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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
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FOR THE QUARTER ENDED MARCH 31, 1998 COMMISSION FILE NUMBER: 001-12223
UNIVISION COMMUNICATIONS INC.
(Exact Name of Registrant as specified in its charter)
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DELAWARE NO. 95-4398884
(State of Incorporation) (I.R.S. Employer Identification)
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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 46,178,726 shares of Class A Common Stock, 22,097,898 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 April 13, 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 March 31, 1998 and December 31, 1997........................ 5
Condensed Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997... 6
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 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 6. Exhibits and Reports on form 8-K................................................................. 15
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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:
"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, that 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,
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 and
amortization.
"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.
2
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"Univision" or the "Company" means Univision Communications Inc. ("UCI") and
its wholly owned subsidiaries.
"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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MARCH 31, DECEMBER 31,
1998 1997
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(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 18,525 $ 10,660
Short-term investment............................................................... -- 94
Accounts receivable, less allowance for doubtful accounts of $8,901 in 1998 and
$8,584 in 1997.................................................................... 86,869 116,849
Program rights...................................................................... 5,594 5,650
Prepaid expenses and other.......................................................... 5,955 5,501
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Total current assets.............................................................. 116,943 138,754
Property and equipment, less accumulated depreciation of $41,795 in 1998 and $37,518
in 1997.............................................................................. 128,850 123,853
Intangible assets, less accumulated amortization of $187,137 in 1998 and $176,274 in
1997................................................................................. 618,660 630,828
Deferred financing costs, less accumulated amortization of $2,393 in 1998 and $1,973
in 1997.............................................................................. 8,100 8,520
Deferred income taxes................................................................. 52,777 53,046
Note receivable-Entravision........................................................... 10,000 10,000
Investment in unconsolidated subsidiary............................................... 15 --
Other assets.......................................................................... 2,800 2,754
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Total assets...................................................................... $ 938,145 $ 967,755
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............................................ $ 60,983 $ 74,632
Accrued interest.................................................................... 1,048 1,164
Accrued license fee................................................................. 6,841 5,374
Obligations for program rights...................................................... 438 894
Current portion of long-term debt................................................... 57,947 61,965
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Total current liabilities......................................................... 127,257 144,029
Long-term debt including accrued interest, net of current portion..................... 409,948 423,923
Capital lease obligations, net of current portion..................................... 36,214 36,907
Other long-term liabilities........................................................... 3,924 4,547
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Total liabilities................................................................. 577,343 609,406
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Redeemable convertible 6% preferred stock, $.01 par value, with a conversion price of
$16.34375 to Class A Common Stock (12,000 shares issued and outstanding)............. 12,120 12,120
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Stockholders' equity:
Preferred stock, $.01 par value (10,000,000 shares authorized)...................... -- --
Common stock, $.01 par value (197,660,000 shares authorized; 86,113,788 and
85,299,360 shares issued and outstanding at March 31, 1998 and December 31, 1997,
respectively)..................................................................... 861 853
Paid-in-capital..................................................................... 334,463 332,328
Retained earnings................................................................... 13,358 13,048
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Total stockholders' equity.......................................................... 348,682 346,229
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Total liabilities and stockholders' equity............................................ $ 938,145 $ 967,755
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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 MONTHS ENDED MARCH 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
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1998 1997
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Net revenues...................................................................... $ 105,145 $ 85,601
Direct operating expenses......................................................... 42,341 33,542
Selling, general and administrative expenses...................................... 36,151 29,923
Depreciation and amortization..................................................... 15,560 13,748
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Operating income.................................................................. 11,093 8,388
Interest expense.................................................................. 9,505 10,261
Amortization of deferred financing costs.......................................... 420 374
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Income (loss) before taxes........................................................ 1,168 (2,247)
Provision for income taxes........................................................ 678 23
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Net income (loss)................................................................. 490 (2,270)
Preferred stock dividends......................................................... (180) --
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Net income (loss) available to common stockholders................................ $ 310 $ (2,270)
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BASIC EARNINGS PER SHARE
Net income (loss) per share....................................................... $ 0.00 $ (0.03)
Less preferred stock dividends per share.......................................... 0.00 0.00
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Net income (loss) per share available to common stockholders...................... $ 0.00 $ (0.03)
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Weighted average common shares outstanding........................................ 85,709,750 85,224,360
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DILUTED EARNINGS PER SHARE
Net income (loss) per share....................................................... $ 0.00 $ (0.03)
Less preferred stock dividends per share.......................................... 0.00 0.00
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Net income (loss) per share available to common stockholders...................... $ 0.00 $ (0.03)
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Weighted average common shares outstanding........................................ 116,636,051 85,224,360
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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 THREE MONTHS ENDED MARCH 31,
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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1998 1997
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Net income (loss)......................................................................... $ 490 $ (2,270)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation.............................................................................. 4,697 3,779
Amortization of intangible assets and deferred financing costs............................ 11,283 10,343
Changes in assets and liabilities:
Accounts receivable..................................................................... 29,980 15,711
License fees payable.................................................................... 15,133 11,229
Payment of license fees................................................................. (13,666) (10,603)
Program rights.......................................................................... 56 (820)
Deferred taxes.......................................................................... 269 --
Prepaid expenses and other assets....................................................... (500) 1,299
Accounts payable and accrued liabilities................................................ (12,150) (11,126)
Accrued interest........................................................................ 1,989 2,980
Obligations for program rights.......................................................... (456) 184
Other, net.............................................................................. (496) 114
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Net cash provided by operating activities................................................. 36,629 20,820
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Cash flow from investing activities:
Capital expenditures.................................................................... (9,165) (4,906)
Investment in unconsolidated subsidiary................................................. (15) --
Acquisition of Sacramento............................................................... -- (28,761)
Organization costs...................................................................... -- (13)
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Net cash used in investing activities..................................................... (9,180) (33,680)
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Cash flow from financing activities:
Proceeds from issuance of long-term debt................................................ 15,000 44,000
Payments of long-term debt.............................................................. (35,791) (23,604)
Exercise of options..................................................................... 1,340 --
Exercise of warrants.................................................................... 47 --
Preferred stock dividends paid.......................................................... (180) --
Tax payments to Partners................................................................ -- (1,500)
Deferred financing costs................................................................ -- (13)
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Net cash (used in) provided by financing activities....................................... (19,584) 18,883
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Net increase in cash...................................................................... 7,865 6,023
Cash and cash equivalents, beginning of year.............................................. 10,660 11,588
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Cash and cash equivalents, end of period.................................................. $ 18,525 $ 17,611
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Supplemental disclosure of cash flow information:
Interest paid during the year........................................................... $ 7,576 $ 7,329
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</TABLE>
See notes to condensed consolidated financial statements.
7
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 has recognized pre-acquisition deferred taxes related to 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.
8
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
1. ORGANIZATION AND ACQUISITION (CONTINUED)
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 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 March 31, 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. REPORTING COMPREHENSIVE INCOME
Effective with fiscal years beginning after December 15, 1997, companies are
required to adopt the Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income." The Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Comprehensive income includes net
income and other comprehensive income, which comprises certain specific items
previously reported directly in stockholders' equity. Other comprehensive income
comprises items such as unrealized gains and losses on debt and equity
securities classified as available-for-sale securities, minimum pension
liability adjustments, and foreign currency translation adjustments. Since the
Company does not currently have any of these other comprehensive income items,
the Company's comprehensive income equals its net income. Therefore, SFAS No.
130 has no impact on the way the Company reports or has reported its financial
statements.
3. HOME SHOPPING NETWORK EN ESPANOL LLC JOINT VENTURE
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 will create and operate 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 limited partnership. The annual capital contributions estimated
to be required to be made by each party under the agreement are approximately
$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
will account for its investment in the Home Shopping Network En Espanol LLC
under the equity method.
9
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
4. OPTIONS AND WARRANTS
During the three months ended March 31, 1998, 83,000 options were exercised
for 83,000 shares of Class A Common Stock, resulting in an increase to Common
Stock of $830 and to Paid-in-capital of $2,095,000, which included a tax benefit
associated with the transactions of $756,000. In addition, during the three
months ended March 31, 1998, 731,428 warrants were exercised for 731,428 shares
of Class A Common Stock, resulting in an increase to Common Stock of $7,314 and
to Paid-in-capital of $39,782.
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.
THREE MONTHS ENDED MARCH 31, 1998, ("1998") COMPARED TO THREE MONTHS ENDED MARCH
31, 1997, ("1997")
REVENUES. Net revenues increased to $105,145,000 in 1998 from $85,601,000
in 1997, an increase of $19,544,000 or 22.8%. The Network accounted for
$9,083,000 or 46.5% of the increase, and the O&Os and Galavision accounted for
$9,690,000 or 49.6% and $771,000 or 3.9%, respectively. The O&Os' increase,
which was due to an increase of approximately 14% in the number of spots sold
and a 3% increase in the price for advertising spots, was primarily derived from
New York, Los Angeles, Houston and Miami, with additional increases at all other
O&Os except for San Antonio and Albuquerque. The Network's increase is due to an
increase of approximately 36% in the price of advertising spots, offset in part
by a decrease in volume of approximately 8%.
EXPENSES. Direct operating expenses, which include corporate charges of
$83,000 and $70,000 in 1998 and 1997, respectively, increased to $42,341,000 in
1998 from $33,542,000 in 1997, an increase of $8,799,000 or 26.2%. The increase
is primarily due to higher license fees paid or payable to Televisa and
Venevision of $3,908,000. 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 14.4%
in 1998. In 1998 the new morning show, DESPIERTA AMERICA, which began airing
mid-April 1997, generated revenues of approximately $3,400,000 and accounted for
approximately $800,000 of the total increase in programming costs over 1997. In
addition, programming costs increased by approximately $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
$1,700,000, which includes $317,000 from the acquisitions of the Sacramento
station in March 1997 and the Bakersfield station in October 1997 and
approximately $300,000 related to news coverage of the Pope's 1998 visit to
Cuba. As a percentage of net revenues, direct operating expenses increased from
39.2% in 1997 to 40.3% in 1998.
Selling, general and administrative expenses, which include corporate
charges of $2,559,000 and $2,191,000 in 1998 and 1997, respectively, increased
to $36,151,000 in 1998 from $29,923,000 in 1997, an increase of $6,228,000 or
20.8%. The acquisitions in Sacramento and Bakersfield accounted for $974,000 of
the increase. The remaining increases are due in large part to increased selling
costs of $1,702,000, associated with increased sales, staff levels and
compensation costs, and increased research costs of $1,064,000, 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 $500,000
associated with the renewal of its Nielsen contracts and approximately $600,000
related to its retirement savings plan due to an increase
11
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in the Company's matching contribution. As a percentage of net revenues,
selling, general and administrative expenses decreased from 35.0% in 1997 to
34.4% in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$15,560,000 in 1998 from $13,748,000 in 1997, an increase of $1,812,000 or
13.2%. The increase is due primarily to an increase in depreciation related to
increased capital expenditures and an increase in goodwill amortization.
OPERATING INCOME. As a result of the above factors, operating income
increased to $11,093,000 in 1998 from $8,388,000 in 1997, an increase of
$2,705,000 or 32.2%. As a percentage of net revenues, operating income increased
from 9.8% in 1997 to 10.6% in 1998.
INTEREST EXPENSE. Interest expense decreased to $9,505,000 in 1998 from
$10,261,000 in 1997, a decrease of $756,000 or 7.4%. The decrease is due
primarily to lower bank borrowings during 1998 as compared to 1997.
PROVISION FOR INCOME TAXES. In 1998 the Company reported an income tax
provision of $678,000, which comprises federal, state and deferred taxes. In
1997 the Company reported an income tax provision of $23,000 for state taxes.
NET INCOME (LOSS). As a result of the above factors, net income increased
to $490,000 in 1998 from a net loss of $2,270,000 in 1997, an improvement of
$2,760,000.
BROADCAST CASH FLOW. Broadcast cash flow increased to $29,295,000 in 1998
from $24,397,000 in 1997, an increase of $4,898,000 or 20.1%. As a percentage of
net revenues, broadcast cash flow decreased from 28.5% in 1997 to 27.9% 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 14.4% in 1998. Had
the revised license fee been in effect in 1997, the license fee would have
increased by $1,379,000 and broadcast cash flow would have been $23,018,000 in
1997. On a year-to-year basis, broadcast cash flow would have increased by
$6,277,000 or 27.3%, from $23,018,000 in 1997 to $29,295,000 in 1998. As a
percentage of net revenues, broadcast cash flow would have increased from 26.9%
in 1997 to 27.9% in 1998.
CORPORATE CHARGES. Corporate charges increased to $2,642,000 in 1998 from
$2,261,000 in 1997, an increase of $381,000 or 16.9%. 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 2.5% in 1998.
EBITDA. EBITDA increased to $26,653,000 in 1998 from $22,136,000 in 1997,
an increase of $4,517,000 or 20.4%. As a percentage of net revenues, EBITDA
decreased from 25.9% in 1997 to 25.3% 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 $1,379,000 and EBITDA
would have been $20,757,000 in 1997. Thus, EBITDA would have increased by
$5,896,000 or 28.4%, from $20,757,000 in 1997 to $26,653,000 in 1998. As a
percentage of net revenues, EBITDA would have increased from 24.2% in 1997 to
25.3% 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.
Capital expenditures, which include UTG, the Network and Galavision, totaled
$9,165,000 in 1998 and $4,906,000 in 1997. These amounts exclude the capitalized
transponder lease obligations of the
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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 (see below), 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 $20,000,000 per
annum.
At March 31, 1998, the Bank Facility consisted of a $337,750,000 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.
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. 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 March 31, 1998, the interest rate applicable to the Company's Eurodollar
loans was approximately 6.20%, which includes an interest rate margin cost of
0.50%. 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, which are
determined by the Eurodollar interest rate plus a margin of 0.35% to 1.00%. 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.
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 $52,800,000 to
offset future taxes payable arising from operations. In addition, at March 31,
1998, the Company had
13
<PAGE>
approximately $508,500,000 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 has 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 during May, June, August and September 1998. In
addition to these payments and consistent with past coverage of the World Cup
Games, the Company will be responsible for all costs associated with
advertising, promotion and broadcast of the World Cup Games, as well as the
production of certain television programming related to the games. The funds for
these payments are expected to come from income from operations and/or
borrowings from existing bank facilities.
The Company and Televisa reached an agreement to each produce three
thirteen-week new non-NOVELA programs. Both Univision and Televisa shall 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 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 will create and operate 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 limited partnership. 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 will
account 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.
The Company is continuing to evaluate and address the potential impact of
the Year 2000 issue on its operations. The Company is incurring internal staff
costs and expects to incur consulting and other expenses related to this issue.
The Company cannot currently estimate the amount of these costs, which could be
material to its results of operations and financial position. If not resolved,
this issue could have a significant adverse impact on the Company's operations.
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. 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.
14
<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.
15
<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.
UNIVISION COMMUNICATIONS INC.
(Registrant)
By /s/ GEORGE W. BLANK
------------------------------------
George W. Blank
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
April 29, 1998
Los Angeles, California
16
<PAGE>
EXHIBIT 11.0
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
COMPUTATION OF HISTORICAL BASIC AND DILUTED EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
BASIC EARNINGS PER SHARE
Net income (loss)................................................................ $ 490 $ (2,270)
Less preferred stock dividends................................................... (180) (22)
-------------- --------------
Net income (loss) available to common stockholders............................... $ 310 $ (2,292)
-------------- --------------
-------------- --------------
Number of shares on which net income (loss) per share is based:
Historical weighted average common shares outstanding.......................... 253,332 253,332
Reorganization stock dividend (227.010528 shares for each common share)........ 57,509,030 57,509,030
Reorganization shares issued................................................... 8,670,998 8,670,998
Public offering shares issued.................................................. 16,340,000 16,340,000
Additional shares issued to underwriters....................................... 2,451,000 2,451,000
Warrants converted to Class A common stock..................................... 381,968 --
Options converted to Class A common stock...................................... 103,422 --
-------------- --------------
Weighted average common shares................................................... 85,709,750 85,224,360
-------------- --------------
-------------- --------------
BASIC EARNINGS PER SHARE:
Net income (loss) per share...................................................... $ 0.00 $ (0.03)
Less preferred stock dividends per share......................................... 0.00 0.00
-------------- --------------
Net income (loss) per share available to common stockholders..................... $ 0.00 $ (0.03)
-------------- --------------
-------------- --------------
DILUTED EARNINGS PER SHARE
Net income (loss)................................................................ $ 490 $ (2,270)
Less preferred stock dividends................................................... -- --
-------------- --------------
Net income (loss) available to common stockholders............................... $ 490 $ (2,270)
-------------- --------------
-------------- --------------
Number of shares on which net income (loss) per share is based:
Historical weighted average common shares outstanding.......................... 253,332 253,332
Reorganization stock dividend (227.010528 shares for each common share)........ 57,509,030 57,509,030
Reorganization shares issued................................................... 8,670,998 8,670,998
Public offering shares issued.................................................. 16,340,000 16,340,000
Additional shares issued to underwriters....................................... 2,451,000 2,451,000
Warrants converted to Class A common stock..................................... 381,968 --
Options converted to Class A common stock...................................... 103,422 --
-------------- --------------
Weighted average common shares before dilutive effect of common stock
equivalents..................................................................... 85,709,750 85,224,360
-------------- --------------
Common stock equivalents:
Warrants....................................................................... 28,403,808 28,771,826
Options........................................................................ 1,788,268 1,241,642
Convertible Preferred Stock.................................................... 734,225 734,225
-------------- --------------
Weighted average common shares................................................... 116,636,051 115,972,053
-------------- --------------
-------------- --------------
DILUTED EARNINGS PER SHARE:
Net income (loss) per share...................................................... $ 0.00 $ (0.02)(a)
Less preferred stock dividends per share......................................... 0.00 0.00
-------------- --------------
Net income (loss) per share available to common stockholders..................... $ 0.00 $ (0.02)(a)
-------------- --------------
-------------- --------------
</TABLE>
- ------------------------
(a) This calculation is presented in accordance with the Securities Exchange Act
of 1934. Under SFAS No. 128, diluted earnings per share would generate a net
loss per share of $0.03 in 1997.
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNIVISION
COMMUNICATION 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 18,525
<SECURITIES> 0
<RECEIVABLES> 95,770
<ALLOWANCES> 8,901
<INVENTORY> 0
<CURRENT-ASSETS> 116,943
<PP&E> 170,645
<DEPRECIATION> 41,795
<TOTAL-ASSETS> 938,145
<CURRENT-LIABILITIES> 127,257
<BONDS> 446,162
12,120
0
<COMMON> 861
<OTHER-SE> 347,821
<TOTAL-LIABILITY-AND-EQUITY> 938,145
<SALES> 105,145
<TOTAL-REVENUES> 105,145
<CGS> 42,341
<TOTAL-COSTS> 42,341
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 377
<INTEREST-EXPENSE> 9,505
<INCOME-PRETAX> 1,168
<INCOME-TAX> 678
<INCOME-CONTINUING> 490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 490
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
