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, 1998
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. [x]Yes [ ]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. [x]
<PAGE> 2
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of February 28, 1999, was approximately $370,676,000.
As of February 28, 1999, there were 9,412,133 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, 1998
(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
1999 Annual Meeting (the "Proxy
Statement") that are specifically
identified herein as incorporated by
reference into this Form 10-K. III
<PAGE> 3
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 (58.5% at
February 28, 1999) subsidiary of BHC Communications, Inc. ("BHC"), which is a
majority owned (79.96% at February 28, 1999) subsidiary of Chris-Craft
Industries, Inc. ("Chris-Craft"). UTV owns and operates six of BHC's nine
television stations that comprise Chris-Craft's Television Division.
At February 28, 1999, UTV had 562 full-time employees and 80 part-time
employees. 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:
<PAGE> 4
<TABLE>
<CAPTION>
Total DMA
DMA Commercial Cable
Network TV Stations TV
Station and Affiliation/ House- DMA Operating in Penetra-
Location(a) Channel holds(b) Rank (b) Market (c) tion(d)
- ----------- ------------ -------- -------- ------------ -------
<S> <C> <C> <C> <C> <C>
KMSP UPN 9 1,457,130 15th 4VHF 52%
Minneapolis/ 3UHF
St. Paul
KTVX ABC 4 707,070 36th 4VHF 54%
Salt Lake 2UHF
City
KMOL NBC 4 667,750 37th 3VHF 65%
San Antonio 3UHF
KBHK UPN 44 2,368,970 5th 4VHF 71%
San Francisco 10UHF
KUTP UPN 45 1,343,090 17th 4VHF 58%
Phoenix 4UHF
WUTB UPN 24 991,610 24th 3VHF 67%
Baltimore 3UHF
<FN>
- ------------
(a) 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 ("FCC") and other conditions.
(b) 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.
(c) Additional channels have been allocated by the FCC for activation as
commercial television stations in certain of these markets. Also,
additional stations may be located within the respective DMAs of BHC
stations but outside the greater metropolitan television markets in which
BHC stations operate.
(d) Cable penetration refers to the percentage of DMA television viewing
households receiving cable television service, as estimated by Nielsen
Media Research.
</FN>
</TABLE>
<PAGE> 5
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 210 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 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 invests directly in the development of
original programming. The aggregate amount invested in original programming
through December 31, 1998 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.
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
<PAGE> 6
the same programming to other television stations in the same market. A single
syndication source may provide a number of different series or programs.
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 $43,187,000 as of December 31, 1998. The stations were committed for
film and sports rights contracts aggregating $91,196,000 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 10-year affiliation agreements for KTVX
and KMOL. 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.
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.
<PAGE> 7
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. UTV's television business is
seasonal, like that of the television broadcasting business generally. 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 the
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.
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. Prior to 1998, television licenses generally were issued for
five-year terms, but such licenses and their renewals are now normally issued
for 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 was 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 has opposed the petition, which it does not believe will have a material
adverse effect on UTV's license for KMSP; the license remains in effect pending
FCC action on the renewal application. KTVX's license renewal was granted on
October 9, 1998, and is due to expire on October 1, 2006. KUTP UPN 45's license
renewal was granted on March 28, 1994, and was due to expire on October 1, 1998.
A renewal application for KUTP was timely filed on June 1, 1998 and is still
pending. KBHK UPN 44's license renewal was granted on January 8, 1999, and is
due to expire on December 1, 2006. KMOL's license renewal was granted on
November 12, 1998, and is due to expire on August 1, 2006. 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
<PAGE> 8
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 UTV's three UHF stations, 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 also prohibit 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 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.
<PAGE> 9
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 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
1999, some of its stations will begin broadcasting on their DTV channels, in
addition to their analog broadcasts. Future capital expenditures by UTV will be
compatible with the new technology whenever possible. The FCC is also conducting
a rule making proceeding to determine whether and the extent to which cable
television systems should be obligated to carry the signals of broadcast DTV
stations.
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
<PAGE> 10
prohibiting 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 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. UTV is unable to predict the outcome of these
proceedings.
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 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
network-affiliated VHF stations, but a larger viewing audience than the other
three stations, all of which are UHF stations. In Salt Lake City, KTVX generally
ranks second of the six television stations in terms of audience share. In San
Antonio, KMOL generally ranks first 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
<PAGE> 11
acquisition by UTV in January 1998, WUTB, the Baltimore station, operated
as a Home Shopping Network affiliate. It now generally ranks sixth of the six
commercial stations in terms of audience share.
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 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. As of June 1998, there
were approximately 66,000 subscribers to OVS systems.
"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 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. The
emergence of home satellite dish antennas has made it possible for individuals
to receive a host of video programming options via satellite transmission. Four
direct to home satellite systems ("DTH") currently provide service. The number
of subscribers to DTH services increased substantially during the past four
years, to approximately 10.6 million as of December 1998. An additional
challenge is now posed by wireless cable systems, including multichannel
distribution services ("MDS"). 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. At the end of 1998, wireless cable systems served about 1.0 million
subscribers.
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 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
<PAGE> 12
that include data networks and other computer technologies. Such
factors have affected, and will continue to affect, the revenue growth and
profitability of UTV.
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 April 2005. The Salt
Lake City lease expires in August 1999, but can be extended through April 2000.
UTV has acquired a 6.03 acre site in Salt Lake City on which UTV has begun
construction of a new studio facility. The San Francisco lease expires in 2007.
UTV occupies leased facilities in various cities throughout the country.
The Minneapolis facility includes approximately 49,700 square feet of space
on a 5.63-acre site. The current Salt Lake City facility is approximately 30,400
square feet on a 2.53-acre site. The Baltimore facility is approximately 11,700
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.
<PAGE> 13
EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of UTV, as of February 28, 1999, are as
follows:
Has served
Positions with UTV; principal occupation; as officer
Name and age as of February 28, 1999 since
- ---- ---------------------------------------- -----------
John C. Siegel Chairman of UTV and President, UTV of
San Francisco, Inc., which owns KBHK;
Senior Vice President, Chris-Craft; 46 1983
Evan C Thompson President and Chief Executive Officer;
Executive Vice President and President,
Television Division, Chris-Craft; 56 1983
Laurey J. Barnett Vice President and Director of Programming; 39 1987
Garth S. Lindsey Executive Vice President, Chief Financial
Officer and Secretary; 54 1977
Thomas L. Muir Treasurer and Controller; 50 1981
Chris-Craft, through its majority ownership of BHC, is principally engaged
in television broadcasting.
All officers hold office until the meeting of the Board following the next
annual meeting of stockholders or until removed by the Board.
<PAGE> 14
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 FINANCIALCONDITION 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 ("MD&A") is incorporated herein by this reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information appearing in the MD&A under the caption QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK is incorporated herein by this
reference.
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 ONACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
<PAGE> 15
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.
<PAGE> 16
I
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.
<PAGE> 17
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 26, 1999
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 26, 1999
John C.Siegel
Chairman and Director
EVAN C THOMPSON March 26, 1999
Evan C Thompson
President, Chief
Executive Officer
and Director
(principal
executive officer)
GARTH S. LINDSEY March 26, 1999
Garth S. Lindsey
Executive Vice
President, Chief
Financial Officer
and Secretary (principal
financial and
accounting
officer)
LAWRENCE R. BARNETT March 26, 1999
Lawrence R. Barnett
Vice Chairman and Director
JAMES D. HODGSON March 26, 1999
James D. Hodgson
Director
NORMAN PERLMUTTER March 26, 1999
Norman Perlmutter
Director
<PAGE> 18
HOWARD F. ROYCROFT March 26, 1999
Howard F. Roycroft
Director
ROCCO C. SICILIANO March 26, 1999
Rocco C. Siciliano
Director
HERBERT J. SIEGEL March 26, 1999
Herbert J. Siegel
Director
<PAGE> 19
UNITED TELEVISION, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Income - For the Years
Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - For the Years
Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Investment - For the Years
Ended December 31, 1998, 1997 and 1996
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.
<PAGE> 20
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, 1999 appearing on page 19 of the 1998 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.
PRICEWATERHOUSECOOPERS LLP
Century City, California
February 10, 1999
<PAGE> 21
<TABLE>
Schedule II
UNITED TELEVISION, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
<CAPTION>
Column A Column B Column C Column D Column E
Additions
-------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful accounts $1,745 $315 $--- $(415)(a) $1,645
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
<FN>
(a)Accounts written off, net of recoveries.
</FN>
</TABLE>
<PAGE> 22
EXHIBIT INDEX
Incorporated by
Reference to: Exhibit No. Exhibit
- --------------- ----------- -------
Exhibit 3(a)[1] 3.1 Restated Certificate of Incorporation
Exhibit 3.2 [5] 3.2 Restated By-Laws
Exhibit A to
registrant's Proxy
Statement dated
March 23, 1988
(File No. 0-9786) 10.1 1988 Stock Option Plan
Exhibit 10(a)(1)[4] 10.2 Amendment No. 1 thereto
Exhibit 10(i)[2] 10.3 Employment Agreement, dated
January 1, 1981, between registrant and
Garth S. Lindsey, as amended
Exhibit 10(m)[2] 10.4 Employment Agreement, dated
January 1, 1981, between registrant and
Thomas L. Muir, as amended
Exhibit 10(s)[3] 10.5 Benefit Equalization Plan of registrant
Exhibit 10.10[5] 10.6 Tax Sharing Agreement, between UTV and
BHC dated October 21, 1996, effective
January 1, 1995
Exhibit 10.1[6] 10.7 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 Pricewaterhouse-Coopers 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 27, 1981
<PAGE> 23
[3] Registrant's Annual Report on Form 10-K for the year ended December 31, 1989
[4] Registrant's Annual Report on Form 10-K for the year ended December 31, 1991
[5] Registrant's Annual Report on Form 10-K for the year ended December 31, 1996
[6] Registrant's report on Form 8-K dated February 12, 1998
EXHIBIT 13
CONSOLIDATED STATEMENTS OF INCOME
UNITED TELEVISION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET REVENUES $ 182,849 $ 170,963 $ 174,339
----------------------------------------
EXPENSES:
Operating 64,356 55,369 62,424
Selling, general and administrative 63,561 53,182 52,839
----------------------------------------
127,917 108,551 115,263
----------------------------------------
OPERATING INCOME 54,932 62,412 59,076
----------------------------------------
INTEREST AND OTHER INCOME
Gain on sale of BHC common stock 19,932 -- --
Interest and other income 11,587 12,317 10,163
----------------------------------------
31,519 12,317 10,163
----------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 86,451 74,729 69,239
Provision for income taxes 33,625 29,750 27,500
----------------------------------------
NET INCOME $ 52,826 $ 44,979 $ 41,739
========================================
EARNINGS PER SHARE:
Basic $ 5.62 $ 4.80 $ 4.40
Diluted $ 5.59 $ 4.76 $ 4.36
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Basic 9,395 9,379 9,485
Diluted 9,442 9,446 9,569
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
10
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNITED TELEVISION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 52,826 $ 44,979 $ 41,739
Adjustments to reconcile net income to net cash
provided from operating activities:
Film contract payments (28,001) (25,547) (25,512)
Film contract amortization 28,102 22,077 27,716
Depreciation and other amortization 6,677 4,592 4,611
Gain on sale of BHC common stock (19,932) -- --
Gain on dispositions of other investments (1,191) (448) (59)
Changes in assets and liabilities:
Accounts receivable (1,940) 643 1,378
Prepaid and other assets (3,738) 97 (906)
Accounts payable and accrued expenses 6,697 1,990 (507)
Income taxes payable 3,099 (636) 3,233
--------------------------------------------
Net cash provided from operating activities 42,599 47,747 51,693
--------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities 163,332 172,262 215,047
Sales of other investments -- -- 2,599
Purchases of marketable securities (151,020) (137,501) (207,677)
Purchases of other investments (8,854) -- (20,193)
Station acquisition:
Fixed assets (2,568) -- --
Intangible assets (77,646) -- --
Capital expenditures (5,028) (2,625) (3,110)
--------------------------------------------
Net cash (used in) provided from investing activities (81,784) 32,136 (13,334)
--------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend paid (4,688) (4,687) (4,750)
Proceeds from exercise of employee stock options 3,579 3,939 4,008
Purchases of treasury stock (7,010) (2,755) (32,810)
--------------------------------------------
Net cash used in financing activities (8,119) (3,503) (33,552)
--------------------------------------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (47,304) 76,380 4,807
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 98,075 21,695 16,888
--------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 50,771 $ 98,075 $ 21,695
============================================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
11
<PAGE>
CONSOLIDATED BALANCE SHEETS
UNITED TELEVISION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
DECEMBER 31, 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 50,771 $ 98,075
Marketable securities 166,056 172,506
Accrued interest receivable 890 2,014
Accounts receivable, less allowance for doubtful accounts
of $1,645 and $1,745, respectively 38,853 36,913
Film contract rights 38,074 24,627
Deferred tax benefit 6,209 5,233
Prepaid expenses and other current assets 1,935 1,721
-------------------------
Total current assets 302,788 341,089
-------------------------
OTHER INVESTMENTS 26,385 17,531
-------------------------
FILM CONTRACT RIGHTS, INCLUDING DEPOSITS, LESS
ESTIMATED PORTION TO BE USED WITHIN ONE YEAR 5,113 4,517
-------------------------
PROPERTY AND EQUIPMENT, AT COST:
Land, buildings and improvements 14,364 12,689
Equipment 60,310 54,964
-------------------------
74,674 67,653
Less -- Accumulated depreciation and amortization 58,137 54,478
-------------------------
16,537 13,175
-------------------------
INTANGIBLE ASSETS 99,627 21,981
Less -- Accumulated amortization 13,268 10,825
-------------------------
86,359 11,156
-------------------------
OTHER ASSETS 459 518
-------------------------
$ 437,641 $ 387,986
=========================
</TABLE>
12
<PAGE>
<TABLE>
DECEMBER 31, 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Film contracts payable $ 28,433 $ 26,268
Accounts payable 1,902 3,090
Accrued expenses 30,313 22,428
Income taxes payable 13,158 8,475
------------------------
Total current liabilities 73,806 60,261
------------------------
FILM CONTRACTS PAYABLE AFTER ONE YEAR 23,756 16,483
------------------------
DEFERRED TAX LIABILITIES 2,632 10,502
------------------------
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 9,409,333 and 9,414,273 shares, respectively 941 941
Additional paid-in capital 1,480 3,635
Retained earnings 331,409 283,271
Accumulated other comprehensive income 3,617 12,893
------------------------
337,447 300,740
------------------------
$ 437,641 $ 387,986
========================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE BALANCE SHEETS.
13
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
UNITED TELEVISION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
Common Stock
------------------------- Additional Accumulated Other
Shares Dollar Paid-in Retained Comprehensive
Outstanding Amount Capital Earnings Income Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 9,609,037 $ 961 $ 133 $ 232,839 $ 6,536 $240,469
---------- ----------
Comprehensive income:
Net income -- -- -- 41,739 -- 41,739
Other comprehensive income:
Unrealized loss on securities
(net of tax of $447) -- -- -- -- (67) --
Reclassification adjustment
(net of tax of $48) -- -- -- -- (74) --
----------
Other comprehensive income,
net of tax -- -- -- -- (141) (141)
----------
Total comprehensive income -- -- -- -- -- 41,598
Cash dividend -- -- -- (4,750) -- (4,750)
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
---------- ----------
Comprehensive income:
Net income -- -- -- 44,979 -- 44,979
Other comprehensive income:
Unrealized gain on securities
(net of tax of $4,373) -- -- -- -- 6,770 --
Reclassification adjustment
(net of tax of $176) -- -- -- -- (272) --
----------
Other comprehensive income,
net of tax -- -- -- -- 6,498 6,498
-------
Total comprehensive income -- -- -- -- -- 51,477
Cash dividend -- -- -- (4,687) -- (4,687)
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
---------- ---------
Comprehensive income:
Net income -- -- -- 52,826 -- 52,826
Other comprehensive income:
Unrealized gain on securities
(net of tax of $1,458) -- -- -- -- 4,404 --
Reclassification adjustment
(net of tax of $7,443) -- -- -- -- (13,680) --
----------
Other comprehensive income,
net of tax -- -- -- -- (9,276) (9,276)
----------
Total comprehensive income -- -- -- -- -- 43,550
Cash dividend -- -- -- (4,688) -- (4,688)
Exercise of options, including
tax benefit 63,560 7 4,848 -- -- 4,855
Purchase/retirement of
treasury stock (68,500) (7) (7,003) -- -- (7,010)
--------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 9,409,333 $ 941 $ 1,480 $ 331,409 $ 3,617 $ 337,447
=====================================================================================
</TABLE>
14
<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, 1998) 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. UTV also owns and operates 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 and others, 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. Certain amounts for prior years have been
reclassified to conform with the 1998 presentation.
(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, 1998. 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 $13,220,000, $11,891,000 and
$11,791,000 in 1998, 1997 and 1996, respectively, and barter expense was
$13,486,000, $11,863,000 and $11,683,000 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 1998, 1997 and 1996 were
47,000 shares, 67,000 shares and 84,000 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." (See Note 5.)
15
<PAGE>
(J) SUPPLEMENTAL CASH FLOW INFORMATION. Cash paid for income taxes totaled
$30,526,000 in 1998, $30,386,000 in 1997 and $24,267,000 in 1996.
2. MARKETABLE SECURITIES.
Marketable securities classified by security type are as follows (in thousands):
GROSS UNREALIZED
----------------------
FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
December 31, 1998:
U.S. Government securities $142,578 $ 209 $ 26 $142,761
Equity securities 17,526 6,236 467 23,295
-------------------------------------------------
$160,104 $ 6,445 $ 493 $166,056
=================================================
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
=================================================
At December 31, 1998, of the investments in U.S. Government securities, 82%
mature within one year and all within 15 months. The following table provides
certain additional information related to UTV's marketable securities as of and
for the three years ended December 31, 1998, 1997 and 1996 (in thousands):
1998 1997 1996
- --------------------------------------------------------------------------------
Realized gains $21,756 $ 448 $ 329
Realized losses 633 -- 207
Change in net unrealized gain (15,261) 10,695 (636)
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, 1998 are $13,257,000, $9,505,000,
$706,000, $192,000 and $96,000 in 2000, 2001, 2002, 2003 and thereafter,
respectively. The net present value at December 31, 1998 of such payments,
discounted at 7.75%, was approximately $20,525,000.
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 1998, UTV purchased and retired 68,500 shares of its common stock at
an aggregate cost of $7,010,000. During 1997 and 1996, UTV purchased and retired
30,600 and 363,500 shares of its common stock, respectively. At December 31,
1998, the Board of Directors had authorized purchase of 729,649 additional
shares of common stock.
5. STOCK OPTIONS.
Under the UTV 1988 Stock Option Plan, which has terminated with respect to grant
of new options, options to purchase shares of common stock were 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 five years from date of grant.
Transactions under the Plan during the three years ended December 31, 1998
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 (3,877)
Canceled (1,000) $53.50 (54)
------- -------
Outstanding,
December 31, 1997 155,500 $53.50-$89.00 9,455
Exercised (52,060) $53.50 (2,785)
Canceled (1,200) $53.50 (64)
------- -------
Outstanding,
December 31, 1998 102,240 $53.50-$89.00 $ 6,606
======= =======
Of the options to purchase 102,240 shares under the Plan at December 31,
1998, options for 70,240 shares are currently exercisable at $53.50 per share
and expire on December 26, 1999. The remaining options for 32,000 shares at
$89.00 per share (of which 21,333 are currently exercisable) expire on April 24,
2001. At December 31, 1997 and 1996, options to purchase 132,966 shares and
160,985 shares, respectively, were exercisable at weighted average exercise
prices of $56.35 and $44.22, respectively.
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 and in December 1998
granted a five-year stock option to purchase 3,000 shares at $103.75 per share.
The option price of both grants was the fair market value at date of grant, and
the terms of each grant were essentially the same as those of the 1988 Stock
Option Plan. The 1995 option was terminated in 1998 upon payment to the optionee
of the net market value of the option.
Under the 1995 Director Stock Option Plan, a fixed number of immediately
exercisable five-year 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. At December 31, 1998, options to purchase 24,500 shares
were available for grant.
16
<PAGE>
Transactions under the Plan during the three years ended December 31, 1998 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
Granted 6,000 $112.375 674
Exercised (11,500) $58.00-$89.00 (794)
-------------------------------------------
Outstanding,
December 31, 1998 34,500 $58.00-$112.375 $ 2,643
===========================================
Options outstanding under the 1995 Director Stock Option Plan at December
31, 1998 to purchase the specified number of shares (34,500 in total), at
specified exercise prices per share, expire as follows -- 15,000 at $58.00,
February 22, 2000; 3,500 at $62.50, April 26, 2000; 5,000 at $89.00, April 24,
2001; 5,000 at $87.25, May 5, 2002; and 6,000 at $112.375, May 4, 2003.
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. Related income tax benefits which accrue to UTV are credited to
additional paid-in capital.
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, 1998 1997 1996
- -------------------------------------------------------------------------------
Net Income:
As reported $ 52,826 $ 44,979 $ 41,739
Pro forma $ 52,154 $ 44,300 $ 41,104
Earnings per Share:
As reported: Basic $ 5.62 $ 4.80 $ 4.40
Diluted $ 5.59 $ 4.76 $ 4.36
Pro forma: Basic $ 5.55 $ 4.72 $ 4.33
Diluted $ 5.52 $ 4.69 $ 4.30
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 December 31, 1995 is not considered; and additional options
may be granted in future years.
The weighted average fair values of options granted during 1998, 1997 and
1996 were $23.49, $22.86 and $22.88, 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,
1998, 1997 and 1996, respectively: dividend yields of .46% for 1998 and zero for
1997 and 1996; expected volatility of 15.13%, 16.09% and 16.21%, respectively;
risk free interest rates of 5.24%, 6.49% and 6.25%, respectively; and expected
life of four years for all periods.
6. INCOME TAXES.
Income tax expense consists of the following (in thousands):
YEAR ENDED DECEMBER 31, 1998 1997 1996
- -------------------------------------------------------------------------------
Federal:
Current $29,600 $24,350 $23,268
Deferred (975) (125) (918)
---------------------------------------------
28,625 24,225 22,350
---------------------------------------------
State:
Current 5,175 5,550 5,332
Deferred (175) (25) (182)
---------------------------------------------
5,000 5,525 5,150
---------------------------------------------
Total $33,625 $29,750 $27,500
=============================================
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, 1998 1997 1996
- -------------------------------------------------------------------------------
Statutory federal income
taxes $30,258 $26,155 $24,234
State income taxes, net
of federal income tax
benefit 3,239 3,587 3,493
Dividend exclusion (159) (179) (113)
Goodwill amortization 102 102 102
Other, net 185 85 (216)
---------------------------------------------
Total $33,625 $29,750 $27,500
=============================================
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, 1998 1997
- -------------------------------------------------------------------------------
Deferred tax assets:
State taxes $ 1,964 $ 1,735
Bad debt reserve 683 724
Vacation accrual 517 486
Benefits program 3,083 2,158
Film contract rights amortization 2,359 --
Other -- 130
----------------------------
8,606 5,233
----------------------------
Deferred tax liabilities:
Depreciation (1,102) (1,478)
Intangibles assets amortization (1,589) (580)
SFAS 115 adjustment (2,334) (8,444)
Other (4) --
----------------------------
(5,029) (10,502)
----------------------------
Net deferred tax assets (liabilities) $ 3,577 $ (5,269)
============================
17
<PAGE>
7. PENSION PLANS.
UTV maintains noncontributory defined benefit plans, covering substantially all
employees. The funding policy is to contribute annually an amount sufficient to
fund current service costs and to amortize the unfunded accrued liability over
25 years. The unrecognized net obligation is being amortized over a 15-year
period.
The estimated funded status of the plans, including amounts accrued in a
nonqualified plan for retirement benefits in excess of statutory limitations,
was as follows (in thousands):
DECEMBER 31, 1998 1997
- --------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning
of year $22,120 $19,173
Service cost 1,446 1,310
Interest cost 1,621 1,424
Actuarial gain 817 758
Amendments 471 --
Benefits paid (629) (545)
-------------------------
Benefit obligation at end of year 25,846 22,120
-------------------------
Change in plan assets:
Fair value of plan assets at beginning
of year 20,786 19,752
Actual return on plan assets 2,089 1,579
Benefits paid (629) (545)
-------------------------
Fair value of plan assets at end
of year 22,246 20,786
-------------------------
Plan assets less than projected
benefit obligation (3,600) (1,334)
Unrecognized initial net obligation 47 63
Unrecognized prior service cost 366 (98)
Unrecognized net actuarial gain (116) (419)
-------------------------
Accrued pension liability $(3,303) $(1,788)
=========================
The accumulated benefit obligation, projected benefit obligation and fair
value of plan assets for the plan that has an accumulated benefit obligation in
excess of the fair value of plan assets are $1,141,000, $2,548,000 and zero,
respectively, at December 31, 1998, and $756,000, $1,932,000 and zero,
respectively, at December 31, 1997.
Pension expense, including amounts accrued in the nonqualified plan, was as
follows (in thousands):
YEAR ENDED DECEMBER 31, 1998 1997 1996
- -------------------------------------------------------------------------------
Service cost $ 1,446 $ 1,310 $ 1,001
Interest cost 1,621 1,424 1,243
Expected return on
plan assets (1,591) (1,512) (1,354)
Amortizations:
Initial unrecognized
net obligation 16 16 16
Prior service cost 6 (29) (29)
Actuarial loss 17 31 20
-------------------------------------------
Net periodic pension cost $ 1,515 $ 1,240 $ 897
===========================================
Assumptions used in accounting for pension plans for each year are as
follows:
1998 1997 1996
- -------------------------------------------------------------------------------
Discount rate at end of year 6.75% 7.25% 7.25%
Rate of increase in future
compensation levels 4.00% 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 (merged with a Chris-Craft stock purchase
plan effective January 1, 1999) and a noncontributory profit sharing plan. The
aggregate costs of such plans, including related amounts accrued in the
nonqualified plan, were $3,590,000 in 1998, $3,877,000 in 1997 and $2,961,000,
in 1996.
8. RELATED PARTY TRANSACTIONS.
In June 1998, UTV sold its holding of BHC Class A Common Stock to BHC.
Included in net revenues for 1998, 1997 and 1996 are commissions earned by
UTS for the sale of national advertising on BHC's three television stations of
$4,467,000, $4,217,000 and $4,286,000, 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, 1998, and a management fee UTV paid BHC of $1,950,000 in 1998
and $1,750,000 in each of 1997 and 1996.
UTV and BHC together participate in the joint production and distribution
with third parties of original programming. In 1998, 1997 and 1996,
reimbursements from third parties were sufficient to cover production costs.
18
<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 Federal Communications
Commission 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 $91,196,000 at December 31, 1998.
At December 31, 1998, UTV was obligated under several noncancelable leases
on real property and equipment that expire between 1999 and 2012. Rental expense
was $2,850,000, $2,300,000 and $2,271,000 for 1998, 1997 and 1996, respectively.
Aggregate future minimum rental payments under such leases at December 31, 1998
are $14,267,000, with amounts of $2,658,000, $2,071,000, $1,857,000, $1,726,000
and $1,479,000 due in 1999, 2000, 2001, 2002 and 2003, respectively.
At December 31, 1998, UTV has a remaining commitment to invest over time up
to $10,952,000 in management buyout limited partnerships.
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.
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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, 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/ PricewaterhouseCoopers LLP
Century City, California
February 10, 1999
19
<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 (amortization exceeded payments by
$101,000 in 1998, while payments exceeded amortization by $3,470,000 in 1997),
and is dependent upon the mix of programs aired and payment terms of the
stations' contracts. UTV stations generated substantial cash flow in 1998 and
are expected to do the same in 1999. 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 1998 cash flow from operations
totaled $42,599,000. However, as a result of cash used to acquire WUTB-TV, to
purchase UTV common shares and to make other investments, cash and marketable
securities decreased $53,754,000 to $216,827,000 at December 31, 1998. UTV has a
remaining commitment to invest over time up to $10,952,000 in limited
partnerships.
Reflecting the WUTB-TV acquisition, treasury stock purchases, other
investments and federal income taxes resulting from the gain on the sale to BHC
of UTV's holding of BHC Class A Common Stock (BHC holding sale), working capital
decreased $51,846,000 during 1998 to $228,982,000 at December 31, 1998. Working
capital at December 31, 1998 remains substantially in excess of UTV's normal
operating requirements.
In 1997, UTV signed a definitive agreement to purchase the assets of
television station WRBW-TV in Orlando, Florida, for approximately $60,000,000
and possible future consideration. UTV expects to use a portion of available
cash and marketable securities balances to complete this transaction, which is
subject to Federal Communications Commission approval, as well as satisfaction
of certain conditions. 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 $91,196,000 at December 31, 1998. 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, 1998, purchase of an additional 729,649
shares was so authorized. From January 1, 1996 through December 31, 1998,
462,600 shares were purchased for an aggregate cost of $42,575,000, of which
68,500 shares were purchased during 1998 for an aggregate cost of $7,010,000.
UTV's commitments for capital expenditures at December 31, 1998 were not
material in relation to UTV's financial position. During 1998 UTV's stations
began converting to digital television (DTV). This conversion will require the
purchase of digital transmitting equipment to telecast over a newly assigned
frequency. KBHK-TV in San Francisco will be the first of the UTV stations to
make the initial conversion to DTV signal transmission. This conversion rollout
is expected to take a number of years and will be subject to competitive market
conditions. Funds for capital expenditures have generally been provided from
operations. UTV expects that future capital
20
<PAGE>
expenditures for its present business, including the cost to convert to DTV,
will be funded from operations or current cash balances. UTV has no present
requirement for additional capital.
UTV has assessed year 2000 issues and believes that such issues will not
have a material effect on its business, results of operations, or financial
condition and that the estimated compliance cost is immaterial.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
UTV is subject to certain market risk as it relates to its marketable
securities holdings, which are all held for other than trading purposes. The
table below provides information as of December 31, 1998 about the U.S.
Government securities which are subject to interest rate sensitivity and the
equity securities which are subject to equity market sensitivity (in thousands):
Cost Fair Value
- -------------------------------------------------------------------------------
U.S. Government securities $142,578 $142,761
Equity securities 17,526 23,295
All of UTV's marketable securities have been categorized as available for
sale and are comprised substantially of U.S. Government securities, 82% of which
mature in one year and all within 15 months. (See Notes 1(D) and 2 to the
Consolidated Financial Statements.)
RESULTS OF OPERATIONS
1998 VERSUS 1997. UTV's primary source of revenue is the sale to
advertisers of time on its six television stations. UTV's 1998 net income
increased 17% to $52,826,000, or $5.62 per basic share ($5.59 per diluted
share), from $44,979,000, or $4.80 per basic share ($4.76 per diluted share), in
1997. Net income in 1998 included an after-tax gain of $12,932,000, or $1.38 per
basic share, ($1.37 per diluted share), on the BHC holding sale.
Consolidated net revenues for the year rose 7% to a record $182,849,000,
from $170,963,000 last year. The increase reflects revenue at WUTB-TV, UTV's
Baltimore television station which was acquired early in the first quarter of
1998 and immediately thereafter began operating for the first time as a
traditional commercial broadcasting station; increased current year and
retroactive revenue resulting from a new long-term affiliation agreement at
UTV's NBC affiliate; and a slight increase in other same station revenues.
This revenue increase and increased operating income associated with UTV's
production entity were more than offset by an 18% increase in consolidated
expenses. The expense increase resulted from operating expenses at WUTB-TV
(which incurred a small operating loss), a non-recurring severance expense and a
9% increase in same station operating expenses, including a 14% increase in
programming costs. Operating income fell 12% in 1998 to $54,932,000, from
$62,412,000 in 1997. Interest and other income for 1998 decreased 6% to
$11,587,000, from $12,317,000 in 1997, reflecting a decrease in cash and
marketable securities resulting from the acquisition of WUTB-TV.
1997 VERSUS 1996. UTV's 1997 net income increased 8% to $44,979,000, from
$41,739,000 in 1996. Earnings per share for the year increased 9% to $4.80 per
basic share ($4.76 per diluted share), from $4.40 per basic share ($4.36 per
diluted share), in 1996, as purchases of common stock under UTV's stock
repurchase program reduced the average number of common shares outstanding.
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 in 1996. The decrease in net revenue reflects reduced demand by
local advertisers in 1997, and Olympics related revenue and a retroactive
network revenue adjustment recorded in 1996. Consolidated expenses decreased 6%
from 1996, 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.
21
<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, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 182,849 $ 170,963 $ 174,339 $ 165,559 $150,980
==========================================================================
Operating income $ 54,932 $ 62,412 $ 59,076 $ 50,882 $ 52,237
Gain on sale of BHC common stock 19,932 -- -- -- --
Interest and other income 11,587 12,317 10,163 10,290 7,084
Income taxes (33,625) (29,750) (27,500) (24,300) (24,150)
--------------------------------------------------------------------------
Net income $ 52,826 $ 44,979 $ 41,739 $ 36,872 $ 35,171
==========================================================================
Earnings per share:
Basic $ 5.62 $ 4.80 $ 4.40 $ 3.78 $ 3.50
Diluted $ 5.59 $ 4.76 $ 4.36 $ 3.74 $ 3.48
Cash and current marketable securities $ 216,827 $ 270,581 $ 194,866 $ 199,500 $185,494
Total assets $ 437,641 $ 387,986 $ 335,598 $ 330,987 $305,676
Working capital $ 228,982 $ 280,828 $ 205,170 $ 216,198 $196,956
Long-term debt $ -- $ -- $ -- $ -- $ --
Shareholders' investment $ 337,447 $ 300,740 $ 250,441 $ 240,469 $227,921
</TABLE>
QUARTERLY FINANCIAL DATA
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, 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 39,293 $ 48,503 $ 40,111 $ 54,942 $182,849
Operating income 7,972 18,223 10,593 18,144 54,932
Net income 6,610 24,872 8,456 12,888 52,826
Earnings per share:
Basic $ .71 $ 2.65 $ .90 $ 1.37 $ 5.62
Diluted $ .70 $ 2.63 $ .89 $ 1.36 $ 5.59
YEAR ENDED DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------------------------------------
Net revenues $ 38,327 $ 44,919 $ 40,436 $ 47,281 $170,963
Operating income 11,974 18,087 13,768 18,584 62,413
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
</TABLE>
22
<PAGE>
STOCK PRICE, DIVIDEND
AND RELATED INFORMATION
United Television, Inc. common stock trades on the Nasdaq Stock Market(R) under
the symbol:UTVI.
The high and low sales prices as reported by Nasdaq for the periods
indicated were:
1998 1997
----------------------------------------------------
Quarter High Low High Low
- ------------------------------------------------------------------------------
First $ 111.375 $ 100.250 $ 95.250 $ 86.125
Second 116.125 107.500 99.000 83.500
Third 121.000 105.000 106.250 96.750
Fourth 115.000 100.000 111.500 101.000
In 1998 and 1997, UTV paid a cash dividend of $.50 per share. In February
1999, UTV declared a dividend of $.50 per share payable on April 13, 1999 to
shareholders of record on March 12, 1999. The Board of Directors intends each
year to consider declaration of a cash dividend.
As of February 28, 1999, there were approximately 2,600 holders of record
of common stock.
23
Exhibit 21
The following were the registrant's subsidiaries as of December 31, 1998, other
than subsidiaries that, if considered in the aggregate as a single subsidiary,
would not constitute a significant subsidiary at such date:
Jurisdiction of
Name 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, 1999 which appears on page 19 of the 1998
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,
1998. We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page 20 of such Annual Report on
Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Century City, California
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM 10K DATED
DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 50,771
<SECURITIES> 166,056
<RECEIVABLES> 38,853
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 302,788
<PP&E> 74,674
<DEPRECIATION> 58,137
<TOTAL-ASSETS> 437,641
<CURRENT-LIABILITIES> 73,806
<BONDS> 0
<COMMON> 941
0
0
<OTHER-SE> 336,506
<TOTAL-LIABILITY-AND-EQUITY> 437,641
<SALES> 182,849
<TOTAL-REVENUES> 182,849
<CGS> 127,917
<TOTAL-COSTS> 127,917
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 86,451
<INCOME-TAX> 33,625
<INCOME-CONTINUING> 52,826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,826
<EPS-PRIMARY> 5.62
<EPS-DILUTED> 5.59
</TABLE>
