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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 MARCH 31, 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 (I.R.S. Employer
Incorporation) 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 63,133,751 shares of Class A Common Stock, 19,981,045 shares of
Class P Common Stock, 5,742 shares of Class T Common Stock and 8,918,582 of
Class V Common Stock outstanding as of April 12, 1999.
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UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
INDEX
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<CAPTION>
PAGE
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PART I--FINANCIAL INFORMATION:
- - Financial Introduction................................................................................... 2
- Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1999 and December 31, 1998........................... 3
Condensed Consolidated Statements of Operations for the three months ended March 31, 1999 and 1998...... 4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 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.................................... 14
PART II--OTHER INFORMATION:
Item 6. Exhibits and Reports on form 8-K................................................................... 14
</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
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PART I, ITEM 1
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
DECEMBER 31,
1998
MARCH 31, ------------
1999
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 17,643 $ 12,966
Accounts receivable, net............................................................ 97,080 118,408
Program rights...................................................................... 5,042 5,081
Prepaid expenses and other.......................................................... 14,926 17,536
----------- ------------
Total current assets.............................................................. 134,691 153,991
Property and equipment, net........................................................... 142,694 144,496
Intangible assets, net................................................................ 580,175 592,224
Deferred financing costs, net......................................................... 6,483 6,843
Deferred income taxes................................................................. 21,879 22,635
Program rights, less current portion.................................................. 5,521 5,398
Note receivable-Entravision........................................................... 10,000 10,000
Investment in unconsolidated affiliate................................................ 929 67
Other assets.......................................................................... 4,861 2,675
----------- ------------
Total assets...................................................................... $ 907,233 $ 938,329
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............................................ $ 59,476 $ 75,129
Accrued interest.................................................................... 497 641
Accrued license fee................................................................. 7,654 7,572
Obligations for program rights...................................................... 442 438
Current portion of long-term debt................................................... 71,101 69,111
----------- ------------
Total current liabilities......................................................... 139,170 152,891
Long-term debt including accrued interest, less current portion....................... 311,038 343,401
Capital lease obligations, less current portion....................................... 33,271 34,034
Other long-term liabilities........................................................... 4,602 4,265
----------- ------------
Total liabilities................................................................. 488,081 534,591
----------- ------------
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 March 31,
1999 and December 31 1998, respectively)............................................ 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; 91,279,670 and
90,916,170 shares issued including shares in treasury at March 31, 1999 and
December 31, 1998, respectively).................................................. 913 909
Paid-in-capital..................................................................... 397,695 388,772
Retained earnings................................................................... 28,856 22,369
----------- ------------
427,464 412,050
Less common stock held in treasury (464,051 shares at cost at March 31, 1999 and
December 31, 1998).................................................................. (17,402) (17,402)
----------- ------------
Total stockholders' equity.......................................................... 410,062 394,648
----------- ------------
Total liabilities and stockholders' equity.......................................... $ 907,233 $ 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 MONTHS ENDED MARCH 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Net revenues..................................................................... $ 138,039 $ 105,145
Direct operating expenses........................................................ 52,789 42,341
Selling, general and administrative expenses..................................... 42,488 36,151
Depreciation and amortization.................................................... 15,241 15,560
-------------- --------------
Operating income................................................................. 27,521 11,093
Interest expense................................................................. 7,707 9,505
Equity loss in unconsolidated affiliate.......................................... 138 --
Amortization of deferred financing costs......................................... 360 420
-------------- --------------
Income before taxes and extraordinary loss on extinguishment of debt............. 19,316 1,168
Provision for income taxes....................................................... 10,083 678
-------------- --------------
Income before extraordinary loss on extinguishment of debt....................... 9,233 490
Extraordinary loss on extinguishment of debt (including a tax provision of
$246).......................................................................... 2,611 --
-------------- --------------
Net income....................................................................... 6,622 490
Preferred stock dividends........................................................ (135) (180)
-------------- --------------
Net income available to common stockholders...................................... $ 6,487 $ 310
-------------- --------------
-------------- --------------
BASIC EARNINGS PER SHARE
Income per share available to common stockholders before extraordinary loss...... $ 0.10 $ 0.00
Extraordinary loss per share..................................................... (0.03) --
-------------- --------------
Net income per share available to common stockholders............................ $ 0.07 $ 0.00
-------------- --------------
-------------- --------------
Weighted average common shares outstanding....................................... 90,648,528 85,709,750
-------------- --------------
-------------- --------------
DILUTED EARNINGS PER SHARE
Income per share available to common stockholders before extraordinary loss...... $ 0.08 $ 0.00
Extraordinary loss per share..................................................... (0.02) --
-------------- --------------
Net income per share available to common stockholders............................ $ 0.06 $ 0.00
-------------- --------------
-------------- --------------
Weighted average common shares outstanding....................................... 117,043,503 116,636,051
-------------- --------------
-------------- --------------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net income.................................................................................. $ 6,622 $ 490
Adjustments to reconcile net income to net cash from operating activities:
Depreciation................................................................................ 5,427 4,697
Loss on sale of fixed assets................................................................ 197 --
Equity loss in unconsolidated subsidiary.................................................... 138 --
Amortization of intangible assets and deferred financing costs.............................. 10,174 11,283
Extraordinary loss on extinguishment of debt................................................ 2,611 --
Changes in assets and liabilities:
Accounts receivable....................................................................... 21,328 29,980
License fees payable...................................................................... 20,430 15,133
Payment of license fees................................................................... (20,348) (13,666)
Program rights............................................................................ (84) 56
Intangible assets......................................................................... (5) --
Deferred taxes............................................................................ 756 269
Prepaid expenses and other assets......................................................... 6,936 (500)
Accounts payable and accrued liabilities.................................................. (15,627) (12,150)
Accrued interest.......................................................................... 2,130 1,989
Obligations for program rights............................................................ 4 (456)
Other, net................................................................................ 426 (496)
--------- ---------
Net cash provided by operating activities................................................... 41,115 36,629
--------- ---------
Cash flow from investing activities:
Capital expenditures...................................................................... (4,944) (9,165)
Investment in unconsolidated subsidiary................................................... (1,000) (15)
Proceeds from sale of Albuquerque station................................................. 1,000 --
Other..................................................................................... 6 --
--------- ---------
Net cash used in investing activities....................................................... (4,938) (9,180)
--------- ---------
Cash flow from financing activities:
Proceeds from issuance of long-term debt.................................................. 24,000 15,000
Payments of long-term debt................................................................ (42,022) (35,791)
Exercise of options....................................................................... 4,655 1,340
Exercise of warrants...................................................................... -- 47
Preferred stock dividends paid............................................................ (135) (180)
Repurchase of Junior Subordinated Notes................................................... (17,998) --
--------- ---------
Net cash used in financing activities....................................................... (31,500) (19,584)
--------- ---------
Net increase in cash........................................................................ 4,677 7,865
Cash and cash equivalents, beginning of year................................................ 12,966 10,660
--------- ---------
Cash and cash equivalents, end of period.................................................... $ 17,643 $ 18,525
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Interest paid during the period........................................................... $ 5,585 $ 7,576
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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. STATION DISPOSITION
On March 31, 1999, the Company sold the FCC broadcast license and the fixed
assets of station KLUZ, Channel 41, Albuquerque, New Mexico to Entravision
Communications Company LLC ("Entravision"), which owns 13 other stations that
have affiliation agreements with the Company. Under the terms of the agreement,
the Company received as consideration $1,000,000 in cash and an option to
acquire an additional 2% equity interest in Entravision. The Company now has an
option to acquire an approximate 27% equity interest in Entravision.
3. EARLY EXTINGUISHMENT OF DEBT
During the three months ended March 31, 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 a tax extraordinary gain resulting from a
higher permanent discounted note basis for tax versus book purposes.
4. OPTIONS
During the three months ended March 31, 1999, options were exercised for
362,500 shares of Class A Common Stock, resulting in an increase to Common Stock
of $3,625 and an increase to Paid-in-capital of $8,923,462, which included a tax
benefit associated with the transactions of $4,271,900.
6
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
5. EARNINGS PER SHARE
The following is the reconciliation of the numerator and the denominator of
the basic and diluted earnings-per-share computations for "Income before
extraordinary loss on extinguishment of debt" required by SFAS No. 128 (Earnings
Per Share):
(Dollars in thousands, except for share and per-share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 THREE MONTHS ENDED MARCH 31, 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....... $ 9,233 $ 490
Less preferred stock dividends.......... (135) (180)
------ -----
Basic Earnings Per Share
Income before extraordinary items per
share available to common
stockholders.......................... 9,098 90,648,528 $ 0.10 310 85,709,750 $ 0.00
----- -----
----- -----
Effect of Dilutive Securities
Warrants................................ -- 23,801,396 -- 28,403,808
Options................................. -- 2,042,910 -- 1,788,268
Convertible Preferred Stock............. 135 550,669 180 734,225
------ ------------- ----- -------------
Diluted Earnings Per Share
Income before extraordinary items per
share available to common
stockholders.......................... $ 9,233 117,043,503 $ 0.08 $ 490 116,636,051 $ 0.00
------ ------------- ----- ----- ------------- -----
------ ------------- ----- ----- ------------- -----
</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 the 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" means 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" means 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.
THREE MONTHS ENDED MARCH 31, 1999 ("1999"), COMPARED TO THREE MONTHS ENDED
MARCH 31, 1998 ("1998")
REVENUES. Net revenues increased to $138,039,000 in 1999 from $105,145,000
in 1998, an increase of $32,894,000 or 31.3%. The Network accounted for
$16,349,000 or 49.7% of the increase, and the O&Os and Galavision accounted for
$15,559,000 or 47.3% and $986,000 or 3%, respectively. The Network's increase is
due primarily to an increase of approximately 34% in the average price of
advertising spots and an increase in volume of approximately 6%. The O&Os'
increase was due to an increase of approximately 8% in the number of spots sold
and an 11% increase in the price for advertising spots. While there were
increases at all the O&Os, the primary increases were derived from Los Angeles,
Miami, New York, San Antonio and Houston.
EXPENSES. Direct operating expenses, which include corporate charges of
$81,000 and $83,000 in 1999 and 1998, respectively, increased to $52,789,000 in
1999 from $42,341,000 in 1998, an increase of $10,448,000 or 24.7%. The increase
is due primarily to higher license fees paid or payable, under the program
license agreements, to Televisa and Venevision of $5,297,000 resulting from
higher sales. The new programs associated with the Company's non-NOVELA
production participation agreement with Televisa accounted for approximately
$2,240,000 of the increase in programming costs over 1998. The remainder of the
increase is primarily due to higher technical and news costs of $1,857,000,
which includes approximately $200,000 of net cost increases due to the addition
of early morning news at the Los Angeles station. As a percentage of net
revenues, direct operating expenses decreased from 40.3% in 1998 to 38.2% in
1999.
Selling, general and administrative expenses, which include corporate
charges of $3,100,000 and $2,559,000 in 1999 and 1998, respectively, increased
to $42,488,000 in 1999 from $36,151,000 in 1998, an increase of $6,337,000 or
17.5%. The increase is due in part to increased selling costs of $1,914,000,
resulting from higher sales, increased severance and other compensation costs of
$1,100,000, increased promotional costs of $764,000 primarily related to
increased advertising and $300,000 due to increased
8
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
employee benefits. As a percentage of net revenues, selling, general and
administrative expenses decreased from 34.4% in 1998 to 30.8% in 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased to
$15,241,000 in 1999 from $15,560,000 in 1998, a decrease of $319,000 or 2.1%.
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 $27,521,000 in 1999 from $11,093,000 in 1998, an increase of
$16,428,000 or 148.1%. As a percentage of net revenues, operating income
increased from 10.6% in 1998 to 19.9% in 1999.
INTEREST EXPENSE. Interest expense decreased to $7,707,000 in 1999 from
$9,505,000 in 1998, a decrease of $1,798,000 or 18.9%. 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 $10,083,000, representing $9,327,000 of current tax expense and
$756,000 of deferred tax expense. In 1998, the Company reported an income tax
provision of $678,000, representing $409,000 of current tax expense and $269,000
of deferred tax expense. The Company's effective tax rate of 52.2% for 1999 is
lower than the 58.0% 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
$6,622,000 compared to net income of $490,000 in 1998, an increase of
$6,132,000.
BROADCAST CASH FLOW. Broadcast cash flow increased to $45,943,000 in 1999
from $29,295,000 in 1998, an increase of $16,648,000 or 56.8%. As a percentage
of net revenues, broadcast cash flow increased from 27.9% in 1998 to 33.3% in
1999.
CORPORATE CHARGES. Corporate charges increased to $3,181,000 in 1999 from
$2,642,000 in 1998, an increase of $539,000 or 20.4%. The increase is primarily
due to costs associated with compensation and benefits. As a percentage of net
revenues, corporate charges decreased from 2.5% in 1998 to 2.3% in 1999.
EBITDA. EBITDA increased to $42,762,000 in 1999 from $26,653,000 in 1998,
an increase of $16,109,000 or 60.4%. As a percentage of net revenues, EBITDA
increased from 25.3% in 1998 to 31% 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 $4,944,000 in the first quarter of 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 upgrading its management
information systems infrastructure and is expected to upgrade two of its
television station facilities during 1999. Furthermore, during the next few
years, the Company expects to make an investment in digital technology. The
amount of this investment has not been quantified, as the Company is in the
process of determining its available options. Capital spending in 1999,
including a carryover from 1998 of approximately $13,500,000 due to timing of
certain projects, will approximate $45,000,000. In 2000, the Company will begin
preparation for the relocation and build-out of its flagship station in Los
Angeles. The estimated costs and the form of this
9
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
transaction will be determined during 1999. Capital spending in 2000 will be
approximately $30,000,000, exclusive of the relocation and build-out of the Los
Angeles station. Capital spending in 2001 and 2002 is expected to approximate
$25,000,000 per year.
The Company's bank facility at March 31, 1999, consisted of a $269,500,000
amortizing term loan (the "Term Facility") with a final maturity of December 31,
2003, and a $197,500,000 reducing revolving credit facility (the "Revolving
Credit Facility") also maturing on the same date. Furthermore, the bank facility
permits the lenders thereunder to advance up to an additional $250,000,000 of
term loans (the "Incremental Facility"), although the Company has not requested
and there are no commitments at this time to lend any such additional amounts.
At March 31, 1999, the Company had approximately $400,000,000 available to
borrow through a combination of its Revolving Credit and Incremental Facilities.
The Term Facility amortizes quarterly, with $46,000,000 required to be
repaid during 1999. In the first quarter of 1999, the Company paid $11,500,000
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 and subsequently repaid with cash from operations. The
Revolving Credit Facility has quarterly scheduled reductions in availability of
$2,500,000 per quarter during 1999. The Incremental Facility has quarterly
scheduled reductions in availability of $5,000,000 on September 30, and December
31, 1999 and is required to be repaid in full on or before August 31, 2004.
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. Furthermore, there are no
interest rate margins applicable to prime rate loans. At March 31, 1999, the
interest rate applicable to the Company's Eurodollar loans was approximately
5.35%, which includes an interest rate margin cost of 0.35%, and the interest
rate applicable to all prime rate loans was 7.75%.
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 mimimun. Based on the Company's overall interest rate
exposure on its Eurodollar loans at March 31, 1999, a change of 10% in interest
rates would have an approximate $1,700,000 impact on pre-tax earnings and
pre-tax cash flows over a one-year period.
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 the reorganization of the Company in 1996, other
timing differences and subsequent book taxable income, the Company has available
a deferred tax asset of $21,879,000 to offset future taxes payable arising from
operations. In addition, at March 31, 1999, the Company had $469,855,000 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.
10
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 interest
in the joint venture. The Company's contribution to the joint venture during
1998 was $831,000. The capital contributions estimated to be required to be made
by each party under the agreement are $3,500,000 in 1999 and $1,669,000 in 2000,
with a maximum capital contribution limit of $6,000,000 over a five-year period.
The Company accounts for its investment in 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 is reliant on 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 and its Suppliers, which could cause disruption of
the Company's operations.
Through its Year 2000 Project Office ("Project Office"), the Company
continues its effort to assess its Year 2000 readiness as well as that of its
advertisers, satellite service providers, programming suppliers, broadcast
affiliates, Nielsen rating service, landlords, and vendors and other suppliers
that may be critical to the Company's business (collectively, "Suppliers" unless
the context indicates otherwise). The Project Office is staffed with the
Company's two principal engineers and representatives from management
information systems and from the legal, risk management, finance, and operations
departments. An independent consulting firm with broadcasting systems
integration experience assisted with the assessment phase of the Company's Year
2000 program. Such firm is assisting the Company with the verification efforts
of its broadcasting systems and equipment.
11
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
In addressing its Year 2000 readiness, the Company has been engaged in a
five-part program that consists of the following:
- Assessment. This phase is three-fold. Part one is the location and
identification of all computer systems, software products, building
systems and equipment (with embedded systems) used within each operational
unit of the Company (the "Systems Inventory"). Part two is the
identification of mission-critical systems within each of the operational
units. Part three is the evaluation (including communicating with
manufacturers with respect to their equipment) of systems to determine
whether such systems will be able to process data before, on and after
January 1, 2000. Mission-critical systems have been given priority in the
evaluation process.
- Corrective Action. Systems and equipment that are non-compliant are being
retired, repaired or replaced. Mission-critical items are being given
priority.
- Verification. Corrective measures are to be verified by both current-date
and future-date testing. Any necessary remedial action identified during
this phase will be taken and verified. Mission-critical items are being
given priority.
- Communications. The Company implemented a communication program with its
Suppliers (1) to understand their Year 2000 issues, (2) to determine how
such issues could impact the Company's operations and (3) to determine the
Suppliers' Year 2000 mitigation plans to address or manage the issues that
relate to the Company's business and, with respect to landlords, the
leased facilities.
- Contingency Plans. Contingency plans are being formulated to continue
Network, O&O and Galavision broadcasting operations without significant
interruption prior to, during and after January 1, 2000.
Although work on the different parts of the Year 2000 program has been
taking place concurrently, the primary focus is on corrective action and
verification activities, particularly with respect to equipment (computer and
mechanical technology) that is critical to the Company's broadcasting operations
(signal, programming and commercial spot distribution on its Network, O&Os and
Galavision). The assessment of equipment critical to the Company's broadcasting
operations was completed in December 1998. The targeted date for the completion
of all phases of the Year 2000 program is September 30, 1999, subject to
Suppliers' responsiveness to the Company's inquiries of their Year 2000 issues
and timely delivery of certain Year 2000 compliant software. Verification
activities began in 1998 and will continue through 1999. The Company's
contingency planning efforts will continue into third quarter pending the
release of further Year 2000 readiness updates anticipated from several
Suppliers (including utility companies, municipalities, communications and
transportation companies) towards the second half of 1999.
STATUS OF YEAR 2000 ACTIVITIES
Based on the work completed through April 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. Approximately 85% of the corrective work identified in the
assessment phase has been completed. The remainder of the corrective work
identified for the mission critical equipment is scheduled for completion
by May 31, 1999, subject to the timely availability of Year 2000 software
solutions from broadcast equipment vendors. The Company's major satellite
providers have informed the Company that the satellites carrying the
Network and Galavision feeds have been tested and are Year 2000 ready.
Corrective and testing work on the corresponding satellites' ground
systems is expected to be completed by mid June 1999 for the satellite
carrying the Network feed and in the fourth quarter of 1999 for the
satellite carrying the Galavision feed.
12
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- The systems critical to our sales, marketing and research operations have
been assessed. Corrective work identified in the assessment phase
continues with expected completion by September 30, 1999.
- The systems used in our administrative operations or by our outside
service providers (finance, payroll, benefits administration) have been
assessed. Corrective work identified in the assessment phase continues
with expected completion by May 31, 1999.
- The assessment efforts of our facilities' infrastructures (owned and
leased combined) is expected to continue through September 30, 1999.
Corrective work identified on Company-owned communications, LAN and
desktop systems is being undertaken concurrently with the assessment
activities and is 70% complete. The assessment of HVAC, elevators,
security and other building systems in Company-owned facilities is more
than 80% complete, with corrective work in progress. We continue to work
with management companies of leased facilities to ascertain their Year
2000 readiness. Management companies have indicated that certain of their
vendors have not been responsive to their requests, and their efforts to
obtain such information continue.
- Of the total corrective work identified for all phases of our program,
approximately 50% has been completed. Capital as well as personnel and
non-personnel costs related to the Year 2000 program have not been
material. Although additional remedial and verification activities remain
to be completed, the Company does not expect that the future costs related
to the Company's internal Year 2000 issues will have a material impact on
the Company's operations, subject to completion of the corrective work and
contingency planning phases and the availability of solutions from
Suppliers. The Company will fund the costs to resolve its Year 2000 issues
primarily from its operating cash flow and, if necessary, proceeds
available under its Bank Facility.
The Company expects that its Systems will be 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 broadcast 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.
13
<PAGE>
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.
PART I
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.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.31 Reimbursement Agreement between the Company and Chartwell Services
Inc.
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.
14
<PAGE>
UNIVISION COMMUNICATIONS INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVISION COMMUNICATIONS INC.
(Registrant)
By /s/ GEORGE W. BLANK
--------------------------------------
George W. Blank
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
April 28, 1999
Los Angeles, California
15
<PAGE>
EXHIBIT 10.31
AGREEMENT
UNIVISION COMMUNICATIONS INC.
AND
CHARTWELL SERVICES, INC.
INTRODUCTION
This Agreement, dated as of January 1, 1998, is between UNIVISION
COMMUNICATIONS INC., a Delaware corporation ("Univision"), and CHARTWELL
SERVICES, INC. ("CSI"), a California corporation (each a "Party" and together
the "Parties").
Whereas CSI provides certain of its employees to Univision on a
full-time or part-time basis.
Whereas CSI furnishes such employees and certain executives of
Univision with office space and office support.
Whereas the Parties wish to set forth the terms on which Univision
will reimburse CSI for the salaries and benefits of such CSI employees and for
various costs incurred in providing such employees and Univision executives with
office space and office support.
ARTICLE 1
AGREEMENT
1.1 REIMBURSEMENT OF SALARIES AND BENEFITS. Univision will reimburse
CSI for the percent of salaries and benefits set forth opposite those
individuals shown on Exhibit A on a monthly basis. Exhibit A shall be amended
periodically by the Parties to reflect CSI employees who are working part-time
or full-time for Univision.
1.2 REIMBURSEMENT OF OFFICE AND ADMINISTRATIVE COSTS.
1.2.1 OFFICE COSTS. Univision will reimburse CSI for the pro
rata portion of all expenses incurred by CSI in providing office space and
office services to CSI employees who work full-time or part-time for Univision,
as well as for the costs incurred by CSI in providing office space and services
to executives of Univision who have an office in CSI's offices at 1999 Avenue of
the Stars. Such expenses shall include a pro rata portion of rent, as well as
other costs associated with maintaining an office including, but not limited to,
office space and common areas, parking fees, supplies, long-distance telephone
calls, facsimile transmissions, postage, and Federal Express and United Parcel
Service shipments. All such expenses shall be reimbursed monthly. The pro rata
portion shall be determined based on (a) the
<PAGE>
total square footage of the offices used by such employees and executives to
(b) the total square footage of all offices in CSI's suite at 1999 Avenue of
the Stars. The initial percentage shall be 26.71%, which shall be amended
from time to time to reflect the number and size of CSI offices being
utilized by full-time and part-time CSI employees providing services to
Univision and to Univision executives.
1.2.2 ADMINISTRATIVE COSTS. Univision will reimburse CSI
for general administrative and tenant expenses and improvements in a manner
the Parties agree to from time to time.
1.3 REIMBURSEMENT OF TRANSPORTATION COSTS. Univision will reimburse
CSI for allocable transportation costs, including, but not limited to, the use
of the company airplane of Chartwell Partners LLC, the cost of limousine
service, and any automobile allowances granted to CSI employees.
1.4 INDEMNITY. To the fullest extent permitted by applicable law,
Univision hereby indemnifies CSI against any all expenses if CSI is made a party
to, or threatened to be made a party to, or otherwise involved in, any legal,
administrative, arbitration or other proceeding arising out of the provision of
CSI employees to Univision or attributable to the actions or presence of
Univision executives at CSI offices.
1.5 TERM AND RENEWAL. The term of this Agreement shall be for a
period of three (3) years, effective as of January 1, 1998 and ending on
December 31, 2000. This Agreement will be automatically renewed for a one (1)
year term unless cancelled by either party upon thirty (30) days written notice
by September 30, 2000 or by September 30 of any subsequently extended year.
1.6 UNIVISION BOARD APPROVAL. This Agreement shall become effective
only if it is approved by Univision's Board of Directors, as required by its
Bylaws.
ARTICLE 2
MISCELLANEOUS PROVISIONS
2.1 AMENDMENTS; WAIVERS. Amendments, waivers, demands, consents and
approvals under this Agreement must be in writing and designated as such. No
failure or delay in exercising any right will be deemed a waiver of such right.
2.2 INTEGRATION. This Agreement is the entire agreement between the
Parties pertaining to its subject matter, and supersedes all prior agreements
and understandings of the Parties in connection with such subject matter.
2.3 INTERPRETATION; GOVERNING LAW. This Agreement is to be construed
as a whole and in accordance with its fair meaning. This Agreement is to be
interpreted in accordance with the laws of the State of California.
2
<PAGE>
2.4 HEADINGS AND TITLES. Headings and Titles of Articles and
Sections are for convenience only and are not a part of this Agreement.
2.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which constitute one agreement.
2.6 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and
inures to the benefit of each Party and such Party's respective heirs, personal
representatives, successors and assigns. Nothing in this Agreement, express or
implied, is intended to confer any rights or remedies upon any other person.
2.7 REPRESENTATION BY COUNSEL; INTERPRETATION. Each Party
acknowledges that it has been represented by counsel in connection with this
Agreement. Any rule of law, including, but not limited to, Section 1654 of the
California Civil Code, or any legal decision that would require interpretation
of any claimed ambiguities in this Agreement against the Party that drafted it,
has no application and is expressly waived.
2.8 SEVERABILITY. The provisions of this Agreement are severable.
The invalidity, in whole or in part, of any provision of this Agreement will not
effect the validity or enforceability of any other of its provisions. If one or
more provisions hereof is/are declared invalid or unenforceable, the remaining
provisions will remain in full force and effect and will be construed in the
broadest possible manner to effectuate the purpose hereof. The parties further
agree to replace such void or unenforceable provisions of this Agreement with
valid and enforceable provisions which will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provisions.
2.9 NOTICES. All notices, demands and requests required by this
Agreement will be in writing and will be sent to the address appearing below the
party's name on the execution page hereof. Any such notice, demand or request
shall be deemed to have been given for all purposes: (a) upon personal delivery;
(b) one (1) business day after being sent, when sent by professional overnight
courier service for next business day delivery from and to locations within the
continental United States; (c) five (5) days after posting when sent by
registered or certified mail; or (d) on the date of receipt by the sending Party
of confirmation of the successful transmission of the facsimile, as printed by
facsimile machine, when sent by facsimile. Any Party hereto may from time to
time by notice in writing served upon the others as provided herein, designate a
different mailing address or a different party to which such notices or demands
are thereafter to be addressed or delivered.
2.10 RELATIONSHIP OF PARTIES. Nothing herein contained is deemed to
constitute a partnership between or joint venture by the Parties, nor will
either Party be deemed the agent of the other. Neither Party will hold itself
out contrary to the provisions hereof.
2.11 FURTHER ACTIONS. Subject to the terms and conditions of this
Agreement, each of the Parties agrees to use all commercially reasonable efforts
to take, or cause to be taken, all action necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date on the first page.
UNIVISION COMMUNICATIONS, INC.
a Delaware corporation
/s/ George Blank
------------------------------
By: George Blank
Title: Chief Financial Officer
Address: Glenpointe Centre West
500 Frank W. Burr Blvd.
6th Floor
Teaneck, New Jersey 07666
Attn: George Blank
Chief Financial Officer
CHARTWELL SERVICES, INC.
a California corporation
/s/ A. Jerrold Perenchio
--------------------------------------------
By: A. Jerrold Perenchio
Title: President and Chief Executive Officer
Address: 1999 Avenue of the Stars
Suite 3050
Los Angeles, California 90067
Attn: A. Jerrold Perenchio
4
<PAGE>
EXHIBIT A
1.1 CSI EMPLOYEES FURNISHED ON FULL-TIME BASIS TO UNIVISION:
Monica Juarez (100%)
1.2 CSI EMPLOYEES FURNISHED ON PART-TIME BASIS TO UNIVISION:
Bob Cahill (50%)
Rosa Bustamante (26.71%*)
Jill Ellison (50%)
Luis Marroquin (26.71%*)
*Calculated based upon percentage of office space used by
Univision Communications Inc. employees at 1999 Avenue of the Stars, Suite
3050, Los Angeles, CA 90067, as of February 25, 1998.
5
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 17,643
<SECURITIES> 0
<RECEIVABLES> 105,434
<ALLOWANCES> 8,354
<INVENTORY> 0
<CURRENT-ASSETS> 134,691
<PP&E> 203,787
<DEPRECIATION> 61,093
<TOTAL-ASSETS> 907,233
<CURRENT-LIABILITIES> 139,170
<BONDS> 344,309
9,090
0
<COMMON> 913
<OTHER-SE> 409,149
<TOTAL-LIABILITY-AND-EQUITY> 907,233
<SALES> 138,039
<TOTAL-REVENUES> 138,039
<CGS> 52,789
<TOTAL-COSTS> 52,789
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 410
<INTEREST-EXPENSE> 7,707
<INCOME-PRETAX> 19,316
<INCOME-TAX> 10,083
<INCOME-CONTINUING> 9,233
<DISCONTINUED> 0
<EXTRAORDINARY> 2,611
<CHANGES> 0
<NET-INCOME> 6,622
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.06
</TABLE>
