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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1997 COMMISSION FILE NUMBER: 001-12223
UNIVISION COMMUNICATIONS INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE NO. 95-4398884
(State of Incorporation) (I.R.S. Employer
Identification)
</TABLE>
UNIVISION COMMUNICATIONS INC.
1999 AVENUE OF THE STARS, SUITE 3050
LOS ANGELES, CALIFORNIA 90067
TEL: (310) 556-7676
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /.
There were 12,020,363 shares of Class A Common Stock, 21,683,235 shares of
Class P Common Stock, 4,459,291 shares of Class T Common Stock and 4,459,291 of
Class V Common Stock outstanding as of October 15, 1997.
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
INDEX
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PAGE
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PART I--FINANCIAL INFORMATION:
- - Glossary............................................................................................... 2
- - Introduction........................................................................................... 4
- Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets at September 30, 1997 and December 31, 1996................... 5
Condensed Consolidated Statements of Operations for the three and nine months ended September 30,
1997 and 1996...................................................................................... 6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and
1996............................................................................................... 7
Notes to the Condensed Consolidated Financial Statements............................................ 8
- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 11
</TABLE>
<TABLE>
<S> <C> <C>
PART II--OTHER INFORMATION:
Item 1. Legal Proceedings............................................................ 21
Item 2. Changes in Securities........................................................ 21
Item 3. Defaults Upon Senior Securities.............................................. 21
Item 4. Submission of Matters to a Vote of Security Holders.......................... 21
Item 5. Other Information............................................................ 21
Item 6. Exhibits and Reports on form 8-K............................................. 21
</TABLE>
1
<PAGE>
PART I
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
GLOSSARY
The following terms are used in this Form 10-Q to refer to the companies and
operations indicated:
"Acquisition" means the December 1992 acquisition of the Network and UTG
(excluding the Chicago, Houston and Sacramento O&Os) by Perenchio, Televisa and
Venevision.
"Affiliated Stations" means the ten full-power and 17 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 Cash Flow" means earnings before corporate charges, interest,
taxes, depreciation and amortization.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization.
"Entravision" means Entravision Communications Company, LLC, which owns ten
of the Company's Affiliated Stations.
"Galavision" means the Galavision Spanish-language general entertainment
basic cable network, a wholly-owned subsidiary of the Company.
"Network" or "UNLP" means the Univision Spanish-language television network
owned by the Company and one of the Company's subsidiaries; the Network is a
partnership that prior to the Reorganization was owned and controlled by the
Principal Stockholders.
"New Bank Facility" means the Company's new credit agreement dated September
26, 1996, as amended, which provides for aggregate commitments of up to $600
million and imposes financial and other restrictions on the Company.
"O&Os" means the 12 full-power and seven low-power television stations owned
and operated by the Company. During October 1997, the Company acquired the
full-power station KUZZ-TV in Bakersfield, CA and the low-power station K25DV in
Santa Rosa, CA.
"Offering" means the sale of 9,395,500 shares of Class A Common Stock by the
Company in its initial public offering that closed on October 2, 1996.
"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 License Agreements" means the amended and restated program license
agreements between the Company and Televisa and the Company and Venevision
(which became effective as part of the Reorganization).
"PTIH" means PTI Holdings, Inc., a subsidiary of the Company.
"Reorganization" means the reorganization of the Company immediately prior
to the closing of the Offering.
2
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"Sponsor Loans" means the loans made to the Company by Televisa and
Venevision each quarter from the Acquisition through the Reorganization.
"Televisa" means Grupo Televisa, S.A. and its affiliates.
"Univision" or the "Company" means Univision Communications Inc. ("UCI") and
its wholly-owned subsidiaries, after giving effect to the Reorganization.
"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
that owned substantially all of the partnership interests in the Network prior
to the Reorganization and that was liquidated as part of the Reorganization.
"Venevision" means Corporacion Venezolana de Television, C.A. and its
affiliates.
3
<PAGE>
PART I
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
INTRODUCTION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial statements. The interim financial statements are unaudited but
include all adjustments, which are of a normal recurring nature, that management
considers necessary to fairly present the financial position and the results of
operations for such periods. Results of operations of interim periods are not
necessarily indicative of results for a full year. These financial statements
should be read in conjunction with the audited consolidated financial statements
in the Company's Annual Report on Form 10-K for December 31, 1996, as amended.
4
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PART I, ITEM 1
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 21,281 $ 11,588
Short-term investment............................................................. 94 90
Accounts receivable, less allowance for doubtful accounts of $8,876 in 1997 and
$8,738 in 1996.................................................................. 91,671 87,954
Program rights.................................................................... 6,049 4,673
Prepaid expenses and other........................................................ 5,928 7,485
------------- -------------
Total current assets............................................................ 125,023 111,790
Property and equipment, less accumulated depreciation of $33,362 in 1997 and $22,183
in 1996........................................................................... 113,938 103,373
Intangible assets, less accumulated amortization of $164,683 in 1997 and $133,988 in
1996.............................................................................. 644,319 639,934
Deferred financing costs, less accumulated amortization of $1,554 in 1997 and $343
in 1996........................................................................... 8,939 8,958
Deferred income taxes............................................................... 28,814 7,000
Note Receivable-Entravision......................................................... 10,000 10,000
Other assets........................................................................ 3,154 3,312
------------- -------------
Total assets.................................................................... $ 934,187 $ 884,367
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.......................................... $ 65,964 $ 70,522
Accrued interest.................................................................. 2,805 2,367
Accrued license fee............................................................... 4,991 4,322
Obligation for program rights..................................................... 733 482
Current portion of long-term debt................................................. 50,304 42,657
------------- -------------
Total current liabilities....................................................... 124,797 120,350
Long-term debt including accrued interest, net of current portion................... 443,683 458,808
Capital lease obligations, net of current portion................................... 37,568 39,329
Obligation for program rights, net of current portion............................... 80 331
Other long-term liabilities......................................................... 3,390 3,342
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Total liabilities............................................................... 609,518 622,160
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Redeemable convertible 6% preferred stock, $.01 par value, with a conversion price
of $32.6875 to Class A Common Stock (12,000 shares issued and outstanding at
September 30, 1997)............................................................... 12,120 --
------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value (10,000,000 shares authorized at September 30,
1997 and December 31, 1996; 12,000 redeemable convertible shares issued and
outstanding at September 30, 1997 and 12,000 outstanding and held in escrow at
December 31, 1996).............................................................. -- --
Common stock, $.01 par value (197,660,000 shares authorized at September 30, 1997
and December 31, 1996; 42,622,180 and 42,612,180 shares issued and outstanding
at September 30, 1997 and December 31, 1996, respectively)...................... 426 426
Paid-in-capital................................................................... 331,683 331,331
Accumulated deficit............................................................... (19,560) (69,550)
------------- -------------
Total stockholders' equity...................................................... 312,549 262,207
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Total liabilities and stockholders' equity.......................................... $ 934,187 $ 884,367
------------- -------------
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</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------------ ------------ ------------ ------------
Net revenues............................................. $ 113,940 $ 48,462 $ 321,868 $ 139,882
Direct operating expenses................................ 39,368 8,372 114,725 24,737
Selling, general and administrative expenses............. 33,575 16,460 98,604 50,554
Depreciation and amortization............................ 14,413 8,909 42,465 26,057
------------ ------------ ------------ ------------
Operating income......................................... 26,584 14,721 66,074 38,534
Interest expense......................................... 9,966 11,905 30,401 32,206
Amortization of deferred financing costs................. 419 843 1,211 2,592
Non-recurring expense of acquired station reversal....... -- -- (1,059) --
Minority interest in net income of consolidated
subsidiary............................................. -- (2,124) -- (1,851)
------------ ------------ ------------ ------------
Income before taxes and extraordinary loss on
extinguishment of debt................................. 16,199 4,097 35,521 5,587
Provision (benefit) for income taxes..................... (8,928) 1,639 (14,850) 2,235
------------ ------------ ------------ ------------
Income before extraordinary loss on extinguishment of
debt................................................... 25,127 2,458 50,371 3,352
Extraordinary loss on extinguishment of debt............. -- (10,913) -- (11,558)
------------ ------------ ------------ ------------
Net income (loss)........................................ 25,127 (8,455) 50,371 (8,206)
Preferred stock dividends................................ (179) -- (381) --
------------ ------------ ------------ ------------
Net income (loss) applicable to common stock............. $ 24,948 $ (8,455) $ 49,990 $ (8,206)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Income per share before extraordinary loss............... $ 0.43 $ 0.15 $ 0.87 $ 0.20
Extraordinary loss per share............................. -- (0.66) -- (0.69)
------------ ------------ ------------ ------------
Net income (loss) per share.............................. 0.43 (0.51) 0.87 (0.49)
Less preferred stock dividends........................... -- -- (0.01) --
------------ ------------ ------------ ------------
Net income (loss) per share applicable to common stock... $ 0.43 $ (0.51) $ 0.86 $ (0.49)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common shares outstanding............... 58,011,159 16,640,056 57,791,526 16,640,056
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Net income (loss)............................................................................. $ 50,371 $ (8,206)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation.................................................................................. 11,770 4,893
Gain on sale of fixed assets.................................................................. (202) --
Amortization of intangible assets and deferred financing costs................................ 31,906 23,756
Accretion of interest on Sponsor Loans........................................................ -- 13,477
Minority interest............................................................................. -- (1,851)
Extraordinary loss on extinguishment of debt.................................................. -- 13,709
Changes in assets and liabilities:
Accounts receivable......................................................................... (2,967) 4,101
Intangible assets........................................................................... 5,600 --
Deferred income taxes....................................................................... (21,692) --
License fees payable........................................................................ 42,080 --
Payment of license fees..................................................................... (41,411) --
Program rights.............................................................................. (1,376) --
Due to the Network.......................................................................... -- (18,084)
Prepaid expenses and other assets........................................................... 1,715 (3,046)
Accounts payable and accrued liabilities.................................................... (3,979) (6,281)
Accrued interest............................................................................ 6,052 (5,284)
Obligations for program rights.............................................................. -- (2,003)
Other, net.................................................................................. 49 122
--------- ---------
Net cash provided by operating activities..................................................... 77,916 15,303
--------- ---------
Cash flow from investing activities:
Acquisition of Sacramento................................................................... (28,936) --
Proceeds from sale of fixed assets.......................................................... 318 --
Capital expenditures........................................................................ (21,711) (8,236)
Organization costs.......................................................................... (244) --
--------- ---------
Net cash used in investing activities......................................................... (50,573) (8,236)
--------- ---------
Cash flow from financing activities:
Proceeds from issuance of long-term debt.................................................... 64,000 436,000
Proceeds from Sponsor Loans................................................................. -- 38,381
Payments of long-term debt.................................................................. (78,927) (202,250)
Advances to the Network..................................................................... -- (29,889)
Reduction of Sponsor Loans--Program Cost Sharing Agreement.................................. -- (5,074)
Defeasance of Senior Subordinated Notes..................................................... -- (70,276)
Repurchase of Senior Subordinated Notes..................................................... -- (25,881)
Distribution to the partners................................................................ -- (60,000)
Exercise of options......................................................................... 230 --
Preferred stock dividends paid.............................................................. (261) --
Tax payments to Partners.................................................................... (1,500) --
Deferred financing costs.................................................................... (1,192) (8,645)
--------- ---------
Net cash (used in) provided by financing activities........................................... (17,650) 72,366
--------- ---------
Net increase in cash.......................................................................... 9,693 79,433
Cash and cash equivalents, beginning of year.................................................. 11,588 14,029
--------- ---------
Cash and cash equivalents, end of period...................................................... $ 21,281 $ 93,462
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Interest paid during the period............................................................. $ 21,706 $ 25,921
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. ORGANIZATION AND ACQUISITION
Through October 2, 1996, Univision Communications Inc. ("UCI"), formerly
Perenchio Communications, Inc. ("PCI"), and its 80% owned subsidiary, PTI
Holdings, Inc. ("PTIH") were beneficially owned by affiliates of A. Jerrold
Perenchio (together with his affiliates, "Perenchio"), affiliates of Grupo
Televisa, S.A. (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") was a wholly-owned subsidiary of PTIH, and Univision
Television Group, Inc. ("UTG") was a wholly-owned subsidiary of PTI.
PCI and its subsidiaries had no operations prior to the 1992 acquisition of
the station group, by the Principal Stockholders, for approximately
$489,000,000, including approximately $11,000,000 of acquisition costs. 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. Two additional stations, Chicago and Houston, were
acquired during 1994 for an aggregate purchase price of $67,000,000 resulting in
additional intangible assets of approximately $64,000,000. A third station
located in Sacramento, CA was acquired in March of 1997 for a purchase price of
approximately $40,200,000, principally all of which has been allocated to
intangible assets pending the completion of an independent appraisal.
Through October 2, 1996, the businesses of the Company and the Network were
under separate management and ownership structures. Notwithstanding this
separation, the business operations of the Company and the Network remained
substantially dependent upon one another. The Company is dependent upon the
Network for programming and advertising sales support, while the Company
represented 78% of the Network's total broadcast distribution.
Effective with the close of business on October 2, 1996, as part of the
Offering and Reorganization, PTIH became a wholly-owned subsidiary of the
Company. PTI was merged with and into PTIH. The Company and one of the Company's
subsidiaries acquired The Univision Network Holding Limited Partnership ("UNHP")
and The Univision Network Limited Partnership ("the Network") which had existing
intangible assets of approximately $23,000,000.
The acquisition of the minority interests of PTIH and the Network (which
included the July 1, 1996 acquisition of Galavision) has been accounted for
under the purchase method of accounting, and, accordingly, the Network's
operating results have been included with the Company's since October 3, 1996.
The total consideration paid in excess of the fair value of the net assets
related to the minority interests of PTIH and the Network acquired was
approximately $203,000,000. Based on the final appraisal received in the third
quarter of 1997, the Company has allocated approximately $115,000,000 to
affiliation agreements, approximately $79,000,000 to the FCC television
broadcast licenses and approximately $9,000,000 to all other intangible assets.
Subsequent amortization of intangibles will be adjusted accordingly.
8
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
1. ORGANIZATION AND ACQUISITION (CONTINUED)
The following pro forma statements do not purport to represent what the
Company's consolidated financial position or results of operations would
actually have been if the transactions described above in fact had occurred on
the dates assumed or to project consolidated financial position or results of
operations for any future date or period.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1997 1996 1997 1996
ACTUAL PRO FORMA ACTUAL PRO FORMA
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net revenues................................. $ 113,940 $ 92,902 $ 321,868 $ 263,758
--------- --------- --------- ----------
Direct operating expenses.................... 39,297 30,847 114,533 88,119
Selling, general and administrative
expenses................................... 30,795 23,901 90,631 71,349
Corporate charges............................ 2,851 2,650 8,165 6,969
Depreciation and amortization................ 14,413 13,656 42,465 41,559
--------- --------- --------- ----------
Operating income............................. 26,584 21,848 66,074 55,762
Interest expense............................. 9,966 10,230 30,401 30,006
Amortization of deferred financing costs..... 419 372 1,211 1,116
Non-recurring expense of acquired station
reversal................................... -- -- (1,059) --
--------- --------- --------- ----------
Income before taxes and extraordinary income
(loss) on extinguishment of debt........... 16,199 11,246 35,521 24,640
Provision (benefit) for income taxes......... (8,928) 2,225 (14,850) 7,583
--------- --------- --------- ----------
Income before extraordinary income (loss) on
extinguishment of debt..................... 25,127 9,021 50,371 17,057
Extraordinary income (loss) on extinguishment
of debt.................................... -- 2,187 -- (11,182)
--------- --------- --------- ----------
Net income................................... 25,127 11,208 50,371 5,875
Preferred stock dividends.................... (179) -- (381) --
--------- --------- --------- ----------
Net income applicable to common stock........ $ 24,948 $ 11,208 $ 49,990 $ 5,875
--------- --------- --------- ----------
--------- --------- --------- ----------
Income per share before extraordinary income
(loss ).................................... $ 0.43 $ 0.15 $ 0.87 $ 0.29
Extraordinary income (loss) per share........ -- 0.04 -- (0.19)
--------- --------- --------- ----------
Net income per share......................... 0.43 0.19 0.87 0.10
Less preferred stock dividends............... -- -- (0.01) --
--------- --------- --------- ----------
Net income per share applicable to common
stock...................................... $ 0.43 $ 0.19 $ 0.86 $ 0.10
--------- --------- --------- ----------
--------- --------- --------- ----------
57,
Weighted average common shares outstanding... 58,011,159 58,011,159 57,791,526 791,526
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
9
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
2. STATION ACQUISITION
On October 16, 1997, UTG acquired the assets (excluding the studio building,
certain leaseholds, accounts receivable, cash and cash equivalents and any and
all rights to the call letters KUZZ-TV) of English-language station KUZZ-TV,
Channel 45, in Bakersfield, CA from Buck Owens Production Company, Inc. The
purchase price was approximately $14,000,000. The Company plans to continue to
operate the station, which is a UPN affiliate, as an English-language station
for the near term.
3. 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.
For financial reporting and tax purposes, the Company provided for $229,000
of taxes in 1996. Prior to 1996, no Federal income taxes had been provided.
At December 31, 1996, the Company had deferred tax assets totaling
$86,500,000 and a valuation allowance of $79,500,000, resulting in a net
deferred tax asset of $7,000,000. The valuation allowance at December 31, 1996
was deemed necessary based upon the history and accumulation of losses the
Company had incurred in the past. During the third quarter of 1997, the Company
had income for both book and tax purposes; however, the Company has not
determined that it has established a consistent trend of profitability at
September 30, 1997. Therefore, at September 30, 1997, the Company has evaluated
its deferred taxes and the associated valuation allowance and has determined
that a deferred tax asset of approximately $67,700,000 and a valuation allowance
of approximately $38,900,000, resulting in a net deferred tax asset of
approximately $28,800,000 represents, more likely than not, the tax benefits
that will be realized. Realization of any loss carryforwards is contingent upon
the Company's generating future taxable income. Going forward, the Company will
continue to evaluate if additional deferred tax assets can be realized based on
an evaluation of continuing profitability into the future.
4. OPTIONS
During the three months ended September 30, 1997, 10,000 options were
exercised for 10,000 shares of Class A Common Stock resulting in a change to
Paid-in-capital of $352,000, which included a tax benefit associated with the
transaction of $122,000.
5. UNAUDITED FINANCIAL STATEMENTS
Certain reclassifications have been made to the prior year financial
statements to conform to the current presentation.
6. SUBSEQUENT EVENT
On October 31, 1997, the Company entered into a non-binding letter of intent
with Home Shopping Network, Inc. to form a joint venture to create and operate a
live Spanish-language television shopping business intended for distribution in
the United States, Latin America and Spain. The terms of a definitive agreement
are being negotiated and the United States business is expected to begin
operations during the first quarter of 1998.
10
<PAGE>
PART I, ITEM 2
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following management's discussion and analysis should be read in
conjunction with the Condensed Consolidated Financial Statements and the Notes
to Condensed Consolidated Financial Statements. In particular, Note 1
(ORGANIZATION AND ACQUISITION) to the Condensed Consolidated Financial
Statements explains the acquisition of the Network on October 2, 1996, and
presents the results of operations of the Company on a pro forma basis for the
three and nine months ended September 30, 1996, as if the 1996 acquisition of
the Network and related Reorganization had occurred as of January 1, 1996.
RESULTS OF OPERATIONS
For the three and nine months ended September 30, 1997, the Company's
results include the operations of the Network, and as a result, revenues,
expenses and other items include the Network for these periods. Consequently,
significant variances exist when the results for the three and nine months ended
September 30, 1997 are compared to those for the three and nine months ended
September 30, 1996. Accordingly, management's discussion and analysis of results
of operations for the three and nine months ended September 30, 1997, as
compared to September 30, 1996, has been presented on a historical basis and, in
addition, on a pro forma basis as described above. Furthermore, the three and
nine months ended September 30, 1996 results of operations include the pro forma
impact of adjustments for interest expense on the Company's New Bank Facility,
amortization of Network goodwill and acquisition-related financing costs and
related income tax benefits. The pro forma three and nine months ended September
30, 1996 results of operations are not necessarily indicative of what would have
occurred if the Network acquisition had taken place on January 1, 1996.
As a result of the Reorganization, the Company's major assets are its
investments in UTG and the Network, from which substantially all of its revenues
are derived. UTG's net revenues are derived from the owned and operated stations
(the "O&Os") and include gross advertising revenues generated from the sale of
national and local spot advertising time, net of agency commissions. The
Network's net revenues include gross advertising revenues generated from the
sale of Network advertising, net of agency commissions and station compensation
to the Affiliated Stations. Also included in net revenues are Galavision's gross
advertising revenues, net of agency commissions, its subscriber fee revenues and
other miscellaneous revenues.
Direct operating expenses consist of programming, news and general operating
costs.
11
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 ("1997") COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 ("1996")
The following table sets forth selected data from the operating results of
the Company for the nine months ended September 30, 1997 and 1996 on a
historical and pro forma basis (in thousands) (unaudited):
<TABLE>
<CAPTION>
HISTORICAL ACTUAL/PRO FORMA
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
ACTUAL ACTUAL % INCREASE ACTUAL PRO FORMA % INCREASE
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues........................................ $ 321,868 $ 139,882 130.1% $ 321,868 $ 263,758 22.0%
Direct operating expenses........................... 114,725 24,737 363.8% 114,725 88,266 30.0%
Selling, general and administrative expenses........ 98,604 50,554 95.0% 98,604 78,171 26.1%
Depreciation and amortization....................... 42,465 26,057 63.0% 42,465 41,559 2.2%
---------- ---------- ----- ---------- ---------- ---
Operating income.................................... $ 66,074 $ 38,534 71.5% $ 66,074 $ 55,762 18.5%
---------- ---------- ----- ---------- ---------- ---
---------- ---------- ----- ---------- ---------- ---
Other Data:
Broadcast cash flow............................... $ 116,704 $ 69,874 67.0% $ 116,704 $ 104,290 11.9%
Corporate charges................................. 8,165 5,283 54.6% 8,165 6,969 17.2%
---------- ---------- ----- ---------- ---------- ---
EBITDA............................................ $ 108,539 $ 64,591 68.0% $ 108,539 $ 97,321 11.5%
---------- ---------- ----- ---------- ---------- ---
---------- ---------- ----- ---------- ---------- ---
</TABLE>
REVENUES. Net revenues increased to $321,868,000 for the nine months ended
September 30, 1997 from $139,882,000 for the same period in 1996, an increase of
$181,986,000 or 130.1%. The acquisition of the Network accounted for
$146,725,000 or 80.6% of the increase, and the O&Os and Galavision accounted for
$29,395,000 or 16.2% and $5,866,000 or 3.2%, respectively. Had the Network been
owned since January 1, 1996, net revenues would have been $263,758,000 in 1996
compared to $321,868,000 in 1997, an increase of $58,110,000 or 22.0%. The
increase is due to higher net revenues of $29,395,000 at the O&Os, $24,596,000
at the Network and $4,119,000 related to Galavision, which was acquired by the
Network on June 30, 1996. The O&Os' increase, which was due to an increase of
approximately 15% in spots sold and an 11% increase in the price for advertising
spots, was primarily derived from Los Angeles, Miami, Chicago, New York and
Houston, with increases at all other O&Os. The Network's increase is due to an
increase of approximately 20% in the price of advertising spots, offset in part
by a decrease in volume of approximately 5%.
EXPENSES. Direct operating expenses, before the reduction of corporate
charges of $192,000 and $147,000 for the nine months ended September 30, 1997
and 1996, respectively, increased to $114,725,000 in 1997 from $24,737,000 in
1996, an increase of $89,988,000 or 363.8%. The acquisition of the Network
accounted for $85,808,000 or 95.4% of the increase, and the O&Os and Galavision
accounted for $2,357,000 or 2.6% and $1,823,000 or 2.0%, respectively. Had the
Network been owned since January 1, 1996, direct operating expenses, before the
reduction of corporate charges, would have been $88,266,000 in 1996 compared to
$114,725,000 in 1997, an increase of $26,459,000 or 30.0%. The increase is
primarily due to higher license fees of $16,074,000. As a result of the
Company's Offering in September 1996 and its subsequent corporate Reorganization
in the fourth quarter of 1996, the net program license fee payable to
Univision's program suppliers, Televisa and Venevision, increased from 9.7% to
13.0% of net revenues for the nine months ended September 30, 1996 and 1997,
respectively. The new morning show, DESPIERTA AMERICA, which began airing
mid-April 1997 and generated revenues of approximately $5,000,000, accounted for
approximately $2,300,000 (including start-up costs of approximately $560,000) of
the total
12
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
increase in programming costs over 1996. The remainder of the increase is due
primarily to higher technical and news costs and $1,403,000 of costs related to
Galavision. Had the Network been owned since January 1, 1996, direct operating
expenses, as a percentage of net revenues, would have increased to 35.6% in 1997
from 33.5% in 1996.
Selling, general and administrative expenses, before the reduction of
corporate charges of $7,973,000 and $5,136,000 for the nine months ended
September 30, 1997 and 1996, respectively, increased to $98,604,000 in 1997 from
$50,554,000 in 1996, an increase of $48,050,000 or 95.0%. The acquisition of the
Network accounted for $30,654,000 or 63.8% of the increase, and the O&Os and
Galavision accounted for $13,203,000 or 27.5% and $4,193,000 or 8.7%,
respectively. Had the Network been owned since January 1, 1996, selling, general
and administrative expenses, before the reduction of corporate charges, would
have been $78,171,000 in 1996 compared to $98,604,000 in 1997, an increase of
$20,433,000 or 26.1%. The increase is due in large part to increased selling
costs at the O&Os and the Network of $7,417,000 associated with increased sales
and staff levels, a charge of approximately $1,500,000 for costs associated with
management changes and increased research costs of $547,000, all of which are
consistent with the Company's strategy of investing in sales management and
research. Furthermore, there were compensation costs of approximately $2,000,000
related to new and existing senior management positions, a charge for costs
associated with other management changes of approximately $2,000,000 and the
1996 expenses being reduced by $1,200,000 as a result of a litigation reserve
reversal. The acquisition of Galavision accounted for $3,016,000. Had the
Network been owned since January 1, 1996, selling, general and administrative
expenses, as a percentage of net revenues, would have increased to 30.6% in 1997
from 29.6% in 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$42,465,000 in 1997 from $26,057,000 in 1996, an increase of $16,408,000 or
63.0%. The acquisition of the Network accounted for $6,249,000 or 38.1% of the
increase, and the O&Os and Galavision accounted for $9,138,000 or 55.7% and
$1,021,000 or 6.2%, respectively. On a proforma basis, depreciation and
amortization would have been $41,559,000 in 1996 compared to $42,465,000 in
1997, an increase of $906,000 or 2.2%. The increase is due primarily to an
increase in depreciation related to increased capital expenditures and the
acquisition of Galavision, offset in part by a decrease in goodwill
amortization.
OPERATING INCOME. As a result of the above factors, operating income
increased to $66,074,000 in 1997 from $38,534,000 in 1996, an increase of
$27,540,000 or 71.5%. The acquisition of the Network accounted for $24,014,000
of the increase, the O&Os accounted for $4,697,000 and Galavision accounted for
a decrease in operating income of $1,171,000. On a proforma basis, operating
income would have been $55,762,000 in 1996 compared to $66,074,000 in 1997, an
increase of $10,312,000 or 18.5%, and as a percentage of net revenues, operating
income would have decreased from 21.1% in 1996 to 20.5% in 1997.
INTEREST EXPENSE. Interest expense decreased to $30,401,000 in 1997 from
$32,206,000 in 1996, a decrease of $1,805,000 or 5.6%. On a pro forma basis,
interest expense was $30,006,000 in 1996 compared to $30,401,000 in 1997, an
increase of $395,000 or 1.3%. The increase is due primarily to higher borrowings
during 1997 as compared to 1996, partially offset by lower interest rates in
1997.
MINORITY INTEREST. For the nine months ended September 30, 1996, the
Company reported minority interest income of $1,851,000, consisting of the
minority interest in the net income of subsidiary of $1,869,000 and preferred
stock dividend expense attributable to minority stockholders of $18,000. The
minority interest was acquired as part of the Reorganization during 1996. On a
pro forma basis, minority interest is eliminated from the 1996 operating results
of the Company.
13
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
PROVISION (BENEFIT) FOR INCOME TAXES. For the nine months ended September
30, 1997, the Company reported an income tax benefit of $14,850,000 compared to
an income tax provision of $2,235,000 for the nine months ended September 30,
1996. On a pro forma basis, the Company reported an income tax benefit of
$14,850,000 for the nine months ended September 30, 1997, and an income tax
provision of $7,583,000 for the nine months ended September 30, 1996. The 1997
tax benefit results from the recognition of deferred tax assets that management
believes, more likely than not, will be realized due to the Company's generating
income in its current and future periods. The provision for income taxes
included in the nine months ended September 30, 1996 pro forma income statement
is based on an effective tax rate of 40%. This tax provision, presented on a pro
forma basis, is offset by an income tax benefit arising from the January 1, 1996
loss on extinguishment of debt (see Extraordinary Loss).
INCOME BEFORE EXTRAORDINARY ITEMS. As a result of the above factors, income
before extraordinary items increased to $50,371,000 in 1997 from $3,352,000 in
1996, an increase of $47,019,000. On a pro forma basis, income before
extraordinary items increased to $50,371,000 in 1997 from $17,057,000 in 1996,
an increase of $33,314,000.
EXTRAORDINARY LOSS. During the nine months ended September 30, 1996, UTG
purchased at a premium $24,425,000 face amount of its 11 3/4% Senior
Subordinated Notes due 2001. The purchases resulted in an extraordinary loss of
$2,112,000, including the write-off of the related deferred financing costs. The
remaining face amount of the Senior Subordinated Notes of $67,625,000 was
defeased, resulting in an extraordinary loss of $11,597,000, including the
write-off of the remaining related financing costs of $8,946,000. The related
income tax benefit associated with the extraordinary losses was $2,151,000,
resulting in a net extraordinary loss during the nine months ended September 30,
1996 of $11,558,000. On a pro forma basis, the Senior Subordinated Notes with a
total face amount of $92,050,000 are assumed to be defeased at January 1, 1996,
generating an extraordinary loss of $11,182,000, including a related tax benefit
of $7,455,000 for the nine months ended September 30, 1996.
NET INCOME (LOSS). As a result of the above factors, net income increased
to $50,371,000 in 1997 from a net loss of $8,206,000 in 1996, an improvement of
$58,577,000. On a pro forma basis, net income increased to $50,371,000 in 1997
from $5,875,000 in 1996, an increase of $44,496,000.
BROADCAST CASH FLOW. Broadcast cash flow increased to $116,704,000 in 1997
from $69,874,000 in 1996, an increase of $46,830,000 or 67.0%. The acquisition
of the Network accounted for $32,332,000 of the increase, the O&Os accounted for
$14,648,000 of the increase and Galavision accounted for a decrease in broadcast
cash flow of $150,000. Had the Network been owned since January 1, 1996,
broadcast cash flow would have been $104,290,000 in 1996 compared to
$116,704,000 in 1997, an increase of $12,414,000 or 11.9%, and as a percentage
of net revenues, broadcast cash flow would have decreased from 39.5% in 1996 to
36.3% in 1997.
As a result of the Company's Offering in September 1996 and its subsequent
corporate Reorganization in the fourth quarter of 1996, the net program license
fee payable to Univision's program suppliers, Televisa and Venevision, increased
from 9.7% to 13.0% of net revenues for the nine months ended September 30, 1996
and 1997, respectively. Had the revised license fee been in effect in 1996, the
license fee would have increased by $9,371,000 and broadcast cash flow would
have been $94,919,000 in 1996. On a year to year basis, broadcast cash flow
would have increased by $21,785,000 or 23.0%, from $94,919,000 in 1996 to
$116,704,000 in 1997, and as a percentage of net revenues, broadcast cash flow
would have increased from 36.0% in 1996 to 36.3% in 1997.
14
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CORPORATE CHARGES. Corporate charges increased to $8,165,000 in 1997 from
$5,283,000 in 1996, an increase of $2,882,000 or 54.6%. The acquisition of the
Network accounted for $2,069,000 or 71.8% of the increase and the O&Os accounted
for $813,000 or 28.2%. Had the Network been owned since January 1, 1996,
corporate charges would have been $6,969,000 in 1996 compared to $8,165,000 in
1997, an increase of $1,196,000 or 17.2%. The increase is primarily due to costs
associated with being a public company and increased staffing costs, and as a
percentage of net revenues, corporate charges would have decreased from 2.6% in
1996 to 2.5% in 1997.
EBITDA. EBITDA increased to $108,539,000 in 1997 from $64,591,000 in 1996,
an increase of $43,948,000 or 68.0%. The acquisition of the Network accounted
for $30,263,000 of the increase, the O&Os accounted for $13,835,000 of the
increase and Galavision accounted for a decrease in EBITDA of $150,000. Had the
Network been owned since January 1, 1996, EBITDA would have been $97,321,000 in
1996 compared to $108,539,000 in 1997, an increase of $11,218,000 or 11.5%, and
as a percentage of net revenues, EBITDA would have decreased from 36.9% in 1996
to 33.7% in 1997.
As explained in Broadcast Cash Flow, had the revised license fee been in
effect in 1996, the license fee would have increased by $9,371,000 and EBITDA
would have been $87,950,000 in 1996. On a year to year basis, EBITDA would have
increased by $20,589,000 or 23.4%, from $87,950,000 in 1996 to $108,539,000 in
1997, and as a percentage of net revenues, EBITDA would have increased from
33.3% in 1996 to 33.7% in 1997.
THREE MONTHS ENDED SEPTEMBER 30, 1997 ("1997") COMPARED TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 ("1996")
The following table sets forth selected data from the operating results of
the Company for the three months ended September 30, 1997 and 1996 on a
historical and pro forma basis (in thousands) (unaudited):
<TABLE>
<CAPTION>
HISTORICAL ACTUAL/PRO FORMA
--------------------- -----------------------
1997 1996 1997 1996
---------- --------- ---------- -----------
ACTUAL ACTUAL % INCREASE ACTUAL PRO FORMA % INCREASE
---------- --------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues......................................... $ 113,940 $ 48,462 135.1% $ 113,940 $ 92,902 22.6%
Direct operating expenses............................ 39,368 8,372 370.2% 39,368 30,895 27.4%
Selling, general and administrative expenses......... 33,575 16,460 104.0% 33,575 26,503 26.7%
Depreciation and amortization........................ 14,413 8,909 61.8% 14,413 13,656 5.5%
---------- --------- ----- ---------- ----------- ---
Operating income..................................... $ 26,584 $ 14,721 80.6% $ 26,584 $ 21,848 21.7%
---------- --------- ----- ---------- ----------- ---
---------- --------- ----- ---------- ----------- ---
Other Data:
Broadcast cash flow................................ $ 43,848 $ 25,718 70.5% $ 43,848 $ 38,154 14.9%
Corporate charges.................................. 2,851 2,088 36.5% 2,851 2,650 7.6%
---------- --------- ----- ---------- ----------- ---
EBITDA............................................. $ 40,997 $ 23,630 73.5% $ 40,997 $ 35,504 15.5%
---------- --------- ----- ---------- ----------- ---
---------- --------- ----- ---------- ----------- ---
</TABLE>
REVENUES. Net revenues increased to $113,940,000 for the three months ended
September 30, 1997 from $48,462,000 for the same period in 1996, an increase of
$65,478,000 or 135.1%. The acquisition of the Network accounted for $51,437,000
or 78.6% of the increase, and the O&Os and Galavision accounted for $12,049,000
or 18.4% and $1,992,000 or 3.0%, respectively. Had the Network been owned since
January 1, 1996, net revenues would have been $92,902,000 in 1996 compared to
$113,940,000 in 1997, an increase of
15
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
$21,038,000 or 22.6%. The increase is due to higher net revenues of $12,049,000
at the O&Os, $8,744,000 at the Network and $245,000 related to Galavision. The
O&Os' increase, which was due to an increase of approximately 16% in spots sold
and a 11% increase in the price of advertising spots, was primarily derived from
Los Angeles, Miami, Chicago, San Francisco and New York, with increases at all
other O&Os. The Network's increase is due to an increase of approximately 14% in
the price of advertising spots and an increase in volume of approximately 2%.
EXPENSES. Direct operating expenses, before the reduction of corporate
charges of $71,000 and $49,000 for the three months ended September 30, 1997 and
1996, respectively, increased to $39,368,000 in 1997 from $8,372,000 in 1996, an
increase of $30,996,000 or 370.2%. The acquisition of the Network accounted for
$29,398,000 or 94.8% of the increase, and the O&Os and Galavision accounted for
$995,000 or 3.3% and $603,000 or 1.9%, respectively. Had the Network been owned
since January 1, 1996, direct operating expenses, before the reduction of
corporate charges, would have been $30,895,000 in 1996 compared to $39,368,000
in 1997, an increase of $8,473,000 or 27.4%. The increase is primarily due to
higher license fees of $5,340,000. As a result of the Company's Offering in
September 1996 and its subsequent corporate Reorganization in the fourth quarter
of 1996, the net program license fee payable to Univision's program suppliers,
Televisa and Venevision, increased from 10.2% to 13.0% of net revenues for the
three months ended September 30, 1996 and 1997, respectively. The new morning
show, DESPIERTA AMERICA, which began airing mid-April 1997 and generated net
revenues of approximately $2,800,000, accounted for approximately $900,000 of
the total increase in programming costs over 1996. The remainder of the increase
is due primarily to higher technical and news costs. Had the Network been owned
since January 1, 1996, direct operating expenses, as a percentage of net
revenues, would have increased to 34.6% in 1997 from 33.3% in 1996.
Selling, general and administrative expenses, before the reduction of
corporate charges of $2,780,000 and $2,039,000 for the three months ended
September 30, 1997 and 1996, respectively, increased to $33,575,000 in 1997 from
$16,460,000 in 1996, an increase of $17,115,000 or 104.0%. The acquisition of
the Network accounted for $10,289,000 or 60.1% of the increase, and the O&Os and
Galavision accounted for $5,522,000 or 32.3% and $1,304,000 or 7.6%,
respectively. Had the Network been owned since January 1, 1996, selling, general
and administrative expenses, before the reduction of corporate charges, would
have been $26,503,000 in 1996 compared to $33,575,000 in 1997, an increase of
$7,072,000 or 26.7%. The increase is due in large part to increased selling
costs of $3,066,000 associated with increased sales and staff levels, a charge
of approximately $1,500,000 for costs associated with management changes and
increased research costs of $154,000, all of which are consistent with the
Company's strategy of investing in sales management and research. Furthermore,
there were compensation costs of approximately $500,000 related to new and
existing senior management positions, a charge for costs associated with other
management changes of approximately $1,500,000 and the 1996 expenses being
reduced by $1,200,000 as a result of a litigation reserve reversal. Had the
Network been owned since January 1, 1996, selling, general and administrative
expenses, as a percentage of net revenues, would have increased to 29.5% in 1997
from 28.5% in 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$14,413,000 in 1997 from $8,909,000 in 1996, an increase of $5,504,000 or 61.8%.
The acquisition of the Network accounted for $2,068,000 or 37.6% of the
increase, and the O&Os and Galavision accounted for $3,101,000 or 56.3% and
$335,000 or 6.1%, respectively. On a pro forma basis, depreciation and
amortization would have been $13,656,000 in 1996 compared to $14,413,000 in
1997, an increase of $757,000 or 5.5%. The increase is due primarily to an
increase in depreciation related to increased capital expenditures and an
increase in goodwill amortization.
16
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
OPERATING INCOME. As a result of the above factors, operating income
increased to $26,584,000 in 1997 from $14,721,000 in 1996, an increase of
$11,863,000 or 80.6%. The acquisition of the Network accounted for $9,683,000 of
the increase, the O&Os accounted for an increase of $2,431,000 and Galavision
accounted for a decrease of $251,000. On a pro forma basis, operating income
would have been $21,848,000 in 1996 compared to $26,584,000 in 1997, an increase
of $4,736,000 or 21.7%, and as a percentage of net revenues, operating income
would have decreased from 23.5% in 1996 to 23.3% in 1997.
INTEREST EXPENSE. Interest expense decreased to $9,966,000 in 1997 from
$11,905,000 in 1996, a decrease of $1,939,000 or 16.3%. On a pro forma basis,
interest expense was $10,230,000 in 1996 compared to $9,966,000 in 1997, a
decrease of $264,000 or 2.6%. The decrease is due primarily to lower interest
rates in 1997, partially offset by higher borrowings during 1997 as compared to
1996.
MINORITY INTEREST. For the three months ended September 30, 1996, the
Company reported minority interest income of $2,124,000, consisting of the
minority interest in the net income of subsidiary of $2,052,000 and preferred
stock dividend income attributable to minority stockholders of $72,000. The
minority interest was acquired as part of the Reorganization during 1996. On a
pro forma basis, minority interest is eliminated from the 1996 operating results
of the Company.
PROVISION (BENEFIT) FOR INCOME TAXES. For the three months ended September
30, 1997, the Company reported an income tax benefit of $8,928,000 compared to
an income tax provision of $1,639,000 for the three months ended September 30,
1996. On a pro forma basis, the Company reported an income tax benefit of
$8,928,000 for the three months ended September 30, 1997 compared to an income
tax provision of $2,225,000 for the three months ended September 30, 1996. The
1997 tax benefit results from the recognition of deferred tax assets that
management believes, more likely than not, will be realized due to the Company's
generating income in its current and future periods. The provision for income
taxes included in the three months ended September 30, 1996 pro forma income
statement is based on an effective tax rate of 40%. This tax provision,
presented on a pro forma basis, is offset by an income tax benefit arising from
the January 1, 1996 loss on extinguishment of debt (see Extraordinary Loss).
INCOME BEFORE EXTRAORDINARY ITEMS. As a result of the above factors, income
before extraordinary items increased to $25,127,000 in 1997 from $2,458,000 in
1996, an increase of $22,669,000. On a pro forma basis, income before
extraordinary items increased to $25,127,000 in 1997 from $9,021,000 in 1996, an
increase of $16,106,000.
EXTRAORDINARY LOSS. During the three months ended September 30, 1996, UTG
purchased at a premium $11,775,000 face amount of its 11 3/4% Senior
Subordinated Notes due 2001. The purchase resulted in an extraordinary loss of
$931,000, including the write-off of the related deferred financing costs. The
remaining face amount of the Senior Subordinated Notes of $67,625,000 was
defeased, resulting in an extraordinary loss of $11,597,000, including the
write-off of the remaining related financing costs of $8,946,000. The related
income tax benefit associated with the extraordinary losses was $1,615,000,
resulting in a net extraordinary loss during the three months ended September
30, 1996 of $10,913,000. On a pro forma basis, the Senior Subordinated Notes
with a total face amount of $92,050,000 are assumed to be defeased at January 1,
1996, generating an extraordinary loss before taxes of $18,637,000. The related
tax benefit of $7,455,000 on the extraordinary loss for the nine months ended
September 30, 1996 was recorded as taxable income became available during the
three months ended June 30, 1996 and September 30, 1996 of $5,268,000 and
$2,187,000, respectively.
17
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
NET INCOME. As a result of the above factors, net income increased to
$25,127,000 in 1997 from a net loss of $8,455,000 in 1996, an improvement of
$33,582,000. On a pro forma basis, net income increased to $25,127,000 in 1997
from $11,208,000 in 1996, an increase of $13,919,000.
BROADCAST CASH FLOW. Broadcast cash flow increased to $43,848,000 in 1997
from $25,718,000 in 1996, an increase of $18,130,000 or 70.5%. The acquisition
of the Network accounted for $12,458,000 or 68.7% of the increase, and the O&Os
accounted for $5,587,000 or 30.8% and Galavision accounted for $85,000 or 0.5%.
Had the Network been owned since January 1, 1996, broadcast cash flow would have
been $38,154,000 in 1996 compared to $43,848,000 in 1997, an increase of
$5,694,000 or 14.9%, and as a percentage of net revenues, broadcast cash flow
would have decreased from 41.1% in 1996 to 38.5% in 1997.
As a result of the Company's Offering in September 1996 and its subsequent
corporate Reorganization in the fourth quarter of 1996, the net program license
fee payable to Univision's program suppliers, Televisa and Venevision, increased
from 10.2% to 13.0% of net revenues for the three months ended September 30,
1996 and 1997, respectively. Had the revised license fee been in effect in 1996,
the license fee would have increased by $2,871,000 and broadcast cash flow would
have been $35,283,000 in 1996. On a year to year basis, broadcast cash flow
would have increased by $8,565,000 or 24.3%, from $35,283,000 in 1996 to
$43,848,000 in 1997, and as a percentage of net revenues, broadcast cash flow
would have increased from 38.0% in 1996 to 38.5% 1997.
CORPORATE CHARGES. Corporate charges increased to $2,851,000 in 1997 from
$2,088,000 in 1996, an increase of $763,000 or 36.5%. The acquisition of the
Network accounted for $708,000 or 92.8% of the increase and the O&Os accounted
for $55,000 or 7.2%. Had the Network been owned since January 1, 1996, corporate
charges would have been $2,650,000 in 1996 compared to $2,851,000 in 1997, an
increase of $201,000 or 7.6%. The increase is primarily due to costs associated
with being a public company in 1997 and increases in compensation costs, and as
a percentage of net revenues, corporate charges would have decreased from 2.9%
in 1996 to 2.5% in 1997.
EBITDA. EBITDA increased to $40,997,000 in 1997 from $23,630,000 in 1996,
an increase of $17,367,000 or 73.5%. The acquisition of the Network accounted
for $11,750,000 or 67.7% of the increase, the O&Os accounted for $5,532,000 or
31.9% and Galavision accounted for $85,000 or 0.4%. Had the Network been owned
since January 1, 1996, EBITDA would have been $35,504,000 in 1996 compared to
$40,997,000 in 1997, an increase of $5,493,000 or 15.5%, and as a percentage of
net revenues, EBITDA would have decreased from 38.2% in 1996 to 36.0% in 1997.
As explained in Broadcast Cash Flow, had the revised license fee been in
effect in 1996, the license fee would have increased by $2,871,000 and EBITDA
would have been $32,633,000 in 1996. On a year to year basis, EBITDA would have
increased by $8,364,000 or 25.6%, from $32,633,000 in 1996 to $40,997,000 in
1997, and as a percentage of net revenues, EBITDA would have increased from
35.1% in 1996 to 36.0% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company'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.
Capital expenditures, which include UTG, the Network and Galavision, totaled
$21,711,000 and $14,472,000 for the nine months ended September 30, 1997 and
1996, respectively. These amounts exclude
18
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
the capitalized transponder lease obligations of the Network. In addition to
performing normal capital maintenance and replacing several towers and antennas,
the Company is also in the process of upgrading and relocating several of its
television station facilities. Furthermore, during the next few years, the
Company will also make an investment in digital technology. The amount of this
investment has not been quantified as the Company is in the process of
determining the options available to it. Capital spending in 1997, including a
carryover from 1996 of approximately $10,000,000 due to timing of certain
projects, will approximate $35,000,000. Capital spending in 1998 is expected to
approximate $40,000,000, of which approximately $20,000,000 relates to new
facilities required for the Sacramento, Bakersfield and Phoenix stations and
several transmitter and tower replacements. Capital spending in 1999 is expected
to approximate $15,000,000.
The New Bank Facility consists 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 permits the lenders thereunder to advance up to an
additional $250 million of term loans (the "Incremental Facility"), although the
Company has not requested and there are no commitments at this time to lend any
such additional amounts.
The Term Facility amortizes quarterly with $40 million required to be repaid
during 1997. The Revolving Credit Facility has 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 are required to be repaid in full on or before August 31, 2004.
Loans made under the New Bank Facility bear interest rates, which include
interest rate margin costs, 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"). The interest rate margins applicable
to the Eurodollar (Libor) loans range from 0.35% to 1.00% per annum.
Furthermore, there are no interest rate margins applicable to prime rate loans.
At September 30, 1997, the interest rate applicable to the Company's Eurodollar
loans was 6.32%, which includes an interest rate margin cost of 0.60% and the
interest rate applicable to all prime rate loans was 8.50%.
On October 16, 1997, the Company acquired KUZZ-TV, Channel 45, in
Bakersfield, CA for approximately $14,000,000, which was funded with cash flow
from operations and the Company's existing bank facility. Immediately after the
acquisition, the FCC authorized a change in the call letters of the station to
KUVI.
The Company expects to explore both Spanish-language television and other
media acquisition opportunities to compliment 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.
As a result of net operating loss carryforwards attributable to the
Acquisition, net operating losses since the Acquisition, tax consequences of the
Reorganization, other timing differences and 1997 year to date book taxable
income, the Company has available a deferred tax asset of approximately
$67,700,000 to offset future taxes payable arising from operations. In addition,
at September 30, 1997, the Company has approximately $543,000,000 of net
remaining intangible assets that will be expensed over the next 20 years for
financial reporting purposes that will not be deductible for tax purposes.
19
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The Company finalized the fees payable to a Televisa subsidiary for the
Spanish-language broadcast rights in the U.S. to all 64 of the 1998 World Cup
Soccer Championship Games. The terms call for a fixed payment of $25,000,000 in
four equal installments during May, June, August and September 1998. In addition
to these payments and consistent with past coverage of the World Cup Games, the
Company will be responsible for all costs associated with advertising,
promotion, and broadcast of the World Cup Games, as well as the production of
certain television programming related to the games. The funds for these
payments are expected to come from income from operations and/or borrowings from
existing bank facilities.
SEASONALITY
The advertising revenues of the Company 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.
20
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. None
ITEM 2. None
ITEM 3. None
ITEM 4. None
ITEM 5. OTHER INFORMATION
PROGRAM LICENSE AGREEMENTS
Through the Program License Agreements, the Company 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 are between the affiliates of the Company,
Televisa and Venevision. The performance of their affiliates has been
unconditionally guaranteed by Televisa and Venevision, respectively, and the
Company guaranteed the royalties earned under the Program License Agreements.
Pursuant to their respective guarantees, Televisa is obligated to use
commercially reasonable efforts to continue to produce programs available to the
Company at least to the same extent in terms of quality and quantity as in
calendar years 1989, 1990 and 1991 and Venevision is obligated to use
commercially reasonable efforts to produce or acquire programming sufficient to
enable its affiliate to provide at least nine hours per day of programs to the
Company.
As previously reported, the Company believes that the Venevision affiliate
has not been fulfilling its programming obligations, and that Venevision has not
used commercially reasonable efforts to enable the affiliate to do so. The full
amount of aggregate royalties through the period of this report have been paid.
Venevision continues to believe that Venevision and its affiliate have complied
with their obligations to the Company.
The Company has attempted to resolve this dispute through negotiations with
Venevision but they have not been successful. Thus, the Company has notified
Venevision of its intention to enforce its rights under the agreements by all
appropriate means including, if necessary, legal action, if Venevision continues
to fail to cause its affiliate to make available the programming the Company
believes the affiliate is obligated to provide. There can be no assurance, if
the Company were to commence such legal action or pursue other legal remedies,
that it would prevail.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.0 Computation of Primary and Fully Diluted Earnings Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the quarter.
21
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
UNIVISION COMMUNICATIONS INC.
(Registrant)
By: /s/ GEORGE W. BLANK
-----------------------------------------
George W. Blank
November 13, 1997 EXECUTIVE VICE PRESIDENT AND
Los Angeles, California CHIEF FINANCIAL OFFICER
</TABLE>
22
<PAGE>
EXHIBIT 11.0
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
COMPUTATION OF HISTORICAL PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Income before extraordinary loss on extinguishment of debt........... $ 25,127 $ 2,458 $ 50,371 $ 3,352
Extraordinary loss on extinguishment of debt......................... -- (10,913) -- (11,558)
--------- --------- --------- ---------
Net income (loss).................................................... 25,127 (8,455) 50,371 (8,206)
Less preferred stock dividends....................................... (179) -- (381) --
--------- --------- --------- ---------
Net income (loss) applicable to common stock......................... $ 24,948 $ (8,455) $ 49,990 $ (8,206)
--------- --------- --------- ---------
--------- --------- --------- ---------
NUMBER OF SHARES ON WHICH NET INCOME PER SHARE IS BASED:
Historical weighted average common shares outstanding................ 126,666 10,000 126,666 10,000
Reorganization stock dividend (227.010528 shares for each common
share)............................................................. 28,754,515 2,270,105 28,754,515 2,270,105
Reorganization shares issued......................................... 4,335,499 -- 4,335,499 --
Public offering shares issued........................................ 8,170,000 -- 8,170,000 --
Additional shares issued to underwriters............................. 1,225,500 -- 1,225,500 --
Options converted to Class A common stock............................ 1,304 -- 440 --
--------- --------- --------- ---------
Weighted average common shares before dilutive effect of common stock
equivalents........................................................ 42,613,484 2,280,105 42,612,620 2,280,105
--------- --------- --------- ---------
COMMON STOCK EQUIVALENTS:
Warrants............................................................. 14,401,039 14,359,951 14,392,785 14,359,951
Options.............................................................. 996,636 -- 786,121 --
--------- --------- --------- ---------
Weighted average common shares....................................... 58,011,159 16,640,056 57,791,526 16,640,056
--------- --------- --------- ---------
--------- --------- --------- ---------
PRIMARY EARNINGS PER SHARE:
Income per share before extraordinary loss........................... $ 0.43 $ 0.15 $ 0.87 $ 0.20
Extraordinary loss per share......................................... -- (0.66) -- (0.69)
--------- --------- --------- ---------
Net income (loss) per share.......................................... 0.43 (0.51) 0.87 (0.49)
Less preferred stock dividends....................................... -- -- (0.01) --
--------- --------- --------- ---------
Net income (loss) per share applicable to common stock............... $ 0.43 $ (0.51) $ 0.86 $ (0.49)
--------- --------- --------- ---------
--------- --------- --------- ---------
FULLY DILUTED EARNINGS PER SHARE (A)
Income before extraordinary loss on extinguishment of debt........... $ 25,127 $ 2,458 $ 50,371 $ 3,352
Extraordinary loss on extinguishment of debt......................... -- (10,913) -- (11,558)
--------- --------- --------- ---------
Net income (loss) applicable to common stock......................... 25,127 (8,455) 50,371 (8,206)
Less preferred stock dividend........................................ -- -- -- --
--------- --------- --------- ---------
Net income (loss) applicable to common stock......................... $ 25,127 $ (8,455) $ 50,371 $ (8,206)
--------- --------- --------- ---------
--------- --------- --------- ---------
NUMBER OF SHARES ON WHICH NET INCOME PER SHARE IS BASED:
Historical weighted average common shares outstanding................ 126,666 10,000 126,666 10,000
Reorganization stock dividend (227.010528 shares for each common
share)............................................................. 28,754,515 2,270,105 28,754,515 2,270,105
Reorganization shares issued......................................... 4,335,499 -- 4,335,499 --
Public offering shares issued........................................ 8,170,000 -- 8,170,000 --
Additional shares issued to underwriters............................. 1,225,500 -- 1,225,500 --
Options converted to Class A common stock............................ 1,304 -- 440 --
--------- --------- --------- ---------
Weighted average common shares before dilutive effect of common stock
equivalents........................................................ 42,613,484 2,280,105 42,612,620 2,280,105
--------- --------- --------- ---------
COMMON STOCK EQUIVALENTS:
Warrants............................................................. 14,406,535 14,359,951 14,406,535 14,359,951
Options.............................................................. 1,128,810 -- 1,128,717
Convertible Preferred Stock.......................................... 367,112 -- 367,112 --
--------- --------- --------- ---------
Weighted average common shares....................................... 58,515,941 16,640,056 58,514,984 16,640,056
--------- --------- --------- ---------
--------- --------- --------- ---------
FULLY DILUTED EARNINGS PER SHARE:
Income per share before extraordinary loss........................... $ 0.43 $ 0.15 $ 0.86 $ 0.20
Extraordinary loss per share......................................... -- (0.66) -- (0.69)
--------- --------- --------- ---------
Net income (loss) per share.......................................... 0.43 (0.51) 0.86 (0.49)
Less preferred stock dividend........................................ -- -- -- --
--------- --------- --------- ---------
Net income (loss) per share applicable to common stock............... $ 0.43 $ (0.51) $ 0.86 $ (0.49)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
(a) This calculation is presented in accordance with the Securities and
Exchange Act of 1934, although it is not required disclosure under APB
Opinion No. 15.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNIVISION
COMMUNICATIONS INC. AND SUBSIDIARIES STATEMENTS OF EARNING AND BALANCE SHEET AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 21,281
<SECURITIES> 0
<RECEIVABLES> 100,547
<ALLOWANCES> 8,876
<INVENTORY> 0
<CURRENT-ASSETS> 125,023
<PP&E> 147,300
<DEPRECIATION> 33,362
<TOTAL-ASSETS> 934,187
<CURRENT-LIABILITIES> 124,797
<BONDS> 481,251
12,120
0
<COMMON> 426
<OTHER-SE> 312,123
<TOTAL-LIABILITY-AND-EQUITY> 934,187
<SALES> 321,868
<TOTAL-REVENUES> 321,868
<CGS> 114,725
<TOTAL-COSTS> 114,725
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,415
<INTEREST-EXPENSE> 30,401
<INCOME-PRETAX> 35,521
<INCOME-TAX> (14,850)
<INCOME-CONTINUING> 50,371
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,371
<EPS-PRIMARY> .86
<EPS-DILUTED> .86
</TABLE>
