ 58,582 48,829 51,307 22,457 48,355
Repayments of advances from the Network.............. (10,476) (44,830) (23,159) (36,177) (65,139)
Deferred financing costs............................. (5,834) (2,428) (62) (62) (82)
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities.... (7,950) 49,661 (13,258) (7,277) (4,605)
Net increase (decrease) in cash........................ (2,093) 4,173 8,160 (240) 127
Cash and cash equivalents, beginning of period......... 3,789 1,696 5,869 5,869 14,029
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period............... $ 1,696 $ 5,869 $ 14,029 $ 5,629 $ 14,156
======== ======== ======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid during the period...................... $ 24,808 $ 29,402 $ 28,108 $ 15,456 $ 11,987
======== ======== ======== ======== ========
Supplemental disclosure of non-cash transactions:
Related party notes issued in payment of preferred
stock dividends (Note 5)........................... $ 4,615 $ 5,643 $ 37,697 $ 2,827 $ 1,849
======== ======== ======== ======== ========
Supplemental disclosure of non cash activity regarding
acquisitions:
Total assets acquired, net of cash..................... $ -- $ 82,117 $ -- $ -- $ --
Liabilities assumed.................................... -- (11,774) -- -- --
Net assets acquired.................................... -- 70,343 -- -- --
Accrued acquisition costs.............................. -- (4,130) -- -- --
-------- -------- -------- -------- --------
$ -- $ 66,213 $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 88
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
1. ORGANIZATION AND ACQUISITION
Perenchio Communications, Inc. ("PCI") and its 80% owned subsidiary, PTI
Holdings, Inc. ("PTIH") are beneficially owned by affiliates of A. Jerrold
Perenchio (together with his affiliates "Perenchio"), affiliates of Grupo
Televisa, S.A. de C.V. (together with its affiliates, "Televisa") and Dennevar,
B.V., an affiliate of Venevision International Limited (together with its
affiliates, "Venevision"), (collectively, the "Principal Stockholders").
Perenchio Television, Inc. ("PTI") is a wholly-owned subsidiary of PTIH and
Univision Television Group, Inc. ("UTG") is a wholly-owned subsidiary of PTI.
PCI, PTIH and PTI are holding companies and otherwise inactive. PCI and its
subsidiaries are referred to as "the Company".
PTIH is owned by PCI and affiliates of Televisa and Venevision. In total,
Perenchio indirectly owns 76% of PTIH and Televisa and Venevision each
indirectly own 12%. Each of Televisa and Venevision also own warrants to acquire
from PCI an additional 13% of PTIH, which warrants cannot be exercised by either
Televisa or Venevision (or by any other non-U.S. citizen) unless the foreign
ownership restrictions of the Communications Act of 1934 are amended to permit
increased alien ownership. Subject to certain restrictions, Televisa and
Venevision may transfer such warrants. In the event Televisa and Venevision
exercise these warrants, their ultimate ownership of PTIH would be 25% each.
On December 17, 1992 (effective close of business December 16, 1992),
Univision Station Group, Inc. ("USG") and KTVW, Inc. ("KTVW") were acquired by
PCI with USG as the ultimate surviving corporation changing its name to UTG.
PCI and its subsidiaries had no operations prior to the acquisitions. The
aggregate purchase price for USG and KTVW was approximately $489,000,000,
including approximately $11,000,000 of acquisition costs. A subordinated note
due from PTIH to the seller (which was subsequently sold to a third party and
then sold to the public as a series of notes) financed $5,442,000 of the
purchase price. These subordinated notes are not guaranteed in any form by PTI
nor secured by its assets. The acquisition was accounted for under the purchase
method of accounting. Accordingly, the assets acquired and liabilities assumed
have been recorded at the fair values at the date of the acquisition. In
addition to current assets and liabilities, the purchase price was allocated
principally to property and equipment of approximately $22,000,000 and
intangible assets of approximately $473,000,000 comprised of approximately
$270,000,000 attributable to affiliation agreements, approximately $156,500,000
attributable to FCC television broadcast licenses and approximately $46,500,000
attributable to all other intangible assets including goodwill.
On August 2, 1994, the Company completed its acquisition of all of the
stock of Combined Broadcasting of Chicago, Inc. The purchase price was
approximately $36,000,000 plus the assumption of program rights obligations
totaling approximately $11,000,000. The unpaid portion of program rights
obligations is payable in varying amounts through the year 1999. The acquisition
was financed with borrowings from the Bank Facilities. Substantially all of the
purchase price has been allocated to intangible assets.
On September 30, 1994, the Company completed its acquisition of all the
stock of Pueblo Broadcasting Corporation which owns and operates a television
station affiliated with the Network serving Houston, Texas. The purchase price
was approximately $20,000,000 and was financed with borrowings from the Bank
Facilities and cash generated through operations. Substantially all of the
purchase price has been allocated to intangible assets. The impact of the
Chicago and Houston acquisitions were not material to the Company financial
statements taken as a whole.
The accompanying 1995 financial statements have been restated to reflect an
expense of $1,750,000 which had been previously accrued as part of the purchase
price of an acquired station. The earnings per share impact of this restatement
on the loss before extraordinary loss and net income (loss) applicable to common
stockholders is $(0.21).
F-7
<PAGE> 89
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
The Company owns and operates eleven Spanish-language full-power television
stations serving New York, Los Angeles, Miami, San Antonio, San Francisco,
Fresno, Dallas, Phoenix, Albuquerque, Houston and Chicago and six
Spanish-language low-power television stations serving Hartford, Philadelphia,
Tucson, Austin, Albuquerque and Bakersfield. The Company's television stations
are affiliated with the Spanish-language television network owned and operated
by The Univision Network Limited Partnership (the "Network"), which is also
ultimately beneficially owned by the Principal Stockholders. See Note 3.
The businesses of the Company and the Network are under separate management
and ownership structures. Notwithstanding this separation, the business
operations of the Company and the Network remain substantially dependent on one
another. The Company is dependent on the Network for programming and advertising
sales support while the Company represents 72% and 71% of the Network's total
coverage of Hispanic households in the U.S. for 1995 and 1996, respectively. The
Company and the Network are collectively referred to herein as the "Univision
Group."
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts and operations
of the Company and reflect the acquisitions described above under the purchase
method of accounting. All significant intercompany accounts and transactions
have been eliminated. Certain reclassifications have been made to the prior year
financial statements to conform with current presentation.
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 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.
The Company's operations and its ability to grow may be affected by
numerous factors, including changes in audience tastes, priorities of
advertisers, new laws and governmental regulations and policies, changes in
broadcast technical requirements, technological advances, proposals to eliminate
the tax deductibility of certain advertising expenses incurred by advertisers
and changes in the willingness of financial institutions and other lenders to
finance television station acquisitions and operations. The Company cannot
predict which, if any, of these or other factors might have a significant impact
on the television industry 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.
Property and Equipment and Related Depreciation
Property and equipment is carried on the basis of cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets. Buildings and improvements are depreciated over 5 to 20 years; broadcast
and other equipment over 3 to 7 years. Leasehold improvements are amortized over
the remaining life of the lease. Depreciation and amortization include
depreciation on property and equipment of $4,063,000, $4,379,000, $5,243,000,
$2,430,000 and $3,037,000 for the years ended December 31, 1993, 1994, 1995 and
the six month periods ended June 30, 1995 and 1996, respectively, of which
$3,535,000, $3,826,000, $4,581,000, $2,123,000 and $2,654,000 relate to direct
operating expense and $528,000, $553,000, $662,000,
F-8
<PAGE> 90
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
$307,000 and $383,000 relate to selling, general and administrative expenses for
the years ended December 31, 1993, 1994, 1995 and the six month periods ended
June 30, 1995 and 1996, respectively.
Intangible Assets
Intangible assets consist of amounts by which the cost of acquisitions
exceeded the values assigned to net tangible assets. The intangible assets
primarily represent broadcasting licenses, network affiliation agreements,
pre-sold advertising contracts, organization costs and goodwill. Pre-sold
advertising contracts were amortized over a three month period ($4,734,000 in
1993 and $836,000 in 1994), organization costs of $11,164,000 are amortized over
a five year period and all other intangible assets are being amortized on the
straight-line method over 20 years.
Subsequent to the acquisitions, the Company continually evaluates whether
later events and circumstances have occurred that indicate the remaining
estimated useful life of intangible assets may warrant revision or that the
remaining balance of such assets may not be recoverable. When factors indicate
that intangible assets should be evaluated for possible impairment, the Company
uses an estimate of the undiscounted operating income over the remaining life of
the intangible assets in measuring whether the intangible assets are
recoverable.
Deferred Financing Costs
Deferred financing costs are amortized over the life of the related debt
or, in the case of interest rate protection instruments, over the period of the
instrument.
Accounts Payable and Accrued Liabilities
As of December 31, 1994, 1995 and June 30, 1996 accounts payable and
accrued liabilities is comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Trade accounts payable and accruals........... $15,432 $15,324 $ 15,373
Severance and litigation costs................ 5,658 9,954 9,481
Acquired stations integration costs (see note
1).......................................... 3,170 2,305 2,112
Facility consolidation costs.................. 3,885 4,138 2,147
Research costs................................ 1,140 612 355
Other......................................... 4,850 8,933 6,631
------- ------- -------
$34,135 $41,266 $ 36,099
======= ======= =======
</TABLE>
Minority Interest
Minority interest represents the 20% interest in PTIH held by minority
stockholders. Additionally, it includes the PTIH consolidated preferred stock
and related dividends due minority stockholders. To the extent that the minority
interest in the book value of PTIH, represents an asset, the Company charges the
asset against the majority interest. Subsequent profits earned by PTIH
applicable to the minority interest are allocated to the majority interest to
the extent that minority losses have been previously absorbed by the majority
stockholder.
F-9
<PAGE> 91
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
Net Revenues
Net revenues represent gross revenues, including an allocation of network
revenues, less agency commissions and a network service fee. Gross revenues and
the related agency commissions and network service fees are recognized when
advertising spots are broadcast. Agency commissions totaled $29,319, $35,390,
$47,114, $22,318 and $24,966 for the years ended December 31, 1993, 1994 and
1995 and the six month periods ended June 30, 1995 and 1996, respectively.
Network service fees totaled $74,645, $73,459, $105,274, $49,742 and $55,637 for
the years ended December 31, 1993, 1994 and 1995 and the six month periods ended
June 30, 1995 and 1996, respectively.
Barter Transactions
The Company exchanges broadcast time for certain merchandise and services.
Barter 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. Barter expense and the related liability are recorded when
the goods or services are used or received.
Accounting for Impairment of Long-lived Assets
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 121 -- "Accounting for the Impairment
of Long-lived Assets and for Long-lived Assets to be Disposed of." This
statement requires long-lived assets to be held and be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Measurement of an impairment loss for
long-lived assets and identifiable intangibles to be held and used should be
based on the fair value of the asset. It also requires that those long-lived
assets and identifiable intangibles to be disposed of should be reported at the
lower of carrying amount or fair value less cost to sell. This standard is
required to be adopted in 1996. Management estimates that the adoption of this
standard will not have a material effect on the Company's financial statements.
Earnings Per Share
The effect of the warrants on the earnings per share calculation for 1993,
1994 and 1995 has not been presented as it was anti-dilutive.
3. RELATED PARTY TRANSACTIONS
In the normal course of business, the Company engages in significant
transactions with the Network and, through other agreements, with the Principal
Stockholders, as described below.
(a) NETWORK
Network Affiliation Agreements
Pursuant to Network Affiliation Agreements, the Network acts as the
Company's exclusive sales representative for the sale of all national spot and
network advertising. The Network allocates a portion of network advertising
revenues to the Company's stations based on a formula. National spot sales
represent time sold on behalf of the Company's stations by sales representatives
employed by the Network. Proceeds of Network sales are remitted to the Company
by the Network, net of an agency commission and a network service fee, as
described below.
F-10
<PAGE> 92
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
The Network is obligated to offer programming to the Company and its
Affiliated Stations for a minimum of 84 hours per week. For this service, the
Company incurs a network service fee due the Network of 43% in 1993 and 38% in
1994, 1995 and first half 1996, of its net local, national and network sales
revenues, subject to certain adjustments. The Network receives two minutes of
air time for its own use each hour for which no compensation is received by the
Company. Net revenues for the years ended December 31, 1993, 1994, 1995 and the
six month periods ended June 30, 1995 and 1996 includes $88,569,000,
$99,127,000, $140,465,000, $69,882,000 and $73,484,000, respectively, in gross
revenues representing the Company's allocation of network sales, partially
offset by a network service fee of $74,645,000, $73,459,000, $105,274,000,
$49,742,000 and $55,637,000 for the years ended December 31, 1993, 1994, 1995,
and the six month periods ended June 30, 1995 and 1996, respectively.
Cash Management
The Company and the Network share a cash management system under which all
excess cash at the Network is loaned daily on a subordinated basis from the
Network to the Company (and cash shortfalls at the Network are funded by
repayments or by subordinated loans from the Company to the Network). No
interest is incurred on these subordinated loans. The net amount transferred to
(from) the Company for the years ended December 31, 1993, 1994, 1995 and the six
month periods ended June 30, 1995 and 1996 totaled $48,106,000, $3,999,000,
$28,148,000, $(13,720,000) and $(16,784,000), respectively. In 1993, 1994 and
1995, the net cash transferred from the Network to the Company was impacted by
the transfer of net cash generated by the Network's operations, the proceeds
from amounts received by the Network under the Program Cost Sharing Agreements,
and the proceeds from an advertiser prepayment covering the first half of 1994,
1995 and 1996.
The amounts loaned to the Network pursuant to the Program Cost Sharing
Agreements were repaid to Televisa, with interest, on January 28, 1994, at which
time the Company had to make available to the Network approximately $16,200,000.
In addition, on January 18, 1994, on January 18, 1995 and on January 18, 1996,
the Network paid the fourth quarter 1993, 1994 and 1995 license fees totaling
$8,708,000, $10,737,000, and $12,986,000, respectively, which the Company had to
make available to the Network. The net cash transferred to the Company from the
Network was also impacted by a change to Univision Group's cash management
system during 1993, wherein the Network's depository accounts system was
replaced by the Company's system. Payments received are remitted through the
cash transfer system described above.
Other
The Company and the Network share certain financial and administrative
personnel and facilities, and are parties to certain combined agreements. For
the years ended December 31, 1993, 1994, 1995 and the six month periods ended
June 30, 1995 and 1996, the Company charged the Network (net) $2,326,000,
$3,541,000, $3,330,000, $1,648,000 and $1,722,000, respectively, for costs
related to these items. These amounts are based upon management's estimates of
the actual costs of such services provided.
(b) PRINCIPAL STOCKHOLDERS
Senior Subordinated and Subordinated Notes Payable -- see Note 5.
Sponsor Loans
In connection with the acquisition of UTG and the Network, and the related
financing, Televisa and Venevision have agreed to provide loans to UTG
approximately 15 days after the end of each quarter in amounts as required by
its senior lenders subject to certain thresholds (as defined) of the Univision
Group
F-11
<PAGE> 93
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
("Sponsor Loans"). The obligation to make such loans terminates at such time as
the Company and the Network have distributed to the Principal Stockholders the
aggregate amount of $100 million through dividends or other distributions (the
"Return of Initial Financing"). Each Sponsor Loan is subordinated to all bank
debt and Senior Subordinated Notes (third party acquisition financing), has an
initial term of 15 years, bears interest at a rate of the lesser of the prime
rate or 10%, and requires no payment of interest or principal until maturity.
The Sponsor Loans are guaranteed by the Network and PTIH. Such guarantees are
subordinated to the Network guarantee of third party acquisition financing. Upon
the Return of Initial Financing, the holders of the Sponsor Loans may convert
them to conversion notes, which will be similar to the Sponsor Loans with
respect to subordination and interest, but will be payable in seven annual
installments, subject to certain restrictions. The Sponsor Loans are made
quarterly in arrears approximately fifteen days after quarter end. There were no
Sponsor Loans made through December 31, 1992. During 1993, 1994, 1995 and the
first half of 1996, Sponsor Loans were made totaling $22,792,000, $33,936,000,
$45,251,000 and $23,834,000, respectively. As of December 31, 1993, 1994, 1995
and June 30, 1996 accrued interest on these loans totaled $629,000, $3,754,000,
$11,052,000 and $15,694,000, respectively. In December 1995 and March 1996,
Televisa and Venevision assigned to the Network $4,670,000 and $5,074,000,
respectively, of Sponsor Loans owed to them by the Company. The assignment was
in lieu of payment for program production costs, under the Program Cost Sharing
Agreements to be incurred by the Network in the first quarter of 1996. This
assignment is shown as a reduction to the Company's Sponsor Loans amount and an
increase in the Due to the Network liability of $9,744,000 at June 30, 1996.
Other
The Principal Stockholders incurred financing and acquisition costs prior
to the acquisitions. The Principal Stockholders were reimbursed on December 17,
1992 for all of these costs except for $1,000,000 withheld from each. This
$3,000,000 was paid to the Principal Stockholders on March 14, 1994.
4. PROPERTY AND EQUIPMENT
Property and equipment, and accumulated depreciation and amortization,
consist of the following as of December 31, 1994, 1995 and June 30, 1996 (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Land and improvements....................... $ 2,394 $ 2,394 $ 2,394
Building and improvements................... 3,689 4,666 4,963
Broadcast equipment......................... 20,060 27,699 32,065
Other equipment............................. 2,519 4,022 4,563
Construction in progress.................... 1,346 664 1,637
------- -------- --------
30,008 39,445 45,622
Accumulated depreciation and amortization... (8,676) (13,888) (16,918)
------- -------- --------
$21,332 $ 25,557 $ 28,704
======= ======== ========
</TABLE>
F-12
<PAGE> 94
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
5. DEBT
Long-term debt (excluding the Sponsor Loans) consists of the following at
December 31, 1994, 1995 and June 30, 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Bank term facility......................... $155,000 $107,250 $107,250
Standby term facility...................... 50,000 50,000 50,000
Bank working capital facility.............. 35,000 9,000 16,000
Senior subordinated notes.................. 99,600 92,050 79,400
Junior subordinated notes payable including
accrued interest......................... 6,911 7,768 8,247
Related party senior subordinated notes.... 39,425 65,204 65,204
Related party subordinated debt............ 12,677 19,530 19,530
Accrued interest -- related party senior
subordinated notes and related party
subordinated debt........................ 8,158 12,120 15,725
Variable dividend payable.................. 10,462 15,527 17,376
Other...................................... 592 1,085 1,075
-------- -------- --------
417,825 379,534 379,807
Less current portion....................... (30,033) (17,313) (37,477)
-------- -------- --------
Long term debt............................. $387,792 $362,221 $342,330
======== ======== ========
</TABLE>
The bank facilities consisted of a $210 million five-year amortizing term
loan ("Term Facility") and a $65 million six-year revolving credit loan
("Working Capital Facility," and together with the Term Facility, the "Bank
Facilities"). The Term Facility and a portion of the Working Capital Facility
were used to finance the acquisitions described in Note 1. The Bank Facilities
require, among other things, mandatory prepayments equal to 75% of excess cash
flow (as defined) of the Univision Group, in addition to net proceeds (as
defined) received by the Univision Group in certain situations from the sale or
other disposition of assets, to be applied to ratably reduce the Term Facility
and the availability under the Working Capital Facility. Any such mandatory
prepayments reduce the scheduled amortization of the Term Facility in inverse
order of maturity.
UTG amended its Bank Facilities during the 1994 period. The amended Bank
Facilities, which total $400 million, consist of a $180 million five-year
amortizing term loan, a $70 million six-year revolving credit loan, a $30
million six-year term loan, a $20 million five and one-half year term loan and a
$100 million five and one-half year term loan available under a revolving credit
facility, which to-date has not been borrowed against. The amendments, among
other things, lengthened the maturity of the loans, adjusted certain financial
covenants and lowered the applicable margin, as defined, on reference rate loans
(to 0% to .5% per annum) and Eurodollar rate loans (to 1% to 1.75% per annum).
Proceeds from the refinancing were also used to fund the station acquisitions,
described in Note 1, provide the Network with cash to repay advances, made under
the Program Cost Sharing Agreements together with accrued interest and to pay
fees associated with these amendments. (See Note 3.)
Interest is payable on fixed-rate borrowings at maturity of the borrowing,
up to a maximum of three months, and payable quarterly on floating rate loans.
At December 31, 1995, interest rates were 6.60% to 8.50% on the Bank Facilities.
In January 1993, the Company purchased interest rate protection covering
borrowings under the Bank Facilities of $165,000,000 through January 1995, and
of $75,000,000 from
F-13
<PAGE> 95
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
January 1995 through January 1996, which caps Eurodollar rates at 4 3/8%, 6% and
6 7/8% for each of the three years in the period, respectively. The fee paid for
the interest rate protection instruments of $1,330,000 was capitalized as
deferred financing costs and is being amortized over the period of the
instruments on the straight line basis. A commitment fee is payable on the
unused portion of the Working Capital Facility equal to one half of one percent
of such amount.
The Bank Facilities are secured by a security interest in substantially all
of the assets of the Univision Group (subject to limitations of federal law in
the case of the FCC licenses of the Company), and the rights of the Univision
Group under certain Program License Agreements and Program Cost Sharing
Agreements between the Network and Televisa and Venevision. The Bank Facilities
are also guaranteed by UNHP and PTI.
As of December 31, 1995 the Company had $161.0 million available under the
Bank Facilities.
The Senior Subordinated Notes mature on January 15, 2001 and are
subordinate to all Senior Indebtedness of the Company, including amounts
outstanding under the Bank Facilities. The Notes accrue interest at a rate of
11 3/4%, payable semi-annually on January 15 and July 15. The first payment was
made on July 15, 1993. The Notes are jointly, severally and unconditionally
guaranteed by the Network, UNHP and PTI and may be redeemed at a premium at the
option of the Company, either in whole or in part, beginning in January 1997.
The Company may be required to repurchase all or part of the Senior Subordinated
Notes outstanding in the event of a change in control (as defined). As of
December 31, 1994, 1995 and June 30, 1996 there were $99,600,000, $92,050,000
and $79,400,000, respectively, of these notes outstanding.
The Junior Subordinated Notes, which have a face value of $10,306,000 and
bear simple interest at 7%, were originally payable by PTIH to Hallmark Cards,
Inc. ("Hallmark") in connection with the acquisition from the previous owner.
The previous owner has since sold these Junior Subordinated Notes to a third
party, which resold them to the public as a series of notes. The Junior
Subordinated Notes are unsecured and all interest and principal is due on
December 17, 2002. The Junior Subordinated Notes were discounted at an effective
rate of approximately 12.5% in accordance with the purchase method of accounting
described in Note 1. The discount ($3,395,000, $2,538,000 and $2,059,000) at
December 31, 1994, 1995 and June 30, 1996, respectively), which is shown as a
reduction of the related debt, is being amortized under the interest method over
the term of the Junior Subordinated Notes.
Related party senior subordinated notes represents notes due to affiliates
of Televisa and Venevision. These mature on December 16, 2003 and are
subordinated to all Senior Indebtedness of the Company, including amounts
outstanding under the Bank Facilities. The Notes accrue interest at a rate equal
to the AFR average rate which was 7.26%, 6.99% and 6.99% at December 31, 1994,
1995 and June 30, 1996, respectively, payable on December 16, 2005 and were
$39,425,000 at December 31, 1994, 1995 and June 30, 1996, respectively. Also,
notes to the Principal Stockholders (at the PCI level) that mature on December
17, 2003 and accrue interest at a rate of 6.36% payable on December 16, 2003
were $0, $25,779,000 and $25,779,000 at December 31, 1994, 1995 and June 30,
1996, respectively.
Related party subordinated debt represents debt due to affiliates of
Televisa and Venevision. These notes mature on December 16, 2005 and are
subordinated to all indebtedness of the Company, including amounts outstanding
under the Bank Facilities. The related party subordinated debt accrues interest
at a rate equal to 0.5% per annum in excess of the AFR average rate which was
7.76%, 7.49% and 7.49% at December 31, 1994, 1995 and June 30, 1996,
respectively, payable on December 16, 2005 and were $12,677,000 at December 31,
1994, 1995 and June 30, 1996, respectively. Also, notes to Principal
Stockholders mature on December 31,
F-14
<PAGE> 96
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
2005 and accrue interest at a rate of 6.86% payable on December 16, 2005, were
$0, $6,853,000 and $6,853,000 at December 31, 1994, 1995 and June 30, 1996,
respectively.
The accrued interest payable on the Related Party Senior Subordinated Notes
and the Related Party Subordinated Debt was $8,158,000, $12,120,000 and
$15,725,000 at December 31, 1994, 1995 and June 30, 1996, respectively. Interest
expense was $3,605,000, $4,394,000 $3,962,000, $2,200,000 and $3,605,000 for the
years ended December 31, 1993, 1994, 1995 and the six month periods ended June
30, 1995 and 1996, respectively.
The Senior Subordinated Debt - Principal Stockholders (at the PTIH level)
matures on December 16, 2003 and is subordinated to all Senior Indebtedness of
the Company, including amounts outstanding under the Bank Facilities. The Senior
Subordinated Debt-Principal Stockholders accrued interest at a rate of 6.66% and
is payable on December 16, 2003. This debt arose from the preferred stock
dividends which were declared by PTIH to the minority stockholders effective
December 31, 1995. These dividends have been reflected as minority interest in
PCI's 1995 financial statements.
Long-term debt matures as follows (in thousands):
<TABLE>
<CAPTION>
AT
DECEMBER 31,
1995
------------
<S> <C>
1996............................ $ 17,313
1997............................ 40,341
1998............................ 50,343
1999............................ 59,292
2000............................ 31
Thereafter...................... 212,214
--------
Total........................... $379,534
========
</TABLE>
The Bank Facilities and Notes place various limitations and other
restrictions on the Univision Group, PTI and UNHP regarding, among other things,
the incurrence of indebtedness and liens, payment of dividends, disposition of
assets, and transactions with affiliates. In addition, the Bank Facilities
contain several performance tests based upon the Univision Group's operating
cash flow (as defined).
The Company estimates that the fair value of the bank debt at December 31,
1995 approximates book value. The fair value and the carrying value of the Notes
is approximately $103,600,000 and $99,600,000, respectively, as of December 31,
1994, $98,500,000 and $92,050,000 respectively, as of December 31, 1995 and
$85,000,000 and $79,400,000, respectively, as of June 30, 1996. The fair value
of the Sponsor Loans due to Televisa and Venevision as of December 31, 1994 and
1995 is not determinable due to the unique provisions contained in the loan
agreements.
F-15
<PAGE> 97
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
Interest expense, net, reflected in the accompanying consolidated
statements of operations is comprised of the following for the years ended
December 31, 1993, 1994, 1995 and the six month periods ended June 30, 1995 and
1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Bank Facilities.......... $15,476 $15,194 $16,884 $ 9,031 $ 6,702
Notes.................... 16,450 13,752 11,519 5,878 5,058
Sponsor Loans............ 629 3,125 7,298 3,140 4,642
Junior Subordinated
Notes.................. 679 763 857 426 479
Other - Net.............. 57 18 (298) 8 (186)
------- ------- ------- ------ ------
$33,291 $32,852 $36,260 $18,483 $16,695
======= ======= ======= ====== ======
</TABLE>
Condensed financial information of UNHP and subsidiary is presented below
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Current assets........................... $ 89,516 $102,149 $ 88,892
Intangible assets........................ 13,397 8,977 6,769
Other assets............................. 41,188 49,239 74,803
-------- -------- --------
Total assets............................. $144,101 $160,365 $170,464
======== ======== ========
Current liabilities...................... $ 77,774 $ 78,821 $ 59,111
Non current liabilities.................. 57,538 66,654 91,015
Total liabilities........................ 135,312 145,475 150,126
Partnership equity....................... 8,789 14,890 20,338
-------- -------- --------
Total liabilities and partnership
equity................................. $144,101 $160,365 $170,464
======== ======== ========
</TABLE>
For the years ended December 31, 1993, 1994, 1995 and for the six month
periods ended June 30, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------- -------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Net revenues........................ $109,365 $132,746 $148,231 $70,419 $79,436
======== ======== ======== ======= =======
Net income (loss)................... $ 3,016 $ (554) $ 6,851 $ 2,065 $ 5,471
======== ======== ======== ======= =======
</TABLE>
F-16
<PAGE> 98
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
6. COMMITMENTS
The Company is obligated under long-term leases expiring at various dates
through 2015 for office, studio, automobile and tower rentals. The following is
a schedule by year of future annual rentals under leases as of December 31, 1995
(in thousands):
<TABLE>
<CAPTION>
OPERATING
Year Ending December 31: LEASES
<S> <C>
1996............................................................... $ 3,895
1997............................................................... 3,809
1998............................................................... 3,920
1999............................................................... 3,766
2000............................................................... 3,239
Thereafter......................................................... 16,806
-------
Total minimum lease payments....................................... $35,435
-------
</TABLE>
Rent expense totalled $2,403,000, $2,718,000, $4,460,000, $2,399,000 and
$2,006,000 for the years ended December 31, 1993, 1994, 1995 and the six month
periods ended June 30, 1995 and 1996, respectively.
7. EMPLOYEE BENEFITS
The Company has a 401(k) retirement savings plan (the "Plan") covering all
employees who have completed one year of service. The Plan allows the employees
to defer a portion of their annual compensation, and the Company may match a
portion of the employees' contributions. During 1993, 1994, 1995 and first half
of 1996 the Company made matching contributions to the Plan totalling $99,000,
$171,000, $478,000 and $293,000, respectively. No contributions were made for
periods prior to 1993.
8. CONTINGENCIES
On August 4, 1995, a jury in the 57th District Court of Bexar County, Texas
returned an adverse verdict against Univision Television Group, the successor to
Univision Station Group, in Emilio Nicolas, Jr. v. Univision Station Group. The
lawsuit, among other things, alleged breach of a September 1990 separation
agreement following the plaintiff's termination from USG's Los Angeles station.
The jury found USG had breached certain provisions of the agreement. It also
found that USG inflicted emotional distress, and violated California Labor Code
Section 1050, by making a misrepresentation to a prospective employer to prevent
plaintiff's employment. Under that Section any damages amount for a violation is
trebled. If a judgment had been entered on all issues, the total amount after
the statutory trebling would have been $6,800,000, plus prejudgment interest and
attorneys fees, in an amount as yet undetermined.
The events which led to the plaintiff's lawsuit occurred before the current
ownership took control of UTG. The Company strongly disagreed with the verdict
and filed pleadings requesting the trial court to enter judgment in the
Company's favor notwithstanding the jury's verdict.
On December 12, 1995 the trial court partially granted the Company's motion
for judgment notwithstanding the verdict. Accordingly, the trial court rendered
judgment that plaintiff recover $5,425,000, denied the plaintiff's motion to
recover an additional $1,400,000 and denied the plaintiff's motion to recover
prejudgment interest and attorneys fees. Both parties then filed motions for a
new trial but agreed to pursue mediation before having those motions decided. As
a result of the mediation, the parties reached a compromise agreement on
February 15, 1996 settling the litigation, without any admission of wrongdoing
on
F-17
<PAGE> 99
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
the part of the Company. Pursuant to that settlement, the trial court entered an
agreed upon modified judgment providing that plaintiff recover $2,975,000 in
full satisfaction of his claims. Thereafter, the Company paid the recovery
awarded in the modified judgment, in consideration for which plaintiff released
the Company from the modified judgment and from any and all claims. After
consummation of the settlement, the trial court rendered an agreed upon final
judgment that plaintiff take nothing from the Company.
There are various legal actions and other claims pending against the
Company incidental to its business and operations. The Company has accrued
amounts it believes are reasonable and, in the opinion of management, the
resolution of these matters will not have a material effect on its consolidated
financial position or results of operations.
The Company's television station serving Los Angeles, California accounted
for 35%, 35%, 36%, 36% and 38% of the Company's gross advertising revenues for
the years ended December 31, 1993, 1994, 1995 and the six month periods ended
June 30, 1995 and 1996, respectively, and 34%, 33% and 37% of trade accounts
receivable as of December 31, 1994, 1995 and June 30, 1996, respectively. The
Company's television station serving Miami, Florida accounted for 17%, 17%, 20%,
20% and 20% of the Company's gross advertising revenues for the years ended
December 31, 1993, 1994, 1995 and the six month periods ended June 30, 1995 and
1996, respectively, and 20%, 22% and 19% as of December 31, 1994, 1995 and June
30, 1996, respectively.
9. INCOME TAXES
The Company files a consolidated Federal income tax return.
The Company accounts for income taxes under the liability method pursuant
to Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets as of December
31, 1994, 1995 and June 30, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
Deferred tax assets: 1994 1995 1996
<S> <C> <C> <C>
Tax basis of property and equipment in
excess of book basis..................... $ 400 $ 100 $ --
Accrued insurance and litigation........... 1,700 3,100 3,700
Accrued vacation........................... 400 300 300
Deferred compensation...................... 600 300 300
Purchase accounting accruals............... 4,800 3,300 2,500
Allowance for bad debts.................... 1,700 1,300 1,600
Net operating loss carryforwards........... 40,000 41,100 41,100
------- ------- -------
Total deferred tax assets.................. 49,600 49,500 49,500
Valuation allowance for deferred tax
assets................................... (49,600) (47,500) (47,500)
------- ------- -------
Net deferred tax assets.................... $ 0 $ 2,000 $ 2,000
======= ======= =======
</TABLE>
No federal income taxes have been provided for the years ended December 31,
1995, 1994 and 1993, as the Company had a loss for both financial reporting and
tax purposes.
At December 31, 1995, the Company has net operating loss carryforwards of
$80,000,000 that expire in years 2002 through 2005, resulting from prior
acquisitions. When realized, the tax benefit of those items will be applied to
reduce goodwill related to the acquisitions. The Company also has net operating
loss
F-18
<PAGE> 100
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
carryforwards of approximately $45,500,000 for financial reporting purposes and
$52,000,000 for income tax purposes which were generated subsequent to the
above-mentioned acquisitions, that expire in years 2007 through 2010. At
December 31, 1995 the Company recorded a deferred tax asset of $2,000,000 for
the benefit, management believes more likely than not, will be realized from
these net operating loss carryforwards. The realization of any loss
carryforwards is contingent upon the Company generating income in future years,
and further, may be limited by the impact of the ownership change resulting from
the acquisitions described in Note 1 and by the tax allocation agreement
described above.
For financial reporting purposes, a valuation allowance of approximately
$47,500,000 at December 31, 1995 has been recognized to offset the deferred tax
assets related to these carryforwards and other temporary differences. The
amount of the deferred tax assets considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
For financial reporting purposes, as of December 31, 1995, the Company has
intangible assets of approximately $449,000,000 which are being amortized over a
20 year period. For tax purposes, the Company has remaining intangible assets of
approximately $42,000,000 which will be deducted over the next three years.
10. EARLY EXTINGUISHMENT OF DEBT
During the quarter ended June 30, 1994, UTG purchased at a premium
$37,200,000 face amount of its 11 3/4% Senior Subordinated Notes due 2001. The
purchase resulted in an extraordinary loss of $4,081,000, including the write
off of the related deferred financing costs. During the quarter ended September
30, 1995, UTG purchased at a premium an additional $4,050,000 face amount of
Senior Subordinated Notes. The purchase resulted in an extraordinary loss of
$433,000, including the write off of the related deferred financing costs.
During the quarters ended December 31, 1995 and 1994, UTG purchased at a premium
an additional $3,500,000 and $3,200,000 face amount of Senior Subordinated
Notes. The purchases resulted in an extraordinary loss of $368,000 and $240,000,
including the write off of the related deferred financing costs at December 31,
1995 and 1994, respectively. During the quarter ended March 31, 1996, UTG
purchased at a premium $3,000,000 face amount of its 11 3/4% Senior Subordinated
Notes due 2001. The purchase resulted in an extraordinary loss of $283,000
including the write off of the related deferred financing costs. During the
quarter ended June 30, 1996 UTG purchased at a premium $12,650,000 face amount
of its 11 3/4% Senior Subordinated Notes due 2001. The purchase resulted in an
extraordinary loss of $1,181,000 including the write off of the related deferred
financing costs.
11. PREFERRED STOCK AND RELATED PARTY DEBT
At December 31, 1995 and 1994, PTIH had 108,000 shares of preferred stock
authorized and 90,553 shares issued and outstanding. Of the amount issued and
outstanding, 72,553 shares, 9,000 shares and 9,000 shares have been designated
Class P, T and V Participating Preferred Stock ("Preferred Stock"),
respectively. The Class P shares are held by PCI. The Preferred Stock is
entitled to a fixed dividend of $1,167.89 per share for the Class P shares and
$459.27 per share for both the Class T and V shares ("Fixed Dividends"), in
addition to a cumulative annual dividend based upon a variable interest rate
("Variable Dividends") in an amount equal to interest on Class P, T and V
"Assumed Principal Amounts" from December 17, 1992 until paid. All Fixed and
Variable Dividends are payable prior to the payment of any common stock
dividends, in which the Preferred Stock generally participates on a
share-for-share basis, including any such dividends resulting from a liquidation
or dissolution of PTIH. All shares of Preferred Stock have the same voting
rights as common stock, generally on a share-for-share basis.
F-19
<PAGE> 101
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
At December 31, 1995 and 1994, PCI had 108,000 shares of preferred stock
authorized and 90,000 shares issued and outstanding. Of the amount issued and
outstanding, 85,500 shares, 2,250 shares and 2,250 shares have been designated
Class P, T and V Participating Preferred Stock ("Preferred Stock"),
respectively. The Preferred Stock is entitled to a fixed dividend of $362.58 per
share for the Class P, T and V shares ("Fixed Dividends"), in addition to a
cumulative annual dividend based upon a variable interest rate ("Variable
Dividends") in an amount equal to interest on Class P, T, and V "Assumed
Principal Amounts" from December 17, 1992 until paid. All Fixed and Variable
Dividends are payable prior to the payment of any common stock dividends, in
which the Preferred Stock generally participates on a share-for-share basis,
including any such dividends resulting from a liquidation or dissolution of PCI.
All shares of Preferred Stock have the same voting rights as common stock,
generally on a share-for-share basis.
Effective December 31, 1995, the Fixed Dividends aggregating $40,899,060
were paid in the form of Senior Subordinated and Subordinated Notes (see Note
5).
12. THE OFFERING
In June 1996, the name of PCI was changed to Univision Communications Inc.
In June 1996, the Company filed a registration statement on Form S-1 with
the Securities and Exchange Commission and later amended it for the sale of up
to 8,170,000 shares of Class A common stock. The net proceeds to the Company
from this offering are intended, along with the proceeds from a new credit
facility, to be used to refinance the existing Bank Facility, to re-pay existing
long-term debt, to fund capital expenditures and for general corporate and
working capital purposes.
Concurrent with the Offering, the Company intends to exchange PCI preferred
stock and PTIH common and preferred stock outstanding for PCI common stock
resulting in 126,666 common shares outstanding prior to the Reorganization. Pro
forma earnings per share for the year ended December 31, 1995 and for the six
months ended June 30, 1996 have been presented to reflect the conversion. Also,
pro forma earnings per share for those periods have been presented to reflect
the distribution of $93.0 million and the payment of $35.0 million in dividends
to be paid to the principal stockholders out of the proceeds of the Offering at
an assumed offering price of $20.00 per share. The amount to be distributed to
the Principal Stockholders will change over time reflecting additional interest
and changes to Sponsor Loans. Additionally, the 1995 loss per share will
increase by approximately $0.07 per share for every increase of $1.00 per share
to the public offering price. The 1996 earnings per share will increase by
approximately $0.01 per share for every increase of $1.00 per share to the
public offering price.
Additionally, in June 1996 UNLP signed a letter of intent with Entravision,
which owns and operates seven of the Affiliated Stations, to make a $10 million
investment in the form of a note and an option to acquire a 25% equity interest
in Entravision.
The Company intends to consummate the following transactions concurrent
with the offering:
(a) The Company will enter into the New Bank Facility and will repay
$165 million owing under, and terminate, the Old Bank Facility;
(b) The Company will defease UTG's 11 3/4% Senior Subordinated Notes
due 2001 (the "Senior Subordinated Notes") by, among other things,
depositing $85.1 million with the trustee under the indenture governing
such notes;
(c) The Network will make a distribution to its partners in the amount
of $60.0 million;
(d) The Company will acquire the Network from its partners in exchange
for 19,014.5 shares of Common Stock and $40.0 million in cash, UTG will
become a wholly-owned subsidiary of the Company,
F-20
<PAGE> 102
PERENCHIO COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
and the Company will effect a dividend of 227.0 shares on each share of
Class P Common Stock, Class T Common Stock and Class V Common Stock, and
the Warrants will be adjusted to reflect the new capital structure of the
Company;
(e) The Company will pay $86.5 million to the Principal Stockholders
and their affiliates, representing payment of outstanding principal of and
accrued interest on certain debentures and accrued dividends on certain
preferred stock issued by the Company and its subsidiaries in connection
with the Acquisition and approximately $42.5 million to the Principal
Stockholders and their affiliates, representing full payment of outstanding
principal of, and interest on, certain notes issued in payment of certain
accrued dividends as of December 31, 1995;
(f) The Company will pay $147.1 million to Televisa and Venevision,
representing full payment of outstanding principal of, and accrued interest
on, all amounts owed to them by UTG with respect to Sponsor Loans made
subsequent to the Acquisition, and the obligations to make the Sponsor
Loans will terminate;
(g) The Company will pay $15.0 million, together with interest, to
Televisa, representing full payment of outstanding principal of and accrued
interest on the note issued by the Company as of July 1, 1996 to Televisa
as payment for the acquisition of Galavision; and
(h) The Program License Agreements will be amended, the Program Cost
Sharing Agreement (which required Televisa and Venevision to reimburse the
Company for one-half of the cost of certain productions produced or
acquired by the Company) will be terminated and the management fee to the
Principal Stockholders of 3% of Combined Net Time Sales will be eliminated.
Under the amended Program License Agreements, the royalty rate will be 11%
from the closing of this Offering through December 31, 1996 and will
increase to 13.5% for 1997 and to 15% for all years thereafter, and the
Company will receive no cost sharing reimbursements.
F-21
<PAGE> 103
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Univision Network Holding Limited Partnership:
We have audited the accompanying consolidated balance sheets of The
Univision Network Holding Limited Partnership (a Delaware partnership) and
subsidiary as of December 31, 1994 and 1995, and the related consolidated
statements of operations, changes in partners' equity and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Partnership'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, the financial statements referred to above present fairly,
in all material respects, the financial position of The Univision Network
Holding Limited Partnership and subsidiary as of December 31, 1994 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 15, 1996
(Except with respect to the
matters discussed in Note 10,
as to which the date is June 17, 1996.)
F-22
<PAGE> 104
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994, 1995 AND JUNE 30, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------- 1996
1994 1995 -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash...................................................... $ 40 $ 29 $ 21
Short-term investments, at market......................... 81 85 86
Accounts receivable, less allowance for doubtful accounts
of $3,864 in 1994, $3,633 in 1995 and $3,606 in 1996.... 32,815 32,675 46,005
Due from UTG.............................................. 51,340 64,505 36,019
Program rights............................................ 2,919 2,899 4,516
Prepaid expenses and other................................ 2,321 1,956 2,245
-------- -------- --------
Total current assets............................ 89,516 102,149 88,892
Property and equipment, less accumulated depreciation of
$5,829 in 1994, $11,324 in 1995 and $14,637 in 1996..... 40,646 48,618 74,143
Intangible assets, less accumulated amortization of $9,466
in 1994, $13,886 in 1995 and $16,094 in 1996............ 13,397 8,977 6,769
Other assets.............................................. 542 621 660
-------- -------- --------
Total assets.................................... $144,101 $160,365 $ 170,464
======== ======== ========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 36,767 $ 37,977 $ 33,245
Deferred advertising revenues............................. 12,658 9,603 --
Program cost sharing advance.............................. 3,813 4,157 1,966
Obligations for program rights............................ 803 236 116
Accrued station compensation.............................. 5,112 2,988 4,081
Management and license fees payable....................... 18,015 22,536 17,508
Current portion of capital lease obligations.............. 606 1,324 2,195
-------- -------- --------
Total current liabilities....................... 77,774 78,821 59,111
Subordinated notes, including accrued interest............ 40,592 45,704 48,551
Other liabilities:
Capital lease obligations, net of current portion....... 12,402 18,246 40,518
Other long term liabilities............................. 3,307 732 --
Deferred compensation payable........................... 1,237 1,972 1,946
General partners' equity.................................. 8,788 14,889 20,337
Limited partners' equity.................................. 1 1 1
-------- -------- --------
Total liabilities and partners' equity.......... $144,101 $160,365 $ 170,464
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE> 105
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------ -------------------------
1993 1994 1995 1995 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues.............................. $109,365 $132,746 $148,231 $70,419 $79,436
Direct operating expenses................. 60,151 78,616 79,628 38,379 41,005
Selling, general and administrative
expenses................................ 34,036 40,749 43,917 21,274 22,648
Depreciation and amortization............. 7,413 7,702 9,971 4,850 5,513
-------- -------- -------- ------- -------
Operating income.......................... 7,765 5,679 14,715 5,916 10,270
Interest expense.......................... 4,749 6,233 7,864 3,851 4,799
-------- -------- -------- ------- -------
Net income (loss)
(allocable to the general partners)..... $ 3,016 $ (554) $ 6,851 $ 2,065 $ 5,471
======== ======== ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE> 106
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995 AND
THE SIX MONTH PERIOD ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNER TOTAL
<S> <C> <C> <C>
Balance, January 1, 1993...................................... $ 6,326 $ 1 $ 6,327
Net income for the year..................................... 3,016 -- 3,016
------- ------- -------
Balance, December 31, 1993.................................... 9,342 1 9,343
Net loss for the year....................................... (554) -- (554)
------- ------- -------
Balance, December 31, 1994.................................... 8,788 1 8,789
Net income for the year..................................... 6,851 -- 6,851
Distribution payable to Partners............................ (750) -- (750)
------- ------- -------
Balance, December 31, 1995.................................... 14,889 1 14,890
Net income for the six month period (unaudited)............. 5,471 -- 5,471
Distribution payable to Partners (unaudited)................ (23) -- (23)
------- ------- -------
Balance, June 30, 1996 (unaudited)............................ $ 20,337 $ 1 $20,338
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 107
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------ -------------------------
1993 1994 1995 1995 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)......................... $ 3,016 $ (554) $ 6,851 $ 2,065 $ 5,471
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation expense.................... 2,384 3,290 5,551 2,640 3,305
Amortization of intangible assets....... 5,029 4,412 4,420 2,210 2,208
Accretion of interest on program cost
sharing loans........................ 533 -- -- -- --
Accretion of interest on subordinated
notes................................ 4,018 4,498 5,111 2,530 2,847
Changes in assets and liabilities:
Accounts receivable..................... 1,199 (6,566) 140 (4,839) (13,330)
Due from UTG............................ 45,941 61,699 75,319 32,388 46,399
Due to UTG.............................. (42,884) (47,349) (60,336) (27,688) (34,697)
Program rights.......................... (1,108) (1,502) 20 273 (1,617)
Accounts payable and accrued
liabilities.......................... (3,552) 5,050 (556) (4,126) (4,531)
Deferred advertising revenues........... 12,495 163 (3,055) (12,658) (9,603)
Management and license fees payable..... 36,779 43,245 56,975 27,284 30,311
Payment of license fees................. (22,792) (33,936) (45,251) (20,544) (23,834)
Payment of management fees.............. -- (6,300) (7,203) (7,203) (11,505)
Obligations for program cost sharing
advance.............................. (168) 317 344 (99) (2,191)
Accrued station compensation............ 209 893 (2,124) (1,601) 1,093
Program rights and other related
obligations.......................... (2,071) 759 (567) (514) (120)
Other, net.............................. 720 (4,775) (315) 1,167 (1,075)
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities.......... 39,748 23,344 35,324 (8,715) (10,869)
Cash flows from investing activities:
Repayments of advances made to UTG...... 10,476 44,830 23,159 36,177 65,139
Advances to UTG......................... (58,582) (48,829) (51,307) (22,457) (48,355)
Capital expenditures.................... (3,021) (2,791) (5,996) (2,145) (4,926)
-------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities.......... (51,127) (6,790) (34,144) 11,575 11,858
Cash flows from financing activities:
Program cost sharing loans from
Televisa............................. 11,884 (16,158) -- -- --
Repayment of long term debt............. (469) (416) (1,191) -- --
Principal payments of capital lease
obligations.......................... -- -- (2,870) (997)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities.......... 11,415 (16,574) (1,191) (2,870) (997)
Net increase (decrease) in cash........... 36 (20) (11) (10) (8)
Cash, beginning of year................... 24 60 40 40 29
-------- -------- -------- -------- --------
Cash, end of period....................... $ 60 $ 40 $ 29 $ 30 $ 21
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE> 108
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
1. ORGANIZATION AND ACQUISITION
The Univision Network Holding Limited Partnership (the "Partnership" or
"UNHP") was formed on December 7, 1992 pursuant to the laws of the State of
Delaware for the purpose of owning and operating a Spanish-language television
network in the United States. The General Partners of UNHP are affiliates of A.
Jerrold Perenchio (together with his affiliates, "Perenchio"), Grupo Televisa,
S.A. de C.V. (together with its affiliates, "Televisa") and Venevision
International, Inc. (together with its affiliates, "Venevision"), respectively
(collectively, the "Principal Stockholders"). The Principal Stockholders
initially contributed a cash capital contribution of approximately $7,002,000.
On December 17, 1992 (effective close of business December 16, 1992), UNHP
purchased the stock of Univision, Inc. and certain other assets from Univision
Holdings, Inc. (which continues to be owned by its then parent company) for an
aggregate purchase price of approximately $38,684,000, including $273,000 of
acquisition costs. A portion of the total purchase price was financed by a 7%
subordinated note with a face amount of $61,094,000 due to the seller (which
note was subsequently sold to a third party and then to the public as a series
of notes), which was discounted for financial reporting purposes to $31,911,000
(12.5% effective rate). The stock and other assets were immediately contributed
by UNHP to The Univision Network Limited Partnership (the "Network"), of which
UNHP is the sole general partner. Univision, Inc. then liquidated and
distributed its assets to the Network (which also assumed all of the liabilities
of Univision, Inc., including tax attributable to its liquidation). The
acquisition was accounted for under the purchase method of accounting.
Accordingly, the assets acquired and liabilities assumed have been recorded at
the fair values at the date of the acquisition. In addition to current assets
and liabilities, the purchase price was allocated principally to property and
equipment of approximately $27,000,000 and intangible assets of approximately
$13,000,000.
UNHP is the sole general partner of the Network. As a result of the
acquisitions, the Network owns and operates a Spanish-language television
network which is affiliated with 19 full-power television stations and 18
low-power television stations, including eleven full-power stations and six
low-power stations owned and operated by Univision Television Group, Inc.
("UTG"). UTG is ultimately owned by Perenchio Communications, Inc. ("the
Company") which is owned by Perenchio, Televisa and Venevision.
The businesses of the Company and the Network are under separate management
and ownership structures. Notwithstanding this separation, the business
operations of the Company and the Network remain substantially dependent on one
another. The Company is dependent on the Network for programming and advertising
sales support while the Company represents 72% and 71% of the Network's total
coverage of Hispanic households in the U.S. for 1995 and 1996, respectively.
(See Note 3.)
The Network and the Company are collectively referred to herein as the
"Univision Group."
Subject to certain special allocations, net losses of the Partnership are
first allocated to reduce partners' capital accounts to the amount of
unrecovered capital contributions, and thereafter to the General Partners in
equal proportions, and net income is first allocated to offset any prior net
losses and thereafter to the Partners in accordance with their Ownership
Percentage Interests. Various provisions of the Partnership agreement govern the
allocation of gains and losses to the individual partners for tax purposes. Upon
dissolution of the Partnership, the assets of the Partnership shall be
distributed to the partners, after payment of all debts and other obligations,
first to reduce their respective capital contributions, and thereafter, in
accordance with their respective Ownership Percentage Interests. Subject to
obtaining any necessary consents from lenders to the
F-27
<PAGE> 109
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
Partnership, the Partnership is required to make sufficient cash distributions
on a quarterly basis to fund the partners' tax liabilities attributable to their
ownership interests in the Partnership.
UNHP holds a 99.99% general partner interest in the Network. The remaining
limited partner interest is held by the Network Limited Partner, Inc. which is
owned by Perenchio, Televisa and Venevision. UNHP and the Network had no
operations or transactions prior to the acquisitions described above.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of UNHP and its
subsidiary and reflect the acquisitions described above under the purchase
method of accounting. All significant intercompany accounts and transactions
have been eliminated. Certain reclassifications have been made to the prior year
financial statements to conform with the current presentation.
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 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.
The Company's operations and it ability to grow may be affected by numerous
factors, including changes in audience tastes, priorities of advertisers, new
laws and governmental regulations and policies, changes in broadcast technical
requirements, technological advances, proposals to eliminate the tax
deductibility of certain advertising expenses incurred by advertisers and
changes in the willingness of financial institutions and other lenders to
finance television station acquisitions and operations. The Company cannot
predict which, if any, of these or other factors might have a significant impact
on the television industry 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.
Property and Equipment and Related Depreciation
Property and equipment is carried on the basis of cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets. Buildings and improvements are depreciated over 5 to 20 years; broadcast
and other equipment over 3 to 7 years. Leasehold improvements are amortized over
the remaining life of the lease.
Depreciation and amortization includes depreciation on property and
equipment of $2,384,000, $3,290,000, $5,551,000, $2,640,000 and $3,305,000 for
the years ended December 31, 1993, 1994, 1995 and the six month periods ended
June 30, 1995 and 1996, respectively, of which $1,740,000, $2,665,000,
$4,796,844, $2,135,000 and $2,816,000 relate to direct operating expenses and
$644,000, $625,000, $754,156, $505,000 and $489,000 relate to selling, general
and administrative expenses for the years ended December 31, 1993, 1994, 1995
and the six month periods ended June 30, 1995 and 1996, respectively.
F-28
<PAGE> 110
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
Intangible Assets
Intangible assets consist of amounts by which the cost of acquisitions
exceeded the values assigned to net tangible assets. The intangible assets
primarily represent network affiliation agreements, a management agreement with
respect to Galavision (see Note 3) and goodwill. Intangible assets are being
amortized on the straight-line method over 20 years. Subsequent to the
acquisitions, UNHP continually evaluates whether later events and circumstances
have occurred that indicate the remaining estimated useful life of intangible
assets may warrant revision or that the remaining balance of such assets may not
be recoverable. When factors indicate that intangible assets should be evaluated
for possible impairment, UNHP uses an estimate of the undiscounted operating
income over the remaining life of the intangible assets in measuring whether the
intangible assets are recoverable.
Program Rights for Television Broadcast
Costs incurred in connection with the production of or purchase of rights
to programs to be broadcast on television within one year are classified as
current assets, while costs of those programs to be broadcast subsequently are
considered non-current. Program costs are charged to expense as the programs are
broadcast.
Accounts Payable and Accrued Liabilities
As of December 31, 1994, 1995 and June 30, 1996, accounts payable and
accrued liabilities is comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Trade accounts payable and accruals........... $23,100 $26,027 $ 23,446
Facility consolidation costs.................. 3,286 2,503 2,496
Severance and litigation costs................ 2,961 2,286 2,326
Nielsen accrual (See Note 7).................. 6,032 5,155 3,574
Other......................................... 1,388 2,006 1,403
------- ------- -------
$36,767 $37,977 $ 33,245
======= ======= =======
</TABLE>
Net Revenues
Net revenues represents gross revenues, including a network service fee
payable to the Network by the affiliates, less agency commissions and an
allocation of network revenues to the affiliates. Gross revenues and the related
agency commissions and allocation to the affiliates are recognized when
advertising spots are broadcast. One advertiser represented approximately 22%,
17%, 15%, 16% and 11% of gross advertising revenues for the years ended December
31, 1993, 1994, 1995 and the six month periods ended June 30, 1995 and 1996,
respectively. Agency commissions totaled $20,151, $25,355, $28,776, $14,311 and
$15,478 for the years ended December 31, 1993, 1994 and 1995 and the six month
periods ended June 30, 1995 and June 1996.
Accounting for Impairment of Long-lived Assets
The Financial Accounting Standard Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 121 - "Accounting for the Impairment
of Long-lived Assets and for Long-lived Assets to be Disposed of." This
statement requires that these long-lived assets be held and be reviewed for
F-29
<PAGE> 111
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Measurement of an impairment
loss for long-lived assets and identifiable intangibles to be held and used be
based on the fair value of the asset. It also requires that those long-lived
assets and identifiable intangibles to be disposed of should be reported at the
lower of carrying amount or fair value less cost to sell. This standard is
required to be adopted in 1996. Management estimates that the adoption of this
standard will not be material.
Income Taxes
For 1993, 1994 and 1995 there are no income taxes provided in the
accompanying Partnership financial statements, as all such taxes are the
liability of the partners of UNHP. In accordance with the Partnership agreement,
UNHP is required to make sufficient cash distributions to fund the partners' tax
liabilities attributable to their ownership interest in the Partnership. Cash
distributions for 1995 of $773,000 were made in April, 1996, the first quarter
of 1996 were $750,000 and $23,000, respectively. No cash distributions were
required for 1993 and 1994 as the Partnership incurred tax losses for those
years. As of December 31, 1994, 1995 and June 30, 1996, the value of the net
assets of UNHP and the Network on a tax basis were less than the value on a
financial reporting basis by approximately $13,000,000, $11,000,000 and
$11,000,000, respectively.
3. RELATED PARTY TRANSACTIONS
In the normal course of business, the Network engages in significant
transactions with the Company and, through other agreements, with the Principal
Stockholders, as described below.
(a) THE COMPANY
Network Affiliation Agreements
Pursuant to Network Affiliation Agreements, the Network acts as the
affiliates' exclusive sales representative for the sale of all national spot and
network advertising. The Network allocates a portion of network advertising
revenues to its affiliated stations based on a formula. National spot sales
represent time sold on behalf of the affiliated stations by sales
representatives employed by the Network. Proceeds of network sales are remitted
to the affiliates by the Network, net of an agency commission and a network
service fee, as described below.
The Network offers programming to its affiliates each week. For this
service, the Company affiliated stations incur a network service fee due the
Network of 43% in 1993 and 38% in 1994, 1995 and first six months 1996, and, of
their net local, national and network sales revenues, subject to certain
adjustments. The Network receives two minutes of air time for its own use each
hour for which no compensation is received by the affiliates. Net revenues
includes a network service fee of $74,645,000, $73,459,000, $105,274,000,
$49,742,000 and $55,637,000 for the years ended December 31, 1993, 1994, 1995
and the six month periods ended June 30, 1995 and 1996, respectively, due from
the Company, reduced by $88,569,000, $99,127,000, $140,465,000, $69,892,000 and
$73,484,000 for the for the years ended December 31, 1993, 1994, 1995 and the
six month periods ended June 30, 1995 and 1996, respectively, representing the
Company's allocation of Network sales, pursuant to the Network Affiliation
Agreements.
F-30
<PAGE> 112
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
Cash Management
The Company and the Network share a cash management system under which all
excess cash at the Network is loaned daily on a subordinated basis from the
Network to the Company (and cash shortfalls at the Network are funded by
repayments or by subordinated loans from the Company to the Network). No
interest is incurred on these subordinated loans. The net amount transferred to
and (from) the Company for the years ended December 31, 1993, 1994, 1995 and the
six month periods ended June 30, 1995 and 1996, totaled $48,106,000, $3,999,000,
$28,148,000, $(13,720,000) and $(16,784,000), respectively. In 1993, 1994, 1995
and first six months 1996, the net cash transferred from the Network to the
Company was impacted by the transfer of net cash generated by the Network's
operations, the proceeds from amounts received by the Network under the Program
Cost Sharing Agreements and the proceeds from an advertiser prepayment covering
the first half of each of 1995 and 1996. The amounts loaned to the Network
pursuant to the Program Cost Sharing Agreements were repaid to Televisa, with
interest, on January 28, 1994, at which time the Company had to make available
to the Network $16,234,000 to pay Televisa. The net cash transferred to the
Company from the Network was also impacted by a change to Univision Group's cash
management system during 1993, wherein the Network's depository accounts system
was replaced by the Company's system. Payments received are remitted through the
cash transfer system described above.
Other
The Company and the Network share certain financial and administrative
personnel and facilities, and are parties to certain combined agreements. For
the years ended December 31, 1993, 1994, 1995 and the six month periods ended
June 30, 1995 and 1996 the Company charged the Network (net) $2,326,000,
$3,541,000, $3,330,000, $1,648,000 and $1,722,000, respectively, for costs
related to these items. These amounts are based upon management's estimates of
the actual costs of such services provided.
(b) PRINCIPAL STOCKHOLDERS
Program License Agreements
Pursuant to Program License Agreements, the Network has the first right for
25 years to air in the U.S. (with certain exceptions) all Spanish-language
television programming produced by Televisa and Venevision, for a fee equal to
15% of the Univision Group's combined net time sales (as defined). Such fee
amounted to $30,649,000, $36,018,000, $47,604,000, $22,794,000 and $25,216,000
for the years ended December 31, 1993, 1994, 1995 and for the six month periods
ended June 30, 1995 and 1996, respectively. As of December 31, 1995, the Network
has an accrual of $13,165,000 for the fourth quarter of which $12,986,000 was
paid on January 18, 1996, and the balance of $178,000 was paid in April 1996.
The fee increases to 20% of combined net time sales for each year after the
Company and the Network have distributed to the Principal Stockholders the
aggregate amount of $100 million through dividends or other distributions and
annual combined net time sales exceed $200 million.
Program Cost Sharing Agreements
Pursuant to Program Cost Sharing Agreements, the Network has the right
(subject to the unanimous approval of the Principal Stockholders) to cause
Televisa and Venevision to produce or acquire programming on behalf of the
Network. The Network is responsible for one-half of the costs to acquire or
produce the programming and Televisa and Venevision, collectively, are
responsible for the remainder (except for certain programming for which Televisa
and Venevision contribute a fixed amount of $1 million per year).
F-31
<PAGE> 113
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
Further, through December 31, 1993, Televisa funded, on a quarterly basis
in advance, the total estimated production and acquisition costs for the
following quarter (including the Network's share). The Network's share of these
costs totaled $15,609,000 as of December 31, 1993, which amount was paid to
Televisa on January 28, 1994, together with accrued interest at a rate of 6 3/8%
through the date of repayment. Funding for the second quarter of 1994 and all
subsequent funding is on a quarterly basis in advance at 50% of the total
estimated production and acquisition costs for the following quarter. Commencing
with the first quarter of 1996, Televisa and Venevision's portion of such
programming costs to be shared shall be paid to the Network via assignment of
notes issued by the Company to Televisa and Venevision pursuant to that certain
Scheduled Loan Agreement dated as of December 17, 1992 between the Company and
Grupo Televisa S.A. and that certain Scheduled Loan Agreement dated as of
December 17, 1992 between the Company and Pack-A-Snack N.V., having an aggregate
principal amount equal to the costs being funded thereunder for such period. At
June 30, 1996, such assignment amounted to $9,744,000 and is shown as a
reduction of programming costs and an increase in the Due from the Company
receivable in the accompanying 1995 financial statements.
Management Fee
UNHP is required to pay an annual management fee to the General Partners
equal to 3% of the combined net time sales (as defined) of the Univision Group,
for all management services provided to the Network. This fee is paid in arrears
on an annual basis subject to compliance with all covenants in the Bank
Facility, and the Company is not separately charged for any portion of this fee.
Such fee amounted to $6,130,000, $7,203,000, $9,521,000, $4,559,000 and
$5,043,000 for the years ended December 31, 1993, 1994, 1995 and for the six
month periods ended June 30, 1995 and 1996. Beginning in 1996 the management fee
will be paid on a quarterly basis in arrears.
Galavision
Univisa, Inc. (ultimately a wholly-owned subsidiary of Televisa) has
entered into a management agreement with the Network covering the operation of
Televisa's U.S. Spanish language cable network, Galavision. In consideration for
this management agreement, the Network agreed to provide Univisa with
advertising time totaling $10,000,000 during a ten year period. The Network
recorded a liability of $10,000,000 for its obligation to provide advertising
time to Univisa and an intangible asset of $10,000,000. During 1994, 1995 and
the first six months of 1995 and 1996, advertising time totaling $3,662,000,
$2,552,000, $1,640,000 and $732,000, respectively, was utilized and recorded in
gross revenue. Amortization of the intangible asset amounted to $4,000,000,
$4,000,000, $2,000,000 and $2,000,000 during 1994, 1995 and the first six months
of 1995 and 1996, respectively. Based on a formula provided for in the
Management Agreement, the Network receives a management fee equal to a portion
of Galavision's net income generated during the management period. Such
management fee was not material to the results of the operations of the Network
in 1993, 1994, 1995 and 1996.
The Network has the option to acquire the assets of Galavision for
$15,000,000, exercisable at any time between January 1, 1996 and July 1, 1996.
Under certain circumstances, Univisa has the right to require the Network to
acquire such assets between January 1, 1997 and July 1, 1997 for $14,000,000.
The management agreement described above terminates at the earlier of the
exercise of the option to acquire or the right to sell.
F-32
<PAGE> 114
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
Other
In addition to Televisa's obligations under the Program Cost Sharing
Agreement, Televisa reimburses the Network for certain direct costs incurred by
the Network to produce programming for Mexico. During 1993, this reimbursement
totaled $688,000. During 1993, the Network acquired from Televisa the rights to
certain sports programming for $592,000. During 1994, this reimbursement totaled
$625,000 of which $407,000 remained unpaid at December 31, 1994. During 1995,
this reimbursement totaled $209,000 of which $67,000 remains unpaid at December
31, 1995. During the first six months of 1996 this reimbursement totaled 0 and 0
remains unpaid at June 30, 1996.
The Network had an agreement with Univisa, Inc. (ultimately a wholly-owned
subsidiary of Televisa) to acquire broadcast rights to the 1994 World Cup soccer
tournament. The agreement called for a fixed payment of $8,500,000, plus a
percentage of combined net revenues, as defined in the agreement, of the Company
and the Network in excess of a specified level, which level the Network
exceeded. The total amount payable under this agreement was $11,447,000 of which
the Network paid all but $30,000 to Televisa in 1994 and the balance was paid in
1995.
For the years ended December 31, 1993, 1994, 1995 and the six month periods
ended June 30, 1995 and 1996, the Network generated gross revenues of, $413,000,
$3,662,000, $2,552,000, $1,640,000 and $732,000, respectively, from affiliates
of Televisa, and $192,000 from affiliates of Venevision in 1993. Accounts
receivable from Televisa totaled $652,000, $104,462 and 104,462 as of December
31, 1994, 1995 and June 30, 1996, respectively. In addition to the revenues
described above, the Principal Stockholders entered into an agreement under
which the Principal Stockholders may use any available advertising time on the
Network to promote products of affiliates of the Principal Stockholders for no
cash compensation.
See Note 6.
4. PROPERTY AND EQUIPMENT
Property and equipment, and accumulated depreciation and amortization,
consists of the following as of December 31, 1994, 1995 and June 30, 1996 (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Land....................................... $ 3,780 $ 3,780 $ 3,780
Building and improvements.................. 16,524 16,672 17,307
Broadcast equipment........................ 23,413 36,022 63,939
Other equipment............................ 2,758 3,468 3,754
-------- -------- --------
46,475 59,942 88,780
Accumulated depreciation and
amortization............................. (5,829) (11,324) (14,637)
-------- -------- --------
$ 40,646 $ 48,618 $ 74,143
======== ======== ========
</TABLE>
F-33
<PAGE> 115
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
5. DEBT
Debt consists of the following at December 31, 1994, 1995 and June 30, 1996
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Subordinated notes, including accrued interest................ $40,592 $45,704 $ 48,551
Less current portion.......................................... -- -- --
------- ------- -------
Long-term debt................................................ $40,592 $45,704 $ 48,551
======= ======= =======
</TABLE>
The Subordinated Notes (the "Notes"), which have a face value of
$61,094,000 and bear simple interest at 7%, were originally payable by UNHP to
Hallmark Cards, Inc. ("Hallmark") in connection with the acquisitions described
in Note 1. Hallmark has since sold the Notes to a third party, which resold them
to the public as a series of notes. The Notes are unsecured and all interest and
principal is due on December 17, 2002. The Notes were discounted at an effective
rate of approximately 12.5% in accordance with the purchase method of
accounting. The discount ($29,195,000, $28,383,000 and $27,659,000 at December
31, 1994, 1995 and June 30, 1996, respectively), which is shown as a reduction
of the related debt, is being amortized under the interest method over the term
of the Notes.
UNHP estimates that the fair value of the Notes at December 31, 1994, 1995
and June 30, 1996 approximates the book value.
6. GUARANTEE OF THE COMPANY OBLIGATIONS
UNHP and the Network have guaranteed a substantial amount of the
obligations of UTG, including bank borrowings of up to $275,000,000 and
$140,000,000 of Senior Subordinated Notes (the "UTG Notes"). The bank borrowings
consisted of a $210,000,000 five-year amortizing term loan ("Term Facility"),
and a $65,000,000 six-year revolving credit loan ("Working Capital Facility,"
and together with the Term Facility, the "Bank Facilities"). During 1994, UTG
amended its' Bank Facilities. The amended Bank Facilities, which total
$400,000,000, consist of a $180,000,000 five-year amortizing term loan, a
$70,000,000 six-year revolving credit loan, a $30,000,000 six-year term loan, a
$20,000,000 five and one-half year term loan and a $100,000,000 five and
one-half year term loan available under a revolving credit facility, which
to-date has not been borrowed against. The amendments, among other things,
lengthened the maturity of the loans, adjusted certain financial covenants and
lowered the applicable margin, as defined, on reference rate loans (to 0% to .5%
per annum) and Eurodollar rate loans (to 1% to 1.75% per annum).
The Bank Facilities require mandatory prepayments equal to 75% of excess
cash flow (as defined) of the Univision Group, in addition to net proceeds (as
defined) received by the Univision Group in certain situations from the sale or
other disposition of assets, to be applied to ratably reduce the Term Facility
and the availability under the Working Capital Facility. Any such mandatory
prepayments reduce the scheduled amortization of the Term Facility in inverse
order of maturity.
The Bank Facilities are secured by a security interest in substantially all
of the assets of the Univision Group (subject to limitations of federal law in
the case of the FCC licenses of the Company), and the rights of the Univision
Group under the Program License Agreements and Program Cost Sharing Agreements.
The Bank Facilities are also guaranteed by Perenchio Television, Inc. ("PTI").
UNHP, the Network, and PTI have also jointly, severally and unconditionally
guaranteed UTG Notes, which pay interest semi-annually and mature on January 15,
2001. UTG Notes may be redeemed at a
F-34
<PAGE> 116
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
premium at the option of UTG, either in whole or in part, beginning in January
1997. UTG may be required to repurchase all or part of UTG Notes outstanding in
the event of a change in control (as defined).
The Bank Facilities and UTG Notes place various limitations and other
restrictions on the Univision Group, PTI and UNHP regarding, among other things,
the incurrence of indebtedness and liens, payment of dividends, disposition of
assets and transactions with affiliates. In addition, the Bank Facilities
contain several performance tests based upon the Univision Group's operating
cash flow (as defined).
In addition, Televisa and Venevision have agreed to provide loans to UTG
approximately fifteen days after the end of each quarter in amounts as required
by its senior lenders subject to certain limitations ("Sponsor Loans"), until
the Return of Initial Financing. The Sponsor Loans are guaranteed by the Network
and by PTI Holdings, Inc. ("PTIH"). Each Sponsor Loan is subordinated to all UTG
bank debt and UTG Notes, has an initial term of 15 years, bears interest at a
rate of the lesser of prime or 10%, and requires no payment of interest or
principal until maturity. Upon the return of Initial Financing, the holders of
the Sponsor Notes may convert them to conversion notes, which will be similar to
the Sponsor Loans with respect to subordination and interest rate, but will be
payable in seven annual installments, subject to certain restrictions. There
were no Sponsor Loans advanced to UTG through December 31, 1992. As of December
31, 1994, 1995 and June 30, 1996 Sponsor Loans and related accrued interest
totaled $60,482,000, $108,361,000 (net of the $9,744,000 assignment related to
program costs sharing - see Note 3), and $131,763,000 respectively.
Condensed consolidated financial information of PCI and subsidiaries is
presented below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Current assets............................ $ 42,629 $ 55,023 $ 53,161
Intangible assets......................... 484,034 449,383 435,272
Other assets.............................. 39,193 41,496 44,228
-------- -------- --------
Total assets.................... $565,856 $545,902 $ 532,661
======== ======== ========
Current liabilities....................... $127,550 $131,264 $ 116,060
Long term-debt, net of current portion and
including accrued interest.............. 317,070 249,840 224,495
Related party long-term debt including
accrued interest and accrued and
variable dividends payable.............. 70,722 112,381 117,835
Sponsor Loans, including accrued
interest................................ 60,482 108,361 131,763
Program rights obligation................. 5,717 753 485
Other long term liabilities............... 1,773 1,301 1,347
Minority interest......................... 11,713 19,059 19,333
-------- -------- --------
Total liabilities......................... 595,027 622,959 611,318
Stockholders' deficit..................... (29,171) (77,057) (78,657)
-------- -------- --------
Total liabilities and
stockholders' deficit......... $565,856 $545,902 $ 532,661
======== ======== ========
</TABLE>
F-35
<PAGE> 117
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
For the years ended December 31, 1993, 1994, 1995 and the six month periods
ended June 30, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------ -------------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Net revenues.............................. $104,675 $139,007 $173,108 $ 82,279 $ 91,420
Total operating expenses.................. 95,689 105,143 129,253 60,461 67,667
-------- -------- -------- ------- -------
Operating income.......................... 8,986 33,864 43,855 21,818 23,753
Interest expense, amortization of deferred
financing costs, nonrecurring expense of
acquired station and minority
interest................................ 36,167 41,463 53,243 23,492 22,323
Provision for income taxes................ -- 140 -- -- 500
-------- -------- -------- ------- -------
Income (loss) before extraordinary loss on
early extinguishment of debt............ (27,181) (7,739) (9,388) (1,674) 930
Extraordinary loss on extinguishment of
debt.................................... -- (4,321) (801) -- (681)
-------- -------- -------- ------- -------
Net income (loss)......................... $(27,181) $(12,060) $(10,189) $ (1,674) $ 249
======== ======== ======== ======= =======
</TABLE>
7. COMMITMENTS
The Network is obligated under long-term operating leases expiring at
various dates through the year 2000 for office, studio, automobile, tower, and
transponder rentals. The Network is also obligated under long term capital lease
obligations through the year 2006. The following is a schedule by year of future
annual rentals under operating and capital leases as of December 31, 1995 (in
thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
<S> <C> <C>
Year ending December 31:
1996.................................................... $ 1,607 $ 3,576
1997.................................................... 1,467 3,576
1998.................................................... 1,237 3,576
1999.................................................... 1,043 3,576
2000.................................................... 391 3,576
Thereafter.............................................. -- 15,746
------ ------
Total minimum lease payments............................ $ 5,745 $33,626
------
Less: interest and executory costs...................... (14,056)
------
Total present value of minimum lease payments........... 19,570
Current portion......................................... (1,324)
------
Capital lease obligation, net of current portion........ $18,246
======
</TABLE>
Rent expense totaled $1,980,000, $1,797,000, $2,075,240, $873,000 and
$725,000 for the years ended December 31, 1993, 1994, 1995 and the six month
periods ended June 30, 1995 and 1996, respectively.
In addition to the operating and capital leases outlined above, the Network
has entered into a transponder agreement which qualifies as a capital lease
obligation. The agreement, for two transponders, begins when those transponders
become commercially operational. Payments under this agreement began in January
1996
F-36
<PAGE> 118
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
when the transponders became commercially operational, and will aggregate
approximately $42,000,000 million over the life of the lease.
The Network has entered into an agreement with Nielsen Media Research
("Nielsen") to provide television audience measurement services for a five year
period beginning in November 1992. Pursuant to this agreement, the Network and a
competitor are each obligated to pay Nielsen $18,400,000 in increasing annual
amounts from November 1992 through October 1997. As of December 31, 1994, 1995
and June 30, 1996, included in accrued liabilities are $6,032,000, $5,155,000
and $3,574,000, respectively, related to this agreement.
As of December 31, 1995, the Network is committed to pay amounts
approximating $1,400,000 pursuant to long-term talent contracts through December
31, 1996. These payments do not include amounts payable upon the attainment of
certain annual revenue levels or upon the performance of other contractual
provisions. The talent contract for Mario Kreutzberger expired on December 31,
1995 and a new agreement is currently being finalized.
8. EMPLOYEE BENEFITS
The Network has a 401(k) retirement savings plan (the "Plan") covering all
employees who have completed one year of service. The Plan allows the employees
to defer a portion of their annual compensation, and the Network may match a
portion of the employees' contributions. During 1993, 1994, 1995 and the first
six months ended June 30, 1996 the Network made matching contributions to the
Plan totaling $113,000, $219,000, $452,000 and $263,000, respectively. No
contributions were made for periods prior to 1993.
9. CONTINGENCIES
On August 4, 1995, a jury in the 57th District Court of Bexar County, Texas
returned an adverse verdict against Univision Television Group, the successor to
Univision Station Group, in Emilio Nicolas, Jr. v. Univision Station Group. The
lawsuit, among other things, alleged breach of a September 1990 separation
agreement following the plaintiff's termination from USG's Los Angeles station.
The jury found USG had breached certain provisions of the agreement. It also
found that USG inflicted emotional distress, and violated California Labor Code
Section 1050, by making a misrepresentation to a prospective employer to prevent
plaintiff's employment. Under that Section any damages amount for a violation is
trebled. If a judgment had been entered on all issues, the total amount after
the statutory trebling would have been $6,800,000, plus prejudgment interest and
attorneys fees, in an amount as yet undetermined.
The events which led to the plaintiff's lawsuit occurred before the current
ownership took control of the Company. The Company strongly disagrees with the
verdict and filed pleadings requesting the trial court to enter judgment in the
Company's favor notwithstanding the jury's verdict.
On December 12, 1995 the trial court partially granted the Company's motion
for judgment notwithstanding the verdict. Accordingly, the trial court rendered
judgment that plaintiff recover $5,425,000, denied the plaintiff's motion to
recover an additional $1,400,000 and denied the plaintiff's motion to recover
prejudgment interest and attorneys fees. Both parties then filed motions for a
new trial but agreed to pursue mediation before having those motions decided. As
a result of the mediation, the parties reached a compromise agreement on
February 15, 1996 settling the litigation, without any admission of wrongdoing
on the part of the Company. Pursuant to that settlement, the trial court entered
an agreed upon modified judgment providing that plaintiff recover $2,975,000 in
full satisfaction of his claims. Thereafter, the Company paid the recovery
awarded in the modified judgment, in consideration for which plaintiff released
the
F-37
<PAGE> 119
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
Company from the modified judgment and from any and all claims. After
consummation of the settlement, the trial court rendered an agreed upon final
judgment that plaintiff take nothing from the Company.
There are various legal actions and other claims pending against the
Network incidental to its business and operations. In the opinion of management,
the resolution of these matters will not have a material effect on the
consolidated financial statements.
10. THE OFFERING
In June, 1996, the name of the Company was changed to Univision
Communications Inc.
In June 1996, the Company filed a registration statement on Form S-1 with
the Securities and Exchange Commission and later amended it for the sale of up
to 8,170,000 shares of Class A common stock. The net proceeds to the Company
from this offering are intended, along with the proceeds from a new credit
facility, to be used to refinance the existing Bank Facility, to re-pay existing
long-term debt, to fund capital expenditures and for general corporate and
working capital purposes.
Additionally, in June 1996 UNLP signed a letter of intent with Entravision,
which owns and operates seven of the Affiliated Stations, to make a $10 million
investment in the form of a note and an option to acquire a 25% equity interest
in Entravision.
The Company intends to consummate the following transactions concurrent
with the offering:
(a) The Company will enter into the New Bank Facility and will repay
$165.0 million owing under, and terminate, the Old Bank Facility;
(b) The Company will defease UTG's 11 3/4% Senior Subordinated Notes
due 2001 (the "Senior Subordinated Notes") by, among other things,
depositing $85.1 million with the trustee under the indenture governing
such notes;
(c) The Network will make a distribution to its partners in the amount
of $60.0 million;
(d) The Company will acquire the Network from its partners in exchange
for 19,014.5 shares of Common Stock and $40.0 million in cash, UTG will
become a wholly-owned subsidiary of the Company, and the Company will
effect a dividend of 227.0 shares on each share of Class P Common Stock,
Class T Common Stock and Class V Common Stock, and the Warrants will be
adjusted to reflect the new capital structure of the Company;
(e) The Company will pay $86.5 million to the Principal Stockholders
and their affiliates, representing payment of outstanding principal of and
accrued interest on certain debentures and accrued dividends on certain
preferred stock issued by the Company and its subsidiaries in connection
with the Acquisition and approximately $42.5 million to the Principal
Stockholders and their affiliates, representing full payment of outstanding
principal of and interest on certain notes issued in payment of certain
accrued dividends as of December 31, 1995;
(f) The Company will pay $147.1 million to Televisa and Venevision,
representing full payment of outstanding principal of, and accrued interest
on, all amounts owed to them by UTG with respect to Sponsor Loans made
subsequent to the Acquisition, and the obligations to make the Sponsor
Loans will terminate;
(g) The Company will pay $15.0 million, together with interest, to
Televisa, representing full payment of outstanding principal of and accrued
interest on the note issued by the Company as of July 1, 1996 to Televisa
as payment for the acquisition of Galavision; and
F-38
<PAGE> 120
THE UNIVISION NETWORK HOLDING LIMITED PARTNERSHIP
(A LIMITED PARTNERSHIP) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1995 AND 1996
(ALL DATA WITH RESPECT TO JUNE 30, 1995 AND 1996 ARE UNAUDITED)
(h) The Program License Agreements will be amended, the Program Cost
Sharing Agreement (which required Televisa and Venevision to reimburse the
Company for one-half of the cost of certain productions produced or
acquired by the Company) will be terminated and the management fee to the
Principal Stockholders of 3% of Combined Net Time Sales will be eliminated.
Under the amended Program License Agreements, the royalty rate will be 11%
from the closing of this Offering through December 31, 1996 and will
increase to 13.5% for 1997 and to 15% for all years thereafter, and the
Company will receive no cost sharing reimbursements.
F-39
<PAGE> 121
GLOSSARY
"Acquisition" means the December 1992 acquisition of the Network and UTG
(excluding the Chicago and Houston O&Os) by Perenchio, Televisa and Venevision.
"Affiliated Stations" means the nine full-power and 14 low-power television
stations with which the Company has Affiliation Agreements.
"Affiliation Agreements" means the affiliation agreements between the
Company and each Affiliated Station and Cable Affiliate.
"Broadcast Affiliates" means the O&Os and the Affiliated Stations.
"Cable Affiliates" means the approximately 740 cable television systems
with which Univision has Affiliation Agreements. These cable television systems
retransmit the Network satellite signal and are not located in DMAs where the
Company has full-power Broadcast Affiliates.
"Combined Net Time Sales" means time sales of the Company from
broadcasting, including barter and trade and television subscription revenues,
less advertising commissions, certain special event revenues, music license
fees, outside affiliate compensation and taxes other than withholding taxes.
"DMA" means a Designated Market Area or the area in which television
stations licensed to a particular city have a greater audience share than
television stations licensed to another city.
"DRI Study" means the Company-commissioned study published by the
econometric firm DRI/McGraw Hill in 1995.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization.
"Entravision" means Entravision Communications Company, L.L.C.
"Galavision" means the Galavision Spanish-language general entertainment
basic cable network owned by the Company effective as of July 1, 1996.
"Hispanic" means all persons in the U.S. of Hispanic descent or origin.
"Hispanic Households" means all U.S. households with a head of household
who is of Hispanic descent or origin, regardless of the language spoken in the
household.
"Network" means the Univision Spanish-language television network owned by
the Company; the Network is owned by a partnership and prior to the
Reorganization, the Principal Stockholders controlled the partnership.
"Nielsen" means Nielsen Media Research which publishes television ratings,
audience share and demographic information.
"O&Os" means the 11 full-power and seven low-power television stations
owned and operated by the Company.
"PCI" means Perenchio Communications, Inc. which changed its name to
Univision Communications Inc. in June 1996.
"Perenchio" means A. Jerrold Perenchio and his affiliates.
"Principal Stockholders" means Perenchio, Televisa and Venevision.
"Program Cost Sharing Agreement" means the cost sharing agreement among the
Network, Televisa and Venevision (which will be terminated as part of the
Reorganization).
"Program License Agreements" means the amended and restated program license
agreements between the Company and Televisa and the Company and Venevision.
"PTIH" means PTI Holdings, Inc.
"Reorganization" means the reorganization of the Company immediately prior
to the closing of this Offering.
G-1
<PAGE> 122
"Sponsor Loans" means the loans made to the Company by Televisa and
Venevision each quarter since the Acquisition.
"Televisa" means Grupo Televisa, S.A. and its affiliates.
"Univision" or the "Company" means Univision Communications Inc. and its
wholly-owned subsidiaries, after giving effect to the Reorganization.
"Univision Affiliates" means the Broadcast Affiliates and the Cable
Affiliates.
"UTG" means Univision Television Group, Inc., the Company's subsidiary that
owns and operates the O&Os.
"UNHP" means The Univision Network Holding Limited Partnership, the entity
(wholly-owned by the Company) that owned substantially all of the partnership
interests in the Network prior to the Reorganization.
"Venevision" means Corporacion Venezolana de Television, C.A. (Venevision)
and its affiliates.
"Warrants" means the warrants to purchase 721,970 shares of Class A Common
Stock, 6,859,425 shares of Class T Common Stock and 6,859,425 shares of Class V
Common Stock at a price of $0.13 per share held by The Davila Family, LLC,
Televisa and Venevision, respectively.
G-2
<PAGE> 123
=====================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY
OFFER TO BUY, THE CLASS A COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
Reorganization....................... 15
Use of Proceeds...................... 16
Dividend Policy...................... 16
Dilution............................. 17
Capitalization....................... 18
Unaudited Pro Forma Consolidated
Condensed Financial Statements..... 19
Selected Historical Financial
Data............................... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 28
Business............................. 40
Management........................... 60
Certain Transactions................. 66
Principal Stockholders............... 69
Description of Capital Stock......... 71
Shares Eligible for Future Sale...... 76
Underwriting......................... 78
Legal Matters........................ 80
Experts.............................. 80
Available Information................ 80
Index to Consolidated Financial
Statements......................... F-1
Glossary............................. G-1
</TABLE>
------------------
UNTIL OCTOBER 21, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
8,170,000 SHARES
UNIVISION
COMMUNICATIONS INC.
LOGO
CLASS A COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
SEPTEMBER 26, 1996
======================================================
