<PAGE>
PROSPECTUS
11,500,000 SHARES
[LOGO]
UNIVISION COMMUNICATIONS INC.
CLASS A COMMON STOCK
-----------------
OF THE SHARES OF CLASS A COMMON STOCK OF UNIVISION COMMUNICATIONS INC. (THE
"COMPANY") OFFERED HEREBY, 8,912,840 SHARES ARE BEING SOLD BY GRUPO TELEVISA,
S.A. AND ITS AFFILIATES ("TELEVISA" OR "SELLING STOCKHOLDER") AND 2,587,160
SHARES WILL BE ISSUED UPON THE EXERCISE BY THE UNDERWRITERS OF WARRANTS BEING
ACQUIRED FROM TELEVISA. SEE "PRINCIPAL AND SELLING STOCKHOLDER." OF THE
11,500,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, 10,350,000
SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE
U.S. UNDERWRITERS AND 1,150,000 SHARES ARE BEING OFFERED INITIALLY
OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS.
SEE "UNDERWRITERS." THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THE
SALE OF THE SHARES BEING OFFERED HEREBY ALTHOUGH IT WILL RECEIVE
PROCEEDS FROM THE EXERCISE OF THE WARRANTS BY THE UNDERWRITERS.
FOLLOWING THE OFFERING, TELEVISA WILL CONTINUE TO OWN 5,742 SHARES OF
CLASS T COMMON STOCK AND WARRANTS TO PURCHASE 11,131,690 SHARES OF
CLASS T COMMON STOCK AND, AS A RESULT, WILL CONTINUE TO HAVE THE
RIGHT TO ELECT ONE MEMBER TO THE BOARD AND TO HAVE CERTAIN ACTIONS
OF THE BOARD SUBJECT TO ITS CONSENT. SEE "DESCRIPTION OF CAPITAL
STOCK."
THE CLASS A COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE
SYMBOL "UVN." ON OCTOBER 12, 1998, THE LAST REPORTED SALE PRICE OF THE CLASS A
COMMON STOCK WAS $22 1/16 PER SHARE.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
PRICE $21 A SHARE
-----------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND SELLING
TO PUBLIC COMMISSIONS(1) STOCKHOLDER(2)(3)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $21.00 $0.84 $20.16
TOTAL (4).......................................... $241,500,000 $9,660,000 $231,840,000
</TABLE>
- ----------
(1) THE COMPANY AND THE SELLING STOCKHOLDER HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT $540,000.
(3) THE SELLING STOCKHOLDER WILL RECEIVE $0.06439 LESS PER SHARE, OR AN
AGGREGATE OF $166,587, FOR THE WARRANTS IT SELLS, WHICH WILL BE PAID TO THE
COMPANY. TOTAL PROCEEDS TO THE SELLING STOCKHOLDER INCLUDES SUCH AMOUNT.
(4) THE SELLING STOCKHOLDER HAS GRANTED THE U.S. UNDERWRITERS AN OPTION,
EXERCISABLE WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO 1,725,000
ADDITIONAL SHARES, ALL OF WHICH ARE ISSUABLE UPON EXERCISE OF WARRANTS BY
TELEVISA, OF CLASS A COMMON STOCK SOLELY TO COVER OVERALLOTMENTS, IF ANY.
IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE TO
PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO SELLING
STOCKHOLDER WILL BE $277,725,000, $11,109,000, AND $266,616,000,
RESPECTIVELY. SEE "UNDERWRITERS."
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY LATHAM & WATKINS, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT DELIVERY
OF THE SHARES WILL BE MADE ON OR ABOUT OCTOBER 16, 1998, AT THE OFFICE OF MORGAN
STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR IN
IMMEDIATELY AVAILABLE FUNDS.
MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
<PAGE>
GOLDMAN, SACHS & CO.
OCTOBER 13, 1998
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED
OR INCORPORATED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY
OTHER THAN THE CLASS A COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE CLASS A COMMON
STOCK OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
-------------------
NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY OR BY
ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE CLASS A COMMON STOCK
OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY JURISDICTION WHERE
ACTION FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS
INTO WHOSE POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE COMPANY, THE
SELLING STOCKHOLDER AND THE UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO
OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF THE CLASS A COMMON STOCK AND THE
DISTRIBUTION OF THIS PROSPECTUS.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 9
Use of Proceeds................................ 15
Dividend Policy................................ 15
Capitalization................................. 16
Market Prices of Common Stock.................. 16
Selected Historical Financial Data............. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
Business....................................... 30
Management..................................... 52
<CAPTION>
PAGE
---------
<S> <C>
Certain Transactions........................... 54
Principal and Selling Stockholders............. 56
Description of Capital Stock................... 59
Underwriters................................... 65
Legal Matters.................................. 69
Experts........................................ 69
Available Information.......................... 69
Incorporation of Certain Documents by
Reference.................................... 69
Index to Consolidated Financial Statements..... F-1
Glossary....................................... G-1
</TABLE>
-------------------
INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WHICH
CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY,"
"WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE
MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE PROSPECTUS CONSTITUTE
CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH
FORWARD-LOOKING STATEMENTS.
-------------------
In this Prospectus, references to "dollars" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, territories, possessions and all areas subject to its
jurisdiction.
-------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE CLASS A COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I) DOES NOT GIVE EFFECT
TO THE EXERCISE OF THE OVER-ALLOTMENT OPTION GRANTED TO THE UNDERWRITERS AS
DESCRIBED IN "UNDERWRITERS," (II) FOR ALL PERIODS PRIOR TO OCTOBER 2, 1996 IS
PRESENTED ON A PRO FORMA BASIS GIVING EFFECT TO THE REORGANIZATION, (III) GIVES
EFFECT TO THE TWO-FOR-ONE STOCK SPLIT THAT WAS EFFECTED ON JANUARY 12, 1998, AND
(IV) IS BASED ON SHARE OWNERSHIP AND OUTSTANDING SHARES OF CAPITAL STOCK AS OF
JUNE 30, 1998. UNLESS OTHERWISE INDICATED, ALL REFERENCES TO THE "COMPANY" AND
"UNIVISION" REFER TO UNIVISION COMMUNICATIONS INC. AND ITS CONSOLIDATED
SUBSIDIARIES, INCLUDING ITS OWNED AND OPERATED TELEVISION STATIONS, THE NETWORK
AND GALAVISION. UNLESS OTHERWISE INDICATED, CAPITALIZED TERMS USED HEREIN ARE
DEFINED IN THE GLOSSARY ON PAGE G-1, ALL RATINGS AND AUDIENCE SHARE DATA ARE
DERIVED FROM REPORTS PRODUCED BY NIELSEN MEDIA RESEARCH AND DEMOGRAPHIC DATA ARE
DERIVED FROM THE DRI STUDY.
THE COMPANY
Univision is the leading Spanish-language television broadcaster in the
U.S., reaching more than 92% of all Hispanic Households and having an
approximate 84% share of the U.S. Spanish-language network television audience
through June 1998. The Company's Network, which is the most watched television
network (English- or Spanish-language) among Hispanic Households, provides the
Univision Affiliates with 24 hours per day of Spanish-language programming with
a prime time schedule of substantially all first run programming (I.E., no
reruns) throughout the year. As a leading, vertically-integrated television
broadcaster, Univision owns and operates 13 full-power (12 of which are
affiliated with the Univision Network) and eight low-power UHF stations as of
June 30, 1998, representing approximately 80% of its Network broadcast
distribution. These full-power O&Os are located in 12 of the top 15 DMAs in
terms of numbers of Hispanic Households--Los Angeles, New York, Miami, San
Francisco, Chicago, Houston, San Antonio, Dallas, Fresno, Phoenix, Sacramento
and Albuquerque. As of June 30, 1998, the Company had Affiliation Agreements
with an additional 10 full-power and 17 low-power Affiliated Stations and
approximately 835 Cable Affiliates. Each of the Company's full-power O&Os and
Affiliated Stations ranks first in Spanish-language television viewership in its
DMA. The Company also owns Galavision, a Spanish-language cable network that had
approximately 2.6 million Hispanic subscribers, representing approximately 59%
of all Hispanic Households that subscribed to cable television in 1997.
The Company believes that the breadth and diversity of its programming
provides it with a competitive advantage over both Spanish-language broadcasters
and English-language broadcasters in appealing to Hispanic viewers. The
Company's programming is similar to that of major English-language networks and
includes NOVELAS (long-term mini-series), national and local newscasts, variety
shows, children's programming, mini-series, musical specials, movies, sporting
events and public affairs programs. The Televisa Program License Agreement
provides the Company with long-term access to first-rate programming produced by
Televisa. Televisa-produced NOVELAS are popular throughout the world and are
among the Company's highest rated programs. Univision also produces a variety of
programs specifically tailored to meet the tastes, preferences and information
needs of the Hispanic audience, including national and local news and the highly
successful programs SABADO GIGANTE, CRISTINA and PRIMER IMPACTO. The Company's
three-hour morning show, DESPIERTA AMERICA--"Wake Up America"--broadcasts news,
talk and current events nationally, Monday through Friday from 7:00 a.m. to
10:00 a.m. The Company has also televised World Cup Soccer since 1978, including
all 64 games of the widely watched 1998 World Cup. In 1996 the Company began
televising the Sunday "Game of the Week" for Major League Soccer. The Company
has also entered into an agreement with Televisa that provides for each party,
at its own expense, to produce three separate 13 week non-NOVELA programs that
the Company and Televisa will have the right to broadcast and exploit, subject
to the Televisa Program License Agreement and International Program Rights
Agreement.
3
<PAGE>
In 1992, A. Jerrold Perenchio, Televisa and Venevision formed the Company
and UNHP, which acquired UTG and the Network, respectively, in the Acquisition.
A. Jerrold Perenchio has over 25 years of experience in the U.S. media and
communications industry and has been the chief executive officer or owner of a
number of successful entities, including Chartwell Artists, Tandem Productions,
Inc., Embassy Communications and Loews Theaters. Mr. Perenchio also owned and
operated Spanish-language television stations in Los Angeles and New York from
1975 to 1986. Televisa, which is the world's largest producer of
Spanish-language television programs, is the leading media and entertainment
company in Mexico with an approximate 77% share of Mexico's viewing audience
during the first six months of 1998. Venevision is Venezuela's leading
television network with an approximate 62% share of its viewing audience during
the first six months of 1998. In October 1996, the Company acquired UNHP as part
of the Reorganization prior to the Company's initial public offering (the
"Initial Offering").
Since the Acquisition, the Company's operating performance has improved
significantly with net revenues and EBITDA increasing to $459.7 million and
$163.1 million, respectively, for the year ended December 31, 1997, representing
compound annual growth rates of 17% and 30%, respectively, from the 1992
operating results of the Company and its predecessor. For the six months ended
June 30, 1998, net revenues and EBITDA increased by 34.0% and 25.4%,
respectively, to $278.7 million and $84.7 million compared to the same period in
1997. In addition, from May 1993 to May 1998 the Company increased its audience
share of Spanish-language network television viewing from 57% to 84% and
increased its share of the 20 most widely watched programs among Hispanic
Households from 15% to 90%.
BUSINESS STRATEGY
Univision attributes its success to several factors, including emphasis on
popular, high quality programming produced by Televisa and Univision,
contracting with Nielsen to develop more accurate, credible rating systems to
measure Hispanic audience viewership, increasing acceptance by advertisers of
Spanish-language television, continued growth of the Hispanic audience and the
strengthening of the Company's management team with executives and sales
managers with extensive general market television and advertising experience.
The Company expects to continue to realize strong revenue and EBITDA growth by
capitalizing on the expected continued growth in advertising expenditures
targeted at the rapidly expanding Hispanic population. Specifically, the
Company's business strategy seeks to capitalize on the following factors and
competitive advantages:
LEADING AUDIENCE SHARE AMONG HISPANICS. The Company's emphasis on popular,
high quality programming has enabled it to achieve the highest ratings versus
all other broadcasters (English- or Spanish-language) among Hispanic television
viewers. For instance, in 1997, the Company had an 84% audience share of
Spanish-language television viewers and in May 1998 had 18 out of the top 20
most highly rated television programs (in Spanish or English) viewed by Hispanic
Households. Each of the Company's 22 full-power Broadcast Affiliates ranks first
in Spanish-language television viewership in its DMA.
INVESTMENT IN RESEARCH AND SALES MANAGEMENT. Prior to November 1992, there
were no Hispanic audience television rating services comparable to those
measuring television viewership in the general U.S. population. Beginning in
1992, Nielsen, pursuant to a contract with the Company, began delivering Nielsen
ratings measuring Hispanic viewership both at the Network and local DMA levels.
Because these Nielsen ratings provide advertisers with a more accurate and
reliable measure of Hispanic audience television viewership, they have been
important in allowing the Company to demonstrate to advertisers its ability to
reach the Hispanic audience. The Company believes that continued use of reliable
ratings will allow it to further increase its advertising rates and narrow the
gap which has historically existed between its audience share and its share of
advertising revenues. In addition, the Company has made significant investments
in experienced sales managers and account executives and has provided its sales
professionals with state-of-the-art research tools to continue to attract major
advertisers.
4
<PAGE>
HIGHLY FAVORABLE DEMOGRAPHIC TRENDS. The Hispanic population is currently
one of the fastest growing segments of the U.S. population, growing at
approximately five times the rate of the non-Hispanic population. The Hispanic
population, which consisted of 23.7 million people (9.5% of the U.S. population)
in 1990, is estimated to be 30.5 million people (11.3% of the U.S. population)
in 1998, and is expected to grow to 32.4 million people (11.8% of the U.S.
population) by 2000 and 42.4 million people (14.2% of the U.S. population) by
2010. Hispanic Households on average are larger and younger and spend a greater
percentage of their total household income on consumer products than
non-Hispanic households. Furthermore, approximately 68% of all Hispanics,
regardless of income or educational level, speak Spanish at home. This
percentage is expected to remain relatively constant through 2010. Consequently,
the number of Hispanics speaking Spanish in the home is expected to increase
significantly in the foreseeable future.
INCREASING ADVERTISER EXPENDITURES ON SPANISH-LANGUAGE
TELEVISION. According to published reports, total advertising expenditures
targeting Hispanics grew from $166 million in 1982 to approximately $1.4 billion
in 1997, representing a compound annual growth rate of 15.3%. Approximately 55%
of the $1.4 billion in advertising expenditures in 1997 targeting Hispanics was
directed towards Spanish-language television. The Company believes that major
advertisers have found that Spanish-language television advertising is a more
cost-effective means to target the growing Hispanic audience than
English-language broadcast media. During the 1997 upfront sales period,
Univision sold upfront network advertising for the first time and received
commitments from 37 advertisers for approximately $200 million in advertising.
During the 1998 upfront sales period, Univision received upfront commitments
from 58 advertisers for approximately $297 million in advertising. Since the
Acquisition, the Company added or substantially increased commitments from many
national advertisers, including Coca-Cola, Ford, Johnson & Johnson, MCI
Communications, McDonald's, Miller Brewing Company, Polaroid, Sears, Texaco, and
Toyota. The Company believes that advertiser interest in the Hispanic population
will continue to grow primarily because Hispanic consumer expenditures, which
are expected to total approximately $380 billion in 1998, are expected to grow
at an annual rate of 7.8% over the next 12 years to approximately $939 billion
in 2010, far outpacing the expected growth in total U.S. consumer expenditures.
STRATEGIC ACQUISITION AND INVESTMENT OPPORTUNITIES. The Company believes
that its knowledge of, and experience with, Hispanic audiences will enable it to
identify strategic acquisitions and successfully integrate them into the
Company's operations. The Company acquired full-power stations in two important
markets in 1994, Chicago and Houston, and one important market in 1997,
Sacramento, and has used its management expertise, programming and brand
identity to substantially improve the Company's performance in Chicago and
Houston. In addition, in 1996 the Company purchased a $10.0 million convertible
promissory note from Entravision that is convertible into an approximate 25%
equity interest in Entravision (the "Entravision Note"). Entravision owns 11 of
the Affiliated Stations, which represent approximately 14% of the Network's
distribution. The Company has entered into a letter of intent with Entravision,
pursuant to which the Company will sell its Albuquerque full-power and low-power
stations to Entravision in exchange for $1.0 million and an increase in the
exchange rate in the Entravision Note. If the contemplated transactions occur,
the Entravision Note held by the Company will be convertible into an approximate
27% equity interest in Entravision. To complement and capitalize on the
Company's existing business and management strengths, the Company expects to
explore both Spanish-language television and other media acquisition
opportunities. On March 30, 1998 a joint venture, which is jointly owned by the
Company and Home Shopping Network, began broadcasting a live Spanish-language
television shopping program in the United States. The program is currently
broadcast for three hours a day on Galavision from 11 a.m. to 2 p.m.
The Company was incorporated in Delaware in April 1992 as Perenchio
Communications, Inc. and its name was changed to Univision Communications Inc.
in June 1996. The Company's principal executive offices are located at 1999
Avenue of the Stars, Suite 3050, Los Angeles, California 90067, and its
telephone number is (310) 556-7676.
RISK FACTORS
See "Risk Factors" beginning on page 9 for factors that should be considered
in evaluating the Company and its business.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered:
U.S. Offering................... 10,350,000 shares
International Offering.......... 1,150,000 shares
Total......................... 11,500,000 shares
Common Stock to be outstanding
after the Offering:
Class A Common Stock
(a)(b)(c)..................... 59,234,947 shares
Class P Common Stock............ 20,743,233 shares
Class T and Class V Common Stock
(d)........................... 8,924,324 shares
Total (d)..................... 88,902,504 shares
Relative rights of Class A, Class
P, Class T and Class V Common
Stock (e)....................... The Class A, Class P, Class T and Class V Common Stock
(collectively, the "Common Stock") have identical
rights with respect to cash dividends and in the
distribution of proceeds in any sale or liquidation,
but have different voting rights. The Class A, Class T
and Class V Common Stock are entitled to one vote per
share, while the Class P Common Stock is entitled to
10 votes per share on all matters on which
stockholders are entitled to vote, except that in the
election of directors, holders of Class T and Class V
Common Stock, each voting as a separate class, elect
from one to three directors. A. Jerrold Perenchio will
have 77.8% of the combined voting power of the Class A
and Class P Common Stock and Series A Preferred and
75.3% of the voting power of all Common Stock and
Preferred Stock outstanding immediately after the
Offering. See "Risk Factors" and "Description of
Capital Stock."
Use of proceeds................... The Company will not receive any proceeds from the
Offering, although it will receive approximately
$166,587 upon exercise of the Warrants being sold by
the Selling Stockholder to the Underwriters, which
will be added to working capital.
New York Stock Exchange symbol.... "UVN"
</TABLE>
- ---------
(a) Excludes an aggregate of 10,824,000 shares of Class A Common Stock reserved
for future issuance under the Company's 1996 Performance Award Plan as of
June 30, 1998, 3,735,916 of which are vested and exercisable as of September
30, 1998.
(b) Excludes an aggregate of 55,230,609 shares of Class A Common Stock issuable
upon conversion of all of the Class P, Class T and Class V Common Stock (and
shares issuable upon exercise of the Warrants) to be outstanding after the
Offering. Also excludes 550,659 shares of Class A Common Stock issuable upon
conversion of the Series A Cumulative Convertible Preferred Stock ("Series A
Preferred"). See "Certain Transactions--Warrants" and "Description of
Capital Stock."
(c) Excludes 464,051 shares of Class A Common Stock held in the treasury as a
result of a contribution by Mr. Perenchio to fund a stock bonus plan for
certain employees of the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(d) Excludes 25,563,052 shares of Class A, Class T and Class V Common Stock
issuable upon the exercise of the Warrants. For restrictions on exercise of
the Warrants, see "Certain Transactions--Warrants." The Warrants are
exercisable at a price of $0.06439 per share. Total shares of Common Stock
outstanding assuming exercise of all Warrants and conversion of the Series A
Preferred is 115,016,215.
(e) The Class P, Class T and Class V Common Stock can be converted at any time
into Class A Common Stock and will automatically convert into Class A Common
Stock upon the occurrence of certain events. Additionally, the Class P,
Class T and Class V Common Stock will lose their special rights upon the
occurrence of certain events. See "Description of Capital Stock."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary historical consolidated financial data of the Company
for the year ended December 31, 1997 and for the six months ended June 30, 1997
and 1998 are derived from the Consolidated Financial Statements of the Company
included elsewhere herein. Such financial data should be read in conjunction
with the "Selected Historical Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and is qualified in
its entirety by reference to the Consolidated Financial Statements of the
Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1998
------------ ----------------- -----------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE
DATA):
Net revenues................................................. $ 459,741 $ 207,928 $ 278,681
Direct operating expenses.................................... 159,387 75,236 111,665
Selling, general and administrative expenses................. 126,076 59,836 76,500
Corporate charges............................................ 11,226 5,314 5,835
Depreciation and amortization................................ 58,640 28,052 31,432
------------ ----------------- -----------------
Operating income......................................... 104,412 39,490 53,249
Interest expense............................................. 40,147 20,435 18,765
Amortization of deferred financing costs..................... 1,630 792 839
Reversal of nonrecurring expense of acquired station......... (1,059) (1,059) --
Special bonus award (a)...................................... -- -- 42,608
Equity loss in unconsolidated affiliate...................... -- -- 343
Benefit for income taxes (a)................................. (19,465) (5,922) (6,793)
------------ ----------------- -----------------
Net income (loss)........................................ 83,159 25,244 (2,513)
Preferred stock dividends.............................. (561) (202) (336)
------------ ----------------- -----------------
Net income (loss) applicable to common stockholders...... $ 82,598 $ 25,042 $ (2,849)
------------ ----------------- -----------------
------------ ----------------- -----------------
Basic earnings per share:
Net income (loss) available to common stockholders......... $ 0.97 $ 0.29 $ (0.03)
Diluted earnings per share:
Net income (loss) available to common stockholders......... $ 0.71 $ 0.22 $ (0.03)
OTHER DATA (IN THOUSANDS):
Broadcast cash flow (b)(c)................................... $ 174,278 $ 72,856 $ 90,516
EBITDA (c)(d)................................................ 163,052 67,542 84,681
Cash flows provided by (used in)
Operating activities..................................... 105,519 37,038 33,194
Investing activities..................................... (78,579) (42,462) (19,247)
Financing activities..................................... (27,868) 8,961 (2,522)
Capital expenditures......................................... 35,199 13,690 18,432
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30,
1998
-------------------
<S> <C>
(UNAUDITED)
BALANCE SHEET DATA (IN THOUSANDS):
Total assets................................................................................. $ 998,532
Long-term debt (including current maturities)................................................ 523,256
Stockholders' equity......................................................................... 376,502
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1998
--------------- ----------------------- -----------------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
GROWTH RATE AND MARGIN DATA:
Net revenues growth..................................... 24.2% 21.7% 34.0%
Broadcast cash flow growth (c).......................... 16.4 10.2 24.2
Broadcast cash flow margin (c).......................... 37.9 35.0 32.5
EBITDA growth (c)(d).................................... 16.4 9.3 25.4
EBITDA margin (c)(d).................................... 35.5 32.5 30.4
</TABLE>
- ---------
(a) For a discussion of the special bonus award and its effect on the Company's
income tax provision, see 'Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(b) "Broadcast cash flow" is defined as broadcast operating income before
corporate charges, the special bonus award and depreciation and
amortization. The Company has presented broadcast cash flow data, which the
Company believes are comparable to the data provided by other companies in
the industry, because such data are commonly used as a measure of
performance for broadcast companies. However, broadcast cash flow should not
be construed as an alternative to operating income (as determined in
accordance with generally accepted accounting principles) as an indicator of
operating performance, or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) as a
measure of liquidity.
(c) 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% to 14.6% of net revenues in the six months
ended June 30, 1997 and 1998, respectively. Had the revised license fee been
in effect in 1997, the license fee in the six months ended June 30, 1997
would have increased by $3,218,000 and broadcast cash flow would have been
$69,638,000. On a year to year basis, broadcast cash flow would have
increased by $20,878,000 or 30.0%, from $69,638,000 in the six months ended
June 30, 1997 to $90,516,000 in the six months ended June 30, 1998, and as a
percentage of net revenues, broadcast cash flow would have decreased from
33.5% to 32.5% in the respective six month periods.
Had the revised license fee been in effect in the six months ended June 30,
1997, EBITDA would have been $64,324,000 in the six months ended June 30,
1997. On a year to year basis, EBITDA would have increased by $20,357,000 or
31.6%, from $64,324,000 in the six months ended June 30, 1997 to $84,681,000
in the six months ended June 30, 1998, and as a percentage of net revenues,
EBITDA would have decreased from 30.9% to 30.4% in the respective six month
periods.
(d) "EBITDA" consists of broadcast cash flow less corporate charges and is
commonly used in the broadcast industry to analyze and compare broadcast
companies on a basis of operating performance, leverage and liquidity.
EBITDA, as presented above, may not be comparable to similarly titled
measures of other companies unless such measures are calculated in
substantially the same fashion. EBITDA should not be construed as an
alternative to operating income (as determined in accordance with generally
accepted accounting principles) as an indicator of operating performance, or
to cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) as a measure of liquidity.
8
<PAGE>
RISK FACTORS
The following factors should be considered carefully in evaluating the
Company and its business before purchasing the shares of Class A Common Stock
offered hereby.
RELIANCE ON LIMITED SOURCES OF PROGRAMMING
A substantial part of the Company's operating strategy depends upon the
continued availability and commercial success of programming from Televisa. In
1997 the Company derived approximately 39% of its gross advertising sales from
programs produced by Televisa under the Televisa Program License Agreement; for
the six months ended June 30, 1998, this percentage was approximately 35%.
Televisa programming represented approximately 43% of the Network's non-repeat
broadcast hours in 1997 and approximately 41% for the six months ended June 30,
1998. If such programming were to become unavailable or unsuccessful for any
reason, including political or economic instability, foreign government
regulations, or other trade barriers in Mexico, no assurance can be given that
the Company could obtain or produce alternative programming of equivalent type
and popularity or on terms as favorable to the Company. Consequently, any
significant interruption in the supply or success of programming could have a
material adverse effect on the Company's financial condition and results of
operations.
INCREASED COST OF PROGRAMMING
From the closing of the Initial Offering through December 1996, aggregate
royalties to Televisa and Venevision equaled 11.0% of Combined Net Time Sales,
and increased to 13.5% of Combined Net Time Sales in 1997, and have increased to
15.0% of Combined Net Time Sales for 1998 and all years thereafter. Such
increase in royalties will have a negative effect on the Company's operating
margins. See "Business-- Program License Agreements."
POTENTIAL COMPETITION WITH OTHER BROADCASTERS USING TELEVISA PROGRAMMING
The Company has enjoyed virtually exclusive access in the United States to
most of Televisa's programs, both new and from Televisa's extensive library.
Univision has the right under the Televisa Program License Agreement to fill up
to 24 hours of programs per day on each of the Network's and Galavision's
program schedules, after giving effect to programs obtained from Venevision or
third parties and those produced by the Network. Univision also has the right of
first refusal for the Network and Galavision on substantially all other
Spanish-language programs Televisa desires to license in the United States.
Subject to these limitations, Televisa has the right to license Spanish-language
programs to other broadcasters in the United States. Very few Televisa programs
have been so licensed. No assurance can be given that in the future other U.S.
broadcasters will not license more of Televisa's programs, consistent with the
terms of the Televisa Program License Agreement.
Televisa has agreed with several partners, each of whom has substantial
assets, to develop and operate a direct broadcast satellite ("DBS") venture,
which will have a variety of program services, including program services
supplied by Televisa. Televisa is required to offer the Company the opportunity
to acquire a 50% economic interest in Televisa's interest in the joint venture
to the extent it relates to United States Spanish-language broadcasting. While
the Company believes that the Company will be offered such an interest, the
Company has not received any indication as to what the business terms relating
to such interest would be. Accordingly, the Company is not in a position to
state whether it would accept such an offer. If the venture secures a
significant viewership among Hispanic Households, it could have a material
adverse effect on Univision's financial condition and results of operations,
even if Univision decides to acquire this 50% economic interest.
Televisa asserts that the terms and conditions of its Program License
Agreement with Univision allow it, under certain circumstances, to provide any
DBS venture uplinking in Mexico for distribution in the United States with
Televisa program services which contain programs to which Univision believes it
has an
9
<PAGE>
exclusive first option in the United States. Univision disagrees with Televisa's
assertion and has notified Televisa of its intention to enforce its rights by
all appropriate means including, if necessary, legal action, if Televisa
provides such programs to any such DBS venture. There can be no assurance that
Televisa will desist from providing such programming to its or other DBS
ventures, or, if Televisa were not to desist, that Univision would prevail in
court.
SUBSTANTIAL COMPETITION
The broadcasting and cable business is highly competitive. The Company
competes for viewers and revenues with other Spanish-language and
English-language television stations and networks, including the four principal
English-language television networks, ABC, CBS, NBC and Fox, and in certain
cities, UPN and WB. Certain of these English-language networks and others have
begun producing Spanish-language programming and simulcasting certain
programming in English and Spanish. Several cable broadcasters have recently
commenced or announced their intention to commence, Spanish-language services as
well. The Company also competes for viewers and revenues with independent
television stations, other video media, suppliers of cable television programs,
direct broadcast systems (including two which were started in 1996 for broadcast
outside the United States and in which Televisa and Venevision have substantial
interests), newspapers, magazines, radio and other forms of entertainment and
advertising. The Univision Affiliates located near the Mexican border also
compete for viewers with television stations operated in Mexico, many of which
are affiliated with a Televisa network and owned by Televisa.
The Company's Restated Certificate of Incorporation allows the Company to
engage in all media related business. However, neither Televisa nor Venevision
will be required to offer opportunities to the Company other than those
involving Spanish-language television broadcasting or a Spanish-language
television network in the United States. Consequently, the Company could compete
directly with Televisa and Venevision, two of its Principal Stockholders, in
other media and languages. Televisa currently publishes and distributes
Spanish-language publications and sells Spanish-language recorded music in the
United States. See "Certain Transactions--Participation Agreement."
Telemundo Group, Inc. ("Telemundo") is the Company's largest competitor that
broadcasts Spanish-language television programming. As of December 31, 1997,
Telemundo served 60 markets in the United States as well as the Puerto Rican
market, and reached approximately 85% of all Hispanic Households. In most of the
Company's DMAs, the Univision Affiliate competes directly with a station owned
by or affiliated with Telemundo. In August 1998, a venture formed by Apollo
Investment Fund III L.P., Bastion Capital Fund L.P., the Sony Pictures
Entertainment unit of Sony Corp. and Liberty Media Corporation acquired
Telemundo. The Company cannot predict the effect of such acquisition on
Telemundo's competitive position vis-a-vis the Company.
Certain of the Company's competitors and the investors in the venture that
acquired Telemundo have greater financial resources than the Company. Increased
competition for viewers and revenues may have a material adverse effect on the
Company's financial condition and results of operations. The Company under
certain circumstances also could be required to compete against entities using
programming supplied by Televisa or Venevision. See "--Potential Competition
with Other Broadcasters Using Televisa Programming" and "Business--Program
License Agreements."
IMPACT OF NEW TECHNOLOGIES; POTENTIAL COST OF SPECTRUM
In recent years, the Federal Communications Commission ("FCC") has adopted
policies providing for authorization of new technologies and a more favorable
operating environment for certain existing technologies that have the potential
to provide additional competition for television stations. Further advances in
technology such as video compression, direct broadcast satellites and
programming delivered through fiber optic telephone lines could facilitate the
entry of new channels and encourage the development of increasingly specialized
"niche" programming. In particular, the Company may be affected by the
10
<PAGE>
development of digital television technology ("DTV") and the adoption of
standards and regulations for DTV by the FCC. The FCC is presently conducting
several rulemaking proceedings in order to implement DTV. Broadcasters are
required to complete the transition to DTV broadcasting by 2006. Such a
transition will require significant new capital investments in DTV broadcasting
capacity, and no assurance can be given that the Company will have adequate
financial resources to make such capital investments. Moreover, broadcasters who
elect not to engage in DTV broadcasting at an early stage could suffer a
significant competitive disadvantage. The Company is unable to predict the
effect that technological changes will have on the broadcast television industry
or on the future results of the Company's operations. See
"Business--Competition" and "Business--Federal Regulation and New Technologies."
MANDATORY REDEMPTION OF CLASS A COMMON STOCK
In order to comply with the FCC foreign ownership rules, the Company's
Restated Certificate of Incorporation permits the Company to redeem any shares
of Class A Common Stock owned by foreign nationals, foreign governments, or the
representatives of either (collectively, "Foreign Interests") and to take other
actions designed to ensure its compliance with the foreign ownership
restrictions of the Communications Act of 1934, as amended (the "Communications
Act"), and related FCC rules. The redemption price for such shares is equal to
the lesser of fair market value or, if such shares were purchased within one
year of the redemption date, such stockholder's purchase price, and may be paid
in cash, securities or a combination thereof. See "Business--Federal Regulation
and New Technologies" and "Description of Capital Stock."
FCC REGULATION
The Company's operations are subject to extensive and changing regulation on
an ongoing basis by the FCC, which enforces the Communications Act. Approval by
the FCC is required for the issuance, renewal and assignment of station
operating licenses and the transfer of control of station licensees. The FCC
licenses held by the Company will come up for renewal from time to time,
primarily within the next year, and such renewal may be subject to challenge on
a number of grounds. The FCC also regulates ownership and control by Foreign
Interests. In connection with obtaining the FCC's approval of the
Reorganization, the Company disclosed to the FCC the ownership and management
interests held by Televisa and Venevision. The Company also apprised the FCC of
provisions in the Company's Restated Certificate of Incorporation described in
"--Mandatory Redemption of Class A Common Stock." Accordingly, the Company
believes that it is in compliance with such provisions. However, if the Company
fails to comply with the foreign ownership restrictions in its Restated
Certificate of Incorporation, or if the Company departs from its representations
made to the FCC in connection with its obtaining the FCC's approval of the
Reorganization, the FCC has the ability to enforce such foreign ownership
restrictions through warnings, fines, cancellations of licenses or other
actions. While the Company seeks to comply with such restrictions, it cannot
predict the outcome of any such challenge or any other changes in regulatory
practices that may affect its business and prospects.
Congress and the FCC currently have under consideration and may in the
future adopt new laws or modify existing laws, regulations and policies
regarding a wide variety of matters, including the adoption of attribution
rules, further restricting broadcast station ownership, that could directly or
indirectly adversely affect the ownership and operation of the Company's
broadcast properties, as well as the Company's business strategies. For example,
pursuant to the "must-carry" provisions of the Cable Television Consumer
Protection and Competition Act of 1992, a broadcaster may demand carriage on a
specific channel on cable systems within its market. All of the full-power O&Os
are currently exercising their must-carry rights. Accordingly, elimination of
the must-carry provisions could have a material adverse effect on the Company.
The adoption of various measures could accelerate the existing trend toward
vertical integration in the media and home entertainment industries and cause
the Company to face more formidable competition in
11
<PAGE>
the future. The Telecommunications Act of 1996 (the "Telecom Act") modified or
eliminated restrictions on the offering of multiple network services by the
existing major television networks, restrictions on the participation by
regional telephone operating companies in cable television and other
direct-to-home video technologies, and certain restrictions on broadcast station
ownership. The Company is unable to predict whether these changes in the
regulatory environment could restrict or curtail the ability of the Company to
acquire, operate and dispose of stations or, in general, to compete profitably
with other operators of television stations and other media properties. The FCC
has acknowledged that DTV channel allotment may involve displacement of existing
low-power stations, particularly in major television markets. Accordingly, the
Company's low-power Broadcast Affiliates may be materially adversely affected.
See "Business-- Federal Regulation and New Technologies."
LOSS OF ADVERTISERS
The Company derives substantially all of its revenues from advertisers in
diverse industries. The Company's loss of one or more of its major advertisers
or the reduction in advertising expenditures of one or more of its major
advertisers, including as a result of a strike, a general economic downturn or
an economic downturn in one or more industries in one or more geographic areas
or a failure to agree on contractual terms with the Company, could have a
material adverse effect on the Company's results of operations. See
"--Substantial Competition" and "Business--Advertising."
POPULAR PROGRAM LOSS
The Company's productions SABADO GIGANTE, a variety show hosted by Mario
Kreutzberger, PRIMER IMPACTO, a news magazine program, and CRISTINA, a talk show
hosted by Cristina Saralegui, are among its most successful programs in terms of
advertising revenues generated. Approximately 21.8% and 20.6% of the total gross
advertising revenues generated by Univision in 1997 and in the six months ended
June 30, 1998, respectively, were accounted for by advertising aired on these
programs. The Company has agreed in principle with Mario Kreutzberger upon the
terms of, and is currently negotiating with Cristina Saralegui for, the renewal
of their respective contracts, which expire at the end of 1998. Although the
Company has access to replacement programs, including programs available under
the Program License Agreements, such replacement programs might not have as much
appeal to Univision's audience or advertisers. Consequently, the loss of any of
these popular programs, or a decrease in their popularity, could have a material
adverse effect on the Company's financial condition and results of operations.
POSSIBLE ADVERSE EFFECT OF RAPIDLY CHANGING CONDITIONS IN INDUSTRY
The Company's operations and ability to grow may be affected by numerous
factors, including changes in audience tastes, priorities of advertisers,
reductions in advertisers' budgets, new laws and governmental regulations and
policies, changes in broadcast technical requirements, technological advances,
proposals to eliminate the tax deductibility of certain advertising expenses
incurred by advertisers and changes in the willingness of financial institutions
and other lenders to finance television station acquisitions and operations. The
Company cannot predict which, if any, of these or other factors might have a
significant impact on the television broadcasting industry in the future, nor
can it predict what impact, if any, the occurrence of these or other events
might have on the Company's financial condition and results of operations.
CONCENTRATION OF SHARE OWNERSHIP AND CONTROL OF COMPANY
Mr. Perenchio beneficially owns all of the Company's outstanding Class P
Common Stock which gives him 10 votes per share compared to the one vote per
share of Class A Common Stock. The Class A and Class P Common Stock vote
together on all matters. Accordingly, immediately after this Offering, Mr.
Perenchio will have 77.8% of the voting power of all holders of Class A, Class P
Common Stock and
12
<PAGE>
Series A Preferred and 75.3% of the overall voting power of the Company, with
respect to substantially all matters submitted to a vote, including election of
directors, proxy contests, mergers, tender offers, open-market purchase programs
and other purchases of the Company's Common Stock that could give stockholders
of the Company the opportunity to realize a premium over the then prevailing
market price for their shares of Common Stock. The Class T and Class V Common
Stock each vote as a separate class with respect to the election of directors
and with respect to other matters which would adversely affect the special
rights of such class.
Certain activities of the Company are restricted by certain supermajority
voting provisions contained in the Company's Bylaws. The Company's Bylaws
provide that, subject to the maintenance of certain minimum ownership levels by
Televisa and Venevision, the affirmative vote of a majority of the directors
elected by the holders of the Class T Common Stock (the "Class T Directors") and
a majority of the directors elected by the holders of the Class V Common Stock
(the "Class V Directors") is required for the Company to, among other things,
(i) merge, consolidate, enter into a business combination or otherwise
reorganize the Company, (ii) sell all or substantially all of the assets of the
Company, (iii) create or issue any Common Stock or securities exchangeable into,
or that participate in dividends with, the Common Stock, any preferred stock or
phantom equity or any similar securities or interests, (iv) pay any dividends or
redeem or repurchase any securities of the Company (except for redemption of
shares in accordance with the Company's Restated Certificate of Incorporation to
ensure compliance with the foreign ownership restrictions of the Communications
Act, and dividends payable at a stated rate on preferred stock that has been
approved by the Board), (v) engage in any business transaction outside of the
Company's ordinary course of business or (vi) dissolve, liquidate or terminate
the Company. Additionally, the Company's Bylaws provide that without the
approval of a majority of the Class T Directors or the Class V Directors, the
Company may not, among other things, (a) acquire or dispose of any assets in any
one transaction or series of related transactions for a purchase price in excess
of $50 million, (b) dispose of any interest in any television station which
broadcasts in Spanish in any of the top 15 markets in terms of Hispanic
population, (c) incur any debt (or issue preferred stock) in excess of five
times the Company's EBITDA for the preceding 12-month period, (d) produce or
acquire certain new programming (unless the Company has met certain EBITDA to
sales ratios), or (e) enter into any transaction with Perenchio or any affiliate
of, or any person related to, Perenchio.
Certain of the provisions described above could delay, deter or prevent a
change in control of the Company. See "Description of Capital Stock."
POTENTIAL YEAR 2000 ISSUES
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 of 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.
13
<PAGE>
RELIANCE ON SATELLITES AND OTHER EQUIPMENT
The Company broadcasts its programs to the Univision Affiliates on three
separate satellites from four transponders, one of which is owned and three of
which are leased on a long-term basis pursuant to two lease agreements. If the
satellite on which the Company-owned transponder fails, the Company has the
right under certain circumstances to migrate to a transponder on another
satellite. If the Company-owned transponder fails and the satellite remains
viable, the Company has the right under certain circumstances to migrate to
another transponder on the same satellite. If a leased transponder fails, under
one lease agreement covering two transponders, the lessor is required to provide
a back-up for the transponders on the same satellite, and the lessor may,
subject to availability, at its option, provide alternative transponders on
other satellites. Under the other lease agreement, the lessor may, subject to
availability, at its option, provide alternative transponder capacity. With the
recent failure of a satellite, back-up satellite capacity has diminished. There
can be no assurance that other transponders or satellites would be available to
the Company, or if available, whether the use of such other transponders or
satellites could be obtained on favorable terms. A disruption of transmission
could have a material adverse effect on the Company's financial condition and
results of operations.
The Company owns or leases remote antenna space and microwave transmitter
space near each of the O&Os. The loss of certain of these antenna tower leases
could have a material adverse effect on the financial condition and results of
operations of the Company.
ABSENCE OF DIVIDENDS
The Company has never declared or paid any cash dividends on its Common
Stock. The Bank Facility restricts the payment of cash dividends on the Common
Stock. Future dividend policy will depend on the Company's earnings, capital
requirements, financial condition and other factors considered relevant to the
Board of Directors. Additionally, as described above, the approval of a majority
of the Class T Directors and a majority of the Class V Directors is required for
the Company to pay any dividends on the Common Stock. Since dividends are not
payable on the Warrants, such approval is unlikely so long as the Warrants are
held by Televisa and Venevision. See "Dividend Policy."
DEPENDENCE ON KEY PERSONNEL
The Company's business is dependent upon the performance of certain key
individuals, including A. Jerrold Perenchio, the Chairman of the Board and the
Chief Executive Officer. The loss of the services of Mr. Perenchio could have a
material adverse effect on the Company.
ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON MARKET PRICE OF COMMON
STOCK
Sales of substantial amounts of Common Stock after this Offering could
adversely affect the market price of the Class A Common Stock. The Principal
Stockholders will hold 33.4% of the outstanding shares of Common Stock (47.9% if
the Warrants held by the Principal Stockholders are exercised in full) after
this Offering and a decision by one or more of them to sell shares in the public
market could have a material adverse effect on the market price of the Class A
Common Stock. See "Description of Capital Stock-- Warrants." Following the
expiration of certain lock-up agreements between the Company, the Principal
Stockholders and certain other stockholders and the Underwriters, all of the
shares owned by the existing stockholders will be eligible for immediate sale in
the public market, subject to compliance with Rule 144 under the Securities Act
of 1933, as amended (the "Securities Act"). See "Principal and Selling
Stockholders". The existing stockholders also have various registration rights.
See "Certain Transactions--Registration Rights Agreement." The Company's
Restated Certificate of Incorporation provides that upon any sale to a third
party, the Class P, Class T and Class V Common Stock convert into Class A Common
Stock.
14
<PAGE>
USE OF PROCEEDS
All of the shares of the Class A Common Stock being offered hereby are
offered by the Selling Stockholder. The Company will not receive any of the
proceeds from the sale of such shares, although it will receive approximately
$166,587 upon the exercise of the Warrants being sold to, and exercised by, the
Underwriters.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Bank Facility restricts the payment of cash dividends on the Common Stock.
The approval of a majority of the Class T Directors and a majority of the Class
V Directors is required for the Company to pay any dividends on the Common
Stock. Since dividends are not payable on the Warrants, such approval is
unlikely so long as the Warrants are held by Televisa and Venevision. The
Company currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. Future dividend policy will depend on the Company's
earnings, capital requirements, financial condition and other factors considered
relevant by the Board of Directors.
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1998.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
(IN MILLIONS)
-------------------------
<S> <C>
Long-term debt (including current maturities):
Bank Facility......................................................................... $ 412.8
Junior Subordinated Notes............................................................. 71.9
Capital leases and other.............................................................. 38.6
------
Total long-term debt................................................................ 523.3
Series A Redeemable Convertible 6% Preferred Stock...................................... 9.1
Stockholders' equity.................................................................... 376.5
------
Total capitalization.................................................................... $ 908.9
------
------
</TABLE>
MARKET PRICES OF COMMON STOCK
Since the Initial Offering at $11.50 per share, effective September 26,
1996, the Company's Class A Common Stock has been listed on the NYSE under the
symbol "UVN." At June 30, 1998, there were 95 Class A Common Stock holders of
record. The following table sets forth the high and low sales price per share as
reported on the New York Stock Exchange Composite Tape for the periods
indicated. All share prices give effect to the two-for-one stock split that was
effected on January 12, 1998.
<TABLE>
<CAPTION>
PRICE RANGE
------------------------
HIGH LOW
----------- -----------
<S> <C> <C>
1996
Third Quarter (from September 26)........................................................ $17 $14 3/4
Fourth Quarter........................................................................... $20 1/8 $16 5/16
1997
First Quarter............................................................................ $18 11/16 $15 7/8
Second Quarter........................................................................... $19 13/16 $16 1/4
Third Quarter............................................................................ $29 1/2 $19 3/8
Fourth Quarter........................................................................... $35 11/16 $25 3/4
1998
First Quarter............................................................................ $42 $34
Second Quarter........................................................................... $39 15/16 $30 3/8
Third Quarter............................................................................ $39 3/4 $26
Fourth Quarter (through October 12)...................................................... $29 5/8 $21 3/8
</TABLE>
16
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
Presented below are summary historical financial data of the Company. The
data for the years ended December 31, 1995, 1996, and 1997 were derived from the
audited financial statements and related notes included elsewhere herein, and
should be read in conjunction therewith. Effective October 3, 1996, the Company
consolidated the results of operations of the Network, and as a result,
revenues, expenses and other items include the Network as of that date.
Consequently, significant variances exist when the results for the years ended
1996 and 1997 are compared to those for prior years. The data for the years
ended December 31, 1993 and 1994 were derived from the audited financial
statements of the Company and related notes, which are not included herein.
The data for the six months ended June 30, 1997 and 1998 are unaudited, but
in the opinion of management such data have been prepared on the same basis as
the audited financial statements included elsewhere herein, and include all
normal recurring adjustments necessary for a fair presentation of the financial
position and results of operations for that period. Results for the six months
ended June 30, 1997 and 1998 are not necessarily indicative of the results for a
full year.
FIVE YEAR SUMMARY OF SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
FOR THE YEARS ENDED DECEMBER 31, 30,
--------------------------------------------------------- ------------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................... $ 104,675 $ 139,007 $ 173,108 $ 244,858 $ 459,741 $ 207,928 $ 278,681
Direct operating expenses........ 21,545 24,201 30,774 58,443 159,619 75,357 111,817
Selling, general and
administrative expenses (a).... 40,174 49,223 64,973 79,818 137,070 65,029 82,183
Depreciation and amortization.... 33,970 31,719 33,506 39,516 58,640 28,052 31,432
--------- --------- --------- ----------- ----------- ----------- -----------
Operating income................. 8,986 33,864 43,855 67,081 104,412 39,490 53,249
Interest expense................. 36,896 37,246 40,222 41,691 40,147 20,435 18,765
Amortization of deferred
financing costs................ 4,580 5,419 3,925 2,934 1,630 792 839
Non-recurring expense (reversal)
of acquired station............ -- -- 1,750 -- (1,059) (1,059) --
Special bonus award (b).......... -- -- -- -- -- -- 42,608
Equity loss in unconsolidated
affiliate...................... -- -- -- -- -- -- 343
Minority interest in net (income)
loss of consolidated
subsidiary..................... (5,309) (1,202) 7,346 (1,851) -- -- --
--------- --------- --------- ----------- ----------- ----------- -----------
(Loss) income before taxes and
extraordinary loss on
extinguishment of debt......... (27,181) (7,599) (9,388) 24,307 63,694 19,322 (9,306)
Provision (benefit) for income
taxes(b)....................... -- 140 -- 5,714 (19,465) (5,922) (6,793)
--------- --------- --------- ----------- ----------- ----------- -----------
(Loss) income before
extraordinary loss on
extinguishment of debt......... (27,181) (7,739) (9,388) 18,593 83,159 25,244 (2,513)
Extraordinary loss on
extinguishment of debt (net of
tax benefit of $5,485 in
1996).......................... -- (4,321) (801) (8,228) -- -- --
--------- --------- --------- ----------- ----------- ----------- -----------
Net (loss) income................ (27,181) (12,060) (10,189) 10,365 83,159 25,244 (2,513)
Preferred stock dividends........ -- -- -- -- (561) (202) (336)
--------- --------- --------- ----------- ----------- ----------- -----------
Net (loss) income available to
common stockholders............ $ (27,181) $ (12,060) $ (10,189) $ 10,365 $ 82,598 $ 25,042 $ (2,849)
--------- --------- --------- ----------- ----------- ----------- -----------
--------- --------- --------- ----------- ----------- ----------- -----------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
FOR THE YEARS ENDED DECEMBER 31, 30,
--------------------------------------------------------- ------------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS PER SHARE AVAILABLE TO
COMMON STOCKHOLDERS (C):
Basic Earnings Per Share
(Loss) income before
extraordinary loss............. $ (5.96) $ (1.70) $ (2.06) $ 0.22 $ 0.97 $ 0.29 $ (0.03)
Net (loss) income.............. $ (5.96) $ (2.65) $ (2.24) $ 0.12 $ 0.97 $ 0.29 $ (0.03)
Weighted average common shares
outstanding.................. 4,560,210 4,560,210 4,560,210 85,224,360 85,238,518 85,224,360 85,769,731
Diluted Earnings Per Share
(Loss) income before
extraordinary loss............. $ (5.96) $ (1.70) $ (2.06) $ 0.16 $ 0.71 $ 0.22 $ (0.03)
Net (loss) income.............. $ (5.96) $ (2.65) $ (2.24) $ 0.09 $ 0.71 $ 0.22 $ (0.03)
Weighted average common shares
outstanding.................. 4,560,210 4,560,210 4,560,210 115,589,660 116,345,337 116,064,421 85,769,731
OTHER DATA:
Broadcast cash flow (a)(d)....... $ 45,604 $ 69,274 $ 83,413 $ 114,495 $ 174,278 $ 72,856 $ 90,516
EBITDA (a)(e).................... 42,956 65,583 77,361 106,597 163,052 67,542 84,681
BALANCE SHEET DATA (at end of
period):
Current assets................... $ 30,280 $ 42,629 $ 55,023 $ 111,790 $ 138,754 $ 122,815 $ 176,080
Total assets..................... 510,741 565,856 545,902 884,367 967,755 929,157 998,532
Current liabilities.............. 119,446 127,550 131,264 120,350 144,029 117,652 143,764
Long-term debt................... 304,298 316,661 249,840 498,137 460,830 508,603 465,230
Related party debt............... 60,685 70,722 112,381 -- -- -- --
Sponsor Loans.................... 23,421 60,482 108,361 -- -- -- --
Minority interest................ 12,915 11,713 19,059 -- -- -- --
Stockholders' equity (deficit)... (11,468) (29,171) (77,057) 262,207 346,229 287,249 376,502
</TABLE>
- ------------
(a) The management fee charged by the Principal Stockholders to UNHP, which was
terminated as part of the Reorganization, was $7,786,000 for the year ended
December 31, 1996.
(b) For a discussion of the special bonus award and its effect on the Company's
income tax provision, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(c) All common share and per common share amounts have been adjusted
retroactively for a two-for-one common stock split that was effected on
January 12, 1998.
(d) "Broadcast cash flow" is defined as broadcast operating income before
corporate charges, the special bonus award and depreciation and
amortization. The Company has presented broadcast cash flow data, which the
Company believes are comparable to the data provided by other companies in
the industry, because such data are commonly used as a measure of
performance for broadcast companies. However, broadcast cash flow should not
be construed as an alternative to operating income (as determined in
accordance with generally accepted accounting principles) as an indicator of
operating performance, or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) as a
measure of liquidity.
(e) "EBITDA" consists of broadcast cash flow less corporate charges and is
commonly used in the broadcast industry to analyze and compare broadcast
companies on a basis of operating performance, leverage and liquidity.
EBITDA, as presented above, may not be comparable to similarly titled
measures of other companies unless such measures are calculated in
substantially the same fashion. EBITDA should not be construed as an
alternative to operating income (as determined in accordance with generally
accepted accounting principles) as an indicator of operating performance, or
to cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) as a measure of liquidity.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis should be read in
conjunction with the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements. In particular, Note 1 (ORGANIZATION AND
ACQUISITION) to the Consolidated Financial Statements explains the acquisition
of the Network on October 2, 1996, and presents the results of operations, for
the year ended December 31, 1996, of the Company on a pro forma basis, as if the
1996 acquisition of the Network and related Reorganization had occurred on
January 1, 1996.
RESULTS OF OPERATIONS
For the twelve months ended December 31, 1997, and from October 3, 1996, to
December 31, 1996, the Company's results include the operations of the Network,
and as a result, revenues, expenses and other items include the Network for
these periods. Consequently, significant variances exist when the results for
1997 are compared to 1996 and those for 1996 are compared to 1995. Accordingly,
management's discussion and analysis of results of operations for these periods
has been presented on an historical basis and, in addition, on a pro forma basis
as described above. Furthermore, pro forma results of operations for 1996 and
1995 include pro forma adjustments for interest expense, amortization of Network
goodwill and acquisition-related financing costs, and related income tax
benefits. The pro forma 1996 and 1995 results of operations are not necessarily
indicative of what would have occurred if the Network acquisition had taken
place on January 1, 1996 and 1995.
As a result of the Reorganization, 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
19
<PAGE>
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
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.
20
<PAGE>
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.
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.
YEAR ENDED DECEMBER 31, 1997 ("1997") COMPARED TO YEAR ENDED DECEMBER 31, 1996
("1996")
The following table sets forth selected data from the operating results of
the Company for the twelve months ended December 31, 1997 and 1996 on an
historical basis and a pro forma basis (unaudited) (in thousands):
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL
---------------------- % ----------- ---------- %
1996 1997 INCREASE 1996 1997 INCREASE
---------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues........................................ $ 244,858 $ 459,741 87.8% $ 370,289 $ 459,741 24.2%
Direct operating expenses........................... 58,443 159,619 173.1% 122,510 159,619 30.3%
Selling, general and administrative expenses........ 79,818 137,070 71.7% 107,664 137,070 27.3%
Depreciation and amortization....................... 39,516 58,640 48.4% 55,049 58,640 6.5%
---------- ---------- ----- ----------- ---------- ---
Operating income.................................... $ 67,081 $ 104,412 55.7% $ 85,066 $ 104,412 22.7%
---------- ---------- ----- ----------- ---------- ---
Other Data:
Broadcast cash flow................................. $ 114,495 $ 174,278 52.2% $ 149,711 $ 174,278 16.4%
Corporate charges................................... 7,898 11,226 42.1% 9,596 11,226 17.0%
---------- ---------- ----- ----------- ---------- ---
EBITDA.............................................. $ 106,597 $ 163,052 53.0% $ 140,115 $ 163,052 16.4%
---------- ---------- ----- ----------- ---------- ---
---------- ---------- ----- ----------- ---------- ---
</TABLE>
REVENUES. Net revenues increased to $459,741,000 in 1997 from $244,858,000
in 1996, an increase of $214,883,000 or 87.8%. The acquisition of the Network
accounted for $160,805,000 or 74.8% of the increase, and the O&Os and Galavision
accounted for $47,299,000 or 22.0% and $6,779,000 or 3.2%,
21
<PAGE>
respectively. Had the Network been owned since January 1, 1996, net revenues
would have been $370,289,000 in 1996, compared to $459,741,000 in 1997, an
increase of $89,452,000 or 24.2%. The increase is due to higher net revenues of
$47,299,000 at the O&Os, $37,168,000 at the Network and $4,985,000 related to
Galavision, which was acquired by the Network on June 30, 1996. The O&Os'
increase, which was due to an increase of approximately 14% in the number of
spots sold and a 12% increase in the price for advertising spots, was primarily
derived from Los Angeles, Miami, Chicago, Houston and New York, with additional
increases at all other O&Os. The Network's increase is due to an increase of
approximately 21% in the price of advertising spots, offset in part by a
decrease in volume of approximately 3%.
EXPENSES. Direct operating expenses, before the reduction of corporate
charges of $232,000 and $197,000 in 1997 and 1996, respectively, increased to
$159,619,000 in 1997 from $58,443,000 in 1996, an increase of $101,176,000 or
173.1%. The acquisition of the Network accounted for $95,525,000 or 94.4% of the
increase, and the O&Os and Galavision accounted for $3,809,000 or 3.8% and
$1,842,000 or 1.8%, respectively. Had the Network been owned since January 1,
1996, direct operating expenses, before the reduction of corporate charges,
would have been $122,510,000 in 1996, compared to $159,619,000 in 1997, an
increase of $37,109,000 or 30.3%. The increase is primarily due to higher
license fees paid or payable to Televisa and Venevision of $23,452,000. 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 9.8% of net revenues in 1996 to 13.0% in 1997. The morning show, DESPIERTA
AMERICA, which began airing mid-April 1997 and generated revenues of
approximately $9,000,000, accounted for approximately $3,300,000 (including
start-up costs of approximately $560,000) of the total increase in programming
costs over 1996. The remainder of the increase is due primarily to higher
technical and news costs and $1,410,000 of costs related to Galavision. Had the
Network been owned since January 1, 1996, direct operating expenses, as a
percentage of net revenues, would have increased from 33.1% in 1996 to 34.7% in
1997.
Selling, general and administrative expenses, before the reduction of
corporate charges of $10,994,000 and $9,399,000 in 1997 and 1996, respectively,
increased to $137,070,000 in 1997 from $79,818,000 in 1996, an increase of
$57,252,000 or 71.7%. The acquisition of the Network accounted for $32,700,000
or 57.1% of the increase, and the O&Os and Galavision accounted for $21,215,000
or 37.1% and $3,337,000 or 5.8%, respectively. Had the Network been owned since
January 1, 1996, selling, general and administrative expenses, before the
reduction of corporate charges, would have been $107,664,000 in 1996, compared
to $137,070,000 in 1997, an increase of $29,406,000 or 27.3%. The increase is
due in large part to increased selling costs at the O&Os and the Network of
$10,211,000, associated with increased sales and staff levels; a charge for
costs associated with management changes of approximately $1,500,000; and
increased research costs of $1,528,000, all of which are consistent with the
Company's strategy of investing in sales management and research. Furthermore,
there were compensation costs of approximately $2,200,000 related to new and
existing senior management positions, a charge for costs associated with other
management changes of approximately $2,000,000 and a reduction in 1996 expenses
of $2,200,000 as a result of a litigation reserve reversal. The acquisition of
Galavision accounted for $2,135,000. Had the Network been owned since January 1,
1996, selling, general and administrative expenses, as a percentage of net
revenues, would have increased from 29.1% in 1996 to 29.8% in 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$58,640,000 in 1997 from $39,516,000 in 1996, an increase of $19,124,000 or
48.4%. The acquisition of the Network accounted for $6,686,000 or 35.0% of the
increase, and the O&Os and Galavision accounted for $11,389,000 or 59.6% and
$1,049,000 or 5.4%, respectively. On a pro forma basis, depreciation and
amortization would have been $55,049,000 in 1996, compared to $58,640,000 in
1997, an increase of $3,591,000 or 6.5%. The increase is due primarily to an
increase in depreciation related to increased capital expenditures, the
acquisition of Galavision and an increase in goodwill amortization.
22
<PAGE>
OPERATING INCOME. As a result of the above factors, operating income
increased to $104,412,000 in 1997 from $67,081,000 in 1996, an increase of
$37,331,000 or 55.7%. The acquisition of the Network accounted for $25,894,000
or 69.4% of the increase, the O&Os accounted for $10,886,000 or 29.2% and
Galavision accounted for $551,000 or 1.4%. On a pro forma basis, operating
income would have been $85,066,000 in 1996, compared to $104,412,000 in 1997, an
increase of $19,346,000 or 22.7%. As a percentage of net revenues, operating
income would have decreased from 23.0% in 1996 to 22.7% in 1997.
INTEREST EXPENSE. Interest expense decreased to $40,147,000 in 1997 from
$41,691,000 in 1996, a decrease of $1,544,000 or 3.7%. On a pro forma basis,
interest expense was $39,548,000 in 1996 compared to $40,147,000 in 1997, an
increase of $599,000 or 1.5%. The increase is due primarily to higher borrowings
during 1997 as compared to 1996, partially offset by lower interest rates in
1997.
MINORITY INTEREST. In 1996, the Company reported minority interest income
of $1,851,000, consisting of the minority interest in the net income of
subsidiary of $1,869,000 and preferred stock dividend expense attributable to
minority stockholders of $18,000. The minority interest was acquired as part of
the Reorganization during 1996. On a pro forma basis, minority interest is
eliminated from the 1996 operating results of the Company.
PROVISION (BENEFIT) FOR INCOME TAXES. In 1997, the Company reported an
income tax benefit of $19,465,000 compared to an income tax provision of
$5,714,000 in 1996. On a pro forma basis, the Company reported an income tax
provision of $7,728,000 in 1996. The 1997 tax benefit results from the
recognition of deferred tax assets that management believes, more likely than
not, will be realized due to the Company's generating income in its current and
future periods. The provision for income taxes included in the 1996 pro forma
income statement is based on an effective tax rate of 40%. This tax provision,
presented on a pro forma basis, is offset by an income tax benefit arising from
the January 1, 1996 loss on extinguishment of debt (see EXTRAORDINARY LOSS).
INCOME BEFORE EXTRAORDINARY ITEMS. As a result of the above factors, income
before extraordinary items increased to $83,159,000 in 1997 from $18,593,000 in
1996, an increase of $64,566,000. On a pro forma basis, income before
extraordinary items increased from $36,331,000 in 1996 to $83,159,000 in 1997,
an increase of $46,828,000.
EXTRAORDINARY LOSS. During 1996, UTG purchased and/or defeased at a premium
$92,050,000 face amount of its 11 3/4% Senior Subordinated Notes, resulting in a
total extraordinary loss of $13,713,000, including the write-off of the related
financing costs of $9,601,000. The related income tax benefits associated with
these extraordinary losses were $5,485,000, resulting in an extraordinary loss,
net of tax, of $8,228,000 for the year ended 1996. On a pro forma basis, the
Senior Subordinated Notes are assumed to be defeased at January 1, 1996, thereby
generating an extraordinary loss, net of tax, of $11,186,000 in 1996. The pro
forma extraordinary loss is greater than the actual 1996 extraordinary loss of
$8,228,000, since the deferred financing costs' unamortized balance was higher
at the beginning of 1996 than it was when the Senior Subordinated Notes were
actually purchased and/or defeased during 1996.
NET INCOME. As a result of the above factors, net income increased to
$83,159,000 in 1997 from $10,365,000 in 1996, an increase of $72,794,000. On a
pro forma basis, net income increased from $25,145,000 in 1996 to $83,159,000 in
1997, an increase of $58,014,000.
BROADCAST CASH FLOW. Broadcast cash flow increased to $174,278,000 in 1997
from $114,495,000 in 1996, an increase of $59,783,000 or 52.2%. The acquisition
of the Network accounted for $34,724,000 of the increase, the O&Os accounted for
$23,459,000 of the increase and Galavision accounted for $1,600,000. Had the
Network been owned since January 1, 1996, broadcast cash flow would have been
$149,711,000 in 1996, compared to $174,278,000 in 1997, an increase of
$24,567,000 or 16.4%. As a percentage of net revenues, broadcast cash flow would
have decreased from 40.4% in 1996 to 37.9% in 1997.
23
<PAGE>
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 9.8% of net revenues in 1996 to 13.0% in 1997. Had
the revised license fee been in effect in 1996, the license fee would have
increased by $12,976,000 and broadcast cash flow would have been $136,735,000 in
1996. On a year-to-year basis, broadcast cash flow would have increased by
$37,543,000 or 27.5%, from $136,735,000 in 1996 to $174,278,000 in 1997. As a
percentage of net revenues, broadcast cash flow would have increased from 36.9%
in 1996 to 37.9% in 1997.
CORPORATE CHARGES. Corporate charges increased to $11,226,000 in 1997 from
$7,898,000 in 1996, an increase of $3,328,000 or 42.1%. The acquisition of the
Network accounted for $2,144,000 or 64.4% of the increase and the O&Os accounted
for $1,184,000 or 35.6%. Had the Network been owned since January 1, 1996,
corporate charges would have been $9,596,000 in 1996 compared to $11,226,000 in
1997, an increase of $1,630,000 or 17.0%. The increase is primarily due to costs
associated with being a public company and increased staffing costs. As a
percentage of net revenues, corporate charges would have decreased from 2.6% in
1996 to 2.4% in 1997.
EBITDA. EBITDA increased to $163,052,000 in 1997 from $106,597,000 in 1996,
an increase of $56,455,000 or 53.0%. The acquisition of the Network accounted
for $32,580,000 of the increase, the O&Os accounted for $22,275,000 of the
increase and Galavision accounted for $1,600,000. Had the Network been owned
since January 1, 1996, EBITDA would have been $140,115,000 in 1996, compared to
$163,052,000 in 1997, an increase of $22,937,000 or 16.4%. As a percentage of
net revenues, EBITDA would have decreased from 37.8% in 1996 to 35.5% in 1997.
As explained in BROADCAST CASH FLOW, had the revised license fee been in
effect in 1996, the license fee would have increased by $12,976,000 and pro
forma EBITDA would have been $127,139,000 in 1996. Thus, EBITDA would have
increased by $35,913,000 or 28.2%, from $127,139,000 in 1996 to $163,052,000 in
1997. As a percentage of net revenues, pro forma EBITDA would have increased
from 34.3% in 1996 to 35.5% in 1997.
YEAR ENDED DECEMBER 31, 1996 ("1996") COMPARED TO THE YEAR ENDED DECEMBER 31,
1995 ("1995")
The following table sets forth selected data from the operating results of
the Company for the years ended December 31, 1995 and 1996 on an historical
basis and a pro forma basis (unaudited) (in thousands):
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------ ------------------ % INCREASE/
1995 1996 % INCREASE 1995 1996 (DECREASE)
-------- -------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues....................... $173,108 $244,858 41.4% $321,339 $370,289 15.2%
Direct operating expenses.......... 30,774 58,443 89.9% 110,402 122,510 11.0%
Selling, general and administrative
expenses......................... 64,973 79,818 22.8% 99,369 107,664 8.3%
Depreciation and amortization...... 33,506 39,516 17.9% 53,965 55,049 2.0%
-------- -------- --- -------- -------- ---
Operating income................... $ 43,855 $ 67,081 53.0% $ 57,603 $ 85,066 47.7%
-------- -------- --- -------- -------- ---
Other Data:
Broadcast cash flow................ $ 83,413 $114,495 37.3% $121,268 $149,711 23.5%
Corporate charges.................. 6,052 7,898 30.5% 9,700 9,596 (1.1)%
-------- -------- --- -------- -------- ---
EBITDA............................. $ 77,361 $106,597 37.8% $111,568 $140,115 25.6%
-------- -------- --- -------- -------- ---
-------- -------- --- -------- -------- ---
</TABLE>
REVENUES. Net revenues increased to $244,858,000 in 1996 from $173,108,000
in 1995, an increase of $71,750,000 or 41.4%. The acquisition of the Network
accounted for $49,392,000 or 68.8% of the increase,
24
<PAGE>
and the O&Os and Galavision accounted for $20,683,000 or 28.8% and $1,675,000 or
2.4%, respectively. Had the Network been owned as of January 1, 1995, net
revenues would have increased from $321,339,000 in 1995 to $370,289,000 in 1996,
an increase of $48,950,000 or 15.2%. The increase is due to higher net revenues
of $20,683,000 at the O&Os, $24,798,000 at the Network, and $3,469,000 related
to Galavision, which was acquired by the Network on June 30, 1996. The O&Os'
increase, which is predominantly driven by increased prices for advertising
spots, is primarily from Los Angeles, Miami, Houston and Chicago, with increases
at all other O&Os except New York. The Network's increase is due primarily to
rate increases and increased volume on previously lower-demand dayparts as
compared to 1995.
A major initiative was implemented to improve the performance of the New
York station. The increased awareness among advertisers about the New York
Hispanic community and the advertisers' ability to reach that audience through
the New York station are expected to have a positive effect on the performance
of the station.
EXPENSES. Direct operating expenses, before the reduction of corporate
charges of $197,000 and $170,000 in 1996 and 1995, respectively, increased to
$58,443,000 in 1996 from $30,774,000 in 1995, an increase of $27,669,000 or
89.9%. The acquisition of the Network accounted for $24,489,000 or 88.5% of the
increase, and the O&Os and Galavision accounted for $2,626,000 or 9.5% and
$554,000 or 2.0%, respectively. Had the Network been owned as of January 1,
1995, direct operating expenses, before the reduction of corporate charges,
would have increased from $110,402,000 in 1995 to $122,510,000 in 1996, an
increase of $12,108,000 or 11.0%. The increase is due primarily to higher
license fees paid or payable to Televisa and Venevision under the Program
License Agreements and the Agreement Concerning Production and Acquisition of
Programs, which was terminated as part of the Reorganization, of $6,281,000,
based on higher Combined Net Time Sales, and increases in technical, programming
and news costs. Had the Network been owned since January 1, 1995, direct
operating expenses, as a percentage of net revenues, would have decreased from
34.4% in 1995 to 33.1% in 1996.
Selling, general and administrative expenses, before the reduction of
corporate charges of $9,399,000 and $9,530,000 in 1996 and 1995, respectively,
increased to $79,818,000 in 1996 from $64,973,000 in 1995, an increase of
$14,845,000 or 22.8%. The acquisition of the Network accounted for $10,023,000
or 67.5% of the increase, and the O&Os and Galavision accounted for $2,975,000
or 20.0% and $1,847,000 or 12.5%, respectively. Had the Network been owned since
January 1, 1995, selling, general and administrative expenses, before the
reduction of corporate charges, would have increased from $99,369,000 in 1995 to
$107,664,000 in 1996, an increase of $8,295,000 or 8.3%. The increase is
primarily a result of increased selling and research costs of $12,320,000
associated with increased sales and staff levels, offset in part by the net
favorable impact of certain legal matters. Had the Network been owned since
January 1, 1995, selling, general and administrative expenses, as a percentage
of net revenues, would have decreased from 30.9% in 1995 to 29.1% in 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$39,516,000 in 1996 from $33,506,000 in 1995, an increase of $6,010,000 or
17.9%. The acquisition of the Network accounted for $1,782,000 or 29.7% of the
increase, and the O&Os and Galavision accounted for $3,922,000 or 65.3% and
$306,000 or 5.0%, respectively. On a pro forma basis, depreciation and
amortization would have increased from $53,965,000 in 1995 to $55,049,000 in
1996, an increase of $1,084,000 or 2.0%. The increase is due primarily to
depreciation related to increased capital expenditures, offset in part by a
decrease in goodwill amortization.
OPERATING INCOME. As a result of the above factors, operating income
increased to $67,081,000 in 1996 from $43,855,000 in 1995, an increase of
$23,226,000 or 53.0%. The acquisition of the Network accounted for $13,098,000
of the increase, the O&Os accounted for $11,160,000 and Galavision accounted for
a decrease in operating income of $1,032,000. On a pro forma basis, operating
income would have increased from $57,603,000 in 1995 to $85,066,000 in 1996, an
increase of $27,463,000 or 47.7%. As a percentage of net revenues, operating
income would have increased from 17.9% in 1995 to 23.0% in 1996.
25
<PAGE>
INTEREST EXPENSE. Interest expense increased to $41,691,000 in 1996 from
$40,222,000 in 1995, an increase of $1,469,000 or 3.7%. On a pro forma basis,
interest expense increased from $37,055,000 in 1995 to $39,548,000 in 1996, an
increase of $2,493,000 or 6.7% The increase is due primarily to higher
borrowings during 1996 as compared to 1995.
MINORITY INTEREST. In 1996, the Company reported minority interest income
of $1,851,000, associated with the net income of a consolidated subsidiary, as
compared to a minority interest loss of $7,346,000 in 1995. Minority interest of
$1,851,000 in 1996 consisted of the minority interest in the net income of
subsidiary of $1,869,000 and the preferred stock dividends attributable to
minority stockholders of $18,000. On a pro forma basis, minority interest is
eliminated from the operating results of the Company.
PROVISION (BENEFIT) FOR INCOME TAXES. In 1996, the Company reported an
income tax provision of $5,714,000, and no income taxes were provided for during
1995. On a pro forma basis, the Company reported an income tax provision of
$7,728,000 in 1996 and $6,900,000 in 1995. The provision for income taxes in
1996 and 1995 is based on an effective tax rate of 40%. This tax provision,
presented on a pro forma basis, is offset by an income tax benefit arising from
the January 1, 1996 and 1995 loss on extinguishment of debt (see EXTRAORDINARY
LOSS).
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS. As a result of the above factors,
income before extraordinary items increased to $18,593,000 in 1996 from a loss
of $9,388,000 in 1995, an improvement of $27,981,000. On a pro forma basis,
income before extraordinary items increased from $10,410,000 in 1995 to
$36,331,000 in 1996, an increase of $25,921,000 or 249.0%.
EXTRAORDINARY LOSS. During 1996, UTG purchased and/or defeased at a premium
$92,050,000 face amount of its 11 3/4% Senior Subordinated Notes, resulting in a
total extraordinary loss of $13,713,000, including the write-off of the related
financing costs of $9,601,000. The related income tax benefits associated with
these extraordinary losses were $5,485,000, resulting in an extraordinary loss,
net of tax, of $8,228,000 for the year ended 1996. On a pro forma basis, the
Senior Subordinated Notes are assumed to be defeased at the beginning of each
year for 1996 and 1995, thereby generating extraordinary losses, net of tax, of
$11,186,000 in 1996 and $16,345,000 in 1995. These pro forma extraordinary
losses are greater than the actual 1996 extraordinary loss of $8,228,000, since
the deferred financing costs' unamortized balances were higher at the beginning
of 1996 and 1995 than they were when the Senior Subordinated Notes were actually
purchased and/or defeased during 1996.
NET INCOME (LOSS). As a result of the above factors, net income increased
to $10,365,000 in 1996 from a net loss of $10,189,000 in 1995, an improvement of
$20,554,000. On a pro forma basis, net income increased from a loss of
$5,935,000 in 1995 to $25,145,000 in 1996, an improvement of $31,080,000.
BROADCAST CASH FLOW. Broadcast cash flow increased to $114,495,000 in 1996
from $83,413,000 in 1995, an increase of $31,082,000 or 37.3%. The acquisition
of the Network accounted for $15,480,000 of the increase, the O&Os accounted for
$16,328,000 of the increase and Galavision accounted for a decrease in broadcast
cash flow of $726,000. Had the Network been owned since January 1, 1995,
broadcast cash flow would have increased from $121,268,000 in 1995 to
$149,711,000 in 1996, an increase of $28,443,000 or 23.5%. As a percentage of
net revenues, broadcast cash flow would have increased from 37.7% in 1995 to
40.4% in 1996.
CORPORATE CHARGES. Corporate charges increased to $7,898,000 in 1996 from
$6,052,000 in 1995, an increase of $1,846,000 or 30.5%. The acquisition of the
Network accounted for $600,000 or 32.5% of the increase, and the O&Os accounted
for $1,246,000 or 67.5%. Had the Network been owned since January 1, 1995,
corporate charges would have decreased from $9,700,000 in 1995 to $9,596,000 in
1996, a decrease of $104,000 or 1.1%. As a percentage of net revenues, corporate
charges would have decreased from 3.0% in 1995 to 2.6% in 1996.
26
<PAGE>
EBITDA. EBITDA increased to $106,597,000 in 1996 from $77,361,000 in 1995,
an increase of $29,236,000 or 37.8%. The acquisition of the Network accounted
for $14,880,000 of the increase, the O&Os accounted for $15,082,000 of the
increase and Galavision accounted for a decrease of $726,000. Had the Network
been owned since January 1, 1995, EBITDA would have increased from $111,568,000
in 1995 to $140,115,000 in 1996, an increase of $28,547,000 or 25.6%. As a
percentage of net revenues, EBITDA would have increased from 34.7% in 1995 to
37.8% in 1996.
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
27
<PAGE>
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 $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 called for a fixed payment of $25,000,000 in total, which
was paid in four equal installments in May, June, August and September 1998. In
addition to these payments and consistent with past coverage of the World Cup
Games, the Company was responsible for all costs associated with advertising,
promotion and broadcast of the World Cup Games, as well as the production of
certain television programming related to the games. The 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 13-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.
28
<PAGE>
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.
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.
29
<PAGE>
BUSINESS
Univision is the leading Spanish-language television broadcaster in the
U.S., reaching more than 92% of all Hispanic Households and having an
approximate 84% share of the U.S. Spanish-language network television audience
through June 1998. The Company's Network, which is the most watched television
network (English-or Spanish-language) among Hispanic Households, provides the
Univision Affiliates with 24 hours per day of Spanish-language programming with
a prime time schedule of substantially all first run programming (i.e., no
reruns) throughout the year. As a leading, vertically-integrated television
broadcaster, Univision owned and operated 13 full-power (12 of which are
affiliated with the Univision Network) and eight low-power UHF stations as of
June 30, 1998 representing approximately 80% of its Network broadcast
distribution. These full-power O&Os are located in 12 of the top 15 DMAs in
terms of numbers of Hispanic Households-Los Angeles, New York, Miami, San
Francisco, Chicago, Houston, San Antonio, Dallas, Fresno, Phoenix, Sacramento
and Albuquerque. As of June 30, 1998, the Company had Affiliation Agreements
with an additional 10 full-power and 17 low-power Affiliated Stations and
approximately 835 Cable Affiliates. Each of the Company's full-power O&Os and
Affiliated Stations ranks first in Spanish-language television viewership in its
DMA. The Company also owns Galavision, a Spanish-language cable network that had
approximately 2.6 million Hispanic subscribers, representing approximately 59%
of all Hispanic Households that subscribed to cable television in 1997.
The Company believes that the breadth and diversity of its programming
provides it with a competitive advantage over both Spanish-language broadcasters
and English-language broadcasters in appealing to Hispanic viewers. The
Company's programming is similar to that of major English-language networks and
includes NOVELAS (long-term mini-series), national and local newscasts, variety
shows, children's programming, mini-series, musical specials, movies, sporting
events and public affairs programs. The Televisa Program License Agreement
provides the Company with long-term access to first-rate programming produced by
Televisa. Televisa-produced novelas are popular throughout the world and are
among the Company's highest rated programs. Univision also produces a variety of
programs specifically tailored to meet the tastes, preferences and information
needs of the Hispanic audience, including national and local news and the highly
successful programs SABADO GIGANTE, CRISTINA and PRIMER IMPACTO. The Company's
morning show that began airing in April 1997, DESPIERTA AMERICA--"Wake Up
America"--broadcasts news, talk and current events nationally, Monday through
Friday from 7:00 a.m. to 10:00 a.m. The Company has also televised World Cup
Soccer since 1978, including all 64 games of the widely watched 1998 World Cup.
In 1996, the Company began televising the Sunday "Game of the Week" for Major
League Soccer. On March 30, 1998 a joint venture, which is jointly owned by the
Company and Home Shopping Network, began broadcasting a Spanish-language
television shopping program in the United States. The program is currently
broadcast for three hours a day on Galavision from 11 a.m. to 2 p.m. The Company
has also entered into an agreement with Televisa that provides for each party,
at its own expense, to produce three separate 13 week non-NOVELA programs that
the Company and Televisa will have the right to broadcast and exploit, subject
to the Televisa Program License Agreement and International Program Rights
Agreement. See "Certain Transactions--New Programming Agreement."
In 1992, A. Jerrold Perenchio, Televisa and Venevision formed the Company
and UNHP, which acquired UTG and the Network, respectively, in the Acquisition.
A. Jerrold Perenchio has over 25 years of experience in the U.S. media and
communications industry and has been the chief executive officer or owner of a
number of successful entities, including Chartwell Artists, Tandem Productions,
Inc., Embassy Communications and Loews Theaters. Mr. Perenchio also owned and
operated Spanish-language television stations in Los Angeles and New York from
1975 to 1986. Televisa, which is the world's largest producer of
Spanish-language television programs, is the leading media and entertainment
company in Mexico with an approximate 77% share of Mexico's viewing audience
during the first six months of 1998. Venevision is Venezuela's leading
television network with an approximate 62% share of its viewing audience during
the first six months of 1998.
30
<PAGE>
Since the Acquisition, the Company's operating performance has improved
significantly with net revenues and EBITDA increasing to $459.7 million and
$163.1 million, respectively, for the year ended December 31, 1997, representing
compound annual growth rates of 17% and 30%, respectively, from the 1992
operating results of the Company and its predecessor. In addition, from November
1992 to May 1998 the Company increased its audience share of Spanish-language
network television viewing from 57% to 84% and increased its share of the 20
most widely watched programs among Hispanic Households from 30% to 90%.
Univision attributes its success to several factors, including emphasis on
popular, high quality programming produced by Televisa and Univision,
contracting with Nielsen to develop more accurate, credible rating systems to
measure Hispanic audience viewership, increasing acceptance by advertisers of
Spanish-language television, continued growth of the Hispanic audience and the
strengthening of its management team with executives and sales managers with
extensive English-language television and advertising experience.
The Company acquired full-power stations in two important markets, Chicago
and Houston, in 1994 and one important market in 1997, Sacramento, and has used
its management expertise, programming and brand identity to substantially
improve the Company's performance in Chicago and Houston. The Company has also
purchased a station in Bakersfield, California but does not intend to convert it
to a Univision Affiliate in the near term. In addition, the Company purchased a
$10.0 million convertible promissory note from Entravision that is convertible
into an approximate 25% equity interest in Entravision. Entravision owns 11 of
the Affiliated Stations, which represent approximately 14% of the Network's
broadcast distribution. The Company has entered into a letter of intent with
Entravision, pursuant to which the Company will sell its Albuquerque full-power
and low-power stations to Entravision in exchange for $1.0 million and an
increase in the exchange rate in the Entravision Note. If the contemplated
transactions occur, the Entravision Note held by the Company will be convertible
into an approximate 27% equity interest in Entravision. To complement and
capitalize on the Company's existing business and management strengths, the
Company expects to explore both Spanish-language television and other media
acquisition opportunities.
THE HISPANIC AUDIENCE IN THE UNITED STATES
Management believes that Spanish-language television, in general, and the
Company, in particular, have benefited and will continue to benefit from a
number of factors, including projected Hispanic population growth, high
Spanish-language retention among Hispanics, increasing Hispanic buying power and
greater advertiser spending on Spanish-language media.
HISPANIC POPULATION GROWTH AND CONCENTRATION. The Company's audience
consists almost exclusively of Hispanics, one of the most rapidly growing
segments of the U.S. population. The 1998 Hispanic population is estimated to be
30.5 million (11.3% of the total U.S. population), an increase of 28.7% from
23.7 million (9.5% of the total U.S. population) in 1990. The overall Hispanic
population is growing at approximately five times the rate of the non-Hispanic
U.S. population and is expected to grow to 32.4 million and 42.4 million (11.7%
and 14.1% of the total U.S. population) in 2000 and 2010, respectively.
Approximately 50% of all Hispanics are located in the seven U.S. cities with the
largest Hispanic populations, and Univision owns a station in each of these
cities.
SPANISH LANGUAGE USE. Approximately 68% of all Hispanics, regardless of
income or educational level, speak Spanish at home. This percentage is expected
to remain relatively constant through 2010. Consequently the number of Hispanics
speaking Spanish in the home is expected to increase significantly in the
foreseeable future. As shown in the chart below, the number of Hispanics who
speak Spanish in the home is expected to grow from 16.2 million in 1990 to 22.1
million in 2000 and 27.8 million in 2010. The Company believes that the strong
Spanish-language retention among Hispanics indicates that the
31
<PAGE>
Spanish-language media has been and will continue to be an important source of
news, sports and entertainment for Hispanics.
SPANISH LANGUAGE USE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
POPULATION SPEAK SPANISH AT HOME
<S> <C> <C>
1980 15.6 10.6
1985 19.3 13.2
1990 23.7 16.2
1995 27.4 18.6
2000 32.4 22.1
2005 37.2 24.9
2010 42.4 27.8
</TABLE>
GREATER HISPANIC BUYING POWER. The Hispanic population represents estimated
total consumer expenditures of $380 billion in 1998 (6.6% of the total U.S.
consumer expenditures), an increase of 76.4% since 1990. Hispanics are expected
to account for $443 billion (7.0% of the U.S. total consumer expenditures) by
2000, and $939 billion (8.9% of the U.S. total consumer expenditures) by 2010,
far outpacing the expected growth in total U.S. consumer expenditures.
In addition to the anticipated growth of the Hispanic population, the
Hispanic audience has several other characteristics that the Company believes
make it attractive to advertisers. The Company believes the larger size
(averaging 3.6 persons per household compared to the general public's average of
2.6 persons per household) and younger age of Hispanic Households leads
Hispanics to spend more per household on many categories of goods. The average
Hispanic Household spends 28.0% more per year on food at home, 100.2% more on
infants' clothing, 35.1% more on footwear, 11.4% more on phone services, and
23.1% more on laundry and household cleaning products than the average
non-Hispanic household. Hispanics are expected to continue to account for a
disproportionate share of growth in spending nationwide in many important
consumer categories as the Hispanic population and its disposable income
continue to grow. These factors make Hispanics an attractive target audience for
many major U.S. advertisers.
INCREASED SPANISH-LANGUAGE ADVERTISING. According to published sources,
$1.4 billion of total advertising expenditures were directed towards
Spanish-language media in 1997, representing an annual compound growth rate of
18% since 1993. Of these amounts, approximately 55% of the $1.4 billion in
advertising expenditures in 1997 targeting Hispanics was directed towards
Spanish-language television advertising. The Company believes that major
advertisers have found that Spanish-language television advertising is a more
cost-effective means to target the growing Hispanic audience than
English-language broadcast media. See "--Advertising."
HISPANIC AUDIENCE RESEARCH
Univision, like all television stations and networks, derives its revenues
primarily from selling advertising time. See "--Advertising." The relative
advertising rates charged by competing stations within a DMA depend primarily on
four factors: (i) the station's ratings (households and/or people viewing its
programs as a percentage of total television households and/or people in the
viewing area); (ii) audience share (households and/or people viewing its
programs as a percentage of households and/or people actually watching
television at a specific time); (iii) the time of day the advertising will run;
and (iv) the demographic qualities of a program's viewers (primarily age and
gender).
32
<PAGE>
Prior to November 1992, there were no Hispanic audience television rating
services comparable to those measuring television viewership in the general U.S.
population. Beginning in 1992, Nielsen, pursuant to a contract with the Company,
began delivering Nielsen ratings measuring Hispanic viewership both at the
Network and local DMA levels. Because these Nielsen ratings provide advertisers
with a more accurate and reliable measure of Hispanic audience television
viewership, they have been important in allowing the Company to demonstrate to
advertisers its ability to reach the Hispanic audience. The Company believes
that continued use of accurate, reliable ratings will allow it to further
increase its advertising rates and narrow the gap which has historically existed
between its audience share and its share of advertising revenues. In addition,
the Company has made significant investments in experienced sales managers and
account executives and has provided its sales professionals with
state-of-the-art research tools to continue to attract major advertisers.
The various rating services purchased from Nielsen are described below:
NIELSEN HISPANIC TELEVISION INDEX (NHTI). The NHTI service, which began in
November 1992, measures national network viewing in Hispanic Households. NHTI is
the Network's primary sales tool since it demonstrates Univision's significant
success in attracting Hispanic viewership against both English-and
Spanish-language competition. NHTI is stratified by language usage so that
Spanish-dominant, bilingual, and English-dominant Hispanic Households are
represented in the sample in the same proportion that exists among Hispanic
Households generally.
NIELSEN HISPANIC STATION INDEX (NHSI). The NHSI service is similar to the
NHTI, except that NHSI measures Hispanic Household viewing at the local market
level. Like NHTI, each NHSI sample also reflects the varying levels of language
usage by Hispanics in each DMA in order to more accurately reflect the Hispanic
Household population in the relevant DMA. The NHSI service was implemented
beginning with Los Angeles in November 1992 and was phased in at the Company's
other full-power O&Os by November 1994.
NHSI and NHTI only measure the audience viewing of Hispanic Households, that
is, households where the head of the household is of Hispanic descent or origin.
Although the NHSI and NHTI reflect improvements over previous measurement
indices, the Company believes they still under-report the number of viewers
watching Univision programs because the Company has viewers who do not live in
Hispanic Households.
NIELSEN STATION INDEX (NSI). The NSI service measures local station viewing
of all households in a specific DMA. The Company buys NSI in all of the DMAs in
which its full-power O&Os are located in order to effectively position its
viewing against both English- and Spanish-language competitors. While Hispanic
Households are present in proportion to their percentage of total households
within a DMA in NSI, this rating service is not language stratified and
generally under-represents Spanish-speaking households. As a result, the Company
believes that NSI typically under-reports viewing of Spanish-language
television. Despite this limitation, NSI demonstrates that many full-power
Broadcast Affiliates achieve total market ratings that are fully comparable with
their English-language counterparts, with two of the full-power O&Os ranking as
the top station in their respective DMAs. See "--The O&Os."
RATINGS
Since the beginning of the NHTI service in November 1992, Univision has
consistently ranked first in prime time among all Hispanic adults. In addition,
Univision has successfully increased its audience ratings compared to both
Telemundo and the English-language broadcast networks. Spanish-language
television prime time is from 7 p.m. to 11 p.m., Eastern and Pacific Standard
Times, Sunday through Saturday. English-language television prime time is from 8
p.m. to 11 p.m., Eastern and Pacific Standard Times, Monday through Saturday and
7 p.m. to 11 p.m., Eastern and Pacific Standard Times, Sunday. The following
table shows that Univision prime time audience ratings, Sunday through Saturday,
among
33
<PAGE>
Hispanic adults aged 18 to 49, the age segment most targeted by advertisers,
have increased compared to the other networks:
NHTI PRIME TIME RATINGS AMONG HISPANIC ADULTS AGED 18 TO 49
<TABLE>
<CAPTION>
(FIRST 6
NETWORK 1993 1994 1995 1996 1997 MONTHS) 1998
- ----------------------------------------------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Univision...................................... 6.6 8.6 9.6 9.0 10.1 10.5
ABC............................................ 3.8 3.3 3.1 2.7 2.3 2.0
CBS............................................ 2.9 2.2 1.8 1.7 1.5 1.3
FOX............................................ 4.0 3.6 3.4 3.2 2.9 2.8
NBC............................................ 3.3 2.7 2.9 3.2 2.5 2.5
Telemundo...................................... 4.1 3.1 2.6 2.1 1.6 1.5
Univision share................................ 26.7% 36.6% 41.0% 41.1% 48.3% 50.1%
</TABLE>
A further indication of Univision's continued strength is its improved
performance among bilingual Hispanics. As the table below indicates, since 1993
the Network advanced from fifth place to first place in prime time audience
ratings, Sunday through Saturday, among bilingual Hispanic adults aged 18 to 49:
NHTI PRIME TIME RATINGS AMONG BILINGUAL HISPANIC ADULTS AGED 18 TO 49
<TABLE>
<CAPTION>
(FIRST 6
NETWORK 1993 1994 1995 1996 1997 MONTHS) 1998
- ----------------------------------------------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Univision...................................... 3.7 6.4 7.5 6.7 6.7 8.1
ABC............................................ 5.0 4.6 3.7 3.1 2.4 2.2
CBS............................................ 4.0 2.9 2.1 1.9 1.6 1.5
FOX............................................ 5.0 4.4 3.8 3.7 3.5 2.9
NBC............................................ 4.9 3.6 3.2 4.0 2.7 2.4
Telemundo...................................... 2.6 1.9 1.3 1.1 1.0 0.9
Univision share................................ 14.7% 26.9% 34.7% 32.7% 37.4% 45.0%
</TABLE>
34
<PAGE>
In addition, as shown in the following table, the Company has increased its
share of the 20 most widely watched programs among all Hispanic Households from
15% in May 1993 to 90% in May 1998:
THE 20 MOST WIDELY WATCHED PROGRAMS
AMONG HISPANIC HOUSEHOLDS BY NETWORK
<TABLE>
<CAPTION>
PROGRAM MAY MAY MAY MAY MAY MAY
RANK 1993 1994 1995 1996 1997 1998
- -- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C>
1... NBC UVN UVN UVN UVN UVN
2... FOX UVN UVN UVN UVN UVN
3... FOX UVN UVN UVN UVN UVN
4... FOX UVN UVN UVN UVN UVN
5... FOX FOX UVN UVN UVN UVN
6... FOX FOX UVN UVN UVN UVN
7... FOX UVN UVN UVN UVN UVN
8... TEL UVN UVN UVN UVN UVN
9... FOX FOX UVN UVN UVN UVN
10... UVN UVN UVN UVN UVN UVN
11... FOX UVN UVN UVN UVN UVN
12... UVN ABC UVN UVN UVN UVN
13... FOX FOX UVN UVN UVN UVN
14... NBC UVN UVN UVN UVN UVN
15... ABC FOX UVN UVN UVN UVN
16... FOX FOX UVN UVN UVN NBC(1)
17... NBC ABC UVN NBC UVN UVN
18... FOX FOX UVN NBC UVN UVN
19... UVN UVN ABC UVN UVN NBC(2)
20... ABC UVN UVN UVN UVN UVN
---- ---- ---- ---- ---- ----
Univision
share... 15% 50% 95% 90% 100% 90%
</TABLE>
- ---------
Source: NHTI
(1) Seinfeld Clip Show
(2) Seinfeld (Average for episodes aired in May, including the show finale)
THE NETWORK
The Network is the leading Spanish-language television network in the U.S.
From its operations center in Miami, the Network provides the Univision
Affiliates via satellite with 24 hours of Spanish-language programming per
broadcast day with a prime time schedule of substantially all first-run
programming (i.e., no re-runs) throughout the year. The operations center also
provides extensive production facilities for the Network's news and
entertainment programming.
The Network produces and acquires programs, makes those programs available
to the Univision Affiliates, sells network advertising and represents the
Broadcast Affiliates in the sale of national spot advertising. Each Broadcast
Affiliate has a right of first refusal in its DMA to use the Network's
programming. The full-power Broadcast Affiliates together reach approximately
5.7 million, or approximately 74%, of Hispanic Households. The low-power
Broadcast Affiliates (including translators) together reach approximately
586,000, or approximately 8%, of Hispanic Households. The Cable Affiliates reach
approximately 870,000, or approximately 11%, of Hispanic Households. Through the
Company's ownership of the O&Os, it controls approximately 80% of the Network's
broadcast distribution.
AFFILIATION AGREEMENTS. Each Univision Affiliate has the right to preempt
(i.e., to decline to broadcast at all or at the time scheduled by the Network),
without prior Network permission, any and all Network programming that it deems
unsatisfactory, unsuitable or contrary to the public interest or to substitute
programming it believes is of greater local interest, provided that the Network
consents to any rescheduling of preempted programming. If a Univision Affiliate
preempts a Network program and no suitable
35
<PAGE>
substitute broadcast time is mutually agreed upon, the Network is permitted to
offer the program to any other television station or cable service in the DMA
served by such Univision Affiliate.
Each Affiliation Agreement grants the Univision Affiliate the right of first
refusal to the Network's entire program schedule. The Affiliation Agreements
generally provide that 50% of all advertising time be retained by the Network
for Network advertising and the other 50% of the time be allocated to the
Univision Affiliate for local and national spot advertising. However, this
allocation may be modified at the Company's discretion.
The Affiliated Stations retain 100% of all local advertising revenues, and
the Network retains 100% of Network advertising revenues. The Network acts as
the representative of the Univision Affiliates for national spot sales and
receives a commission of 15% of net revenues after agency commission in return
for such services from its Affiliated Stations.
The Network from time to time may enter into Affiliation Agreements with
additional stations in new DMAs based upon its perception of the market for
Spanish-language television and the Hispanic market in the station's DMA.
CABLE AFFILIATES. The Network has historically used Cable Affiliates to
reach communities which could not support a Broadcast Affiliate because of the
relatively small number of Hispanic Households. Cable Affiliation Agreements may
cover an individual system operator or a multiple system operator. Cable
Affiliation Agreements are for the most part non-exclusive, thereby giving the
Network the right to license all forms of distribution in cable markets. Cable
Affiliates generally receive the Network's programming for a fee based on the
number of subscribers. The Network retains 100% of the allocation of Network
advertising revenues attributable to Cable Affiliates and provides certain Cable
Affiliates with two minutes of local advertising time per hour. Cable Affiliates
retain 100% of local and national advertising revenues. However, the Company
represents certain cable affiliates in national spot sales for varying fees. See
"--Federal Regulation and New Technologies."
UNIVISION AFFILIATE COVERAGE AND RANK. The table below sets forth certain
information with respect to the Univision Affiliates' coverage and rank.
36
<PAGE>
UNIVISION AFFILIATES' COVERAGE AND RANK AMONG HISPANIC HOUSEHOLDS
<TABLE>
<CAPTION>
HISPANIC HOUSEHOLDS NATIONWIDE
COVERED(B) HISPANIC HOUSEHOLDS
DMA(A) STATION (IN THOUSANDS) COVERED(B)
- ------------------------------------------------- ----------- --------------------- -----------------------
<S> <C> <C> <C>
FULL-POWER O&OS
Los Angeles (1)................................ KMEX 1,351 17.5%
New York (2)................................... WXTV 1,023 13.2
Miami (3)...................................... WLTV 451 5.8
San Francisco (4).............................. KDTV 301 3.9
Chicago (5).................................... WGBO 293 3.8
San Antonio (6)................................ KWEX 283 3.7
Houston (7).................................... KXLN 278 3.4
Dallas/Ft. Worth (9)........................... KUVN 188 2.4
Albuquerque (10)(e)............................ KLUZ 181 2.3
Phoenix (11)................................... KTVW 169 2.2
Fresno (14).................................... KFTV 160 2.1
Sacramento (15)................................ KUVS 154 2.0
----- ---
Total full-power O&Os........................ 4,832 62.3
----- ---
FULL-POWER AFFILIATED STATIONS
McAllen/Brownsville (8)(f)..................... KNVO 190 2.5
El Paso (13)(f)................................ KINT 162 2.1
Denver (16)(f)................................. KCEC 122 1.6
Corpus Christi (19)(f)......................... KORO 93 1.2
Boston (20).................................... WUNI 89 1.2
Salinas/Monterey (25)(f)....................... KSMS 51 0.7
Las Vegas (27)(f).............................. KINC 49 0.6
Laredo (29)(f)................................. KLDO 45 0.6
Sta Barbara-Sta Maria-San Luis Obispo
(32)(g)...................................... KTAS 17 0.2
Yuma/El Centro (33)(f)......................... KVYE 39 0.5
----- ---
Total full-power Affiliated Stations......... 857 11.2
CABLE AFFILIATES (h)............................. 870 11.2
LOW-POWER BROADCAST AFFILIATES (i)............... 586 7.6
----- ---
TOTAL UNIVISION AFFILIATES....................... 7,145 92.3%
----- ---
----- ---
<CAPTION>
UNIVISION
AFFILIATES'
RANK AMONG
SPANISH LANGUAGE
TELEVISION
DMA(A) STATIONS(C)(D)
- ------------------------------------------------- -----------------------
<S> <C>
FULL-POWER O&OS
Los Angeles (1)................................ 1(c)
New York (2)................................... 1(c)
Miami (3)...................................... 1(c)
San Francisco (4).............................. 1(c)
Chicago (5).................................... 1(c)
San Antonio (6)................................ 1(c)
Houston (7).................................... 1(c)
Dallas/Ft. Worth (9)........................... 1(c)
Albuquerque (10)(e)............................ 1(c)
Phoenix (11)................................... 1(c)
Fresno (14).................................... 1(c)
Sacramento (15)................................ 1(c)
Total full-power O&Os........................
FULL-POWER AFFILIATED STATIONS
McAllen/Brownsville (8)(f)..................... 1(c)
El Paso (13)(f)................................ 1(c)
Denver (16)(f)................................. 1(d)
Corpus Christi (19)(f)......................... 1(d)
Boston (20).................................... 1(d)
Salinas/Monterey (25)(f)....................... 1(d)
Las Vegas (27)(f).............................. 1(d)
Laredo (29)(f)................................. 1(d)
Sta Barbara-Sta Maria-San Luis Obispo
(32)(g)...................................... 1(d)
Yuma/El Centro (33)(f)......................... 1(d)
Total full-power Affiliated Stations.........
CABLE AFFILIATES (h).............................
LOW-POWER BROADCAST AFFILIATES (i)...............
TOTAL UNIVISION AFFILIATES.......................
</TABLE>
- ---------
(a) Numbers in parentheses represent Hispanic DMA rank by number of Hispanic
Households.
(b) Source: Nielsen Media Research, Black & Hispanic DMA Market and Demographic
Rank, January 1998.
(c) Rank among the Spanish television stations in the DMA. Source NHSI May 1998,
Su-Sa/9A-12M.
(d) Rank among the Spanish television stations in the DMA. Source NSI May 1998,
Su-Sa/9A-12M.
(e) Entravision has entered into a letter of intent to acquire this station from
the Company.
(f) Owned by Entravision.
(g) Source: Company estimate of Hispanic Households covered by Univision
Affiliate in Santa Barbara DMA based on Nielsen Cable On-Line Data Exchange
estimates for network satellite direct coverage households in the market.
This market has approximately 40,000 Hispanic Households, but the Univision
signal does not reach all of them due to geographic barriers.
(h) Source: Company estimate derived from Nielsen Cable On-Line Data Exchange,
January 1998.
(i) Source: Company estimate derived from Nielsen Media Research, Black and
Hispanic DMA Market and Demographic Rank, January 1998.
37
<PAGE>
GALAVISION NETWORK
Galavision is the leading U.S. Spanish-language general entertainment basic
cable television network, reaching approximately 8.7 million subscribers, of
whom 2.6 million are Hispanic. According to Nielsen, Galavision reaches over 59%
of all Hispanic Households that subscribe to cable. The Company programs
Galavision so that Galavision and the Network generally do not run the same type
of show simultaneously. For example, while the Network is running a NOVELA,
Galavision may run sports or news. As a result of this counter-programming, many
Spanish-language television viewers have a choice of two Univision networks at
any one time. Additionally, Univision cross-promotes the Galavision service five
times daily.
Galavision is the only Spanish-language cable service subscribing to
Nielsen. Nielsen uses a subset of the NHTI sample to produce the Nielsen
Hispanic Home Video Index, which reports viewing of Galavision in Hispanic
Households with cable. The Company believes that its use of Nielsen to measure
Galavision's ratings assists the Company in obtaining advertisers for the cable
network and in selecting programs that meet its audience's taste. Twenty-four of
the top 25 Univision advertisers advertise on Galavision.
On March 30, 1998 a joint venture, which is jointly owned by the Company and
Home Shopping Network, began broadcasting a Spanish-language television shopping
program in the United States on Galavision. The program is currently broadcast
for three hours a day from 11 a.m. to 2 p.m.
PROGRAMMING
The Company directs its programming toward its young, family-oriented
audience. It begins daily with DESPIERTA AMERICA and talk and information shows,
Monday through Friday, followed by NOVELAS. In the late afternoon and early
evening, the Network offers a talk show, a news-magazine and national news, in
addition to local news provided by the O&Os. Weekend daytime programming begins
with children's programming, followed by sports, variety, teen lifestyle shows
and movies. During prime time, Univision airs NOVELAS, variety shows, a talk
show, comedies, news magazines, lifestyle shows, as well as specials and movies.
Prime time is followed by late news and a late night talk show. Overnight
programming consists primarily of repeats of programming aired earlier in the
day.
Approximately eight hours of programming per weekday, including a
substantial portion of weekday prime time, are currently programmed with NOVELAS
supplied primarily by Televisa. Although NOVELAS have been compared to daytime
soap operas on ABC, NBC or CBS, the differences are significant. NOVELAS,
originally developed as serialized books, have a beginning, middle and end,
generally run five days per week, and conclude four to eight months after they
begin. NOVELAS also have a much broader audience appeal than soap operas,
delivering audiences that contain large numbers of men, children and teens in
addition to women.
The Hispanic population is primarily young and family-oriented. Univision's
programming has changed dramatically over the past five years in order to
attract and retain this audience. The Company's success in attracting a young
audience is demonstrated by a 30% increase in NHTI audience among Hispanic
adults aged 18 to 34, Sunday through Saturday 9 a.m. to midnight, from May 1993
through May 1998.
In 1995, Univision began to air the Spanish-language version of Sesame
Street, coproduced by Televisa in cooperation with Children's Television
Workshop. PLAZA SESAMO now airs two hours per week. The Company's broadcasting
of educational children's programming, including PLAZA SESAMO, meets the FCC
requirement of airing three hours of weekly educational programming.
38
<PAGE>
In 1997, the Company derived approximately 39% and 7.2% of its gross
advertising sales from programs produced by Televisa and Venevision,
respectively, under the Program License Agreements; for the six months ended
June 30, 1998 these percentages were 34.7% and 4.4%, respectively. Programming
supplied by Televisa and Venevision under the Program License Agreements and
programs produced by the Company currently represent in the aggregate
approximately 93% of the Network's non-repeat broadcast hours. The remainder
primarily consists of movies acquired from independent third-party suppliers.
Three of the Company's own productions, SABADO GIGANTE, a variety show hosted by
Mario Kreutzberger, PRIMER IMPACTO, a news magazine program, and CRISTINA, a
talk show hosted by Cristina Saralegui, are among its most successful programs
in terms of advertising revenues generated. Approximately 40.5% and 48.3% of the
Company's gross advertising sales in 1997 and the six months ended June 30,
1998, respectively, were generated by programs it produced.
Univision news programming is generally produced either at the Network
facility in Miami or the local stations. The Network produces an early evening
network newscast seven days per week and a late network newscast, Monday through
Friday. All full-power O&Os produce local newscasts that reflect the communities
they serve. A national public affairs program, TEMAS Y DEBATES, is also produced
weekly by the Network in Washington, D.C.
The Company produces a Sunday afternoon sports anthology show and a Sunday
night sports wrap-up show. Live sports programming primarily consists of boxing
and soccer. The 1998 World Cup soccer coverage broadcast by Univision garnered
the Company's highest sports ratings. In 1996 the Company began televising the
Sunday "Game of the Week" for Major League Soccer.
The Company entered into an agreement with Televisa in March 1998, which
provides for each party to produce, at each party's own expense, three separate
13 week non-NOVELA programs. Each party has agreed to use commercially
reasonably efforts to complete the production of its programs no later than
October 31, 1998. Each party will own all rights worldwide in perpetuity in the
programs that it produces; provided that each party will have the right to
broadcast and otherwise exploit the shows as set forth in the Program License
Agreement between the Company and Televisa and the International Programming
Rights Agreement. See "Certain Transactions--New Programming Agreement."
PROGRAM LICENSE AGREEMENTS
Through the Program License Agreements, Univision has the first right until
December 2017 to air in the U.S. all Spanish-language programming produced by or
for Televisa and Venevision (with certain exceptions). The Program License
Agreements provide the Network and Galavision with access to programming to fill
up to 100% of their program schedules. Televisa and Venevision programming
represented approximately 43.0% and 13.0%, respectively, of the Network's
non-repeat broadcast hours in 1997. In 1997, the Company derived approximately
39.0% and 7.2% of its gross advertising sales from programs produced by Televisa
and Venevision, respectively, under the Program License Agreements; for the six
months ended June 30, 1998, these percentages were 34.7% and 4.4%, respectively.
The Program License Agreements allow the Company long-term access to
Televisa and Venevision programs and the ability to terminate unsuccessful
programs and replace them with other Televisa and Venevision programs without
paying for the episodes that are not broadcast. Accordingly, the Company has
more programs available to it and greater programming flexibility than any of
its competitors. This program availability and flexibility have permitted the
Company to adjust programming to best meet the tastes of its viewers.
Under the Program License Agreements, Univision may license programming from
Televisa and Venevision that, when added to (i) local programs produced by the
O&Os and used on the Network, (ii) any programs produced by Univision and (iii)
any programs purchased by Univision other than from Televisa and Venevision,
will be sufficient (when including an estimated six hours of repeat broadcasting
in
39
<PAGE>
the case of the Venevision agreement) to fill a twenty-four hour per day, seven
day per week time schedule for each of the Network and Galavision.
The Company's Televisa and Venevision options are prior to all third
parties' rights to obtain Televisa and Venevision produced programming for
broadcast in the U.S. Generally, Univision also has a right of first refusal to
acquire any program for which Univision did not exercise its option before
Televisa or Venevision can license such program to any third party. Any program
for which Univision elects not to exercise its right of first refusal may be
licensed to third parties for not more than one run over a period of one year
(with one re-run in the case of NOVELAS). Thereafter, such program must be made
available to Univision under the terms described above. To the extent that
Televisa or Venevision uses, or licenses a third party to use, its programming
in the United States in accordance with the terms of the Program License
Agreements, the Company would compete against such entity.
Televisa and Venevision programs available to Univision are defined under
the Program License Agreements as all programs produced by or for each of them
in the Spanish-language or with Spanish subtitles other than programs for which
they do not own U.S. broadcast rights or as to which third parties have a right
to a portion of the revenues from U.S. broadcasts ("Co-produced Programs").
Televisa and Venevision have also agreed through their affiliates to use their
best efforts to coordinate with Univision to permit Univision to acquire U.S.
Spanish-language rights to certain Co-produced Programs and to special events
produced by others, sporting events, political conventions, election coverage,
parades, pageants and variety shows.
In consideration of access to the programming of Televisa and Venevision,
the Company pays Televisa and Venevision aggregate royalties based upon Combined
Net Time Sales. The royalties (net of certain cost sharing reimbursements which
ceased upon completion of the Reorganization) were 9.4%, 9.9%, 13.4% and 14.6%
of combined net revenues for the years ended December 31, 1995, 1996 and 1997
and for the six months ended June 30, 1998, respectively. Aggregate royalties to
Televisa and Venevision were 13.5% of Combined Net Time Sales in 1997, and have
increased to 15.0% of Combined Net Time Sales for 1998 and all years thereafter.
The program royalty percentage based on net revenues and Combined Net Time Sales
differ because net revenue includes certain revenues that are not subject to the
Program License Agreements. The Network is obligated to pay such aggregate
royalties to Televisa and Venevision each year throughout the term regardless of
the amount of Televisa and Venevision programming used by the Company.
The Program License Agreements are between affiliates of the Company,
Televisa and Venevision and the performance of their affiliates has been
unconditionally guaranteed by the Company, Televisa and Venevision,
respectively. Pursuant to their respective guarantees, Televisa has agreed to
use commercially reasonable efforts to continue to produce programs available to
the Network at least to the same extent in terms of quality and quantity as in
calendar years 1989, 1990 and 1991 and Venevision has agreed to use commercially
reasonable efforts to produce or acquire programming sufficient to enable its
affiliate to provide at least nine hours per day of programs to the Network to
satisfy such affiliate's obligations under its Program License Agreement.
The Company believes that the Venevision affiliate has not been fulfilling
its programming obligations, and that Venevision has not used commercially
reasonable efforts to enable the affiliate to do so. The full amount of
aggregate royalties have been paid. Venevision continues to believe that
Venevision and its affiliate have complied with their obligations to the
Company.
The Company has attempted to resolve this dispute through negotiations with
Venevision but they have not been successful. Thus, the Company has notified
Venevision of its intention to enforce its rights under the agreements by all
appropriate means including, if necessary, legal action, if Venevision continues
to fail to cause its affiliate to make available the programming the Company
believes the affiliate is obligated to provide. There can be no assurance, if
the Company were to commence such legal action or pursue other legal remedies,
that it would prevail.
40
<PAGE>
In addition, Televisa has agreed with several partners, each of whom has
substantial assets, to develop and operate a direct broadcast satellite ("DBS")
venture, which will have a variety of program services, including program
services supplied by Televisa. Televisa is required to offer the Company the
opportunity to acquire a 50% economic interest in Televisa's interest in the
joint venture to the extent it relates to United States Spanish-language
broadcasting. While the Company believes that it will be offered such an
interest, the Company has not received any indication as to what the business
terms relating to such interest would be. Accordingly, the Company is not in a
position to state whether it would accept such an offer. If the venture secures
a significant viewership among Hispanic Households, it could have a material
adverse effect on Univision's financial condition and results of operations,
even if Univision decides to acquire this 50% economic interest.
Televisa asserts that the terms and conditions of its Program License
Agreement with Univision allow it, under certain circumstances, to provide any
DBS venture uplinking in Mexico for distribution in the United States with
Televisa program services which contain programs to which Univision believes it
has an exclusive first option in the United States. Univision disagrees with
Televisa's assertion and has notified Televisa of its intention to enforce its
rights by all appropriate means including, if necessary, legal action, if
Televisa provides such programs to any such DBS venture. There can be no
assurance that Televisa will desist from providing such programming to its or
other DBS ventures, or, if Televisa were not to desist, that Univision would
prevail in court.
THE O&OS
The Company owned and operated 13 full-power O&Os as of June 30, 1998, 12 of
which broadcast Network programming, produce local news and other programming of
local importance, cover special events and may acquire programs from other
suppliers. The Company's Bakersfield full-power station is a UPN affiliate. The
Company acquired its Sacramento Affiliated Station in March 1997. Each of the
full-power Network-affiliated O&Os is the leading Spanish-language television
station in its DMA.
A full-power O&O's ability to compete in terms of NSI ratings with the
English-language stations in a particular market is a function of the level of
Spanish-language use in the DMA which is affected in part by Hispanic Household
density. In DMAs where households that speak Spanish at least 50% of the time
exceed 15% of all households in the DMA, the full-power O&Os, in general, have
audience delivery comparable with the leading English-language network
affiliated stations in that DMA. In a DMA where the households that speak
Spanish at least 50% of the time is between 10% and 15% of all households in
that DMA, the full-power O&Os, in general, have audience delivery comparable
with the leading independent stations in the DMA. In a DMA where households that
speak Spanish at least 50% of the time is between 5% and 10% of all households
in that DMA, the full-power O&Os, in general, have audience delivery comparable
with the lower rated independent stations in the DMA. As shown on the following
table, two of the full-power O&Os owned by the Company as of May 20, 1998 rank
as the top station in their respective DMAs.
41
<PAGE>
FULL-POWER O&OS' COVERAGE AND RANK AMONG HISPANICS
<TABLE>
<CAPTION>
UNIVISION
SHARE OF
DMA RANK 1998 HISPANIC 1998 HISPANIC HISPANIC SPANISH- SPANISH- ADULTS 18 TO 49
(BY NUMBER OF POPULATION (IN HOUSEHOLDS (IN HOUSEHOLD LANGUAGE LANGUAGE TOTAL AUDIENCE
DMA HISPANICS)(A)(B) THOUSANDS)(B) THOUSANDS)(B) DENSITY(C) USE(D) VIEWING(E) MARKET RANK(F)
- -------------------- ---------------- -------------- -------------- --------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Los Angeles......... 1 5,465 1,351 27.0% 20.0% 71%(g) 4
New York............ 2 3,190 1,023 15.1 11.7 78 6
Miami............... 3 1,295 451 32.5 28.6 81(h) 1
San Francisco....... 4 1,072 301 13.1 7.5 81 6
Chicago............. 5 1,069 293 9.3 7.4 78 7
Houston............. 6 977 278 17.1 11.5 92 3
San Antonio......... 7 928 283 43.7 23.5 79 5
Dallas/Ft. Worth.... 9 669 188 9.9 6.6 87 7
Fresno.............. 11 609 160 32.3 22.5 90 1
Phoenix............. 12 586 169 13.1 8.0 100 6
Sacramento.......... 14 541 154 13.7 7.8 100 5
Albuquerque......... 15 540 181 32.3 15.6 100 7
</TABLE>
- ------------
(a) The other DMAs ranked among the top fifteen by number of Hispanic persons
are McAllen/Brownsville (8th), San Diego (10th) and El Paso (13th).
(b) Source: Nielsen Media Research, Black & Hispanic DMA Market and Demographic
Rank, January 1998 estimates. In deriving its figures, Nielsen only counts
persons present in Hispanic Households.
(c) Percentage of total households that are Hispanic Households. Source: Nielsen
Media Research, Black & Hispanic DMA Market and Demographic Rank, January
1998.
(d) Represents the percentage of all households in a DMA where the Spanish
language is spoken at least 50% of the time by adults. Source: Nielsen
Enumeration Study 1996, which sets forth demographic attributes of Hispanic
population.
(e) Source: NHSI, adults 18 to 49, May 1998, Sunday to Saturday, 9 a.m. to 12
midnight.
(f) Source: NSI, adults 18 to 49, May 1998, Sunday to Saturday, 9 a.m. to 12
midnight.
(g) The Los Angeles market has three full-power Spanish-language television
stations.
(h) The Miami market has four Spanish-language television stations.
Set forth below is information, including ratings and performance
information based on most recently available data, for the Company's top six
O&Os.
LOS ANGELES. The Los Angeles DMA has the largest Hispanic population in the
U.S., estimated by Nielsen to be 5.5 million people as of the beginning of 1998,
and is the second largest U.S. television market overall. Between 1980 and 1990,
the Hispanic population of Los Angeles grew approximately seven times faster
than its non-Hispanic population. According to the U.S. Census Bureau, 78% of
Hispanics in Los Angeles are of Mexican origin. The Hispanic population in Los
Angeles represents 37% of that DMA's total population and 21% of the total U.S.
Hispanic population.
The Los Angeles DMA has three Spanish-language, full-power UHF television
stations. In May 1998, the Company's Los Angeles O&O, Univision--KMEX, posted a
71% share of the viewers tuned to Spanish-language television from 9 a.m. to
midnight Sunday through Saturday, while Telemundo--KVEA posted a 19% share and
KWHY (which only broadcasts in Spanish from 3 p.m. to 11 p.m.) posted a 10%
share. Compared to all general market television stations in the May 1998 NSI
Report, KMEX was second in adults aged 18 to 34 ratings, as well as fourth in
adults aged 18 to 49 ratings and was seventh in households in the Los Angeles
DMA Sunday through Saturday 9 a.m. to midnight. A total of 16 commercial
television stations currently operate in the Los Angeles DMA. Some of these
stations simulcast their news programs and certain entertainment programs in
both English and Spanish. In addition, Nielsen estimates that cable penetration
among Hispanic Households in the Los Angeles DMA is 51%.
42
<PAGE>
NEW YORK. The New York DMA has the second largest Hispanic population in
the U.S., estimated by Nielsen to be 3.2 million people at the beginning of
1998, and is the largest U.S. television market overall. The New York Hispanic
community tends to be more fragmented into groups from many different Latin
American countries, including Puerto Rico, Cuba, the Dominican Republic and
Mexico, who have settled in different neighborhoods in the DMA. This
fragmentation distinguishes the New York market from Los Angeles and Miami where
the Hispanic population is predominantly Mexican and Cuban, respectively. The
Hispanic population in New York represents 18% of that DMA's total population
and 12% of the total U.S. Hispanic population.
In May 1998, Univision--WXTV was the leading Spanish-language station with a
78% share of the audience watching Spanish-language television (9 a.m. to
midnight, Sunday through Saturday). While Univision--WXTV broadcasts full time
in Spanish, Telemundo--WNJU broadcasts only 15 hours per day in Spanish Monday
through Friday, and less on the weekend. The remainder of time on Telemundo--
WNJU is used for paid programming and programs in a variety of other languages.
Compared to all general market television stations in the May 1998 NSI Report,
WXTV ranked fifth in adults aged 18 to 34 ratings and ranked sixth in adults
aged 18 to 49 ratings, Sunday through Saturday, 9 a.m. to midnight. A total of
14 commercial television stations service the New York DMA. According to
Nielsen, cable penetration among Hispanic Households in the New York DMA is
approximately 58%.
MIAMI. The Miami DMA has the third largest Hispanic population in the U.S.,
estimated by Nielsen to be 1.3 million people as of the beginning of 1998, and
is the sixteenth largest U.S. television market overall. According to the Census
Bureau, 56% of Hispanics in Miami are of Cuban origin. The Hispanic population
in Miami represents 37% of that DMA's total population and 5% of the total U.S.
Hispanic population.
In May 1998, the Company's Miami O&O, Univision--WLTV, had an 81% share of
the audience watching Spanish-language television from 9 a.m. to midnight,
Sunday through Saturday. Compared to all general market television stations in
the May 1998 NSI Report, WLTV was in first place in adults aged 18 to 49, adults
aged 18 to 34, and adults aged 25 to 54 ratings and placed first in households
in the Miami market Sunday through Saturday, 9 a.m. to midnight. WLTV is fully
competitive with all English-language stations in the Miami DMA in all major
dayparts.
A total of 14 commercial television stations service the Miami DMA. In
addition to Univision-- WLTV and Telemundo--WSCV, three other television
stations show some Spanish-language programming. According to Nielsen, cable
penetration among Hispanic Households in Miami is approximately 64%.
SAN FRANCISCO. The San Francisco DMA has the fourth largest Hispanic
population in the U.S. estimated by Nielsen to be 1.1 million people as of the
beginning of 1998; and is the fifth largest television market overall. According
to the U.S. Census Bureau, 68% of the Hispanics in San Francisco are of Mexican
origin. The Hispanic population of San Francisco represents 18% of the DMA's
total population and 4% of the total U.S. Hispanic population.
In May 1998 the Company's San Francisco O&O, Univision--KDTV, had an 81%
share of the audience watching Spanish-language television from 9 a.m. to
midnight Sunday through Saturday. KDTV has one Spanish-language competitor,
Telemundo--KSTS. Compared to all general market television stations in the San
Francisco DMA in the May 1998 NSI report KDTV ranked sixth among adults aged
18-34 and sixth in adults aged 18-49. KDTV is fully competitive with certain
English-language stations in delivering young adult demographics in the San
Francisco DMA. A total of 16 commercial television stations service the San
Francisco DMA. According to Nielsen the cable penetration among Hispanic
Households in San Francisco is approximately 65%.
CHICAGO. The Chicago DMA has the fifth largest Hispanic population in the
U.S., estimated by Nielsen to be 1.1 million people at the beginning of 1998,
and is the third largest U.S. television market
43
<PAGE>
overall. The Hispanic population in Chicago represents 13% of that DMA's
population and 4% of the total U.S. Hispanic population.
In 1994, the Company acquired an English-language independent television
station, WGBO, which it converted to a Spanish-language format on January 1,
1995. In May 1998, Univision--WGBO posted a 78% share of the audience watching
Spanish-language television 9 a.m. to midnight, Sunday through Saturday. WGBO
has one Spanish-language competitor, Telemundo--WSNS. Compared to all general
market television stations in the Chicago DMA in the May 1998 NSI report, WGBO
ranked seventh. WGBO is fully competitive with certain English-language stations
in the delivery of young demographics in the Chicago DMA, particularly adults
aged 18 to 34. A total of 13 television stations service the Chicago DMA.
According to Nielsen, cable penetration among Hispanic Households in Chicago is
approximately 47%.
HOUSTON. Houston has the sixth largest Hispanic population in the U.S.,
estimated by Nielsen to be 1.0 million people, and is the eleventh largest U.S.
television market overall. The Hispanic population in Houston represents 22% of
that DMA's total population and 4% of the total U.S. Hispanic population.
In 1994, the Company acquired its Affiliated Station, KXLN, in Houston. In
May 1998, Univision-- KXLN posted a 92% share of the audience watching
Spanish-language television 9 a.m. to midnight, Sunday through Saturday. KXLN
has one Spanish-language competitor, the Telemundo affiliate KTMD. Compared to
all general market television stations in the Houston DMA in the May 1998 NSI
Report, KXLN was ranked first in the delivery of adults aged 18 to 34 and third
in adults aged 18 to 49, Sunday through Saturday, 9 a.m. to midnight.
A total of 14 commercial television stations service the Houston DMA.
According to Nielsen, cable penetration among Hispanic Households in Houston is
approximately 39%.
The Company exercises its "must carry" rights in each DMA in which it
operates a full-power O&O.
Univision's eight low-power O&Os are located in Philadelphia, Hartford,
Austin, Bakersfield, Tucson, Santa Rosa, Albuquerque and Fort Worth. A low-power
station is a low-power broadcast facility that may originate programming and
commercial matter but that often transmits programming received from elsewhere
(including via satellite). The low-power O&Os, in the aggregate, accounted for
approximately 1% of the Company's net revenues in 1997 and approximately 3.0% of
the Network broadcast distribution.
ADVERTISING
The Company's top 10 advertisers for 1997 were Procter & Gamble, MCI
Communications, McDonald's, AT&T, Sears, Ford, Anheuser Busch,
Colgate-Palmolive, Miller Brewing Co., and Burger King, most of which have
substantially increased advertising commitments to the Company since the
Acquisition. Since 1994, no single advertiser has accounted for more than 10% of
the Company's gross advertising revenues. Approximately 98.5% of Univision's
gross revenues for 1996 and 1997 and approximately 98.3% for the six months
ended June 30, 1998 consisted of Network, national spot, local and Galavision
advertising revenues.
None of the O&Os currently receives its proportionate share of advertising
revenues commensurate with its audience share. The Company believes that the
continued utilization of reliable rating services and the addition of
salespeople with extensive general market television and advertising expertise
will further enable the Company to demonstrate to advertisers its ability to
reach the Hispanic audience, thereby allowing the Company to narrow the gap
between its share of advertising revenues and its audience share.
NETWORK ADVERTISING. Network advertising revenues represented 49.2% and
51.4% of the Company's gross revenues in 1997 and the six months ended June 30,
1998, respectively. The Company attracts advertising expenditures from diverse
industries, with advertising for food and beverages, personal care
44
<PAGE>
products, automobiles, other household goods and telephone services representing
the majority of Network advertising.
SPOT ADVERTISING. National spot advertising represents time sold to
national and regional advertisers based outside a station's DMA. National spot
advertising revenues represented 18.3% and 16.5% of the Company's gross revenues
for 1997 and the six months ended June 30, 1998, respectively. National spot
advertising primarily comes from new advertisers wishing to test a market and
advertisers who are regional retailers and manufacturers without national
distribution. To a lesser degree, national spot advertising comes from
advertisers who have the need to enhance network advertising in a given market.
National spot advertising is the means by which most new national and regional
advertisers begin marketing to Hispanics.
LOCAL ADVERTISING. Local advertising revenues are generated by both local
merchants and service providers and regional and national businesses and
advertising agencies located in a particular DMA. Local advertising revenues
represented 31.0% and 29.1% of the Company's gross revenues for 1997 and the six
months ended June 30, 1998, respectively.
MARKETING
The Company increased by 87% the number of its marketing professionals from
146 at December 31, 1994 to 273 at June 30, 1998, including approximately 56
employees hired in connection with the acquisition of the Chicago, Sacramento,
Houston and Bakersfield O&Os and Galavision. The Company's account executives
are divided into three groups: Network sales; national spot sales; and local
sales. The account executives responsible for Network sales target and negotiate
with accounts that advertise nationally. The national spot sales force
represents Broadcast Affiliates for all sales placed from outside their
respective DMAs. The local sales force represents an O&O for all sales placed
from within its DMA.
In addition, the Company's sales department utilizes research, including
both ratings and demographic information analyzed by the Company's research
department, to negotiate sales contracts as well as target major national
advertisers that are not purchasing advertising time or who are under-purchasing
advertising time on Spanish-language television.
The Company maintains Network and national sales offices in Atlanta,
Chicago, Dallas, Detroit, Irvine (California), Los Angeles, Miami, New York, San
Antonio and San Francisco.
COMPETITION
The broadcasting and cable business is highly competitive. Competition for
advertising revenues is based on the size of the market that the particular
medium can reach, the cost of such advertising and the effectiveness of such
medium. The Company believes that it is competitive in the size of market it
reaches and the cost and effectiveness of advertising time it sells.
The Company competes for viewers and revenues with other Spanish-language
and English-language television stations and networks, including the four
principal English-language television networks, ABC, CBS, NBC and Fox, and in
certain cities, UPN and WB. Certain of these English-language networks and
others have begun producing Spanish-language programming and simulcasting
certain programming in English and Spanish. Several cable broadcasters have
recently commenced, or announced their intention to commence, Spanish-language
services as well. The Company also competes for viewers and revenues with
independent television stations, other video media, suppliers of cable
television programs, direct broadcast systems (including two which were started
in 1996 for broadcast outside the United States and in which Televisa and
Venevision have substantial interests), newspapers, magazines, radio and other
forms of entertainment and advertising. The Univision Affiliates located near
the Mexican border also compete for viewers with television stations operated in
Mexico, many of which are affiliated with a Televisa network and owned by
Televisa.
45
<PAGE>
The Company's Restated Certificate of Incorporation allows the Company to
engage in all media related business. However, neither Televisa nor Venevision
will be required to offer opportunities to the Company other than those
involving Spanish-language television broadcasting or a Spanish-language
television network in the United States. Consequently, the Company could compete
directly with Televisa and Venevision, two of its Principal Stockholders, in
other media and languages. Televisa currently publishes and distributes
Spanish-language publications and sells Spanish-language recorded music in the
United States.
Telemundo is the Company's largest competitor that broadcasts
Spanish-language television programming. As of December 31, 1997, Telemundo
served 60 markets in the United States as well as the Puerto Rican market, and
reached approximately 85% of all Hispanic Households. In most of the Company's
DMAs, the Univision Affiliate competes directly with a station owned by or
affiliated with Telemundo. In August 1998, a venture formed by Apollo Investment
Fund III L.P., Bastion Capital Fund L.P., the Sony Pictures Entertainment unit
of Sony Corp. and Liberty Media Corporation acquired Telemundo. The Company
cannot predict the effect of such acquisition on Telemundo's competitive
position vis-a-vis the Company.
Televisa has agreed with several partners, each of whom has substantial
assets, to develop and operate a DBS venture, which will have a variety of
program services, including program services supplied by Televisa. Televisa is
required to offer the Company the opportunity to acquire a 50% economic interest
in Televisa's interest in the joint venture to the extent it relates to United
States Spanish-language broadcasting. While the Company believes that it will be
offered such an interest, the Company has not received any indication as to what
the business terms relating to such interest would be. Accordingly, the Company
is not in a position to state whether it would accept such an offer. If the
venture secures a significant viewership among Hispanic Households, it could
have a material adverse effect on Univision's financial condition and results of
operations, even if Univision decides to acquire this 50% economic interest.
The rules and policies of the FCC also encourage increased competition among
different electronic communications media. As a result of rapidly developing
technology, the Company may experience increased competition from other free or
pay systems by which information and entertainment are delivered to consumers,
such as direct broadcast satellite and video dial tone services.
MATERIAL PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
In the course of its business, the Company uses various trademarks, trade
names and service marks, including its logos in its advertising and promotions.
The Company believes the strength of its trademarks, trade names and service
marks are important to its business and intends to continue to protect and
promote its marks as appropriate. The Company does not hold or depend upon any
material patent, government license, franchise or concession, except the
licenses granted by the FCC to the O&Os.
EMPLOYEES
As of June 30, 1998, the Company employed approximately 1,600 full-time
employees. At June 30, 1998, approximately 13% of the Company's employees,
located in Chicago, Los Angeles, San Francisco and New York were represented by
unions.
The collective bargaining agreements covering the union employees expire at
the Chicago O&O in 2000 and at the Los Angeles O&O starting in 1999. The New
York O&O has two collective bargaining agreements which expire in 1999 and is
currently negotiating one new collective bargaining agreement. The San Francisco
O&O completed negotiations on its collective bargaining agreement which expires
in 2002.
Management believes that its relations with its non-union and union
employees, as well as with the union representatives, are good.
46
<PAGE>
FEDERAL REGULATION AND NEW TECHNOLOGIES
The ownership, operation and sale of TV stations, including those licensed
to subsidiaries of the Company, are subject to the jurisdiction of the FCC under
authority granted it pursuant to the Communications Act of 1934, as amended (the
"Communications Act"). Matters subject to FCC oversight include, but are not
limited to, the assignment of frequency bands for broadcast television; the
approval of a TV station's frequency, location and operating power; the
issuance, renewal, revocation or modification of a TV station's FCC license; the
approval of changes in the ownership or control of a TV station's licensee; the
regulation of equipment used by TV stations; and the adoption and implementation
of regulations and policies concerning the ownership, operation and employment
practices of TV stations. The FCC has the power to impose penalties, including
fines or license revocations, upon a licensee of a TV station for violations of
the FCC's rules and regulations.
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually has relaxed
or eliminated many of the more formalized procedures it had developed to promote
the broadcast of certain types of programming responsive to the needs of a
station's community of license. However, broadcast station licensees continue to
be required to present programming that is responsive to local community
problems, needs and interests and to maintain certain records demonstrating such
responsiveness. Complaints from viewers concerning a station's programming often
will be considered by the FCC when it evaluates license renewal applications of
a licensee, although such complaints may be filed at any time and generally may
be considered by the FCC at any time. Stations also must follow various rules
promulgated under the Communications Act that regulate, among other things,
political advertising, sponsorship identifications, the advertisement of
contests and lotteries, programming directed to children, obscene and indecent
broadcasts and technical operations, including limits on radio frequency
radiation. In addition, most broadcast licensees, including the Company's
licensees, must develop and implement affirmative action programs designed to
promote equal employment opportunities and must submit reports to the FCC with
respect to these matters on an annual basis and in connection with a license
renewal application.
LICENSE RENEWAL. Under new FCC rules adopted in January 1997 to implement
the Telecom Act, television station licenses generally will be issued for an
initial period of eight years, subject to renewal upon application therefore.
The FCC will ordinarily renew broadcast licenses for the maximum eight-year term
(subject to short-term renewals in certain circumstances, such as those
involving serious violations of FCC rules by the licensee). The changes apply to
all license renewals granted after the date the new rules were adopted
(regardless of when the renewal application was filed), as well as retroactively
to licenses for which the renewal application was filed on or after October 1,
1995 if the renewal was granted prior to the date the new rules were adopted.
With respect to broadcast renewal applications filed after May 1, 1995, the
FCC adopted new rules on April 12, 1996 to implement certain statutory changes
effected by the Telecom Act. Under these new rules, no person may submit a
competing application for the frequency licensed to the renewal applicant unless
and until the FCC has determined that the incumbent is not qualified to continue
to hold the license. However, during a certain period while the renewal
application is still pending, petitions to deny the renewal application may be
filed with the FCC. In recent years, representatives of various community groups
and others often have filed petitions to deny renewal applications of broadcast
stations. The FCC will grant the renewal application and dismiss the petitions
to deny if it determines that the licensee meets statutory renewal standards
based on a review of the preceding license term.
47
<PAGE>
Set forth below are the license expiration dates of each O&O:
O&O LICENSE EXPIRATION DATES
<TABLE>
<CAPTION>
DMA STATION LICENSE EXPIRATION DATE
- ----------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
Albuquerque--Santa Fe...................................... KLUZ 10/01/98(d)
Albuquerque--Santa Fe...................................... K48AM(a) 10/01/98(d)
Austin..................................................... K30CE(a) 8/01/06
Bakersfield................................................ KUVI 12/01/98(d)
Bakersfield................................................ KABE-LP(a) 12/01/98(d)
Chicago.................................................... WGBO 12/01/05
Dallas/Fort Worth.......................................... KUVN 8/01/06
Dallas/Fort Worth.......................................... KUVN-LP(a) 8/01/06
Fresno--Visalia............................................ KFTV 12/01/98(d)
Hartford & New Haven....................................... W47AD(a) 3/31/99
Houston.................................................... KXLN 8/01/06
Los Angeles................................................ KMEX 12/01/98(d)
Miami--Fort Lauderdale..................................... WLTV 2/01/05
New York................................................... WXTV 6/01/99
Philadelphia............................................... WXTV-LP(a) 7/31/99(b)
Phoenix.................................................... KTVW 10/01/06
Sacramento--Stockton--Modesto.............................. KUVS 12/01/98(d)
San Antonio................................................ KWEX 8/01/06
San Francisco--Oakland--San Jose........................... KDTV-LP(a) 12/01/98(d)
San Francisco--Oakland--San Jose........................... KDTV 12/01/98(d)
Tucson (Nogales)........................................... K52AO(a) 10/18/98(c)
</TABLE>
- ------------
(a) Low-power O&O.
(b) The Philadelphia station (formerly W35AB) is currently operating pursuant to
a special temporary authorization.
(c) The Tucson station is currently operating pursuant to an automatic program
test authority under a license to cover.
(d) Renewal applications are pending.
In each case, renewal applications must be filed with the FCC at least four
months before the expiration date of the license, and any petitions to deny must
be filed at least one month prior to the expiration date. The FCC usually does
not act on renewal applications until after the expiration date, and in the
interim, the licenses remain in effect. The Company is not aware of any reason
why any license renewal applications timely filed with the FCC would not be
granted.
OWNERSHIP RESTRICTIONS. The Communications Act prohibits the assignment of
a broadcast license or the transfer of control of a broadcast license without
prior FCC approval. The Communications Act also generally prohibits a licensee
from having more than 20% of its capital stock owned or voted by foreign
nationals, foreign governments, or the representatives of either (each a
"Foreign Interest"). A licensee may not be organized under the laws of a foreign
country. Absent a grant of special authority by the FCC, any company that
directly or indirectly controls a broadcast licensee may not be organized under
the laws of a foreign country, and may not have more than 25% of its capital
stock owned or voted by foreign nationals or foreign governments or by
representatives of foreign nationals or foreign governments. Under the
Communications Act, a broadcast license may not be granted to or held by a
Foreign Interest if the FCC finds that the public interest will be served by the
refusal or revocation of such license. The FCC has interpreted this provision to
require an affirmative public interest finding before a broadcast license may be
granted to or held by any such Foreign Interest. The FCC has rarely made such an
affirmative finding. As presently organized, the Company complies with these
restrictions. In particular, the Company's Restated Certificate of Incorporation
contains provisions that permit the Company to redeem any shares of capital
stock other than Class T and Class V Common Stock owned by Foreign Interests and
to take
48
<PAGE>
other actions necessary to ensure its compliance with the foreign ownership
restrictions of the Communications Act and related FCC rules.
The FCC's "multiple ownership" rules generally provide that a license for a
television station will not be granted if the applicant (or a party with an
"attributable interest" in the applicant) owns, or has an "attributable
interest" in, another station of the same type which covers a similar service
area. As directed by the Telecom Act, the FCC is conducting various rulemaking
proceedings to determine whether to change its attribution rules and whether to
retain, modify, or eliminate its limitations on the number of television
stations that a person or entity may own, operate, or control, or have an
"attributable interest" in, within the same television market. Under its duopoly
regulations, the FCC prohibits ownership interests in television stations with
overlapping signals of specified strengths. In November 1996, the FCC proposed
to relax this prohibition to permit, under certain conditions, common ownership
of television stations with greater signal overlap. The FCC is implementing the
proposed standard on an interim, conditional basis pending the outcome of the
rulemaking proceedings. Among the options being considered are proposals to
increase the signal strength permitted before a prohibited overlap occurs, to
permit a single entity to own two UHF television stations in the same television
market, and to permit a single entity to own one UHF and one VHF television
station in the same market. Substantially all Univision Affiliates operate in
the UHF band. Whether, or when, the FCC will adopt such changes in its
regulations is unknown.
The FCC recently conformed its national television station multiple
ownership rules with the Telecom Act. Specifically, a single entity may hold
"attributable interests" in an unlimited number of U.S. television stations
provided that those stations operate in markets containing cumulatively no more
than 35% of the television homes in the U.S. For this purpose, only 50% of the
television households in a market are counted towards the 35% national
restriction if the owned station is a UHF station (as are the O&Os). An FCC
rulemaking is under way to address how to measure audience reach, including the
"UHF discount," as part of the FCC's biennial review of the broadcast rules
mandated by the Telecom Act. None of the Principal Stockholders presently holds
attributable interests in any other U.S. television stations.
The FCC's rules provide that, with certain exceptions, the power to vote or
control the vote of 5% or more of the outstanding voting stock of a licensee is
the test for determining whether an entity has an "attributable interest" in a
licensee's stations for purposes of the multiple ownership rules. However, the
FCC's rules permit certain passive institutional investors (i.e., qualifying
investment companies, insurance companies or bank trust departments) to vote or
control the vote of up to 10% of the outstanding voting stock of a broadcast
company before they will be deemed to have an "attributable interest." In March
1992, the FCC initiated a proceeding to consider, inter alia proposals (i) to
increase the general "attributable interest" threshold to 10% of the outstanding
voting stock of a broadcast licensee and (ii) to increase the threshold for
certain passive institutional investors to 20%. The FCC has taken no final
action in that proceeding.
The FCC recently conformed its "dual network rule" with the Telecom Act.
Under these new rules, a broadcast licensee may affiliate with an entity that
maintains two or more networks of television broadcast stations unless such
multiple networks are composed of (i) two or more network entities meeting a
specific definition of a network as of February 8, 1996, or (ii) a network
meeting such definition and certain other English-language program distribution
services. The Network does not fall into either category.
The Telecom Act also modified the general prohibitions on network-cable
cross-ownership so as to permit television networks to own cable systems.
NETWORK AFFILIATE ISSUES. Several FCC rules impose restrictions on network
affiliation agreements. Among other things, those rules prohibit a television
station from entering into any affiliation agreements that (i) require the
station to clear time for network programming that the station had previously
scheduled for other use, (ii) preclude the preemption of any network programs
that the station believes are unsuitable for its audience, or (iii) preclude the
station from substituting for network programming a program that it believes is
of greater local or national importance.
49
<PAGE>
In addition, the FCC is currently reviewing several of its rules governing
the relationship between broadcast television networks and their affiliates.
Specifically, the FCC is reviewing the following four rules: (i) the "right to
reject rule," which provides that affiliation arrangements between a broadcast
network and a broadcast licensee generally must permit the licensee to reject
programming provided by the network, (ii) the "time option rule," which
prohibits arrangements whereby a network reserves an option to use specified
amounts of an affiliate's broadcast time, (iii) the "exclusive affiliation
rule," which prohibits arrangements that forbid an affiliate from broadcasting
the programming of another network, and (iv) the "network territorial
exclusivity rule," which proscribes arrangements whereby a network affiliate may
prevent other stations in its community from broadcasting programming the
affiliate rejects, and arrangements that inhibit the ability of stations outside
of the affiliate's community to broadcast network programming.
The FCC's so-called "spot sale rule" prohibits a network from representing
its affiliates in the sale of non-network advertising time unless such
affiliates are owned by or under common control with the network. In late 1990,
the FCC granted a permanent waiver to the Company's predecessor permitting non-
owned and operated affiliates of the Network to be represented by the Network in
the spot sales market. In 1992, as part of its approval of the Acquisition, the
FCC granted the Company's request to extend the permanent waiver of the spot
sale rule so as to permit the Network to continue to act as a national sales
representative for each Univision Affiliate.
ADVANCED TELEVISION TECHNOLOGY. At present, U.S. television stations
broadcast signals using the "NTSC" system, named for the National Television
Systems Committee, an industry group established in 1940 to develop the first
U.S. television technical broadcast standards. The FCC in late 1996 approved a
digital television ("DTV") technical standard to be used by television
broadcasters, television set manufacturers, the computer industry and the motion
picture industry. This digital television standard will allow the simultaneous
transmission of multiple streams of digital data on the bandwidth presently used
by a normal analog channel. It will be possible to broadcast one "high
definition" channel ("HDTV") with visual and sound quality superior to
present-day television or several "standard definition" channels ("SDTV") with
digital sound and pictures of a quality slightly better than present television;
to provide interactive data services, including visual or audio transmission, or
multiple channels simultaneously; or to provide some combination of these
possibilities on the multiple channels allowed by DTV. The FCC has already
allocated to every existing television broadcaster one additional channel to be
used for DTV during the transition between present-day analog television and
DTV. Broadcasters will not be required to pay for this new DTV channel, but will
be required to relinquish their present analog channels when the transition to
DTV is complete.
The FCC presently plans for the DTV transition period to end by 2006; at
that time, broadcasters will be required to return their present channels to the
FCC. The FCC has already begun issuing construction permits to build DTV
stations. The FCC has recently issued regulations with respect to DTV
allocations and interference criteria which are not yet final, and other aspects
of the DTV regulatory framework have not yet been established. The FCC is
expected to apply to DTV the rules applicable to analogous services in other
contexts, including those rules that require broadcasters to serve the public
interest and may seek to impose additional programming or other requirements on
DTV service. While broadcasters will not have to pay for the additional DTV
channel itself, the FCC has proposed that fees will be imposed upon broadcasters
if they choose to use the DTV channel to provide paid subscription services to
the public. Neither the Telecom Act nor the recent Supreme Court decision
upholding the "must carry" statute resolves the applicability of the "must
carry" rules to DTV; the FCC recently began a proceeding on this issue.
Under certain circumstances, conversion to DTV operations may reduce a
station's geographical coverage area. In addition, the FCC's current
implementation plan would maintain the secondary status of low-power stations in
connection with its allotment of DTV channels. The FCC has acknowledged that DTV
channel allotment may involve displacement of existing low-power stations,
particularly in major
50
<PAGE>
television markets. Accordingly, the Company's low-power Broadcast Affiliates
may be materially adversely affected. The Company has already filed displacement
applications seeking new channel allotments for seven of its low-power stations,
which will be at least partially displaced by DTV channels. Some of these
applications face mutually exclusive applications from other applicants, and
there is no assurance that any of these applications will be granted by the FCC.
In addition, it is not yet clear when and to what extent DTV or other
digital technology will become available through the various media; whether and
how television broadcast stations will be able to avail themselves of or profit
by the transition to DTV; how channel, tower height and power assignments will
be configured so as to allow that transition; the extent of any potential
interference with analog channels; whether viewing audiences will make choices
among services upon the basis of such differences; whether and how quickly the
viewing public will embrace the cost of the new digital television sets and
monitors; to what extent the DTV standard will be compatible with the digital
standards adopted by cable and other multi-channel video programming services;
or whether significant additional expensive equipment will be required for
television stations to provide digital service, including HDTV and supplemental
or ancillary data transmission services. Pursuant to the Telecom Act, the FCC
must conduct a ten-year evaluation regarding public interest in advanced
television, alternative uses for the spectrum and reduction of the amount of
spectrum each licensee utilizes. Many segments of the industry are also
intensely studying these advanced technologies. There can be no assurances as to
the answers to these questions or the nature of future FCC regulation.
DIRECT BROADCAST SATELLITE SYSTEMS. There are currently in operation
several DBS systems that serve the United States, and it is anticipated that
additional systems will become operational over the next several years.
Furthermore, several Spanish-language DBS systems are underway to serve various
parts of Latin America and some of such systems are expected to have signals
which will spill over into the southern U.S. or in certain cases, cover most or
all of the continental United States. DBS systems provide programming on a
subscription basis to those who have purchased and installed a satellite signal
receiving dish and associated decoder equipment. DBS systems claim to provide
visual picture quality comparable to that found in movie theaters and aural
quality comparable to digital audio compact discs. DBS systems do not, except in
certain instances, provide the signals of traditional over-the-air broadcast
stations, and thus are generally restricted to providing the programming of
premium services such as HBO and other traditionally cable-oriented satellite
programming services. In the future, competition from DBS systems could have a
material adverse effect on the financial condition and results of operations of
the Company.
RECENT DEVELOPMENTS, PROPOSED LEGISLATION AND REGULATION. Congress and the
FCC currently have under consideration, and may in the future adopt, new laws,
regulations and policies regarding a wide variety of matters that could affect,
directly or indirectly, the operation and ownership of the Company's broadcast
properties. In addition to the changes and proposed changes noted above, such
matters include, for example, spectrum use fees, political advertising rates,
potential restrictions on the advertising of certain products (hard liquor, beer
and wine, for example), and the rules and policies to be applied in enforcing
the FCC's equal employment opportunity regulations. Other matters that could
affect the Company's broadcast properties include technological innovations and
developments generally affecting competition in the mass communications
industry.
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act, or the Telecom Act, or of the regulations
and policies of the FCC thereunder. Proposals for additional or revised
regulations and requirements are pending before and are being considered by
Congress and federal regulatory agencies from time to time. Management is unable
at this time to predict the outcome of any of the pending FCC rulemaking
proceedings referenced above, the outcome of any reconsideration or appellate
proceedings concerning any changes in FCC rules or policies noted above, the
possible outcome of any proposed or pending Congressional legislation, or the
impact of any of those changes on Univision's broadcast operations.
LEGAL PROCEEDINGS
The Company is involved in certain litigation arising in the ordinary course
of business. Management has accrued amounts it believes are reasonable and any
amounts in excess of those accruals, either alone or in the aggregate, would not
be material to the Company. See Note 8 to Notes to Consolidated Financial
Statements.
51
<PAGE>
MANAGEMENT
The directors and executive officers of the Company as of June 30, 1998 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ ----------- ---------------------------------------------------------------------
<S> <C> <C>
A. Jerrold Perenchio................ 67 Chairman of the Board and Chief Executive Officer
Henry Cisneros...................... 51 President, Chief Operating Officer and Class A/P Director
George W. Blank..................... 47 Executive Vice President and Chief Financial Officer
Robert V. Cahill.................... 67 Vice President and Secretary
Ray Rodriguez....................... 47 President, Chief Operating Officer of the Network and Class A/P
Director
Harold Gaba......................... 52 Class A/P Director
Alan F. Horn........................ 55 Class A/P Director
John G. Perenchio................... 42 Class A/P Director
Gustavo Cisneros.................... 53 Class V Director
Lawrence W. Dam..................... 51 Class T Director
Alejandro Rivera.................... 55 Alternate Class V Director
</TABLE>
Mr. A. Jerrold Perenchio has been the Chairman of the Board and Chief
Executive Officer of the Company since the Acquisition in 1992. From the
consummation of the Acquisition through January 27, 1997 he was also the
Company's President. Mr. Perenchio has owned and been active in Chartwell
Partners since it was formed in 1983. Chartwell Partners is an investment firm
that is active in the media and communications industry. Mr. Perenchio has over
25 years of experience in the U.S. media and communications industry. During his
career, Mr. Perenchio has been the chief executive officer of a number of
successful entities involved in the production and syndication of television
programming and from 1975 to 1986 owned and operated Spanish-language television
stations in Los Angeles and New York. A. Jerrold Perenchio is John G.
Perenchio's father.
Mr. Henry Cisneros joined the Company on January 27, 1997 and serves as the
President and Chief Operating Officer. From January 1993 through January 1997,
Mr. Cisneros was the Secretary of the U.S. Department of Housing and Urban
Development. As a member of the President's Cabinet, Secretary Cisneros was
assigned America's housing and community development portfolio. Prior to joining
the cabinet, he was Chairman of Cisneros Asset Management Company, a fixed
income money management firm operating nationally. In 1981, Mr. Cisneros became
the first Hispanic mayor of a major U.S. city when he was elected Mayor of San
Antonio, the nation's 10th largest city, where he served four terms until 1989.
Mr. Cisneros has served as President of the National League of Cities, Chairman
of the National Civic League, Deputy Chair of the Federal Reserve Bank of
Dallas, and as a board member of the Rockefeller Foundation. After an
investigation by Independent Counsel, Mr. Cisneros was accused in a federal
indictment in December 1997 of violating certain federal statutes. Mr. Cisneros
is accused of making false statements, obstructing justice, and conspiring to
mislead in connection with his appointment as Secretary of the U.S. Department
of Housing and Urban Development. Mr. Cisneros was arraigned on January 8, 1998
and pled not guilty. No trial date is currently set. Mr. Cisneros has informed
the Company that he will defend himself vigorously. Henry Cisneros is not
related to Gustavo Cisneros.
Since the Acquisition in 1992, Mr. Blank has been Executive Vice President
and Chief Financial Officer of UTG and, since 1995, Chief Financial Officer of
the Network. Mr. Blank joined Hallmark Cards Incorporated in March 1987 as a
consultant. In September 1987, he became Vice President, Finance and Chief
Financial Officer of Univision Holdings, Inc., the Company's predecessor
("UHI"). In addition, from May 1992 through the Acquisition, Mr. Blank held the
position of Chief Operating Officer of UTG.
Mr. Cahill has been the Secretary and a Vice President of the Company since
the Acquisition in 1992. Mr. Cahill has been Executive Vice President and
General Counsel of Chartwell Partners, an affiliate of Perenchio, since 1985.
While at Chartwell Partners, he has also been the Vice President of various
other
52
<PAGE>
corporations and partnerships affiliated with Perenchio that, among other
things, engage in businesses in the media and communications industry. Mr.
Cahill has been an associate of Mr. Perenchio for 25 years.
Mr. Rodriguez has been President and Chief Operating Officer of the Network
since December 1992. In August 1990 Mr. Rodriguez joined the Network's
predecessor as Vice President and Director of Talent Relations. In September
1991, he became Senior Vice President and Operating Manager of the Network. In
May 1992, Mr. Rodriguez became President and Chief Executive Officer of UHI.
Prior to joining UHI, he owned and operated a management consulting and
production company that produced Spanish language television programs. From 1983
to 1989, he was Julio Iglesias' manager and Chief Executive Officer of that
performer's organization.
Mr. Gaba has been President and CEO of ACT III Communications, Inc., a
multi-media communications company since August 1990. From November 1992 through
December 1997, he also served as CEO and a director of ACT III Theatres, and of
certain other affiliates of ACT III Communications. From November 1992 through
January 1996, he also served as CEO and a director of Act III Broadcasting. From
1988 to 1995, Mr. Gaba was a partner of Hark Television Corporation, a broadcast
management company.
Mr. Horn has been Chairman and Chief Executive Officer of Castle Rock
Entertainment since January 1994. Mr. Horn has also been a member of the
Executive Committee and the Planning Committee of Turner Broadcasting Systems,
Inc. since January 1994. From 1987 until January 1994, Mr. Horn was the Chairman
of the Management Committee of Castle Rock Entertainment. From 1985 to 1987, Mr.
Horn was the President and Chief Operating Officer of Twentieth Century Fox Film
Corporation. Prior to such time, he was an executive of Embassy Communications
and its predecessor, TAT Communications Company, and Tandem Productions. From
1982 to 1985 he served as Chief Executive Officer and Chairman of the Board of
Directors of Embassy.
Mr. John G. Perenchio has been an executive at Chartwell Partners and Vice
President of Malibu Bay Company (a real estate development and management
company) since 1990. In August 1997, Mr. Perenchio also became President of
Ultimatum Music, LLC (a record and music publishing company). From 1985 to 1990
he was a Business Affairs executive and subsequently a Director of Contemporary
Music at Triad Artists, Inc. John G. Perenchio is the son of A. Jerrold
Perenchio.
For more than five years, Mr. Gustavo Cisneros has been a direct or indirect
beneficial owner of interests in and a director of certain of the companies that
own or are engaged in a number of diverse commercial enterprises, principally in
Venezuela, the United States, Brazil, Chile and Mexico (the "Cisneros Group"),
including Venevision. Mr. Cisneros is Chairman of the Board of Directors of
Pueblo Xtra International, Inc., a member of the Board of Directors of Evenflo &
Spalding Holdings Corporation, a member of the Board of Directors of RSL
Communications, Ltd. and a member of the Board of Directors of Pan American
Beverages Company, Inc. Gustavo Cisneros is not related to Henry Cisneros.
Mr. Dam has been President of D Mark Resources, Inc., an independent
consulting company since June 1, 1998. From 1993 to June 1, 1998 Mr. Dam was the
President and Chief Operating Officer of Televisa International, LLC and its
predecessor, Univisa, Inc., both wholly-owned subsidiaries of Televisa. From
1987 to 1993 he was Vice President and General Counsel of Univisa, Inc. From
1963 to 1988, Univisa, Inc. and its predecessors owned and operated the
Univision Network.
Mr. Rivera has served in executive positions with companies in the Cisneros
Group since 1976, including Venevision. Mr. Rivera is a member of the Board of
Directors of Pueblo Xtra International, Inc.
On August 31, 1998, Emilio Romano resigned as an alternate Class T director
of the Company. Televisa has not informed the Company of any proposed
replacement for Mr. Romano.
53
<PAGE>
CERTAIN TRANSACTIONS
While the following is a description of the material terms of certain
agreements between the Company and the Principal Stockholders, the descriptions
set forth below do not purport to be a complete summary of all such agreements.
PROGRAM LICENSE AGREEMENTS
For a discussion of programming provisions of the Program License
Agreements, see "Business-- Program License Agreements." Additionally, pursuant
to the Program License Agreements, Televisa and Venevision have the right to
use, without charge, advertising time that is not sold to advertisers or used by
the Company. There are limitations on the ability of Televisa and Venevision to
use such time for telemarketing products and such time may be preempted to the
extent sold to a paying advertiser. Televisa and Venevision may each also
purchase for its own use non-preemptable time at the lowest spot rate for the
applicable time period.
INTERNATIONAL PROGRAM RIGHTS AGREEMENT
The Company has also granted Televisa and Venevision certain rights to
exploit various programming produced by the Company or its subsidiaries on a
royalty-free basis. These rights cover all countries outside of the U.S. for
programs produced prior to the Initial Offering, or that replace such programs
("Grandfathered Programs") and cover Mexico and Venezuela for all other
programs. For Grandfathered Programs, the rights described above will revert
back to the Company from Televisa or Venevision when the applicable Program
License Agreement terminates. For other programs, Televisa's or Venevision's
rights revert back to the Company when the entity owns less than 30% of the
securities that it owned on the date of the Initial Offering.
PARTICIPATION AGREEMENT
Pursuant to a Participation Agreement (the "Participation Agreement"),
Perenchio, Televisa and Venevision have also agreed that none of them will enter
into certain transactions involving Spanish-language television broadcasting or
a Spanish-language television network without first offering the Company the
opportunity to acquire a 50% economic interest. The Participation Agreement
provides that if the Company elects to participate in any of these transactions,
the offeror party will have substantial control over management of such
transaction.
PROGRAMMING AGREEMENT
The Company entered into an agreement with Televisa in March 1998, which
provides for each party to produce three separate 13 week shows at such party's
sole cost. The shows would be non-NOVELA programming, and each party has agreed
to use commercially reasonable efforts to have shows available to begin
broadcasting no later than October 31, 1998. Each party will own all rights
worldwide in perpetuity in the shows that it produces; provided that the other
party will have the right to broadcast and otherwise exploit the shows pursuant
to the Program License Agreement between the Company and Televisa or the
International Program Rights Agreement, as applicable.
WARRANTS
In connection with the Acquisition, Televisa and Venevision were issued
Warrants to purchase Common Stock, which if exercised would have increased the
ownership of each of them in the Company to 25%. The Warrants are not
exercisable unless it is lawful for the holder to own the number of shares
issuable as a result of such exercise and such exercise would not violate the
Communications Act. Subject to applicable securities laws, the Warrants are
freely transferable. The Warrants are exercisable for Class T Common Stock and
Class V Common Stock, as the case may be. However, at the option of Televisa or
Venevision, or if the Warrants are not held by Televisa or Venevision or their
permitted transferees, the Warrants are exercisable for Class A Common Stock. As
part of the Reorganization, the Warrants were
54
<PAGE>
adjusted so that after the Initial Offering they were exercisable for Common
Stock at an exercise price of $0.06439 per share. If all Warrants were fully
exercised and the Series A Preferred were converted, Venevision would own 19.7%
of the Common Stock of the Company and Televisa, following this Offering, would
own 9.7% of the Common Stock of the Company.
REGISTRATION RIGHTS AGREEMENTS
All existing stockholders as of the Initial Offering are entitled to certain
rights with respect to the registration of their shares under the Securities
Act. Under the terms of the Registration Rights Agreement, Perenchio has the
right to cause the Company to file registration statements with respect to
Perenchio's Common Stock on four separate occasions, one of which has been
exercised, and each of Televisa and Venevision has the right to cause the
Company to register their shares of Common Stock on two separate occasions.
Televisa has used one of its two demands in this Offering. Additionally, if the
Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of others, each of the Principal
Stockholders, and each other party to the Registration Rights Agreement is
entitled, subject to certain limitations and exceptions, to notice of such
registration and is entitled to include shares of Common Stock therein. In
addition, at any time after the Company becomes eligible to file registration
statements on Form S-3 under the Securities Act, the existing stockholders may
request that the Company file a registration statement on Form S-3 with respect
to their shares of Common Stock, provided that the registration statement with
respect to such offering shall contain only the information required by such
Form S-3, and the Company is required to use its best efforts to effect such
registration, subject to certain conditions and limitations. In general, all
fees, costs and expenses of such registration (other than underwriting fees and
commissions) will be borne by the Company except for registration statements
under Form S-3 which contain no more than the information required by such form,
in which case such registration expenses will be borne by the persons
registering securities under such registration statements.
Under a registration rights agreement entered into in connection with the
acquisition of the Sacramento station, the current holders of the Series A
Preferred Stock are entitled to certain rights with respect to registration of
their shares under the Securities Act. The terms of such registration rights
agreement are similar to those of the registration rights agreement described
above except that the current holders of the Series A Preferred Stock only have
the right to make one demand (excluding demands that the Company file a
registration statement containing only the information required by Form S-3.)
WORLD CUP BROADCAST RIGHTS AGREEMENT
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 called for a fixed payment of $25,000,000, which was paid
in four equal installments in May, June, August and September 1998. In addition
to these payments and consistent with past coverage of the World Cup Games, the
Company 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.
REIMBURSEMENT ARRANGEMENT
Univision has agreed to reimburse Chartwell Partners LLC, an affiliate of A.
Jerrold Perenchio, for compensation of certain Chartwell employees who devote
substantially all of their time to Univision activities. In 1997, Univision
reimbursed Chartwell approximately $852,000 for one-half of the salary and all
of the bonus and payroll taxes relating to Univision's Vice President, Robert
Cahill and the salary, bonus and payroll taxes of support staff.
55
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information relating to the beneficial
ownership of the Company's voting securities as of June 30, 1998 (giving effect
to the two-for-one stock split that was effected on January 12, 1998), by (i)
the Selling Stockholder, (ii) each person who is known by the Company to own
beneficially 5% or more of the outstanding shares of any class of the Common
Stock, (iii) each of the Company's directors and executive officers, and (iv)
all directors and executive officers as a group. Since the Class P Common Stock
has 10 votes per share on substantially all matters submitted to stockholders,
Mr. A. Jerrold Perenchio and his affiliates will have, after the issuance of the
shares offered hereby, 77.8% of the voting power of the Class A, Class P Common
Stock and Series A Preferred and 75.3% of the voting power of all Common Stock
and Preferred Stock outstanding. Except as indicated in the footnotes to the
table, the persons named in the table have sole voting and investment power with
respect to all shares of the Company's voting securities shown as beneficially
owned by them, subject to community property laws where applicable. Please see
the footnotes below for the disclosure required by the Securities Exchange Act
of 1934 for each of the parties listed below. Because the Class P, Class T and
Class V Common Stock and the Series A Preferred can be converted to Class A
Common Stock at any time, the Company is presenting the information below based
on such conversions.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF CLASS A PERCENT OF
COMMON CLASS A
STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY SHARES
OWNED OWNED OFFERED
NAME AND ADDRESS(A) TITLE OF CLASS PRE-OFFERING(B)(C) PRE-OFFERING(C) IN OFFERING
- -------------------- -------------- --------------------------- --------------- ---------------
<S> <C> <C> <C> <C>
A. Jerrold Perenchio Class A and 20,743,433(d)(e) 23.9% --
(a) Class P
Common Stock
Grupo Televisa, S.A. Class T Common 8,918,582(e)(f) 10.3 11,500,000
Avenida Stock
Chapultepec,
No. 28 06724
Mexico, D.F.
Mexico
Venevision Class V Common 8,918,582(e)(f)(i) 10.3 --
c/o Finser Stock
Corporation
550 Biltmore Way,
Suite 900
Coral Gables,
Florida 33134
Janus Capital Class A Common 3,271,650(g) 3.8 --
Corporation Stock
100 Fillmore
Street
Denver, Colorado
80206-4973
Putnam Investments, Class A Common 4,399,896(h) 5.1 --
Inc. Stock
One Post Office
Square
Boston,
Massachusetts
02109
The Davila Family, Class A, P, T 2,842,526(e)(f) 3.3 --
LLC and V Common
c/o Suite 2500 Stock
One New York Plaza
New York, New York
10004
Morgan Stanley, Dean Class A Common 1,279,700(m) 1.5 --
Witter, Discover & Stock
Co.
1585 Broadway
38th Floor
New York, New York
10036
George W. Blank (a) Class A Common 384,344 * --
Stock
Robert V. Cahill (a) Class A Common 268,854(l) * --
Stock
Henry Cisneros (a) Class A Common 37,486(l) * --
Stock
<CAPTION>
PERCENT OF
CLASS A
COMMON
PERCENT OF STOCK
NUMBER OF SHARES CLASS A BENEFICIALLY
OF CLASS A COMMON OWNED
COMMON STOCK STOCK POST-OFFERING
BENEFICIALLY BENEFICIALLY ASSUMING ALL
OWNED OWNED WARRANTS ARE
NAME AND ADDRESS(A) POST-OFFERING(B)(C) POST-OFFERING(C) EXERCISED(J)
- -------------------- ---------------------------- ---------------- -------------
<S> <C> <C> <C>
A. Jerrold Perenchio 20,743,433(d)(e) 23.2% 18.0%
(a)
Grupo Televisa, S.A. 5,742(e)(f) * 9.7
Avenida
Chapultepec,
No. 28 06724
Mexico, D.F.
Mexico
Venevision 8,918,582(e)(f)(i) 10.0 19.7
c/o Finser
Corporation
550 Biltmore Way,
Suite 900
Coral Gables,
Florida 33134
Janus Capital 3,271,650(g) 3.7 2.8
Corporation
100 Fillmore
Street
Denver, Colorado
80206-4973
Putnam Investments, 4,399,896(h) 4.9 3.8
Inc.
One Post Office
Square
Boston,
Massachusetts
02109
The Davila Family, 2,842,526(e)(f) 3.2 2.5
LLC
c/o Suite 2500
One New York Plaza
New York, New York
10004
Morgan Stanley, Dean 1,279,700 1.4 1.1
Witter, Discover &
Co.
1585 Broadway
38th Floor
New York, New York
10036
George W. Blank (a) 384,344(l) * *
Robert V. Cahill (a) 268,854(l) * *
Henry Cisneros (a) 37,486(l) * *
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF CLASS A PERCENT OF
COMMON CLASS A
STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY SHARES
OWNED OWNED OFFERED
NAME AND ADDRESS(A) TITLE OF CLASS PRE-OFFERING(B)(C) PRE-OFFERING(C) IN OFFERING
- -------------------- -------------- --------------------------- --------------- ---------------
<S> <C> <C> <C> <C>
Harold Gaba (a) Class A Common 31,000 * --
Stock
Alan F. Horn (a) Class A Common 70,000 * --
Stock
John G. Perenchio Class A Common 6,600 * --
(a) Stock
Ray Rodriguez (a) Class A Common 395,054 * --
Stock
Gustavo Cisneros N/A -- (i) * --
c/o Finser
Corporation
550 Biltmore Way
Suite 900
Coral Gables,
Florida 33134
Lawrence Dam Class A Common 206,600 * --
c/o Televisa Stock
International, LLC
7710 Haskell
Avenue
Van Nuys,
California 91406
Alejandro Rivera Class A Common 200,000 * --
c/o Finser Stock
Corporation
550 Biltmore Way,
Suite 900
Coral Gables,
Florida 33134
Chester and Naomi Class A Common 550,659(k) * --
Smith and Series A
c/o J. Wilmer Preferred
Jensen, Esq. Stock
1514 H Street
Modesto,
California 95354
All directors and Class A, Class 22,343,371(e)(f)(i) 25.4 --
executive officers P, Class T
as a group (10 and Class V
persons) Common Stock
<CAPTION>
PERCENT OF
CLASS A
COMMON
PERCENT OF STOCK
NUMBER OF SHARES CLASS A BENEFICIALLY
OF CLASS A COMMON OWNED
COMMON STOCK STOCK POST-OFFERING
BENEFICIALLY BENEFICIALLY ASSUMING ALL
OWNED OWNED WARRANTS ARE
NAME AND ADDRESS(A) POST-OFFERING(B)(C) POST-OFFERING(C) EXERCISED(J)
- -------------------- ---------------------------- ---------------- -------------
<S> <C> <C> <C>
Harold Gaba (a) 31,000 * *
Alan F. Horn (a) 70,000 * *
John G. Perenchio 6,600 * *
(a)
Ray Rodriguez (a) 395,054(l) * *
Gustavo Cisneros -- (i) * *
c/o Finser
Corporation
550 Biltmore Way
Suite 900
Coral Gables,
Florida 33134
Lawrence Dam 206,600(l) * *
c/o Televisa
International, LLC
7710 Haskell
Avenue
Van Nuys,
California 91406
Alejandro Rivera 200,000(l) * *
c/o Finser
Corporation
550 Biltmore Way,
Suite 900
Coral Gables,
Florida 33134
Chester and Naomi 550,659(k) * *
Smith
c/o J. Wilmer
Jensen, Esq.
1514 H Street
Modesto,
California 95354
All directors and 22,343,371(e)(f)(i) 24.7 19.2
executive officers
as a group (10
persons)
</TABLE>
- ---------
* Represents less than one percent.
(a) Unless otherwise indicated, the address of each executive officer and
director is 1999 Avenue of the Stars, Suite 3050, Los Angeles, California
90067.
(b) Each of A. Jerrold Perenchio and his affiliates ("Perenchio"), Grupo
Televisa, S.A. de C.V. and its affiliates ("Televisa"), Corporacion
Venezolana de Television, C.A. (Venevision) and its affiliates
("Venevision"), beneficially own 100% of the outstanding shares of Class P
Common Stock, Class T Common Stock and Class V Common Stock, respectively.
Chester and Naomi Smith beneficially own 100% of the outstanding shares of
Series A Preferred.
(c) Assumes that the Class P, Class T and Class V Common Stock outstanding is
converted into Class A Common Stock on a share for share basis and assumes
that the 9,000 shares of Series A Preferred have been converted into 550,659
shares of Class A Common Stock since this may be done at any time in
accordance with their respective terms. Includes options exercisable within
60 days. For all persons listed other than The Davila Family, LLC, does not
include the shares issuable upon exercise of the 25,563,052 Warrants that
are outstanding. For The Davila Family, LLC, includes 712,512 shares of
Class A Common Stock issuable upon exercise of Warrants. (see footnotes e
and f below).
(d) Includes 442,870 shares of Class P Common Stock beneficially owned by
Margaret Perenchio, A. Jerrold Perenchio's wife. Mr. Perenchio has the sole
power to vote such shares pursuant to a proxy, but Mrs. Perenchio has sole
power to dispose of or direct the disposition of such shares. Also includes
200 shares of Class A Common Stock owned by Mr. Perenchio.
(e) Perenchio, Televisa and Venevision have each formed a partnership in which
they are the general partner and The Davila Family, LLC is the managing
general and limited partner. The partnership with Perenchio owns 1,191,318
shares of Class A Common Stock and 12,034 shares of Class P Common Stock.
The partnerships with Televisa and Venevision each own 469,348 shares of
Class A Common Stock and 4,742 shares of Class T and Class V Common Stock,
respectively. The partnerships with Televisa and Venevision also each own
Warrants to purchase 356,256 shares of Class A Common Stock and 7,292 shares
of Class T and Class V Common Stock, respectively. The Davila Family, LLC
has full dispositive and voting power over the shares of Class A Common
Stock owned by the partnerships, and Perenchio, Televisa and Venevision each
has full dispositive and voting power over the shares of Class P Common
Stock, Class T Common Stock and Class V Common Stock owned by the
partnership in which
57
<PAGE>
it is a partner. Based on a Schedule 13G dated February 14, 1997 filed by
The Davila Family, LLC, it owned 13.3% of the Class A Common Stock
outstanding as of such date. According to the Schedule 13G, The Davila
Family, LLC disclaims beneficial ownership of the shares of the Company
owned by any other person pursuant to Rule 13(d)(4) of the Securities
Exchange Act of 1934, as amended.
(f) Excludes 13,718,850 shares of Class T Common Stock and 13,718,850 shares of
Class V Common Stock issuable upon exercise of Warrants beneficially owned
by Televisa and Venevision, respectively, before the Offering. Excludes
11,131,690 shares of Class T Common Stock and 13,718,850 shares of Class V
Common Stock issuable upon exercise of Warrants beneficially owned by
Televisa and Venevision, respectively, after the Offering. Such warrants may
be exercised by the holder, so long as the aggregate shares owned by
Televisa, Venevision and all non-U.S. aliens do not represent more than 25%
of the outstanding stock.
(g) Based on a report on Schedule 13G/A dated February 13, 1998, Janus Capital
Corporation and/or its affiliates had shared voting and shared dispositive
power over all such shares. Based on such Schedule 13G/A, Janus Capital
Corporation owned 13.6% of the Class A Common Stock actually outstanding as
of December 31, 1997.
(h) Based on a report on Schedule 13G/A dated January 28, 1998, Putnam
Investments, Inc. and/or its affiliates had shared voting and shared
dispositive power over all such shares. Based on such Schedule 13G/A, Putnam
Investments, Inc. owned 18.3% of the Class A Common Stock actually
outstanding as of December 31, 1997.
(i) A trust for the benefit of the family of Gustavo Cisneros and a trust for
the benefit of the family of Ricardo Cisneros each owns a 50% indirect
beneficial ownership interest in the equity of the Venevision affiliates
that own these shares. These affiliates have shared voting and dispositive
powers. Messrs. Gustavo and Ricardo Cisneros disclaim beneficial ownership
of such shares.
(j) Assumes all Warrants are exercised. (See footnotes e and f) The Warrants to
purchase Class T and Class V Common Stock are subject to certain exercise
restrictions.
(k) The Series A Preferred Stock is voting stock (one vote per share) and is
convertible into 550,659 shares of Class A Common Stock at the option of the
holders until March 20, 2001. The Series A Preferred is redeemable at the
option of the holders at any time, and by the Company after March 20, 2001.
(l) As of June 30, 1998 the following persons held stock options that were
vested and exercisable as of September 30, 1998: Mr. Cahill-200,000; Mr.
Blank-300,000; Mr. Henry Cisneros-11,666; Mr. Rodriguez-300,000; Mr.
Dam-200,000; and Mr. Rivera-200,000.
(m) Based on a report on Schedule 13G dated February 12, 1998, Morgan Stanley,
Dean Witter, Discover & Co. and/or its affiliates had shared voting and
shared dispositive power over all such shares. Based on such Schedule 13G,
Morgan Stanley, Dean Witter, Discover & Co. owned 5.3% of the Class A Common
Stock outstanding as of December 31, 1997.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
While the following description of the Company's capital stock is a summary
of the material terms of such stock, it does not purport to be complete and is
subject in all respects to applicable Delaware law and the provisions of the
Company's Restated Certificate of Incorporation and Bylaws.
The Restated Certificate of Incorporation of the Company provides for three
classes of directors: six Directors to be elected by the holders of the Class A
Common Stock and the Class P Common Stock (the "Class A/P Directors"); one to
three Directors to be elected by the holders of the Class T Common Stock (the
"Class T Directors"); and one to three Directors to be elected by the holders of
the Class V Common Stock (the "Class V Directors").
The authorized capital stock of the Company consists of 492,000,000 shares
of Common Stock, par value $.01 per share, and 10,000,000 shares of preferred
stock, par value $.01 per share. The Common Stock is divided into four classes,
Class A Common Stock, Class P Common Stock, Class T Common Stock and Class V
Common Stock. After this Offering, the Company's issued and outstanding capital
stock will consist of (i) 59,234,947 shares of Class A Common Stock, (ii)
20,743,233 shares of Class P Common Stock, all of which are owned by Perenchio,
(iii) 5,742 shares of Class T Common Stock, all of which are owned by Televisa,
and (iv) 8,918,582 shares of Class V Common Stock, all of which are owned by
Venevision. See "Principal and Selling Stockholders." After this Offering, an
additional 712,512 shares of Class A Common Stock, 11,131,690 shares of Class T
Common Stock and 13,718,850 shares of Class V Common Stock are available for
issuance upon exercise of the Warrants held by The Davila Family, LLC, Televisa
and Venevision, respectively. See "Certain Transactions--Warrants."
COMMON STOCK
CLASS A COMMON STOCK. Holders of Class A Common Stock are entitled to
receive such dividends as may from time to time be declared by the Board out of
funds legally available therefor. Holders of Class A Common Stock are entitled
to one vote per share on all matters on which they are entitled to vote. The
holders of the Class A Common Stock, voting together with the holders of the
Class P Common Stock (and the Class T Common Stock and the Class V Common Stock
to the extent a Voting Conversion has occurred with respect to such class),
elect the Class A/P Directors (and alternate directors) of the Company. The
Class A/P Directors presently constitute six of the eight directors of the
Company, but in no event will constitute less than 50% of the Board of
Directors. Holders of Class A Common Stock have no preemptive, conversion,
redemption or sinking funds rights. In the event of a liquidation, dissolution
or winding-up of the Company, holders of Class A Common Stock are entitled to
share with all other holders of any class of Common Stock equally and ratably in
the assets of the Company, if any, remaining after the payment of all debts and
liabilities of the Company and the liquidation preference of any outstanding
Preferred Stock. The outstanding shares of Class A Common Stock are fully paid
and nonassessable. The rights, preferences and privileges of holders of Class A
Common Stock are subject to any series of Preferred Stock that the Company may
issue in the future.
CLASS P COMMON STOCK. Holders of the Class P Common Stock are entitled to
the same rights, privileges and preferences as holders of the Class A Common
Stock, except that holders of Class P Common Stock are entitled to 10 votes per
share on all matters on which they are entitled to vote; provided that at any
time that A. Jerrold Perenchio is incapacitated (defined as A. Jerrold Perenchio
being subject to a conservatorship of the estate under applicable state law),
the holders of the Class P Common Stock shall only be entitled to one vote per
share. As mentioned above, the holders of Class P Common Stock and the holders
of Class A Common Stock (and the Class T Common Stock and the Class V Common
Stock to the extent a Voting Conversion has occurred with respect to such class)
voting together, elect the Class A/P Directors (and alternate directors). Each
share of Class P Common Stock is convertible at the option of the holder thereof
into one share of Class A Common Stock. In addition, each share of Class P
Common Stock will convert automatically into one share of Class A Common Stock
upon the sale of such share of Class P Common Stock to a person that is not a
Permitted Transferee (as defined below)
59
<PAGE>
of Mr. Perenchio. Additionally, each share of Class P Common Stock will convert
automatically into one share of Class A Common Stock (i) upon the death of Mr.
Perenchio or (ii) if Perenchio (and his Permitted Transferees) cease to own
beneficially at least the Required Amount (as defined).
CLASS T AND CLASS V COMMON STOCK. Holders of the Class T and Class V Common
Stock are entitled to the same rights, privileges, and preferences as the
holders of the Class A and Class P Common Stock, except (i) unless there has
been a Voting Conversion with respect to any class, holders of Class T Common
Stock and Class V Common Stock, each voting as a separate class, each elect one
director and one alternate director (but no less than 12.5% of the Board);
provided that at such time as the Communications Act permits at least 37.5% but
less than 50% alien ownership of the Company's capital stock, the holders of
Class T Common Stock and Class V Common Stock, each voting as a separate class,
each elect two directors and two alternate directors (but no less than 20% of
the Board) and at such time as the Communications Act permits 50% or more alien
ownership of the Company's capital stock, the holders of Class T Common Stock
and Class V Common Stock, each voting as a separate class, each elect three
directors and three alternate directors (but no less than 25% of the Board),
(ii) unless there has been a Voting Conversion with respect to any class,
holders of the Class T Common Stock and Class V Common Stock each votes as a
separate class on matters which would adversely affect the special rights of
such class, (iii) each share of Class T Common Stock will convert automatically
into one share of Class A Common Stock upon the sale of any such shares to a
person that is not a Permitted Transferee of Televisa and (iv) each share of
Class V Common Stock will convert automatically into one share of Class A Common
Stock upon the sale of any such shares to a person that is not a Permitted
Transferee of Venevision.
For purposes of retaining their special voting rights, "Required Amount"
with respect to a person means a number of shares and warrants equal to, in the
case of Class P Common Stock, 13,243,043, and in the case of Class T and Class V
Common Stock, 6,789,042, subject to adjustments for future stock splits and
stock dividends, "Permitted Transferee" means (i) any entity all of the equity
of which is directly or indirectly owned by the transferor, (ii) in the case of
a transferor who is an individual, (a) such transferor's spouse and lineal
descendants, personal representatives and heirs, (b) any trustee of any trust
created primarily for the benefit of any, some or all of such spouse and lineal
descendants (but which may include beneficiaries which are charities) or of any
revocable trust created by such transferor, (c) following the death of such
transferor, all beneficiaries under either such trust, (d) the transferor, in
the case of a transfer from any Permitted Transferee back to its transferor and
(e) any entity all of the equity of which is directly or indirectly owned by any
of the foregoing, and "Voting Conversion" means with respect to the Class T
Common Stock or the Class V Common Stock that the holders of such class own less
than the Required Amount or have elected to relinquish their special voting
rights, including the right to elect Class T or Class V Directors.
PREFERRED STOCK
The Board is authorized to provide for the issuance of Preferred Stock in
one or more series and to fix the designations, preferences, powers and relative
participating, optional and other rights, qualifications, limitations and
restrictions thereof, including the dividend rate, conversion rights, voting
rights, redemption price and liquidation preference, and to fix the number of
shares to be included in any such series. Any Preferred Stock so issued may rank
senior to the Common Stock with respect to the payment of dividends or amounts
upon liquidation, dissolution or winding up, or both. In addition, any such
shares of Preferred Stock may have class or series voting rights. Issuances of
Preferred Stock, while providing the Company with flexibility in connection with
general corporate purposes, may, among other things, have an adverse effect on
the rights of holders of Common Stock, may have the effect of delaying,
deterring or preventing a change in control of the Company without further
action by the stockholders, may discourage bids for the Company's Common Stock
at a premium over the market price of the Common Stock, and may adversely affect
the market price and the voting and other rights of the holders of Common Stock.
In connection with the acquisition of the Sacramento Affiliated station in March
1997, the Company issued 12,000 shares of Series A Cumulative Convertible
Preferred Stock, having one vote per share, a liquidation
60
<PAGE>
preference of $1,000 per share (plus accrued and unpaid dividends) and a
Cumulative Annual Dividend Preference (commencing on the closing of the
acquisition) of 6% per share per annum ($15.00 per quarter per share),
increasing to 9% per share per annum if accrued and unpaid dividends per share
equal or exceed $30.00. The Series A Preferred is convertible into Class A
Common Stock at the option of the holder until March 20, 2001 at a conversion
price of $16.34375. The Series A Preferred is redeemable at the option of the
holder at any time, and by the Company after the fourth anniversary of the
issuance of the Series A Preferred, in each case, for an amount equal to the
liquidation preference. On May 12, 1998 the holders of the Series A Preferred
converted 3,000 shares into Class A Common Stock, leaving 9,000 shares of Series
A Preferred Stock outstanding.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law ("Delaware Law"). In general, Section 203
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of a corporation's outstanding voting stock) from engaging in a
"business combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares owned by persons who are both officers and directors
of the corporation and shares held by certain employee stock ownership plans);
or (iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the interested stockholder.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND THE BYLAWS
RELATING TO FOREIGN OWNERSHIP OF COMMON STOCK
The Restated Certificate of Incorporation contains provisions designed to
assist the Company in complying with the provisions of the Communications Act
regulating the ownership of broadcasting companies by aliens. See
"Business--Federal Regulation and New Technologies." The following is a summary
of these provisions of the Restated Certificate of Incorporation and the Bylaws.
Under the Communications Act, a broadcast license may not be granted to or
held by any corporation that is controlled, directly or indirectly, by any other
corporation more than one-fourth of whose capital stock is owned or voted by
non-U.S. citizens or their representatives, by foreign governments or their
representatives, or by non-U.S. corporations, if the FCC finds that the public
interest will be served by the refusal or revocation of such license. The FCC
has interpreted this provision to require an affirmative public interest finding
before a broadcast license may be granted to or held by any such corporation.
The FCC has rarely if ever made such an affirmative finding. For the purpose of
monitoring compliance with this provision, the Restated Certificate of
Incorporation requires the Corporation, as promptly as practicable after shares
of Common Stock are first held by more than 100 holders of record, to implement
the procedures described below in this paragraph. The Restated Certificate of
Incorporation requires the Company to maintain separate stock records for alien
stockholders and non-alien stockholders. In addition, the Restated Certificate
of Incorporation requires the Company to place on each certificate representing
shares of stock owned, voted or otherwise controlled by an alien the legend
"Foreign Share Certificate" and to place on each other stock certificate the
legend "Domestic Share Certificate." Pursuant to the Restated Certificate of
Incorporation, the holder of any shares of Company stock (other than Class T
Common Stock or Class V Common Stock) represented by a Domestic Share
Certificate is required, if such shares are owned, voted or otherwise controlled
by an alien, to deliver such certificate to
61
<PAGE>
the Company to be replaced by a Foreign Share Certificate. Any holder of Foreign
Share Certificates representing shares of the Class A Common that are not owned,
voted or otherwise controlled by aliens, may deliver such Foreign Share
Certificates to the Company or its agent to be replaced by Domestic Share
Certificates. Any Foreign Share Certificates delivered to the Company for
replacement with Domestic Share Certificates must be accompanied by an affidavit
stating that the shares of the Company's stock represented by the Foreign Share
Certificate are not owned, voted or otherwise controlled by an alien.
The Restated Certificate of Incorporation provides that the Company will
have the right to determine, by vote of the Company's Board of Directors or in
conformity with regulations prescribed by the Company's alien, whether any
shares of stock of the Company are owned, voted or otherwise controlled by
aliens and whether any affidavit described above is false.
Outstanding shares of Class A Common Stock held by a Disqualified Holder (as
defined below) are subject to redemption by the Company, by action of the Board
of Directors or in conformity with regulations prescribed by the Board of
Directors to the extent necessary to prevent the loss or secure the
reinstatement of any license or franchise from any governmental agency held by
the Company or any of its subsidiaries, which license or franchise is
conditioned upon some or all of the holders of the Company's stock possessing
prescribed qualifications. The Restated Certificate of Incorporation prescribes
the following terms and conditions for any such redemption: (a) the redemption
price of the shares to be redeemed shall be equal to the lesser of (i) the Fair
Market Value (as defined below) of such shares or (ii) if such stock was
purchased by such Disqualified Holder within one year of the redemption date,
such Disqualified Holder's purchase price for such shares; (b) the redemption
price of such shares may be paid in cash, securities (valued according to a
specified method) or any combination thereof; (c) if less than all the shares
held by Disqualified Holders are to be redeemed, the shares to be redeemed will
be selected in such manner as is determined by the Board of Directors or in
conformity with regulations prescribed by the Board of Directors, which may
include selection first of the most recently purchased shares thereof, selection
by lot, selection based upon failure to comply with the provisions described in
this paragraph or selection in any other manner determined by the Board of
Directors or in conformity with regulations prescribed by the Board of
Directors; (d) at least 30 days written notice of the redemption date must be
given to the record holders of the shares selected to be redeemed (unless waived
in writing by any such holder), except that the redemption date may be the date
on which written notice is given to such record holders if cash, securities or a
combination thereof sufficient to effect the redemption is deposited in trust
for the benefit of such record holders and subject to immediate withdrawal by
them upon surrender of the stock certificates for their shares to be redeemed;
(e) from and after the redemption date, any and all rights of whatever nature,
which may be held by the owners of shares called for redemption (including
without limitation any rights to vote or participate in dividends declared on
stock of the same class or series as such shares), will cease and terminate and
such owners will thenceforth be entitled only to receive the cash, securities or
a combination thereof payable in respect of such redemption; and (f) such other
terms and conditions as the Board of Directors may determine.
For purposes of the foregoing provisions of the Restated Certificate of
Incorporation, the following meanings are assigned to certain terms:
"Disqualified Holder" means any holder of capital stock (other than Class T
Common Stock or Class V Common Stock) whose holding of such stock, either
individually or when taken together with the holding of shares of any class or
series of stock of the Company by any other holders, may result, in the judgment
of the Board of Directors, in the loss of, or the failure to secure the
reinstatement of, any license or franchise from any governmental agency held by
the Company or any of its subsidiaries to conduct any portion of its business.
"Fair Market Value" of a share of any class or series of stock of the Company
means the average closing price for such a share for each of the 45 most recent
days on which shares of stock of such class or series were traded preceding the
fifth day prior to the day on which notice of redemption is given, except that
if shares of stock of such class or series are not traded on any securities
exchange or in the over-the-counter market, "Fair Market Value" is any value
determined by the Board of Directors in good faith.
62
<PAGE>
The Restated Certificate of Incorporation also authorizes the Board of
Directors to adopt such other provisions as the Board of Directors may deem
necessary or desirable to avoid violation of the alien ownership provisions of
the Communications Act and to carry out the provisions of the Restated
Certificate of Incorporation relating to alien ownership.
BYLAW SUPERMAJORITY VOTING PROVISIONS
The Bylaws of the Company provide that without the approval of the Board by
a vote which includes, in addition to any other required vote of directors, the
affirmative vote of a majority of the Class T Director(s) (so long as there has
not been a Voting Conversion with respect to holders of Class T Common Stock)
and a majority of the Class V Director(s) (so long as there has not been a
Voting Conversion with respect to Class V Common Stock), the Company shall not
(subject to certain exceptions) directly or through its subsidiaries: (i) merge
or consolidate, enter into a business combination with, or otherwise reorganize
the Company with or into one or more entities; (ii) sell all or substantially
all of the Company's assets to an entity that is not a wholly owned subsidiary
of the Company; (iii) create, designate, issue, or sell out of treasury Common
Stock of the Company or any of its subsidiaries or any equity securities (or
securities with equity features) of the Company or any of its subsidiaries
(other than to the Company or its wholly owned subsidiaries); (iv) pay any
dividend or make any distribution to holders of any equity securities of the
Company including by way of redemption or repurchase of securities (except
dividends payable at a stated value of preferred stock approved by the Board);
(v) engage in any business transaction outside of the Company's ordinary course
of business (which for purposes hereof, shall mean any media, communications and
broadcast businesses) or (vi) dissolve, liquidate or terminate the Company.
The Bylaws of the Company also provide that without the approval of the
Board by a vote which includes, in addition to any other required vote of
directors, the affirmative vote of a majority of the Class T Directors (so long
as a Voting Conversion has not occurred with respect to the Class T Common
Stock) or a majority of the Class V Director(s) (so long as a Voting Conversion
has not occurred with respect to the Class V Common Stock), the Company shall
not directly or through its subsidiaries: (i) acquire or dispose of assets in
any one transaction or series of related transactions for a purchase or sale
price in excess of $50 million, (ii) dispose of any interest in any television
station which broadcasts in Spanish in any of the top 15 markets in terms of
Hispanic population, (iii) incur debt (or issue preferred stock) (other than
capitalized lease obligations for satellite transponders) as of any date in
excess of five times the Company's EBITDA for the twelve-month period ending on
the last day of the quarter preceding such date, (iv) produce or acquire certain
programs (as described below), (v) enter into any transaction with Perenchio or
any person related to Perenchio or any of their respective affiliates, or (vi)
employ or set compensation or severance levels for (a) any relatives of any
executive officer of, or consultant to, the Company, or any employee of such
consultant, or (b) any part-time executive of the Company, or (c) any employees
or relatives of Perenchio, Televisa or Venevision or any of their respective
affiliates. For purposes of subparagraph (iii) above, EBITDA means the sum of
net income, total depreciation expense, amortization expense, interest expense
and taxes as determined in conformity with U.S. Generally Accepted Accounting
Principles ("GAAP"); provided that in the case of debt incurred for the purposes
of an acquisition, EBITDA shall be determined on a pro-forma basis giving effect
to such acquisition.
Production or acquisition of programs by the Company will not require
approval of the Class T Directors or Class V Directors if such programs are
Grandfathered Programs. Moreover, such consent will not be required for the
production or acquisition of any other programs by the Company unless (i)
incremental EBITDA in any fiscal year is less than 30% of the incremental sales
in that year and (ii) total EBITDA in the year in question as a percentage of
total sales is less than the greater of (a) 30% or (b) five percentage points
below the average of the three highest consecutive years within the prior ten
years (or since 1992 if less than ten years) (the "Three Year Margin"). For
purposes of determining EBITDA and sales, only the results of the Network, the
O&Os and Galavision are included. All other businesses and certain special
programming are to be disregarded. The special voting rights set forth above
with respect to special programming are to continue in effect until the Company,
in any subsequent fiscal
63
<PAGE>
year, increases its overall ratio of EBITDA to sales to the higher of (x) 2.5%
or less below the Three Year Margin or (y) 32.5%. All determinations are to be
made based upon the Company's audited financial statements.
LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS
The Company's Restated Certificate of Incorporation provides that to the
fullest extent permitted by Delaware Law, a director of the Company shall not be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director. Under current Delaware Law, liability of a
director may not be limited (i) for any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of the provisions of the Company's
Restated Certificate of Incorporation is to eliminate the rights of the Company
and its stockholders (through stockholders' derivative suits on behalf of the
Company) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior), except in the situations described in
clauses (i) through (iv) above. This provision does not limit or eliminate the
rights of the Company or any stockholder to seek nonmonetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
In addition, the Company's Restated Certificate of Incorporation provides that
the Company shall indemnify its directors, officers, employees and agents
against losses incurred by any such person by reason of the fact that such
person was acting in such capacity.
The Company has entered into agreements (the "Indemnification Agreements")
with each of the directors and officers of the Company pursuant to which the
Company has agreed to indemnify such director or officer from claims,
liabilities, damages, expenses, losses, costs, penalties or amounts paid in
settlement incurred by such director or officer in or arising out of his
capacity as a director, officer, employee and/or agent of the Company or any
other corporation of which he is a director or officer at the request of the
Company to the maximum extent provided by applicable law. In addition, such
director or officer is entitled to an advance of expenses to the maximum extent
authorized or permitted by law.
CERTAIN ANTI-TAKEOVER EFFECTS
The provisions of the Articles of Incorporation and the Bylaws of the
Company summarized above may be deemed to have anti-takeover effects and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider to be in such stockholder's best interest, including those
attempts that might result in a premium over the market price for the shares
held by stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Class A Common Stock is The Bank of
New York.
LISTING
The Class A Common Stock is listed on the NYSE under the symbol "UVN."
64
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation and Goldman, Sachs & Co. are acting as
U.S. Representatives, and the International Underwriters named below for whom
Morgan Stanley & Co. International Limited, Donaldson, Lufkin & Jenrette
International and Goldman Sachs International are acting as International
Representatives, have severally agreed to purchase, and the Selling Stockholder
has agreed to sell to them, severally, the respective number of shares of Class
A Common Stock (or Warrants immediately exercisable for shares of Class A Common
Stock) set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- -------------------------------------------------------------------------------- ------------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated............................................. 2,550,000
Donaldson, Lufkin & Jenrette Securities Corporation........................... 2,550,000
Goldman, Sachs & Co........................................................... 2,550,000
Sanford C. Bernstein & Co., Inc............................................... 100,000
BT Alex. Brown Incorporated................................................... 200,000
Credit Lyonnais Securities (USA) Inc.......................................... 200,000
A.G. Edwards & Sons, Inc...................................................... 200,000
First of Michigan Corporation................................................. 100,000
ING Furman Selz LLC........................................................... 200,000
Janney Montgomery Scott Inc................................................... 100,000
Jefferies & Company, Inc...................................................... 100,000
Legg Mason Wood Walker, Incorporated.......................................... 100,000
Lehman Brothers Inc........................................................... 200,000
McDonald & Company Securities, Inc............................................ 100,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated............................ 200,000
Nationsbanc Montgomery Securities LLC......................................... 200,000
Neuberger & Berman, LLC....................................................... 100,000
Brad Peery Inc................................................................ 100,000
Piper Jaffray Inc............................................................. 100,000
Schroder & Co. Inc............................................................ 200,000
Smith Barney Inc.............................................................. 200,000
------------
Subtotal...................................................................... 10,350,000
------------
International Underwriters:
Morgan Stanley & Co. International Limited.................................... 358,334
Donaldson, Lufkin & Jenrette International.................................... 358,333
Goldman Sachs International................................................... 358,333
ABN AMRO Rothschild........................................................... 25,000
ING Bank N.V.................................................................. 25,000
Westdeutsche Landesbank Girozentrale.......................................... 25,000
------------
Subtotal...................................................................... 1,150,000
------------
Total....................................................................... 11,500,000
------------
------------
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Class A Common Stock offered
hereby are subject to the approval of certain legal matters by their counsel and
to certain other conditions. The Underwriters are obligated to take and pay for
all of the shares of Class A Common Stock offered hereby (other than those
covered by the U.S. Underwriters' overallotment option described below) if any
such shares are taken.
65
<PAGE>
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement between
U.S. and International Underwriters. As used herein, "United States or Canadian
Person" means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person), and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person. All
shares of Class A Common Stock (including those issuable upon exercise of
Warrants) to be purchased by the Underwriters under the Underwriting Agreement
are referred to herein as the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of any
number of Shares as may be mutually agreed. The per share price of any Shares so
sold shall be the public offering price set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986
66
<PAGE>
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law, and that
such dealer will send to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.
The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $.50 a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $.10 a share to other Underwriters or to certain dealers. After the initial
offering of the shares of Class A Common Stock, the offering price and other
selling terms may from time to time be varied by the Representatives.
The Selling Stockholder has granted to the U.S. Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase Warrants
immediately exercisable for up to an aggregate of 1,725,000 additional shares of
Class A Common Stock at the public offering price set forth on the cover page
hereof, less underwriting discounts and commissions and the exercise price of
such Warrants. The U.S. Underwriters may exercise such option solely for the
purpose of covering overallotments, if any, made in connection with the offering
of the shares of Class A Common Stock offered hereby. To the extent such option
is exercised, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Class A Common Stock as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares of
Class A Common Stock set forth next to the names of all U.S. Underwriters in the
preceding table.
Each of the Company, the Selling Stockholder and the directors, executive
officers and certain other stockholders of the Company has agreed, subject to
certain exceptions, that, without the prior written consent of Morgan Stanley &
Co. Incorporated on behalf of the Underwriters, it will not, during the period
ending 90 days after the date of this Prospectus, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of Class A
Common Stock or any securities convertible into or exercisable or exchangeable
for Class A Common Stock or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Class A Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Class A Common Stock or
such other securities, in cash or otherwise. The restrictions described in this
paragraph do not apply to (a) the sale of Shares to the Underwriters, (b) the
issuance by the Company of shares of Common Stock upon the exercise of an option
or a warrant or the conversion of a security outstanding on the date of this
Prospectus of which the Underwriters have been advised in writing, (c)
transactions by any person other than the Company relating to shares of Class A
Common Stock or other securities acquired in open market transactions after the
completion of the offering of the Shares, (d) transfers by such stockholders of
shares of Class A Common Stock or any securities convertible into or exercisable
or exchangeable for Class A Common Stock to one or more affiliates or one or
more members of such stockholder's immediate family, or a trust, the sole
beneficiaries of which are members of such stockholder's immediate family, (e)
the sale of shares of Class A Common Stock pursuant to the cashless "net
exercise" provisions of any option or warrant outstanding on the date of the
Underwriting Agreement, (f)
67
<PAGE>
grants of stock options by the Company pursuant to the Company's stock option
plan in existence on the date of the Underwriting Agreement, and (g) issuances
of shares of Common Stock by the Company to its employees under its 401(k) plans
in existence on the date of the Underwriting Agreement.
In order to facilitate the Offering of the Class A Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Common Stock. Specifically, the Underwriters may
overallot in connection with the Offering, creating a short position in the
Class A Common Stock for their own account. In addition, to cover overallotments
or to stabilize the price of the Class A Common Stock, the Underwriters may bid
for, and purchase, shares of Class A Common Stock in the open market. Finally,
the underwriting syndicate may reclaim selling concessions allowed to an
Underwriter or a dealer for distributing the Class A Common Stock in the
Offering, if the syndicate repurchases previously distributed Class A Common
Stock in transactions to cover syndicate short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the Class A Common Stock above independent market levels. The
Underwriters are not required to engage in these activities, and may end any of
these activities at any time.
Certain of the Underwriters have been engaged from time to time, and may in
the future be engaged, to perform investment banking and other advisory-related
services to the Company and its affiliates, including the Selling Stockholder,
in the ordinary course of business. In connection with rendering such services
in the past, such Underwriters have received customary compensation, including
reimbursement of related expenses.
The Company, the Selling Stockholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
68
<PAGE>
LEGAL MATTERS
The validity of the shares of the Class A Common Stock offered hereby will
be passed upon for the Company by O'Melveny & Myers LLP, Los Angeles,
California. Certain legal matters will be passed upon for the Underwriters by
Latham & Watkins, Los Angeles, California. Attorneys at O'Melveny & Myers LLP
participating in the preparation of this Prospectus own 10,000 shares of the
Company's Class A Common Stock.
EXPERTS
The consolidated financial statements of Univision Communications Inc. as of
December 31, 1996 and 1997, and for each of the years ended December 31, 1995,
1996 and 1997, included in the Prospectus have been audited by Arthur Andersen
LLP, independent certified public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files periodic reports and other information with
the Commission. The Company has filed with the Commission a Registration
Statement on Form S-3 (together with all amendments, exhibits, schedules and
supplements thereto, the "Registration Statement"), of which this Prospectus
forms a part, covering the Class A Common Stock to be sold pursuant to this
Offering. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information, exhibits and undertakings contained in the
Registration Statement and the Company's other filings with the Commission. Such
additional information, exhibits and undertakings can be inspected at and
obtained from the Commission at prescribed rates at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at certain regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 13th Floor, 7 World Trade Center, New York,
New York, 10048. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. In addition, the Company's Class A Common Stock is listed on the
NYSE and reports and other information concerning the Company may be inspected
at the offices of such exchange. For additional information with respect to the
Company, the Class A Common Stock and related matters and documents, reference
is made to the Registration Statement and the Company's other filings and the
exhibits thereto. Statements contained herein concerning any such document
describe the material terms of such documents but are not necessarily complete
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement and the Company's other filings. Each
such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, and the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1998 and June 30, 1998, which were filed by the Company
with the Commission pursuant to the Exchange Act, are hereby incorporated by
reference in this Prospectus. All documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of this Offering shall be deemed to
be incorporated by reference into this Prospectus and to be a part hereof from
the respective dates of filing of such documents.
69
<PAGE>
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon oral or written request, a copy of any or all of
the foregoing documents incorporated herein by reference, except for the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into information that this Prospectus incorporates). Written
requests should be directed to Univision Communications Inc., 1999 Avenue of the
Stars, Suite 3050, Los Angeles, California 90067, Attention: Corporate
Secretary. Telephone requests should be directed to (310) 556-7676.
70
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
Report of Independent Public Accountants............................................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1997 and June 30, 1998............................ F-3
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997 and the Six
Month Periods Ended June 30, 1997 and 1998............................................................ F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Years Ended December 31,
1995, 1996 and 1997 and the Six Month Period Ended June 30, 1998...................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 and the Six
Month Periods Ended June 30, 1997 and 1998............................................................ F-6
Notes to Consolidated Financial Statements............................................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Univision Communications Inc.:
We have audited the accompanying consolidated balance sheets of Univision
Communications Inc. (a Delaware corporation) and subsidiaries, as of December
31, 1996 and 1997, and the related consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Univision
Communications Inc. and subsidiaries as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 6, 1998
F-2
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997 AND JUNE 30, 1998
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------ JUNE 30,
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 11,588 $ 10,660 $ 22,085
Short-term investment................................... 90 94 --
Accounts receivable, less allowance for doubtful
accounts of $8,738 in 1996, $8,584 in 1997 and $9,217
in 1998............................................... 87,954 116,849 139,960
Program rights.......................................... 4,673 5,650 6,229
Prepaid expenses and other.............................. 7,485 5,501 7,806
------------ ------------ ------------
Total current assets.................................. 111,790 138,754 176,080
Property and equipment, less accumulated depreciation of
$22,183 in 1996, $37,518 in 1997 and $46,780 in 1998.... 103,373 123,853 133,085
Intangible assets, less accumulated amortization of
$133,988 in 1996, $176,274 in 1997 and $197,988 in
1998.................................................... 639,934 630,828 607,808
Deferred financing costs, less accumulated amortization of
$343 in 1996, $1,973 in 1997 and $2,812 in 1998......... 8,958 8,520 7,681
Deferred income taxes..................................... 7,000 53,046 60,439
Note receivable-Entravision............................... 10,000 10,000 10,000
Investment in unconsolidated affiliate.................... -- -- 484
Other assets.............................................. 3,312 2,754 2,955
------------ ------------ ------------
Total assets.......................................... $884,367 $967,755 $998,532
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................ $ 70,522 $ 74,632 $ 72,089
Accrued interest........................................ 2,367 1,164 913
Accrued license fee..................................... 4,322 5,374 5,927
Obligations for program rights.......................... 482 894 6,809
Current portion of long-term debt....................... 42,657 61,965 58,026
------------ ------------ ------------
Total current liabilities............................. 120,350 144,029 143,764
Long-term debt including accrued interest, net of current
portion................................................. 458,808 423,923 429,725
Capital lease obligations, net of current portion......... 39,329 36,907 35,505
Obligations for program rights, net of current portion.... 331 -- --
Other long-term liabilities............................... 3,342 4,547 3,946
------------ ------------ ------------
Total liabilities..................................... 622,160 609,406 612,940
------------ ------------ ------------
Redeemable convertible 6% preferred stock, $.01 par value,
with a conversion price of $16.34375 to Class A Common
Stock (12,000 and 9,000 shares issued and outstanding at
December 31, 1997 and June 30, 1998, respectively)...... -- 12,120 9,090
------------ ------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value (10,000,000 shares
authorized at December 31, 1996, 1997 and June 30,
1998; 12,000 shares outstanding and held in escrow at
December 31, 1996).................................... -- -- --
Common stock, $.01 par value (197,660,000 shares
authorized at December 31, 1996, 1997 and 347,660,000
at June 30, 1998; 85,224,360, 85,299,360 and
86,315,344 shares issued and outstanding at December
31, 1996, 1997 and June 30, 1998, respectively)....... 852 853 863
Paid-in-capital......................................... 330,905 332,328 382,842
Accumulated (deficit) retained earnings................. (69,550) 13,048 10,199
------------ ------------ ------------
262,207 346,229 393,904
Less Common Stock held in treasury...................... -- -- (17,402)
------------ ------------ ------------
(464,051 shares at cost at June 30, 1998)
Total stockholders' equity.............................. 262,207 346,229 376,502
------------ ------------ ------------
Total liabilities and stockholders' equity................ $884,367 $967,755 $998,532
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues.............................................. $ 173,108 $ 244,858 $ 459,741 $ 207,928 $ 278,681
------------ ------------ ------------ ------------ ------------
Direct operating expenses................................. 30,774 58,443 159,619 75,357 111,817
Selling, general and administrative expenses.............. 64,973 79,818 137,070 65,029 82,183
Depreciation and amortization............................. 33,506 39,516 58,640 28,052 31,432
------------ ------------ ------------ ------------ ------------
Operating income.......................................... 43,855 67,081 104,412 39,490 53,249
Interest expense.......................................... 36,260 36,207 40,147 20,435 18,765
Interest expense on related party debt.................... 3,962 5,484 -- -- --
Amortization of deferred financing costs.................. 3,925 2,934 1,630 792 839
Non-recurring expense (reversal) of acquired station...... 1,750 -- (1,059) (1,059) --
Special bonus award....................................... -- -- -- -- 42,608
Equity loss in unconsolidated affiliate................... -- -- -- -- 343
Minority interest in net loss (income) of consolidated
subsidiary.............................................. 7,346 (1,851) -- -- --
------------ ------------ ------------ ------------ ------------
(Loss) income before taxes and extraordinary loss on
extinguishment of debt.................................. (9,388) 24,307 63,694 19,322 (9,306)
Provision (benefit) for income taxes...................... -- 5,714 (19,465) (5,922) (6,793)
------------ ------------ ------------ ------------ ------------
(Loss) income before extraordinary loss on extinguishment
of debt................................................. (9,388) 18,593 83,159 25,244 (2,513)
Extraordinary loss on extinguishment of debt (net of tax
benefit of $5,485 in 1996).............................. (801) (8,228) -- -- --
------------ ------------ ------------ ------------ ------------
Net (loss) income......................................... (10,189) 10,365 83,159 25,244 (2,513)
Preferred stock dividends................................. -- -- (561) (202) (336)
------------ ------------ ------------ ------------ ------------
Net (loss) income applicable to common stockholders....... $ (10,189) $ 10,365 $ 82,598 $ 25,042 $ (2,849)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
BASIC EARNINGS PER SHARE
(Loss) income per share before extraordinary loss......... $ (2.06) $ 0.22 $ 0.98 $ 0.29 $ (0.03)
Less preferred stock dividends per share.................. -- -- (0.01) -- --
------------ ------------ ------------ ------------ ------------
(Loss) income per share available to common stockholders
before extraordinary loss............................... (2.06) 0.22 0.97 0.29 (0.03)
Extraordinary loss per share.............................. (0.18) (0.10) -- -- --
------------ ------------ ------------ ------------ ------------
Net (loss) income per share available to common
stockholders............................................ $ (2.24) $ 0.12 $ 0.97 $ 0.29 $ (0.03)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted average common shares outstanding................ 4,560,210 85,224,360 85,238,518 85,224,360 85,769,731
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
DILUTED EARNINGS PER SHARE
(Loss) income per share before extraordinary loss......... $ (2.06) $ 0.16 $ 0.71 $ 0.22 $ (0.03)
Less preferred stock dividends per share.................. -- -- -- -- --
------------ ------------ ------------ ------------ ------------
(Loss) income per share available to common stockholders
before extraordinary loss............................... (2.06) 0.16 0.71 0.22 (0.03)
Extraordinary loss per share.............................. (0.18) (0.07) -- -- --
------------ ------------ ------------ ------------ ------------
Net (loss) income per share available to common
stockholders............................................ $ (2.24) $ 0.09 $ 0.71 $ 0.22 $ (0.03)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted average common shares outstanding................ 4,560,210 115,589,660 116,345,337 116,064,421 85,769,731
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTH PERIOD ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
EARNINGS/ COMMON
COMMON PREFERRED PAID-IN- ACCUMULATED STOCK IN
STOCK STOCK CAPITAL (DEFICIT) TREASURY TOTAL
----------- ----------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995.................... $ -- $ 1 $ 22,297 $ (51,469) $ -- $ (29,171)
Net loss for the year....................... -- -- -- (10,189) -- (10,189)
Dividends declared.......................... -- -- -- (5,066) -- (5,066)
Minority interest........................... -- -- -- (10,334) -- (10,334)
Conversion of unpaid dividends to notes
payable................................... -- -- (22,297) -- -- (22,297)
----------- ----------- --------- ------------ --------- ---------
Balance, December 31, 1995.................. -- 1 -- (77,058) -- (77,057)
Net income for the year..................... -- -- -- 10,365 -- 10,365
Initial Public Offering of stock............ 188 -- 215,908 -- -- 216,096
Initial Public Offering and Reorganization
costs..................................... -- -- (16,541) -- -- (16,541)
Stock split................................. 662 -- (662) -- -- --
Partnership distribution in connection with
Reorganization............................ -- -- (40,000) -- -- (40,000)
UNHP equity acquired at October 2, 1996..... -- -- (37,911) -- -- (37,911)
Acquisition of minority interest liability
at historical cost........................ -- -- 6,957 -- -- 6,957
Step up acquired minority interest and
Network................................... -- -- 203,044 -- -- 203,044
Preferred stock conversion upon
Reorganization............................ 2 (1) (1) -- -- --
Dividends declared on preferred stock prior
to Reorganization......................... -- -- -- (2,834) -- (2,834)
Other....................................... -- -- 111 (23) -- 88
----------- ----------- --------- ------------ --------- ---------
Balance, December 31, 1996.................. 852 -- 330,905 (69,550) -- 262,207
Net income for the year..................... -- -- -- 83,159 -- 83,159
Preferred stock dividends declared.......... -- -- -- (561) -- (561)
Exercise of stock options, including related
tax benefits.............................. 1 -- 1,423 -- -- 1,424
----------- ----------- --------- ------------ --------- ---------
Balance, December 31, 1997.................. 853 -- 332,328 13,048 -- 346,229
Net loss for the period (unaudited)......... -- -- -- (2,513) -- (2,513)
Preferred stock dividend declared
(unaudited)............................... -- -- -- (336) -- (336)
Contribution of Treasury shares
(unaudited)............................... -- -- 45,011 -- (17,402) 27,609
Exercise of warrants (unaudited)............ 7 -- 40 -- -- 47
Conversion of redeemable convertible 6%
preferred stock (unaudited)............... 2 -- 2,998 -- -- 3,000
Exercise of stock options, including related
tax benefit (unaudited)................... 1 -- 2,465 -- -- 2,466
----------- ----------- --------- ------------ --------- ---------
Balance, June 30, 1998 (unaudited).......... $ 863 -- $ 382,842 $ 10,199 $ (17,402) $ 376,502
----------- ----------- --------- ------------ --------- ---------
----------- ----------- --------- ------------ --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net (loss) income....................................... $ (10,189) $ 10,365 $ 83,159 $ 25,244 $ (2,513)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation.......................................... 5,243 8,405 16,354 7,678 9,718
(Gain) loss on sale of fixed assets................... -- -- (206) (197) 3
Equity loss in unconsolidated affiliate............... -- -- -- -- 343
Non-cash portion of special bonus award............... -- -- -- -- 27,609
Amortization of intangible assets and deferred
financing costs..................................... 32,188 34,045 43,916 21,166 22,553
Accretion of interest on Sponsor Loans................ 7,298 7,304 -- -- --
Non-recurring expense (reversal) of acquired
station............................................. 1,750 -- (1,059) (1,059) --
Minority interest..................................... 7,346 (1,851) -- -- --
Extraordinary loss on extinguishment of debt.......... 801 13,713 -- -- --
Changes in assets and liabilities:
Accounts receivable................................... (3,155) (939) (28,145) (8,203) (23,111)
Due to the Network.................................... (14,983) (18,374) -- -- --
Intangible assets..................................... 2,000 5,000 21,789 5,600 --
Deferred income taxes................................. (2,000) (5,000) (45,484) (12,178) (7,393)
Management and license fees payable................... -- 11,849 59,979 27,123 35,200
Payment of license fees............................... -- (7,886) (58,927) (25,206) (34,647)
Program rights........................................ -- (148) (626) (634) (579)
Prepaid expenses and other assets..................... (264) (2,815) 2,590 2,216 (2,506)
Accounts payable and accrued liabilities.............. 5,267 (9,363) 4,553 (7,434) (880)
Accrued interest...................................... 4,157 3,969 6,322 3,036 3,960
Obligations for program rights........................ (4,417) (2,003) 81 (164) 5,915
Other, net............................................ 440 306 1,223 50 (478)
--------- --------- --------- --------- ---------
Net cash provided by operating activities............... 31,482 46,577 105,519 37,038 33,194
--------- --------- --------- --------- ---------
Cash flow from investing activities:
Acquisition of minority interest of PTIH and the
Network, including acquisition costs, net of cash
acquired............................................ -- (39,984) -- -- --
Acquisition of Galavision............................. -- (15,000) -- -- --
Acquisition of Sacramento station..................... -- -- (28,941) (28,936) --
Acquisition of Bakersfield station.................... -- -- (14,286) -- --
Proceeds from sale of fixed assets.................... -- -- 404 298 12
Increased investment in Entravision................... -- (7,000) -- -- --
Purchase of Fort Worth tower.......................... -- (455) -- -- --
Purchase of Santa Rosa-LPTV........................... -- -- (313) -- --
Investment in unconsolidated subsidiary............... -- -- -- -- (827)
Capital expenditures.................................. (10,064) (12,637) (35,199) (13,690) (18,432)
Organization costs.................................... -- (1,677) (244) (134) --
--------- --------- --------- --------- ---------
Net cash used in investing activities................... (10,064) (76,753) (78,579) (42,462) (19,247)
--------- --------- --------- --------- ---------
</TABLE>
(continued)
See notes to consolidated financial statements.
F-6
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from financing activities:
Proceeds from issuance of long-term debt........ 39,000 496,000 80,000 59,000 63,000
Proceeds from the Offering...................... -- 216,096 -- -- --
Repayment of long-term debt..................... (112,793) (224,889) (105,597) (47,273) (66,750)
Repayments of Sponsor Loans..................... -- (148,971) -- -- --
Repayments of related party debt................ -- (130,952) -- -- --
Payment of Offering costs....................... -- (17,189) -- -- --
Proceeds from Sponsor Loans..................... 45,251 38,381 -- -- --
Reduction of Sponsor Loans--Program Cost Sharing
Agreement..................................... (4,670) (5,074) -- -- --
Defeasance of Senior Subordinated Notes......... -- (70,276) -- -- --
Repurchase of Senior Subordinated Notes......... (8,132) (25,881) -- -- --
Advances to the Network for distribution to the
Partners prior to Reorganization.............. -- (60,000) -- -- --
Advances (from) to the Network.................. 28,148 (30,209) -- -- --
Exercise of options............................. -- -- 862 -- 1,547
Exercise of warrants............................ -- -- -- -- 47
Preferred stock dividends paid.................. -- -- (441) (81) (366)
Tax payments to Partners........................ -- -- (1,500) (1,500) --
Deferred financing costs........................ (62) (9,301) (1,192) (1,185) --
---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by financing
activities...................................... (13,258) 27,735 (27,868) 8,961 (2,522)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash................... 8,160 (2,441) (928) 3,537 11,425
Cash and cash equivalents, beginning of year/
period.......................................... 5,869 14,029 11,588 11,588 10,660
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of year/period..... $ 14,029 $ 11,588 $ 10,660 $ 15,125 $ 22,085
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Supplemental disclosure of cash flow information:
Interest paid during the year/period............ $ 28,108 $ 31,612 $ 34,070 $ 17,531 $ 14,865
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Supplemental disclosure of non-cash transactions:
Related party notes issued in payment of
preferred stock dividends..................... $ 37,697 $ 2,834 $ -- $ -- $ --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Supplemental disclosure of non-cash activity
regarding acquisitions:
Total assets acquired, net of cash.............. $ -- $ 394,475 $ 55,544 $ 40,936 $ --
Liabilities assumed............................. -- (147,829) (317) -- --
---------- ---------- ---------- ---------- ----------
Net assets acquired............................. -- 246,646 55,227 40,936 --
Non-cash consideration.......................... -- (191,662) (12,000) (12,000) --
---------- ---------- ---------- ---------- ----------
Total cash consideration...................... $ -- $ 54,984 $ 43,227 $ 28,936 $ --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE 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.
F-8
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE 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.
Televisa and Venevision also own warrants to acquire from UCI additional
common shares of UCI. These warrants cannot be exercised by either Televisa or
Venevision (or by any other non-U.S. citizen) if such exercise would result in a
violation of the foreign ownership restrictions of the Communications Act of
1934. Subject to certain restrictions, Televisa and Venevision may transfer such
warrants. If Televisa and Venevision were to exercise these warrants, their
ultimate ownership of UCI would be approximately 20% each.
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").
F-9
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
1. ORGANIZATION AND ACQUISITION (CONTINUED)
The following 1996 pro forma statement gives effect to the Reorganization
(including the consolidation of PCI and UNHP) as if such transactions had
occurred as of January 1, 1996 and does not purport to represent what the
Company's consolidated financial position or results of operations would
actually have been if the transactions described above in fact had occurred on
the dates assumed or to project consolidated financial position or results of
operations for any future date or period.
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997
HISTORICAL
----------- SIX MONTHS ENDED
JUNE 30,
1996 ------------------------
PRO FORMA 1997 1998
----------- HISTORICAL HISTORICAL
(UNAUDITED) ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues.............................................. $ 370,289 $ 459,741 $ 207,928 $ 278,681
----------- ----------- ----------- -----------
Direct operating expenses................................. 122,313 159,387 75,236 111,665
Selling, general and administrative expenses.............. 98,265 126,076 59,836 76,500
Corporate charges......................................... 9,596 11,226 5,314 5,835
Depreciation and amortization............................. 55,049 58,640 28,052 31,432
----------- ----------- ----------- -----------
Operating income.......................................... 85,066 104,412 39,490 53,249
Interest expense.......................................... 39,548 40,147 20,435 18,765
Amortization of deferred financing costs.................. 1,459 1,630 792 839
Reversal of non-recurring expense of acquired station..... -- (1,059) (1,059) --
Special bonus award....................................... -- -- -- 42,608
Equity loss in unconsolidated affiliate................... -- -- -- 343
----------- ----------- ----------- -----------
Income (loss) before taxes and extraordinary loss on
extinguishment of debt................................... 44,059 63,694 19,322 (9,306)
Provision (benefit) for income taxes...................... 7,728 (19,465) (5,922) (6,793)
----------- ----------- ----------- -----------
Income (loss) before extraordinary loss on extinguishment
of debt.................................................. 36,331 83,159 25,244 (2,513)
Extraordinary loss on extinguishment of debt (net of tax
benefit of $7,455 in 1996)............................... (11,186) -- -- --
----------- ----------- ----------- -----------
Net income (loss)......................................... 25,145 83,159 25,244 (2,513)
Preferred stock dividends................................. -- (561) (202) (336)
----------- ----------- ----------- -----------
Net income (loss) available to common stockholders........ $ 25,145 $ 82,598 $ 25,042 $ (2,849)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
BASIC EARNINGS PER SHARE
Income (loss) per share before extraordinary loss......... $ 0.43 $ 0.98 $ 0.29 $ (0.03)
Less preferred stock dividends per share.................. -- (0.01) -- --
----------- ----------- ----------- -----------
Income (loss) per share available to common stockholders
before extraordinary loss................................ 0.43 0.97 0.29 (0.03)
Extraordinary loss per share.............................. (0.13) -- -- --
----------- ----------- ----------- -----------
Net income (loss) per share available to common
stockholders............................................. $ 0.30 $ 0.97 $ 0.29 $ (0.03)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common shares outstanding................ 85,224,360 85,238,518 85,224,360 85,769,731
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
DILUTED EARNINGS PER SHARE
Income (loss) per share before extraordinary loss......... $ 0.31 $ 0.71 $ 0.22 $ (0.03)
Less preferred stock dividends per share.................. -- -- -- --
----------- ----------- ----------- -----------
Income (loss) per share available to common stockholders
before extraordinary loss................................ 0.31 0.71 0.22 (0.03)
Extraordinary loss per share.............................. (0.09) -- -- --
----------- ----------- ----------- -----------
Net income (loss) per share available to common
stockholders............................................. $ 0.22 $ 0.71 $ 0.22 $ (0.03)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common shares outstanding................ 115,589,660 116,345,337 116,064,421 85,769,731
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-10
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and operations of
the Company and reflect the acquisitions described above under the purchase
method of accounting. All significant intercompany accounts and transactions
have been eliminated. Certain reclassifications have been made to the prior
year's financial statements to conform to the current year's presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets, liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
The Company's operations and its ability to grow may be affected by numerous
factors, including changes in audience tastes, priorities of advertisers, new
laws and governmental regulations and policies, changes in broadcast technical
requirements, technological advances, entry of new competitors, proposals to
restrict the tax deductibility of certain advertising expenses incurred by
advertisers and changes in the willingness of financial institutions and other
lenders to finance television-station acquisitions and operations. The Company
cannot predict which, if any, of these or other factors might have a significant
impact on the television industry in the future, nor can it predict what impact,
if any, the occurrence of these or other events might have on the Company's
operations.
PROPERTY AND EQUIPMENT AND RELATED DEPRECIATION
Property and equipment is carried on the basis of cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets. Buildings and improvements are depreciated over five to 20 years,
broadcast and other equipment over three to seven years. Leasehold improvements
are amortized over the remaining life of the lease. Depreciation and
amortization include depreciation on property and equipment of $5,243,000,
$8,405,000, $16,354,000, $7,678,000 and $9,718,000 for the years ended December
31, 1995, 1996 and 1997, and the six months ended June 30, 1997 and 1998
respectively, of which $4,581,000, $7,346,000, $14,428,000, $6,772,000, and
$8,503,000 relate to direct operating expense and $662,000, $1,059,000,
$1,926,000, $906,000, and $1,215,000 relate to selling, general and
administrative expenses for the years ended December 31, 1995, 1996, 1997, and
the six months ended June 30, 1997 and 1998, respectively.
INTANGIBLE ASSETS
Intangible assets consist of amounts by which the cost of acquisitions
exceeded the fair values assigned to net tangible assets. The intangible assets
primarily represent broadcasting licenses, Network affiliation agreements,
organization costs and goodwill. Organization costs are amortized over a
five-year period, and substantially all other intangible assets are amortized on
the straight-line method over 20 years.
Subsequent to acquisitions, the Company continually evaluates whether later
events and circumstances have occurred which indicate that the remaining
estimated useful life of intangible assets may
F-11
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
warrant revision or that the remaining balance of such assets may not be
recoverable. When factors indicate that intangible assets should be evaluated
for possible impairment, the Company uses an estimate of the nondiscounted
operating income over the remaining life of the intangible assets in measuring
whether the intangible assets are recoverable.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the life of the related debt or,
in the case of interest rate protection instruments, over the period of the
instrument.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of December 31, 1996 and 1997 and June 30, 1998, accounts payable and
accrued liabilities comprise the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30
-------------------- ---------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Trade accounts payable and accruals.................................... $ 36,889 $ 38,720 $ 36,695
Severance and litigation costs......................................... 6,232 10,151 9,220
Acquired stations integration costs.................................... 2,377 3,405 3,211
Facility consolidation costs........................................... 4,340 1,469 910
Research costs......................................................... 3,346 873 1,351
Accrued compensation................................................... 8,508 10,685 9,528
Other.................................................................. 8,830 9,329 11,174
--------- --------- ---------
$ 70,522 $ 74,632 $ 72,089
--------- --------- ---------
--------- --------- ---------
</TABLE>
MINORITY INTEREST
The minority interest in PTIH was acquired by the Company effective October
2, 1996. Minority interest represented the 20% interest in PTIH held by minority
stockholders. Additionally, it included the PTIH consolidated preferred stock
and related dividends due minority stockholders. To the extent that the minority
interest in the book value of PTIH represented an asset, the Company charged the
asset against the majority interest. Subsequent profits earned by PTIH
applicable to the minority interest were allocated to the majority interest to
the extent that minority losses had been previously absorbed by the majority
stockholder.
PROGRAM RIGHTS FOR TELEVISION BROADCAST
Costs incurred in connection with the production of or purchase of rights to
programs to be broadcast within one year are classified as current assets, while
costs of those programs to be broadcast subsequently are considered non current.
Program costs are charged to expense as the programs are broadcast.
F-12
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET REVENUES
Net revenues comprise gross revenues, including a Network service fee
payable to the Network by the affiliated stations, less agency commissions and
an allocation of Network revenues to the affiliates. Gross revenues and the
related agency commissions and allocation to the affiliates are recognized when
advertising spots are broadcast. No one advertiser represented more than 10% of
gross advertising revenues of the Company in 1997, 1996 or 1995.
EARNINGS PER SHARE
In December 1997, the Company adopted the Statement of Financial Accounting
Standards (SFAS) No. 128 "EARNINGS PER SHARE," which supersedes Accounting
Principles Board (APB) Opinion No. 15 "EARNINGS PER SHARE" for calculating
earnings per share. Under the guidelines of SFAS No. 128, the Company is
required to calculate basic earnings per share, which is computed by dividing
income available to common stockholders (the numerator) by the weighted-average
number of common shares outstanding (the denominator) during the period. Income
available to common stockholders is computed by deducting both the dividends
declared in the period on preferred stock (whether or not paid) and dividends
accumulated for the period on cumulative preferred stock (whether or not earned)
from income from continuing operations and also net income. The Company is also
required to compute diluted earnings per share, which is similar to basic
earnings per share, except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. In addition, in computing the
dilutive effect of convertible securities, the numerator is adjusted to add back
the convertible preferred stock dividends.
COMMON STOCK SPLIT
On December 3, 1997, the Board of Directors approved a two-for-one stock
split for all common stockholders of record as of December 17, 1997. The common
stock split became effective on January 12, 1998, and each stockholder received
one new share of common stock for each outstanding share of the Company's common
stock held as of the record date. All references to the number of shares and to
per-share data included in the consolidated financial statements and footnotes
have been adjusted to reflect the stock split on a retroactive basis.
INCOME TAXES
Income taxes are recognized during the year in which transactions enter into
the determination of financial statement income. Deferred taxes are provided for
temporary differences between amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws (see Note 9).
3. RELATED PARTY TRANSACTIONS
In the normal course of business, the Company engaged in significant
transactions with the Network during the period January 1, 1996, through October
2, 1996, and during the year ended December 31, 1995, and through various other
agreements with the Principal Stockholders, as described below.
F-13
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
(A) THE COMPANY
NETWORK AFFILIATION AGREEMENTS
During the period January 1, 1996, through October 2, 1996, and during the
year ended December 31, 1995, pursuant to Network Affiliation Agreements, the
Network acted as the Company's exclusive sales representative for the sale of
all national spot and Network advertising. The Network allocated a portion of
Network advertising revenues to the Company's stations based on a formula.
National spot sales represent time sold on behalf of the Company's stations by
sales representatives employed by the Network. Proceeds of Network sales were
remitted to the Company by the Network, net of an agency commission and a
Network service fee, as described below. Under UCI, the arrangements described
above continued through December 31, 1997.
The Network was obligated to offer programming to the Company and its
Affiliated Stations for a minimum of 84 hours per week. For this service, during
the period January 1, 1996, through October 2, 1996, and in 1995, the Company
incurred a Network service fee due the Network of 38% of its net local, national
and Network sales revenues, subject to certain adjustments. The Network received
two minutes of air time for its own use each hour, for which no compensation was
received by the Company. Under UCI, the arrangements described above continued
through December 31, 1997. Net revenues for the period January 1, 1996, through
October 2, 1996, and for the year ended December 31, 1995, include $114,117,000
and $140,465,000, respectively, in gross revenues, representing the Company's
allocation of Network sales, partially offset by a Network service fee of
$86,320,000 and $105,274,000 for the period January 1, 1996, through October 2,
1996, and for the year ended December 31, 1995, respectively.
(B) PRINCIPAL STOCKHOLDERS
Senior Subordinated Debt and Subordinated Notes Payable--see Note 5.
SPONSOR LOANS
Prior to the Reorganization, and in connection with the acquisition of UTG
and the Network and the related financing, Televisa and Venevision had agreed to
provide loans to UTG approximately 15 days after the end of each quarter in
amounts as required by its senior lenders subject to certain thresholds (as
defined) on UTG and the Network ("Sponsor Loans"). The obligation to make such
loans terminated when the Company and the Network distributed to the Principal
Stockholders the aggregate amount of $100,000,000 through dividends or other
distributions (the "Return of Initial Financing"). Each Sponsor Loan was
subordinated to all bank debt and Senior Subordinated Notes (third-party
acquisition financing), had an initial term of 15 years, bore interest at a rate
of the lesser of the prime rate or 10% and required no payment of interest or
principal until maturity. The Sponsor Loans were guaranteed by the Network and
PTIH. Such guarantees were subordinated to the Network guarantee of third-party
acquisition financing. Upon the Return of Initial Financing, the holders of the
Sponsor Loans could convert them to conversion notes, which would have been
similar to the Sponsor Loans with respect to subordination and interest but
would have been payable in seven annual installments, subject to certain
restrictions. The Sponsor Loans were made quarterly in arrears approximately 15
days after quarter end. During 1996 and 1995, Sponsor Loans were made totaling
$38,381,000 and $45,251,000, respectively. As of October 2, 1996,
F-14
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
and December 31, 1995, accrued interest on these loans totaled $18,356,000 and
$11,052,000, respectively. On October 2, 1996, in connection with the
Reorganization, the Company paid the principal and interest on all outstanding
Sponsor Loans.
In March 1996 and December 1995, Televisa and Venevision assigned to the
Network $5,074,000 and $4,670,000, respectively, of Sponsor Loans owed to them
by the Company. The assignment was in lieu of payment for program production
costs, under the Program Cost Sharing Agreements, to be incurred by the Network
in the first and second quarters of 1996. This assignment was shown as a
reduction to the Company's Sponsor Loans amount and an increase in the Due to
the Network liability. The payment for production costs for the third-quarter of
1996 of $4,500,000 was offset against the third-quarter license fee payment due
under the Program License Agreement.
PROGRAM LICENSE AGREEMENTS
In connection with the Reorganization, the Program License Agreements were
amended, the Program Cost Sharing Agreement (which required Televisa and
Venevision to reimburse the Company for one-half of the cost of certain
productions produced or acquired by the Company) was terminated and the
management fee to the principal Stockholders of 3% of Combined Net Time Sales
(as defined in the Program License Agreement) was eliminated. Under the amended
Program License Agreements, the royalty rate is 11% of Combined Net Time Sales
from the date of Reorganization through December 31, 1996, 13.5% for 1997 and
15% for all years thereafter until the termination of the agreements on December
17, 2017.
4. PROPERTY AND EQUIPMENT
Property and equipment, and accumulated depreciation and amortization,
consist of the following as of December 31, 1996 and 1997 and June 30, 1998 (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Land and improvements.................................... $ 6,174 $ 6,981 $ 6,733
Building and improvements................................ 19,200 23,576 29,691
Broadcast equipment...................................... 50,587 63,572 76,180
Leased transponder equipment............................. 41,503 41,577 41,577
Other equipment.......................................... 7,175 12,177 14,725
Construction in progress................................. 917 13,488 10,959
---------- ---------- ----------
125,556 161,371 179,865
Accumulated depreciation and amortization................ (22,183) (37,518) (46,780)
---------- ---------- ----------
$ 103,373 $ 123,853 $ 133,085
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-15
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
5. DEBT
Long-term debt (excluding capital leases) consists of the following as of
December 31, 1996 and 1997 and June 30, 1998 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Bank Term Facility....................................... $ 400,000 $ 360,000 $ 325,500
Revolving Credit Facility................................ 38,000 55,000 87,250
Junior Subordinated Notes payable including accrued
interest................................................ 60,160 67,685 71,896
Other.................................................... 987 651 396
---------- ---------- ----------
499,147 483,336 485,042
Less current portion..................................... (40,339) (59,413) (55,317)
---------- ---------- ----------
Long-term debt........................................... $ 458,808 $ 423,923 $ 429,725
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
In connection with the Reorganization, the Company entered into a new bank
facility (the "New Bank Facility") with a syndicate of commercial banks and
other lenders. The New Bank Facility consists of a $400,000,000 amortizing term
loan ($325,500,000 at June 30, 1998) (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 New Bank Facility will also permit the lenders thereunder to advance up
to an additional $250,000,000 of term loans (the "Incremental Facility"),
although 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.
At June 30, 1998, the Company had approximately $363,000,000 available to
borrow through a combination of its Revolving Credit and Incremental Facilities.
In addition to the scheduled amortization of the Term Facility and scheduled
reductions of the Revolving Credit Facility described above, 66 2/3% of "excess
cash flow" of the Company (50% if certain leverage tests are satisfied) will be
applied each year, first to ratably reduce loans made under the Term Facility
and the Incremental Facility, and thereafter to reduce the availability under
the Revolving Credit Facility. In addition, proceeds from the sale or other
disposition of assets outside the ordinary course of business and 80% of the
proceeds of equity offerings by the Company will be similarly applied. Any such
mandatory prepayments will ratably reduce each remaining installment or
scheduled reduction of the Term Facility, the Revolving Credit Facility or the
Incremental Facility.
F-16
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
5. DEBT (CONTINUED)
The New Bank Facility may be voluntarily prepaid by the Company at any time
without premium or penalty.
Loans made under the New Bank Facility bear interest, which includes
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 New Bank Facility is guaranteed by the Company's subsidiaries and is
secured by a security interest in substantially all of the personal property
assets of the Company and its subsidiaries (subject to limitations of federal
law in the case of FCC licenses of the O&Os).
The New Bank Facility contains limitations on the incurrence of debt and
liens by the Company and its subsidiaries, the payment of cash common stock
dividends, the disposition of assets, financial performance tests and other
restrictions typical of leveraged credits.
In addition to customary events of default, it will be an event of default
if a change of control occurs (defined as a person or persons other than A.
Jerrold Perenchio or his permitted transferees gaining voting control of the
Company).
The Company's prior bank facility ("Old Bank Facility"), which totaled
$400,000,000, consisted of a $180,000,000 five-year amortizing term loan, a
$70,000,000 six-year revolving credit loan, a $30,000,000 six-year term loan, a
$20,000,000 five-and one-half-year term loan and a $100,000,000
five-and-one-half year term loan available under a revolving credit facility,
which was never borrowed against. Interest on the Old Bank Facility was payable
on fixed-rate borrowings at maturity of the borrowing, up to a maximum of three
months, and payable quarterly on floating-rate loans. At December 31, 1995,
interest rates were 6.60% to 8.50% on the Old Bank Facility.
The Junior Subordinated Notes, which have a face value of $10,306,000 and
$61,094,000 and bear simple interest at 7%, were originally payable by PTIH and
UNHP, respectively, to Hallmark Cards, Inc. ("Hallmark") in connection with the
acquisition from Hallmark (the "Junior Subordinated Notes"). Hallmark has since
sold the Junior Subordinated Notes to a third party, which resold them to the
public as a series of notes. The Junior Subordinated Notes are unsecured; all
interest and principal is due on December 17, 2002. As part of the acquisition
of the Network, the Company acquired the obligation under the Junior
Subordinated Notes with the face value of $61,094,000 during 1996. The Junior
Subordinated
F-17
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
5. DEBT (CONTINUED)
Notes were discounted at an effective rate of approximately 12.5% in accordance
with the purchase method of accounting. The discounts on the Junior Subordinated
Notes with a face value of $71,400,000 are $28,896,000 and $31,424,000 at
December 31, 1997 and 1996, respectively. The discounts, which are shown as a
reduction of the related debt, are being amortized under the interest method
over the term of the Junior Subordinated Notes.
During 1996 and as part of the Reorganization, the Company purchased and
defeased the Senior Subordinated Notes. The Senior Subordinated Notes were
scheduled to mature on January 15, 2001, and were subordinate to all Senior
Indebtedness of the Company, including amounts outstanding under the Old Bank
Facility. The Senior Subordinated Notes accrued interest at a rate of 11 3/4%,
payable semi-annually on January 15 and July 15.
As part of the Reorganization, the Company paid the balance of the Related
Party Senior Subordinated Notes. The Related Party Senior Subordinated Notes
represented notes due to affiliates of Televisa and Venevision. The notes were
scheduled to mature on December 16, 2003, and were subordinate to all Senior
Indebtedness of the Company, including amounts outstanding under the Old Bank
Facility. The Notes accrued interest at a rate equal to the AFR average rate,
which was 6.99% at December 31, 1995. Also, notes to the Principal Stockholders
(at the PCI level) that were scheduled to mature on December 17, 2003, accrued
interest at a rate of 6.36%.
As part of the Reorganization, the Company paid the balance of the Related
Party Subordinated Debt. The Related Party Subordinated Debt represented debt
due to affiliates of Televisa and Venevision. The notes were scheduled to mature
on December 16, 2005, and were subordinate to all indebtedness of the Company,
including amounts outstanding under the Old Bank Facility. The Related Party
Subordinated Debt accrued interest at a rate equal to 0.5% per annum in excess
of the AFR average rate, which was 7.49% at December 31, 1995. Also, notes to
Principal Stockholders that were scheduled to mature on December 31, 2005,
accrued interest at a rate of 6.86%.
The accrued interest payable on the Related Party Senior Subordinated Notes
and the Related Party Subordinated Debt was $12,120,000 at December 31, 1995.
Interest expense was $5,484,000 in 1996 and $3,962,000 in 1995.
As part of the Reorganization, the Company paid the balance of the Senior
Subordinated Debt-Principal Stockholders (at the PTIH level). The Senior
Subordinated Debt-Principal Stockholders was scheduled to mature on December 16,
2003, and was subordinate to all Senior Indebtedness of the Company, including
amounts outstanding under the Old Bank Facility. The Senior Subordinated Debt-
Principal Stockholders accrued interest at a rate of 6.6% and was payable on
December 16, 2003. The debt arose from the preferred stock dividends which were
declared by PTIH to the minority stockholders effective December 31, 1995. These
dividends were reflected as minority interest in the Company's 1995 financial
statements.
F-18
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
5. DEBT (CONTINUED)
Long-term debt matures as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
Year ending December 31:
1998................................................................................. $ 59,413
1999................................................................................. 49,238
2000................................................................................. 58,000
2001................................................................................. 68,000
2002................................................................................. 145,685
Thereafter........................................................................... 103,000
---------
Total................................................................................ $ 483,336
---------
---------
</TABLE>
The Company estimates that the fair value of the bank debt and the Junior
Subordinated Notes at December 31, 1997, approximates book value.
Interest expense, net, reflected in the accompanying consolidated statements
of operations, comprises the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Bank Facility................................ $ 16,884 $ 17,249 $ 29,270 $ 15,086 $ 12,813
Senior Subordinated Notes.................... 11,519 11,048 -- -- --
Junior Subordinated Notes.................... 857 964 7,525 3,743 4,211
Sponsor Loans................................ 7,298 7,304 -- -- --
Related party................................ 3,962 5,484 -- -- --
Capital leases (see Note 6).................. -- 913 3,775 1,915 1,802
Other--net................................... (298) (1,271) (423) (309) (61)
--------- --------- --------- --------- ---------
$ 40,222 $ 41,691 $ 40,147 $ 20,435 $ 18,765
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-19
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
6. COMMITMENTS
The Company is obligated under long-term operating leases expiring at
various dates through 2017 for office, studio, automobile, tower and transponder
rentals. The Company is also obligated under long-term capital lease obligations
through 2011. The following is a schedule by year of future annual rentals under
operating and capital leases as of December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- ---------
<S> <C> <C>
Year ending December 31:
1998...................................................................... $ 8,072 $ 6,276
1999...................................................................... 7,661 6,336
2000...................................................................... 7,188 6,336
2001...................................................................... 6,745 6,336
2002...................................................................... 5,767 6,336
Thereafter................................................................ 43,391 31,742
----------- ---------
Total minimum lease payments.............................................. $ 78,824 63,362
-----------
-----------
Less interest and executory costs......................................... (23,903)
---------
Total present value of minimum lease payments............................. 39,459
Current portion........................................................... (2,552)
---------
Capital lease obligation, net of current portion.......................... $ 36,907
---------
---------
</TABLE>
Rent expense totaled $4,460,000, $4,900,000, $8,320,000, $3,614,000 and
$4,541,000 for the years ended December 31, 1995, 1996 and 1997 and for the six
months ended June 30, 1997 and 1998.
The Company had an agreement with Nielsen Media Research ("Nielsen") to
provide television audience measurement services for a five-year period which
began in November 1992. Pursuant to this agreement, the Network was obligated to
pay Nielsen a total of $18,400,000 in increasing annual amounts from November
1992 through October 1997. In June 1998, the Company concluded negotiations on a
new five year contract with Nielsen expiring in the year 2002. The aggregate
payment under the contract is approximately $24,000,000, payable over five years
in increasing installments.
As of December 31, 1997, the Company is committed to pay amounts
approximating $4,680,000, pursuant to talent contracts, through December 31,
1998. These payments do not include amounts payable upon the attainment of
certain annual revenue levels or upon the performance of other contractual
provisions. Concurrent with the Reorganization, Venevision and Televisa agreed
to fund a total of $250,000 per year (one-half of the costs) of a certain
retirement obligation to be paid to one of the personnel subject to a long-term
talent contract. 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 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 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 Company entered into an agreement with Televisa in March 1998, which
provides for each party to produce, at each party's own expense, three separate
thirteen week non-NOVELA programs. Each party has agreed to use commercially
reasonable efforts to complete the production of its programs no later than
October 31, 1998. Each party will own all rights worldwide in perpetuity in the
programs that it produces; provided that each party will have the right to
broadcast and otherwise exploit the shows as set forth in the
F-20
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
6. COMMITMENTS (CONTINUED)
Program License Agreement between the Company and Televisa and the International
Programming Rights Agreement. See "Recent Developments."
On March 27, 1998, the Company entered into a joint venture with Home
Shopping Network Capital LLC to form 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, 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,
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 will account for its
investment in Home Shopping Network En Espanol LLC under the equity method.
7. EMPLOYEE BENEFITS
The Company has a 401(k) retirement savings plan (the "Plan") covering all
eligible employees who have completed one year of service. The Plan allows the
employees to defer a portion of their annual compensation, and the Company may
match a portion of the employees' contributions. For the years ended December
31, 1995, 1996 and 1997 and for the six months ended June 30, 1997 and 1998, the
Company made matching contributions to the Plan totaling $478,000, $817,000,
$1,430,000, $674,000 and $1,809,000, respectively. Effective January 1, 1998,
the Company matches 100% of the first 6% of eligible compensation that employees
contribute to the plan. This represents an increase over the 1995, 1996 and 1997
matching, during which time the Company matched 75% of the first 4% of an
employee's contribution.
8. CONTINGENCIES
There are various legal actions and other claims pending against the Company
incidental to its business and operations. In the opinion of management, the
resolution of these matters will not have a material effect on the consolidated
financial position or results of operations.
The Network, primarily located in Miami and acquired October 2, 1996,
accounted for 49% of the Company's gross advertising revenues in 1997 and 22% in
1996. The Network accounted for 52% of trade accounts receivable as of December
31, 1997 and 1996. The Company's television station serving Los Angeles,
California, accounted for 18%, 29% and 36% of the Company's gross advertising
revenues in 1997, 1996 and 1995, respectively, and 16% and 18% of trade accounts
receivable as of December 31, 1997 and 1996, respectively. The Company's
television station serving Miami, Florida, accounted for 10%, 15% and 20% of the
Company's gross advertising revenues in 1997, 1996 and 1995, respectively, and
9% and 8% of trade accounts receivable as of December 31, 1997 and 1996,
respectively.
The Company maintains insurance coverage for various risks, where deemed
appropriate by management, at rates and on terms which management considers
reasonable. The Company self-insures the deductible portion of certain insurance
coverage for various risks, including those associated with windstorm and
earthquake damage. The Company has recorded estimated liabilities for these
uninsured portions of risks. In management's opinion, the potential exposure in
future periods if uninsured losses in excess of amounts provided were to be
incurred would not be material to the consolidated financial position or results
of operations.
F-21
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
9. INCOME TAXES
The Company files a consolidated federal income tax return. The income tax
provision (benefit) for the years ended December 31, 1996 and 1997 and the six
months ended June 30, 1998 was comprised of the following charges (benefits) (in
thousands):
<TABLE>
<CAPTION>
DEC. 31, DEC. 31, JUNE 30,
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Provision relating to debt extinguishment....................... $ 5,485 $ -- $ --
Current:
Federal....................................................... -- -- --
State......................................................... 229 2,300 600
Deferred:
Federal....................................................... -- (19,044) (6,389)
State......................................................... -- (2,721) (1,004)
--------- --------- ---------
Total........................................................... $ 5,714 $ (19,465) $ (6,793)
--------- --------- ---------
--------- --------- ---------
</TABLE>
No income taxes were provided in 1995, as the Company had a loss for both
financial reporting and tax purposes. In 1996, the provision relating to debt
extinguishment was based on an effective rate of 40%. This tax provision was
offset by an income tax benefit arising from the extraordinary loss on the
extinguishment of debt. The deferred income tax benefit in 1997 was comprised of
a federal and state provision of approximately $34,355,000, offset by a benefit
of approximately $56,120,000 resulting from the decrease in the valuation
allowance.
The Company accounts for income taxes under the liability method pursuant to
Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for
Income Taxes." Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities as of December
31, 1996 and 1997 and June 30, 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
DEC. 31, DEC. 31, JUNE 30,
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Tax basis of property and equipment in excess of book basis....... $ 25,000 $ 18,900 $ 16,700
Accrued insurance and litigation.................................. 3,500 2,300 2,400
Accrued vacation.................................................. 700 800 800
Deferred compensation............................................. 2,600 2,400 2,100
Purchase accounting accruals...................................... 1,500 1,300 1,100
Allowance for bad debts........................................... 3,400 700 900
Charitable contributions carryforwards............................ 900 1,400 1,600
Alternative minimum tax credit.................................... -- 1,800 1,800
Other differences................................................. 1,900 3,246 5,439
Net operating loss carryforwards.................................. 47,000 20,200 27,600
--------- ----------- -----------
Total deferred tax assets......................................... 86,500 53,046 60,439
Valuation allowance for deferred tax assets....................... (79,500) -- --
--------- ----------- -----------
Net deferred tax assets........................................... $ 7,000 $ 53,046 $ 60,439
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
F-22
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
9. INCOME TAXES (CONTINUED)
At June 30, 1998, the Company had net operating loss carryforwards of
approximately $26,600,000 that expire in years 2002 through 2005, resulting from
the 1992 acquisitions. The tax benefit relating to the recognition of these
items was applied to reduce goodwill related to the acquisitions. At June 30,
1998, the Company also had net operating loss carryforwards of approximately
$36,900,000, for income tax purposes, which were generated subsequent to the
above-mentioned acquisitions and expire in years 2007 through 2018. At December
31, 1996, the Company recorded net deferred tax assets of $7,000,000 that
management believed, more likely than not, would result in tax benefits being
realized from these net operating loss carryforwards. At December 31, 1997,
based on three consecutive quarters of consistent profits and an evaluation of
continuing profitability into the future, the Company eliminated the valuation
allowance, resulting in a book deferred tax benefit of $56,120,000 and a
reduction of intangible assets of $23,380,000.
Concurrent with the Offering and Reorganization, the Company recorded
goodwill of approximately $203,000,000, representing the consideration given in
excess of the net assets related to the acquisition of the minority interests in
PTIH and the Network. The amortization of this goodwill is not deductible for
tax purposes, and, in accordance with SFAS No. 109, no deferred tax liability
was accrued. Consequently, in future periods, the Company's effective tax rate
provided will be greater than the statutory rate. Therefore, for financial
reporting purposes, including the above nondeductible goodwill, at June 30,
1998, the Company had remaining intangible assets of approximately $607,800,000
that are being amortized over the next 20 years. For tax purposes, as of June
30, 1998, the Company had remaining intangible assets of approximately
$107,900,000, of which $10,500,000 is expected to be deductible in 1998 and the
balance is expected to be deductible over 15 years. The nondeductible intangible
amortization difference was approximately $18,500,000 for the year ended
December 31, 1997 and $16,100,000 for the six months ended June 30, 1998.
For the year ended December 31, 1997 and the six months ended June 30, 1998,
a reconciliation of the federal statutory tax rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
DEC. 31, JUNE 30,
1997 1998
----------- -----------
<S> <C> <C>
Federal statutory tax rate............................................. 35.0% 35.0%
State and local income taxes, net of federal tax benefit............... 5.4 5.4
Junior Subordinated Notes.............................................. 1.2 1.5
Goodwill amortization.................................................. 13.5 22.9
Special bonus award--nontax deductible portion......................... -- 6.8
Other.................................................................. 2.4 1.4
----- -----
57.5 73.0
Decrease in deferred tax asset valuation allowance..................... (88.1) --
----- -----
Total effective tax rate............................................... (30.6)% 73.0%
----- -----
----- -----
</TABLE>
F-23
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
10. EARNINGS PER SHARE ("EPS")
The following is the reconciliation of the numerator and the denominator of
the basic and diluted earnings-per-share computations for "Income (loss) before
extraordinary items" required by SFAS No. 128 (Earnings Per Share):
(Dollars in thousands, except for share and per-share data):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 1995
----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- -----------
<S> <C> <C> <C>
Loss before extraordinary loss........................................... $ (9,388)
Less preferred stock dividends........................................... --
------------
Basic Earnings Per Share
Loss before extraordinary loss per share available to common
stockholders......................................................... (9,388) 4,560,210 $ (2.06)
-----------
-----------
Effect of Dilutive Securities
Warrants............................................................... -- -- (c)
------------ -------------
Diluted Earnings Per Share
Loss before extraordinary loss per share available to common
stockholders......................................................... $ (9,388) 4,560,210 $ (2.06)
------------ ------------- -----------
------------ ------------- -----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 1996 FOR THE YEAR ENDED 1997
---------------------------------------- ----------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary
loss......................... $ 18,593 $ 83,159
Less preferred stock
dividends.................... -- (561)
------------ ------------
Basic Earnings Per Share Income
before extraordinary loss per
share available to common
stockholders................. 18,593 85,224,360 $ 0.22 82,598 85,238,518 $ 0.97
----- -----
----- -----
Effect of Dilutive Securities
Warrants..................... -- 28,779,416 -- 28,795,768
Options...................... -- 1,423,262 -- 1,576,826(a)
Convertible Preferred Stock
(b)........................ -- 162,622 561 734,225
------------ ------------- ------------ -------------
Diluted Earnings Per Share
Income before extraordinary
loss per share available to
common stockholders.......... $ 18,593 115,589,660 $ 0.16 $ 83,159 116,345,337 $ 0.71
------------ ------------- ----- ------------ ------------- -----
------------ ------------- ----- ------------ ------------- -----
</TABLE>
F-24
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
10. EARNINGS PER SHARE ("EPS") (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 SIX MONTHS ENDED JUNE 30, 1998
---------------------------------------- ----------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss).............. $ 25,244 $ (2,513)
Less preferred stock
dividends.................... (202) (336)
------------ ------------
Basic Earnings Per Share
Net income (loss) per share
available to common
stockholders............... 25,042 85,224,360 $ 0.29 (2,849) 85,769,731 $ (0.03)
----------- -----------
----------- -----------
Effect of Dilutive Securities
Warrants..................... -- 28,775,600 -- -- (d)
Options...................... -- 1,330,236 -- -- (d)
Convertible Preferred Stock
(b)........................ 202 734,225 336 -- (d)
------------ ------------- ------------ -------------
Diluted Earnings Per Share
Net income (loss) per share
available to common
stockholders............... $ 25,244 116,064,421 $ 0.22 $ (2,513) 85,769,731 $ (0.03)
------------ ------------- ----------- ------------ ------------- -----------
------------ ------------- ----------- ------------ ------------- -----------
</TABLE>
- ---------
(a) Options of 2,320,000 shares granted on December 12, 1997, were excluded as
common stock equivalents, since the average market price of the Class A
common stock during the 1997 fourth quarter was lower than the exercise
price of the options and the inclusion of the potential shares would be
antidilutive. No options were granted by the Company prior to September 26,
1996.
(b) The redeemable convertible 6% preferred stock was issued on March 20, 1997,
as part of the acquisition of the Sacramento full-power Affiliated Station.
The 12,000 and 9,000 shares issued and outstanding at December 31, 1997 and
June 30, 1998, respectively, have a liquidation preference of $1,000 per
share (plus accrued and unpaid dividends). The preferred stock is
convertible into Class A Common Stock at the option of the holder until the
fourth anniversary of the closing of the acquisition at a conversion price
of $16.34375.
(c) The Company had a loss before the extraordinary loss on extinguishment of
debt. Therefore, the warrants were excluded from the computation of Diluted
EPS because the inclusion of the potential shares would be antidilutive.
(d) The Company had a loss from continuing operations; therefore, the warrants,
options, and convertible preferred stock were excluded from the computation
of Diluted EPS because the inclusion of the potential shares would be
antidilutive.
F-25
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
10. EARNINGS PER SHARE ("EPS") (CONTINUED)
In 1997, the Company adopted SFAS No. 128 "Earnings per Share," effective
December 15, 1997 (see Note 2). As a result, the Company's reported primary and
fully diluted earnings per share for 1996 and 1995 were restated. The effect of
this accounting change on previously reported income (loss) per share before
extraordinary loss available to common stockholders is as follows:
<TABLE>
<CAPTION>
INCOME (LOSS) PER
SHARE BEFORE
EXTRAORDINARY LOSS
AVAILABLE TO
COMMON STOCKHOLDERS
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Primary Earnings Per Share as reported.................................. $ 0.16 $ (2.06)
Effect of SFAS No. 128.................................................. 0.06 --
--------- ---------
Basic Earnings Per Share................................................ $ 0.22 $ (2.06)
--------- ---------
--------- ---------
Fully diluted Earnings Per Share as reported............................ $ 0.16 $ (2.06)
Effect of SFAS No. 128.................................................. -- --
--------- ---------
Diluted Earnings Per Share.............................................. $ 0.16 $ (2.06)
--------- ---------
--------- ---------
</TABLE>
11. EARLY EXTINGUISHMENT OF DEBT
During the six months ended June 30, 1996, UTG purchased at a premium
$12,650,000 face amount of its Senior Subordinated Notes, resulting in an
extraordinary loss of $1,181,000, including the write-off of the related
financing costs. During the quarter ended September 30, 1996, UTG purchased at a
premium $11,775,000 face amount of its Senior Subordinated Notes, resulting in
an extraordinary loss of $931,000, including the write-off of the related
financing costs. The remaining face amount on the Senior Subordinated Notes of
$67,625,000 was defeased on September 30, 1996, resulting in an extraordinary
loss of $11,601,000, including the write-off of the remaining related financing
cost balance of $8,946,000. As a result, in 1996, UTG purchased and defeased at
a premium $92,050,000 face amount of its Senior Subordinated Notes, resulting in
a total extraordinary loss of $13,713,000, including the write-off of the
related, previously deferred, financing costs. The related income tax benefits
associated with these extraordinary losses were $5,485,000 in 1996.
During 1995, UTG purchased at a premium $7,550,000 face amount of its Senior
Subordinated Notes, resulting in a total extraordinary loss of $801,000,
including the write-off of the related, previously deferred, financing costs.
There were no related income tax benefits associated with the extraordinary loss
in 1995.
12. PREFERRED STOCK
The Company has 10,000,000 shares of preferred stock, $.01 par value,
authorized at December 31, 1997 and 1996. The Company had 12,000 shares of
redeemable convertible 6% preferred stock, $.01 par value, issued and
outstanding at December 31, 1997 in connection with the acquisition of the
Sacramento station. These shares were outstanding and held in escrow at December
31, 1996. At December 31, 1997, the Company had accrued preferred stock
dividends of $120,000. During the six months ended June 30,
F-26
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
12. PREFERRED STOCK (CONTINUED)
1998, 3,000 redeemable convertible 6% preferred stock shares were redeemed and
converted to 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. The reduction to
the redeemable convertible 6% preferred stock balance was $3,000,000, resulting
in a remaining outstanding balance at June 30, 1998 of $9,090,000, including
accrued dividends of $90,000.
The remaining 9,000 shares of redeemable convertible 6% preferred stock have
one vote per share, a liquidation preference of $1,000 per share (plus accrued
and unpaid dividends) and a cumulative annual dividend preference of 6% per
share per annum ($15.00 per share per quarter), increasing to 9% per share per
annum if accrued and unpaid dividends per share equal or exceed $30.00. The
preferred stock is convertible into Class A Common Stock at the option of the
holder until the fourth anniversary of the closing of the acquisition at a
conversion price of $16.34375. The preferred stock is redeemable at the option
of the holder at any time and by the Company after the fourth anniversary of the
issuance of the preferred stock, in each case, for an amount equal to the
liquidation preference. Consequently, holders of the redeemable convertible 6%
preferred stock have greater rights than holders of the Class A Common Stock.
13. THE OFFERING AND REORGANIZATION
On September 26, 1996, UCI's initial public offering (the "Offering") of
18,791,500 shares of its Class A Common Stock was declared effective. In
connection with the Offering, on October 2, 1996, the operations of UTG and the
Network were combined and the ownership was reorganized under UCI.
Concurrent with the Offering, the Company exchanged PCI preferred stock and
PTIH common and preferred stock outstanding for PCI common stock, resulting in
253,332 common shares outstanding prior to the Reorganization.
The Company consummated the following transactions concurrent with the
Offering and Reorganization:
(a) On September 30, 1996, the Company entered into the New Bank Facility,
repaid $164,900,000 owed under the Old Bank Facility and terminated the Old
Bank Facility;
(b) On September 30, 1996, the Company defeased UTG's Senior Subordinated Notes
by, among other things, depositing $74,200,000 with the trustee under the
indenture governing such notes;
(c) On September 30, 1996, the Network made a distribution to its partners in
the amount of $60,000,000. UCI advanced the Network $60,000,000 to fund this
distribution;
(d) On September 30, 1996, the Program License Agreements were amended, the
Program Cost Sharing Agreement (which required Televisa and Venevision to
reimburse the Company for one-half of the cost of certain productions
produced or acquired by the Company) was terminated and the management fee
to the Principal Stockholders of 3% of Combined Net Time Sales was
eliminated. Under the amended Program License Agreements, the royalty rate
was 11% from October 1, 1996, through December 31, 1996, and will increase
to 13.5% for 1997 and to 15% for all years thereafter;
F-27
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
13. THE OFFERING AND REORGANIZATION (CONTINUED)
(e) On October 2, 1996, the Company acquired the Network from its partners in
exchange for 19,014.5 shares of Common Stock and $40,000,000 in cash and UTG
became a wholly owned subsidiary of the Company. The Company effected a
dividend of 227 shares on each share of Class P Common Stock, Class T Common
Stock and Class V Common Stock, and the warrants were adjusted to reflect
the new capital structure of the Company;
(f) On October 2, 1996, the Company paid $88,000,000 to the Principal
Stockholders and their affiliates, representing payment of outstanding
principal of and accrued interest on certain debentures and accrued
dividends on certain preferred stock issued by the Company and its
subsidiaries in connection with the Acquisition, and approximately
$43,000,000 to the Principal Stockholders and their affiliates, representing
full payment of outstanding principal of, and interest on, certain notes
issued in payment of certain accrued dividends as of December 31, 1995;
(g) On October 2, 1996, the Company paid $149,000,000 to Televisa and
Venevision, representing full payment of outstanding principal of, and
accrued interest on, all amounts owed to them by UTG with respect to Sponsor
Loans made subsequent to the Acquisition, and the obligations to make the
Sponsor Loans terminated;
(h) On October 2, 1996, the Company paid $15,300,000 to Televisa, representing
full payment of outstanding principal of, and accrued interest on, the note
issued by the Company as of July 1, 1996, to Televisa as payment for the
acquisition of Galavision. This acquisition was accounted for under the
purchase method of accounting, and accordingly, Galavision's operating
results have been included with the Company's since October 3, 1996.
14. 1996 PERFORMANCE AWARD PLAN
In 1996, the Company adopted a 1996 Performance Award Plan that reserves
shares of Class A Common Stock for issuance to Company officers, key employees
and other eligible persons as determined by the Board of Directors or Plan
Committee (as appointed by the Board). The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards SFAS
No. 123 "Accounting for Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for the Plan. Had compensation cost for the Company's
Plan been determined based on the fair value at the grant date for awards in
1997 and for the six months ended June 30, 1998, consistent with the provisions
of SFAS No. 123, the Company's net income and earnings per share available to
common stockholders would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
BASIC EPS DILUTED EPS
------------------------------- -------------------------------
DEC. 31, DEC. 31, JUNE 30, DEC. 31, DEC. 31, JUNE 30,
1996 1997 1998 1996 1997 1998
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) available to common stock--as
reported...................................... $ 10,365 $ 82,598 $ (2,849) $ 10,365 $ 83,159 $ (2,513)
Net income (loss) available to common stock--pro
forma......................................... 8,892 76,545 (8,480) 8,892 77,106 (8,144)
EPS available to common stock--as reported...... 0.12 0.97 (0.03) 0.09 0.71 (0.03)
EPS available to common stock--pro forma........ 0.10 0.90 (0.10) 0.08 0.66 (0.09)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and for the six months ended June 30, 1998,
respectively: dividend yield of 0% and 0%, expected volatility of 29.736% and
29.550%, risk-free interest rate of 5.86% and 5.82% and expected lives of five
years.
F-28
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
14. 1996 PERFORMANCE AWARD PLAN (CONTINUED)
Under the Plan approved by the Board of Directors and stockholders, the
maximum number of shares of Class A Common Stock that may be granted is
11,000,000. The maximum number of shares that may be granted to any individual
during any calendar year is 1,000,000. For 1996, the maximum number of shares
that could be granted was 4,000,000. Thereafter, the maximum number is 2,750,000
shares per year, excluding any awards, if any, granted to an eligible employee
who is hired in that year to become the chief executive officer of the Company.
The Plan provides that shares granted come from the Company's authorized but
unissued Class A Common Stock and any shares of its Class A Common Stock held as
treasury shares. Grants may be in the form of either nonqualified stock options,
incentive stock options, stock appreciation rights, restricted stock awards,
performance share awards, stock bonuses or cash bonus awards.
The price of the options granted pursuant to the Plan may not be less than
100% of the fair market value of the shares on the date of grant (110% in the
case of an incentive stock option granted to any person owning more than 10% of
the Company's total combined voting power). No award will be exercisable after
10 years from the date granted. Unless approved by the Board of Directors, no
award may vest more quickly than 25% per year, other than in the case of options
issued in connection with the Offering or awards granted in lieu of cash
bonuses, which may vest at the rate of 50% per year.
Information regarding the Performance Award Plan for December 31, 1997 and June
30, 1998 is as follows:
<TABLE>
<CAPTION>
DEC. 31, DEC. 31, JUNE 30,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Number of shares under stock options:
Outstanding at beginning of period................... -- 3,868,000 6,294,000
Granted.............................................. 3,868,000 2,525,000 48,000
Exercised............................................ -- (75,000) (101,000)
Canceled............................................. -- (24,000) (6,000)
---------- ---------- ----------
Outstanding at end of period......................... 3,868,000 6,294,000 6,235,000
Available for grant at end of period................. 7,132,000 4,631,000 4,589,000
Exercisable at end of period......................... -- 2,104,000 2,072,916
Weighted average exercise price:
Granted.............................................. $11.50 $32.85 $36.85
Exercised............................................ -- $11.50 $15.31
Canceled............................................. -- $11.50 $34.13
Outstanding at end of period......................... $11.50 $20.07 $20.26
Exercisable at end of period......................... -- $11.50 $11.54
Weighted average fair value of options granted during
the period......................................... $3.39 $12.24 $13.69
</TABLE>
F-29
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND JUNE 30, 1997 AND 1998
(ALL DATA WITH RESPECT TO JUNE 30, 1997 AND 1998 ARE UNAUDITED)
14. 1996 PERFORMANCE AWARD PLAN (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------------
NUMBER OUTSTANDING WEIGHTED AVERAGE
AT REMAINING WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES JUNE 30, 1998 CONTRACTUAL LIFE EXERCISE PRICE
- ------------------------------------ ------------------- ---------------- -----------------
<S> <C> <C> <C>
$11.50 - $25.50..................... 3,873,000 8.0 years $ 11.77
$25.51 - $39.875.................... 2,362,000 9.5 years $ 34.33
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
----------------------------------------
NUMBER EXERCISABLE AT WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES JUNE 30, 1998 EXERCISE PRICE
- ----------------------------------------------------- --------------------- -----------------
<S> <C> <C>
$11.50 - $25.50...................................... 2,072,916 $ 11.54
</TABLE>
During the six months ended June 30, 1998, 101,000 options were exercised for
101,000 shares of Class A Common Stock, resulting in a change to Common Stock of
$1,010 and to Paid-in-capital of $2,465,000, which included a tax benefit
associated with the transactions of $919,000.
F-30
<PAGE>
GLOSSARY
"Acquisition" means the December 1992 acquisition of the Network and UTG
(excluding the Bakersfield, Chicago, Houston and Sacramento 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 originally provided for aggregate commitments of up to $600 million
and imposes financial and other restrictions on the Company.
"Broadcast Affiliates" means the O&Os (excluding KUVI Bakersfield) and the
Affiliated Stations.
"Cable Affiliates" means the approximately 835 cable television systems with
which Univision has Affiliation Agreements. These cable television systems
retransmit the Network satellite signal and are not located in DMAs where the
Company has full-power Broadcast Affiliates.
"Combined Net Time Sales" means time sales of the Company from broadcasting,
including barter and trade and television subscription revenues, less
advertising commissions, certain special event revenues, music license fees,
outside affiliate compensation and taxes other than withholding taxes.
"DMA" means a Designated Market Area or the area in which television
stations licensed to a particular city have a greater audience share than
television stations licensed to another city.
"DRI Study" means the Company-commissioned study published by the
econometric firm Standard & Poor's DRI in 1997.
"Entravision" means Entravision Communications Company, L.L.C. which owns 10
of the Company's Affiliated Stations, and has an agreement to acquire another.
"Galavision" means the Galavision Spanish-language general entertainment
basic cable network owned by the Company effective as of July 1, 1996.
"Hispanic" means all persons in the U.S. of Hispanic descent or origin.
"Hispanic Households" means all U.S. households with a head of household who
is of Hispanic descent or origin, regardless of the language spoken in the
household.
"Network" or "UNLP" means the Univision Spanish-language television network
owned by the Company and one of its 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.
"Old Bank Facility" means the Company's credit agreement from the
Acquisition through the Reorganization.
"PCI" or "UCI" 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.
G-1
<PAGE>
"Program License Agreements" means the amended and restated program license
agreements between the Company and Televisa and the Company and Venevision.
"PTIH" means PTI Holdings, Inc., a subsidiary of the Company.
"Reorganization" means the reorganization of the Company immediately prior
to the closing of the Initial Offering.
"Sponsor Loans" means the loans made to the Company by Televisa and
Venevision each quarter from the Acquisition through the Reorganization.
"Televisa" means Grupo Televisa, S.A. and its affiliates.
"Univision" or the "Company" means Univision Communications Inc. and its
wholly-owned subsidiaries, after giving effect to the Reorganization.
"Univision Affiliates" means the Broadcast Affiliates and the Cable
Affiliates.
"UTG" means Univision Television Group, Inc., the Company's subsidiary that
owns and operates the O&Os.
"UNHP" means The Univision Network Holding Limited Partnership, the entity
(wholly-owned by the Company) that owned substantially all of the partnership
interests in the Network prior to the Reorganization and that was liquidated as
part of the Reorganization.
"USP Partnerships" means the partnerships that Perenchio, Televisa, and
Venevision have each formed, in which they are the general partner and The
Davila Family, LLC is the managing general and limited partner with sole
dispositive and voting power over the Class A Common Stock owned by such
partnerships.
"Venevision" means Corporation Venezolana de Television, C.A. (Venevision)
and its affiliates.
"Warrants" means the warrants to purchase 712,512 shares of Class A Common
Stock, 13,718,850 shares of Class T Common Stock (including the warrants to
purchase 2,587,160 shares being acquired by the Underwriters in connection with
the Offering) and 13,718,850 shares of Class V Common Stock at a price of
$0.06439 per share held by The Davila Family, LLC, Televisa and Venevision,
respectively.
G-2
<PAGE>
[LOGO]
<PAGE>
PROSPECTUS
11,500,000 SHARES
[LOGO]
UNIVISION COMMUNICATIONS INC.
CLASS A COMMON STOCK
-----------------
OF THE SHARES OF CLASS A COMMON STOCK OF UNIVISION COMMUNICATIONS INC. (THE
"COMPANY") OFFERED HEREBY, 8,912,840 SHARES ARE BEING SOLD BY GRUPO TELEVISA,
S.A. AND ITS AFFILIATES ("TELEVISA" OR "SELLING STOCKHOLDER") AND 2,587,160
SHARES WILL BE ISSUED UPON THE EXERCISE BY THE UNDERWRITERS OF WARRANTS BEING
ACQUIRED FROM TELEVISA. SEE "PRINCIPAL AND SELLING STOCKHOLDER." OF THE
11,500,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, 1,150,000
SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY
THE INTERNATIONAL UNDERWRITERS AND 10,350,000 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITERS." THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE
OF THE SHARES BEING OFFERED HEREBY ALTHOUGH IT WILL RECEIVE PROCEEDS
FROM THE EXERCISE OF THE WARRANTS BY THE UNDERWRITERS. FOLLOWING THE
OFFERING, TELEVISA WILL CONTINUE TO OWN 5,742 SHARES OF CLASS T COMMON
STOCK AND WARRANTS TO PURCHASE 11,131,690 SHARES OF CLASS T COMMON
STOCK AND, AS A RESULT, WILL CONTINUE TO HAVE THE RIGHT TO ELECT ONE
MEMBER TO THE BOARD AND TO HAVE CERTAIN ACTIONS OF THE BOARD
SUBJECT TO ITS CONSENT. SEE "DESCRIPTION OF CAPITAL STOCK."
THE CLASS A COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE
SYMBOL "UVN." ON OCTOBER 12, 1998, THE LAST REPORTED SALE PRICE OF THE CLASS A
COMMON STOCK WAS $22 1/16 PER SHARE.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
PRICE $21 A SHARE
-----------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND SELLING
TO PUBLIC COMMISSIONS(1) STOCKHOLDER(2)(3)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $21.00 $0.84 $20.16
TOTAL (4).......................................... $241,500,000 $9,660,000 $231,840,000
</TABLE>
- ----------
(1) THE COMPANY AND THE SELLING STOCKHOLDER HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT $540,000.
(3) THE SELLING STOCKHOLDER WILL RECEIVE $0.06439 LESS PER SHARE, OR AN
AGGREGATE OF $166,587, FOR THE WARRANTS IT SELLS, WHICH WILL BE PAID TO THE
COMPANY. TOTAL PROCEEDS TO THE SELLING STOCKHOLDER INCLUDES SUCH AMOUNT.
(4) THE SELLING STOCKHOLDER HAS GRANTED THE U.S. UNDERWRITERS AN OPTION,
EXERCISABLE WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO 1,725,000
ADDITIONAL SHARES, ALL OF WHICH ARE ISSUABLE UPON EXERCISE OF WARRANTS BY
TELEVISA, OF CLASS A COMMON STOCK SOLELY TO COVER OVERALLOTMENTS, IF ANY.
IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE TO
PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO SELLING
STOCKHOLDER WILL BE $277,725,000, $11,109,000, AND $266,616,000,
RESPECTIVELY. SEE "UNDERWRITERS."
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY LATHAM & WATKINS, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT DELIVERY
OF THE SHARES WILL BE MADE ON OR ABOUT OCTOBER 16, 1998, AT THE OFFICE OF MORGAN
STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR IN
IMMEDIATELY AVAILABLE FUNDS.
MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
<PAGE>
GOLDMAN SACHS INTERNATIONAL
OCTOBER 13, 1998
<PAGE>
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED
OR INCORPORATED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY
OTHER THAN THE CLASS A COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE CLASS A COMMON
STOCK OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY OR BY
ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE CLASS A COMMON STOCK
OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY JURISDICTION WHERE
ACTION FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS
INTO WHOSE POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE COMPANY, THE
SELLING STOCKHOLDER AND THE UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO
OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF THE CLASS A COMMON STOCK AND THE
DISTRIBUTION OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 9
Use of Proceeds................................ 15
Dividend Policy................................ 15
Capitalization................................. 16
Market Prices of Common Stock.................. 16
Selected Historical Financial Data............. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
Business....................................... 30
Management..................................... 52
Certain Transactions........................... 54
Principal and Selling Stockholders............. 56
<CAPTION>
PAGE
---------
<S> <C>
Description of Capital Stock................... 59
Underwriters................................... 65
Certain United States Federal Tax Consequences
to Non-United States Holders of Class A
Common Stock................................. 69
Legal Matters.................................. 72
Experts........................................ 72
Available Information.......................... 72
Incorporation of Certain Documents by
Reference.................................... 72
Index to Consolidated Financial Statements..... F-1
Glossary....................................... G-1
</TABLE>
------------------------
INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WHICH
CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY,"
"WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE
MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE PROSPECTUS CONSTITUTE
CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH
FORWARD-LOOKING STATEMENTS.
------------------------
In this Prospectus, references to "dollars" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, territories, possessions and all areas subject to its
jurisdiction.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE CLASS A COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE>
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF CLASS A COMMON STOCK
The following is a general summary of certain United States federal income
and estate tax consequences of the ownership, sale or other disposition of Class
A Common Stock by a person (a "non-U.S. holder") that, for United States federal
income tax purposes, is a nonresident alien individual, a foreign corporation, a
foreign partnership or a foreign estate or trust, as such terms are defined in
the Internal Revenue Code of 1986, as amended (the "Code"). This summary does
not address all aspects of United States federal income and estate taxes that
may be relevant to non-U.S. holders in light of their particular facts and
circumstances or to certain types of non-U.S. holders that may be subject to
special treatment under United States federal income tax laws (for example,
individual non-U.S. holders who are former citizens or former long-term
residents of the United States, insurance companies, tax exempt organizations,
financial institutions or broker-dealers). Furthermore, this summary does not
discuss any aspects of foreign, state or local taxation. This summary is based
on current provisions of the Code, existing and proposed regulations promulgated
thereunder and administrative and judicial interpretations thereof, all of which
are subject to change, possibly retroactively.
DIVIDENDS
Dividends, if any, paid to a non-U.S. holder of Class A Common Stock will
generally be subject to withholding of United States federal income tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty,
unless the dividends are effectively connected with the conduct of a trade or
business of the non-U.S. holder within the United States. To claim the benefit
of an applicable tax treaty rate, a non-U.S. holder may have to file with the
Company or its dividend paying agent an exemption or reduced treaty rate
certificate or letter in accordance with the terms of such treaty.
Dividends that are effectively connected with such holder's conduct of a
trade or business in the United States are generally subject to tax on a net
income basis (that is, after allowance for applicable deductions) at rates
applicable to United States citizens, resident aliens and domestic United States
corporations, and are not generally subject to withholding. Any such effectively
connected dividends received by a non-U.S. corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate on
such lower rate as may be specified by an applicable income tax treaty.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above (unless the payor has
knowledge to the contrary). Under the current interpretation of United States
Treasury regulations, the same presumption applies for purposes of determining
the applicability of a tax treaty rate; however, under United States Treasury
regulations in effect for payments made after December 31, 1999, a non-U.S.
holder of Class A Common Stock who wishes to claim the benefit of an applicable
treaty rate would be required to satisfy applicable certification and other
requirements. Certain certification and disclosure requirements must be complied
with in order to exempt from withholding under the effectively connected income
exemption discussed above.
A non-U.S. holder of Class A Common Stock that is eligible for a reduced
rate of United States tax withholding pursuant to an income tax treaty may
obtain a refund of an excess amounts currently withheld by filing an appropriate
claim for refund with the United States Internal Revenue Service.
DISPOSITION OF CLASS A COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax in respect of gain recognized on the disposition of Class A Common
Stock unless: (i) the gain is effectively connected with
69
<PAGE>
the conduct of a trade or business of a non-U.S. holder in the United States,
and if a tax treaty applies, attributable to a permanent establishment
maintained by the non-U.S. holder; (ii) in the case of a non-U.S. holder who is
a nonresident alien individual and holds Class A Common Stock as a capital
asset, such holder is present in United States for 183 or more days in the
taxable year of the sale and either (a) such individual's "tax home" for United
States federal income tax purposes is in the United States or (b) the gain is
attributable to an office or other fixed place of business maintained in the
United States by such individual, or (iii) if the Company is or has been a "U.S.
real property holding corporation" for federal income tax purposes at any time
during the five-year period ending on the date of the disposition or, if
shorter, the period during which the non-U.S. holder held the Class A Common
Stock and the non-U.S. holder holds, acrually or constructively, or any time
during the applicable period, more than 5% of the Class A Common Stock. Although
the Company owns some real estate assets, it is not now and does not expect in
the foreseeable furture to be a United States real property holding corporation
for United States federal tax purposes.
FEDERAL ESTATE TAXES
Class A Common Stock owned or treated as owned by a holder who is neither a
United States citizen nor a United States resident (as specially defined for
United States federal estate tax purposes) at the time of death will be included
in such holder's gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
UNITED STATES INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
The Company must report annually to the Internal Revenue Service and to each
non-U.S. holder the amount of dividends paid to such holder and the tax withheld
with respect to such dividends. These information reporting requirements apply
regardless of whether withholding is required. Copies of the information returns
reporting such dividends and withholding may also be made available to the tax
authorities in the country in which the non-U.S. holder resides under the
provisions of the applicable income tax treaty.
United States backup withholding (which generally is imposed at a 31% rate)
generally will not apply to (i) the payment of dividends paid on Class A Common
Stock to a non-U.S. holder at an address outside the United States or (ii) the
payment of the proceeds of the sale of Class A Common Stock to or through the
foreign office of a foreign broker. In the case of the payment of proceeds from
such a sale of Class A Common Stock through foreign offices of United States
brokers, or foreign brokers with certain types of relationships to the United
States, hoever, information reporting (but not backup withholding) is required
with respect to the payment unless the broker has documentary evidence in its
files that the owner is a non-U.S. holder (and has no actual knowledge to the
contrary) and certain other requirements are met or the holder otherwise
establishes an exemption. The payment of the proceeds of a sale of shares of
Class A Common Stock to or through a U.S. office of a broker is subject to
information reporting and possible backup withholding at a rate of 31% unless
the owner certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Any amounts withheld under the backup withholding
rules from a payment to a non-U.S. holder will be allowed as a refund or a
credit against such non-U.S. holder's United States federal income tax
liability, provided that the required information is furnished to the Internal
Revenue Service.
The United States Treasury has issued regulations regarding the withholding
and information reporting rules discussed above that will be effective for
payments made after December 31, 1999. In general, the proposed regulations do
not alter the substantive withholding and information reporting requirements but
unify current certification procedures and forms and clarify and modify reliance
standards. For instance, the proposed regulations would, among other changes,
elimate the presumption under current regulations with respect to dividends paid
to addresses outside the United States.
70
<PAGE>
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ACCORDINGLY,
INVESTORS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS WITH RESPECT TO THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION
OF CLASS A COMMON STOCK INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF ANY
STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION.
71
<PAGE>
LEGAL MATTERS
The validity of the shares of the Class A Common Stock offered hereby will
be passed upon for the Company by O'Melveny & Myers LLP, Los Angeles,
California. Certain legal matters will be passed upon for the Underwriters by
Latham & Watkins, Los Angeles, California. Attorneys at O'Melveny & Myers LLP
participating in the preparation of this Prospectus own 10,000 shares of the
Company's Class A Common Stock.
EXPERTS
The consolidated financial statements of Univision Communications Inc. as of
December 31, 1996 and 1997, and for each of the years ended December 31, 1995,
1996 and 1997, included in the Prospectus have been audited by Arthur Andersen
LLP, independent certified public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files periodic reports and other information with
the Commission. The Company has filed with the Commission a Registration
Statement on Form S-3 (together with all amendments, exhibits, schedules and
supplements thereto, the "Registration Statement"), of which this Prospectus
forms a part, covering the Class A Common Stock to be sold pursuant to this
Offering. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information, exhibits and undertakings contained in the
Registration Statement and the Company's other filings with the Commission. Such
additional information, exhibits and undertakings can be inspected at and
obtained from the Commission at prescribed rates at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at certain regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 13th Floor, 7 World Trade Center, New York,
New York, 10048. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. In addition, the Company's Class A Common Stock is listed on the
NYSE and reports and other information concerning the Company may be inspected
at the offices of such exchange. For additional information with respect to the
Company, the Class A Common Stock and related matters and documents, reference
is made to the Registration Statement and the Company's other filings and the
exhibits thereto. Statements contained herein concerning any such document
describe the material terms of such documents but are not necessarily complete
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement and the Company's other filings. Each
such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, and the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1998 and June 30, 1998, which were filed by the Company
with the Commission pursuant to the Exchange Act, are hereby incorporated by
reference in this Prospectus. All documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of this Offering shall be deemed to
be incorporated by reference into this Prospectus and to be a part hereof from
the respective dates of filing of such documents.
72
<PAGE>
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon oral or written request, a copy of any or all of
the foregoing documents incorporated herein by reference, except for the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into information that this Prospectus incorporates). Written
requests should be directed to Univision Communications Inc., 1999 Avenue of the
Stars, Suite 3050, Los Angeles, California 90067, Attention: Corporate
Secretary. Telephone requests should be directed to (310) 556-7676.
73
