SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-8411
UNITED TELEVISION, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-0778377
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
132 S. Rodeo Drive, Fourth Floor,
Beverly Hills, California 90212
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 281-4844
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(Title of class)
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. [ ]
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The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of February 28, 1998, was approximately $383,825,000.
As of February 28, 1998, there were 9,372,673 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The documents incorporated by reference into this Form 10-K and the Parts
hereof into which such documents are incorporated are listed below:
Document Part
Those portions of the
registrant's annual
report to stockholders
for the fiscal year ended
December 31, 1997 (the
"Annual Report") that are
specifically identified
herein as incorporated by
reference into this Form
10-K. II
Those portions of the
registrant's proxy
statement for the
registrant's 1998 Annual
Meeting (the "Proxy
Statement") that are
specifically identified
herein as incorporated by
reference into this Form
10-K. III
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PART I
ITEM 1. BUSINESS.
General
United Television, Inc. ("UTV"), the registrant, was organized in 1956 under
the laws of the State of Delaware. UTV is the majority owned (58.8% at
February 28, 1998) subsidiary of BHC Communications, Inc. ("BHC"), which is a
majority owned (78.8% at February 28, 1998) subsidiary of Chris-Craft
Industries, Inc. ("Chris-Craft"). UTV operates six of BHC's nine television
stations that comprise Chris-Craft's Television Division.
At February 28, 1998, UTV had 559 full-time employees and 76 part-time
employees.
On January 20, 1998, UTV acquired the assets of a UHF television station in
Baltimore, Maryland, at which time the station's call letters were changed to
WUTB, and the station became an affiliate of the United Paramount Network
("UPN"), a fifth broadcast television network which is 50% - owned by BHC. In
October 1997, UTV agreed to purchase the assets of UHF television station WRBW
in Orlando, Florida for $60,000,000 and possible future consideration. The
acquisition is subject to approval by the Federal Communications Commission and
other conditions.
Television Broadcasting
UTV operates three very high frequency ("VHF") television stations and three
ultra high frequency ("UHF") television stations. Commercial television
broadcasting in the United States is conducted on 68 channels numbered 2
through 69. Channels 2 through 13 are in the VHF band, and channels 14 through
69 are in the UHF band. In general, UHF stations are at a disadvantage
relative to VHF stations, because UHF frequencies are more difficult for
households to receive. This disadvantage is eliminated when a viewer receives
the UHF station through a cable system.
Commercial broadcast television stations may be either affiliated with one
of the three major national networks (ABC, NBC and CBS); three more recently
established national networks (Fox Broadcasting Company ("Fox"), United
Paramount Network ("UPN"), and The WB Network ("WB")), which provide
substantially fewer hours of programming; or may be independent.
The following table sets forth certain information with respect to UTV
stations and their respective markets:
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Total
Commercial
Network DMA TV Stations DMA Cable
Station and Affiliation/ House- DMA Operating in TV Pene-
Location Channel Holds(a) Rank (a) Market (b) tration(c)
- ------------ ------------ -------- -------- ------------ ----------
KMSP
Minneapolis/
St. Paul UPN 9 1,448,100 14th 4VHF 52%
3UHF
KTVX
Salt Lake
City ABC 4 690,310 36th 4VHF 56%
2UHF
KMOL
San Antonio NBC 4 648,550 38th 3VHF 65%
3UHF
KBHK
San Francisco UPN 44 2,297,880 5th 4VHF 71%
10UHF
WUTB
Baltimore UPN 24 988,040 23rd 3VHF 65%
3UHF
KUTP
Phoenix UPN 45 1,289,210 17th 4VHF 59%
4UHF
_______________
(a) Designated Market Area ("DMA") is an exclusive geographic area
consisting of all counties in which the home-market commercial stations
received a preponderance of total viewing hours. The ranking shown is
the nationwide rank, in terms of television households in DMA, of the
market served by the station. Source: Nielsen Media Research
television households universe estimates.
(b) Additional channels have been allocated by the Federal Communications
Commission ("FCC") for activation as commercial television stations in
certain of these markets. Also, additional stations may be located
within the respective DMAs of UTV stations but outside the greater
metropolitan television markets in which UTV stations operate.
(c) Cable penetration refers to the percentage of DMA television viewing
households receiving cable television service, as estimated by Nielsen
Media Research.
Television stations derive their revenues primarily from selling
advertising time. The television advertising sales market consists primarily
of national network advertising, national spot advertising and local spot
advertising. An advertiser wishing to reach a nationwide audience usually
purchases advertising time directly from the national networks, "superstations"
(i.e., broadcast stations carried by cable operators in areas outside their
broadcast coverage area), barter program syndicators, national basic cable
networks, or "unwired" networks (groups of otherwise unrelated stations whose
advertising time is combined for national sale). A national advertiser wishing
to reach a particular regional or local audience usually buys advertising time
from local stations through national advertising sales representative firms
having contractual arrangements with local stations to solicit such
advertising. Local businesses generally purchase advertising from the
stations' local sales staffs.
Television stations compete for television advertising revenue primarily
with other television stations and cable television channels serving the same
DMA. There are 211 DMAs in the United States. DMAs are ranked annually by the
estimated number of households owning a television set within the DMA.
Advertising rates that
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a television station can command vary in part with the size, in terms of
television households, of the DMA served by the station.
Within a DMA, the advertising rates charged by competing stations depend
primarily on four factors: the stations' program ratings, the time of day the
advertising will run, the demographic qualities of a program's viewers
(primarily age and sex), and the amount of each station's inventory. Ratings
data for television markets are measured by A.C. Nielsen Company ("Nielsen").
This rating service uses two terms to quantify a station's audience: rating
points and share points. A rating point represents one percent of all
television households in the entire DMA tuned to a particular station, and a
share point represents one percent of all television households within the DMA
actually using at least one television set at the time of measurement and tuned
to the station in question.
Because the major networks regularly provide first-run programming
during prime time viewing hours (in general, 8:00 P.M. to 11:00 P.M.
Eastern/Pacific time), their affiliates generally (but do not always) achieve
higher audience shares, but have substantially less advertising time
("inventory") to sell, during those hours, than affiliates of the newer
networks or independent stations, since the major networks use almost all of
their affiliates' prime time inventory for network programming. Although the
newer networks generally use the same amount of their affiliates' inventory
during network broadcasts, the newer networks provide less programming;
accordingly, their affiliates, as well as non-affiliated stations, generally
have substantially more inventory for sale than the major-network affiliates.
The newer network affiliates' and independent stations' smaller audiences and
greater inventory during prime time hours generally result in lower advertising
rates charged and more advertising time sold during those hours, as compared
with major affiliates' larger audiences and limited inventory, which generally
allow the major-network affiliates to charge higher advertising rates for prime
time programming. By selling more advertising time, the new-network or
independent station typically achieves a share of advertising revenues in its
market greater than its audience ratings. On the other hand, total programming
costs for such a station, because it broadcasts more syndicated programming
than a major-network affiliate, are generally higher than those of a major-
network affiliate in the same market. These differences have been reduced by
the growth of the Fox network, which currently provides 15 weekly hours of
programming during prime time and additional programming in other periods, and
are being reduced further as the other newer networks provide expanded
schedules of programming.
Programming
UTV's UPN stations depend heavily on independent third parties for
programming, as do KTVX and KMOL for their non-network broadcasts. Recognizing
the need to have a more direct influence on the quality of programming
available to its stations, and desiring to participate in potential profits
through national syndication of programming, UTV has begun to invest directly
in the development of original programming. The aggregate amount invested in
original programming through December 31, 1997 was not significant to UTV's
financial position. UTV television stations also produce programming directed
to meet the needs and interests of the area served, such as local news and
events, public affairs programming, children's programming and sports.
The terms of UPN's primary affiliate station agreements range up to ten
and a half years and provide commercial time to the stations as consideration
for broadcasting the network's programming.
Programs obtained from independent sources consist principally of
syndicated television shows, many of which have been shown previously on a
major network, and syndicated feature films, which were either made for network
television or have been exhibited previously in motion picture theaters (most
of which films have been shown previously on network or cable television).
Syndicated programs are sold to individual stations to be broadcast one or more
times. Television stations not affiliated with a major network generally have
large numbers of syndication contracts; each contract is a license for a
particular series or program that usually prohibits licensing the same
programming to other television stations in the same market. A single
syndication source may provide a number of different series or programs.
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Licenses for syndicated programs are often offered for cash sale (i.e.,
without any barter element) to stations; however, some are offered on a barter
or cash plus barter basis. In the case of a cash sale, the station purchases
the right to broadcast the program, or a series of programs, and sells
advertising time during the broadcast. The cash price of such programming
varies, depending on the perceived desirability of the program and whether it
comes with commercials that must be broadcast (i.e., on a cash plus barter
basis). Barter programming is offered to stations for no cash consideration,
but comes with a greater number of commercials that must be broadcast, and
therefore, with less inventory.
Barter and cash plus barter programming reduce both the amount of cash
required for program purchases and the amount of time available for sale.
Although the direct impact on broadcasters' operating income generally is
believed to be neutral, program distributors that acquire barter air time
compete with television stations and broadcasting networks for sales of air
time. UTV believes that the effect of barter on its television stations is not
significantly different from its impact on the industry as a whole.
UTV television stations are frequently required to make substantial
financial commitments to obtain syndicated programming while such programming
is still being broadcast by another network and before it is available for
broadcast by UTV stations, or even before it has been produced. Generally,
syndication contracts require the station to acquire an entire program series,
before the number of episodes of original showings that will be produced has
been determined. While analyses of network audiences are used in estimating
the value and potential profitability of such programming, there is no
assurance that a successful network program will continue to be successful or
profitable when broadcast after initial network airing.
Pursuant to generally accepted accounting principles, commitments for
programming not available for broadcast are not recorded as liabilities until
the programming becomes available for broadcast, at which time the related
contract right is also recorded as an asset. UTV television stations had
unamortized film contract rights for programming available for telecasting and
deposits on film contracts for programming not available for telecasting
aggregating $29,144,000 as of December 31, 1997. The stations were committed
for film and sports rights contracts aggregating $78,958,000 for programming
not available for broadcasting as of that date. License periods for particular
programs or films generally run from one to five years. Long-term contracts
for the broadcast of syndicated television series generally provide for an
initial telecast and subsequent reruns for a period of years, with full payment
to be made by the station over a period of time shorter than the rerun period.
See Notes 1(E), 3 and 9 of Notes to Consolidated Financial Statements.
KTVX and KMOL are primary affiliates of their respective networks.
Network programs are produced either by the networks themselves or by
independent production companies and are transmitted by the networks to their
affiliated stations for broadcast.
Most networks have begun to enter into affiliation agreements for terms
as long as ten years. UTV has entered into a 10-year affiliation agreement for
KTVX. The term of KMOL's affiliation agreement automatically renews for two
year periods, unless either party notifies the other that the affiliation will
not be renewed. Current FCC rules do not limit the duration of affiliation
agreements.
An affiliation agreement gives the affiliate the right to broadcast all
programs transmitted by the network. The affiliate must run in its entirety,
together with all network commercials, any network programming the affiliate
elects or is required to broadcast, and is allowed to broadcast a limited
number of commercials it has sold. For each hour of programming broadcast by
the affiliate, the major networks generally have paid their affiliates a fee,
specified in the agreement (although subject to change by the network), which
varies in amount depending on the time of day during which the program is
broadcast and other factors. Prime time programming generally earns the highest
fee. A network may, and sometimes does, designate certain programs to be
broadcast with no compensation to the station.
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Subject to certain limitations contained in the affiliation agreement,
an affiliate may accept or reject a program offered by the network and instead
broadcast programming from another source. Rejection of a program may give the
network the right to offer that program to another station in the area.
Sources of Revenue
The principal source of revenues for UTV stations is the sale of
advertising time to national and local advertisers. Such time sales are
represented by spot announcements purchased to run between programs and program
segments and by program sponsorship. The relative contributions of national
and local advertising to UTV's gross cash advertising revenues vary from time
to time. Most advertising contracts are short-term. Like that of the
television broadcasting business generally, UTV's television business is
seasonal. In terms of revenues, generally the fourth quarter is strongest,
followed by the second, third and first.
Advertising is generally placed with UTV stations through advertising
agencies, which are allowed a commission generally equal to 15% of the price of
advertising placed. National advertising time is usually sold through a
national sales representative, which also receives a commission, while local
advertising time is sold by each station's sales staff. UTV has established a
national sales representative organization, United Television Sales, Inc.
("UTS"), to represent, initially, all UTV and BHC stations. Practices with
respect to sale of advertising time do not differ markedly between UTV's major
network and UPN stations, although the major-network affiliated stations have
less inventory to sell.
Government Regulation
Television broadcasting operations are subject to the jurisdiction of
the FCC under the Communications Act of 1934, as amended (the "Communications
Act"). The Communications Act empowers the FCC, among other things, to issue,
revoke or modify broadcast licenses, to assign frequencies, to determine the
locations of stations, to regulate the broadcasting equipment used by stations,
to establish areas to be served, to adopt such regulations as may be necessary
to carry out the provisions of the Communications Act and to impose certain
penalties for violation of its regulations. UTV television stations are
subject to a wide range of technical, reporting and operational requirements
imposed by the Communications Act or by FCC rules and policies. The
Communications Act was recently and substantially amended by the
Telecommunications Act of 1996 (the "Telecom Act") and by the Budget
Reconciliation Act of 1997, some provisions of which have been incorporated
into the FCC's rules and regulations during the past year, and other provisions
of which will be incorporated over the next several months.
The Communications Act provides that a license may be granted to any
applicant if the public interest, convenience and necessity will be served
thereby, subject to certain limitations, including the requirement that the FCC
allocate licenses, frequencies, hours of operation and power in a manner that
will provide a fair, efficient and equitable distribution of service throughout
the United States. Television licenses generally have been issued for five-
year terms, but the Telecom Act permits the FCC to issue such licenses and
their renewals for up to eight years. Upon application, and in the absence of
adverse questions as to the licensee's qualifications or operations, television
licenses have usually been renewed for additional terms without a hearing by
the FCC. An existing license automatically continues in effect once a timely
renewal application has been filed until a final FCC decision is issued.
KMSP UPN 9's license renewal was granted on April 15, 1993, and is due
to expire on April 1, 1998. A renewal application for KMSP was timely filed on
December 1, 1997, and remains pending. On March 2, 1998, Lakeland Group
Television, Inc., licensee of television station KGLT, Minneapolis, Minnesota,
filed a petition to deny the KMSP renewal unless and until UTV permits KGLT's
antenna to remain on UTV's television tower on reasonable and equitable terms.
UTV intends to vigorously oppose the petition, which it does not believe will
have a material adverse effect on UTV's license for KMSP. KTVX's license
renewal was granted on September 29,
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1993, and is due to expire on October 1, 1998. KUTP UPN 45's license renewal
was granted on March 28, 1994, and is due to expire on October 1, 1998. KBHK
UPN 44's license renewal was granted on October 2, 1995, and is due to expire
on December 1, 1998. KMOL's license renewal was granted on August 18, 1995,
and is due to expire on August 1, 1998; its renewal application is due to be
filed on April 1, 1998. WUTB UPN 24's license was assigned to UTV of
Baltimore, Inc., a subsidiary of UTV, on January 20, 1998 and is due to expire
on October 1, 2001.
Under existing FCC regulations governing multiple ownership of broadcast
stations, a license to operate a television station generally will not be
granted to any party (or parties under common control), if such party directly
or indirectly owns, operates, controls or has an attributable interest in
another television or radio station serving the same market or area. The FCC,
however, is favorably disposed to grant waivers of this rule for radio station-
television station ownership combinations in the top 25 television markets, in
which there will be at least 30 separately owned, operated and controlled
broadcast stations, and in certain other circumstances. The Telecom Act
directs the FCC to extend this waiver policy to the top 50 markets, consistent
with the public interest, and to conduct a rule-making proceeding to determine
whether to retain or modify the current restriction on same-market multiple
television station ownership.
FCC regulations further provide that a broadcast license will not be
granted if that grant would result in a concentration of control of radio and
television broadcasting in a manner inconsistent with the public interest,
convenience or necessity. FCC rules deem such concentration of control to
exist if any party, or any of its officers, directors or stockholders, directly
or indirectly, owned, operated, controlled or had an attributable interest in
television stations capable of reaching, in the aggregate, a maximum of 35% of
the national audience. This percentage is determined by the DMA market
rankings of the percentage of the nation's television households considered
within each market. Because of certain limitations of the UHF signal, however,
the FCC will attribute only 50% of a market's DMA reach to owners of UHF
stations for the purpose of calculating the audience reach limits. Applying
the 50% reach attribution rule to UHF stations KBHK UPN 44, KUTP UPN 45 and
WUTB UPN 24, the nine BHC stations are deemed to reach approximately 18% of the
nation's television households. The FCC is considering whether to eliminate
the 50% attribution reduction under this rule for UHF stations.
The FCC's multiple ownership rules require the attribution of the
licenses held by a broadcasting company to its officers, directors and certain
of its stockholders, so there would ordinarily be a violation of FCC
regulations where an officer, director or such a stockholder and a television
broadcasting company together hold interests in stations exceeding the maximum
audience reach or more than one station that serves the same area. In the case
of a corporation controlling or operating television stations, such as UTV,
there is attribution only to stockholders who own 5% or more of the voting
stock, except for institutional investors, including mutual funds, insurance
companies and banks acting in a fiduciary capacity, which may own up to 10% of
the voting stock without being subject to such attribution, provided that such
entities exercise no control over the management or policies of the
broadcasting company.
The FCC has begun a proceeding to consider modification of the various
TV ownership restrictions described above, as well as changes in the rules for
attributing the licenses held by an enterprise to various parties. UTV cannot
predict the outcome of the FCC proceedings.
FCC regulations currently prevent a national sales representative
organization, such as UTS, which is commonly owned with a national network such
as UPN, from representing affiliates of that network other than affiliates that
are also under common ownership with the network. FCC regulations also place
restrictions on provisions of agreements between networks and their affiliates
relating to network exclusivity, territorial exclusivity, time optioning, and
pre-emption rights. The FCC is conducting rule-making proceedings to consider
whether to retain, modify, or eliminate these regulations. UTV is unable to
predict the outcome of these proceedings.
As required by the Telecom Act, the FCC recently amended another of its
regulations, the dual network rule, which generally had prohibited common
ownership or control of two television broadcast networks.
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Ownership and control of two or more such networks will now be permitted,
except for common ownership or control between two of ABC, NBC, CBS, and Fox,
or any one of those four networks and either UPN or WB.
The Telecom Act directed the FCC to conduct a rule-making proceeding to
require the inclusion, in all television sets 13 inches or larger, of a feature
(commonly referred to as the V-Chip) designed to enable viewers to block
display of programs carrying a common rating and authorized the FCC to
establish an advisory committee to recommend a system for rating video
programming that contains sexual, violent, or other indecent material about
which parents should be informed, before it is displayed to children, if the
television industry does not establish a satisfactory voluntary rating system
of its own. On March 12, 1998, the FCC voted to accept an industry proposal
providing for a voluntary ratings system of "TV Parental Guidelines" under
which all video programming will be designated in one of six categories in
order to permit the electronic blocking of selected video programming. The FCC
has begun a separate proceeding to address technical issues related to the "V-
Chip." The FCC has directed that all television receiver models with picture
screens 13 inches or greater be equipped with "V-Chip" technology under a
phased implementation beginning on July 1, 1999. UTV cannot predict how
changes in the implementation of the ratings system and "V-Chip" technology
will affect UTV's business. The Telecom Act also directed the FCC to adopt
regulations requiring increased closed-captioning of video programming, and the
FCC recently did so. Subject to various exemptions, television stations will
be required to begin broadcasting specified amounts or a specified percentage
of new programs with closed captioning in the year 2000 and specified
percentages of pre-rule programming commencing in the year 2008.
FCC regulations prohibit the holder of an attributable interest in a
television station from having an attributable interest in a cable television
system located within the predicted coverage area of that station. FCC
regulations also prohibit the holder of an attributable interest in a
television station from having an attributable interest in a daily newspaper
located within the predicted coverage area of that station. The FCC intends to
conduct a rule-making proceeding to consider possible modification of this
latter regulation.
FCC regulations implementing the Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act") require each television
broadcaster to elect, at three-year intervals beginning June 17, 1993, either
to (i) require carriage of its signal by cable systems in the station's market
("must-carry") or (ii) negotiate the terms on which such broadcast station
would permit transmission of its signal by the cable systems within its market
("retransmission consent"). In June 1997, the U.S. Supreme Court upheld the
constitutionality of the must-carry provisions.
On August 8, 1996, under the Children's Television Act of 1990 (the
"CTA"), the FCC amended its rules to establish a "processing guideline" for
broadcast television stations, of at least three hours per week, averaged over
a six-month period, of "programming that furthers the educational and
informational needs of children 16 and under in any respect, including the
child's intellectual/cognitive or social/emotional needs." Children's "Core
Programming" has been defined as educational and informational programming
that, among other things (i) has serving the educational and informational
needs of children "as a significant purpose," (ii) has a specified educational
and informational objective and a specified target child audience, (iii) is
regularly scheduled, weekly programming, (iv) is at least 30 minutes in length,
and (v) airs between 7:00 a.m. and 10:00 p.m. Any station that satisfied the
processing guideline by broadcasting at least three weekly hours of Core
Programming will receive FCC staff-level approval of the portion of its license
renewal application pertaining to the CTA. Alternatively, a station may
qualify for staff-level approval even if it broadcasts "somewhat less" than
three hours per week of Core Programming by demonstrating that it has aired a
weekly package of different types of educational and informational programming
that is "at least equivalent" to three hours of Core Programming. Non-Core
Programming that can qualify under this alternative includes specials, public
service announcements, short-form programs and regularly scheduled non-weekly
programs, with "a significant purpose of educating and informing children." A
licensee that does not meet the processing guidelines under either of these
alternatives will be referred by the FCC's staff to the Commissioners of the
FCC, who will evaluate the licensee's compliance with the CTA on the basis of
both its programming and its other efforts related to children's educational
and informational programming, e.g., its
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sponsorship of Core Programming on other stations in the market, or nonbroadcast
activities "which enhance the value" of such programming. A television station
ultimately found not to have complied with the CTA could face sanctions
including monetary fines and the possible non-renewal of its broadcast license.
UTV believes that each of its stations currently meets the three-hour
programming guideline.
The FCC has taken a number of steps to implement digital television
service ("DTV") (including high definition) in the United States. In December
1996, the FCC adopted a DTV broadcast standard. On February 17, 1998, the FCC
affirmed an amended table of digital channel allotments and rules for the
implementation of DTV, initially adopted in 1997. The digital table of
allotments provides each existing television station licensee or permittee with
a second broadcast channel to be used during the transition to DTV, conditioned
upon the surrender of one of the channels at the end of the DTV transition
period. The DTV channels assigned to UTV television stations are as follows:
KBHK, channel 45; KMSP, channel 26; KMOL, channel 58; KTVX, channel 40; KUTP,
channel 26; and WUTB, channel 41. Implementation of DTV will improve the
technical quality of television. Furthermore, the implementing rules permit
broadcasters to use their assigned digital spectrum flexibly to provide either
standard or high-definition video signals and additional services, including,
for example, data transfer, subscription video, interactive materials, and
audio signals as long as they continue to provide at least one free, over-the-
air television service. However, the digital table of allotments was devised
on the basis of certain technical assumptions which have not been subjected to
extensive field testing and which, along with specific digital channel
assignments, may be subjected to further administrative and judicial review.
Conversion to DTV may reduce the geographic reach of the UTV television
stations or result in increased interference, with, in either case, a
corresponding loss of population coverage. DTV implementation will impose
additional costs on UTV, primarily due to the capital costs associated with
construction of DTV facilities and increased operating costs both during and
after the transition period. In addition, the Telecommunications Act requires
the FCC to assess and collect a fee for any use of a broadcaster's DTV channel
for which it receives subscription fees or other compensation other than
advertising revenue. The FCC has set a target date of 2006 for expiration of
the transition period, subject to biennial reviews to evaluate the progress of
DTV, including the rate of consumer acceptance. UTV expects that, during 1998,
its stations will begin converting to DTV. Future capital expenditures by UTV
will be compatible with the new technology whenever possible.
The FCC currently is reviewing certain of its rules governing the
relationship between broadcast television networks, including UPN, and their
affiliated stations. In a rulemaking proceeding, the FCC is examining its
rules prohibiting broadcast television networks from representing their
affiliated stations for the sale of non-network advertising time and from
influencing or controlling the rates set by their affiliates for the sale of
such time. Separately, the FCC is conducting a rulemaking proceeding to
consider relaxing or eliminating its rules prohibiting broadcast networks from
(i) restricting their affiliates' rights to reject network programming, (ii)
reserving an option to use specified amounts of their affiliates' broadcast
time, and (iii) forbidding their affiliates from broadcasting the programming
of another network; and to consider the relaxation of its rule prohibiting
network affiliated stations from preventing other stations from broadcasting
the programming of their network.
The Communications Act limits the amount of capital stock that aliens
(including their representatives, foreign governments, their representatives,
and entities organized under the laws of a foreign country) may own in a
television station licensee or any corporation directly or indirectly
controlling such licensee. No more than 20% of a licensee's capital stock and,
if the FCC so determines, no more than 25% of the capital stock of a company
controlling a licensee, may be owned, directly or indirectly, or voted by
aliens or their representatives. Should alien ownership exceed this limit, the
FCC may revoke or refuse to grant or renew a television station license or
approve the assignment or transfer of such license. UTV believes the ownership
by aliens of its stock to be below the applicable limit.
The Communications Act prohibits the assignment of a broadcast license
or the transfer of control of a licensee without the prior approval of the FCC.
Legislation was introduced in the past that would impose a transfer fee on
sales of broadcast properties. Although that legislation was not adopted,
similar proposals, or a general
10
<PAGE>
spectrum licensing fee, may be advanced and adopted in the future. Recent
legislation has imposed annual regulatory fees applicable to UTV stations,
currently ranging as high as $28,450 per station.
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act or regulations and policies of the FCC
thereunder. Reference is made to the Communications Act, such regulations and
the public notices promulgated by the FCC for further information.
Other Federal agencies, including principally the Federal Trade
Commission, also impose a variety of requirements that affect the business and
operations of broadcast stations. Proposals for additional or revised
requirements are considered by the FCC, other Federal agencies or Congress from
time to time. UTV cannot predict what new or revised Federal requirements may
result from such consideration or what impact, if any, such requirements might
have upon the operation of UTV television stations.
Competition
UTV television stations compete for advertising revenue in their
respective markets, primarily with other broadcast television stations and
cable television channels, and compete with other advertising media as well.
Such competition is intense.
In addition to programming, management ability and experience, technical
factors and television network affiliations are important in determining
competitive position. Competitive success of a television station depends
primarily on public response to the programs broadcast by the station in
relation to competing entertainment, and the results of this competition affect
the advertising revenues earned by the station from the sale of advertising
time.
Audience ratings provided by Nielsen have a direct bearing on the
competitive position of television stations. In general, major network
programs achieve higher ratings than other programs.
There are at least five other commercial television stations in each
market served by a UTV station. UTV believes that, in Minneapolis/St. Paul,
KMSP UPN 9 generally attracts a smaller viewing audience than the three major
VHF network-affiliated stations, but a larger viewing audience than the other
three stations, all of which are UHF stations. In Salt Lake City, in 1997,
KTVX ranked second of the six television stations in terms of audience share.
In San Antonio, in 1997, KMOL ranked second of the six stations in terms of
audience share. Of the 14 commercial television stations in San Francisco,
KBHK UPN 44, generally ranks fifth in terms of audience share, behind the three
major network-affiliated VHF television stations, and the VHF Fox affiliate.
KUTP UPN 45 generally ranks sixth in terms of audience share, of the eight
commercial stations in the Phoenix market. Prior to its acquisition by UTV in
January 1998, the Baltimore station operated as a Home Shopping Network
affiliate. As such, it did not compete in the Baltimore market for advertising
revenue.
UTV stations may face increased competition in the future from
additional television stations that may enter their respective markets. See
note (b) to the table under Television Broadcasting.
Cable television is a major competitor of television broadcasting
stations. Because cable television systems operate in each market served by a
UTV station, the stations are affected by rules governing cable operations. If
a station is not widely accessible by cable in those markets having strong
cable penetration, it may lose effective access to a significant portion of the
local audience. Even if a television station is carried on a local cable
system, an unfavorable channel or service tier position on the cable system may
adversely affect the station's audience ratings and, in some circumstances, a
television set's ability to receive the station being carried on an unfavorable
channel position. Some cable system operators may be inclined to place
broadcast stations in unfavorable channel locations.
While Federal law has until recently generally prohibited local
telephone companies from providing video programming to subscribers in their
service areas, this prohibition has been substantially eliminated by the
Telecom
11
<PAGE>
Act. The FCC has also recently adopted rules for "Open Video Systems"
- -- a new structure of video delivery system authorized by the Telecom Act for
provision by local telephone companies and, if permitted by the FCC, others.
UTV is unable to predict the outcome or effect of these developments.
"Syndicated exclusivity" rules allow television stations to prevent
local cable operators from importing distant television programming that
duplicates syndicated programming in which local stations have acquired
exclusive rights. In conjunction with these rules, network nonduplication
rules protect the exclusivity of major-network broadcast programming within the
local video marketplace. The FCC is also reviewing its "territorial
exclusivity" rule, which limits the area in which a broadcaster can obtain
exclusive rights to video programming. UTV believes that the competitive
position of UTV stations would likely be enhanced by an expansion of
broadcasters' permitted zones of exclusivity.
Alternative technologies could increase competition in the areas served
by UTV stations and, consequently, could adversely affect their profitability.
Four direct broadcast satellite ("DBS") systems currently provide service. The
number of subscribers to DBS services increased substantially during the last
three years, from approximately 600,000 at the end of 1994, to approximately
6.7 million as of February 1998. The emergence of home satellite dish antennas
has also made it possible for individuals to receive a host of video
programming options via satellite transmission. An additional challenge is now
posed by wireless cable systems, including multichannel distribution services
("MDS"). At the end of 1997, wireless cable systems served about 1.1 million
subscribers. Two four-channel MDS licenses have been granted in most
television markets. MDS operation can provide commercial programming on a paid
basis. A similar service can also be offered using the instructional
television fixed service ("ITFS"). The FCC now allows the educational entities
that hold ITFS licenses to lease their "excess" capacity for commercial
purposes. The multichannel capacity of ITFS could be combined with either an
existing single channel MDS or a newer multichannel multi-point distribution
service to increase the number of available channels offered by an individual
operator.
Technological developments in television transmission have created the
probability that one or more of the broadcast and nonbroadcast television media
will provide enhanced or "high definition" pictures and sound to the public of
a quality that is technically superior to that of the pictures and sound
currently available. It is not yet clear when and to what extent technology of
this kind will be available to the various television media; whether and how
television broadcast stations will be able to avail themselves of these various
improvements; whether all television broadcast stations will be afforded
sufficient spectrum to do so; whether viewing audiences will make choices among
services upon the basis of such differences; or, if they would, whether
significant additional expense would be required for television stations to
provide such services. Many segments of the television industry are
intensively studying digital television technology. UTV is unable to predict
the outcome of these developments.
The broadcasting industry is continuously faced with technological
changes, competing entertainment and communications media and governmental
restrictions or actions of Federal regulatory bodies, including the FCC. These
technological changes may include the introduction of digital compression by
cable systems that would significantly increase the number and availability of
cable program services with which UTV stations compete for audience and
revenue, the establishment of interactive video services, and the offering of
multimedia services that include data networks and other computer technologies.
Such factors have affected, and will continue to affect, the revenue growth and
profitability of UTV.
13
ITEM 2. PROPERTIES.
Physical facilities consisting of offices and studio facilities are
owned by UTV in Minneapolis, San Antonio and Phoenix and are leased in
Baltimore, Salt Lake City and San Francisco. The Baltimore lease expires in
March 2000. The Salt Lake City lease expires in August 1999 and is renewable,
at an increased rental, for two five-year periods. The San Francisco lease
expires in 2007.
The Minneapolis facility includes approximately 49,700 square feet of
space on a 5.63-acre site. The Salt Lake City facility is approximately 30,400
square feet on a 2.53-acre site. The Baltimore facility is approximately 7,800
square feet and is located in an office park in a suburb of Baltimore. The San
Antonio facility is approximately 41,000 square feet on a .92-acre site. The
San Francisco facility is approximately 27,700 square feet in downtown San
Francisco. The Phoenix facility is approximately 26,400 square feet on a 3.03-
acre site. Smaller buildings containing transmission equipment are owned by
UTV at sites separate from the studio facilities.
UTV owns a 55-acre tract in Shoreview, Minnesota, of which 40 acres are
used by KMSP for transmitter facilities and tower.
KTVX's transmitter facilities and tower are located at a site on Mt.
Nelson, close to Salt Lake City, under a lease that expires in 2004. KTVX also
maintains back-up transmitter facilities and tower at a site on nearby Mt.
Vision under a lease that expires in July 2002 and is renewable, at no increase
in rental, for a 50-year period.
KMOL's transmitter facilities are located at a site near San Antonio on
land and on a tower owned by Texas Tall Tower Corporation, a corporation owned
in equal shares by UTV and another television station that also transmits from
the same tower.
KBHK's transmitter is located on Mt. Sutro, as part of the Sutro Tower
complex, which also houses equipment for other San Francisco television
stations and many of its FM radio stations. The lease for the Mt. Sutro
facilities expires in 2005 and is renewable for two five year periods.
KUTP's transmitter facilities and tower are located on a site within
South Mountain Park, a communications park owned by the City of Phoenix, which
also contains transmitter facilities and towers for the other television
stations in Phoenix as well as facilities for several FM radio stations. The
license for this space expires in 2012.
WUTB's transmitter facilities are located on a site near Baltimore. The
building containing the transmitter, and the tower on which the antenna is
mounted, are shared with another television station. The lease for the tower
and building expires in December 1999, and is renewable for two five-year
periods.
UTV believes its properties are adequate for their present uses.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
13
EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of UTV, as of February 28, 1998, are as follows:
Has served
Positions with UTV; principal occupation; as officer
Name and age as of February 28, 1998 since
John C. Siegel Chairman of UTV and President, UTV of San
Francisco, Inc., which owns KBHK; Senior Vice
President, Chris-Craft; 45<PAGE>
1983
Evan C Thompson President and Chief Executive Officer;
Executive Vice President and President,
Television Division, Chris-Craft; 55 1983
Laurey J. Barnett Vice President and Director of Programming;
38 1987
Garth S. Lindsey Executive Vice President, Chief Financial
Officer and Secretary; 53 1977
Thomas L. Muir Treasurer and Controller; 49 1981
Chris-Craft, through its majority ownership of BHC, is principally engaged
in television broadcasting. The principal occupation of each of the individuals
for the past five years is stated in the foregoing table.
All officers hold office until the meeting of the Board following
the next annual meeting of stockholders or until removed by the Board.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information appearing in the Annual Report under the caption STOCK
PRICE, DIVIDEND AND RELATED INFORMATION is incorporated herein by this
reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information appearing in the Annual Report under the caption SELECTED
FINANCIAL DATA is incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information appearing in the Annual Report under the caption
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS is incorporated herein by this reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements, Notes thereto, Report of Independent
Accountants thereon and Quarterly Financial Information (unaudited) appearing in
the Annual Report are incorporated herein by this reference. Except as
specifically set forth herein and elsewhere in this Form 10-K, no information
appearing in the Annual Report is incorporated by reference into this report,
nor is the Annual Report, deemed to be filed, as part of this report or
otherwise, pursuant to the Securities Exchange Act of 1934.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information appearing in the Proxy Statement under the captions
ELECTION OF DIRECTORS--Nominees of the Board of Directors and ELECTION OF
DIRECTORS -- Section 16(a) Beneficial Ownership Compliance is incorporated
herein by this reference. Information relating to UTV's executive officers
is set forth in Part I under the caption EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing in the Proxy Statement under the caption ELECTION
OF DIRECTORS--Executive Compensation is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information appearing in the Proxy Statement under the caption ELECTION
OF DIRECTORS--Voting Securities of Certain Beneficial Owners and Management is
incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing in the Proxy Statement under the caption ELECTION
OF DIRECTORS--Certain Relationships and Related Transactions is incorporated
herein by this reference.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. The financial statements and quarterly financial information
incorporated by reference from the Annual Report pursuant to
Item 8.
2. The schedule and report of independent accountants thereon,
listed in the Index to Consolidated Financial Statements and
Schedules.
3. Exhibits listed in the Exhibit Index, including the
compensatory plans listed below:
* Benefit Equalization Plan
* 1988 Stock Option Plan
(b) No reports on Form 8-K were filed by the registrant during the
last quarter of the period covered by this report.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 27, 1998
UNITED TELEVISION, INC.
(Registrant)
By: EVAN C THOMPSON
Evan C Thompson
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature and Title Date
JOHN C. SIEGEL March 27, 1998
John C. Siegel
Chairman and Director
EVAN C THOMPSON March 27, 1998
Evan C Thompson
President, Chief Executive
Officer and Director
(principal executive
officer)
GARTH S. LINDSEY March 27, 1998
Garth S. Lindsey
Executive Vice President,
Chief Financial Officer
and Secretary (principal
financial and accounting
officer)
LAWRENCE R. BARNETT March 27, 1998
Lawrence R. Barnett
Vice Chairman and Director
18
<PAGE>
JOHN L. EASTMAN March 27, 1998
John L. Eastman
Director
JAMES D. HODGSON March 27, 1998
James D. Hodgson
Director
NORMAN PERLMUTTER March 27, 1998
Norman Perlmutter
Director
HOWARD F. ROYCROFT March 27, 1998
Howard F. Roycroft
Director
ROCCO C. SICILIANO March 27, 1998
Rocco C. Siciliano
Director
HERBERT J. SIEGEL March 27, 1998
Herbert J. Siegel
Director
19
<PAGE>
UNITED TELEVISION, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Income - For the Years
Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - For the Years
Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Investment - For
the Years Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
SCHEDULES:
Report of Independent Accountants on Financial Statement Schedule
II. Valuation and Qualifying Accounts
Schedules other than that listed above have been omitted since the
information is not applicable, not required, or is included in the
respective financial statements or notes thereto.
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
United Television, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 10, 1998 appearing on page 19 of the 1997 Annual Report to
Shareholders of United Television, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, the Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Century City, California
February 10, 1998
21
<PAGE>
Schedule II
UNITED TELEVISION, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- --------- -------- --------
Additions
------------------------
Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
Description of Period Expenses Accounts Deductions Period
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts $ 1,661 $ 342 $ --- $(258)(a) $ 1,745
Year ended December 31, 1996:
Allowance for doubtful accounts $ 1,690 $ 272 $ --- $(301)(a) $ 1,661
Year ended December 31, 1995:
Allowance for doubtful accounts $ 1,994 $ 232 $ --- $(536)(a) $ 1,690
(a) Accounts written off, net of recoveries.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference to: Exhibit No. Exhibit
- --------------- ----------- -------
<S> <C> <C>
Exhibit 3(a) [1] 3.1 Restated Certificate
of Incorporation
Exhibit 3.2 [8] 3.2 Restated By-Laws
Exhibit A to registrant's 10.1 1988 Stock Option Plan
Proxy Statement dated
March 23, 1988 (File
No. 0-9786)
Exhibit 10(a)(1) [7] 10.2 Amendment No. 1 thereto
Exhibit 10(i) [3] 10.3 Employment Agreement, dated
January 1, 1981, between
registrant and Garth S. Lindsey,
as amended
Exhibit 10(m) [3] 10.4 Employment Agreement, dated
January 1, 1981, between
registrant and Thomas L. Muir,
as amended
Exhibit 10(t) [4] 10.5 Note dated as of January 6, 1984
in the original principal amount
of $200,000 from Garth S.
Lindsey, as maker, to registrant,
as payee
Exhibit 10(n)(2) [5] 10.6 Revision and Extension Agreement
dated as of December 19, 1988
from Garth S. Lindsey, as maker,
to registrant, as payee
Exhibit 10(u) [4] 10.7 Note dated as of January 25, 1984
in the original principal amount
of $100,000 from Thomas L. Muir,
as maker, to registrant, as payee
Exhibit 10(o)(2) [5] 10.8 Revision and Extension Agreement
dated as of December 20, 1988
from Thomas L. Muir, as maker, to
registrant, as payee
Exhibit 10(s) [6] 10.9 Benefit Equalization Plan of
registrant
23
<PAGE>
Exhibit 10.10 [8] 10.10 Tax Sharing Agreement,
between UTV and BHC dated
Ocotber 21, 1996, effective
Janaury 1, 1995
Exhibit 10.1 [9] 10.11 Asset Purchase Agreement, dated
November 11, 1997, between
registrant, SKMD Broadcasting
Partnership and Silver King
Broadcasting of Maryland,
Inc. and Amendment No. 1
thereto
* 13 Portions of the Annual Report
incorporated by reference
* 21 Subsidiaries of registrant
* 23 Consent of Price Waterhouse LLP
* 27 Financial Data Schedule
_______________________
* Filed herewith.
[1] Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987.
[2] Registrant's Annual Report on Form 10-K for the year ended
December 31, 1984.
[3] Registrant's Annual Report on Form 10-K for the year ended
December 27, 1981.
[4] Registrant's Annual Report on Form 10-K for the year ended
December 31, 1983.
[5] Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988.
[6] Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989.
[7] Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991.
[8] Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.
[9] Registrant's report on Form 8-K dated February 12, 1998
23
</TABLE>
EXHIBIT 13
CONSOLIDATED STATEMENTS OF INCOME
UNITED TELEVISION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET REVENUES $170,963 $174,339 $165,559
-------- -------- --------
EXPENSES:
Operating 55,369 62,424 62,865
Selling, general and administrative 53,182 52,839 51,812
-------- -------- --------
108,551 115,263 114,677
-------- -------- --------
OPERATING INCOME 62,412 59,076 50,882
INTEREST AND OTHER INCOME 12,317 10,163 10,290
-------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 74,729 69,239 61,172
Provision for income taxes 29,750 27,500 24,300
-------- -------- --------
NET INCOME $ 44,979 $ 41,739 $ 36,872
======== ======== ========
EARNINGS PER SHARE:
Basic $ 4.80 $ 4.40 $ 3.78
Diluted $ 4.76 $ 4.36 $ 3.74
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Basic 9,379 9,485 9,757
Diluted 9,446 9,569 9,860
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNITED TELEVISION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROMOPERATING ACTIVITIES:
Net income $ 44,979 $ 41,739 $ 36,872
Adjustments to reconcile net income to net cash
provided from operating activities:
Film contract payments (25,547) (25,512) (25,023)
Film contract amortization 22,077 27,716 27,732
Depreciation and other amortization 4,592 4,611 4,655
Gain on dispositions of investments (448) (59) (738)
Changes in assets and liabilities:
Accounts receivable 643 1,378 (2,913)
Prepaid and other assets 97 (906) (1,491)
Accounts payable and accrued expenses 1,990 (507) 5,051
Income taxes payable (636) 3,233 (3,463)
--------- --------- ---------
Net cash provided from operating activities 47,747 51,693 40,682
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities 172,262 215,047 49,874
Sales of other investments -- 2,599 --
Purchases of marketable securities (137,501) (207,677) (82,004)
Purchases of other investments -- (20,193) --
Capital expenditures (2,625) (3,110) (2,807)
--------- --------- ---------
Net cash provided from (used in) investing activities 32,136 (13,334) (34,937)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend paid (4,687) (4,750) (4,911)
Proceeds from exercise of employee stock options 3,939 4,008 2,009
Purchases of treasury stock (2,755) (32,810) (30,449)
--------- --------- ---------
Net cash used in financing activities (3,503) (33,552) (33,351)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 76,380 4,807 (27,606)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 21,695 16,888 44,494
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 98,075 $ 21,695 $ 16,888
========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE>
CONSOLIDATED BALANCE SHEETS
UNITED TELEVISION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
DECEMBER 31, 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 98,075 $ 21,695
Marketable securities 124,811 159,257
Accrued interest receivable 2,014 2,336
Accounts receivable, less allowance for doubtful accounts
of $1,745 and $1,661, respectively 36,913 37,556
Film contract rights 24,627 21,045
Deferred tax benefit 5,233 4,536
Prepaid expenses and other current assets 1,721 3,370
-------- --------
Total current assets 293,394 249,795
-------- --------
NONCURRENT MARKETABLE SECURITIES 47,695 36,876
-------- --------
OTHER INVESTMENTS 17,531 17,531
-------- --------
FILM CONTRACT RIGHTS, INCLUDING DEPOSITS, LESS
ESTIMATED PORTION TO BE USED WITHIN ONE YEAR 4,517 4,691
-------- --------
PROPERTY AND EQUIPMENT, AT COST:
Land, buildings and improvements 12,689 12,669
Equipment 54,964 53,782
-------- --------
67,653 66,451
Less - Accumulated depreciation and amortization 54,478 51,918
-------- --------
13,175 14,533
-------- --------
INTANGIBLE ASSETS 21,981 21,981
Less - Accumulated amortization 10,825 10,216
-------- --------
11,156 11,765
-------- --------
OTHER ASSETS 518 407
-------- --------
$387,986 $335,598
======== ========
<PAGE>
DECEMBER 31, 1997 1996
- --------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Film contracts payable $ 26,268 $ 25,402
Accounts payable 3,090 3,645
Accrued expenses 22,428 18,524
Income taxes payable 8,475 10,968
-------- --------
Total current liabilities 60,261 58,539
-------- --------
FILM CONTRACTS PAYABLE AFTER ONE YEAR 16,483 19,177
-------- --------
OTHER LIABILITIES 10,502 7,441
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
SHAREHOLDERS' INVESTMENT:
Preferred stock $1 par value; authorized
1,000,000 shares; none issued -- --
Common stock $.10 par value; authorized 25,000,000 shares;
outstanding 9,414,273 and 9,343,488 shares, respectively 941 934
Additional paid-in capital 3,635 133
Retained earnings 283,271 242,979
Adjustment to reflect marketable
securities at fair value 12,893 6,395
-------- --------
300,740 250,441
-------- --------
$387,986 $335,598
======== ========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE BALANCE SHEETS.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
UNITED TELEVISION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
Common Stock
-------------------------- Additional Market
Shares Dollar Paid-in Retained Valuation
Outstanding Amount Capital Earnings Account Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 9,975,338 $ 998 $ 133 $ 228,181 $ (1,391) $ 227,921
Net income -- -- -- 36,872 -- 36,872
Cash dividend -- -- -- (4,911) -- (4,911)
Adjustment to reflect marketable
securities at fair value -- -- -- -- 7,927 7,927
Exercise of options, including
tax benefit 66,867 6 3,103 -- -- 3,109
Purchase/retirement of
treasury stock (433,168) (43) (3,103) (27,303) -- (30,449)
--------- --------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1995 9,609,037 961 133 232,839 6,536 240,469
Net income -- -- -- 41,739 -- 41,739
Cash dividend -- -- -- (4,750) -- (4,750)
Adjustment to reflect marketable
securities at fair value -- -- -- -- (141) (141)
Exercise of options, including
tax benefit 97,951 10 5,924 -- -- 5,934
Purchase/retirement of
treasury stock (363,500) (37) (5,924) (26,849) -- (32,810)
--------- --------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1996 9,343,488 934 133 242,979 6,395 250,441
Net income -- -- -- 44,979 -- 44,979
Cash dividend -- -- -- (4,687) -- (4,687)
Adjustment to reflect marketable
securities at fair value -- -- -- -- 6,498 6,498
Exercise of options, including
tax benefit 101,385 10 6,254 -- -- 6,264
Purchase/retirement of
treasury stock (30,600) (3) (2,752) -- -- (2,755)
--------- --------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1997 9,414,273 $ 941 $ 3,635 $ 283,271 $ 12,893 $ 300,740
========= ========= ========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED TELEVISION, INC. AND SUBSIDIARIES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(A) ORGANIZATION AND RELATED PARTIES. UTV is a majority owned (58.5% at December
31, 1997) subsidiary of BHC Communications, Inc. (BHC), a majority owned
subsidiary of Chris-Craft Industries, Inc. (Chris-Craft). UTV owns and operates
six television stations: KBHK in San Francisco, KMSP in Minneapolis/St. Paul,
KUTP in Phoenix, WUTB in Baltimore (acquired in January 1998), KTVX in Salt Lake
City and KMOL in San Antonio; United Television Sales, Inc. (UTS), a national
sales representative organization which currently represents UTV's six stations
and the three stations owned by BHC; and United Entertainment Group, Inc.,
which, with BHC, jointly produces first-run programming for national
distribution to television stations. UTV's revenues are derived entirely from
television broadcasting and are, therefore, subject to the vagaries of the
advertising industry.
UTV has entered into a state tax sharing agreement with BHC under which
agreement UTV continues to provide taxes on a separate company basis.
The acquisition of programming from third parties is frequently negotiated
for UTV and BHC stations simultaneously.
(B) BASIS OF PRESENTATION. The accompanying consolidated financial statements
include the accounts of UTV and its subsidiaries, after elimination of all
significant intercompany accounts and transactions. Preparation of financial
statements in accordance with generally accepted accounting principles requires
the use of management estimates.
(C) CASH AND CASH EQUIVALENTS. Cash and cash equivalents consist of cash and
U.S. Government securities having maturities at time of purchase not exceeding
three months. The fair value of cash equivalents approximates carrying value,
reflecting their short maturities.
(D) INVESTMENTS IN DEBT AND EQUITY SECURITIES. All of UTV's marketable
securities have been categorized as available for sale and as a result are
carried at fair market value.
(E) FILM CONTRACT RIGHTS AND FILM CONTRACTS PAYABLE. UTV owns film contract
rights which allow limited showings of films and syndicated programs. Film
contract rights and related liabilities are recorded at the contractual amounts
when the programming becomes available for telecasting.
Contract values are amortized over management's estimate of the number of
showings, using primarily an accelerated method, which considers total
anticipated costs of the programming and management's estimate of the flow of
revenues. In the opinion of management, future revenue related to the airing of
remaining film contract rights will be sufficient to recover unamortized costs
at December 31, 1997. The estimated costs of recorded film contract rights to be
charged to income within one year are included in current assets; payments on
such contracts due within one year are included in current liabilities.
(F) DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment is
provided using the straight-line method over the estimated useful lives of the
assets, except that leasehold improvements are amortized over the term of the
lease, if shorter.
Intangible assets represent the excess of cost over the net identifiable
tangible assets at the respective dates of acquisition and are being amortized
using the straight-line method over 17 to 40 years from acquisition.
(G) REVENUE RECOGNITION AND BARTER TRANSACTIONS. Revenue is recognized upon
broadcast of television advertising. The estimated fair value of goods or
services received in barter (nonmonetary) transactions, most of which relate to
the acquisition of programming, is recognized as revenue when the air time is
used by the advertiser. Barter revenue was $11,891,000, $11,791,000 and
$12,114,000 in 1997, 1996 and 1995, respectively, and barter expense was
$11,863,000, $11,683,000 and $12,025,000 in the three years, respectively.
(H) EARNINGS PER SHARE. In accordance with Statement of Financial Accounting
Standard (SFAS) No. 128, "Earnings Per Share" adopted in 1997, basic per share
amounts are computed by dividing net income by the weighted average number of
common shares outstanding. Dilutive per share amounts are computed by dividing
net income by the weighted average common shares outstanding, adjusted for the
effect of dilutive stock options. The adjustments for 1997, 1996 and 1995 were
67,000 shares, 84,000 shares and 103,000 shares, respectively. Prior period
earnings per share amounts have been restated to conform to the standards of
SFAS 128.
(I) STOCK OPTIONS. UTV has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement encourages but does not require the recording of
compensation cost for stock-based employee compensation plans at fair value. UTV
has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
<PAGE>
(J) SUPPLEMENTAL CASH FLOW INFORMATION. Cash paid for income taxes totaled
$30,386,000 in 1997, $24,267,000 in 1996 and $27,763,000 in 1995.
2. MARKETABLE SECURITIES.
Marketable securities classified by security type are as follows (in thousands):
GROSS UNREALIZED
----------------
FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
December 31, 1997:
U.S. Government securities $115,123 $ 31 $ 103 $115,051
BHC Class A common stock 11,325 18,177 -- 29,502
Other equity securities 24,845 4,457 1,349 27,953
-------- -------- -------- --------
$151,293 $ 22,665 $ 1,452 $172,506
======== ======== ======== ========
December 31, 1996:
U.S. Government securities $149,908 $ 87 $ 555 $149,440
BHC Class A common stock 11,325 11,637 -- 22,962
Other equity securities 24,382 1,004 1,655 23,731
-------- -------- -------- --------
$185,615 $ 12,728 $ 2,210 $196,133
======== ======== ======== ========
At December 31, 1997, all U.S. Government securities mature within one
year. The following table provides certain additional information related to
UTV's marketable securities as of and for the three years ended December 31,
1997, 1996 and 1995 (in thousands):
1997 1996 1995
- ------------------------------------------------------------
Sales proceeds $ 172,262 $ 215,047 $ 49,874
Realized gains 448 329 760
Realized losses -- 207 22
Net unrealized gain 21,213 10,518 11,154
For purposes of computing realized gains and losses, cost was determined
using the specific identification method.
3. FILM CONTRACTS PAYABLE.
The approximate future maturities of film contracts payable classified as
noncurrent liabilities at December 31, 1997 are $9,747,000, $3,880,000,
$2,125,000, $600,000 and $130,000 in 1999, 2000, 2001, 2002 and thereafter,
respectively. The net present value at December 31, 1997 of such payments,
discounted at 8.5%, was approximately $13,850,000.
4. SHAREHOLDERS' INVESTMENT.
UTV has authorized 1,000,000 shares of preferred stock, $1 par value, that may
be issued without further shareholder approval, in one or more series, the terms
and provisions of which shall be set by the Board of Directors.
During 1997, UTV purchased and retired 30,600 shares of its common stock at
an aggregate cost of $2,755,000. During 1996 and 1995, UTV purchased and retired
363,500 and 433,168 shares of its common stock, respectively. At December 31,
1997, purchase of 798,149 additional shares of common stock had been authorized
by the Board of Directors.
5. STOCK OPTIONS.
Under the UTV 1988 Stock Option Plan, options (including Incentive Stock
Options) to purchase shares of common stock may be granted from time to time to
employees of UTV and its parents and subsidiaries, at prices not less than fair
market value at date of grant. Options are exercisable in cumulative annual
installments of 33 1/3% commencing one year from date of grant, and expire over
a period determined by the Plan Committee, which may not exceed ten years from
date of grant. Options currently outstanding expire five years from date of
grant.
The Plan permits the Plan Committee to award stock appreciation rights to
holders of options granted under the Plan. Such rights entitle the holders, in
lieu of exercising their options, to receive payment from UTV in cash, stock or
a combination thereof, equal to the greater of the appreciation in market value
or book value of the shares covered by exercisable options. No stock
appreciation rights have been awarded under the Plan.
The Plan permits grants to purchase an aggregate of 800,000 shares.
Transactions under the Plan during the two years ended December 31, 1997 were as
follows (dollars in thousands, except per share data):
OPTION PRICE
SHARES --------------------------
UNDER OPTION PER SHARE TOTAL
- ----------------------------------------------------------------
Outstanding,
December 31, 1995 319,536 $27.25-$53.50 $ 14,274
Granted 32,000 $89.00 2,848
Exercised (77,451) $27.25-$53.50 (2,816)
Canceled (17,200) $53.50 (920)
-------- --------
Outstanding,
December 31, 1996 256,885 $27.25-$89.00 13,386
Exercised (100,385) $27.25-$53.50 (3,887)
Canceled (1,000) $53.50 (54)
-------- --------
Outstanding,
December 31, 1997 155,500 $53.50-$89.00 $ 9,455
======== ========
<PAGE>
In addition to options granted under the Plan, during 1995 UTV granted a
stock option to purchase 100,000 shares at $88.75 per share (the fair market
value at date of grant), on terms essentially the same as those of the 1988
stock option plan. This option was outstanding at December 31, 1997.
Under the 1995 Director Stock Option Plan, adopted by UTV shareholders in
April 1995, a fixed number of immediately exercisable options to purchase shares
of common stock are granted annually to each nonemployee director of UTV at a
price equal to fair market value at date of grant. Transactions under the Plan
during the two years ended December 31, 1997 were as follows (dollars in
thousands, except per share data):
OPTION PRICE
SHARES -------------------------
UNDER OPTION PER SHARE TOTAL
- --------------------------------------------------------------
Outstanding,
December 31, 1995 47,500 $58.00-$62.25 $ 2,785
Granted 7,000 $89.00 623
Exercised (20,500) $58.00-$62.25 (1,193)
-------- -------
Outstanding,
December 31, 1996 34,000 $58.00-$89.00 $ 2,215
Granted 7,000 $87.25 610
Exercised (1,000) $62.25 (62)
-------- -------
Outstanding,
December 31, 1997 40,000 $58.00-$89.00 $ 2,763
======== =======
Proceeds from the exercise of options are credited to common stock to the
extent of par value, and the remainder is credited to additional paid-in
capital. Income tax benefits which accrue to UTV are credited to additional
paid-in capital.
At December 31, 1997, options outstanding under all plans and grants were
exercisable for 240,833 shares at prices ranging from $53.50 to $89.00 per
share, and options for 293,967 were available for grant. Options outstanding
expire at various dates from December 1999 through May 2002.
If UTV had elected to recognize compensation expense based upon the fair
value at the grant date for awards under these plans consistent with the
methodology prescribed by SFAS 123, UTV's net income and earnings per share
would be reduced to the pro forma amounts indicated below (in thousands, except
per share amounts):
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------------------------
Net Income:
As reported $ 44,979 $ 41,739 $ 36,872
Pro forma $ 44,300 $ 41,104 $ 36,373
Earnings per Share:
As reported: Basic $ 4.80 $ 4.40 $ 3.78
Diluted $ 4.76 $ 4.36 $ 3.74
Pro forma: Basic $ 4.72 $ 4.33 $ 3.73
Diluted $ 4.69 $ 4.30 $ 3.69
These pro forma amounts may not be representative of the pro forma effect
on net income in future years since the estimated fair value of stock options is
amortized over the vesting period; pro forma compensation expense related to
grants made prior to 1995 is not considered; and additional options may be
granted in future years.
The weighted average fair values of options granted during 1997, 1996 and
1995 were $22.86, $22.88 and $20.08, respectively. The fair values of options at
dates of grant were estimated using the Black-Scholes option pricing model with
the following weighted average assumptions for the years ended December 31,
1997, 1996 and 1995, respectively: dividend yields of zero for all periods;
expected volatility of 16.09%, 16.21% and 17.23%, respectively; risk free
interest rates of 6.49%, 6.25% and 6.03%, respectively; and expected life of
four years for all periods.
<PAGE>
6. INCOME TAXES.
Income tax expense consists of the following (in thousands):
YEAR ENDED DECEMBER 31, 1997 1996 1995
- --------------------------------------------------------------------------
Federal:
Current $ 24,350 $ 23,268 $ 19,425
Deferred (125) (918) 375
-------- -------- --------
24,225 22,350 19,800
-------- -------- --------
State:
Current 5,550 5,332 4,450
Deferred (25) (182) 50
-------- -------- --------
5,525 5,150 4,500
-------- -------- --------
Total $ 29,750 $ 27,500 $ 24,300
======== ======== ========
The provisions for income taxes differed from the amounts computed by
applying the federal income tax rate to income before income taxes. The elements
of these differences were as follows (in thousands):
YEAR ENDED DECEMBER 31, 1997 1996 1995
- --------------------------------------------------------------------------
Statutory federal income
taxes $ 26,155 $ 24,234 $ 21,410
State income taxes, net
of federal income tax
benefit 3,587 3,493 2,957
Dividend exclusion (179) (113) (108)
Goodwill amortization 102 102 102
Other, net 85 (216) (61)
-------- -------- --------
Total $ 29,750 $ 27,500 $ 24,300
======== ======== ========
<PAGE>
Deferred taxes reflect timing differences in the recognition of certain
income and expense items for financial accounting and income tax purposes. The
components of deferred tax assets and liabilities were as follows (in
thousands):
DECEMBER 31, 1997 1996
- -----------------------------------------------------------
Deferred tax assets:
State taxes $ 1,735 $ 1,873
Bad debt reserve 724 689
Vacation accrual 486 469
Benefits program 2,158 1,179
Other 130 655
-------- --------
5,233 4,865
-------- --------
Deferred tax liabilities:
Depreciation (1,478) (1,598)
Intangibles amortization (580) (667)
SFAS 115 adjustment (8,444) (4,126)
Other -- (20)
-------- --------
(10,502) (6,411)
-------- --------
$ (5,269) $ (1,546)
======== ========
7. PENSION PLANS.
UTV maintains noncontributory defined benefit plans covering substantially all
employees. Benefits under the plans are based upon years of service and
compensation, as defined. UTV's funding policy is to contribute annually an
amount sufficient to fund current service costs and to amortize the unfunded
accrued liability over 25 years. Contributions are intended to provide not only
for benefits attributed to service to date but also for benefits expected to be
earned in the future.
The following table sets forth the funded status of the plans (in
thousands):
DECEMBER 31, 1997 1996
- ----------------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $(14,944) $(13,507)
Nonvested benefit obligation (1,066) (757)
-------- --------
Accumulated benefit obligation (16,010) (14,264)
Effect of projected
compensation increases (6,110) (4,909)
-------- --------
Projected benefit obligation (22,120) (19,173)
Plan assets at fair value, primarily
listed securities and U.S.
Government securities 20,786 19,752
-------- --------
(Deficit) surplus (1,334) 579
Unrecognized gain (419) (1,079)
Unrecognized prior service cost (98) (127)
Unrecognized net obligation remaining
from initial application, January 1, 1987 63 79
-------- --------
Accrued pension obligation $ (1,788) $ (548)
======== ========
The unrecognized net obligation is being amortized over a 15-year
period.
Pension expense, including amounts accrued in a UTV nonqualified retirement
plan for benefits in excess of statutory limitations, is as follows (in
thousands):
YEAR ENDED DECEMBER 31, 1997 1996 1995
- -------------------------------------------------------------------------
Service cost $ 1,310 $ 1,001 $ 913
Interest cost on projected
benefit obligation 1,423 1,243 1,111
Actual return
on plan assets (1,578) (2,574) (3,417)
Net amortization
and deferral 85 1,227 2,414
------- ------- -------
Net periodic pension cost $ 1,240 $ 897 $ 1,021
======= ======= =======
<PAGE>
Assumptions used in determining the actuarial present value of the
projected benefit obligation were as follows:
1997 1996 1995
- ---------------------------------------------------------------
Discount rate 7.25% 7.25% 7.25%
Rate of increase in future
compensation levels 4.50% 4.50% 4.50%
Expected long-term rate of
return on assets 7.75% 7.75% 7.75%
UTV also maintains defined contribution retirement plans for its employees:
a contributory stock purchase plan and a noncontributory profit sharing plan.
The aggregate costs of such plans for 1997, 1996, and 1995 were $3,877,000,
$2,961,000 and $3,876,000, respectively, including accruals in the nonqualified
plan referenced above.
8. RELATED PARTY TRANSACTIONS.
Included in net revenues for 1997, 1996 and 1995 are commissions earned by UTS
for the sale of national advertising on BHC's three television stations of
$4,217,000, $4,286,000 and $2,074,000, respectively.
Included in selling, general and administrative expenses are management and
directors' fees UTV paid Chris-Craft of $570,000 in each of the three years
ended December 31, 1997, and a management fee UTV paid BHC of $1,750,000 in each
of 1997 and 1996 and $2,200,000 in 1995.
UTV and BHC each incurred costs of $571,000 in 1995 for the joint
production and distribution with third parties of original programming. In 1997
and 1996, reimbursements from third parties were sufficient to cover production
costs.
<PAGE>
9. COMMITMENTS AND CONTINGENCIES.
In October 1997, UTV signed a definitive agreement to purchase the assets of UHF
television station WRBW-TV in Orlando, Florida for $60,000,000 and possible
future consideration. The acquisition is subject to FCC approval and other
conditions in the agreement.
The aggregate amount payable by UTV under contracts for programming not
currently available for telecasting and, accordingly, not included in film
contracts payable and the related contract rights in the accompanying
Consolidated Balance Sheets, totaled $78,958,000 at December 31, 1997.
At December 31, 1997, UTV was obligated under several noncancelable leases
on real property and equipment that expire between 1998 and 2010. Rental expense
was $2,300,000, $2,271,000 and $1,928,000 for 1997, 1996 and 1995, respectively.
Aggregate future minimum rental payments under such leases at December 31, 1997
are $10,665,000 with amounts of $1,525,000, $1,457,000, $1,131,000, $946,000 and
$1,515,000 due in 1998, 1999, 2000, 2001 and 2002, respectively.
At December 31, 1997, UTV has a remaining commitment to invest over time up
to $19,807,000 in a management buyout limited partnership.
In the opinion of management, after taking into account opinions of counsel
with respect thereto, the ultimate resolution of pending legal proceedings
against UTV, to the extent not covered by insurance, will not have a material
effect on UTV's consolidated financial position or results of operations.
10. SUBSEQUENT EVENT.
In January 1998, UTV acquired the assets of UHF television station WHSW-TV in
Baltimore, Maryland for $80,000,000. The purchase price was paid from working
capital.
REPORT OF INDEPENDENT ACCOUNTANTS
UNITED TELEVISION, INC. AND SUBSIDIARIES
To the Board of Directors and Shareholders
of United Television, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, shareholders' investment and cash
flows present fairly, in all material respects, the financial position of United
Television, Inc. and its subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Century City, California
February 10, 1998
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
UNITED TELEVISION, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
UTV's operating cash flow is generated primarily by its television
broadcasting operations and generally parallels the earnings of UTV television
stations, adjusted to reflect the difference between film contract payments and
film contract amortization. The relationship between such payments and
amortization may vary greatly between years (payments exceeded amortization by
$3,740,000 in 1997, while amortization exceeded payments by $2,204,000 in 1996),
and is dependent upon the mix of programs aired and payment terms of the
station's contracts. UTV stations generated substantial cash flow in 1997 and
are expected to do the same in 1998. With its considerable cash and marketable
securities balances, UTV continues to be well positioned to pursue new
opportunities or deal effectively with uncertainties that may arise in the
television broadcasting industry or economic environment.
UTV's cash flow is augmented by interest and dividend income associated
with its cash and marketable securities. UTV's 1997 cash flow from operations
totaled $47,747,000, and cash and current marketable securities increased
$41,934,000 to $222,886,000 at December 31, 1997. UTV has a remaining commitment
to invest over time up to $19,807,000 in a limited partnership.
Working capital increased $41,877,000 during 1997 to $233,133,000 at
December 31, 1997, primarily reflecting cash from operations. Working capital at
December 31, 1997 remains substantially in excess of UTV's normal operating
requirements.
During 1997, UTV signed agreements to acquire television stations in
Orlando, Florida, for $60,000,000 and possible future consideration, and
Baltimore, Maryland, for $80,000,000. The purchase of the Baltimore station was
consummated in January 1998 and was funded from working capital. UTV continues
to be engaged in an ongoing review of business opportunities in media,
entertainment, communications and other industries. UTV currently has no
outstanding debt and believes it is capable of raising significant additional
capital to augment its already substantial liquid assets, if desired, to fund
any expansion.
UTV regularly makes current commitments for programming that will not be
available for telecasting until future dates and had commitments for payments
for such programming totaling $78,958,000 at December 31, 1997. UTV expects to
continue to satisfy these commitments in the ordinary course of business.
UTV's Board of Directors has from time to time authorized the purchase of
UTV common shares. At December 31, 1997, purchase of an additional 798,149
shares was so authorized. From January 1, 1995 through December 31, 1997,
827,268 shares were purchased for an aggregate cost of $66,014,000, of which
30,600 shares were purchased during 1997 for an aggregate cost of $2,755,000.
UTV's commitments for capital expenditures at December 31, 1997 were not
material in relation to UTV's financial position. UTV currently expects that
during 1998 its stations will begin converting to digital television. This
conversion will require the purchase of digital transmitting equipment to
telecast over a newly assigned frequency. KBHK-TV in San Francisco is expected
to be the first of the UTV stations to begin the conversion. This conversion
roll-out is expected to take a number of years and will be subject to
competitive market
<PAGE>
conditions. Funds for capital expenditures have generally been provided from
operations. UTV expects that future capital expenditures for its present
business, including the cost to convert to digital television, will be funded
from operations or current cash balances. UTV has no present requirement for
additional capital.
RESULTS OF OPERATIONS
1997 VERSUS 1996. UTV's primary source of revenue is the sale to
advertisers of time on its five television stations. UTV's 1997 net income
increased 8% to $44,979,000, from $41,739,000 in 1996. Basic per share earnings
for the year increased 9% to $4.80, from $4.40 in 1996, as purchases of common
stock under UTV's stock repurchase program reduced the average number of common
shares outstanding. Diluted per share earnings also rose 9% to $4.76 in 1997,
from $4.36 in 1996.
The earnings increase reflects record operating profit, despite a reduction
in net revenue. Consolidated net revenues decreased 2% to $170,963,000, from
$174,339,000 last year. The decrease in net revenues reflects reduced demand by
local advertisers in 1997, Olympics related revenue recorded in 1996, and a
retroactive network revenue adjustment recorded in 1996.
Consolidated expenses decreased 6% from last year, reflecting a 13%
decrease in programming expenses. Operating income rose to a record $62,412,000,
from $59,076,000 in 1996. Interest and other income increased 21% to
$12,317,000, from $10,163,000 in 1996. The increase reflects greater cash
balances available for investing.
1996 VERSUS 1995. UTV's 1996 net income increased 13% to $41,739,000, from
$36,872,000 in 1995. Basic per share earnings for the year increased 16% to
$4.40, from $3.78 in 1995, as purchases of common stock under UTV's stock
repurchase program reduced the average number of common shares outstanding.
Diluted per share earnings rose 17% to $4.36 in 1996, from $3.74 in 1995.
The earnings increase reflects record operating results. Station group net
revenues rose 3% for the year. Consolidated net revenues rose 5% to a record
$174,339,000, from $165,559,000 last year. The increase in station revenues
reflects improved demand for television advertising at UTV stations during the
first nine months of 1996, followed by a slowing in demand for the fourth
quarter.
Consolidated operating expenses rose less than 1% over the prior year.
Programming expense rose 1% and total station operating expenses rose 3% over
last year. Operating earnings rose 16% to $59,076,000, from $50,882,000 in 1995.
The prior year results include one-time costs of $3,700,000 associated with the
start-up of UTV's national sales representative subsidiary, which began
operations in the third quarter of 1995.
<PAGE>
SELECTED FINANCIAL DATA
UNITED TELEVISION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 170,963 $ 174,339 $ 165,559 $ 150,980 $ 130,338
--------- --------- --------- --------- ---------
Operating income $ 62,412 $ 59,076 $ 50,882 $ 52,237 $ 36,373
Income associated with
Time Warner securities -- -- -- -- 31,125
Interest and other income 12,317 10,163 10,290 7,084 6,126
Income taxes (29,750) (27,500) (24,300) (24,150) (29,800)
--------- --------- --------- --------- ---------
Net income $ 44,979 $ 41,739 $ 36,872 $ 35,171 $ 43,824
========= ========= ========= ========= =========
Earnings per share:
Basic $ 4.80 $ 4.40 $ 3.78 $ 3.50 $ 4.31
Diluted $ 4.76 $ 4.36 $ 3.74 $ 3.48 $ 4.30
Cash and current marketable securities $ 222,886 $ 180,952 $ 191,366 $ 182,043 $ 171,243
Total assets 387,986 335,598 330,987 305,676 285,905
Working capital 233,133 191,256 208,064 193,505 172,815
Shareholders' investment 300,740 250,441 240,469 227,921 202,761
</TABLE>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
UNITED TELEVISION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
YEAR ENDED DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 38,327 $ 44,919 $ 40,436 $ 47,281 $ 170,963
Operating income 11,974 18,087 13,768 18,583 62,412
Net income 9,065 12,607 10,138 13,169 44,979
Earnings per share:
Basic $ .97 $ 1.35 $ 1.08 $ 1.40 $ 4.80
Diluted $ .96 $ 1.34 $ 1.07 $ 1.39 $ 4.76
YEAR ENDED DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------------------
Net revenues $ 40,234 $ 45,816 $ 40,835 $ 47,454 $ 174,339
Operating income 11,345 17,176 14,060 16,495 59,076
Net income 8,366 11,874 10,184 11,315 41,739
Earnings per share:
Basic $ .87 $ 1.25 $ 1.08 $ 1.20 $ 4.40
Diluted $ .86 $ 1.24 $ 1.07 $ 1.19 $ 4.36
</TABLE>
<PAGE>
STOCK PRICE, DIVIDEND AND
RELATED INFORMATION
United Television, Inc. common stock trades on the Nasdaq National Market tier
of the Nasdaq Stock Market under the symbol: UTVI.
The high and low sales prices as reported by Nasdaq for the periods
indicated were:
1997 1996
------------------- ------------------
Quarter High Low High Low
- ---------------------------------- ------------------
First $ 95.250 $ 86.125 $ 92.125 $86.500
Second 99.000 83.500 100.250 87.000
Third 106.250 96.750 97.500 91.750
Fourth 111.500 101.000 99.750 86.125
In 1997 and 1996, UTV paid a cash dividend of $.50 per share. In
February, 1998, UTV declared a dividend of $.50 per share payable on April 14,
1998 to shareholders of record on March 13, 1998. The Board of Directors intends
each year to consider declaration of a cash dividend.
As of February 28, 1998, there were approximately 2,800 holders of
record of common stock.
Exhibit 21
The following were the registrant's subsidiaries as of December 31,
1997, other than subsidiaries that, if considered in the aggregate
as a single subsidiary, would not constitute a significant
subsidiary at such date:
Name Jurisdiction
of of
Subsidiary Incorporation
UTV of San Francisco, Inc. California
UTV of San Antonio, Inc. Texas
UTV of Baltimore, Inc. Delaware
United Television Sales, Inc. Delaware
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 33- 59277 and 33-21903)
of United Television, Inc. of our report dated February 10, 1998
which appears on page 19 of the 1997 Annual Report to Shareholders
of United Television, Inc., which is incorporated by reference in
this Annual Report on Form 10-K for the year ended December 31,
1997. We also consent to the incorporation by reference of our
report on the Financial Statement Schedule, which appears on page
21 of such Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Century City, California
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCORPORATED BY REFERENCE INTO
REGISTRANT'S ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED 31 DECEMBER 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 98,075
<SECURITIES> 124,811
<RECEIVABLES> 36,913
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 293,394
<PP&E> 67,653
<DEPRECIATION> 54,478
<TOTAL-ASSETS> 387,986
<CURRENT-LIABILITIES> 60,261
<BONDS> 0
<COMMON> 941
0
0
<OTHER-SE> 299,799
<TOTAL-LIABILITY-AND-EQUITY> 387,986
<SALES> 170,963
<TOTAL-REVENUES> 170,963
<CGS> 108,551
<TOTAL-COSTS> 108,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 74,729
<INCOME-TAX> 29,750
<INCOME-CONTINUING> 44,979
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,979
<EPS-PRIMARY> 4.80
<EPS-DILUTED> 4.76
</TABLE>
