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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1998 COMMISSION FILE NUMBER: 001-12223
------------------------
UNIVISION COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE NO. 95-4398884
(State of (IRS Employer Identification No.)
incorporation)
</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 47,744,947 shares of Class A Common Stock, 20,743,233 shares of
Class P Common Stock, 8,918,582 shares of Class T Common Stock and 8,918,582 of
Class V Common Stock outstanding as of July 15, 1998.
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
INDEX
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PAGE
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PART I--FINANCIAL INFORMATION:
Financial and Corporate Terms........................................................................................... 2
Financial Introduction.................................................................................................. 4
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1998 and December 31, 1997.......................................... 5
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 1998 and 1997............. 6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997....................... 7
Notes to the 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 4. Submission of Matters to a Vote of Security Holders............................................................. II-1
Item 6. Exhibits and Reports on form 8-K................................................................................ II-1
</TABLE>
1
<PAGE>
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:
"Acquisition" means the December 1992 acquisition of the Network and UTG
(excluding the Chicago Houston, Sacramento and Bakersfield O&Os) by Perenchio,
Televisa and Venevision.
"Affiliated Stations" means the 10 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.
"Bank Facility" means the Company's credit agreement dated September 26,
1996, 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.
"Initial 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)
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<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
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(UNAUDITED)
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ASSETS
Current assets:
Cash and cash equivalents......................................................................... $ 22,085 $ 10,660
Short-term investment............................................................................. -- 94
Accounts receivable, less allowance for doubtful accounts of $9,217 in 1998 and $8,584 in 1997.... 139,960 116,849
Program rights.................................................................................... 6,229 5,650
Prepaid expenses and other........................................................................ 7,806 5,501
----------- ------------
Total current assets............................................................................ 176,080 138,754
Property and equipment, less accumulated depreciation of $46,780 in 1998 and $37,518 in 1997........ 133,085 123,853
Intangible assets, less accumulated amortization of $197,988 in 1998 and $176,274 in 1997........... 607,808 630,828
Deferred financing costs, less accumulated amortization of $2,812 in 1998 and $1,973 in 1997........ 7,681 8,520
Deferred income taxes............................................................................... 60,439 53,046
Note receivable-Entravision......................................................................... 10,000 10,000
Investment in unconsolidated affiliate.............................................................. 484 --
Other assets........................................................................................ 2,955 2,754
----------- ------------
Total assets.................................................................................... $998,532 $967,755
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.......................................................... $ 72,089 $ 74,632
Accrued interest.................................................................................. 913 1,164
Accrued license fee............................................................................... 5,927 5,374
Obligations for program rights.................................................................... 6,809 894
Current portion of long-term debt................................................................. 58,026 61,965
----------- ------------
Total current liabilities....................................................................... 143,764 144,029
Long-term debt including accrued interest, net of current portion................................... 429,725 423,923
Capital lease obligations, net of current portion................................................... 35,505 36,907
Other long-term liabilities......................................................................... 3,946 4,547
----------- ------------
Total liabilities............................................................................... 612,940 609,406
----------- ------------
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 June 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 (347,660,000 shares authorized; 86,315,344 and 85,299,360 shares
issued including shares in treasury, at June 30, 1998 and December 31, 1997, respectively)...... 863 853
Paid-in-capital................................................................................... 382,842 332,328
Retained earnings................................................................................. 10,199 13,048
----------- ------------
393,904 346,229
Less Common Stock held in treasury (464,051 shares at cost at June 30, 1998)...................... (17,402) --
----------- ------------
Total stockholders' equity...................................................................... 376,502 346,229
----------- ------------
Total liabilities and stockholders' equity...................................................... $998,532 $967,755
----------- ------------
----------- ------------
</TABLE>
See notes to condensed financial statements.
5
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net revenues...................................... $ 173,536 $ 122,327 $ 278,681 $ 207,928
Direct operating expenses......................... 69,476 41,815 111,817 75,357
Selling, general and administrative
expenses........................................ 46,032 35,106 82,183 65,029
Depreciation and amortization..................... 15,872 14,304 31,432 28,052
------------- -------------- ------------- --------------
Operating income.................................. 42,156 31,102 53,249 39,490
Interest expense.................................. 9,260 10,174 18,765 20,435
Amortization of deferred financing costs.......... 419 418 839 792
Reversal of non-recurring expense of acquired
station......................................... -- (1,059) -- (1,059)
Special bonus award............................... 42,608 -- 42,608 --
Equity loss in unconsolidated affiliate........... 343 -- 343 --
------------- -------------- ------------- --------------
Income (loss) before taxes........................ (10,474) 21,569 (9,306) 19,322
Benefit for income taxes.......................... (7,471) (5,945) (6,793) (5,922)
------------- -------------- ------------- --------------
Net income (loss)................................. (3,003) 27,514 (2,513) 25,244
Preferred stock dividends......................... (156) (180) (336) (202)
------------- -------------- ------------- --------------
Net income (loss) available to common
stockholders.................................... $ (3,159) $ 27,334 $ (2,849) $ 25,042
------------- -------------- ------------- --------------
------------- -------------- ------------- --------------
BASIC EARNINGS PER SHARE
Net income (loss) per share....................... $ (0.04) $ 0.32 $ (0.03) $ 0.29
Less preferred stock dividends per share.......... -- -- -- --
------------- -------------- ------------- --------------
Net income (loss) per share available to common
stockholders.................................... $ (0.04) $ 0.32 $ (0.03) $ 0.29
------------- -------------- ------------- --------------
------------- -------------- ------------- --------------
Weighted average common shares outstanding........ 85,828,141 85,224,360 85,769,731 85,224,360
------------- -------------- ------------- --------------
------------- -------------- ------------- --------------
DILUTED EARNINGS PER SHARE
Net income (loss)per share........................ $ (0.04) $ 0.24 $ (0.03) $ 0.22
Less preferred stock dividends per share.......... -- -- -- --
------------- -------------- ------------- --------------
Net income (loss) per share available to common
stockholders.................................... $ (0.04) $ 0.24 $ (0.03) $ 0.22
------------- -------------- ------------- --------------
------------- -------------- ------------- --------------
Weighted average common shares outstanding........ 85,828,141 116,156,785 85,769,731 116,064,421
------------- -------------- ------------- --------------
------------- -------------- ------------- --------------
</TABLE>
See notes to condensed financial statements.
6
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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1998 1997
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Net (loss) income......................................................................... $ (2,513) $ 25,244
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation.............................................................................. 9,718 7,678
(Gain) loss on sale of fixed assets....................................................... 3 (197)
Equity loss on unconsolidated affiliate................................................... 343 --
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............................ 22,553 21,166
Changes in assets and liabilities:
Accounts receivable..................................................................... (23,111) (8,203)
Intangible assets....................................................................... -- 5,600
Deferred taxes.......................................................................... (7,393) (12,178)
License fees payable.................................................................... 35,200 27,123
Payment of license fees................................................................. (34,647) (25,206)
Program rights.......................................................................... (579) (634)
Prepaid expenses and other assets....................................................... (2,506) 2,216
Accounts payable and accrued liabilities................................................ (880) (7,434)
Accrued interest........................................................................ 3,960 3,036
Obligations for program rights.......................................................... 5,915 (164)
Other, net.............................................................................. (478) 50
---------- ----------
Net cash provided by operating activities................................................. 33,194 37,038
---------- ----------
Cash flow from investing activities:
Capital expenditures.................................................................... (18,432) (13,690)
Investment in unconsolidated subsidiary................................................. (827) --
Acquisition of Sacramento............................................................... -- (28,936)
Proceeds from sale of fixed assets...................................................... 12 298
Organization costs...................................................................... -- (134)
---------- ----------
Net cash used in investing activities..................................................... (19,247) (42,462)
---------- ----------
Cash flow from financing activities:
Proceeds from issuance of long-term debt................................................ 63,000 59,000
Payments of long-term debt.............................................................. (66,750) (47,273)
Exercise of options..................................................................... 1,547 --
Exercise of warrants.................................................................... 47 --
Preferred stock dividends paid.......................................................... (366) (81)
Tax payments to Partners................................................................ -- (1,500)
Deferred financing costs................................................................ -- (1,185)
---------- ----------
Net cash (used in) provided by financing activities....................................... (2,522) 8,961
---------- ----------
Net increase in cash...................................................................... 11,425 3,537
Cash and cash equivalents, beginning of year.............................................. 10,660 11,588
---------- ----------
Cash and cash equivalents, end of period.................................................. $ 22,085 $ 15,125
---------- ----------
---------- ----------
Supplemental disclosure of cash flow information:
Interest paid during the year........................................................... $ 14,865 $ 17,531
---------- ----------
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 comprise 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
$23,000,000. In addition, Galavision 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,
8
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
(UNAUDITED)
1. ORGANIZATION AND ACQUISITION (CONTINUED)
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 comprise
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 June 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. It also owns and operates eight Spanish-language low-power
television stations serving Hartford, Fort Worth, Philadelphia, Tucson, Austin,
Santa Rosa, Albuquerque and Bakersfield and one English-language full-power
television station in 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. OPTIONS
During the three months ended June 30, 1998, options were exercised for
18,000 shares of Class A Common Stock, resulting in an increase to Common Stock
of $180 and to Paid-in-capital of $370,000, which included a tax benefit
associated with the transactions of $163,000.
4. SPECIAL BONUS AWARD
On May 13, 1998, the Board of Directors of Univision Communications Inc.
adopted the Univision Communications Inc. 1998 Stock Bonus Plan and vested the
Compensation Committee of the Company with the authority to select employees to
receive awards and to determine the value of the awards granted to the selected
employees. On May 13, 1998, a major stockholder contributed 1,354,665 shares of
Class P Common Stock to the Company. In accordance with the Company's
Certificate of Incorporation, the
9
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
(UNAUDITED)
4. SPECIAL BONUS AWARD (CONTINUED)
shares were automatically converted to Class A Common Stock and placed in the
Company's treasury. The Compensation Committee met on May 26, 1998 and selected
all the recipients of the awards. The awards authorized by the 1998 Stock Bonus
Plan consist of a stock bonus and required tax withholdings. The Plan authorized
a total of 890,614 shares of Class A Common Stock, par value $.01 per share, of
the Company for issuance and delivery as Stock Bonuses. On May 27, 1998, 890,614
of the Class A Common Stock treasury shares were granted to the selected
employees and 464,051 Class A Common Shares remained in the Company's treasury.
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, an increase in Paid-in-capital of $45,011,000 and
treasury stock with a balance of $17,402,000. In 1998, the Company expects to
receive a cash tax benefit related to the 1998 Stock Bonus Plan of approximately
$14,000,000.
5. STATION DISPOSITION
On June 15, 1998, the Company entered into a non-binding letter of intent
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 letter
of intent, the Company will receive as consideration $1,000,000 in cash or a
promissory note and an option to acquire an additional 2% equity interest in
Entravision. Upon completion of this transaction, the Company will have an
option to acquire an approximate 27% equity interest in Entravision.
6. PREFERRED STOCK
During the three months ended June 30, 1998, 3,000 redeemable convertible 6%
preferred stock shares were converted into 183,556 shares of Class A Common
Stock, resulting in an increase to Common Stock of $1,836 and to Paid-in-capital
of $2,998,164.
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.
SIX MONTHS ENDED JUNE 30, 1998 ("1998") COMPARED TO SIX MONTHS ENDED JUNE 30,
1997 ("1997")
REVENUES. Net revenues increased to $278,681,000 in 1998 from $207,928,000
in 1997, an increase of $70,753,000 or 34.0%. The Network accounted for
$35,029,000 or 49.5% of the increase, and the O&Os and Galavision accounted for
$34,518,000 or 48.8% and $1,206,000 or 1.7%, respectively. The O&Os' increase,
which was due to an increase of approximately 11% in the number of spots sold
and a 10% 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 53% in the average price of advertising spots, offset
in part by a decrease in volume of approximately 8%. 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 increased by 38%.
EXPENSES. Direct operating expenses, which include corporate charges of
$152,000 and $121,000 in 1998 and 1997, respectively, increased to $111,817,000
in 1998 from $75,357,000 in 1997, an increase of $36,460,000 or 48.4%. The
increase is due primarily to World Cup costs of $21,484,000 and higher license
fees paid or payable to Televisa and Venevision of $8,091,000. 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 14.6% in 1998. In 1998, the morning show,
DESPIERTA AMERICA, which began airing mid-April 1997, accounted for
approximately $935,000 of the total increase in programming costs over 1997. In
addition, programming costs increased by approximately $1,300,000 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
$3,269,000, which includes $410,000 from the acquisitions of the Sacramento
station in March 1997 and the Bakersfield station in October 1997. As a
percentage of net revenues, direct operating expenses increased from 36.2% in
1997 to 40.1% in 1998.
Selling, general and administrative expenses, which include corporate
charges of $5,683,000 and $5,193,000 in 1998 and 1997, respectively, increased
to $82,183,000 in 1998 from $65,029,000 in 1997, an increase of $17,154,000 or
26.4%. The acquisitions in Sacramento and Bakersfield accounted for $1,636,000
of the increase. The remaining increases are due in large part to increased
selling costs of $5,102,000, associated with increased sales, staff levels and
compensation costs, and increased research costs of $2,150,000, all of which are
consistent with the Company's strategy of investing in sales management and
research. The Company also had increased costs of approximately $1,027,000
associated with the renewal of its Nielsen contracts, approximately $1,198,000
related to its retirement savings plan due to an increase in the Company's
matching contribution and increased promotional costs of $1,195,000 primarily
11
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related to increased advertising. As a percentage of net revenues, selling,
general and administrative expenses decreased from 31.3% in 1997 to 29.5% in
1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$31,432,000 in 1998 from $28,052,000 in 1997, an increase of $3,380,000 or
12.0%. 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 $53,249,000 in 1998 from $39,490,000 in 1997, an increase of
$13,759,000 or 34.8%. As a percentage of net revenues, operating income
increased from 19.0% in 1997 to 19.1% in 1998.
INTEREST EXPENSE. Interest expense decreased to $18,765,000 in 1998 from
$20,435,000 in 1997, a decrease of $1,670,000 or 8.2%. 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 three and six months ended June 30, 1998 was $16,500,000, net of both the
$14,000,000 related tax benefit and a $12,108,000 reduction in the tax provision
due to an increased effective tax rate resulting from this reduction in 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 FOR INCOME TAXES. In 1998, the Company reported an income tax
benefit of $6,793,000. Excluding the impact of the special bonus award, the
Company would have reported an income tax provision of $19,315,000 in 1998. In
1997, the Company reported an income tax benefit of $5,922,000. Excluding a
non-recurring tax benefit of $17,032,000, the Company would have reported an
income tax provision of $11,110,000 in 1997.
NET INCOME (LOSS). As a result of the above factors, 1998 resulted in a net
loss of $2,513,000 compared to net income of $25,244,000 in 1997, a decrease of
$27,757,000. 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 70.3% to $13,987,000 in 1998 from $8,212,000 in 1997.
BROADCAST CASH FLOW. Broadcast cash flow increased to $90,516,000 in 1998
from $72,856,000 in 1997, an increase of $17,660,000 or 24.2%. As a percentage
of net revenues, broadcast cash flow decreased from 35.0% in 1997 to 32.5% 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 14.6% in 1998. Had
the revised license fee been in effect in 1997, the license fee would have
increased by $3,218,000 and broadcast cash flow would have been $69,638,000 in
1997. On a year-to-year basis, broadcast cash flow would have increased by
$20,878,000 or 30.0%, from $69,638,000 in 1997 to $90,516,000 in 1998. As a
percentage of net revenues, broadcast cash flow would have decreased from 33.5%
in 1997 to 32.5% in 1998.
CORPORATE CHARGES. Corporate charges increased to $5,835,000 in 1998 from
$5,314,000 in 1997, an increase of $521,000 or 9.8%. The increase is primarily
due to costs associated with salary and benefits. As a percentage of net
revenues, corporate charges decreased from 2.6% in 1997 to 2.1% in 1998.
12
<PAGE>
EBITDA. EBITDA increased to $84,681,000 in 1998 from $67,542,000 in 1997,
an increase of $17,139,000 or 25.4%. As a percentage of net revenues, EBITDA
decreased from 32.5% in 1997 to 30.4% 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 $3,218,000 and EBITDA
would have been $64,324,000 in 1997. Thus, EBITDA would have increased by
$20,357,000 or 31.6%, from $64,324,000 in 1997 to $84,681,000 in 1998. As a
percentage of net revenues, EBITDA would have decreased from 30.9% in 1997 to
30.4% in 1998.
THREE MONTHS ENDED JUNE 30, 1998 ("1998") COMPARED TO THREE MONTHS ENDED JUNE
30, 1997 ("1997")
REVENUES. Net revenues increased to $173,536,000 in 1998 from $122,327,000
in 1997, an increase of $51,209,000 or 41.9%. The Network accounted for
$25,946,000 or 50.7% of the increase, and the O&Os and Galavision accounted for
$24,828,000 or 48.5% and $435,000 or .8%, respectively. The O&Os' increase,
which was due to an increase of approximately 9% in the number of spots sold and
a 14% increase in the price for advertising spots, was primarily derived from
Los Angeles, Miami, Houston and San Francisco, with additional increases at all
other O&Os except for San Antonio. The Network's increase is due primarily to an
increase of approximately 70% in the average price of advertising spots, offset
in part by a decrease in volume of approximately 7%. 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 increased by 40%.
EXPENSES. Direct operating expenses, which include corporate charges of
$69,000 and $51,000 in 1998 and 1997, respectively, increased to $69,476,000 in
1998 from $41,815,000 in 1997, an increase of $27,661,000 or 66.2%. The increase
is due primarily to World Cup costs of $21,484,000 and higher license fees paid
or payable to Televisa and Venevision of $4,183,000. 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 14.6% in 1998. 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 $1,569,000,
which includes $66,000 from the acquisition of the Bakersfield station in
October 1997, offset in part by lower non-World Cup sports programming costs of
$241,000. As a percentage of net revenues, direct operating expenses increased
from 34.2% in 1997 to 40.0% in 1998.
Selling, general and administrative expenses, which include corporate
charges of $3,124,000 and $3,002,000 in 1998 and 1997, respectively, increased
to $46,032,000 in 1998 from $35,106,000 in 1997, an increase of $10,926,000 or
31.1%. The acquisitions of Bakersfield accounted for $327,000 of the increase.
The remaining increases are due in large part to increased selling costs of
$3,506,000, associated with increased sales, staff levels and compensation
costs, and increased research costs of $1,174,000, all of which are consistent
with the Company's strategy of investing in sales management and research. The
Company also had increased costs of approximately $514,000 associated with the
renewal of its Nielsen contracts, approximately $592,000 related to its
retirement savings plan due to an increase in the Company's matching
contribution and increased promotional costs of $1,034,000 primarily related to
increased advertising. As a percentage of net revenues, selling, general and
administrative expenses decreased from 28.7% in 1997 to 26.5% in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$15,872,000 in 1998 from $14,304,000 in 1997, an increase of $1,568,000 or
11.0%. 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 $42,156,000 in 1998 from $31,102,000 in 1997, an increase of
$11,054,000 or 35.5%. As a percentage of net revenues, operating income
decreased from 25.4% in 1997 to 24.3% in 1998.
13
<PAGE>
INTEREST EXPENSE. Interest expense decreased to $9,260,000 in 1998 from
$10,174,000 in 1997, a decrease of $914,000 or 9.0%. 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 three and six months ended June 30, 1998 was $16,500,000, net of both the
$14,000,000 related tax benefit and a $12,108,000 reduction in the tax provision
due to an increased effective tax rate resulting from this reduction in 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 FOR INCOME TAXES. In 1998, the Company reported an income tax
benefit of $7,471,000. Excluding the impact of the special bonus award, the
Company would have reported an income tax provision of $18,637,000 in 1998. In
1997, the Company reported an income tax benefit of $5,945,000. Excluding a
non-recurring tax benefit of $18,347,000, the Company would have reported an
income tax provision of $12,402,000 in 1997.
NET INCOME (LOSS). As a result of the above factors, 1998 resulted in a net
loss of $3,003,000 compared to net income of $27,514,000 in 1997, a decrease of
$30,517,000. 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 47.2% to $13,497,000 in 1998 from $9,167,000 in 1997.
BROADCAST CASH FLOW. Broadcast cash flow increased to $61,221,000 in 1998
from $48,459,000 in 1997, an increase of $12,762,000 or 26.3%. As a percentage
of net revenues, broadcast cash flow decreased from 39.6% in 1997 to 35.3% 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 14.6% in 1998. Had
the revised license fee been in effect in 1997, the license fee would have
increased by $1,839,000 and broadcast cash flow would have been $46,620,000 in
1997. On a year-to-year basis, broadcast cash flow would have increased by
$14,601,000 or 31.3%, from $46,620,000 in 1997 to $61,221,000 in 1998. As a
percentage of net revenues, broadcast cash flow would have decreased from 38.1%
in 1997 to 35.3% in 1998.
CORPORATE CHARGES. Corporate charges increased to $3,193,000 in 1998 from
$3,053,000 in 1997, an increase of $140,000 or 4.6%. 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 1.8% in 1998.
EBITDA. EBITDA increased to $58,028,000 in 1998 from $45,406,000 in 1997,
an increase of $12,622,000 or 27.8%. As a percentage of net revenues, EBITDA
decreased from 37.1% in 1997 to 33.4% 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 $1,839,000 and EBITDA
would have been $43,567,000 in 1997. Thus, EBITDA would have increased by
$14,461,000 or 33.2%, from $43,567,000 in 1997 to $58,028,000 in 1998. As a
percentage of net revenues, EBITDA would have decreased from 35.6% in 1997 to
33.4% in 1998.
14
<PAGE>
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 those of UTG, the Network and
Galavision, totaled $18,432,000 through June 30, 1998 and $13,690,000 through
June 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 new non-NOVELA production agreement with
Televisa, the Network has begun an expansion of 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 the options available to it.
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 June 30, 1998, the Bank Facility consisted of a $325,500,000 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. At June 30, 1998, the Company had
approximately $363,000,000 available to borrow through a combination of its
Revolving Credit and Incremental Facilities.
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.
The Term Facility amortizes quarterly, with $49,000,000 required to be
repaid during 1998. Through the six months ended June 30, 1998, the Company has
paid $24,500,000. 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 June 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 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.
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.
15
<PAGE>
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 book taxable income, the
Company has available a deferred tax asset of approximately $60,400,000 to
offset future taxes payable arising from operations. In addition, at June 30,
1998, the Company had approximately $499,900,000 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. The terms call for a fixed payment of $25,000,000 in total, to be
paid in four equal installments in May and June 1998, which have been paid, and
in 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 funds for these future payments are expected to come from income from
operations and/or borrowings from existing bank facilities.
The Company and Televisa reached 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. No assurance can be given that either the
Univision or the Televisa programs will be available, or if available, will be
successful.
On March 27, 1998, the Company entered into a joint venture with the Home
Shopping Network Capital LLC to form 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.
Through its Year 2000 Project Office, the Company continues to review and
evaluate the Year 2000 issue as it relates to its internal computer and
electronic systems and third party computer and electronic systems as well as
those of its vendors. The Company expects to incur internal staff costs as well
as consulting and other expenses related to these issues. In addition, the
appropriate course of action may include replacement or an upgrade to certain
systems or equipment that would be capitalized and depreciated accordingly.
The Year 2000 Project Office is cooperating with the Company's vendors and
Broadcast Affiliates who are at various stages in analyzing this issue. There
can be no assurance that the systems of other companies, on which the Company
relies or interfaces with, will also be timely converted. The Company will
continue to evaluate the appropriate courses of corrective action needed. There
can be no assurance that the Year 2000 issues will be resolved in 1998 or 1999.
If not resolved, this issue could have a significant adverse impact on the
Company's operations.
Because of the United Auto Workers strike against General Motors, which
began in June 1998, General Motors cancelled its advertising with Univision as
well as with other media. Although this has not had a material adverse effect on
the Company's results of operations to date and the strike has been settled,
there can be no assurance that General Motors will resume advertising in the
near future, and the continuing loss of General Motors could have a material
adverse effect on the Company's results of operations.
16
<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.
17
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 13, 1998 at which all
eight Directors were reelected to the Board, each of the alternate Class T
Director and Class V Director was reelected, the appointment of Arthur Andersen
LLP as the Company's independent auditors for the fiscal year 1998 was ratified
and the Restated Certificate of Incorporation was amended to increase the number
of authorized shares of Class A Common Stock from 150,000,000 to 300,000,000. No
other matters were presented at the meeting. The number of shares of the
Company's Class A, Class P, Class T, Class V and Series A Cumulative Convertible
Preferred Stock ("Series A") present at the meeting, by proxy or in person,
collectively represented 96% of the voting interest of all shares of the
aforementioned classes of stock outstanding and eligible to vote at the Annual
Meeting.
The holders of the Class A, Class P and Series A stock reelected all six
Class A/P Directors as follows:
<TABLE>
<CAPTION>
VOTES
NOMINEES VOTES FOR WITHHELD
- -------------------------------------------------------------------- ------------- ---------
<S> <C> <C>
A. Jerrold Perenchio................................................ 256,107,615 369,793
Henry Cisneros...................................................... 256,084,349 393,059
Harold Gaba......................................................... 256,112,095 365,313
Alan F. Horn........................................................ 256,112,944 364,464
John G. Perenchio................................................... 256,096,561 380,847
Ray Rodriguez....................................................... 256,096,779 380,629
</TABLE>
The holders of the Class T stock reelected the Class T Director and his
alternate, and all 8,918,582 shares of Class T stock present at the meeting were
voted for their reelection. The holders of the Class V reelected the Class V
Director and his alternate, and all 8,918,582 shares of Class V stock present at
the meeting were voted for their reelection.
The votes cast by the holders of Class A, Class P, Series A, Class T and
Class V for the ratification of the appointment of Arthur Andersen LLP as the
Company's auditors were as follows: 274,294,871 for, 8,861 withheld and 10,840
abstained.
The Class A votes cast to amend the Restated Certificate of Incorporation to
increase the number of authorized shares of Class A Common Stock from
150,000,000 to 300,000,000 were as follows: 35,092,869 for, 363,153 withheld and
30,406 abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Amendment of Restated Certificate of Incorporation of
the Company
10.1 Co-Production Agreement between the Company and Televisa
11.0 Computation of Basic and Diluted Earnings Per Share
23.1 Consents of experts and counsel
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>
July 30, 1998
Los Angeles, California
II-2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
UNIVISION COMMUNICATIONS INC.
UNIVISION COMMUNICATIONS INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation adopted a
resolution proposing and declaring advisable the following amendment to the
Restated Certificate of Incorporation of said corporation:
RESOLVED, that the Restated Certificate of Incorporation be amended so
that the first paragraph of Article Fourth is amended to read:
"The Corporation shall have the authority to issue 492,000,000 shares
of Common Stock, par value $.01 per share, divided into the following
classes:
(i) 300,000,000 shares of Class A Common Stock (the "Class A
Common Stock"):
(ii) 96,000,000 shares of Class P Common Stock (the "Class P
Common Stock");
(iii) 48,000,000 shares of Class T Common Stock (the "Class T
Common Stock"); and
(iv) 48,000,000 shares of Class V Common Stock (the "Class V
Common Stock" and together with the Class A Common Stock, the Class P
Common Stock and the Class T Common Stock, the "Common Stock")."
SECOND: That the aforesaid amendment was duly adopted by the
Corporation's Board of Directors and stockholders in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
<PAGE>
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by Robert V. Cahill, its Secretary, this 13th day of May, 1998.
----
UNIVISION COMMUNICATIONS INC.
By: /s/ ROBERT V. CAHILL
---------------------------
Robert V. Cahill, Secretary
<PAGE>
[LETTERHEAD]
March 27, 1998
Emilio Romano, Vice President
of International Affiliates
Televisa, S.A. de C.V.
Avenida Chapultepec No. 28, 1er Piso
Colonia Doctores
06724 Mexico D.F., Mexico
Dear Emilio:
This letter represents the agreement of Televisa and UNLP ("agreement")
to each produce three (3) thirteen- (13-) week "Shows" (as defined below) at
such party's sole cost on the following terms and conditions.
1. PARTIES AND EFFECTIVE DATE. Televisa, S.A. De C.V. ("Televisa") and
The Univision Network Limited Partnership ("UNLP") are the parties to this
agreement, and each will be individually referred to as "Party" and
collectively referred to as the "Parties." This agreement shall be effective
as of the date set forth above.
2. DEFINITIONS. A "Show" means new non-novela programming to fill a
thirteen (13) week programming schedule for such Show. The three (3) Shows
which each Party shall produce are described in Schedule I attached to and
made part of this agreement. "Additional Programming" means all programming
of a Show, in thirteen (13) week increments, produced by the Original Producer
after the required first thirteen (13) weeks of programming for such Show.
"Successor Programming" means all programming of a Show produced by the
Successor Producer after a Show becomes a Discontinued Show. "Discontinued
Show" means a Show that the Original Producer decides it will not continue to
produce at any time after the required first thirteen (13) weeks of
programming.
3. SCHEDULED COMPLETION DATE OF SHOWS/QUALITY. Subject to Schedule I
each Party shall use commercially reasonable efforts to complete the production
of its three (3) Shows so that each such Show is available to commence airing
no later than October 31, 1998. The Parties shall regularly inform each other
on all aspects of the production of the Shows including, but not limited to,
the production schedule and delivery date of each Show.
1
<PAGE>
Each Party grants the other and its representatives reasonable access to
review, on a first hand basis, the progress of the development and production
of such Party's Shows, regardless of whether such development and production
is undertaken at the producing Party's or a third party's facilities. The
quality of each Party's Shows and Additional Programming shall be at least
equal to that of the programs produced by such Party and aired by the other
Party as of the date of this Agreement.
4. OWNERSHIP RIGHTS. As between Televisa and UNLP, each Party shall
own all rights worldwide in perpetuity in and to the Shows and Additional
Programming such Party produces under this agreement, subject to the
provisions of Paragraphs 5 and 7. The ownership rights intended under this
agreement are of every kind and nature including copyrights, distribution and
exploitation rights.
5. BROADCAST RIGHTS. Each of Televisa/Grupo Televisa, S.A. and
Univision shall have the rights to broadcast and otherwise exploit the Shows
and Additional Programming of the other as are set forth in the Amended and
Restated Program License agreement dated as of October 1, 1996 between UNLP
and a Grupo Televisa, S.A. subsidiary (the "PLA") and the International
Programming Rights Agreement, between Grupo Televisa, S.A. and UNLP, and
others, dated as of October 2, 1996 ("IPRA"). The Parties agree that no UNLP
Show, Additional Programming or Successor Programming will be deemed a
"Grandfathered Program" under the IPRA.
6. ADDITIONAL PROGRAMMING. Neither Party is required to produce
Additional Programming for any Show. In the event a Party decides not to
produce Additional Programming of a Show, such Party must furnish written
notice of such decision to the other Party at least forty-five (45) days
prior to the last day of production of such Show or Additional Programming,
as the case may be.
7. RIGHT TO TAKE OVER PRODUCTION OF DISCONTINUED SHOW. If a Party that
produces a Show ("Original Producer") decides that it will not produce
Additional Programming for a Discontinued Show, the other Party (the
"Successor Producer") shall have the right to produce Successor Programming
for such Show. If, no later than thirty (30) days after receipt of the notice
required in Paragraph 6, the Successor Producer gives the Original Producer
written notice of its election to produce Successor Programming, and such
Successor Producer commences production of such Successor Programming within
ninety (90) days after delivery of such election notices, then:
(a) The Successor Producer may request the Original Producer to
produce Successor Programming for the Discontinued Show. The Original
Producer shall not be obligated to produce such Successor Programming
unless the Parties have first reached a mutually satisfactory agreement
with respect to the reimbursement of the production costs which may be
incurred by the Original Producer in connection with such Successor
Programming. The Parties hereby agree to negotiate in good faith the
terms and conditions of such reimbursement, including a fair price for
the production services that the Original Producer will
2
<PAGE>
provide to the Successor Producer with respect to Successor Programming
of such Discontinued Show.
(b) If the Parties are unable to reach the agreement contemplated
by subsection (a) above prior to the commencement of the production of
the thirteenth (13th) week of programming of such Show or the last week
of production of the Additional Programming of such Discontinued Show,
whichever is later, the Successor Producer may produce the Successor
Programming of such Discontinued Show at its sole cost.
(c) The Parties acknowledge that regardless of whether the
Successor Producer reimburses the Original Producer for the production
of such Successor Programming or produces the Successor Programming
itself, the Successor Producer shall own, as between Televisa and UNLP,
all rights worldwide in perpetuity in and to such Successor Programming.
The Parties further acknowledge and agree that Successor Programming
shall be subject to the provisions of the IPRA and the PLA.
(d) Subject to the Original Producer's right to exploit its Shows
and Additional Programming, the Original Producer of the applicable
Discontinued Show hereby transfers to such Successor Producer all of the
Original Producer's right, title and interest in and to the format of
such Discontinued Show.
(e) Each Party shall reasonably cooperate to accomplish a smooth
transition to the other Party of the production and ownership of the
Successor Programming of a Discontinued Show.
8. PERMITS: THIRD PARTY CONSENTS/AUTHORIZATIONS. Each Party will obtain
all third party consents and/or licenses that are required for the
production, distribution and exploitation of its Shows and Additional
Programming as contemplated in this agreement, in accordance with industry
practice in each Party's country. Also, each Party will comply with legal
and/or governmental requirements that apply to the production of such Party's
Shows and Additional Programming. Each Party will execute and file any
documents required by applicable law (including regulations) and perform such
further acts as may become necessary to carry out the purposes of this
agreement.
9. AIRING. Nothing contained in this agreement shall be construed as
requiring either Party to air any Show, Additional Programming or
Discontinued Show, whether produced by it or the other Party.
10. TIME IS OF THE ESSENCE IN PERFORMANCE. The Parties agree that time
is of the essence in the production of their respective Shows and Additional
Programming.
11. INDEMNIFICATION. Each Party shall indemnify, defend and hold the
other Party (the "Indemnitee") harmless against all claims, losses and
expenses resulting from or pertaining to any actions, suits or proceedings
(whether filed or threatened) by third
3
<PAGE>
parties against the Indemnitee based on allegations that a Show and/or any
Additional Programming produced by such Party infringes and/or violates
intellectual, contractual or other personal or property rights of third
parties. The indemnity and defense rights provided hereunder shall also be
available to the parent, stockholders, officers, directors, and agents of the
Indemnitee, its parent and related subsidiaries.
12. GOVERNING LAW/JURISDICTION/VENUE. This agreement shall be governed
by and construed in accordance with the laws of the State of California,
without regard to conflicts of law principles. Each Party irrevocably submits
to the jurisdiction of any California State Court or United States Federal
Court sitting in Los Angeles County to resolve any disputes arising out of,
or to enforce any obligation provided for in, this agreement.
13. AMENDMENTS. This agreement may only be amended by written agreement
of the Parties.
14. OTHER AGREEMENTS. This agreement is independent of, and nothing
contained herein shall be construed as an amendment, supplement or
modification of the PLA or the IPRA.
There are two signed copies of this agreement, one of them for
Televisa's records. Please sign the second copy and return it to me.
Sincerely,
/s/ RAY RODRIGUEZ
----------------------------
Ray Rodriguez,
President & COO
Read and agreed to:
Televisa, S.A. de C.V.
By: /s/ EMILIO ROMANO
-----------------------------
Emilio Romano
Vice President
Accepted and agreed:
Grupo Televisa, S.A.
By: /s/ ALFONSO DE ANGOITIA
-----------------------------
Alfonso de Angoitia
4
<PAGE>
Schedule I
(Description of the Shows)
UNLP's 3 Shows:
El Gordo y La Flaca (daily)
El Biablazo (daily)
Quiero Ser Estrella (daily)
Televisa's 3 Shows:
El Noa Noa (weekly) coming March 1999
Reina del Dia (daily)
Fantastico Amor (weekly)
5
<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 JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net (loss) income........................................... $ (3,003) $ 27,514 $ (2,513) $ 25,244
Less preferred stock dividends.............................. (156) (180) (336) (202)
---------------- ------------ ---------------- ------------
Net (loss) income available to common stockholders.......... $ (3,159) $ 27,334 $ (2,849) $ 25,042
---------------- ------------ ---------------- ------------
---------------- ------------ ---------------- ------------
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............................... (396,678) -- (199,435) --
Preferred stock converted to Class A common stock........... 100,855 -- 50,706 --
Warrants converted to Class A common stock.................. 731,428 -- 557,664 --
Options converted to Class A common stock................... 168,176 -- 136,436 --
---------------- ------------ ---------------- ------------
Weighted average common shares.............................. 85,828,141 85,224,360 85,769,731 85,224,360
---------------- ------------ ---------------- ------------
---------------- ------------ ---------------- ------------
BASIC EARNINGS PER SHARE:
Net (loss) income per share................................. $ (0.04) $ 0.32 $ (0.03) $ 0.29
Less preferred stock dividends per share.................... -- -- -- --
---------------- ------------ ---------------- ------------
Net (loss) income per share available to common
stockholders.............................................. $ (0.04) $ 0.32 $ (0.03) $ 0.29
---------------- ------------ ---------------- ------------
---------------- ------------ ---------------- ------------
DILUTED EARNINGS PER SHARE
Net (loss) income........................................... $ (3,003) $ 27,514 $ (2,513) $ 25,244
Less preferred stock dividends.............................. -- -- -- --
---------------- ------------ ---------------- ------------
Net (loss) income available to common stockholders.......... $ (3,003) $ 27,514 $ (2,513) $ 25,244
---------------- ------------ ---------------- ------------
---------------- ------------ ---------------- ------------
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............................... (396,678) -- (199,435) --
Preferred stock converted to Class A common stock........... 100,855 -- 50,706 --
Warrants converted to Class A common stock.................. 731,428 -- 557,664 --
Options converted to Class A common stock................... 168,176 -- 136,436 --
---------------- ------------ ---------------- ------------
Weighted average common shares before dilutive effect of
common stock equivalents.................................. 85,828,141 85,224,360 85,769,731 85,224,360
---------------- ------------ ---------------- ------------
</TABLE>
<PAGE>
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 JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Common stock equivalents:
Warrants.................................................... 28,049,188 28,779,374 28,226,498 28,775,600
Options..................................................... 1,633,649 1,418,826 1,710,959 1,330,236
Convertible Preferred Stock................................. 633,369 734,225 683,797 734,225
---------------- ------------ ---------------- ------------
Weighted average common shares.............................. 116,144,347 116,156,785 116,390,985 116,064,421
---------------- ------------ ---------------- ------------
---------------- ------------ ---------------- ------------
DILUTED EARNINGS PER SHARE:
Net (loss) income per share................................. $ (0.03)(a) $ 0.24 $ (0.02)(a) $ 0.22
Less preferred stock dividends per share.................... -- -- -- --
---------------- ------------ ---------------- ------------
Net (loss) income per share available to common
stockholders.............................................. $ (0.03)(a) $ 0.24 $ (0.02)(a) $ 0.22
---------------- ------------ ---------------- ------------
---------------- ------------ ---------------- ------------
</TABLE>
- --------------------------
(a) This calculation is presented in accordance with the Securities Exchange Act
of 1934. Under SFAS No. 128, since the Company had losses from continuing
operations in 1998, the common stock equivalents were excluded from the
computation of diluted earnings per share because the inclusion of the
potential shares would be antidilutive. Diluted earnings per share excluding
the antidilutive effect of the common stock equivalents would generate a net
loss per share available to common stockholders of $0.04 and $0.03 for the
three and six months ended June 30, 1998, respectively.
<PAGE>
EXHIBIT 23.1
[ARTHUR ANDERSEN LLP LOGO]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
To Univision Communications Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated February 6, 1998
included in Univision Communications Inc.'s Form 10-K for the year ended
December 31, 1997 and to all references to our Firm included in this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
- -----------------------
Roseland, New Jersey
July 27, 1998
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,085
<SECURITIES> 0
<RECEIVABLES> 149,177
<ALLOWANCES> 9,217
<INVENTORY> 0
<CURRENT-ASSETS> 176,080
<PP&E> 179,865
<DEPRECIATION> 46,780
<TOTAL-ASSETS> 998,532
<CURRENT-LIABILITIES> 143,764
<BONDS> 465,230
9,090
0
<COMMON> 863
<OTHER-SE> 375,639
<TOTAL-LIABILITY-AND-EQUITY> 998,532
<SALES> 278,681
<TOTAL-REVENUES> 278,681
<CGS> 111,817
<TOTAL-COSTS> 111,817
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 920
<INTEREST-EXPENSE> 18,765
<INCOME-PRETAX> (9,306)
<INCOME-TAX> (6,793)
<INCOME-CONTINUING> (2,513)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,513)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
