<PAGE>
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, 1998 COMMISSION FILE NUMBER: 001-12223
UNIVISION COMMUNICATIONS INC.
(Exact Name of Registrant as specified in its charter)
DELAWARE NO. 95-4398884
(State of incorporation) (IRS Employer Identification)
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 59,398,185 shares of Class A Common Stock, 20,691,661 shares of Class
P Common Stock, 5,742 shares of Class T Common Stock and 8,918,582 of Class V
Common Stock outstanding as of October 20, 1998.
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I--FINANCIAL INFORMATION:
Financial and Corporate Terms.......................................................................... 2
Financial Introduction................................................................................. 4
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets at September 30, 1998 and December 31, 1997.................... 5
Condensed Consolidated Statements of Operations for the three and nine months ended September 30,
1998 and 1997....................................................................................... 6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and
1997................................................................................................ 7
Notes to Condensed Consolidated Financial Statements................................................. 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 11
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K............................................................. II-1
</TABLE>
1
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PART I
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FINANCIAL AND CORPORATE TERMS
The following terms are used in this report to refer to the companies and
operations indicated:
"Affiliated Stations" means the 10 full-power and 18 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.
"Bank Facility" means the Company's 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.
"Broadcast Affiliates" means the O&Os and the Affiliated Stations.
"Broadcast Cash Flow" means operating income before corporate charges, the
special bonus award, depreciation and amortization.
"Corporate Charges" means corporate costs that would be duplicated and
therefore eliminated if the Company were acquired by another broadcasting
company.
"EBITDA" means earnings before interest, taxes, depreciation, amortization
and the special bonus award.
"Galavision" means the Galavision Spanish-language general entertainment
basic cable network, a wholly owned subsidiary of the Company.
"Offering" means the sale of 18,791,000 shares of Class A Common Stock by
the Company in its initial public offering consummated on October 2, 1996.
"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 controlled by the Principal
Stockholders.
"Nielsen" means Nielsen Media Research which publishes television ratings,
audience share and demographic information.
"O&Os" means the 13 full-power and eight 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.
"PTIH" means PTI Holdings, Inc., a subsidiary of the Company.
"Reorganization" means the reorganization of the Company immediately prior
to the closing of the Initial Offering.
"Televisa" means Grupo Televisa, S.A. de C.V. and its affiliates.
"Univision" or the "Company" means Univision Communications Inc. ("UCI") and
its wholly owned subsidiaries.
2
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"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
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PART I
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FINANCIAL 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, 1997.
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>
DECEMBER 31,
1997
SEPTEMBER 30, ------------
1998
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................................... $ 18,198 $ 10,660
Short-term investment......................................................................... -- 94
Accounts receivable, less allowance for doubtful accounts of $8,704 in 1998 and $8,584 in
1997........................................................................................ 102,700 116,849
Program rights................................................................................ 16,505 5,650
Prepaid expenses and other.................................................................... 9,169 5,501
------------- ------------
Total current assets........................................................................ 146,572 138,754
Property and equipment, less accumulated depreciation of $51,698 in 1998 and $37,518 in 1997.. 138,804 123,853
Intangible assets, less accumulated amortization of $208,843 in 1998 and $176,274 in 1997..... 597,353 630,828
Deferred financing costs, less accumulated amortization of $3,231 in 1998 and $1,973 in 1997.. 7,262 8,520
Deferred income taxes......................................................................... 46,679 53,046
Note receivable-Entravision................................................................... 10,000 10,000
Investment in unconsolidated affiliate........................................................ 249 --
Other assets.................................................................................. 3,195 2,754
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Total assets................................................................................ $ 950,114 $ 967,755
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------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities...................................................... $ 70,170 $ 74,632
Accrued interest.............................................................................. 650 1,164
Accrued license fee........................................................................... 7,388 5,374
Obligations for program rights................................................................ 764 894
Current portion of long-term debt............................................................. 62,107 61,965
------------- ------------
Total current liabilities....................................................................... 141,079 144,029
Long-term debt including accrued interest, net of current portion............................... 377,501 423,923
Capital lease obligations, net of current portion............................................... 34,778 36,907
Other long-term liabilities..................................................................... 3,968 4,547
------------- ------------
Total liabilities............................................................................. 557,326 609,406
------------- ------------
Redeemable convertible 6% preferred stock, $.01 par value, with a conversion price of $16.34375
to Class A common stock (9,000 and 12,000 shares issued and outstanding at September 30, 1998
and December 31, 1997, respectively).......................................................... 9,090 12,120
------------- ------------
Stockholders' equity:
Preferred stock, $.01 par value (10,000,000 shares authorized)................................ -- --
Common stock, $.01 par value (492,000,000 shares authorized; 86,427,010 and 85,299,360 shares
issued including shares in treasury, at September 30, 1998 and December 31, 1997,
respectively)............................................................................... 864 853
Paid-in-capital............................................................................... 385,202 332,328
Retained earnings............................................................................. 15,034 13,048
------------- ------------
401,100 346,229
Less common stock held in treasury (464,051 shares at cost at September 30, 1998)............. (17,402) --
------------- ------------
Total stockholders' equity.................................................................. 383,698 346,229
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Total liabilities and stockholders' equity.................................................. $ 950,114 $ 967,755
------------- ------------
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</TABLE>
See notes to condensed consolidated financial statements.
5
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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 SEPTEMBER NINE MONTHS ENDED SEPTEMBER
30, 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues........................................ $ 138,946 $ 113,940 $ 417,627 $ 321,868
Direct operating expenses........................... 53,387 39,368 165,204 114,725
Selling, general and administrative expenses........ 38,421 33,575 120,604 98,604
Depreciation and amortization....................... 15,850 14,413 47,282 42,465
------------- ------------- ------------- -------------
Operating income.................................... 31,288 26,584 84,537 66,074
Interest expense.................................... 9,038 9,966 27,803 30,401
Amortization of deferred financing costs............ 419 419 1,258 1,211
Reversal of non-recurring expense of acquired
station........................................... -- -- -- (1,059)
Special bonus award................................. -- -- 42,608 --
Equity loss in unconsolidated affiliate............. 239 -- 582 --
------------- ------------- ------------- -------------
Income before taxes................................. 21,592 16,199 12,286 35,521
Provision (benefit) for income taxes................ 16,622 (8,928) 9,829 (14,850)
------------- ------------- ------------- -------------
Net income.......................................... 4,970 25,127 2,457 50,371
Preferred stock dividends........................... (135) (179) (471) (381)
------------- ------------- ------------- -------------
Net income available to common stockholders......... $ 4,835 $ 24,948 $ 1,986 $ 49,990
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
BASIC EARNINGS PER SHARE
Net income per share................................ $ 0.06 $ 0.29 $ 0.03 $ 0.59
Less preferred stock dividends per share............ -- -- (0.01) --
------------- ------------- ------------- -------------
Net income per share available to common
stockholders...................................... $ 0.06 $ 0.29 $ 0.02 $ 0.59
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common shares outstanding.......... 85,919,807 85,226,968 85,820,306 85,225,240
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
DILUTED EARNINGS PER SHARE
Net income per share................................ $ 0.04 $ 0.21 $ 0.02 $ 0.43
Less preferred stock dividends per share............ -- -- -- --
------------- ------------- ------------- -------------
Net income per share available to common
stockholders...................................... $ 0.04 $ 0.21 $ 0.02 $ 0.43
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common shares outstanding.......... 115,985,643 116,876,373 116,256,420 116,335,081
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See notes to condensed consolidated financial statements.
6
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net income.................................................................................. $ 2,457 $ 50,371
Adjustments to reconcile net income to net cash from operating activities:
Depreciation................................................................................ 14,713 11,770
(Gain) loss on sale of fixed assets......................................................... 78 (202)
Equity loss on unconsolidated affiliate..................................................... 582 --
Reversal of non-recurring expense of acquired station....................................... -- (1,059)
Non-cash portion of special bonus award..................................................... 27,609 --
Amortization of intangible assets and deferred financing costs.............................. 33,827 31,906
Changes in assets and liabilities:
Accounts receivable....................................................................... 14,149 (2,967)
Intangible assets......................................................................... (399) 5,600
Deferred taxes............................................................................ 6,367 (21,692)
License fees payable...................................................................... 54,115 42,080
Payment of license fees................................................................... (52,101) (41,411)
Program rights............................................................................ (10,855) (1,376)
Prepaid expenses and other assets......................................................... (4,109) 1,715
Accounts payable and accrued liabilities.................................................. (1,804) (2,920)
Accrued interest.......................................................................... 5,802 6,052
Obligations for program rights............................................................ (130) --
Other, net................................................................................ (457) 49
--------- ---------
Net cash provided by operating activities................................................... 89,844 77,916
--------- ---------
Cash flow from investing activities:
Capital expenditures...................................................................... (29,280) (21,711)
Investment in unconsolidated subsidiary................................................... (831) --
Acquisition of Sacramento................................................................. -- (28,936)
Proceeds from sale of fixed assets........................................................ 72 318
Organization costs........................................................................ -- (244)
--------- ---------
Net cash used in investing activities....................................................... (30,039) (50,573)
--------- ---------
Cash flow from financing activities:
Proceeds from issuance of long-term debt.................................................. 80,000 64,000
Payments of long-term debt................................................................ (134,725) (78,927)
Exercise of options....................................................................... 2,912 230
Exercise of warrants...................................................................... 47 --
Preferred stock dividends paid............................................................ (501) (261)
Tax payments to Partners.................................................................. -- (1,500)
Deferred financing costs.................................................................. -- (1,192)
--------- ---------
Net cash used in financing activities....................................................... (52,267) (17,650)
--------- ---------
Net increase in cash........................................................................ 7,538 9,693
Cash and cash equivalents, beginning of year................................................ 10,660 11,588
--------- ---------
Cash and cash equivalents, end of period.................................................... $ 18,198 $ 21,281
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Interest paid during the period........................................................... $ 21,944 $ 24,557
--------- ---------
--------- ---------
</TABLE>
See notes to condendsed consolidated financial statements.
7
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
1. ORGANIZATION AND ACQUISITION
Through October 2, 1996, Univision Communications Inc. ("UCI"or the
"Company"), 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.
On December 17, 1992 (effective close of business December 16, 1992),
Univision Station Group, Inc. ("USG") and KTVW, Inc. ("KTVW") were acquired by
Perenchio, Televisa and Venevision, with USG as the surviving corporation
changing its name to UTG.
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.
These intangible assets are 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 in 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, California, was acquired in
March 1997 for a purchase price of approximately $40,200,000, resulting in
intangible assets of approximately $39,000,000. A fourth station, located in
Bakersfield, California, which broadcasts in English, was acquired in October
1997 for a purchase price of approximately $14,000,000, principally all of which
has been allocated to intangible assets pending the completion of an independent
appraisal.
The Company recognized deferred taxes related to pre-acquisition net
operating loss carryforwards of approximately $29,000,000. These deferred taxes
were recorded and the acquisition goodwill was reduced by a corresponding
amount.
Through October 2, 1996, the businesses of the Company and The Univision
Network Limited Partnership ("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 represents approximately 80% 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 Network, which had existing intangible assets of approximately
8
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
1. ORGANIZATION AND ACQUISITION (CONTINUED)
$23,000,000. In addition, Galavisin recorded $15,000,000 of intangible assets as
a result of its acquisition by the Network on June 30, 1996.
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
acquired related to the minority interests of PTIH and the Network was
approximately $203,000,000. These intangible assets are comprised of
approximately $115,000,000 attributable to affiliation agreements, approximately
$79,000,000 attributable to the FCC television broadcast licenses and
approximately $9,000,000 attributable to all other intangible assets.
As of September 30, 1998, the Company owns and operates 12 Spanish-language
full-power television stations serving New York, Los Angeles, Miami, San
Antonio, San Francisco, Fresno, Dallas, Phoenix, Albuquerque, Sacramento,
Houston and Chicago and one English-language full-power television station in
Bakersfield. It also owns and operates eight Spanish-language low-power
television stations serving Hartford, Fort Worth, Philadelphia, Tucson, Austin,
Santa Rosa, Albuquerque and Bakersfield. The Company's Spanish-language
television stations are affiliated with the Spanish-language television network
owned and operated by the Network. The English-language station is affiliated
with the United Paramount Network (UPN).
2. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting.
SFAS 133 is effective for fiscal years beginning after June 15, 1999. SFAS
133 cannot be applied retroactively. SFAS 133 must be applied to (a) derivative
instruments, and (b) certain derivative instruments imbedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997
(and, at the company's election, before January 1, 1998).
Currently, the Company expects the impact of adopting SFAS 133 will be
immaterial.
3. STATION DISPOSITION
On October 30, 1998, the Company entered into an agreement with Entravision
for the sale of the FCC broadcast license and all the assets of station KLUZ,
Channel 41, Albuquerque, New Mexico. Under the terms of the agreement, the
Company will receive as consideration $1,000,000 in cash and an option to
acquire an additional 2% equity interest in Entravision. Upon completion of this
transaction, the Company
9
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
3. STATION DISPOSITION (CONTINUED)
will have an option to acquire an approximate 27% equity interest in
Entravision. The sale is subject to approval by the Federal Communications
Commission ("FCC") and no assurance can be given that such approval will be
obtained.
4. OPTIONS
During the three months ended September 30, 1998, options were exercised for
111,666 shares of Class A Common Stock, resulting in an increase to Common Stock
of $1,117 and to Paid-in-capital of $2,360,000, which included a tax benefit
associated with the transactions of $995,300.
10
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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 Company's major assets are its investments in the Univision Television
Group ("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.
NINE MONTHS ENDED SEPTEMBER 30, 1998 ("1998") COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997 ("1997")
REVENUES. Net revenues increased to $417,627,000 in 1998 from $321,868,000
in 1997, an increase of $95,759,000 or 29.8%. The Network accounted for
$47,804,000 or 49.9% of the increase, and the O&Os and Galavision accounted for
$45,918,000 or 48.0% and $2,037,000 or 2.1%, respectively. The O&Os' increase,
which was due to an increase of approximately 9% in the number of spots sold and
a 11% increase in the price for advertising spots, was primarily derived from
Los Angeles, New York, Miami and Houston, with additional increases at all other
O&Os except for San Antonio. The Network's increase is due primarily to an
increase of approximately 52% in the average price of advertising spots, offset
in part by a decrease in volume of approximately 9%. The large price increase
over last year was due in part to the rates for advertising spots in the 1998
World Cup Games. Excluding the World Cup, average prices at the Network
increased by 34%.
EXPENSES. Direct operating expenses, which include corporate charges of
$225,000 and $192,000 in 1998 and 1997, respectively, increased to $165,204,000
in 1998 from $114,725,000 in 1997, an increase of $50,479,000 or 44.0%. The
increase is due primarily to World Cup costs of $27,905,000 and higher license
fees paid or payable to Televisa and Venevision of $12,128,000. As a result of
the Initial Offering in September 1996 and the Company's 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 13.0% of net revenues in 1997 to 14.7% in 1998, exclusive of World Cup
revenues which are not subject to the license fee. In 1998, the morning show,
DESPIERTA AMERICA, which began airing mid-April 1997, accounted for
approximately $1,157,000 of the total increase in programming costs over 1997.
In addition, programming costs increased by approximately $1,800,000 due to the
introduction of new children's programming, timing of special events
programming, and the development of other entertainment programming. The
remainder of the increase is primarily due to higher technical and news costs of
$4,966,000, which includes $518,000 from the operation of the Sacramento station
acquired in March 1997 and the Bakersfield station acquired in October 1997. As
a percentage of net revenues, direct operating expenses increased from 35.6% in
1997 to 39.6% in 1998.
Selling, general and administrative expenses, which include corporate
charges of $8,780,000 and $7,973,000 in 1998 and 1997, respectively, increased
to $120,604,000 in 1998 from $98,604,000 in 1997, an increase of $22,000,000 or
22.3%. The addition of the Sacramento and Bakersfield stations accounted for
$2,150,000 of the increase. The remaining increases are due in large part to
increased selling costs of $4,991,000, associated with increased sales, staff
levels and compensation costs, and increased research costs of $2,968,000
primarily related to the renewal of the Nielsen contracts, all of which are
consistent
11
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with the Company's strategy of investing in sales management and research. The
Company also had increased costs of approximately $1,845,000 related to its
retirement savings plan due to an increase in the Company's matching
contribution, increased promotional costs of $1,645,000 primarily related to
increased advertising and increased Year 2000 costs of $545,000. As a percentage
of net revenues, selling, general and administrative expenses decreased from
30.6% in 1997 to 28.9% in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$47,282,000 in 1998 from $42,465,000 in 1997, an increase of $4,817,000 or
11.3%. The increase is due primarily to an increase in depreciation related to
increased capital expenditures.
OPERATING INCOME. As a result of the above factors, operating income
increased to $84,537,000 in 1998 from $66,074,000 in 1997, an increase of
$18,463,000 or 27.9%. As a percentage of net revenues, operating income
decreased from 20.5% in 1997 to 20.2% in 1998.
INTEREST EXPENSE. Interest expense decreased to $27,803,000 in 1998 from
$30,401,000 in 1997, a decrease of $2,598,000 or 8.5%. The decrease is due
primarily to lower bank borrowings during 1998 as compared to 1997.
SPECIAL BONUS AWARD. On May 13, 1998 a major stockholder contributed
1,354,665 shares of Class P Common Stock to the Company, which were converted to
Class A Common Shares and placed in the Company's treasury. On May 27, 1998,
under the Univision Communications Inc. 1998 Stock Bonus Plan, the Company
granted 890,614 shares of Class A Common Stock to selected employees. These
transactions resulted in a pre-tax income statement charge of $42,608,000, which
consists of non-cash compensation of $27,609,000 and required tax withholdings
of $14,999,000, as well as an increase to paid-in-capital of $45,011,000. The
Company has remitted the $14,999,000 of tax withholding and expects to receive a
cash income tax benefit of approximately $14,000,000. The net income effect on
the nine months ended September 30, 1998 was $20,599,000, net of both the
$14,000,000 related tax benefit and an $8,010,000 reduction in the tax provision
resulting from an increase in the annualized effective tax rate due to lower
pre-tax income. The Company has retained the remaining 464,051 shares, with a
book value of $17,402,000, in its treasury. Consistent with broadcast industry
reporting, broadcast cash flow and EBITDA exclude the total amount of this
special bonus award of $42,608,000.
PROVISION (BENEFIT) FOR INCOME TAXES. In 1998, the Company reported an
income tax provision of $9,829,000. Excluding the impact of the special bonus
award, the Company would have reported an income tax provision of $31,838,000 in
1998. In 1997, the Company reported an income tax benefit of $14,850,000.
Excluding a non-recurring tax benefit of $35,275,000, the Company would have
reported an income tax provision of $20,425,000 in 1997.
NET INCOME. As a result of the above factors, 1998 resulted in net income
of $2,457,000 compared to net income of $50,371,000 in 1997, a decrease of
$47,914,000. On a comparable basis, excluding the special bonus award from 1998
and adjusting 1997 for the impact of the non-recurring tax benefit, net income
would have increased by 52.7% to $23,056,000 in 1998 from $15,096,000 in 1997.
BROADCAST CASH FLOW. Broadcast cash flow increased to $140,824,000 in 1998
from $116,704,000 in 1997, an increase of $24,120,000 or 20.7%. As a percentage
of net revenues, broadcast cash flow decreased from 36.3% in 1997 to 33.7% in
1998.
As a result of the Initial Offering in September 1996 and the Company's
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 13.0% of net revenues in 1997 to 14.7% in 1998,
exclusive of World Cup revenues which are not subject to the license fee. Had
the revised license fee been in effect in 1997, the license fee would have
increased by $5,023,000 and broadcast cash flow would have been $111,681,000 in
1997. On a year-to-year basis, broadcast cash flow would have increased by
12
<PAGE>
$29,143,000 or 26.1%, from $111,681,000 in 1997 to $140,824,000 in 1998. As a
percentage of net revenues, broadcast cash flow would have decreased from 34.7%
in 1997 to 33.7% in 1998.
CORPORATE CHARGES. Corporate charges increased to $9,005,000 in 1998 from
$8,165,000 in 1997, an increase of $840,000 or 10.3%. The increase is primarily
due to costs associated with salary and benefits. As a percentage of net
revenues, corporate charges decreased from 2.5% in 1997 to 2.2% in 1998.
EBITDA. EBITDA increased to $131,819,000 in 1998 from $108,539,000 in 1997,
an increase of $23,280,000 or 21.4%. As a percentage of net revenues, EBITDA
decreased from 33.7% in 1997 to 31.6% in 1998.
As explained in BROADCAST CASH FLOW, had the revised license fee been in
effect in 1997, the license fee would have increased by $5,023,000 and EBITDA
would have been $103,516,000 in 1997. Thus, EBITDA would have increased by
$28,303,000 or 27.3%, from $103,516,000 in 1997 to $131,819,000 in 1998. As a
percentage of net revenues, EBITDA would have decreased from 32.2% in 1997 to
31.6% in 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1998 ("1998") COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997 ("1997")
REVENUES. Net revenues increased to $138,946,000 in 1998 from $113,940,000
in 1997, an increase of $25,006,000 or 21.9%. The Network accounted for
$12,775,000 or 51.1% of the increase, and the O&Os and Galavision accounted for
$11,400,000 or 45.6% and $831,000 or 3.3%, respectively. The O&Os' increase,
which was due to an increase of approximately 5% in the number of spots sold and
a 13% increase in the price for advertising spots, was primarily derived from
Los Angeles, New York, Houston and Miami, with additional increases at all other
O&Os. The Network's increase is due primarily to an increase of approximately
44% in the average price of advertising spots, offset in part by a decrease in
volume of approximately 14%. The large price increase over last year was due in
part to the rates for advertising spots in the 1998 World Cup Games. Excluding
the World Cup, average prices at the Network increased by 32%.
EXPENSES. Direct operating expenses, which include corporate charges of
$73,000 and $71,000 in 1998 and 1997, respectively, increased to $53,387,000 in
1998 from $39,368,000 in 1997, an increase of $14,019,000 or 35.6%. The increase
is due primarily to World Cup costs of $6,421,000 and higher license fees paid
or payable to Televisa and Venevision of $4,037,000. As a result of the Initial
Offering in September 1996 and the Company's 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 13.0% of
net revenues in 1997 to 14.8% in 1998, exclusive of World Cup revenues which are
not subject to the license fee. In addition, programming costs increased by
approximately $500,000 due to the introduction of new children's programming and
the development of other entertainment programming. The remainder of the
increase is primarily due to higher technical and news costs of $1,697,000,
which includes $76,000 from the Bakersfield station acquired in October 1997. As
a percentage of net revenues, direct operating expenses increased from 34.6% in
1997 to 38.4% in 1998.
Selling, general and administrative expenses, which include corporate
charges of $3,097,000 and $2,780,000 in 1998 and 1997, respectively, increased
to $38,421,000 in 1998 from $33,575,000 in 1997, an increase of $4,846,000 or
14.4%. The addition of the Bakersfield station accounted for $319,000 of the
increase. The remaining increases are due in large part to increased research
costs of $877,000 primarily related to the renewal of the Nielsen contracts,
$647,000 due to an increase in the Company's matching contribution on its
retirement savings plan, increased promotional costs of $495,000 primarily
related to increased advertising and increased Year 2000 costs of $441,000. As a
percentage of net revenues, selling, general and administrative expenses
decreased from 29.5% in 1997 to 27.7% in 1998.
13
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$15,850,000 in 1998 from $14,413,000 in 1997, an increase of $1,437,000 or
10.0%. The increase is due primarily to an increase in depreciation related to
increased capital expenditures.
OPERATING INCOME. As a result of th e above factors, operating income
increased to $31,288,000 in 1998 from $26,584,000 in 1997, an increase of
$4,704,000 or 17.7%. As a percentage of net revenues, operating income decreased
from 23.3% in 1997 to 22.5% in 1998.
INTEREST EXPENSE. Interest expense decreased to $9,038,000 in 1998 from
$9,966,000 in 1997, a decrease of $928,000 or 9.3%. The decrease is due
primarily to lower bank borrowings during 1998 as compared to 1997.
PROVISION (BENEFIT) FOR INCOME TAXES. In 1998, the Company reported an
income tax provision of $16,622,000. Excluding the third quarter tax effect of
$4,099,000, resulting from the impact of the special bonus award in the second
quarter of 1998, the Company would have reported an income tax provision of
$12,523,000 in 1998. In 1997, the Company reported an income tax benefit of
$8,928,000. Excluding a non-recurring tax benefit of $18,243,000, the Company
would have reported an income tax provision of $9,315,000 in 1997.
NET INCOME. As a result of the above factors, 1998 resulted in net income
of $4,970,000 compared to net income of $25,127,000 in 1997, a decrease of
$20,157,000. On a comparable basis, excluding the special bonus award from 1998
and adjusting 1997 for the impact of the non-recurring tax benefit, net income
would have increased by 31.7% to $9,069,000 in 1998 from $6,884,000 in 1997.
BROADCAST CASH FLOW. Broadcast cash flow increased to $50,308,000 in 1998
from $43,848,000 in 1997, an increase of $6,460,000 or 14.7%. As a percentage of
net revenues, broadcast cash flow decreased from 38.5% in 1997 to 36.2% in 1998.
As a result of the Initial Offering in September 1996 and the Company's
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 13.0% of net revenues in 1997 to 14.8% in 1998,
exclusive of World Cup revenues which are not subject to the license fee. Had
the revised license fee been in effect in 1997, the license fee would have
increased by $1,805,000 and broadcast cash flow would have been $42,043,000 in
1997. On a year-to-year basis, broadcast cash flow would have increased by
$8,265,000 or 19.7%, from $42,043,000 in 1997 to $50,308,000 in 1998. As a
percentage of net revenues, broadcast cash flow would have decreased from 36.9%
in 1997 to 36.2% in 1998.
CORPORATE CHARGES. Corporate charges increased to $3,170,000 in 1998 from
$2,851,000 in 1997, an increase of $319,000 or 11.2%. The increase is primarily
due to costs associated with salary and benefits. As a percentage of net
revenues, corporate charges decreased from 2.5% in 1997 to 2.3% in 1998.
EBITDA. EBITDA increased to $47,138,000 in 1998 from $40,997,000 in 1997,
an increase of $6,141,000 or 15.0%. As a percentage of net revenues, EBITDA
decreased from 36.0% in 1997 to 33.9% in 1998.
As explained in BROADCAST CASH FLOW, had the revised license fee been in
effect in 1997, the license fee would have increased by $1,805,000 and EBITDA
would have been $39,192,000 in 1997. Thus, EBITDA would have increased by
$7,946,000 or 20.3%, from $39,192,000 in 1997 to $47,138,000 in 1998. As a
percentage of net revenues, EBITDA would have decreased from 34.4% in 1997 to
33.9% in 1998.
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.
14
<PAGE>
Capital expenditures, which include those of UTG, the Network and
Galavision, totaled $29,280,000 through September 30, 1998 and $21,711,000
through September 30, 1997. These amounts exclude 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. In conjunction with the Company's non-NOVELA production agreement
with Televisa (see below), the Network is expanding its production facilities.
Furthermore, during the next few years, the Company also will make an investment
in digital technology. The amount of this investment has not been quantified, as
the Company is in the process of determining its available options. Capital
spending in 1998, including a carryover from 1997 of approximately $9,000,000
due to timing of certain projects, will approximate $45,000,000. Capital
spending in 1999, 2000 and 2001 is expected to approximate $25,000,000 per
annum.
At September 30, 1998, the Bank Facility consisted of a $313,250,000
amortizing term loan (the "Term Facility") with a final maturity of December 31,
2003, and a $200,000,000 reducing revolving credit facility (the "Revolving
Credit Facility") maturing on the same date. Furthermore, the Bank Facility
permits the lenders thereunder to advance up to an additional $250,000,000 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.
At September 30, 1998, the Company had approximately $400,000,000 available to
borrow through a combination of its Revolving Credit and Incremental Facilities.
The Term Facility amortizes quarterly, with $49,000,000 required to be
repaid during 1998. Through the nine months ended September 30, 1998, the
Company has paid $36,750,000. In addition, in the first quarter of 1998, the
Company made a $10,000,000 prepayment against its Term Facility as a result of
its annual "excess cash flow" calculation based on its 1997 operating results.
The payment was funded by an increase in the Revolving Credit Facility and
subsequently repaid within the quarter with cash from operations. 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 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, 1998, the interest rate applicable to the Company's Eurodollar
loans was approximately 6.00%, which includes an interest rate margin cost of
0.35%. The interest rate applicable to all prime rate loans was between 8.25%
and 8.50%.
In November 1996 the Company entered into interest rate cap agreements to
reduce the impact of changes in interest rates on its Term Facility. The Company
has two interest rate cap agreements with commercial banks that terminate in
November 1998, covering a total notional principal amount of $220,000,000 of its
Term Facility. The agreements effectively limit the Company's Eurodollar
interest rate exposure to 7% on $220,000,000 of the Term Facility. The fee for
the interest rate protection agreements of $462,000 was capitalized as a
deferred financing cost and is being amortized over two years, the period of the
instruments, on a straight-line basis. At the present time, the Company has no
plans of entering into any new interest rate cap agreements.
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 Bank Facility or proceeds from future debt or equity offerings, (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 subsequent
15
<PAGE>
book taxable income, the Company has available a deferred tax asset of
approximately $46,700,000 to offset future taxes payable arising from
operations. In addition, at September 30, 1998, the Company had approximately
$481,900,000 of net remaining intangible assets that will be expensed over the
next 20 years for financial reporting purposes and will not be deductible for
tax purposes.
The Company acquired the Spanish-language broadcast rights in the U.S. to
all 64 of the 1998 World Cup Soccer Championship Games from a Televisa
subsidiary for a fixed payment of $25,000,000 in total, paid in four equal
installments in May, June, August and September 1998. In addition to these
payments and consistent with past coverage of the World Cup Games, the Company
was 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 Company and Televisa have an agreement to each produce three
thirteen-week new non-NOVELA programs. Both Univision and Televisa are required
to use commercially reasonable efforts to complete the production of their
respective three programs so that such programs are available to commence airing
no later than October 31, 1998. The Company is currently broadcasting its three
required programs. Televisa has produced two of its required programs and the
third is scheduled for production in the first quarter of 1999. The Televisa
programs are scheduled to air in the first half of 1999. No assurance can be
given that the Univision and Televisa programs will be successful.
A joint venture between the Home Shopping Network Capital LLC and the
Company formed the Home Shopping Network En Espanol LLC. The joint venture has
created a live Spanish-language television shopping service intended for
distribution in the United States, Latin America, Portugal and Spain. On March
30, 1998, the Home Shopping Network En Espanol LLC began broadcasting three
hours of programming, seven days a week on Galavision, the Company's
Spanish-language cable network. Under the terms of the agreement, the Home
Shopping Network Capital LLC and the Company have an approximate equal interest
in the joint venture. The annual capital contributions estimated to be required
to be made by each party under the agreement are $1,600,000 in 1998, $2,300,000
in 1999 and $1,900,000 in 2000, with a maximum capital contribution limit of
$6,000,000 over a five-year period. The Company accounts for its investment in
the Home Shopping Network En Espanol LLC under the equity method. No assurance
can be given that the joint venture will be successful.
In August 1998, the Company acquired a film library from the Million Dollar
Video Corporation for approximately $11,500,000, including legal fees. The funds
for the purchase were derived from the Company's income from operations and
borrowings from its existing bank facilities. The acquisition was accounted for
under the purchase method of accounting.
YEAR 2000 ISSUES
Like most businesses today, the Company is reliant on computer systems and
other electronic and mechanical technologies in carrying out its operations and
management of its resources. Some of the Company's operations are either carried
out through or supported by third parties, such as signal distribution and
television audience ratings, while approximately 50% of the Company's
programming is sourced from third parties. Approximately 80% of Univision's
Network broadcast distribution (including commercial spots) is provided through
its O&Os with the remainder provided via its broadcast affiliates. Additional
distribution is provided through the Company's cable affiliates. Except for the
Network and its Fresno, Miami, Phoenix, Sacramento/Modesto and San Antonio O&Os,
which are located in Company owned properties, all other operations are situated
in facilities leased from and maintained by third parties.
The Company's business is primarily contracted through advertising agencies
and to a lesser degree from direct local market advertisers (collectively,
"Advertisers"). No single Advertiser represents more than 10 percent of the
Company's advertising revenues.
16
<PAGE>
The sales order entry and Nielsen rating systems used by the Company are
mainframe-based. These systems are owned and maintained by third-party vendors
and located in such vendors' facilities. The remaining computer systems of the
Company are not mainframe-based and use standard industry specific software
applications. The Year 2000 issue results from computer software programs
written to use two digits rather than four to define the applicable year.
Certain of the Company's computer programs that have date sensitive software may
recognize a date using "00" as the year 1900 instead of the Year 2000. Computer
programs used by the Company's Suppliers (as defined below) may experience the
same date recognition issues. If this occurs, the potential exists for computer
system failures or miscalculations by computer programs used by the Company and
its Suppliers, which could cause disruption of the Company's operations.
Through its Year 2000 Project Office ("Project Office"), the Company
continues its effort to assess its Year 2000 readiness as well as that of its
Advertisers, satellite service providers, programming suppliers, broadcast
affiliates, Nielsen rating service, landlords, and vendors and other suppliers
that may be critical to the Company's business (collectively, "Suppliers" unless
the context indicates otherwise). The Project Office is staffed with the
Company's two principal engineers, and representatives from management
information systems, legal, risk management, finance, and operations. An
independent consulting firm with broadcasting systems integration experience has
been assisting the Company with the assessment phase of the Company's Year 2000
program. The Company expects that such firm may continue to assist the Company
with the corrective and verification efforts.
In addressing its Year 2000 readiness, the Company has been engaged in a
five-prong program that consists of the following:
- ASSESSMENT. This phase is three-fold. Part one is the location and
identification of all computer systems, software products, building
systems and equipment (with embedded systems) used within each operational
unit of the Company (the "Systems Inventory"). Part two is the
identification of mission critical Systems within each of the operational
units. Part three is the evaluation (including communicating with
manufacturers with respect to their equipment) of Systems to determine
whether such Systems will be able to process data before, on and after
January 1, 2000 ("compliant Systems"). Mission critical Systems have been
or will be given priority in the evaluation process.
- CORRECTIVE ACTION. Systems and equipment that are non-compliant are being
or are to be retired, repaired or replaced. Mission critical items have
been or will be given priority.
- VERIFICATION. Corrective measures are to be verified by both current-date
and future-date testing. Any necessary remedial action identified during
this phase will be taken and verified. Mission critical items have been or
will be given priority.
- COMMUNICATIONS PROGRAM--AFFILIATES, SUPPLIERS, LANDLORDS AND
ADVERTISERS. The Company implemented a communications program with its
Suppliers (1) to understand their Year 2000 issues, (2) to determine how
such issues could impact the Company's operations, and (3) to determine
the Suppliers' Year 2000 mitigation plans to address or manage the issues
that relate to the Company's business and, with respect to landlords, the
leased facilities.
- CONTINGENCY PLANS. Contingency plans are to be formulated to ensure, at a
minimum, that our Network and O&O broadcasting operations continue without
interruption prior to, during and after January 1, 2000.
Although work on the different parts of the Year 2000 program has been
taking place concurrently, the primary focus has been on the assessment phase,
in particular, with respect to equipment (computer and other electronic and
mechanical technology) that is critical to its broadcasting operations (signal,
programming and commercial spot distribution on its Network and O&Os). The
assessment of equipment critical to the Company's broadcasting operations is
expected to be completed around December 31, 1998. The targeted date for the
completion of all phases of the Year 2000 program is August 31, 1999, subject to
17
<PAGE>
Suppliers' responsiveness to the Company's inquiries of their Year 2000 issues.
Verification activities will begin in the first quarter of 1999 and continue
throughout the year. The Company is also in the process of developing its
contingency plans to ensure that its Network and O&Os operations continue
without interruption, and expects to have such plans completed by the end of
April 1999.
Based on the Year 2000 program work completed to date:
- Approximately 80% of the equipment critical to the distribution of our
broadcast signal (without content) and for the insertion and delivery of
content has been Year 2000 assessed, and corrective work identified has
been taken or will be taken before December 31, 1998, subject to
Suppliers' Year 2000 solutions and such solutions timely availability. The
Company's major satellite provider informed the Company in August 1998
that the satellite carrying the Network feed has been tested and the
Company is in the process of confirming that such satellite is Year 2000
ready. In addition, the satellite provider has notified the Company that
it expects to complete the testing of the corresponding satellite ground
equipment during the fourth quarter of 1998.
- Approximately 80% of the Systems critical to our sales, marketing and
research operations have been assessed, and corrective work has been
initiated.
- Approximately 90% of the Systems used in our administrative operations or
by our outside service providers (finance, payroll, benefits
administration) have been assessed, and corrective work has been
initiated.
- Approximately 30% of our facilities' infrastructures (owned and leased
combined) as well as the Company's own network communications and desktop
systems have been assessed, and corrective work has been initiated.
Approximately 10% of the total corrective work identified for all phases of
our program has been completed. Based on the work completed to date, capital as
well as personnel and non-personnel costs related to the Year 2000 program have
not been material. Although additional assessment activities remain to be
completed, the Company does not expect that the future costs related to the
Company's internal Year 2000 issues will have a material impact on the Company's
operations, subject to completion of the assessment and contingency planning
phases and the availability of solutions from Suppliers. The Company will fund
the costs to resolve its Year 2000 issues primarily from its operating cash flow
and, if necessary, proceeds available under its Bank Facility.
The Company expects that its Systems will be fully operational and will not
cause any material disruptions because of Year 2000 issues. Because of the
uncertainties associated with assessing the preparedness of Suppliers and
Advertisers, there is a risk of a material adverse effect on the Company's
future results of operations if the Company's Suppliers and Advertisers are not
capable of correcting their Year 2000 issues. The Company's major risk centers
around its ability to transmit the Network and O&Os broadcast signals and
satisfy the contractual commitments to air the commercial spots of its
Advertisers.
STATEMENTS FOR FORWARD-LOOKING INFORMATION
Information contained in this report contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which
can be identified by the use of forward-looking terminology such as "will,"
"expects," or "plans," or the negative thereof or other variations thereon or
comparable terminology. The matters set forth under the caption "Risk Factors"
in the Company's Prospectus filed with the Securities and Exchange Commission on
October 13, 1998 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.
18
<PAGE>
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
split approximately equally between the second and third quarters, exclusive of
special programming such as the 1998 World Cup games. 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.
19
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.0 Computation of Basic and 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.
II-1
<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
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
</TABLE>
November 12, 1998
Los Angeles, California
II-2
<PAGE>
EXHIBIT 11.0
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income.............................................. $ 4,970 $ 25,127 $ 2,457 $ 50,371
Less preferred stock dividends.......................... (135) (179) (471) (381)
------------- ------------- ------------- -------------
Net income available to common stockholders............. $ 4,835 $ 24,948 $ 1,986 $ 49,990
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NUMBER OF SHARES ON WHICH NET INCOME (LOSS) PER SHARE IS
BASED:
Historical weighted average common shares outstanding... 253,332 253,332 253,332 253,332
Reorganization stock dividend (227.010528 shares for
each Common share).................................... 57,509,030 57,509,030 57,509,030 57,509,030
Reorganization shares issued............................ 8,670,998 8,670,998 8,670,998 8,670,998
Public offering shares issued........................... 16,340,000 16,340,000 16,340,000 16,340,000
Additional shares issued to underwriters................ 2,451,000 2,451,000 2,451,000 2,451,000
Treasury Class A common stock........................... (464,051) -- (288,610) --
Preferred stock converted to Class A common stock....... 183,556 -- 95,476 --
Warrants converted to Class A common stock.............. 731,428 -- 616,222 --
Options converted to Class A common stock............... 244,514 2,608 172,858 880
------------- ------------- ------------- -------------
Weighted average common shares.......................... 85,919,807 85,226,968 85,820,306 85,225,240
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
BASIC EARNINGS PER SHARE:
Net income per share.................................... $ 0.06 $ 0.29 $ 0.03 $ 0.59
Less preferred stock dividends per share................ -- -- (0.01) --
------------- ------------- ------------- -------------
Net income per share available to common stockholders... $ 0.06 $ 0.29 $ 0.02 $ 0.59
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
DILUTED EARNINGS PER SHARE
Net income.............................................. $ 4,970 $ 25,127 $ 2,457 $ 50,371
Less preferred stock dividends.......................... -- -- -- --
------------- ------------- ------------- -------------
Net income available to common stockholders............. $ 4,970 $ 25,127 $ 2,457 $ 50,371
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NUMBER OF SHARES ON WHICH NET INCOME (LOSS) PER SHARE IS
BASED:
Historical weighted average common shares outstanding... 253,332 253,332 253,332 253,332
Reorganization stock dividend (227.010528 shares for
each common share).................................... 57,509,030 57,509,030 57,509,030 57,509,030
Reorganization shares issued............................ 8,670,998 8,670,998 8,670,998 8,670,998
Public offer ing shares issued.......................... 16,340,000 16,340,000 16,340,000 16,340,000
Additional shares issued to underwriters................ 2,451,000 2,451,000 2,451,000 2,451,000
Treasury Class A common stock........................... (464,051) -- (288,610) --
Preferred stock converted to Class A common stock....... 183,556 -- 95,476 --
Warrants converted to Class A common stock.............. 731,428 -- 616,222 --
Options converted to Class A common stock............... 244,514 2,608 172,858 880
------------- ------------- ------------- -------------
Weighted average common shares before dilutive effect of
common stock equivalents.............................. 85,919,807 85,226,968 85,820,306 85,225,240
------------- ------------- ------------- -------------
Common stock equivalents:
Warrants................................................ 28,040,904 28,806,490 28,164,633 28,785,896
Options................................................. 1,474,263 2,108,690 1,632,060 1,589,720
Convertible Preferred Stock............................. 550,669 734,225 639,421 734,225
------------- ------------- ------------- -------------
Weighted average common shares.......................... 115,985,643 116,876,373 116,256,420 116,335,081
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
DILUTED EARNINGS PER SHARE:
Net income per share.................................... $ 0.04 $ 0.21 $ 0.02 $ 0.43
Less preferred stock dividends per share................ -- -- -- --
------------- ------------- ------------- -------------
Net income per share available to common stockholders... $ 0.04 $ 0.21 $ 0.02 $ 0.43
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES STATEMENTS OF EARNINGS
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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 18,198
<SECURITIES> 0
<RECEIVABLES> 111,404
<ALLOWANCES> 8,704
<INVENTORY> 0
<CURRENT-ASSETS> 146,572
<PP&E> 190,502
<DEPRECIATION> 51,698
<TOTAL-ASSETS> 950,114
<CURRENT-LIABILITIES> 141,079
<BONDS> 412,279
9,090
0
<COMMON> 864
<OTHER-SE> 382,834
<TOTAL-LIABILITY-AND-EQUITY> 950,114
<SALES> 417,627
<TOTAL-REVENUES> 417,627
<CGS> 165,204
<TOTAL-COSTS> 165,204
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,493
<INTEREST-EXPENSE> 27,803
<INCOME-PRETAX> 12,286
<INCOME-TAX> 9,829
<INCOME-CONTINUING> 2,457
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,457
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
