<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999 COMMISSION FILE NUMBER: 001-12223
------------------------
UNIVISION COMMUNICATIONS INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE NO. 95-4398884
(State of Incorporation) (I.R.S. Employer Identification)
</TABLE>
UNIVISION COMMUNICATIONS INC.
1999 Avenue of the Stars, Suite 3050
Los Angeles, California 90067
TEL: (310) 556-7676
(address and telephone number of principal executive offices)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days YES /X/ NO / / .
There were 64,838,742 shares of Class A Common Stock, 19,981,045 shares of
Class P Common Stock, 8,196,517 shares of Class T Common Stock and 8,918,582 of
Class V Common Stock outstanding as of October 15, 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PART I--FINANCIAL INFORMATION:
Financial Introduction...................................... 2
Item 1. Condensed Consolidated Balance Sheets at
September 30, 1999 and December 31, 1998........... 3
Condensed Consolidated Statements of Operations for
the three and nine months ended September 30, 1999
and 1998............................................ 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1999 and 1998... 5
Notes to the Condensed Consolidated Financial
Statements.......................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................ 16
PART II--OTHER INFORMATION:
Item 6. Exhibits and Reports on form 8-K................... 17
</TABLE>
1
<PAGE>
PART I
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FINANCIAL INTRODUCTION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial statements. The interim financial statements are unaudited but
include all adjustments, which are of a normal recurring nature, that management
considers necessary to fairly present the financial position and the results of
operations for such periods. Results of operations of interim periods are not
necessarily indicative of results for a full year. These financial statements
should be read in conjunction with the audited consolidated financial statements
in the Company's Annual Report on Form 10-K for December 31, 1998.
2
<PAGE>
PART I, ITEM 1
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 15,895 $ 12,966
Accounts receivable, net.................................. 129,477 118,408
Program rights............................................ 8,243 5,081
Prepaid expenses and other................................ 15,667 17,536
-------- --------
Total current assets.................................... 169,282 153,991
Property and equipment, net................................. 146,890 144,496
Intangible assets, net...................................... 560,629 592,224
Deferred financing costs, net............................... 5,762 6,843
Deferred income taxes....................................... 18,051 22,635
Program rights, less current portion........................ 4,865 5,398
Note receivable--Entravision................................ 10,000 10,000
Investment in unconsolidated affiliate...................... 662 67
Other assets................................................ 4,626 2,675
-------- --------
Total assets............................................ $920,767 $938,329
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 72,111 $ 75,129
Accrued interest.......................................... 343 641
Accrued license fee....................................... 8,598 7,572
Obligations for program rights............................ 437 438
Current portion of long-term debt......................... 75,088 69,111
-------- --------
Total current liabilities............................... 156,577 152,891
Long-term debt including accrued interest, less current
portion................................................... 244,842 343,401
Capital lease obligations, less current portion............. 31,690 34,034
Other long-term liabilities................................. 4,851 4,265
-------- --------
Total liabilities....................................... 437,960 534,591
-------- --------
Redeemable convertible 6% preferred stock, $.01 par value,
with a conversion price of $16.34375 to Class A Common
Stock (9,000 shares issued and outstanding at
September 30, 1999 and December 31, 1998)................. 9,090 9,090
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value (10,000,000 shares
authorized)............................................. -- --
Common stock, $.01 par value (492,000,000 shares
authorized; 101,934,886 and 90,916,170 shares issued
including shares in treasury at September 30, 1999 and
December 31, 1998, respectively)........................ 1,019 909
Paid-in-capital........................................... 418,474 388,772
Retained earnings......................................... 71,626 22,369
-------- --------
491,119 412,050
Less common stock held in treasury (464,051 shares at cost
at September 30, 1999 and December 31, 1998)............ (17,402) (17,402)
-------- --------
Total stockholders' equity.............................. 473,717 394,648
-------- --------
Total liabilities and stockholders' equity.............. $920,767 $938,329
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues....................................... $ 177,301 $ 138,946 $ 487,772 $ 417,627
Direct operating expenses.......................... 61,606 53,387 173,443 165,204
Selling, general and administrative expenses....... 46,002 38,421 135,553 120,604
Depreciation and amortization...................... 15,572 15,850 46,190 47,282
----------- ----------- ----------- -----------
Operating income................................... 54,121 31,288 132,586 84,537
Interest expense................................... 6,630 9,038 21,277 27,803
Special bonus award................................ -- -- -- 42,608
Equity loss in unconsolidated affiliate............ 133 239 405 582
Amortization of deferred financing costs........... 361 419 1,081 1,258
----------- ----------- ----------- -----------
Income before taxes and extraordinary loss on
extinguishment of debt........................... 46,997 21,592 109,823 12,286
Provision for income taxes......................... 24,567 16,622 57,550 9,829
----------- ----------- ----------- -----------
Income before extraordinary loss on extinguishment
of debt.......................................... 22,430 4,970 52,273 2,457
Extraordinary loss on extinguishment of debt
(including a tax provision of $246).............. -- -- (2,611) --
----------- ----------- ----------- -----------
Net income......................................... 22,430 4,970 49,662 2,457
Preferred stock dividends.......................... (135) (135) (405) (471)
----------- ----------- ----------- -----------
Net income available to common stockholders........ $ 22,295 $ 4,835 $ 49,257 $ 1,986
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE
Income per share available to common stockholders
before extraordinary loss........................ $ 0.22 $ 0.06 $ 0.55 $ 0.02
Extraordinary loss per share....................... -- -- (0.03) --
----------- ----------- ----------- -----------
Net income per share available to common
stockholders..................................... $ 0.22 $ 0.06 $ 0.52 $ 0.02
=========== =========== =========== ===========
Weighted average common shares outstanding......... 101,209,075 85,919,807 94,761,248 85,820,306
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE
Income per share available to common stockholders
before extraordinary loss........................ $ 0.19 $ 0.04 $ 0.44 $ 0.02
Extraordinary loss per share....................... -- -- (0.02) --
----------- ----------- ----------- -----------
Net income per share available to common
stockholders..................................... $ 0.19 $ 0.04 $ 0.42 $ 0.02
=========== =========== =========== ===========
Weighted average common shares outstanding......... 118,440,904 115,985,643 117,843,101 116,256,420
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net income.................................................. $ 49,662 $ 2,457
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation................................................ 16,823 14,713
Loss on sale of fixed assets................................ 193 78
Equity loss in unconsolidated subsidiary.................... 405 582
Amortization of intangible assets and deferred financing
costs..................................................... 30,448 33,827
Non-cash portion of special bonus award..................... -- 27,609
Extraordinary loss on extinguishment of debt................ 2,611 --
Changes in assets and liabilities:
Accounts receivable....................................... (11,069) 14,149
License fees payable...................................... 71,405 54,115
Payment of license fees................................... (70,379) (52,101)
Program rights............................................ (2,629) (10,855)
Intangible assets......................................... (12) (399)
Deferred taxes............................................ 4,584 6,367
Prepaid expenses and other assets......................... 18,635 (4,109)
Accounts payable and accrued liabilities.................. (2,912) (1,804)
Accrued interest.......................................... 5,780 5,802
Obligations for program rights............................ (1) (130)
Other, net................................................ 745 (457)
--------- ---------
Net cash provided by operating activities................... 114,289 89,844
--------- ---------
Cash flow from investing activities:
Capital expenditures...................................... (20,691) (29,280)
Investment in unconsolidated affiliate.................... (1,000) (831)
Proceeds from sale of fixed assets........................ 16 72
Proceeds from sale of Albuquerque station................. 1,000 --
--------- ---------
Net cash used in investing activities....................... (20,675) (30,039)
--------- ---------
Cash flow from financing activities:
Proceeds from issuance of long-term debt.................. 62,000 80,000
Payments of long-term debt................................ (147,617) (134,725)
Exercise of options....................................... 13,335 2,912
Exercise of warrants (see note 2)......................... -- 47
Preferred stock dividends paid............................ (405) (501)
Repurchase of Junior Subordinated Notes................... (17,998) --
--------- ---------
Net cash used in financing activities....................... (90,685) (52,267)
--------- ---------
Net increase in cash........................................ 2,929 7,538
Cash and cash equivalents, beginning of year................ 12,966 10,660
--------- ---------
Cash and cash equivalents, end of period.................... $ 15,895 $ 18,198
========= =========
Supplemental disclosure of cash flow information:
Interest paid during the period........................... $ 16,114 $ 21,944
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. ORGANIZATION OF THE COMPANY
Univision Communications Inc. ("Univision" or "the Company") is the leading
Spanish-language television broadcast company in the United States. The Company
and its subsidiaries include the Univision Network (the "Network"), the
most-watched Spanish-language television network in the United States; Univision
Television Group ("UTG"), which owns and operates 12 full-power and seven
low-power television stations (the "O&Os"), including full-power stations in 11
of the top 15 U.S. Hispanic markets; and Galavision, the country's leading
Spanish-language cable network. Univision's signal reaches 92 percent of all
U.S. Hispanic households through its owned-and-operated stations, broadcast
affiliates and cable affiliates.
The Company's 11 full-power Spanish-language television stations are located
in New York, Los Angeles, Miami, San Antonio, San Francisco, Fresno, Dallas,
Phoenix, Sacramento, Houston and Chicago and one English-language, full-power
television station is located in Bakersfield. The Company also owns and operates
seven Spanish-language, low-power television stations serving Hartford, Fort
Worth, Philadelphia, Tucson, Austin, Santa Rosa and Bakersfield. The Company's
Spanish-language television stations are affiliated with the Network and the
English-language station is affiliated with United Paramount Network (UPN).
2. OPTIONS & WARRANTS
During the three months ended September 30, 1999, options were exercised for
475,416 shares of Class A Common Stock, resulting in an increase to Common Stock
of $4,754 and an increase to Paid-in-capital of $18,430,721, which included a
tax benefit associated with the transactions of $11,097,000. For the nine months
ended September 30, 1999, options were exercised for 911,016 shares of Class A
Common Stock, resulting in an increase to Common Stock of $9,110 and an increase
to Paid-in-capital of $29,802,340, which included a tax benefit associated with
the transactions of $16,476,600. During the nine months ended September 30,
1999, warrants were exercised for 711,450 shares of Class A Common Stock and
9,395,250 shares of Class T Common Stock, resulting in an increase to Common
Stock of $101,067 and a decrease to Paid-in-capital for the same amount. Instead
of cash, the Company received 11,502 warrants as consideration for the exercise;
the warrants were retired by the Company.
3. EARLY EXTINGUISHMENT OF DEBT
During the nine months ended September 30, 1999, the Company purchased at a
premium $14,074,000 face amount of its Junior Subordinated Notes, resulting in
an extraordinary loss of $2,610,719, including a related income tax provision of
$245,739. The tax provision was due to an extraordinary tax gain resulting from
a higher permanent discounted note basis for tax versus book purposes.
4. CABLE NETWORK ACQUISITION
The Company disclosed in its Form 10-Q for June 30, 1999, that on June 24,
1999, it signed a non-binding letter of intent with Cox Communications
NCC, Inc. and Empresas 1BC to acquire all of the outstanding partnership
interests of GEMS International Television, a general partnership. The Company
terminated such letter of intent.
6
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
5. EARNINGS PER SHARE
The following is the reconciliation of the numerators and the denominators
of the basic and diluted earnings-per-share computations for "Income before
extraordinary items" required by SFAS No. 128 (Earnings Per Share):
(Dollars in thousands, except for share and per-share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999 THREE MONTHS ENDED SEPTEMBER 30, 1998
--------------------------------------- ---------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary
items..................... $22,430 $ 4,970
Less preferred stock
dividends................. (135) (135)
------- -------
Basic Earnings Per Share:
Income before
extraordinary items per
share available to
common stockholders..... 22,295 101,209,075 $0.22 4,835 85,919,807 $0.06
===== =====
Effect of Dilutive
Securities
Warrants.................. -- 13,707,807 -- 28,040,904
Options................... -- 2,973,353 -- 1,474,263
Convertible Preferred
Stock................... 135 550,669 135 550,669
------- ----------- ------- -----------
Diluted Earnings Per Share:
Income before
extraordinary items per
share available to
common stockholders..... $22,430 118,440,904 $0.19 $ 4,970 115,985,643 $0.04
======= =========== ===== ======= =========== =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999 NINE MONTHS ENDED SEPTEMBER 30, 1998
--------------------------------------- ---------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary
items..................... $52,273 $ 2,457
Less preferred stock
dividends................. (405) (471)
------- -------
Basic Earnings Per Share:
Income before
extraordinary items per
share available to
common stockholders..... 51,868 94,761,248 $0.55 1,986 85,820,306 $0.02
===== =====
Effect of Dilutive
Securities
Warrants.................. -- 19,965,330 -- 28,164,633
Options................... -- 2,565,854 -- 1,632,060
Convertible Preferred
Stock................... 405 550,669 471 639,421
------- ----------- ------- -----------
Diluted Earnings Per Share:
Income before
extraordinary items per
share available to
common stockholders..... $52,273 117,843,101 $0.44 $ 2,457 116,256,420 $0.02
======= =========== ===== ======= =========== =====
</TABLE>
7
<PAGE>
PART I, ITEM 2
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company's major assets are its investments in UTG and the Network, from
which substantially all of its revenues are derived. UTG's net revenues are
derived from the 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 its broadcast affiliates. Also included in net revenues are Galavision's
gross advertising revenues, net of agency commissions, its subscriber fee
revenues and miscellaneous revenues.
Direct operating expenses consist of programming, news and general operating
costs.
"Broadcast cash flow" is defined as operating income plus depreciation and
amortization and corporate charges, which are corporate costs that would be
duplicated and therefore eliminated if the Company were acquired by another
broadcasting company. "EBITDA" is defined as earnings before interest, taxes,
depreciation and amortization and non-recurring charges and is the sum of
operating income plus depreciation and amortization. The Company has included
broadcast cash flow and EBITDA data because such data are commonly used as a
measure of performance for broadcast companies and are also used by investors to
measure a company's ability to service debt. Broadcast cash flow and EBITDA are
not, and should not be used as, indicators or alternatives to operating income,
net income or cash flow as reflected in the consolidated financial statements,
are not a measure of financial performance under generally accepted accounting
principles and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.
NINE MONTHS ENDED SEPTEMBER 30, 1999 ("1999"), COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998 ("1998")
REVENUES. Net revenues were $487,772,000 in 1999 compared to $417,627,000
in 1998, an increase of $70,145,000 or 16.8%. The Network accounted for
$32,104,000 or 45.8% of the increase, and the O&Os and Galavision accounted for
$34,691,000 or 49.5% and $3,350,000 or 4.7%, respectively. The Network's
increase is due primarily to an increase of approximately 13% in the average
price of advertising spots and an increase in volume of approximately 3%.
Excluding the effect of the 1998 Men's World Cup Soccer Championship Games, the
Network's average prices would have increased by 28%. The O&Os' increase, on a
same station basis, after adjusting for the March 31, 1999 sale of the
Albuquerque station, would have been $35,980,000. This increase at the O&Os is
due primarily to an increase of approximately 10% in the number of spots sold
and a 5% increase in the price for advertising spots. Exclusive of the World Cup
Games, prices would have increased by 10%. While there were increases at all the
O&Os, the primary increases were derived from New York, Los Angeles, Miami,
Houston, and Dallas.
EXPENSES. Direct operating expenses, which include corporate charges of
$235,000 and $225,000 in 1999 and 1998, respectively, increased to $173,443,000
in 1999 from $165,204,000 in 1998, an increase of $8,239,000 or 5%. License fees
paid or payable, under the program license agreements, to Televisa and
Venevision increased to $17,270,000 as a result of higher sales. The new
programs associated with the Company's non-NOVELA production participation
agreement with Televisa increased by approximately $6,281,000 over the
programming costs in 1998. The increase in all other programming costs
associated with entertainment programs, novelas and movies was $5,738,000.
Sports related programming costs increased by $2,256,000, which includes
approximately $1,677,000 related to the 1999 Pan American Games. Technical and
news costs increased by $4,599,000, which includes approximately $789,000 of net
cost increases due to the addition of early morning news at the Los Angeles
station. These increases were
8
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
substantially offset by the elimination of costs related to the 1998 World Cup
games of $27,905,000. As a percentage of net revenues, direct operating expenses
decreased from 39.6% in 1998 to 35.6% in 1999.
Selling, general and administrative expenses, which include corporate
charges of $9,501,000 and $8,780,000 in 1999 and 1998, respectively, increased
to $135,553,000 in 1999 from $120,604,000 in 1998, an increase of $14,949,000 or
12.4%. The increase is due in part to selling costs of $3,613,000, resulting
from higher sales, severance and other compensation costs of $2,151,000,
employee benefit costs of $2,044,000, costs associated with community affairs of
$2,000,000, acquisition related costs of $849,000 and promotional costs of
$480,000, primarily related to increased advertising. As a percentage of net
revenues, selling, general and administrative expenses decreased from 28.9% in
1998 to 27.8% in 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased to
$46,190,000 in 1999 from $47,282,000 in 1998, a decrease of $1,092,000 or 2.3%.
The decrease is due to lower goodwill amortization offset in part by an increase
in depreciation related to increased capital expenditures.
OPERATING INCOME. As a result of the above factors, operating income
increased to $132,586,000 in 1999 from $84,537,000 in 1998, an increase of
$48,049,000 or 56.8%. As a percentage of net revenues, operating income
increased from 20.2% in 1998 to 27.2% in 1999.
INTEREST EXPENSE. Interest expense decreased to $21,277,000 in 1999 from
$27,803,000 in 1998, a decrease of $6,526,000 or 23.5%. The decrease is due
primarily to lower bank borrowings and lower interest rates during 1999 as
compared to 1998.
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 remitted the $14,999,000 of tax withholding and expected to receive a
cash income tax benefit of approximately $14,000,000. Subsequently, the actual
tax benefit received by the Company was $13,524,000. The net income effect on
the three and nine months ended September 30, 1998 was $20,599,000, net of
$22,010,000 of both the current and deferred tax benefits resulting from the
special bonus award. 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 1999, the Company reported an income tax
provision of $57,550,000, representing $52,966,000 of current tax expense and
$4,584,000 of deferred tax expense. In 1998, the Company reported an income tax
provision of $9,829,000, representing $3,293,000 of current tax expense and
$6,536,000 of a deferred tax expense. The effective tax rate was 52.4% in 1999
and 80% in 1998. Excluding the effect of the special bonus award, the 1998
effective tax rate would have been 58%. The Company's effective tax rate of
52.4% for 1999 is lower than the 58% for 1998 since the Company's relatively
fixed permanent non-deductible tax differences have a smaller effect as book
pre-tax income increases.
NET INCOME. As a result of the above factors, net income in 1999 was
$49,662,000 compared $2,457,000 in 1998, an increase of $47,205,000.
9
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BROADCAST CASH FLOW. Broadcast cash flow increased to $188,512,000 in 1999
from $140,824,000 in 1998, an increase of $47,688,000 or 33.9%. As a percentage
of net revenues, broadcast cash flow increased from 33.7% in 1998 to 38.6% in
1999.
CORPORATE CHARGES. Corporate charges increased to $9,736,000 in 1999 from
$9,005,000 in 1998, an increase of $731,000 or 8.1%. The increase is primarily
due to costs associated with compensation and benefits. As a percentage of net
revenues, corporate charges decreased from 2.2% in 1998 to 2.0% in 1999.
EBITDA. EBITDA increased to $178,776,000 in 1999 from $131,819,000 in 1998,
an increase of $46,957,000 or 35.6%. As a percentage of net revenues, EBITDA
increased from 31.6% in 1998 to 36.7% in 1999.
THREE MONTHS ENDED SEPTEMBER 30, 1999 ("1999"), COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1998 ("1998")
REVENUES. Net revenues were $177,301,000 in 1999 compared to $138,946,000
in 1998, an increase of $38,355,000 or 27.6%. The Network accounted for
$17,904,000 or 46.7% of the increase, and the O&Os and Galavision accounted for
$19,396,000 or 50.6% and $1,055,000 or 2.7%, respectively. The Network's
increase is due primarily to an increase of approximately 16% in the average
price of advertising spots and an increase in volume of approximately 11%.
Excluding the effect of the 1998 Men's World Cup Soccer Championship Games, the
Network's average prices would have increased by 26%. The O&Os' increase, on a
same station basis, after adjusting for the March 31, 1999 sale of the
Albuquerque station, would have been $20,065,000. This increase at the O&Os is
due primarily to an increase of approximately 20% in the number of spots sold
and a 4% increase in the price for advertising spots. Exclusive of the World Cup
Games, prices would have increased by 8%. While there were increases at all the
O&Os, the primary increases were derived from Los Angeles, New York, Miami,
Houston, and Dallas.
EXPENSES. Direct operating expenses, which include corporate charges of
$67,000 and $73,000 in 1999 and 1998, respectively, increased to $61,606,000 in
1999 from $53,387,000 in 1998, an increase of $8,219,000 or 15.4%. License fees
paid or payable, under the program license agreements, to Televisa and
Venevision increased to $6,240,000 as a result of higher sales. The new programs
associated with the Company's non-NOVELA production participation agreement with
Televisa increased by approximately $1,920,000 over the programming costs in
1998. The increase in all other programming costs associated with entertainment
programs, novelas and movies was $2,542,000. Sports related programming costs
increased by $2,555,000, which includes approximately $1,677,000 related to the
1999 Pan American Games. Technical and news costs increased by $1,383,000, which
includes approximately $263,000 of net cost increases due to the addition of
early morning news at the Los Angeles station. These increases were
substantially offset by the elimination of costs related to the 1998 World Cup
games of $6,421,000. As a percentage of net revenues, direct operating expenses
decreased from 38.4% in 1998 to 34.7% in 1999.
Selling, general and administrative expenses, which include corporate
charges of $3,195,000 and $3,097,000 in 1999 and 1998, respectively, increased
to $46,002,000 in 1999 from $38,421,000 in 1998, an increase of $7,581,000 or
19.7%. The increase is due in part to selling costs of $1,106,000, resulting
from higher sales, costs associated with community affairs of $2,000,000,
severance and other compensation costs of $910,000, acquisition related costs of
$849,000 and $697,000 due to employee benefits. As a percentage of net revenues,
selling, general and administrative expenses decreased from 27.7% in 1998 to
25.9% in 1999.
10
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased to
$15,572,000 in 1999 from $15,850,000 in 1998, a decrease of $278,000 or 1.8%.
The decrease is due to lower goodwill amortization offset in part by an increase
in depreciation related to increased capital expenditures.
OPERATING INCOME. As a result of the above factors, operating income
increased to $54,121,000 in 1999 from $31,288,000 in 1998, an increase of
$22,833,000 or 73%. As a percentage of net revenues, operating income increased
from 22.5% in 1998 to 30.5% in 1999.
INTEREST EXPENSE. Interest expense decreased to $6,630,000 in 1999 from
$9,038,000 in 1998, a decrease of $2,408,000 or 26.6%. The decrease is due
primarily to lower bank borrowings and lower interest rates during 1999 as
compared to 1998.
PROVISION FOR INCOME TAXES. In 1999, the Company reported an income tax
provision of $24,567,000, representing $23,281,000 of current tax expense and
$1,286,000 of deferred tax expense. In 1998, the Company reported an income tax
provision of $16,622,000, representing $2,693,000 of current tax expense and
$13,929,000 of a deferred tax expense. The effective tax rate was 52.3% in 1999
and 77% in 1998. Excluding the effect of the special bonus award, the 1998
effective tax rate would have been 58%. The Company's effective tax rate of
52.3% for 1999 is lower than the 58% for 1998 since the Company's relatively
fixed permanent non-deductible tax differences have a smaller effect as book
pre-tax income increases.
NET INCOME. As a result of the above factors, net income in 1999 was
$22,430,000 compared $4,970,000 in 1998, an increase of $17,460,000.
BROADCAST CASH FLOW. Broadcast cash flow increased to $72,955,000 in 1999
from $50,308,000 in 1998, an increase of $22,647,000 or 45%. As a percentage of
net revenues, broadcast cash flow increased from 36.2% in 1998 to 41.1% in 1999.
CORPORATE CHARGES. Corporate charges increased to $3,262,000 in 1999 from
$3,170,000 in 1998, an increase of $92,000 or 2.9%. The increase is primarily
due to costs associated with compensation and benefits. As a percentage of net
revenues, corporate charges decreased from 2.3% in 1998 to 1.8% in 1999.
EBITDA. EBITDA increased to $69,693,000 in 1999 from $47,138,000 in 1998,
an increase of $22,555,000 or 47.8%. As a percentage of net revenues, EBITDA
increased from 33.9% in 1998 to 39.3% in 1999.
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 $20,691,000 for the nine months ended September 30, 1999.
This amount excludes 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 completing
upgrades to its management information systems infrastructure and the build-out
of its television station facilities in Bakersfield. The Company plans to
purchase additional land in Phoenix and San Antonio for future construction and
relocation and is currently negotiating a lease for the relocation of its
flagship station in Los Angeles. The
11
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Company expects to spend approximately $9,000,000 in capital over the next 3 to
9 months for the launch of its internet on-line business in the early part of
the year 2000. Furthermore, the Company expects to make an investment in digital
technology of approximately $25,000,000 over the next three years. The normal
maintenance capital spending, the cost of certain projects and the internet
launch will result in capital spending in 1999 of approximately $45,000,000. The
Company expects to fund its capital expenditure requirements primarily from its
operating cash flow and, if necessary, from proceeds available under its
Revolving Credit Facility.
The Company's bank facility at September 30, 1999, consisted of a
$250,000,000 amortizing term loan (the "Term Facility") with a final maturity of
December 31, 2003, and a $195,000,000 reducing revolving credit facility (the
"Revolving Credit Facility") also maturing on the same date. At September 30,
1999, the Company had approximately $191,500,000 available to borrow through its
Revolving Credit Facility.
The Term Facility amortizes quarterly, with $46,000,000 required to be
repaid during 1999. For the nine months ended September 30, 1999, the Company
paid $34,500,000 of the required payment and made a $20,000,000 prepayment
against its Term Facility as a result of its annual "excess cash flow"
calculation based on its 1998 operating results. These payments were funded by
an increase in the Revolving Credit Facility, which was subsequently repaid with
cash from operations. The Revolving Credit Facility has quarterly scheduled
reductions in availability of $2,500,000 per quarter during 1999.
Loans made under the 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. There are no interest rate
margins applicable to prime rate loans. At September 30, 1999, the interest rate
applicable to the Company's Eurodollar loans was approximately 5.85%, which
includes an interest rate margin cost of 0.35%, and the interest rate applicable
to all prime rate loans was 8.25%.
The Company's primary interest rate exposure results from changes in the
short-term interest rates applicable to the Company's Eurodollar loans. The
Company borrows at the U.S. prime rate from time to time but attempts to
maintain these loans at a minimum. Based on the Company's overall interest rate
exposure on its Eurodollar loans at September 30, 1999, a change of 10% in
interest rates would have an approximate $1,500,000 impact on pre-tax earnings
and pre-tax cash flows over a one-year period.
Univision Online continues to evaluate business opportunities presented by
the Internet, with a targeted goal of launching these operations (including an
e-commerce component) in the early part of the year 2000. Online operating
losses from pre-launch activities are not expected to have a material impact on
the Company's fourth quarter 1999 EBITDA or its 1999 fiscal results. Due to the
uncertainties accompanying the launch of this new business, management is unable
to predict whether or when Univision's Online services will become successful,
and as a result, no assurances can be given that our Online operations will
achieve profitability in 2000 or thereafter.
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, certain net operating
losses, tax consequences of a reorganization of the Company in 1996, other
timing differences and subsequent book taxable income, the
12
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Company has available a deferred tax asset of $18,051,000 to offset future taxes
payable arising from operations. In addition, at September 30, 1999, the Company
had $455,272,000 of net remaining intangible assets that will be expensed over
the next 19 years for financial reporting purposes and will not be deductible
for tax purposes.
In 1998, a joint venture between the Company and Home Shopping Network
Capital LLC formed the Home Shopping Network En Espanol LLC. The joint venture
has created a live, Spanish-language television shopping service intended for
distribution in the United States, Latin America, Portugal and Spain. On
March 30, 1998, the Home Shopping Network En Espanol LLC began broadcasting
three hours of programming seven days a week on Galavision, the Company's
Spanish-language cable network. Under the terms of the agreement the Home
Shopping Network Capital LLC and the Company have approximately equal interests
in the joint venture. The Company's contribution to the joint venture during
1998 was $831,000 and during the first nine months of 1999 was $1,000,000. The
maximum capital contributions required to be made by each party under the
agreement are capped at $6,000,000 over the five-year period. The Company
accounts for its investment in Home Shopping Network En Espanol LLC under the
equity method. No assurance can be given that the joint venture will be
successful.
YEAR 2000 ISSUES
Like most businesses today, the Company uses computer systems and other
electronic and mechanical technologies in carrying out the operations of the
Network, O&Os and Galavision and managing its other resources. Some of the
Company's operations, such as signal distribution and television audience
ratings, are either carried out through or supported by third parties, while
approximately 50% of the Company's programming is sourced from third parties.
Approximately 76% of Univision's programming distribution (including commercial
spots) is provided through its O&Os with the remainder provided via its
broadcast and cable affiliates. Except for the Network and its Fresno, Miami,
Phoenix, Sacramento and San Antonio O&Os, which are located in Company-owned
properties, all other operations are situated in facilities leased from and
maintained by third parties.
The Company's business is primarily contracted through advertising agencies,
acting on behalf of advertisers, and to a lesser degree from direct local market
advertisers. No single advertiser represents more than 10% of the Company's
advertising revenues.
The sales order entry and Nielsen Media Research rating systems used by the
Company are mainframe-based. These systems are owned and maintained by
third-party vendors and located in such vendors' facilities. The remaining
computer systems of the Company are not mainframe-based and use standard
industry-specific software applications.
The Year 2000 issue results from computer software programs written to use
two digits rather than four to define the applicable year. Certain of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 instead of the year 2000. Computer programs
used by the Company's Suppliers (as defined below) may experience the same
date-recognition issues. If this occurs, the potential exists for computer
system failures or miscalculations by computer programs used by the Company or
its Suppliers, which could cause disruption of the Company's operations. For
purposes of the information provided in this portion of our 10-Q report,
"Suppliers" means our advertisers, satellite service providers, programming
suppliers, broadcast affiliates, Nielsen rating service, landlords, and vendors
and other suppliers that may be critical to the Company's business unless the
context indicates otherwise.
13
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
In addressing our Year 2000 readiness, the Company adopted a five-part
program, managed by our Year 2000 Project Office ("Project Office"), to
(1) determine which of our computer systems, building systems, equipment with
embedded systems and software products (the "Systems") are Year 2000 compliant
("Assessment Phase"), (2) correct non-compliant Systems through replacement or
repair ("Corrective Phase"), (3) confirm that replacements or repairs are Year
2000 complaint ("Verification Phase"), (4) obtain information from critical
Suppliers on their Year 2000 readiness, and (5) develop contingency plans to
continue our Network, O&Os and Galavision's broadcasting operations without
significant interruption during and after January 1, 2000. The Project Office is
staffed with the Company's two principal engineers and representatives from
management information systems and from the legal, risk management, finance, and
operations departments. An independent consulting firm with broadcasting systems
integration experience assisted us with the Assessment and Verification Phases
of our mission critical broadcasting systems and equipment. Our Year 2000
program's focus has been on Corrective and Verification Phase activities,
particularly with respect to equipment (computer and mechanical technology)
critical to our broadcasting operations (signal, programming and commercial spot
distribution on our Network, O&Os and Galavision).
STATUS OF YEAR 2000 ACTIVITIES
Based on the work completed through October 20, 1999 on the Year 2000
program:
- Equipment critical to the distribution of our broadcast signals (without
content) and for the insertion and delivery of content has been Year 2000
assessed, and 99% of the corrective work identified in the Assessment and
Verification Phases has been completed. The remaining corrective work,
which is not significant, is to be completed before year end. Our major
satellite providers have informed us that both of the satellites carrying
the Network and Galavision feeds, and their related ground control
systems, are Year 2000 ready.
- The systems critical to our sales, marketing and research operations have
been assessed, and substantially all of the corrective work identified in
the Assessment Phase has been completed and where feasible Verification
testing has been completed. The remaining corrective work is not
significant and is to be completed before year end.
- The systems used in our administrative operations or by our outside
service providers (finance, payroll, benefits administration) have been
assessed, and all corrective work identified in the Assessment and
Verification Phases has been completed.
- Company-owned communications systems have been assessed and necessary
corrective work identified in the Assessment and Verification Phases has
been completed. The assessment of HVAC, elevators, security and other
building systems in Company-owned facilities has been completed, and 95%
of the corrective work identified in the Assessment and Verification
Phases is complete. The remaining corrective work is not significant and
is to be completed before year end. The landlords of our leased premises
have informed us that such facilities are Year 2000 ready.
- The Assessment Phase on desktop systems and the Company-owned LAN has been
completed. Corrective work identified in the Assessment Phase is in
process and such corrective work, as well as Verification Phase
activities, is to be completed before year end.
- The formulation of the Company's contingency plans is nearing completion,
with a target date of December 10, 1999.
14
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Capital expenditures as well as personnel and non-personnel costs related to
the Year 2000 program have not been material. Although additional Corrective and
Verification Phase activities remain to be completed, the Company does not
expect that the future costs related to the Company's internal Year 2000 issues
will have a material impact on the Company's operations. The Company will fund
the remaining costs to resolve its Year 2000 issues primarily from its operating
cash flow.
The Company expects that its Systems will be operational and should not
experience significant disruptions due to Year 2000 issues. Because of the
uncertainties associated with assessing the preparedness of Suppliers, there is
a risk of a material adverse effect on the Company's future results of
operations if the Company's Suppliers are not capable of correcting their Year
2000 issues. The Company's major risk centers around its ability to transmit the
Network, O&Os and Galavision program signals and satisfy the contractual
commitments to air the commercial spots of its advertisers. The Company's
contingency planning process is addressing these risks.
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.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements (as defined under federal securities laws) made
by or on behalf of the Company. The Company and its representatives from time to
time may make certain verbal or written forward-looking statements regarding the
Company's performance, or events or developments the Company expects to occur or
anticipates occurring in the future. Information in this report may contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 which can be identified by the use of
forward-looking terminology such as "will," "expects," "believes,"
"anticipates," "estimates," or "plans," or the negative thereof or other
variations thereon or comparable terminology. All such statements are based upon
current expectations of the Company and involve a number of business risks and
uncertainties. Actual results could vary materially from anticipated results
described in any forward-looking statement. Factors that could cause actual
results to vary materially include, but are not limited to, a lack of increase
in advertisers' spending on Univision, a decrease in the supply or quality of
programming, an increase in the cost of programming, a decrease in Univision's
ratings or audience share, an increase in preference among Hispanics for
English-language television, competitive pressures from other television
broadcasters and other entertainment and news media (some of whom use Televisa
programming), the potential impact of new technologies, changes in regional or
national economic conditions, Year 2000 issues and regulatory and other
obstacles to making acquisitions. Results actually achieved thus may differ
materially from expected results in these statements.
15
<PAGE>
PART I
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included in the "Liquidity and
Capital Resources" section of the Company's Management's Discussion and Analysis
of Financial Condition and Results of Operations contained in this document.
16
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the quarter.
17
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
UNIVISION COMMUNICATIONS INC.
(REGISTRANT)
By /s/ GEORGE W. BLANK
--------------------------------------------
George W. Blank
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
November 1, 1999
Los Angeles, California
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNIVISION
COMMUNICATIONS INC. AND SUBSIDIARIES STATEMENTS OF EARNINGS AND BALANCE SHEET
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 15,895
<SECURITIES> 0
<RECEIVABLES> 138,423
<ALLOWANCES> 8,946
<INVENTORY> 0
<CURRENT-ASSETS> 169,282
<PP&E> 219,296
<DEPRECIATION> 72,406
<TOTAL-ASSETS> 920,767
<CURRENT-LIABILITIES> 156,577
<BONDS> 276,532
9,090
0
<COMMON> 1,019
<OTHER-SE> 472,698
<TOTAL-LIABILITY-AND-EQUITY> 920,767
<SALES> 487,772
<TOTAL-REVENUES> 487,772
<CGS> 173,443
<TOTAL-COSTS> 173,443
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,888
<INTEREST-EXPENSE> 21,277
<INCOME-PRETAX> 109,823
<INCOME-TAX> 57,550
<INCOME-CONTINUING> 52,273
<DISCONTINUED> 0
<EXTRAORDINARY> 2,611
<CHANGES> 0
<NET-INCOME> 49,662
<EPS-BASIC> 0.52
<EPS-DILUTED> 0.42
</TABLE>
