TV Azteca Announces Record EBITDA of US$116 Million in 4Q02 And US$308 Million in Full Year EBITDA Increases 28% in 4Q02 and 19% for Full Year 2002 - EBITDA Margin at 61% in 4Q02 and 48% in Full Year - MEXICO CITY, Feb. 18 /PRNewswire-FirstCall/ -- TV Azteca, S.A. de C.V. (NYSE: TZA; BMV: TVAZTCA), one of the two largest producers of Spanish language television programming in the world, today announced fourth quarter record net sales of US$190 million and record EBITDA of US$116 million, a 3% and a 28% increase, respectively, over the prior year period. Fourth quarter EBITDA margin rose twelve percentage points to 61%. Net sales for the year rose 9% to an all-time high level of US$644 million. Full year EBITDA increased 19% to US$308 million, its highest level since 1997. The EBITDA margin for 2002 grew to 48%, up from 44% in 2001. "During the year we successfully competed with innovative programming formats, forged even closer commercial ties with advertisers, and enhanced strength in domestic and international markets, which translated into dynamic growth in overall net sales," said Pedro Padilla, Chief Executive Officer of TV Azteca. "At the same time, our cutting-edge cost control systems preserved overall costs and expenses in sound levels, which resulted in an annual five-year record EBITDA." Mr. Padilla noted that TV Azteca's proven business strategy will continue providing robust EBITDA and substantial cash flow in 2003 and beyond, and that upcoming cash generation will be largely geared towards debt reduction and dividend distribution on an ongoing basis. "Our board recently approved a six-year plan for uses of cash that reduces our leverage profile and distributes benefits of the Company's consistent profitability to its shareholders. We found this to be the best use for TV Azteca's cash generation, considering that we do not foresee large investments needed to consolidate our solid core operations in the near future," Mr. Padilla added. Fourth Quarter Results Net sales grew 3% to US$190 million, up from US$185 million one year ago. Total costs and expenses decreased 21% to US$73 million from US$94 million for the same period of 2001. As a result, the Company reported EBITDA of US$116 million, 28% higher than US$91 million in the fourth quarter of last year. EBITDA margin was 61%, compared with 49% for the prior year period. Net income for the quarter was US$69 million, 6% above the US$65 million in the fourth quarter of 2001. Millions of pesos(1) and dollars(2) except percentages and per share amounts. 4Q 2001 4Q 2002 Change US $% Net Sales Pesos Ps. 1,922 Ps. 1,976 US$ US$ 185 US$ 190 5 +3% EBITDA(3) Pesos Ps. 944 Ps. 1,207 US$ US$ 91 US$ 116 25 28% Net Income Pesos Ps. 675 Ps. 715 US$ US$ 65 US$ 69 4 +6% Income per ADS(4) Pesos Ps. 3.57 Ps. 3.79 US$ US$ 0.34 US$ 0.36 .02 +6% (1) Pesos of constant purchasing power as of December 31, 2002. (2) Conversion based on the exchange rate of Ps.10.40 per US dollar as of December 31, 2002. (3) EBITDA is Profit Before Depreciation and Amortization under Mexican GAAP. (4) Calculated based on 188.9 million ADSs outstanding as of December 31, 2002. Share of Commercial Audience TV Azteca's full day commercial audience share was 40% during the quarter, compared with 39% for the same period of 2001, and with 37% for the prior quarter. "During the fourth quarter, we generated comparatively large audience levels, fitting our strategy to create the greatest gross rating points when seasonal demand peaks," commented Mario San Roman, Chief Operating Officer of TV Azteca. "We built a very competitive programming grid with a full lineup of solid novelas, newscasts, sports and entertainment shows, where La Academia, our "musical reality" show was particularly outstanding, delivering all-time high ratings for any internally produced entertainment program." Net Sales The 3% increase in net sales reflects favorable solutions for our clients' marketing needs, an increase of approximately 8% in fourth quarter advertising rates in real terms, and a 4% decrease in full day utilization rates, compared with the same quarter of last year. "Our sales force has been successful in designing optimal advertising solutions to accurately suit our different clients' marketing preferences," added Mr. San Roman. "We are confident that our strategy of crafting exactly the right advertising campaign for each advertiser will continue to deliver dynamic sales going forward." During the quarter, TV Azteca reported content and advertising sales to Todito.com of US$6.2 million, and US$2.4 million of advertising sales to Unefon. In the same period of 2001, sales to Todito and Unefon were US$4.2 million and US$2.6 respectively. Barter sales were US$4 million compared with US$2 million in the same period of the prior year. Inflation adjustment of advertising advances was US$6 million, compared with US$8 million of the fourth quarter of 2001. Costs and Expenses The 21% decrease in fourth quarter costs and expenses resulted from a 29% reduction in production, programming and transmission costs to US$48 million from US$69 million in the prior year period, as well as from a constant level of administration and selling expense at US$25 million, compared with the same quarter a year ago. "During the fourth quarter, where we traditionally have seasonally higher costs, we were particularly strict in generating content under the most disciplined cost standards, " said Carlos Hesles, Chief Financial Officer of TV Azteca. "We also benefited from a superior position in the learning curve for production of reality shows, as well as from the amortization in the prior quarter of costs associated with the building up of the production facilities of La Academia." Reduction in production, programming and transmission costs include the cancellation of US$9 million of amortization of exhibition rights recorded during the first nine months of 2002. After a thorough revision of its programming inventories, the Company believes the exhibition rights previously reserved match the interest of many of its target audiences and will continue to bring revenue to TV Azteca in the coming quarters. Excluding the cancellation of previously reserved exhibition rights; production, programming and transmission costs were US$57 million, 17% below the fourth quarter of the prior year. Administration and selling expense, constant at US$25 million, reflects controlled personnel, services and operating expenses. EBITDA and Net Income Net revenue growth combined with the reduction in total costs and expenses resulted in an all time high EBITDA of US$116 million, up 28% compared with US$91 million a year ago. The EBITDA margin was 61%, 12 percentage points above 49% posted in the prior year period. Excluding the cancellation of the reserve of exhibition rights, EBITDA was US$107 million and EBITDA margin was 56%. Below EBITDA, results were favorably impacted by a zero balance of depreciation and amortization in the quarter, compared with US$14 million in the prior year period. This resulted from a positive sum of US$8 million for total amortization, compared with a negative US$4 million in the fourth quarter of 2001. According to accounting bulletin C-8, adopted in 2002 by the Company, intangible assets with indefinite life, including television concessions, are subject to annual impairment tests to establish their market value, which will determine their yearly impairment. Previously, television concessions were given a predetermined useful life and were amortized straight line. The positive figure for amortization in the fourth quarter reflects a market value for television concessions above book value at year-end 2002, and thus, a reversal in accumulated amortization recorded in the first nine months of the year, which was determined under the prior method. Accounting bulletin C-8 is in line with US GAAP guidelines for amortization, and started to apply in the United States in 2002. The Company recorded other expense of US$17 million during the quarter, compared with a zero balance a year ago. This was principally associated with non-recurring charges coming from cancellation of Internet agreements, cancellation of assets derived from the Company's operations in Costa Rica, and adjustment in the value of property dedicated to content production, as well as increased expenses non-deductible for tax purposes, and larger losses of affiliates recorded through the equity method. Net income was also affected by a US$9 million reduction in exchange gain compared with the prior year period. The reduction was the result of a 2% depreciation of the peso against the dollar during the quarter, compared with a 4% appreciation during the same period of last year, as well as a decrease in the net dollar liability position of the Company. Fourth quarter net income was US$69 million, 6% above the US$65 million of the same quarter a year ago. Advertising Advances at US$428 million The balance of advertising advances as of December 31, 2002, excluding presales to Unefon and Todito, was US$428 million, compared with US$446 million in the prior year. Considering presale contracts for 2003 that were signed during the month of January and the first days of February of this year, the balance of advertising advances for 2003 was 1% above the prior year's balance. Guidelines for Future Uses of Cash Earlier this month, the Company announced that its board approved a six-year course of action for uses of its free cash flow generation, which is expected to be above US$125 million per year. The Company anticipates that it will use approximately US$250 million of its free cash flow within the six-year span to gradually reduce TV Azteca's outstanding debt, following a payment schedule fitting its maturities. The Company's major debt obligations that expire within the next five years are US$125 million of notes due in 2004, and an additional US$300 million of notes maturing in 2007. The board also authorized an aggregate amount above US$500 million to make distributions to shareholders within the next six years. The Company expects the guidelines approved will add further value to its stakeholders by reducing TV Azteca's overall risk profile, and by distributing the benefits of its consistent profitability. Unefon During the fourth quarter, TV Azteca made payments for US$8.5 million under credit guarantees previously granted in favor of Unefon, the Mexican mobile telephony operator 46.5% owned by TV Azteca. For the year ended December 31, 2002 TV Azteca paid an aggregate amount of US$19 million to Unefon's creditors under these guarantees. Twelve Month Results For all of 2002, net sales were US$644 million, a 9% increase over last year's US$589 million. EBITDA rose to US$308 million and EBITDA margin grew to 48%, compared with US$259 million and a 44% EBITDA margin in 2001. Net earnings were US$95 million, compared with net earnings of US$145 million in 2001. Millions of pesos(1) and dollars (2) except percentages and per share amounts. 2001 2002 Change US $% Net Revenue Pesos Ps. 6,124 Ps. 6,690 US$ US$ 589 US$ 644 54 +9% EBITDA(3) Pesos Ps. 2,696 Ps. 3,205 US$ US$ 259 US$ 308 49 +19% Net Income Pesos Ps. 1,506 Ps. 984 US$ US$ 145 US$ 95 (50) -35% Income per ADS(4) Pesos Ps. 7.97 Ps. 5.21 US$ US$ 0.77 US$ 0.50 (0.27) -35% (1) Pesos of constant purchasing power as of December 31, 2002. (2) Conversion based on the exchange rate of Ps.10.40 per US dollar as of December 31, 2002. (3) EBITDA is Profit Before Depreciation and Amortization under Mexican GAAP. (4) Calculated based on 188.9 million ADSs outstanding as of December 31, 2002. Company Profile TV Azteca is one of the two largest producers of Spanish language television programming in the world, operating two national television networks in Mexico, Azteca 13 and Azteca 7, through more than 300 owned and operated stations across the country. TV Azteca affiliates include Azteca America Network, a new broadcast television network focused on the rapidly growing US Hispanic market; Unefon, a Mexican mobile telephony operator focused on the mass market; and Todito.com, an Internet portal for North American Spanish speakers. Except for historical information, the matters discussed in this press release are forward-looking statements and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Risks that may affect TV Azteca are identified in its Form 20-F and other filings with the US Securities and Exchange Commission. TV Azteca, S.A. DE C.V. and Subsidiaries Consolidated Results Of Operations* (Millions of Mexican pesos of December 31, 2002 purchasing power) Fourth Quarter of: 2001 2002 Net revenue $1,922 $1,976 Programming, production and transmission costs 714 504 Sales and administrative expenses 264 265 EBITDA 944 1,207 Depreciation and amortization 148 (5) Operating profit 796 1,212 Other expense -Net -- (172) Comprehensive financing cost: Interest expense (181) (193) Other financing expense (2) (16) Interest income 50 35 Exchange gain -Net 116 24 Loss on monetary position (11) (36) Net comprehensive financing cost (28) (186) Income before provision for income tax and deferred income tax 768 854 Provision for: Income tax (96) (113) Deferred income tax benefit (expense) 3 (26) Net income $675 $715 Net (loss) income of minority stock holders $(0.3) $0.1 Net income of majority stock holders $675 $715 End of period exchange rate** $9.16 $10.40 Millions of US Dollars ** Fourth Quarter of: 2001 % 2002 % Change Dls % Net revenue $185 100% $190 100% 5 3% Programming, production and transmission costs 69 37% 48 26% (20) -29% Sales and administrative expenses 25 14% 25 13% 0 0% EBITDA 91 49% 116 61% 25 28% Depreciation and amortization 14 (0) (15) Operating profit 77 41% 117 61% 40 52% Other expense -Net -- (17) (17) Comprehensive financing cost: Interest expense (17) (19) (1) Other financing expense (0) (2) (1) Interest income 5 3 (1) Exchange gain -Net 11 2 (9) Loss on monetary position (1) (3) (2) Net comprehensive financing cost (3) (18) (15) Income before provision for income tax and deferred income tax 74 40% 82 43% 8 11% Provision for: Income tax (9) (11) (2) Deferred income tax benefit (expense) 0 (3) (3) Net income $65 35% $69 36% 4 6% Net (loss) income of minority stock holders $(0) $0 0 Net income of majority stock holders $65 $69 4 End of period exchange rate** * Mexican GAAP. ** The U.S. dollar figures represent the Mexican peso amounts as of December 31, 2002 expressed as of December 31, 2002 purchasing power, translated at the exchange rate of Ps. 10.40 per U.S. dollar. TV Azteca, S.A. De C.V. and Subsidiaries Consolidated Results of Operations* (Millions of Mexican pesos of December 31, 2002 purchasing power) Year ended December 31, 2001 2002 Net revenue $6,124 $6,690 Programming, production and transmission costs 2,471 2,511 Sales and administrative expenses 957 974 EBITDA 2,696 3,205 Depreciation and amortization 604 385 Operating profit 2,092 2,820 Other expense -Net (244) (442) Comprehensive financing cost: Interest expense (744) (725) Other financing expense (27) (136) Interest income 240 192 Exchange gain (loss)-Net 198 (353) Gain (loss) on monetary position 2 (82) Net comprehensive financing cost (331) (1,104) Income before provision for income tax and deferred income tax 1,517 1,274 Provision for: Income tax (210) (264) Deferred income tax benefit (expense) 199 (26) Net income $1,506 $984 Net loss of minority stock holders $(2) $(0.2) Net income of majority stock holders $1,508 $984 End of period exchange rate** $9.16 $10.40 Millions of US Dollars ** Year ended December 31, 2001 % 2002 % Change Dls % Net revenue $589 100% $644 100% 54 9% Programming, production and transmission costs 238 40% 242 38% 4 2% Sales and administrative expenses 92 16% 94 15% 2 2% EBITDA 259 44% 308 48% 49 19% Depreciation and amortization 58 37 (21) Operating profit 201 34% 271 42% 70 35% Other expense -Net (23) (43) (19) Comprehensive financing cost: Interest expense (72) (70) 2 Other financing expense (3) (13) (10) Interest income 23 18 (5) Exchange gain (loss)-Net 19 (34) (53) Gain (loss) on monetary position 0 (8) (8) Net comprehensive financing cost (32) (106) (74) Income before provision for income tax and deferred income tax 146 25% 123 19% (23) -16% Provision for: Income tax (20) (25) (5) Deferred income tax benefit (expense) 19 (3) (22) Net income $145 25% $95 15% (50) -35% Net loss of minority stock holders $(0) $(0) 0 Net income of majority stock holders $145 $95 (50) End of period exchange rate** * Mexican GAAP. ** The U.S. dollar figures represent the Mexican peso amounts as of December 31, 2002 expressed as of December 31, 2002 purchasing power, translated at the exchange rate of Ps. 10.40 per U.S. dollar. TV Azteca, S.A. De C.V. And Subsidiaries Consolidated Balance Sheets* (Millions of Mexican pesos of December 31, 2002 purchasing power) Millions of US Dollars** At December 31, At December 31, Change 2001 2002 2001 2002 Dls % Current assets: Cash and cash equivalents $1,651 $1,393 $159 $134 (25) Accounts receivable 4,927 4,921 474 473 (1) Other current assets 1,108 929 107 89 (17) Total current assets 7,686 7,243 739 697 (43) -6% Accounts receivable from Unefon 1,931 2,009 186 193 8 Property, plant and equipment-Net 2,304 2,231 222 215 (7) Television concessions- Net 3,743 3,742 360 360 (0) Investment in Unefon 1,848 1,756 178 169 (9) Investment in Todito 398 320 38 31 (8) Investment in Azteca America 660 1,154 63 111 48 Exhibition rights 1,043 1,380 100 133 32 Other assets 1,203 1,182 116 114 (2) Goodwill -Net 679 642 65 62 (4) Total long term assets 13,809 14,416 1,328 1,387 58 4% Total assets $21,495 $21,659 $2,068 $2,084 16 1% Current liabilities: Short-term debt $567 $437 $55 $42 (13) Other current liabilities 1,708 1,520 164 146 (18) Total current liabilities 2,275 1,957 219 188 (31) -14% Long-term liabilities Guaranteed senior notes 4,115 4,418 396 425 29 Bank loans 1,508 1,303 145 125 (20) Advertising advances 4,640 4,446 446 428 (19) -4% Unefon advertising advance 2,258 2,167 217 208 (9) Todito advances 715 504 69 48 (20) Other long term liabilities 206 246 20 24 4 Deferred income tax payable 26 2 2 Total long-term liabilities 13,442 13,110 1,293 1,261 (32) -2% Total liabilities 15,717 15,067 1,512 1,449 (63) -4% Total stockholders' equity 5,778 6,592 556 634 78 14% Total liabilities and equity $21,495 $21,659 $2,068 $2,084 16 1% End of period exchange rate $9.16 $10.40 * Mexican GAAP. ** The U.S. dollar figures represent Mexican peso amounts as of December 31, 2002, expressed as of December 31, 2002 purchasing power, translated at the exchange rate of Ps. 10.40 per U.S. dollar. TV Azteca, S.A. De C.V. And Subsidiaries Consolidated Statements of Changes in Financial Position (Millions of Mexican pesos of December 31, 2002 purchasing power) Year ended December 31, Operations: 2001 2002 Net income $1,506 $984 Charges (credits) to results of operation not affecting resources: Amortization of concessions and goodwill 162 42 Depreciation 442 343 Equity method in associate and affiliates 68 111 Deferred income tax (benefit) expense (201) 26 Net change in accounts receivable, inventories, exhibition rights, related parties, accounts payable and accrued expenses (281) (119) Unefon advertising advances (55) (91) Todito advertising, programming, and services advances (196) (211) Advertising advances 182 (194) Resources provided by operations 1,627 891 Investment: Acquisition of property, machinery and equipment -Net (177) (241) Account receivable from Pappas Southern California, LLC (191) Investment in affiliates of Pappas Telecasting Companies, through Azteca America (660) Advance payment for the Azteca America equity option (456) Minority interest (3) 1 Resources used in investing activities (1,031) (696) Financing: Guaranteed senior notes (411) 303 Bank loans -Net 37 (335) Stock options exercised 81 24 Preferred dividend paid (42) (40) Repurchase of shares (43) (170) Sale of treasury shares 162 137 Financial instruments (173) Loan granted to related party (199) Resources used in financing activities (216) (453) Increase (decrease) in cash and cash equivalents 380 (258) Cash and cash equivalents at beginning of year 1,270 1,651 Cash and cash equivalents at end of year $1,650 $1,393