putting this up to read later on......
November 12, 1998
UNIVISION COMMUNICATIONS INC (UVN)
Quarterly Report (SEC form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company's major assets are its investments in the Univision Television Group ("UTG") and the Network, from which substantially all of its revenues are derived. UTG's net revenues are derived from the owned-and-operated stations (the "O&Os") and include gross advertising revenues generated from the sale of national and local spot advertising time, net of agency commissions. The Network's net revenues include gross advertising revenues generated from the sale of Network advertising, net of agency commissions and station compensation to the Affiliated Stations. Also included in net revenues are Galavision's gross advertising revenues, net of agency commissions, its subscriber fee revenues and other miscellaneous revenues.
Direct operating expenses consist of programming, news and general operating costs.
NINE MONTHS ENDED SEPTEMBER 30, 1998 ("1998") COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997 ("1997")
REVENUES. Net revenues increased to $417,627,000 in 1998 from $321,868,000 in 1997, an increase of $95,759,000 or 29.8%. The Network accounted for $47,804,000 or 49.9% of the increase, and the O&Os and Galavision accounted for $45,918,000 or 48.0% and $2,037,000 or 2.1%, respectively. The O&Os' increase, which was due to an increase of approximately 9% in the number of spots sold and a 11% increase in the price for advertising spots, was primarily derived from Los Angeles, New York, Miami and Houston, with additional increases at all other O&Os except for San Antonio. The Network's increase is due primarily to an increase of approximately 52% in the average price of advertising spots, offset in part by a decrease in volume of approximately 9%. The large price increase over last year was due in part to the rates for advertising spots in the 1998 World Cup Games. Excluding the World Cup, average prices at the Network increased by 34%.
EXPENSES. Direct operating expenses, which include corporate charges of $225,000 and $192,000 in 1998 and 1997, respectively, increased to $165,204,000 in 1998 from $114,725,000 in 1997, an increase of $50,479,000 or 44.0%. The increase is due primarily to World Cup costs of $27,905,000 and higher license fees paid or payable to Televisa and Venevision of $12,128,000. As a result of the Initial Offering in September 1996 and the Company's subsequent corporate Reorganization in the fourth quarter of 1996, the net program license fee payable to Univision's program suppliers, Televisa and Venevision, increased from 13.0% of net revenues in 1997 to 14.7% in 1998, exclusive of World Cup revenues which are not subject to the license fee. In 1998, the morning show, DESPIERTA AMERICA, which began airing mid-April 1997, accounted for approximately $1,157,000 of the total increase in programming costs over 1997. In addition, programming costs increased by approximately $1,800,000 due to the introduction of new children's programming, timing of special events programming, and the development of other entertainment programming. The remainder of the increase is primarily due to higher technical and news costs of $4,966,000, which includes $518,000 from the operation of the Sacramento station acquired in March 1997 and the Bakersfield station acquired in October 1997. As a percentage of net revenues, direct operating expenses increased from 35.6% in 1997 to 39.6% in 1998.
Selling, general and administrative expenses, which include corporate charges of $8,780,000 and $7,973,000 in 1998 and 1997, respectively, increased to $120,604,000 in 1998 from $98,604,000 in 1997, an increase of $22,000,000 or 22.3%. The addition of the Sacramento and Bakersfield stations accounted for $2,150,000 of the increase. The remaining increases are due in large part to increased selling costs of $4,991,000, associated with increased sales, staff levels and compensation costs, and increased research costs of $2,968,000 primarily related to the renewal of the Nielsen contracts, all of which are consistent
with the Company's strategy of investing in sales management and research. The Company also had increased costs of approximately $1,845,000 related to its retirement savings plan due to an increase in the Company's matching contribution, increased promotional costs of $1,645,000 primarily related to increased advertising and increased Year 2000 costs of $545,000. As a percentage of net revenues, selling, general and administrative expenses decreased from 30.6% in 1997 to 28.9% in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to $47,282,000 in 1998 from $42,465,000 in 1997, an increase of $4,817,000 or 11.3%. The increase is due primarily to an increase in depreciation related to increased capital expenditures.
OPERATING INCOME. As a result of the above factors, operating income increased to $84,537,000 in 1998 from $66,074,000 in 1997, an increase of $18,463,000 or 27.9%. As a percentage of net revenues, operating income decreased from 20.5% in 1997 to 20.2% in 1998.
INTEREST EXPENSE. Interest expense decreased to $27,803,000 in 1998 from $30,401,000 in 1997, a decrease of $2,598,000 or 8.5%. The decrease is due primarily to lower bank borrowings during 1998 as compared to 1997.
SPECIAL BONUS AWARD. On May 13, 1998 a major stockholder contributed 1,354,665 shares of Class P Common Stock to the Company, which were converted to Class A Common Shares and placed in the Company's treasury. On May 27, 1998, under the Univision Communications Inc. 1998 Stock Bonus Plan, the Company granted 890,614 shares of Class A Common Stock to selected employees. These transactions resulted in a pre-tax income statement charge of $42,608,000, which consists of non-cash compensation of $27,609,000 and required tax withholdings of $14,999,000, as well as an increase to paid-in-capital of $45,011,000. The Company has remitted the $14,999,000 of tax withholding and expects to receive a cash income tax benefit of approximately $14,000,000. The net income effect on the nine months ended September 30, 1998 was $20,599,000, net of both the $14,000,000 related tax benefit and an $8,010,000 reduction in the tax provision resulting from an increase in the annualized effective tax rate due to lower pre-tax income. The Company has retained the remaining 464,051 shares, with a book value of $17,402,000, in its treasury. Consistent with broadcast industry reporting, broadcast cash flow and EBITDA exclude the total amount of this special bonus award of $42,608,000.
PROVISION (BENEFIT) FOR INCOME TAXES. In 1998, the Company reported an income tax provision of $9,829,000. Excluding the impact of the special bonus award, the Company would have reported an income tax provision of $31,838,000 in 1998. In 1997, the Company reported an income tax benefit of $14,850,000. Excluding a non-recurring tax benefit of $35,275,000, the Company would have reported an income tax provision of $20,425,000 in 1997.
NET INCOME. As a result of the above factors, 1998 resulted in net income of $2,457,000 compared to net income of $50,371,000 in 1997, a decrease of $47,914,000. On a comparable basis, excluding the special bonus award from 1998 and adjusting 1997 for the impact of the non-recurring tax benefit, net income would have increased by 52.7% to $23,056,000 in 1998 from $15,096,000 in 1997.
BROADCAST CASH FLOW. Broadcast cash flow increased to $140,824,000 in 1998 from $116,704,000 in 1997, an increase of $24,120,000 or 20.7%. As a percentage of net revenues, broadcast cash flow decreased from 36.3% in 1997 to 33.7% in 1998.
As a result of the Initial Offering in September 1996 and the Company's subsequent corporate Reorganization in the fourth quarter of 1996, the net program license fee payable to Univision's program suppliers, Televisa and Venevision, increased from 13.0% of net revenues in 1997 to 14.7% in 1998, exclusive of World Cup revenues which are not subject to the license fee. Had the revised license fee been in effect in 1997, the license fee would have increased by $5,023,000 and broadcast cash flow would have been $111,681,000 in 1997. On a year-to-year basis, broadcast cash flow would have increased by
$29,143,000 or 26.1%, from $111,681,000 in 1997 to $140,824,000 in 1998. As a percentage of net revenues, broadcast cash flow would have decreased from 34.7% in 1997 to 33.7% in 1998.
CORPORATE CHARGES. Corporate charges increased to $9,005,000 in 1998 from $8,165,000 in 1997, an increase of $840,000 or 10.3%. The increase is primarily due to costs associated with salary and benefits. As a percentage of net revenues, corporate charges decreased from 2.5% in 1997 to 2.2% in 1998.
EBITDA. EBITDA increased to $131,819,000 in 1998 from $108,539,000 in 1997, an increase of $23,280,000 or 21.4%. As a percentage of net revenues, EBITDA decreased from 33.7% in 1997 to 31.6% in 1998.
As explained in BROADCAST CASH FLOW, had the revised license fee been in effect in 1997, the license fee would have increased by $5,023,000 and EBITDA would have been $103,516,000 in 1997. Thus, EBITDA would have increased by $28,303,000 or 27.3%, from $103,516,000 in 1997 to $131,819,000 in 1998. As a percentage of net revenues, EBITDA would have decreased from 32.2% in 1997 to 31.6% in 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1998 ("1998") COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997 ("1997")
REVENUES. Net revenues increased to $138,946,000 in 1998 from $113,940,000 in 1997, an increase of $25,006,000 or 21.9%. The Network accounted for $12,775,000 or 51.1% of the increase, and the O&Os and Galavision accounted for $11,400,000 or 45.6% and $831,000 or 3.3%, respectively. The O&Os' increase, which was due to an increase of approximately 5% in the number of spots sold and a 13% increase in the price for advertising spots, was primarily derived from Los Angeles, New York, Houston and Miami, with additional increases at all other O&Os. The Network's increase is due primarily to an increase of approximately 44% in the average price of advertising spots, offset in part by a decrease in volume of approximately 14%. The large price increase over last year was due in part to the rates for advertising spots in the 1998 World Cup Games. Excluding the World Cup, average prices at the Network increased by 32%.
EXPENSES. Direct operating expenses, which include corporate charges of $73,000 and $71,000 in 1998 and 1997, respectively, increased to $53,387,000 in 1998 from $39,368,000 in 1997, an increase of $14,019,000 or 35.6%. The increase is due primarily to World Cup costs of $6,421,000 and higher license fees paid or payable to Televisa and Venevision of $4,037,000. As a result of the Initial Offering in September 1996 and the Company's subsequent corporate Reorganization in the fourth quarter of 1996, the net program license fee payable to Univision's program suppliers, Televisa and Venevision, increased from 13.0% of net revenues in 1997 to 14.8% in 1998, exclusive of World Cup revenues which are not subject to the license fee. In addition, programming costs increased by approximately $500,000 due to the introduction of new children's programming and the development of other entertainment programming. The remainder of the increase is primarily due to higher technical and news costs of $1,697,000, which includes $76,000 from the Bakersfield station acquired in October 1997. As a percentage of net revenues, direct operating expenses increased from 34.6% in 1997 to 38.4% in 1998.
Selling, general and administrative expenses, which include corporate charges of $3,097,000 and $2,780,000 in 1998 and 1997, respectively, increased to $38,421,000 in 1998 from $33,575,000 in 1997, an increase of $4,846,000 or 14.4%. The addition of the Bakersfield station accounted for $319,000 of the increase. The remaining increases are due in large part to increased research costs of $877,000 primarily related to the renewal of the Nielsen contracts, $647,000 due to an increase in the Company's matching contribution on its retirement savings plan, increased promotional costs of $495,000 primarily related to increased advertising and increased Year 2000 costs of $441,000. As a percentage of net revenues, selling, general and administrative expenses decreased from 29.5% in 1997 to 27.7% in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to $15,850,000 in 1998 from $14,413,000 in 1997, an increase of $1,437,000 or 10.0%. The increase is due primarily to an increase in depreciation related to increased capital expenditures.
OPERATING INCOME. As a result of th e above factors, operating income increased to $31,288,000 in 1998 from $26,584,000 in 1997, an increase of $4,704,000 or 17.7%. As a percentage of net revenues, operating income decreased from 23.3% in 1997 to 22.5% in 1998.
INTEREST EXPENSE. Interest expense decreased to $9,038,000 in 1998 from $9,966,000 in 1997, a decrease of $928,000 or 9.3%. The decrease is due primarily to lower bank borrowings during 1998 as compared to 1997.
PROVISION (BENEFIT) FOR INCOME TAXES. In 1998, the Company reported an income tax provision of $16,622,000. Excluding the third quarter tax effect of $4,099,000, resulting from the impact of the special bonus award in the second quarter of 1998, the Company would have reported an income tax provision of $12,523,000 in 1998. In 1997, the Company reported an income tax benefit of $8,928,000. Excluding a non-recurring tax benefit of $18,243,000, the Company would have reported an income tax provision of $9,315,000 in 1997.
NET INCOME. As a result of the above factors, 1998 resulted in net income of $4,970,000 compared to net income of $25,127,000 in 1997, a decrease of $20,157,000. On a comparable basis, excluding the special bonus award from 1998 and adjusting 1997 for the impact of the non-recurring tax benefit, net income would have increased by 31.7% to $9,069,000 in 1998 from $6,884,000 in 1997.
BROADCAST CASH FLOW. Broadcast cash flow increased to $50,308,000 in 1998 from $43,848,000 in 1997, an increase of $6,460,000 or 14.7%. As a percentage of net revenues, broadcast cash flow decreased from 38.5% in 1997 to 36.2% in 1998.
As a result of the Initial Offering in September 1996 and the Company's subsequent corporate Reorganization in the fourth quarter of 1996, the net program license fee payable to Univision's program suppliers, Televisa and Venevision, increased from 13.0% of net revenues in 1997 to 14.8% in 1998, exclusive of World Cup revenues which are not subject to the license fee. Had the revised license fee been in effect in 1997, the license fee would have increased by $1,805,000 and broadcast cash flow would have been $42,043,000 in 1997. On a year-to-year basis, broadcast cash flow would have increased by $8,265,000 or 19.7%, from $42,043,000 in 1997 to $50,308,000 in 1998. As a percentage of net revenues, broadcast cash flow would have decreased from 36.9% in 1997 to 36.2% in 1998.
CORPORATE CHARGES. Corporate charges increased to $3,170,000 in 1998 from $2,851,000 in 1997, an increase of $319,000 or 11.2%. The increase is primarily due to costs associated with salary and benefits. As a percentage of net revenues, corporate charges decreased from 2.5% in 1997 to 2.3% in 1998.
EBITDA. EBITDA increased to $47,138,000 in 1998 from $40,997,000 in 1997, an increase of $6,141,000 or 15.0%. As a percentage of net revenues, EBITDA decreased from 36.0% in 1997 to 33.9% in 1998.
As explained in BROADCAST CASH FLOW, had the revised license fee been in effect in 1997, the license fee would have increased by $1,805,000 and EBITDA would have been $39,192,000 in 1997. Thus, EBITDA would have increased by $7,946,000 or 20.3%, from $39,192,000 in 1997 to $47,138,000 in 1998. As a percentage of net revenues, EBITDA would have decreased from 34.4% in 1997 to 33.9% in 1998.
LIQUIDITY AND CAPITAL RESOURCES
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