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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NUMBER: 001-12223
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UNIVISION COMMUNICATIONS INC.
INCORPORATED IN DELAWARE
I.R.S. EMPLOYER IDENTIFICATION NUMBER: 95-4398884
1999 AVENUE OF THE STARS, SUITE 3050
LOS ANGELES, CALIFORNIA 90067
TEL: (310) 556-7676
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Class A Common Stock, Par Value $.01 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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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 / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
There were 135,762,762 shares of Class A Common Stock, $.01 par value,
outstanding as of February 5, 2001. The aggregate market value of the Class A
Common Stock of the Company held by non-affiliates on February 5, 2001 was
approximately $5,400,000,000. This calculation does not include the value of any
of the outstanding shares of Class P, Class T or Class V Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 9, 2001 are incorporated by reference into
Part III hereof.
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TABLE OF CONTENTS
PART I
ITEM 1. Business.................................................... 2
The Hispanic Audience in the United States.................. 4
Ratings..................................................... 5
The Network................................................. 7
Galavision Network.......................................... 9
Programming................................................. 9
Program License Agreements.................................. 10
The O&Os.................................................... 11
Advertising................................................. 14
Marketing................................................... 15
Competition................................................. 15
Material Patents, Trademarks, Licenses, Franchises and
Concessions................................................. 16
Employees................................................... 16
Federal Regulation and New Technologies..................... 16
ITEM 2. Properties.................................................. 26
ITEM 3. Legal Proceedings........................................... 26
ITEM 4. Submission of Matters to a Vote of Security Holders......... 26
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 28
ITEM 6. Selected Financial Data..................................... 29
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 30
ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 37
ITEM 8. Financial Statements and Supplementary Data................. 38
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures................................... 38
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 38
ITEM 11. Executive Compensation...................................... 38
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 38
ITEM 13. Certain Relationships and Related Transactions.............. 38
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 39
1
PART I
ITEM 1. BUSINESS
Univision Communications Inc. and its wholly owned subsidiaries (the
"Company") is the leading Spanish-language television broadcaster in the U.S.,
reaching more than 92% of all Hispanic Households and having an 84% average
share in prime time of the U.S. Spanish-language network television audience in
the 1999-2000 season. Univision Network (the "Network"), which is the most
watched television network (English- or Spanish-language) among Hispanic
Households, provides the Company's broadcast and cable affiliates with 24 hours
per day of Spanish-language programming with a prime time schedule of
substantially all first run programming (i.e., no reruns) throughout the year.
As a leading, vertically-integrated television broadcaster, the Company's
owned-and-operated 12 full-power (11 of which are affiliated with the Network)
and seven low-power UHF stations (the "O&Os") represented approximately 77% of
its Network broadcast distribution as of December 31, 2000. These full-power
O&Os are located in 11 of the top 15 designated market areas ("DMAs") in terms
of numbers of Hispanic Households--Los Angeles, New York, Miami, San Francisco,
Chicago, Houston, San Antonio, Dallas, Phoenix, Fresno and Sacramento. As of
December 31, 2000, the Company had affiliation agreements with an additional 12
full-power and 21 low-power television stations ("Affiliated Stations") and
approximately 1,164 cable affiliates. Each of the Company's full-power O&Os and
full-power Affiliated Stations ranks first in Spanish-language television
viewership in its DMA. The Company also owns Galavision, a Spanish-language
cable network that reaches approximately 3.6 million Hispanic cable and direct
broadcast system subscribers, representing approximately 65% of all Hispanic
Households that subscribed to cable and direct broadcast systems. For purposes
of this annual report, Hispanic Households mean all U.S. households with a head
of household who is of Hispanic descent or origin, regardless of the language
spoken in the household. The Network means the Company's Spanish-language
television network.
The Company believes that the breadth and diversity of its programming
provides it with a competitive advantage over both Spanish-language broadcasters
and English-language broadcasters in appealing to Hispanic viewers. The
Company's programming is similar to that of major English-language networks and
includes NOVELAS (long-term mini-series), national and local newscasts, variety
shows, children's programming, mini-series, musical specials, movies, sporting
events and public affairs programs. The Televisa Program License Agreement
provides the Company with long-term access to first-rate programming produced by
Grupo Televisa, S.A. de C.V. and it's affiliates ("Televisa"). Televisa-produced
NOVELAS are popular throughout the world and are among the Company's highest
rated programs. The Company has a similar Program License Agreement with
Corporacion Venezolana de Television, C.A. and its affiliates ("Venevision").
The Company also produces a variety of programs specifically tailored to meet
the tastes, preferences and information needs of the Hispanic audience. In
addition, the Company has televised World Cup Soccer since 1978, and has
obtained the U.S. Spanish-language broadcast rights to this widely watched event
for 2002 and 2006.
On March 2, 2000, the Company lent $110,000,000 to Entravision
Communications Company, L.L.C., which increased the Company's convertible
promissory note from $10,000,000 to $120,000,000. On August 2, 2000, the Company
converted its $120,000,000 convertible promissory note of Entravision
Communications Company, L.L.C., into an approximate 20% equity interest in
Entravision Communications Corporation ("Entravision"). The Entravision stock
began trading on the New York Stock Exchange on August 2, 2000. Furthermore, on
August 2, 2000, in connection with Entravision's initial public offering, the
Company invested an additional $100,000,000 to purchase an additional
approximately 6% equity interest in Entravision. Consequently, as of August 7,
2000, the Company had an aggregate investment in Entravision of $220,000,000,
representing an approximate 26% equity interest. On August 9, 2000, the
underwriters of Entravision's initial public offering exercised their option to
purchase an additional 6,900,000 shares of Entravision stock, which lowered the
Company's equity interest in Entravision to approximately 25%. Subsequently, the
Company purchased additional shares of Entravision stock in the open market
totaling $142,000,000, primarily using borrowings from its bank credit
facilities. The Company
2
provided the funding for the Entravision transactions through August 7, 2000, by
borrowings aggregating $120,000,000 from its bank credit facilities and the
remainder with cash from operations. At December 31, 2000, the Company had an
investment in Entravision of $361,279,000, representing an approximate 32%
equity interest. At December 31, 2000, the Company's equity interest in
Entravision's net book value approximates the carrying value of the Company's
investment in Entravision. During 2000, the Company reported an equity loss from
unconsolidated subsidiary of $3,382,000, which represents the Company's share of
Entravision's net loss reported from August 2, 2000, through November 30, 2000.
The Company recognizes its share of Entravision's net income or loss on a
one-month lag.
In mid-year, Univision Online, Inc. ("Univision Online") launched an
internet portal, UNIVISION.COM, directed at Hispanics in the United States,
Mexico and Latin America. The Company began advertising UNIVISION.COM nationally
on the Network during the third quarter of 2000, and Univision Online began
accepting client advertising on UNIVISION.COM during the latter part of the
fourth quarter of 2000. Hispanic usage of the Internet is growing rapidly, with
nearly one-quarter of all Hispanic households now using the Internet. The online
Hispanic audience is forecast to grow to more than 13 million by 2005. Working
from offices in New York, Miami, Los Angeles and Mexico City, Univision Online
is producing a substantial percentage of its own Spanish-language programming
content, including streaming video featuring stars of Univision Network,
Galavision and the sports and entertainment fields. Due to the uncertainties
accompanying the launch of this new business, management is unable to predict
whether or when the Company's online services will become successful. The online
operations are expected to produce a loss in 2001, and no assurances can be
given that the Company's online operations will achieve profitability
thereafter.
On August 16, 2000, Univision Online and Fingerhut Companies Inc. (the
"Members") formed the joint venture Cocorojo L.L.C. ("Cocorojo"). The Members
own, manage and operate an Internet web site primarily to conduct e-commerce and
online direct marketing. Under the terms of the agreement, the Members have
approximately equal interests in the joint venture and will share profits and
losses equally. Currently, the joint venture operates through Fingerhut's
existing web site; however, upon achievement of certain revenue levels, the
agreement allows the Members to develop and build a self-contained web site. The
agreement has a total capital expenditure limitation of $6,000,000 for the
construction of the web site, should it occur, that will be shared equally
between the Members. At December 31, 2000, the Company had contributed $465,000
to the joint venture and reported an equity loss from unconsolidated subsidiary
of $618,000. At December 31, 2000, the Company's equity interest in Cocorojo's
net book value approximates the carrying value of the Company's investment in
the joint venture. During 2000, Univision Online recognized net revenues of
$270,000 related to advertising purchased by Cocorojo on UNIVISION.COM, and
Cocorojo reported the $270,000 as advertising costs.
On August 31, 2000, Ask Jeeves, Inc. ("Ask Jeeves"), a leading provider of
question-answering technologies and services, and the Company announced the
creation of the joint venture Ask Jeeves en Espanol, Inc. ("Ask Jeeves en
Espanol"), to serve the world's diverse Spanish-speaking population. The
partnership will create a Spanish-language version of ASK.COM to provide the
Internet's more than 27 million Spanish-speaking users with the same natural
language and intuitive online experience enjoyed by the more than 44 million
users of Ask Jeeves's technology. Ask Jeeves en Espanol also plans to launch Ask
Jeeves Business Solutions for the growing number of companies moving online to
serve the Spanish-speaking world. Ask Jeeves en Espanol will be equally owned by
Ask Jeeves and the Company and is accounted for under the equity method. The
Company invested $40,000,000 in Ask Jeeves en Espanol by borrowings from its
Revolving Credit Facility. At December 31, 2000, the Company had an investment
in Ask Jeeves en Espanol of $39,360,000 and reported an equity loss from
unconsolidated subsidiary of $828,000 during 2000. At December 31, 2000, the
Company's equity interest in Ask Jeeves en Espanol's net book value approximates
the carrying value of the Company's investment in the joint venture.
On December 7, 2000, the Company announced that it will acquire USA
Broadcasting for $1.1 billion cash. The acquisition will expand the Company's
ability to serve the Hispanic community and will provide the Company with
duopolies in seven of the top eight Hispanic markets. Under the agreement, the
3
Company will acquire USA Broadcasting's 13 fully owned full-power television
stations and minority interests in 4 additional full-power television stations.
The fully owned stations are in the key markets of Los Angeles, New York,
Chicago, Philadelphia, Boston, Miami, Dallas, Atlanta, Tampa, Houston, Cleveland
and Orlando, and the minority-interest stations are in San Francisco,
Washington, Denver and St. Louis. The acquisition, which has been approved by
the Board of Directors of each company, is subject to customary closing
conditions. Regulatory approvals are also required, but the Company has agreed
to assume the risk of obtaining those approvals. The funds for this transaction
are expected to come from a new credit facility the Company is currently
negotiating with a consortium of banks to expand and replace its existing and
temporary credit agreements and with income from operations. The Company expects
to finalize the new credit agreement during the first half of 2001.
THE HISPANIC AUDIENCE IN THE UNITED STATES
Management believes that Spanish-language television, in general, and the
Company, in particular, have benefited and will continue to benefit from a
number of factors, including projected Hispanic population growth, high
Spanish-language retention among Hispanics, increasing Hispanic buying power and
greater advertiser spending on Spanish-language media. The research data
provided below, pertaining to the Hispanic audience in the United States, was
derived from "The Hispanic Consumer Market Report in 1999 and Forecasts to 2020:
Standard & Poor's DRI, 2000."
HISPANIC POPULATION GROWTH AND CONCENTRATION.. The Company's audience
consists almost exclusively of Hispanics, one of the most rapidly growing
segments of the U.S. population. The overall Hispanic population is growing at
approximately five times the rate of the non-Hispanic U.S. population and is
expected to grow to 33.6 million and 43.7 million (12.1% and 14.6% of the total
U.S. population) in 2001 and 2010, respectively. Approximately 50% of all
Hispanics are located in the seven U.S. cities with the largest Hispanic
populations, and the Company owns a station in each of these cities.
SPANISH LANGUAGE USE. Approximately 68% of all Hispanics, regardless of
income or educational level, speak Spanish at home. This percentage is expected
to remain relatively constant through 2010. Consequently the number of Hispanics
speaking Spanish in the home is expected to increase significantly in the
foreseeable future. As shown in the chart below, the number of Hispanics who
speak Spanish in the home is expected to grow from 16.2 million in 1990 to
22.7 million in 2001 and 29.3 million in 2010. The Company believes that the
strong Spanish-language retention among Hispanics indicates that the Spanish-
language media has been and will continue to be an important source of news,
sports and entertainment for Hispanics.
SPANISH LANGUAGE USE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Hispanic Population in Millions
1980 1985 1990 1995 2000 2005 2010
Population 15.6 19.3 23.7 27.5 32.5 38.2 43.7
Speak Spanish at Home 10.6 13.2 16.2 18.7 22.0 25.8 29.3
Source: Standard & Poor's DRI
4
GREATER HISPANIC BUYING POWER. The Hispanic population represents estimated
total consumer expenditures of $480 billion in 2001 (7.4% of the total U.S.
consumer expenditures), an increase of 123% since 1990. Hispanics are expected
to account for $1 trillion of U.S. consumer spending (9.5% of the U.S. total
consumer expenditures) by 2010, far outpacing the expected growth in total U.S.
consumer expenditures.
In addition to the anticipated growth of the Hispanic population, the
Hispanic audience has several other characteristics that the Company believes
make it attractive to advertisers. The Company believes the larger size
(averaging 3.5 persons per household compared to the general public's average of
2.6 persons per household) and younger age of Hispanic Households leads
Hispanics to spend more per household on many categories of goods. The average
Hispanic Household spends 49% more per year on food at home, 24% more on
clothing, 88% more on footwear, 19% more on phone services, and 52% more on
laundry and household cleaning products than the average non-Hispanic household.
Hispanics are expected to continue to account for a disproportionate share of
growth in spending nationwide in many important consumer categories as the
Hispanic population and its disposable income continue to grow. These factors
make Hispanics an attractive target audience for many major U.S. advertisers.
INCREASED SPANISH-LANGUAGE ADVERTISING. According to "Hispanic Business"
magazine, $2.4 billion of total advertising expenditures were directed towards
Spanish-language media in 2000, representing an annual compound growth rate of
18.6% since 1993. Of these amounts, approximately 53% of the $2.4 billion in
advertising expenditures in 2000 targeting Hispanics was directed towards
Spanish-language television advertising. The Company believes that major
advertisers have found that Spanish-language television advertising is a more
cost-effective means to target the growing Hispanic audience than English-
language broadcast media. See "--Advertising."
RATINGS
During the last five years, the Company has consistently ranked first in
prime time television among all Hispanic adults. In addition, the Company has
successfully increased its audience ratings compared to both the
Spanish-language and the English-language broadcast networks. Spanish-language
television prime time is from 7 p.m. to 11 p.m., Eastern and Pacific Standard
Times, Sunday through Saturday. English-language television prime time is from
8 p.m. to 11 p.m., Eastern and Pacific Standard Times, Monday through Saturday
and 7 p.m. to 11 p.m., Eastern and Pacific Standard Times, Sunday. The following
table shows that the Company's prime time audience ratings, Sunday through
Saturday during
5
the last five years, among Hispanic adults aged 18 to 49, the age segment most
targeted by advertisers, is considerably higher than the other networks:
PRIME TIME RATINGS AMONG HISPANIC ADULTS AGED 18 TO 49
NETWORK 1996 1997 1998 1999 2000
- ------- -------- -------- -------- -------- --------
Univision............................................. 9.0 10.1 10.2 11.0 9.7
ABC................................................... 2.7 2.3 2.0 2.1 2.2
CBS................................................... 1.7 1.5 1.3 1.3 1.3
FOX................................................... 3.2 2.9 2.7 2.5 2.4
NBC................................................... 3.2 2.5 2.3 2.2 2.1
Telemundo............................................. 2.1 1.6 1.5 1.4 2.5
Univision share....................................... 41.1% 48.3% 51.0% 53.7% 48.0%
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Source: Nielsen Hispanic Television Index ("NHTI")
In addition, as shown in the following table, the Company has consistently
had between 90% and 100% of the 20 most widely watched programs among all
Hispanic Households during the past five years:
THE 20 MOST WIDELY WATCHED PROGRAMS
AMONG HISPANIC HOUSEHOLDS BY NETWORK FOR NOVEMBER
PROGRAM
RANK 1996 1997 1998 1999 2000
- --------------------------------- -------- -------- -------- -------- --------
1................................ UVN UVN UVN UVN UVN
2................................ UVN UVN UVN UVN UVN
3................................ UVN UVN UVN UVN UVN
4................................ UVN UVN UVN UVN UVN
5................................ UVN UVN UVN UVN UVN
6................................ UVN UVN UVN UVN UVN
7................................ UVN UVN UVN UVN UVN
8................................ UVN UVN UVN UVN UVN
9................................ UVN UVN UVN UVN UVN
10............................... UVN UVN UVN UVN UVN
11............................... UVN UVN UVN UVN UVN
12............................... UVN UVN UVN UVN UVN
13............................... UVN UVN UVN UVN UVN
14............................... UVN UVN UVN UVN UVN
15............................... UVN UVN UVN UVN UVN
16............................... UVN UVN UVN UVN UVN
17............................... UVN UVN UVN UVN UVN
18............................... ABC UVN FOX UVN UVN
19............................... UVN UVN UVN UVN UVN
20............................... FOX UVN UVN UVN UVN
---- ---- ----- ---- -----
Univision share.................. 90% 100% 95% 100% 100%
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Source: NHTI
6
THE NETWORK
The Network is the leading Spanish-language television network in the U.S.
From its operations center in Miami, the Network provides the Company's
affiliates via satellite with 24 hours of Spanish-language programming per
broadcast day with a prime time schedule of substantially all first-run
programming (I.E., no re-runs) throughout the year. The operations center also
provides production facilities for the Network's news and entertainment
programming.
The Network produces and acquires programs, makes those programs available
to the Company's affiliates and sells network advertising. The full-power O&Os
and full-power Affiliated Stations together reach approximately 6.5 million, or
approximately 72%, of Hispanic Households. The low-power O&Os and low-power
Affiliated Stations (including translators) together reach approximately
607,000, or approximately 7%, of Hispanic Households. The cable affiliates and
direct broadcast systems reach approximately 1,187,000, or approximately 13%, of
Hispanic Households.
Through the Company's ownership of the O&Os, it controls approximately 77%
of the Network's broadcast distribution.
AFFILIATION AGREEMENTS. Each of the Company's affiliates has the right to
preempt (I.E., to decline to broadcast at all or at the time scheduled by the
Network), without prior Network permission, any and all Network programming that
it deems unsatisfactory, unsuitable or contrary to the public interest or to
substitute programming it believes is of greater local interest, provided that
the Network consents to any rescheduling of preempted programming. If an
affiliate of the Company preempts a Network program and no suitable substitute
broadcast time is mutually agreed upon, the Network is permitted to offer the
program to any other television station or cable service in the DMA served by
such affiliate of the Company.
Each affiliation agreement grants the Company's affiliate the right of first
refusal to the Network's entire program schedule. The affiliation agreements
generally provide that 50% of all advertising time be retained by the Network
for Network advertising and the other 50% of the time be allocated to the
Company's affiliate for local and national spot advertising. However, this
allocation may be modified at the Company's discretion.
The Affiliated Stations retain 100% of all local advertising revenues, and
the Network retains 100% of Network advertising revenues.
The Network from time to time may enter into affiliation agreements with
additional stations in new DMAs based upon its perception of the market for
Spanish-language television and the Hispanic market in the station's DMA.
CABLE AFFILIATES. The Network has historically used cable affiliates to
reach communities that could not support a Broadcast Affiliate because of the
relatively small number of Hispanic Households. Cable affiliation agreements may
cover an individual system operator or a multiple system operator. Cable
affiliation agreements are for the most part non-exclusive, thereby giving the
Network the right to license all forms of distribution in cable markets. Cable
affiliates generally receive the Network's programming for a fee based on the
number of subscribers. The Network retains 100% of the allocation of Network
advertising revenues attributable to cable affiliates and provides certain cable
affiliates with two minutes of local advertising time per hour. Cable affiliates
retain 100% of local and national advertising revenues. However, the Company
represents certain cable affiliates in national spot sales for varying fees. See
"--Federal Regulation and New Technologies."
AFFILIATE COVERAGE AND RANK. The table below sets forth certain information
with respect to the Company's affiliates' coverage and rank.
7
THE COMPANY'S AFFILIATES' COVERAGE AND RANK AMONG HISPANIC HOUSEHOLDS
AFFILIATES' RANK
AMONG
HISPANIC HOUSEHOLDS NATIONWIDE SPANISH-LANGUAGE
COVERED(B) HISPANIC HOUSEHOLDS TELEVISION
DMA(A) STATION (IN THOUSANDS) COVERED(B) STATIONS(C)(D)
- ------ -------- ------------------- ------------------- ----------------
Los Angeles(1)............... KMEX 1,532 17.1% 1(c)
New York(2).................. WXTV 1,059 11.8 1(c)
Miami(3)..................... WLTV 507 5.7 1(c)
San Francisco(4)............. KDTV 350 3.9 1(c)
Chicago(5)................... WGBO 340 3.8 1(c)
Houston(6)................... KXLN 337 3.8 1(c)
San Antonio(7)............... KWEX 323 3.6 1(c)
Dallas/Ft. Worth(8).......... KUVN 234 2.6 1(c)
Phoenix(10).................. KTVW 209 2.4 1(c)
Fresno(13)................... KFTV 179 2.0 1(c)
Sacramento(14)............... KUVS 178 2.0 1(c)
----- ----
FULL-POWER O&OS
Total full-power O&Os........ 5,248 58.7
FULL-POWER AFFILIATED STATIONS
McAllen/Brownsville(9)(e).... KNVO 209 2.3 1(c)
Albuquerque(12)(e)........... KLUZ 190 2.1 1(c)
El Paso(15)(e)............... KINT 178 2.0 1(c)
Denver(16)(e)................ KCEC 148 1.7 1(d)
Corpus Christi(20)(e)........ KORO 100 1.1 1(c)
Boston(23)(e)................ WUNI 97 1.1 1(d)
Las Vegas(25)(e)............. KINC 83 0.9 1(d)
Salinas/Monterey(26)(e)...... KSMS 60 0.7 1(d)
Laredo(31)(e)................ KLDO 53 0.6 1(d)
Yuma/El Centro(37)(e)........ KVYE 43 0.5 1(d)
Sta Barbara-Sta Maria-San
Luis Obispo(36)............ KTAS 44 0.5 1(d)
----- ----
Total full-power Affiliated
Stations................. 1,205 13.5
CABLE AFFILIATES(f)............ 1,124 12.6
DBS Systems(g)................. 63 .7
LOW-POWER BROADCAST
AFFILIATES(h)................ 607 6.7
----- ----
TOTAL AFFILIATES............... 8,247 92.2%
===== ====
- ------------------------
(a) Numbers in parentheses represent Hispanic DMA rank by number of Hispanic
Households.
(b) Source: Nielsen Media Research, Black & Hispanic DMA Market and Demographic
Rank, January 2001.
(c) Rank among the Spanish television stations in the DMA. Source Nielsen
Hispanic Station Index ("NHSI") November 2000. M-Su/6a.m.-2 a.m.
(d) Rank among the Spanish television stations in the DMA. Source Nielsen
Station Index ("NSI") November 2000. M-Su/6a.m.-2 a.m.
8
(e) Owned by Entravision.
(f) Source: Company estimate derived from Nielsen Cable On-Line Data Exchange,
January 2001.
(g) Source: Nielsen Media Research.
(h) Source: Based on Company estimates.
GALAVISION NETWORK
Galavision is the leading U.S. Spanish-language general entertainment basic
cable television network, reaching approximately 14.0 million subscribers, of
whom 3.4 million are Hispanic. In addition, Galavision reaches 10.4 million
subscribers through direct broadcast systems, of whom .2 million are Hispanic.
According to Nielsen Media Research ("Nielsen"), Galavision reaches over 65% of
all Hispanic Households that subscribe to cable and direct broadcast systems.
Galavision's line-up includes sports, music, bicultural shows, educational
children's programming, news, novelas, variety, monthly specials and movies. The
Company programs Galavision so that Galavision and the Network generally do not
run the same type of show simultaneously.
PROGRAMMING
The Company directs its programming primarily toward its young,
family-oriented audience. It begins daily with DESPIERTA AMERICA and talk and
information shows, Monday through Friday, followed by NOVELAS. In the late
afternoon and early evening, the Network offers a talk show, a news-magazine and
national news, in addition to local news provided by the O&Os. Weekend daytime
programming begins with children's programming, followed by sports, variety,
teen lifestyle shows and movies. During prime time, the Company airs NOVELAS,
variety shows, a talk show, comedies, news magazines, lifestyle shows, as well
as specials and movies. Prime time is followed by late news and a late night
talk show.
Approximately eight to ten hours of programming per weekday, including a
substantial portion of weekday prime time, are currently programmed with NOVELAS
supplied primarily by Televisa and to a lesser extent by Venevision. Although
NOVELAS have been compared to daytime soap operas on ABC, NBC or CBS, the
differences are significant. NOVELAS, originally developed as serialized books,
have a beginning, middle and end, generally run five days per week, and conclude
four to eight months after they begin. NOVELAS also have a much broader audience
appeal than soap operas, delivering audiences that contain large numbers of men,
children and teens in addition to women.
The Hispanic population is primarily young and family-oriented. The
Company's programming has been particularly successful with this young audience.
The Company's strongest demographic is among adults aged 18-34. In
November 2000, Sunday through Saturday 7 a.m. to 1 a.m., according to NHTI, the
Company had a 29% share of all Hispanic adults in this age category, which
exceeded all other broadcasters.
In 2000, the Company derived approximately 40% and 5% of its gross
advertising sales from programs produced by Televisa and Venevision,
respectively, under the amended and restated program license agreements between
the Company and Televisa and the Company and Venevision (the "Program License
Agreements"). Programming supplied by Televisa and Venevision under the Program
License Agreements and programs produced by the Company currently represent in
the aggregate approximately 93% of the Network's non-repeat broadcast hours. The
remainder primarily consists of other programs acquired from independent
third-party suppliers. All programs produced by the Network accounted for
approximately 41% of the Company's gross advertising sales in 2000. In response
to a weakening advertising sales environment, in February 2001 the Company
implemented certain cost saving measures, including cancellation of several
Univision produced programs currently on the air or in development.
9
The Company's news programming is generally produced either at the Network
facility in Miami or the local stations. The Network produces an early evening
network newscast seven days per week and a late network newscast, Monday through
Friday. All full-power O&Os produce local newscasts that reflect the communities
they serve.
PROGRAM LICENSE AGREEMENTS
Through the Program License Agreements, the Company has the first right
until December 2017 to air in the U.S. all Spanish-language programming produced
by or for Televisa and Venevision (with certain exceptions). Televisa, which is
the world's largest producer of Spanish-language television programs, is the
leading media and entertainment company in Mexico with an approximate 75% share
of Mexico's viewing audience during 2000. Venevision is Venezuela's leading
television network with an approximate 47% share of its viewing audience during
2000. The Program License Agreements provide the Network and Galavision with
access to programming to fill up to 100% of their program schedules. Televisa
and Venevision programming represented approximately 37% and 11%, respectively,
of the Network's non-repeat broadcast hours in 2000.
The Program License Agreements allow the Company long-term access to
Televisa and Venevision programs and the ability to terminate unsuccessful
programs and replace them with other Televisa and Venevision programs without
paying for the episodes that are not broadcast. Accordingly, the Company has
more programs available to it and greater programming flexibility than any of
its competitors. This program availability and flexibility has permitted the
Company to adjust programming to best meet the tastes of its viewers.
Under the Program License Agreements, the Company may license programming
from Televisa and Venevision that, when added to (i) local programs produced by
the O&Os and used on the Network, (ii) any programs produced by the Company and
(iii) any programs purchased by the Company other than from Televisa and
Venevision, will be sufficient (when including an estimated six hours of repeat
broadcasting in the case of the Venevision agreement) to fill a twenty-four hour
per day, seven day per week time schedule for each of the Network and
Galavision.
The Company's Televisa and Venevision options are prior to all third
parties' rights to obtain Televisa and Venevision produced programming for
broadcast in the U.S. Generally, the Company also has a right of first refusal
to acquire any program for which the Company did not exercise its option before
Televisa or Venevision can license such program to any third party. Any program
for which the Company elects not to exercise its right of first refusal may be
licensed to third parties for not more than one run over a period of one year
(with one rerun in the case of NOVELAS). Thereafter, such program must be made
available to the Company under the terms described above. To the extent that
Televisa or Venevision uses, or licenses a third party to use, its programming
in the United States in accordance with the terms of the Program License
Agreements, the Company would compete against such entity.
Televisa and Venevision programs available to the Company are defined under
the Program License Agreements as all programs produced by or for each of them
in the Spanish-language or with Spanish subtitles other than programs for which
they do not own U.S. broadcast rights or as to which third parties have a right
to a portion of the revenues from U.S. broadcasts ("Co-produced Programs").
Televisa and Venevision have also agreed through their affiliates to use their
best efforts to coordinate with the Company to permit the Company to acquire
U.S. Spanish-language rights to certain Co-produced Programs and to special
events produced by others, sporting events, political conventions, election
coverage, parades, pageants and variety shows.
In consideration of access to the programming of Televisa and Venevision,
the Company pays Televisa and Venevision aggregate royalties based upon time
sales of Univision Television Group, Inc. ("UTG"), the Network and Galavision
from broadcasting, including barter, trade, and television subscription
revenues, less advertising commissions, certain special event revenues, music
license fees, outside affiliate
10
compensation and taxes other than withholding taxes ("Combined Net Time Sales").
Aggregate royalties to Televisa and Venevision are 15% of Combined Net Time
Sales. The Network is obligated to pay such aggregate royalties to Televisa and
Venevision each year throughout the term regardless of the amount of Televisa
and Venevision programming used by the Company.
The Program License Agreements are between affiliates of the Company,
Televisa and Venevision and the performance of their affiliates has been
unconditionally guaranteed by the Company, Televisa and Venevision,
respectively. Pursuant to their respective guarantees, Televisa has agreed to
use commercially reasonable efforts to continue to produce programs available to
the Network at least to the same extent in terms of quality and quantity as in
calendar years 1989, 1990 and 1991 and Venevision has agreed to use commercially
reasonable efforts to produce or acquire programming sufficient to enable its
affiliate to provide at least nine hours per day of programs to the Network to
satisfy such affiliate's obligations under its Program License Agreement.
In addition, Televisa, with several partners, each of whom has substantial
assets, operates a direct broadcast satellite ("DBS") venture, which has a
variety of program services. Televisa is required to offer the Company the
opportunity to acquire a 50% economic interest in Televisa's interest in the
joint venture to the extent it relates to United States Spanish-language
broadcasting. While the Company believes that it will be offered such an
interest, the Company has not received any indication as to what the business
terms relating to such interest would be. Accordingly, the Company is not in a
position to state whether it would accept such an offer. If the venture secures
a significant viewership among Hispanic Households, it could have a material
adverse effect on the Company's financial condition and results of operations,
even if the Company decides to acquire this 50% economic interest.
Televisa asserts that the terms and conditions of its Program License
Agreement with the Company allow it, under certain circumstances, to provide any
DBS venture uplinking in Mexico for distribution in the United States with
Televisa program services which contain programs to which the Company believes
it has an exclusive first option in the United States. The Company disagrees
with Televisa's assertion and has notified Televisa of its intention to enforce
its rights by all appropriate means including, if necessary, legal action, if
Televisa provides such programs to any such DBS venture. There can be no
assurance that Televisa will desist from providing such programming to its or
other DBS ventures, or, if Televisa were not to desist, that the Company would
prevail in court.
THE O&OS
The Company owned and operated 12 full-power O&Os as of December 31, 2000,
11 of which broadcast Network programming, produce local news and other
programming of local importance, cover special events and may acquire programs
from other suppliers. UTG acts as the representative of the Company's affiliates
for national spot sales and receives a commission of 15% of net revenues after
agency commission in return for such services from its Affiliated Stations. The
Company's Bakersfield full-power station is a UPN affiliate. Each of the
full-power Network-affiliated O&Os is the leading Spanish-language television
station in its DMA.
11
As shown on the following table, three of the full-power O&Os owned by the
Company rank as the top station in their respective DMAs in the November 2000
NSI survey.
FULL-POWER O&OS' COVERAGE AND RANK AMONG HISPANICS
COMPANY'S ADULTS
SHARE 18 TO 49
DMA RANK 2001 HISPANIC 2001 HISPANIC HISPANIC SPANISH- OF SPANISH- TOTAL
(BY HISPANIC HOUSEHOLDS POPULATION HOUSEHOLD LANGUAGE LANGUAGE AUDIENCE
DMA HOUSEHOLDS)(A)(B) (IN THOUSANDS)(B) (IN THOUSANDS)(B) DENSITY(C) USE(D) VIEWING(E) RANK(F)
- --- ----------------- ----------------- ----------------- ---------- -------- ----------- ----------
Los Angeles.......... 1 1,532 6,092 28.6% 20.3% 59%(g) 1
New York............. 2 1,059 3,291 15.3 10.9 71 7
Miami................ 3 507 1,438 34.5 28.2 66 (h) 1
San Francisco........ 4 350 1,232 14.4 8.7 77 6
Chicago.............. 5 340 1,225 10.5 7.7 70 7
Houston.............. 6 337 1,157 19.3 13.5 78 2
San Antonio.......... 7 323 1,030 46.5 22.6 88 5
Dallas/Ft. Worth..... 8 234 817 11.3 8.1 73 4
Phoenix.............. 10 209 711 14.5 8.8 87 6
Fresno............... 13 179 673 34.5 21.6 90 1
Sacramento........... 14 178 614 15.0 8.2 95 7
- ------------------------
(a) The other DMAs ranked among the top fifteen by number of Hispanic Households
are McAllen/ Brownsville (9th), San Diego (11th), Albuquerque (12th) and El
Paso (15th).
(b) Source: Nielsen Media Research, Black & Hispanic DMA Market and Demographic
Rank, January 2001 estimates. In deriving its figures, Nielsen only counts
persons present in Hispanic Households.
(c) Percentage of total households that are Hispanic Households. Source: Nielsen
Media Research, Black & Hispanic DMA Market and Demographic Rank,
January 2001.
(d) Represents where the Spanish language is spoken at least 50% of the time by
adults (includes Spanish dominant and bilingual) as a percent of the total
DMA Households. Source: Nielsen Enumeration Study 2001, which sets forth
demographic attributes of Hispanic population.
(e) Source: NHSI, adults 18 to 49, November 2000, Monday to Sunday, 6 a.m. to
2 a.m.
(f) Source: NSI, adults 18 to 49, November 2000, Monday to Sunday, 6 a.m. to
2 a.m.
(g) The Los Angeles market has four full-power Spanish-language television
stations, KRCA only broadcasts part-time in Spanish.
(h) The Miami market has four Spanish-language television stations.
Set forth below is information, including ratings and performance
information based on most recently available data, for the Company's top six
O&Os.
LOS ANGELES. The Los Angeles DMA has the largest Hispanic population in the
U.S., estimated by Nielsen to be 6.1 million people as of the beginning of 2001,
and is the second largest U.S. television market overall. The Hispanic
population in Los Angeles represents 39% of that DMA's total population and 20%
of the total U.S. Hispanic population.
In November 2000, the Company's Los Angeles O&O, KMEX, posted a 59% share of
the viewers tuned to Spanish-language television from 6 a.m. to 2 a.m. Monday
through Sunday, while Telemundo-KVEA posted a 25% share and KWHY posted a 13%
share. One other full-power station in the Los Angeles DMA broadcasts part-time
in Spanish. Compared to all general market television stations in the
November 2000 NSI Report, KMEX was first in adults aged 18 to 34 ratings and
adults aged 18 to 49, and was sixth in households in the Los Angeles DMA Monday
through Sunday 6 a.m. to 2 a.m. A total
12
of 16 commercial television stations currently operate in the Los Angeles DMA.
Some of these stations simulcast their news programs and certain entertainment
programs in both English and Spanish. In addition, Nielsen estimates that cable
penetration among Hispanic Households in the Los Angeles DMA is 51%.
NEW YORK. The New York DMA has the second largest Hispanic population in
the U.S., estimated by Nielsen to be 3.3 million people at the beginning of
2001, and is the largest U.S. television market overall. The Hispanic population
in New York represents 18% of that DMA's total population and 11% of the total
U.S Hispanic population.
In November 2000, the Company's New York O&O, WXTV, was the leading
Spanish-language station with a 71% share of the audience watching
Spanish-language television (6 a.m. to 2 a.m. Monday through Sunday), while
Telemundo-WNJU posted a 29% share. Compared to all general market television
stations in the November 2000 NSI Report, WXTV ranked sixth in adults aged 18 to
34 ratings and ranked seventh in adults aged 18 to 49, Monday through Sunday,
6 a.m. to 2 a.m. A total of 14 commercial television stations service the New
York DMA. According to Nielsen, cable penetration among Hispanic Households in
the New York DMA is approximately 68%.
MIAMI. The Miami DMA has the third largest Hispanic population in the U.S.,
estimated by Nielsen to be 1.4 million people as of the beginning of 2001, and
is the sixteenth largest U.S. television market overall. The Hispanic population
in Miami represents 39% of that DMA's total population and 5% of the total U.S.
Hispanic population.
In November 2000, the Company's Miami O&O, WLTV, had a 66% share of the
audience watching Spanish-language television from 6 a.m. to 2 a.m., Monday
through Sunday. Compared to all general market television stations in the
November 2000 NSI Report, WLTV was in first place in adults aged 18 to 34,
adults aged 18 to 49 and adults aged 25 to 54 ratings and placed first in
households in the Miami market, Monday through Sunday, 6 a.m. to 2 a.m.. WLTV is
fully competitive with all English-language stations in the Miami DMA in all
major dayparts. A total of 14 commercial television stations service the Miami
DMA. In addition to the Company's WLTV and Telemundo-WSCV, which garnered a 32%
share, there are two other television stations showing some Spanish-language
programming. According to Nielsen, cable penetration among Hispanic Households
in Miami is approximately 71%.
SAN FRANCISCO. The San Francisco DMA has the fourth largest Hispanic
population in the U.S. estimated by Nielsen to be 1.2 million people as of the
beginning of 2001 and is the fifth largest television market overall. The
Hispanic population of San Francisco represents 19% of the DMA's total
population and 4% of the total U.S. Hispanic population.
In November 2000, the Company's San Francisco O&O, KDTV, had a 77% share of
the audience watching Spanish-language television from 6 a.m. to 2 a.m. Monday
through Sunday. KDTV has one Spanish-language competitor, Telemundo-KSTS.
Compared to all general market television stations in the San Francisco DMA in
the November 2000 NSI report KDTV ranked fourth among adults aged 18-34 and
sixth in adults aged 18-49. KDTV is fully competitive with certain
English-language stations in delivering young adult demographics in the San
Francisco DMA. A total of 16 commercial television stations service the San
Francisco DMA. According to Nielsen the cable penetration among Hispanic
Households in San Francisco is approximately 68%.
CHICAGO. The Chicago DMA has the fifth largest Hispanic population in the
U.S., estimated by Nielsen to be 1.2 million people at the beginning of 2001,
and is the third largest U.S. television market overall. The Hispanic population
in Chicago represents 14% of that DMA's population and 4% of the total U.S.
Hispanic population.
In November 2000, the Company's Chicago O&O, WGBO, posted a 70% share of the
audience watching Spanish-language television 6 a.m. to 2 a.m., Monday through
Sunday. WGBO has one Spanish-language competitor, Telemundo-WSNS. Compared to
all general market television stations in the Chicago
13
DMA in the November 2000 NSI report, WGBO ranked fifth among adults 18-34 and
seventh among adults 18-49. WGBO is fully competitive with certain
English-language stations in the delivery of young demographics in the Chicago
DMA, particularly adults aged 18 to 34. A total of 13 television stations
service the Chicago DMA. According to Nielsen, cable penetration among Hispanic
Households in Chicago is approximately 52%.
HOUSTON. Houston has the sixth largest Hispanic population in the U.S.,
estimated by Nielsen to be 1.2 million people as of the beginning of 2001, and
is the eleventh largest U.S. television market overall. The Hispanic population
in Houston represents 25% of that DMA's total population and 4% of the total
U.S. Hispanic population.
In November 2000, the Company's Houston O&O, KXLN, posted a 78% share of the
audience watching Spanish-language television 6 a.m. to 2 a.m., Monday through
Sunday. KXLN has one Spanish-language competitor, the Telemundo affiliate KTMD.
Compared to all general market television stations in the Houston DMA in the
November 2000 NSI Report, KXLN was ranked first in the delivery of adults aged
18 to 34 and second in adults aged 18 to 49, Monday through Sunday, 6 a.m. to
2 a.m. A total of 14 commercial television stations service the Houston DMA.
According to Nielsen, cable penetration among Hispanic Households in Houston is
approximately 44%.
The Company exercises its "must carry" rights in each DMA in which it
operates a full-power O&O.
The Company's seven low-power O&Os are located in Austin, Bakersfield, Fort
Worth, Hartford, Philadelphia, Santa Rosa and Tucson. The low-power O&Os, in the
aggregate, accounted for approximately 1% of the Company's net revenues in 2000
and approximately 2% of the Network broadcast distribution.
ADVERTISING
The Company's top 10 advertisers for 2000 were AT&T, General Motors, MCI
Communications, Procter & Gamble, Ford Division, Americatel, Sears, McDonald's,
Toyota and Kraft Foods, most of which have substantially increased advertising
commitments to the Company during the last five years. During the last five
years, no single advertiser has accounted for more than 10% of the Company's
gross advertising revenues. Approximately 98% of the Company's gross revenues
for 2000 and 1999 consisted of Network, national spot, local, Galavision and
Univision Online advertising revenues.
None of the O&Os currently receives its proportionate share of advertising
revenues commensurate with its audience share. The Company focuses much of its
sales efforts on demonstrating to advertisers its ability to reach the Hispanic
audience in order to narrow the gap between its share of advertising revenues
and its audience share.
NETWORK ADVERTISING. Network advertising revenues represented 55.2% and
52.7% of the Company's gross revenues in 2000 and 1999, respectively. The
Company attracts advertising expenditures from diverse industries, with
advertising for food and beverages, personal care products, automobiles, other
household goods and telephone services representing the majority of Network
advertising. Upfront advertising sales for the 2000-2001 season were
$501 million, an increase of 18% over the previous season. The growth in the
Upfront--the buying commitment made by major national advertisers in advance of
the coming broadcast year--represented a significant broadening of our
advertising base. Of the 92 national accounts committing to Univision Network in
the Upfront, 21 were new accounts. Univision Network is increasingly becoming a
core media buy for major advertisers.
SPOT ADVERTISING. National spot advertising represents time sold to
national and regional advertisers based outside a station's DMA. National spot
advertising revenues represented 16.7% and 17.2% of the Company's gross revenues
for 2000 and 1999, respectively. National spot advertising primarily comes from
new advertisers wishing to test a market and advertisers who are regional
retailers and manufacturers without national distribution. To a lesser degree,
national spot advertising comes from advertisers who
14
have the need to enhance network advertising in a given market. National spot
advertising is the means by which most new national and regional advertisers
begin marketing to Hispanics.
LOCAL ADVERTISING. Local advertising revenues are generated by both local
merchants and service providers and regional and national businesses and
advertising agencies located in a particular DMA. Local advertising revenues
represented 25.8% and 28.2% of the Company's gross revenues for 2000 and 1999,
respectively.
MARKETING
The Company's account executives are divided into three groups: network
sales; national spot sales; and local sales. The account executives responsible
for network sales target and negotiate with accounts that advertise nationally.
The national spot sales force represents each broadcast affiliate for all sales
placed from outside its DMAs. The local sales force represents an O&O for all
sales placed from within its DMA.
In addition, the Company's sales department utilizes research, including
both ratings and demographic information analyzed by the Company's research
department, to negotiate sales contracts as well as target major national
advertisers that are not purchasing advertising time or who are under-purchasing
advertising time on Spanish-language television.
The Company maintains Network and national sales offices in Atlanta,
Chicago, Dallas, Detroit, Irvine (California), Los Angeles, Miami, New York, San
Antonio and San Francisco.
Galavision maintains sales offices in New York, Los Angeles and Dallas. In
addition to selling advertising time from these sales offices, the Company also
maintains a cable affiliate relations sales group that is responsible for
generating cable subscriber fee revenues for the Company.
Univision Online, Inc., which launched an internet portal directed at
Hispanics in the United States, Mexico and Latin America in 2000, maintains
sales offices in Los Angeles and New York.
COMPETITION
The broadcasting and cable business is highly competitive. Competition for
advertising revenues is based on the size of the market that the particular
medium can reach, the cost of such advertising and the effectiveness of such
medium. The Company believes that it is competitive in the size of market it
reaches and the cost and effectiveness of advertising time it sells.
The Company competes for viewers and revenues with other Spanish-language
and English-language television stations and networks, including the four
principal English-language television networks, ABC, CBS, NBC and Fox, and in
certain cities, UPN and WB. Certain of these English-language networks and
others have begun producing Spanish-language programming and simulcasting
certain programming in English and Spanish. Several cable broadcasters have
recently commenced or announced their intention to commence, Spanish-language
services as well. The Company also competes for viewers and revenues with
independent television stations, other video media, suppliers of cable
television programs, direct broadcast systems, newspapers, magazines, radio and
other forms of entertainment and advertising. The Company's affiliates located
near the Mexican border also compete for viewers with television stations
operated in Mexico, many of which are affiliated with a Televisa network and
owned by Televisa.
The Company's Restated Certificate of Incorporation allows the Company to
engage in all media related business. However, neither Televisa nor Venevision
will be required to offer opportunities to the Company other than those
involving Spanish-language television broadcasting or a Spanish-language
television network in the United States. Consequently, the Company could compete
directly with Televisa and Venevision, two of its principal stockholders, in
other media and languages. Televisa currently
15
publishes and distributes Spanish-language publications and sells
Spanish-language recorded music in the United States.
Telemundo is the Company's largest competitor that broadcasts
Spanish-language television programming. As of December 31, 2000, Telemundo
served 64 markets in the United States, as well as the Puerto Rico market, and
reached approximately 85% of all Hispanic Households. In most of the Company's
DMAs, the Company's affiliates competes directly with a station owned by or
affiliated with Telemundo. In August 1998, a venture formed by Apollo Investment
Fund III L.P., Bastion Capital Fund L.P., the Sony Pictures Entertainment unit
of Sony Corp. and Liberty Media Corporation acquired Telemundo.
The rules and policies of the Federal Communications Commission ("FCC")
encourage increased competition among different electronic communications media.
As a result of rapidly developing technology, the Company may experience
increased competition from other free or pay systems by which information and
entertainment are delivered to consumers, such as direct broadcast satellite and
video dial tone services.
MATERIAL PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
In the course of its business, the Company uses various trademarks, trade
names and service marks, including its logos in its advertising and promotions.
The Company believes the strength of its trademarks, trade names and service
marks are important to its business and intends to continue to protect and
promote its marks as appropriate. The Company does not hold or depend upon any
material patent, government license, franchise or concession, except the
licenses granted by the FCC to the O&Os.
EMPLOYEES
As of December 31, 2000, the Company employed approximately 2,260 full-time
employees. At December 31, 2000, approximately 11.4% of the Company's employees,
located in Chicago, Fresno, Los Angeles, San Francisco and New York were
represented by unions.
The collective bargaining agreement covering the union employees expires at
the Chicago O&O in February 2004. The Los Angeles O&O has two collective
bargaining agreements which expire January 2003 and March 2004. The New York O&O
has three collective bargaining agreements which expire June 2003,
December 2003 and May 2004. The collective bargaining agreement covering the
union employees expires at the San Francisco O&O in April 2002. The collective
bargaining agreement covering the union employees at the Fresno O&O expires
June 2003.
Management believes that its relations with its non-union and union
employees, as well as with the union representatives, are good.
FEDERAL REGULATION AND NEW TECHNOLOGIES
The ownership, operation and sale of TV stations, including those licensed
to subsidiaries of the Company, are subject to the jurisdiction of the FCC under
authority granted it pursuant to the Communications Act of 1934, as amended (the
"Communications Act"). Matters subject to FCC oversight include, but are not
limited to, the assignment of frequency bands for broadcast television; the
approval of a TV station's frequency, location and operating power; the
issuance, renewal, revocation or modification of a TV station's FCC license; the
approval of changes in the ownership or control of a TV station's licensee; the
regulation of equipment used by TV stations; and the adoption and implementation
of regulations and policies concerning the ownership, operation, and employment
practices of TV stations. The FCC has the power to impose penalties, including
fines or license revocations, upon a licensee of a TV station for violations of
the FCC's rules and regulations.
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually has relaxed
or eliminated many of the more formalized
16
procedures it had developed to promote the broadcast of certain types of
programming responsive to the needs of a station's community of license.
However, broadcast station licensees continue to be required to present
programming that is responsive to local community problems, needs and interests
and to maintain certain records demonstrating such responsiveness. Complaints
from viewers concerning a station's programming often will be considered by the
FCC when it evaluates license renewal applications of a licensee, although such
complaints may be filed at any time and generally may be considered by the FCC
at any time. Stations also must follow various rules promulgated under the
Communications Act that regulate, among other things, political advertising,
sponsorship identifications, the advertisement of contests and lotteries,
programming directed to children, obscene and indecent broadcasts, and technical
operations, including limits on radio frequency radiation.
NEW LICENSES. The FCC has adopted a Table of Allocations which assigns
specific television channels to specific communities. The Table of Allocations
can be changed from time to time through notice and comment rulemaking. The FCC
periodically permits applications to be filed seeking authority to construct new
television channels on unused allocated channels. The applications are subject
to public notice. If more than one party files an application for the same
unused allocation, the FCC conducts an auction at which the highest bidder is
tentatively chosen to receive a permit to construct a station on the unused
channel. After the auction, interested parties may file a petition to deny such
an application. In deciding whether to grant a challenged auction winning
application, the FCC considers the qualifications of the applicant and the
compliance of the application with its technical and other rules and
regulations. The Company currently has pending an application for authority to
construct a new full power television station on an unused allocated channel in
the Austin, Texas, market. The Company was the high bidder in the auction for
that facility. One of the unsuccessful applicants has challenged the Company's
application on technical grounds, and an FCC decision is pending.
ASSIGNMENTS AND TRANSFERS. The FCC prohibits the assignment of a license or
the transfer of control of a television or radio broadcasting license without
prior FCC approval. In order to obtain such consent, an application must be
filed with the FCC on the appropriate form, and the FCC provided with certain
information required by the form and its rules. Assignment and transfer
applications are subject to public notice, and interested parties may file a
petition to deny such an application. In deciding whether to grant an assignment
or transfer application, the FCC considers the qualifications of the assignee or
transferee, the compliance of the transaction with its multiple ownership and
other rules, and other factors in order to determine whether the public interest
would be served by such change in ownership. If the Commission finds unresolved
substantial and material questions of fact affecting whether the public interest
would be served by grant of an assignment or transfer application, it is
required to conduct an evidentiary hearing to resolve such outstanding issues.
LICENSE RENEWAL. Under FCC rules adopted in January 1997 to implement the
Telecommunications Act of 1996 (the "Telecom Act"), television station licenses
generally will be issued for an initial period of eight years, subject to
renewal upon application therefor. The FCC will ordinarily renew broadcast
licenses for the maximum eight-year term (subject to short-term renewals in
certain circumstances, such as those involving serious violations of FCC rules
by the licensee). These changes apply to all license renewals granted after the
date the new rules were adopted (regardless of when the renewal application was
filed), as well as retroactively to licenses for which the renewal application
was filed on or after October 1, 1995 if the renewal was granted prior to the
date the new rules were adopted.
With respect to broadcast renewal applications filed after May 1, 1995, the
FCC adopted new rules on April 12, 1996 to implement certain statutory changes
effected by the Telecom Act. Under these new rules, no person may submit a
competing application for the frequency licensed to the renewal applicant unless
and until the FCC has determined that the incumbent is not qualified to continue
to hold the license. However, during a certain period while the renewal
application is still pending, petitions to deny the renewal application may be
filed with the FCC. In recent years, representatives of various community
17
groups and others often have filed petitions to deny renewal applications of
broadcast stations. The FCC will grant the renewal application and dismiss the
petitions to deny if it determines that the licensee meets statutory renewal
standards based on a review of the preceding license term.
Set forth below are the license expiration dates of each O&O station:
O&O STATION LICENSE EXPIRATION DATES
DMA STATION LICENSE EXPIRATION DATE
- --- --------------- ---------------
Austin....................................... K30CE-LP(a) 8/01/06(b)
Bakersfield.................................. KUVI 12/01/06
Bakersfield.................................. KABE-LP(a) 12/01/06(c)
Chicago...................................... WGBO 12/01/05
Dallas/Fort Worth............................ KUVN 8/01/06
Dallas/Fort Worth............................ KUVN-LP(a) 8/01/06(b)
Fresno--Visalia.............................. KFTV 12/01/06
Hartford & New Haven......................... W47AD-LP(a) 4/01/07(c)
Houston...................................... KXLN 8/01/06
Los Angeles.................................. KMEX 12/01/06
Miami--Fort Lauderdale....................... WLTV 2/01/05
New York..................................... WXTV 6/01/07
Philadelphia................................. WXTV-LP(a) 8/01/07
Phoenix...................................... KTVW 10/01/06
Sacramento--Stockton--Modesto................ KUVS 12/01/06
San Antonio.................................. KWEX 8/01/06
San Francisco--Oakland--San Jose............. KDTV-LP(a) 12/01/06
San Francisco--Oakland--San Jose............. KDTV 12/01/06
Tucson (Nogales)............................. KUVE-LP(a) 10/01/06(c)
- ------------------------
(a) Low-power O&O station. Has received a certificate of eligibility for
Class A status from the FCC.
(b) This station holds a construction permit to displace from its present
channel to an alternative channel.
(c) This station is subject to displacement from its channel upon the
commencement of operations of a digital broadcast station. An application
has been filed by the Company with the FCC for permanent authority to
operate on an alternate channel. However, one or more other parties have
filed similar applications that conflict with the station's displacement
application. This matter is pending.
In each case, renewal applications must be filed with the FCC at least four
months before the expiration date of the license, and any petitions to deny must
be filed at least one month prior to the expiration date. The FCC usually does
not act on renewal applications until after the expiration date, and in the
interim, the licenses remain in effect. The Company is not aware of any reason
why any of its license renewal applications timely filed with the FCC would not
be granted.
OWNERSHIP RESTRICTIONS. The FCC has adopted complex regulations which limit
the attributable ownership interests which may be held by a single individual or
entity. The FCC's rules provide that, with certain exceptions, the power to vote
or control the vote of 5% or more of the outstanding voting power of a licensee
is the test for determining whether an entity has an "attributable interest" in
a licensee's stations for purposes of the multiple ownership rules. However, the
FCC's rules permit certain passive institutional investors (i.e., qualifying
investment companies, insurance companies or bank trust departments) to vote or
control the vote of up to 20% of the outstanding voting power of a broadcast
company before they will be deemed to have an "attributable interest." In
addition, all officers and directors of a corporate licensee, and general
partners of a partnership licensee, hold an attributable interest in such
licensee. In
18
August 1999, the FCC adopted a new "equity/debt plus" attribution rule, which
makes attributable the interests of any party that holds a financial interest,
whether equity or debt or some combination thereof, in excess of 33% of a
licensee's total capital if such holder is either a significant program supplier
to the licensee or if such holder has another media interest in the same market
Current FCC "multiple ownership" rules, permit, under certain conditions,
common ownership of television stations within a common geographic area.
Specifically, the FCC rules allow common ownership of two television stations,
regardless of signal contour overlap, as long as the stations are in two
different Nielsen Designated Market Areas ("DMAs"). The FCC rules allow common
television ownership in the same DMA if there is no Grade B contour overlap. The
FCC will also allow common ownership of two television stations in the same DMA
as long as eight separately-owned full-power commercial and non-commercial
television stations will remain after the transaction to place the two stations
under common ownership is completed, provided that at least one of the stations
in the transaction is not among the top-four rated stations in the market. In
addition, the FCC will consider granting duopoly rule waivers to permit common
ownership of two television stations in the same market in cases in which a
same-market licensee is the only reasonably available buyer and the station
being acquired is either "failed," "failing," or "unbuilt."
In its Broadcasting Ownership Biennial Review Report, issued June 20, 2000
(the "Biennial Report"), the FCC determined to retain its national television
ownership cap under which a single individual or entity may hold an attributable
interest in an unlimited number of television stations provided those stations
do not have an aggregate national audience reach exceeding 35% of the television
homes in the United States. For this purpose, the FCC counts the television
households in each DMA in which a party has an attributable interest in a
television station as a percentage of the total television households in all
DMAs. Under the "UHF Discount" only 50% of the television households in a DMA
are counted towards the 35% national restriction if the owned station is a UHF
station (as are the O&O stations), and households are counted only once
regardless of how many interests a party may have in a particular DMA. There is
a pending court challenge to the 35% national ownership cap. The FCC has
announced its intention to implement a phased-in elimination of the UHF Discount
near the completion of the transition to digital television. The Company
currently holds an attributable stock interest in Entravision Communications
Corporation, licensee of 18 television stations. None of the principal
stockholders presently holds attributable interests in any other U.S. television
stations.
The FCC has conformed its "dual network rule" with the Telecom Act. Under
this new rule, a broadcast licensee may affiliate with an entity that maintains
two or more networks of television broadcast stations unless such multiple
networks are composed of (i) two or more network entities meeting a specific
definition of a network as of February 8, 1996, or (ii) a network meeting such
definition and certain other English-language program distribution services. The
Network does not fall into either category.
The FCC will allow a party to own a television station (and a second
television station, if otherwise permitted under the new television duopoly
rule) along with any of the following radio station combinations in the same
market: (i) up to six radio stations (any combination of AM and FM stations that
complies with the local radio ownership rule) if at least 20 independent
broadcast voices would exist in the market after the transaction creating the
television-radio combination; (ii) up to four radio stations (in compliance with
local radio ownership rules) if at least 10 independent broadcast voices would
exist in the market after the transaction; or (iii) one radio station regardless
of the number of independent media voices remaining in the market after the
transaction. In those markets where a party owns only one television station and
there would be at least 20 independent media voices in the market after the
transaction, the FCC will allow common ownership of the television station and
seven radio stations (again, in compliance with local radio ownership rules).
The FCC will also allow waivers of the radio/TV cross-ownership rule in certain
cases in which one of the stations in the proposed transaction is a failed
station. At present, the FCC imposes no limits on the number of radio stations
that may be directly or indirectly owned nationally by a single entity.
19
A number of television stations have entered into local marketing agreements
("LMAs"). While these agreements may take varying forms, pursuant to a typical
LMA, separately owned and licensed television stations agree to enter into
cooperative arrangements of varying sorts, subject to compliance with the
requirements of antitrust laws and with the FCC's rules and policies. Under
these types of arrangements, separately owned stations agree to function
cooperatively in terms of programming, advertising sales, etc., subject to the
requirement that the licensee of each station maintain independent control over
the programming and operations of its own station. One typical type of LMA is a
programming agreement between two separately owned television stations serving a
common service area, whereby the licensee of one station programs substantial
portions of the broadcast day on the other licensee's station, subject to
ultimate editorial and other controls being exercised by the latter licensee,
and sells advertising time during such program segments. At present, FCC rules
permit television station LMAs, but the licensee of a television station
brokering more than 15% of the time on another television station in its market
is generally considered to have an attributable interest in the brokered
station.
Some television stations have entered into cooperative arrangements commonly
known as joint sales agreements ("JSAs"). While these agreements may take
varying forms, under the typical JSA, a station licensee obtains, for a fee, the
right to sell substantially all of the commercial advertising on a separately-
owned and licensed station in the same market. The typical JSA also customarily
involves the provision by the selling licensee of certain sales, accounting, and
"back office" services to the station whose advertising is being sold. The
typical JSA is distinct from an LMA in that a JSA (unlike an LMA) normally does
not involve programming. The FCC has determined that issues of joint advertising
sales should be left to enforcement by antitrust authorities, and therefore does
not generally regulate joint sales practices between stations. Currently,
stations for which a licensee sells time under a JSA are not deemed by the FCC
to be attributable interests of that licensee.
ALIEN OWNERSHIP. The Communications Act generally prohibits a licensee from
having more than 20% of its capital stock directly owned or voted by foreign
nationals (including entities organized under the laws of a foreign country),
foreign governments, or the representatives of either (each a "Foreign
Interest"). A licensee may not be organized under the laws of a foreign country.
Any company that directly or indirectly controls a broadcast licensee may not
have more than 25% of its capital stock owned or voted by Foreign Interests if
the FCC finds that the public interest will be served by the refusal or
revocation of such license. The FCC has interpreted this provision to require an
affirmative public interest finding before a broadcast license may be granted to
or held by any such licensee that is controlled by a company whose foreign-held
capital stock exceeds such 25% benchmark. The FCC has rarely made such an
affirmative finding. The FCC has issued interpretations of existing law under
which these restrictions in modified form apply to other forms of business
organizations, including partnerships. As presently organized, the Company
complies with the FCC's foreign ownership restrictions. In particular, the
Company's Restated Certificate of Incorporation contains provisions that permit
the Company to redeem any shares of capital stock, other than Class T and
Class V Common Stock, owned by Foreign Interests and to take other actions
necessary to ensure its compliance with the foreign ownership restrictions of
the Communications Act and related FCC rules.
NETWORK AFFILIATE ISSUES. Several FCC rules impose restrictions on network
affiliation agreements. Among other things, those rules prohibit a television
station from entering into any affiliation agreements that (i) require the
station to clear time for network programming that the station had previously
scheduled for other use, (ii) preclude the preemption of any network programs
that the station believes are unsuitable for its audience, or (iii) preclude the
station from substituting for network programming a program that it believes is
of greater local or national importance.
In addition, the FCC is currently reviewing several of its rules governing
the relationship between broadcast television networks and their affiliates.
Specifically, the FCC is reviewing the following four rules: (i) the "right to
reject rule," which provides that affiliation arrangements between a broadcast
network and a broadcast licensee generally must permit the licensee to reject
programming provided by
20
the network, (ii) the "time option rule," which prohibits arrangements whereby a
network reserves an option to use specified amounts of an affiliate's broadcast
time, (iii) the "exclusive affiliation rule," which prohibits arrangements that
forbid an affiliate from broadcasting the programming of another network, and
(iv) the "network territorial exclusivity rule," which proscribes arrangements
whereby a network affiliate may prevent other stations in its community from
broadcasting programming the affiliate rejects, and arrangements that inhibit
the ability of stations outside of the affiliate's community to broadcast
network programming.
The FCC's so-called "spot sale rule" prohibits a network from representing
its affiliates in the sale of non-network advertising time unless such
affiliates are owned by or under common control with the network. In late 1990,
the FCC granted a permanent waiver to the Company's predecessor permitting
non-owned and operated affiliates of the Network to be represented by the
Network in the spot sales market. In 1992, as part of its approval of the
acquisition of the Network and UTG, excluding the Chicago, Houston, Sacramento
and Bakersfield O&Os, the FCC granted the Company's request to extend the
permanent waiver of the spot sale rule so as to permit the Network to continue
to act as a national sales representative for each affiliate of the Company.
Beginning in 1998, the Company's national spot sales team was transferred to
UTG.
OTHER MATTERS. Effective January 1, 1990, the FCC reimposed syndicated
exclusivity rules and expanded the existing network non-duplication rules. The
syndicated exclusivity rules allow local broadcast stations to require that
cable television operators black out certain syndicated, non-network programming
carried on "distant signals" (i.e., signals of broadcast stations, including
so-called superstations, that serve areas substantially removed from the local
community). Under certain circumstances, the network non-duplication rule allows
local broadcast network affiliates to require that cable television operators
black out duplicative network broadcast programming carried on more distant
signals.
The FCC has adopted regulations effectively requiring television stations to
broadcast a minimum of three hours per week of programming designed to meet
specifically identifiable educational and informational needs, and interests, of
children. The FCC has also placed limits upon the amount of commercialization
during, and adjacent to, television programming intended for an audience of
children ages 12 and under. Present FCC regulations require that each television
station licensee appoint a liaison responsible for children's programming.
Information regarding children's programming and commercialization during such
programming is required to be compiled quarterly and made available to the
public. This programming information is also required to be filed with the FCC
annually.
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") requires television broadcasters to make an election to
exercise either "must-carry" or "retransmission consent" rights in connection
with the carriage of television stations by cable television systems in the
station's local market. If a broadcaster chooses to exercise its must-carry
rights, it may demand carriage on certain channels on cable systems within its
market, which, in some circumstances, may be denied. Must-carry rights are not
absolute, and their exercise is dependent on variables such as the number of
activated channels on and the location and size of the cable system and the
amount of duplicative programming on a broadcast station. If a broadcaster
chooses to exercise its retransmission consent rights, it may prohibit cable
systems from carrying its signal, or permit carriage under a negotiated
compensation arrangement.
ADVANCED TELEVISION TECHNOLOGY. At present, U.S. television stations
broadcast signals using the "NTSC" system, named for the National Television
Systems Committee, an industry group established in 1940 to develop the first
U.S. television technical broadcast standards. The FCC in late 1996 approved a
digital television ("DTV") technical standard to be used by television
broadcasters, television set manufacturers, the computer industry and the motion
picture industry. This digital television standard will allow the simultaneous
transmission of multiple streams of digital data on the bandwidth presently used
by a normal analog channel. It will be possible to broadcast one "high
definition" channel ("HDTV") with
21
visual and sound quality superior to present-day television or several "standard
definition" channels ("SDTV") with digital sound and pictures of a quality
slightly better than present television; to provide interactive data services,
including visual or audio transmission, or multiple channels simultaneously; or
to provide some combination of these possibilities on the multiple channels
allowed by DTV. The FCC has already allocated to most existing full-power
television stations one additional channel to be used for DTV during the
transition between present-day analog television and DTV. Broadcasters will not
be required to pay for this new DTV channel, but will be required to relinquish
one of their channels when the transition to DTV is complete. The Company's
full-power stations have filed applications for construction permits to build
out their DTV facilities. In November 1999, the Company petitioned the FCC to
amend its rules to give television stations the option of transmitting their DTV
signals using Coded Orthogonal Frequency Division Multiplexing digital
modulation technology. The Company cannot predict what action the FCC will take
with respect to this petition or what impact such action would have on the
implementation of DTV.
The FCC presently plans for the DTV transition period to end by 2006; at
that time, television stations would be required to return one of their two
channels to the FCC. Congress, however, has required the FCC to grant to a
television station an extension of that date under a number of specific
circumstances. The FCC has already begun issuing construction permits to build
DTV stations. The FCC has recently issued regulations with respect to DTV
allocations and interference criteria. Other aspects of the DTV regulatory
framework have not yet been established. The FCC is expected to apply to DTV the
rules applicable to analogous services in other contexts. The FCC has issued a
Notice of Inquiry seeking comments on whether the public interest standard to
which television stations are held accountable should be revised as stations
proceed in their transition to DTV, and the FCC may seek to impose additional
programming or other requirements on DTV service. While broadcasters will not
have to pay for the additional DTV channel itself, the FCC has voted to impose
fees upon broadcasters if they choose to use the DTV channel to provide paid
subscription services to the public. Neither the Telecom Act nor the Supreme
Court decision upholding the "must carry" statute resolves the applicability of
the "must carry" rules to DTV; the FCC recently began a proceeding on this
issue.
Under certain circumstances, conversion to DTV operations may reduce or
increase a station's geographical coverage area. In addition, the FCC's current
implementation plan would maintain the secondary status of low-power stations in
connection with its allotment of DTV channels. The FCC has acknowledged that DTV
channel allotment may involve displacement of existing low-power stations,
particularly in major television markets. Accordingly, the Company's low-power
broadcast affiliates may be materially adversely affected. The Company has
already filed displacement applications seeking new channel allotments for seven
of its low-power stations, which will be at least partially displaced by DTV
channels. Two of these stations have been licensed and are operating on their
displacement channels, two hold construction permits authorizing the
construction and operation of facilities on the displacement channels, and
displacement applications remain pending with regard to the remaining three
stations. There is no assurance that the pending applications will be granted by
the FCC. The impact of the DTV transition upon the Company's low-power stations
may be reduced because the FCC has issued certificates of eligibility for
Class A status for each of the Company's existing low-power stations. Class A
stations are a new regulatory classification recently mandated by Congress that
has greater protections against displacement than low-power television stations.
In addition, it is not yet clear when and to what extent DTV or other
digital technology will become available through the various media; whether and
how television broadcast stations will be able to avail themselves of or profit
by the transition to DTV; the extent of any potential interference with analog
channels; whether viewing audiences will make choices among services upon the
basis of such differences; whether and how quickly the viewing public will
embrace the cost of the new digital television sets and monitors; or to what
extent the DTV standard will be compatible with the digital standards adopted by
cable and other multi-channel video programming services. Pursuant to the
Telecom Act, the FCC must
22
conduct a ten-year evaluation regarding public interest in advanced television,
alternative uses for the spectrum, and reduction of the amount of spectrum each
licensee utilizes. Many segments of the industry are also intensely studying
these advanced technologies. There can be no assurance as to the answers to
these questions or the nature of future FCC regulation.
DIRECT BROADCAST SATELLITE SYSTEMS. There are currently in operation
several DBS systems that serve the United States, and it is anticipated that
additional systems will become operational over the next several years.
Furthermore, several Spanish-language DBS systems are underway to serve various
parts of Latin America and some of such systems are expected to have signals
which will spill over into the southern U.S. or in certain cases, cover most or
all of the continental United States. DBS systems provide programming on a
subscription basis to those that have purchased and installed a satellite signal
receiving dish and associated decoder equipment. DBS systems claim to provide
visual picture quality comparable to that found in movie theaters and aural
quality comparable to digital audio compact discs.
The Satellite Home Viewer Act ("SHVA") permits satellite carriers and direct
broadcast satellite carriers to provide to certain satellite dish subscribers a
package of network Affiliated Stations as part of their service offering. This
service is not intended to be offered to subscribers who are capable of
receiving their local affiliates off the air through the use of conventional
rooftop antennas. Furthermore, the package of affiliate stations is intended to
be offered only for private home viewing, and not to commercial establishments.
The purpose of the SHVA is to facilitate the ability of viewers in so-called
"white areas" to receive broadcast network programming when they are unable to
receive such programming from a local affiliate, while protecting local
affiliates from having the programming of their network imported into their
market by satellite carriers. Satellite carriers, however, reportedly have been
offering program packages that include the package of network affiliates to
large numbers of subscribers residing in the markets of local affiliates.
In response to the concerns of broadcasters, satellite carriers, and
viewers, Congress enacted the Satellite Home Viewer Improvement Act of 1999
("1999 SHVIA"), on November 29, 1999. This act authorizes satellite carriers to
add more local and national broadcast programming to their offerings, and to
make that programming available to subscribers who previously have been
prohibited from receiving broadcast fare via satellite under compulsory
licensing provisions of the copyright law. The legislation generally seeks to
place satellite carriers on an equal footing with local cable operators when it
comes to the availability of broadcast programming, including the reception of
local broadcast signals by satellite retransmission ("local into local") and
thus give consumers more and better choices in selecting a multichannel video
program distributor ("MVPD"). Among other things, the new legislation and
implementing regulation requires broadcasters, until 2006, to negotiate in good
faith with satellite carriers and MVPDs with respect to their retransmission of
the broadcasters' signals, and prohibits broadcasters from entering into
exclusive retransmission agreements. The FCC has initiated several rulemakings
to implement the 1999 SHVIA, including a proceeding to determine whether, and to
what extent, the FCC's network non-duplication, syndicated exclusivity and
sports blackout rules should apply to satellite retransmissions, and to resolve
a number of issues relating to retransmission consent issues. As a result of the
adoption of 1999 SHVIA, DBS systems are beginning to provide the signals of
certain traditional over-the-air broadcast stations in their local markets, in
addition to providing the programming of premium services such as HBO and other
traditionally cable-oriented satellite programming services. In the future,
competition from DBS systems could have a material adverse effect on the
financial condition and results of operations of the Company. The Company cannot
predict the impact of the 1999 SHVIA or of any modification of the FCC's
regulations as a result of those changes.
RECENT DEVELOPMENTS, PROPOSED LEGISLATION AND REGULATION. On September 12,
2000, the FCC proposed to standardize and enhance public interest disclosure
requirements for television broadcasters. In a Notice of Proposed Rulemaking
approved that date, the FCC tentatively concluded that television broadcasters
should place information in their public files on a quarterly basis. The
information would be on a standardized form, and would replace the current
programs-issues lists maintained by television
23
licensees. Among the information that would be required are the amounts of
programming broadcast in certain categories, such as news and public affairs
programming, and information as to the licensee's closed captioning and video
description activities. It is contemplated that the information would be
retained in a station's public file until final action has been taken on the
station's next renewal
On April 18, 2000, a new FCC equal employment opportunities ("EEO") rule
went into effect. The new rule requires broadcast licensees to provide equal
opportunity in employment to all qualified persons, and prohibits discrimination
against any person by broadcast stations because of race, color, religion,
national origin or sex. The EEO rule requires each station to establish,
maintain and carry out a positive continuing program of specific practices
designed to ensure equal opportunity and nondiscrimination in every aspect of
station employment policy and practice. It requires stations to recruit for
every job vacancy using a variety of recruitment sources sufficient to widely
disseminate information concerning the vacancy. In addition, stations are
required either (a) to provide notification of each vacancy to any organization
that distributes information about employment opportunities upon request and to
engage in a specific number of EEO outreach initiatives, or (b) to adopt
alternative recruitment techniques that will result in a diverse pool of job
applicants. Stations will be required to maintain extensive records regarding
their efforts to comply with the rule, to submit regular reports to the FCC
evaluating their EEO programs, and each station's performance will be reviewed
by the FCC at the mid-point of their renewal term and as part of the renewal
process. Stations with few employees are exempted from certain portions of the
FCC's EEO requirements. On January 16, 2001, the U.S. Court of Appeals for the
District of Columbia Circuit issued a decision which vacated the FCC EEO rule on
constitutional grounds. The Company cannot predict whether the FCC will appeal
that decision.
The FCC has promulgated a number of regulations prohibiting, with certain
exceptions, advertising relating to lotteries and casinos. The U.S. Court of
Appeals for the Ninth Circuit ruled that the advertising limits on casino
advertising are unconstitutional and therefore invalid. In June 1999, the U.S.
Supreme Court held that current federal law cannot be applied under the First
Amendment to prohibit advertisements of lawful private casino gambling on
broadcast stations located in Louisiana. The Supreme Court's holding, however,
did not specifically address any similar state law prohibitions. In
September 1999, the FCC released a Public Notice indicating that, in the U.S.
Government's brief in a case before the U.S. Court of Appeals for the Third
Circuit, the Government, in light of the Supreme Court's reasoning, has
concluded that 18 U.S.C. Section 1304 (broadcasting lottery information), as
currently written, may not constitutionally be applied to truthful
advertisements for lawful casino gambling, regardless of whether the broadcaster
who transmits the advertisement is located in a state that permits casino
gambling or a state that prohibits it. The FCC has not withdrawn its
September 1999 Public Notice or otherwise reconsidered its position as set forth
in that Public Notice. The FCC does not interpret the decisions of these Courts
as applying to forms of lotteries other than casino gambling, however. Moreover,
none of these Court decisions specifically address any state law prohibitions on
the broadcast advertising of lottery information within their borders. If state
law prohibits such advertising, it is the FCC's position that such state
prohibition will control notwithstanding these decisions interpreting federal
law.
The advertising of cigarettes or smokeless tobacco products on broadcast
stations is banned by federal law. Certain Congressional committees have
examined legislative proposals to eliminate or severely restrict the broadcast
advertising of alcoholic beverages, including beer and wine, but such
advertising is not currently prohibited.
In late 1998, the FCC adopted rules requiring that 100% of all new
English-language video programming be closed captioned by January 2006, and all
new Spanish-language programming be closed captioned by January 2010. The FCC
was required to develop closed captioning rules by the Telecom Act. English and
Spanish language programming first exhibited prior to January 1, 1998 is subject
to different compliance schedules. Certain station and programming categories
are exempt from the closed captioning rules, including stations or programming
for which the captioning requirement has been waived by the FCC after a showing
of undue burden has been made.
24
On July 21, 2000, the FCC adopted rules which require, effective April 1,
2003, that television broadcast stations affiliated with the ABC, NBC, CBS and
Fox networks in the top 25 DMAs provide a minimum of 50 hours per calendar
quarter of described prime time and/or children's programming, and to "pass
through" any video description it receives from a programming provider if
technically capable of doing so. Video description, which is intended to help
the visually impaired, involves the insertion into a TV program of narrated
descriptions of settings and actions that are not otherwise reflected in the
dialogue, such as the movement of a person in the scenes, and is to be provided
through the use of the Secondary Audio Programming ("SAP") channel, which is
currently used by some broadcasters to provide simultaneous transmission of
dialogue in an alternative language. In addition, all stations providing local
emergency information as part of a regularly scheduled newscast, or as part of a
newscast that interrupts regularly scheduled programming, will be required to
make the critical details of this information accessible to persons with visual
disabilities in the local area, and all stations providing emergency information
through a "crawl" or a "scroll" will be required to accompany that information
with an aural tone to alert persons with visual disabilities. The FCC did adopt
an exemption for those showing it was be an undue burden to comply.
The Telecom Act requires that any newly manufactured television set with a
picture screen of 13 inches or greater be equipped with a feature designed to
enable viewers to block all programs with a certain violence rating (the
"v-chip"). In an Order adopted March 12, 1998, the FCC required that at least
one-half of all television receiver models with screen sizes 13 inches or
greater produced after July 1, 1999 have the v-chip technology installed, and
that all such television receivers have v-chips by January 1, 2000. The
television industry has adopted, effective January 1, 1997, and subsequently
revised, effective August 1, 1997, a voluntarily rating scheme regarding
violence and sexual content contained in television programs. The March 12, 1998
order found that the industry scheme meets the standards of the Telecom Act. The
Company cannot predict whether the v-chip and a ratings system will have any
significant effect on the operations of its business.
Under certain circumstances, broadcast stations currently are required to
provide political candidates with discounted air time in the form of lowest unit
rates. A number of changes have been proposed before Congress to mandate public
service obligations on broadcast stations such as the provision of free or
discounted air time for political candidates. The Company is unable to predict
the outcome of this debate regarding political advertising and campaign finance
reform.
Congress and the FCC currently have under consideration, and may in the
future adopt, new laws, regulations and policies regarding a wide variety of
matters that could affect, directly or indirectly, the operation and ownership
of the Company's broadcast properties. In addition to the changes and proposed
changes noted above, such matters include, for example, spectrum use fees,
political advertising rates and potential restrictions on the advertising of
certain products (for example, hard liquor, beer and wine). Other matters that
could affect the Company's broadcast properties include assignment by the FCC of
channels for additional broadcast stations or wireless cable systems, as well as
technological innovations and developments generally affecting competition in
the mass communications industry.
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act, or the Telecom Act, or of the regulations
and policies of the FCC thereunder. Proposals for additional or revised
regulations and requirements are pending before and are being considered by
Congress and federal regulatory agencies from time to time. Management is unable
at this time to predict the outcome of any of the pending FCC rulemaking
proceedings referenced above, the outcome of any reconsideration or appellate
proceedings concerning any changes in FCC rules or policies noted above, the
possible outcome of any proposed or pending Congressional legislation, or the
impact of any of those changes on the Company's broadcast operations.
25
ITEM 2. PROPERTIES
The principal buildings owned or leased by the Company are described below:
PRINCIPAL PROPERTIES OF THE COMPANY(1)
AGGREGATE
SIZE OF PROPERTY OWNED LEASE
IN SQUARE FEET OR EXPIRATION
LOCATION (APPROXIMATE) LEASED DATE
- -------- ---------------- -------- ----------
Miami, FL................................................ 204,039 Owned --
Miami, FL................................................ 276,544 Leased 12/31/04(2)
Los Angeles, CA.......................................... 73,585 Leased 9/30/02(3)
New York, NY............................................. 63,500 Leased 6/30/10(2)
Teaneck, NJ.............................................. 47,617 Leased 7/31/12(2)
- ------------------------
(1) For additional information see Note 6 to consolidated financial statements.
(2) Option to renew available.
(3) The Company will not renew its lease at this location as explained below.
In November 1999, the Company entered into a 20-year lease for a five-story
building with approximately 164,000 square feet for the relocation of its
flagship station and certain corporate functions in Los Angeles. The building
will be constructed and owned by the landlord, with occupancy of the premises
expected during the latter part of 2001. The sum of the lease payments will be
approximately $103,000,000 over 20 years beginning on the expected lease
commencement date of September 30, 2001. The lease has been capitalized by the
Company for $46,584,000.
The Miami owned facility houses Network administration, operations
(including the Network's uplink facility), sales, production, news, Galavision
operations and WLTV, the Miami station. The Company broadcasts its programs to
the Company's affiliates on three separate satellites from four transponders,
one of which is owned and three of which are leased pursuant to two lease
agreements that expire in 2012.
The Company owns or leases remote antenna space and microwave transmitter
space near each of the O&Os. Additionally, the Company leases space in public
warehouses and storage facilities, as needed, near some of the O&Os.
The Company believes that its principal properties, whether owned or leased,
are suitable and adequate for the purposes for which they are used and are
suitably maintained for such purposes. Except for the inability to renew any
leases of property on which antenna towers stand or under which the Company
leases transponders (neither of which are known risks), the inability to renew
any lease would not have a material adverse effect on the Company's financial
condition or results of operations since the Company believes alternative space
on reasonable terms is available in each city.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain litigation arising in the ordinary course
of business. Management has accrued amounts it believes are reasonable and any
amounts in excess of those accruals, either alone or in the aggregate, would not
be material to the Company. See Note 8 to Notes to Consolidated Financial
Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
26
EXECUTIVE OFFICERS
The executive officers of the Company serve at the discretion of its Board
of Directors subject to certain employment agreements. Messrs. Blank, Rodriguez
and Kranwinkle have employment agreements with the Company.
The executive officers of the Company are as follows:
NAME AGE POSITION
- ---------------------------- -------- --------------------------------------------------------
A. Jerrold Perenchio 70 Chairman of the Board and Chief Executive Officer
George W. Blank 49 Executive Vice President and Chief Financial Officer
Robert V. Cahill 69 Vice President and Secretary
C. Douglas Kranwinkle 60 Executive Vice President and General Counsel
Ray Rodriguez 50 President and Chief Operating Officer of the Network
- ------------------------
Mr. A. Jerrold Perenchio has been Chairman of the Board and Chief Executive
Officer of the Company since December 1992. From December 1992 through
January 1997, he was also the Company's President. Mr. Perenchio has owned and
been active in Chartwell Partners LLC since it was formed in 1983. Chartwell
Partners LLC is an investment firm that is active in the media and
communications industry. A. Jerrold Perenchio is John G. Perenchio's father.
Mr. Blank has been Executive Vice President and Chief Financial Officer of
UTG since December 1992 and Chief Financial Officer of the Network since 1995.
Mr. Blank joined Hallmark Cards Incorporated in March 1987 as a consultant. In
September 1987, he became Vice President, Finance and Chief Financial Officer of
Univision Holdings, Inc., the Company's predecessor.
Mr. Cahill has been the Secretary and a Vice President of the Company since
December 1992. Mr. Cahill has been Executive Vice President and General Counsel
of Chartwell Partners, an affiliate of Mr. Perenchio, since 1985. While at
Chartwell Partners, he has also been the Vice President of various other
corporations and partnerships affiliated with Perenchio that, among other
things, engage in businesses in the media and communications industry.
Mr. Cahill has been an associate of Mr. Perenchio for over 25 years.
Mr. Kranwinkle has been the Executive Vice President and General Counsel of
the Company since September 2000. From January 1989 until September 2000,
Mr. Kranwinkle was a partner of O'Melveny & Myers LLP, a law firm. While at
O'Melveny & Myers LLP, Mr. Kranwinkle was the head of its Capital Markets Group
from February 1990 until December 1993, the managing partner of its New York
office from December 1993 until June 1997, and its managing partner from
April 1996 until September 2000.
Mr. Rodriguez has been President and Chief Operating Officer of the Network
since December 1992. In August 1990, Mr. Rodriguez joined the Network's
predecessor as Vice President and Director of Talent Relations. In
September 1991, he became Senior Vice President and Operating Manager of the
Network's predecessor. In May 1992, Mr. Rodriguez became President and Chief
Executive Officer of the Company's predecessor.
27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The Company's Class A Common Stock is listed on the New York Stock Exchange and
is traded under the symbol "UVN". The table below lists the high and low sales
prices for the Class A Common Stock as reported on the New York Stock Exchange
for each full quarterly period within the two most recent fiscal years.
PRICE RANGE
-------------------------
HIGH LOW
-------- --------
1999
First Quarter............................................. $25 3/8 $17 1/16
Second Quarter............................................ $33 1/16 $24 13/16
Third Quarter............................................. $43 3/8 $32 5/8
Fourth Quarter............................................ $51 19/32 $39 7/16
2000
First Quarter............................................. $57 7/32 $44 1/32
Second Quarter............................................ $57 25/32 $46 1/4
Third Quarter............................................. $62 11/16 $33 1/16
Fourth Quarter............................................ $43 15/16 $24
(b) HOLDERS
At February 5, 2001, the approximate number of stockholders of record of the
Company's Class A Common Stock was 178.
(c) CASH DIVIDENDS
No cash Common Stock dividends were distributed during 2000 by the Company. The
Company has never declared or paid dividends on its Common Stock. The bank
facility restricts the payment of cash dividends on the common stock. In
addition to any other approval required by law, so long as Televisa or
Venevision hold any warrants, the approval of the director elected by it is
required for the Company to pay any dividends on the common stock. Since
dividends are not payable on the warrants held by each of Televisa and
Venevision, such approval is unlikely so long as such warrants are held by
Televisa and Venevision. The Company currently intends to retain any earnings
for use in its business and does not anticipate paying any cash dividends on its
common stock in the foreseeable future. Future dividend policy will depend on
the Company's earnings, capital requirements, financial condition and other
factors considered relevant by the Board of Directors.
28
ITEM 6. SELECTED FINANCIAL DATA
Presented below is the selected historical financial data of Univision
Communications Inc.
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCE