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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended Commission file number:
June 30, 2001 333-02302
ALLBRITTON COMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 74-180-3105
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
808 Seventeenth Street, N.W.
Suite 300
Washington, D.C. 20006-3910
(Address of principal executive offices)
Registrant's telephone number, including area code: 202-789-2130
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
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Number of shares of Common Stock outstanding as of August 3, 2001: 20,000
shares.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING ITEM 2 "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THAT ARE NOT HISTORICAL FACTS AND INVOLVE A
NUMBER OF RISKS AND UNCERTAINTIES. THERE ARE A NUMBER OF FACTORS THAT COULD
CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN
SUCH FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, WITHOUT LIMITATION, THE
COMPANY'S OUTSTANDING INDEBTEDNESS AND ITS HIGH DEGREE OF LEVERAGE; THE
RESTRICTIONS IMPOSED ON THE COMPANY BY THE TERMS OF THE COMPANY'S INDEBTEDNESS;
THE HIGH DEGREE OF COMPETITION FROM BOTH OVER-THE-AIR BROADCAST STATIONS AND
PROGRAMMING ALTERNATIVES SUCH AS CABLE TELEVISION, WIRELESS CABLE, IN-HOME
SATELLITE DISTRIBUTION SERVICE AND PAY-PER-VIEW AND HOME VIDEO AND ENTERTAINMENT
SERVICES; THE IMPACT OF NEW TECHNOLOGIES; CHANGES IN FEDERAL COMMUNICATIONS
COMMISSION REGULATIONS; AND THE VARIABILITY OF THE COMPANY'S QUARTERLY RESULTS
AND THE COMPANY'S SEASONALITY.
ALL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY ARE
EXPRESSLY QUALIFIED BY THE FOREGOING CAUTIONARY STATEMENTS.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS WHICH REFLECT MANAGEMENT'S VIEW ONLY AS OF THE DATE HEREOF. THE
COMPANY UNDERTAKES NO OBLIGATION TO RELEASE THE RESULT OF ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES
AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
ALLBRITTON COMMUNICATIONS COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Operations and Retained Earnings
for the Three and Nine Months Ended June 30, 2000 and 2001.. 1
Consolidated Balance Sheets as of September 30, 2000 and
June 30, 2001............................................... 2
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 2000 and 2001................................ 3
Notes to Interim Consolidated Financial Statements.......... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 5
Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 12
Item 6. Exhibits and Reports on Form 8-K............................ 12
Signatures............................................................ 13
Exhibit Index......................................................... 14
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Dollars in thousands)
(unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2000 2001 2000 2001
---- ---- ---- ----
Operating revenues, net ................ $ 54,544 $ 49,747 $ 157,395 $ 150,453
--------- --------- --------- ---------
Television operating expenses, excluding
depreciation and amortization ..... 27,627 27,507 85,521 85,595
Depreciation and amortization .......... 3,813 3,631 11,702 10,527
Corporate expenses ..................... 1,085 1,402 3,285 4,230
--------- --------- --------- ---------
32,525 32,540 100,508 100,352
--------- --------- --------- ---------
Operating income ....................... 22,019 17,207 56,887 50,101
--------- --------- --------- ---------
Nonoperating income (expense)
Interest income
Related party ................. 637 582 1,925 1,894
Other ......................... 101 46 246 268
Interest expense .................. (10,224) (10,515) (32,007) (31,118)
Other, net ........................ (292) (283) (943) (954)
--------- --------- --------- ---------
(9,778) (10,170) (30,779) (29,910)
--------- --------- --------- ---------
Income before income taxes ............. 12,241 7,037 26,108 20,191
Provision for income taxes ............. 5,174 2,697 10,944 7,984
--------- --------- --------- ---------
Net income ............................. 7,067 4,340 15,164 12,207
Retained earnings, beginning of period . 62,151 79,105 54,054 71,238
--------- --------- --------- ---------
Retained earnings, end of period ....... $ 69,218 $ 83,445 $ 69,218 $ 83,445
========= ========= ========= =========
See accompanying notes to interim consolidated financial statements.
1
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30,
September 30, 2001
Assets 2000 (unaudited)
------------- -----------
Current assets
Cash and cash equivalents ............................. $ 11,913 $ 7,243
Accounts receivable, net .............................. 37,802 41,375
Program rights ........................................ 19,945 4,239
Deferred income taxes ................................. 967 967
Interest receivable from related party ................ 492 1,045
Other ................................................. 2,535 3,288
--------- ---------
Total current assets ............................. 73,654 58,157
Property, plant and equipment, net .......................... 42,185 40,049
Intangible assets, net ...................................... 136,718 133,420
Deferred financing costs and other .......................... 8,412 8,668
Cash surrender value of life insurance ...................... 8,038 8,898
Program rights .............................................. 927 401
--------- ---------
$ 269,934 $ 249,593
========= =========
Liabilities and Stockholder's Investment
Current liabilities
Current portion of long-term debt ..................... $ 1,759 $ 1,690
Accounts payable ...................................... 3,105 2,838
Accrued interest payable .............................. 11,156 7,795
Program rights payable ................................ 25,257 8,188
Accrued employee benefit expenses ..................... 4,798 3,912
Other accrued expenses ................................ 4,503 4,456
--------- ---------
Total current liabilities ........................ 50,578 28,879
Long-term debt .............................................. 425,970 425,572
Program rights payable ...................................... 1,568 849
Deferred rent and other ..................................... 2,341 1,916
Accrued employee benefit expenses ........................... 1,644 1,737
Deferred income taxes ....................................... 7,729 10,305
--------- ---------
Total liabilities ................................ 489,830 469,258
--------- ---------
Stockholder's investment
Preferred stock, $1 par value, 800 shares authorized,
none issued ........................................ -- --
Common stock, $.05 par value, 20,000 shares authorized,
issued and outstanding ............................. 1 1
Capital in excess of par value ........................ 6,955 6,955
Retained earnings ..................................... 71,238 83,445
Distributions to owners, net .......................... (298,090) (310,066)
--------- ---------
Total stockholder's investment ..................... (219,896) (219,665)
--------- ---------
$ 269,934 $ 249,593
========= =========
See accompanying notes to interim consolidated financial statements.
2
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
Nine Months Ended
June 30,
-------------------
2000 2001
---- ----
Cash flows from operating activities:
Net income ................................................ $ 15,164 $ 12,207
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .......................... 11,702 10,527
Other noncash charges .................................. 942 968
Provision for doubtful accounts ........................ 348 376
Loss on disposal of assets ............................. 17 26
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable .............................. (10,149) (3,949)
Program rights ................................... 14,487 16,232
Interest receivable from related party ........... (553) (553)
Other current assets ............................. (1,124) (753)
Other noncurrent assets .......................... (983) (1,197)
Increase (decrease) in liabilities:
Accounts payable ................................. (635) (267)
Accrued interest payable ......................... (3,375) (3,361)
Program rights payable ........................... (14,133) (17,788)
Accrued employee benefit expenses ................ (1,159) (793)
Other accrued expenses ........................... 864 (47)
Deferred rent and other liabilities .............. (571) (425)
Deferred income taxes ............................ 1,765 2,576
--------- ---------
(2,557) 1,572
--------- ---------
Net cash provided by operating activities ..... 12,607 13,779
--------- ---------
Cash flows from investing activities:
Capital expenditures ...................................... (4,081) (4,386)
Proceeds from disposal of assets .......................... 66 17
Exercise of option to acquire assets of WJSU .............. (3,372) --
--------- ---------
Net cash used in investing activities ......... (7,387) (4,369)
--------- ---------
Cash flows from financing activities:
Principal payments on capital lease obligations ........... (1,531) (1,304)
Deferred financing costs .................................. -- (800)
Distributions to owners, net of certain charges ........... (261,285) (118,276)
Repayments of distributions to owners ..................... 246,391 106,300
--------- ---------
Net cash used in financing activities ......... (16,425) (14,080)
--------- ---------
Net decrease in cash and cash equivalents ................. (11,205) (4,670)
Cash and cash equivalents, beginning of period ............ 14,437 11,913
--------- ---------
Cash and cash equivalents, end of period .................. $ 3,232 $ 7,243
========= =========
Non-cash investing and financing activities:
Equipment acquired under capital leases ................... $ -- $ 750
========= =========
See accompanying notes to interim consolidated financial statements.
3
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(unaudited)
NOTE 1 - The accompanying unaudited interim consolidated financial statements of
Allbritton Communications Company (an indirectly wholly-owned subsidiary of
Perpetual Corporation) and its subsidiaries (collectively, the "Company") have
been prepared pursuant to instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in conformity with generally
accepted accounting principles have been omitted or condensed where permitted by
regulation. In management's opinion, the accompanying financial statements
reflect all adjustments, which were of a normal recurring nature, and
disclosures necessary for a fair presentation of the consolidated financial
statements for the interim periods presented. The results of operations for the
three and nine months ended June 30, 2001 are not necessarily indicative of the
results that can be expected for the entire fiscal year ending September 30,
2001. The interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended September 30, 2000 which are contained in the Company's Form
10-K.
NOTE 2 - During the three months ended March 31, 2001, the Company recognized a
tax benefit of approximately $950 due to a recent court ruling which enabled the
Company to utilize previously unrecognized local net operating loss
carryforwards.
NOTE 3 - For the nine months ended June 30, 2000 and 2001, distributions to
owners were as follows:
2000 2001
---- ----
Distributions to owners, beginning of period ..... $ 272,357 $ 298,090
Cash advances ................................. 268,899 123,433
Repayment of cash advances .................... (246,391) (106,300)
Charge for Federal and state income taxes ..... (7,614) (5,157)
--------- ---------
Distributions to owners, end of period ........... $ 287,251 $ 310,066
========= =========
Weighted average amount of non-interest bearing
advances outstanding during the period ........ $ 282,487 $ 298,131
========= =========
NOTE 4 - Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill
and Other Intangible Assets" was issued in June 2001. SFAS No. 142 addresses the
financial accounting and reporting for acquired goodwill and other intangible
assets. While SFAS No. 142 becomes effective for the Company's fiscal year
ending September 30, 2003, the Company intends to adopt this standard, as
permitted, effective October 1, 2001. The Company anticipates that the
application of the provisions of SFAS No. 142 will result in a significant
reduction of amortization expense related to intangible assets beginning in
Fiscal 2002.
4
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Dollars in thousands)
Overview
Allbritton Communications Company and its subsidiaries (on a consolidated basis,
the "Company") own ABC network-affiliated television stations serving seven
diverse geographic markets: WJLA-TV in Washington, D.C.; WCFT-TV in Tuscaloosa,
Alabama, WJSU-TV in Anniston, Alabama and WBMA-LP, a low power television
station licensed to Birmingham, Alabama (the Company operates WCFT-TV and
WJSU-TV in tandem with WBMA-LP serving the viewers of the Birmingham, Tuscaloosa
and Anniston market); WHTM-TV in Harrisburg, Pennsylvania; KATV in Little Rock,
Arkansas; KTUL in Tulsa, Oklahoma; WSET-TV in Lynchburg, Virginia; and WCIV in
Charleston, South Carolina.
The Company's advertising revenues are generally highest in the first and third
quarters of each fiscal year, due in part to increases in retail advertising in
the period leading up to and including the holiday season and active advertising
in the spring. The fluctuation in the Company's operating results is generally
related to fluctuations in the revenue cycle. In addition, advertising revenues
are generally higher during election years due to spending by political
candidates, which is typically heaviest during the Company's first and fourth
fiscal quarters.
As compared to the same periods in the prior fiscal year, the Company's results
of operations for the three and nine months ended June 30, 2001 principally
reflect a decrease in net operating revenues. These decreases resulted from a
general weakness in television advertising, principally represented by decreased
national advertising revenue in all of the Company's markets as well as
decreased local/regional advertising revenue in the Company's Washington, D.C.
market. The year-to-date decrease was partially offset by significantly
increased political advertising revenue in all but one of the Company's markets.
5
Results of Operations
Set forth below are selected consolidated financial data for the three and nine
months ended June 30, 2000 and 2001 and the percentage change between the
periods:
Three Months Ended June 30, Nine Months Ended June 30,
---------------------------- ------------------------------
Percent Percent
2000 2001 Change 2000 2001 Change
-------- -------- ------- --------- --------- -------
Operating revenues, net...... $ 54,544 $ 49,747 -8.8% $ 157,395 $ 150,453 -4.4%
Total operating expenses..... 32,525 32,540 0.0% 100,508 100,352 -0.2%
-------- -------- --------- ---------
Operating income............. 22,019 17,207 -21.9% 56,887 50,101 -11.9%
Nonoperating expenses, net... 9,778 10,170 4.0% 30,779 29,910 -2.8%
Income tax provision......... 5,174 2,697 -47.9% 10,944 7,984 -27.0%
-------- -------- --------- ---------
Net income................... $ 7,067 $ 4,340 -38.6% $ 15,164 $ 12,207 -19.5%
======== ======== ========= =========
Operating cash flow.......... $ 25,832 $ 20,838 -19.3% $ 68,589 $ 60,628 -11.6%
======== ======== ========= =========
Net Operating Revenues
The following table depicts the principal types of operating revenues, net of
agency commissions, earned by the Company for each of the three and nine months
ended June 30, 2000 and 2001, and the percentage contribution of each to the
total broadcast revenues earned by the Company, before fees:
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
2000 2001 2000 2001
---- ---- ---- ----
Dollars Percent Dollars Percent Dollars Percent Dollars Percent
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands)
Local/regional <1>......... $ 28,323 50.2 $ 26,403 51.5 $ 78,698 48.4 $ 73,964 47.7
National <2>............... 24,228 43.0 21,281 41.5 70,487 43.3 62,116 40.0
Network compensation <3>... 836 1.5 841 1.6 2,191 1.3 2,313 1.5
Political <4>.............. 512 0.9 330 0.6 1,426 0.9 7,181 4.6
Trade & barter <5>......... 2,133 3.8 1,951 3.8 6,648 4.1 5,951 3.8
Other revenue <6>.......... 337 0.6 502 1.0 3,267 2.0 3,733 2.4
-------- ----- -------- ----- --------- ----- --------- -----
Broadcast revenues......... 56,369 100.0 51,308 100.0 162,717 100.0 155,258 100.0
===== ===== ===== =====
Fees <7>................... (1,825) (1,561) (5,322) (4,805)
-------- -------- --------- ---------
Operating revenues, net.... $ 54,544 $ 49,747 $ 157,395 $ 150,453
======== ======== ========= =========
<FN>
<1> Represents sale of advertising time to local and regional advertisers or
agencies representing such advertisers.
<2> Represents sale of advertising time to agencies representing national
advertisers.
<3> Represents payment by networks for broadcasting or promoting network
programming.
<4> Represents sale of advertising time to political advertisers.
<5> Represents value of commercial time exchanged for goods and services
(trade) or syndicated programs (barter).
<6> Represents miscellaneous revenue, principally receipts from tower rental,
production of commercials and revenue from the sales of University of
Arkansas sports programming to advertisers and radio stations.
<7> Represents fees paid to national sales representatives and fees paid for
music licenses.
</FN>
6
Net operating revenues for the three months ended June 30, 2001 totaled $49,747,
a decrease of $4,797, or 8.8%, when compared to net operating revenues of
$54,544 for the three months ended June 30, 2000. Net operating revenues
decreased $6,942, or 4.4%, to $150,453 for the nine months ended June 30, 2001
as compared to $157,395 for the same period in the prior fiscal year. These
decreases resulted from a general weakness in television advertising,
principally represented by decreased national advertising revenue in all of the
Company's markets as well as decreased local/regional advertising revenue in the
Company's Washington, D.C. market. The year-to-date decrease was partially
offset by significantly increased political advertising revenue in all but one
of the Company's markets.
Local/regional advertising revenues decreased 6.8% and 6.0% during the three and
nine months ended June 30, 2001, respectively, versus the comparable periods in
Fiscal 2000. The decreases for the three and nine months ended June 30, 2001 of
$1,920 and $4,734, respectively, versus the three and nine months ended June 30,
2000 were primarily attributable to decreased local/regional advertising
revenues in the Washington, D.C. market.
National advertising revenues decreased $2,947 and $8,371, or 12.2% and 11.9%,
for the three and nine months ended June 30, 2001, respectively, versus the
comparable periods in Fiscal 2000. For both the three and nine months ended June
30, 2001, all of the Company's markets experienced decreased national
advertising revenues from comparable periods in Fiscal 2000, including a
substantial decrease in the strong internet-related advertising which occurred
in the Washington, D.C. market, particularly during the first quarter of Fiscal
2000.
Political advertising revenues decreased $182 to $330 for the three months ended
June 30, 2001 versus $512 for the three months ended June 30, 2000. The decrease
was primarily due to advertising related to various local political races in
several of the Company's markets with less comparable advertising in the third
quarter of Fiscal 2001. Political advertising revenues increased $5,755, or
403.6%, during the nine months ended June 30, 2001 over the comparable period in
Fiscal 2000. This increase was due primarily to the national presidential
election and high-profile local political races affecting the Little Rock,
Washington, D.C. and Lynchburg markets in November 2000 with no comparable
political elections occurring during the same period of Fiscal 2000.
No individual advertiser accounted for more than 5% of the Company's broadcast
revenues during the three or nine months ended June 30, 2000 or 2001.
Total Operating Expenses
Total operating expenses for the three months ended June 30, 2001 totaled
$32,540, an increase of $15, or 0.0%, compared to total operating expenses of
$32,525 for the three-month period ended June 30, 2000. This net increase
consisted of a decrease in television operating expenses, excluding depreciation
and amortization, of $120, a decrease in depreciation and amortization of $182
and an increase in corporate expenses of $317.
Total operating expenses for the nine-month period ended June 30, 2001 totaled
$100,352, a decrease of $156, or 0.2%, compared to $100,508 for the nine months
ended June 30, 2000. This net decrease consisted of an increase in television
operating expenses, excluding depreciation and amortization, of $74, a decrease
in depreciation and amortization of $1,175 and an increase in corporate expenses
of $945.
7
Television operating expenses, excluding depreciation and amortization,
decreased $120, or 0.4%, during the three months ended June 30, 2001 and
increased $74, or 0.1%, during the nine months ended June 30, 2001 as compared
to the respective periods in Fiscal 2000. Television operating expenses during
the nine months ended June 30, 2001 included a decrease in programming expenses
related to a reduction in the number of one-time and non-recurring programming
events occurring during the first quarter of Fiscal 2001 as compared to the same
period in Fiscal 2000. Excluding these expenses from the prior period,
television operating expenses increased 1.1% for the nine months ended June 30,
2001 as compared to the nine months ended June 30, 2000.
Depreciation and amortization expense decreased $182 and $1,175, or 4.8% and
10.0%, for the three and nine months ended June 30, 2001, respectively, as
compared to the same periods in Fiscal 2000. The decrease during the nine months
ended June 30, 2001 was principally the result of the completion of the
acquisition of WJSU on March 22, 2000. Prior to March 22, 2000, the costs to
acquire the option to purchase WJSU were amortized over the ten-year term of the
option. Upon completion of the acquisition, the portion of the purchase price
assigned to the broadcast license and network affiliation of WJSU is being
amortized over its estimated useful life of 40 years.
Corporate expenses increased $317 and $945, or 29.2% and 28.8%, during the three
and nine months ended June 30, 2001 over the comparable periods in Fiscal 2000.
The increases were primarily due to increased personnel and key-man life
insurance expenses.
Operating Income
For the three months ended June 30, 2001, operating income of $17,207 decreased
$4,812, or 21.9%, when compared to operating income of $22,019 for the three
months ended June 30, 2000. For the three months ended June 30, 2001, the
operating margin decreased to 34.6% from 40.4% for the comparable period in
Fiscal 2000. Operating income of $50,101 for the nine months ended June 30, 2001
decreased $6,786, or 11.9%, when compared to operating income of $56,887 for the
same period in the prior fiscal year. For the nine months ended June 30, 2001,
the operating margin decreased to 33.3% from 36.1% for the comparable period in
the prior fiscal year. These decreases in operating income and margin were
primarily the result of decreased net operating revenues as discussed above.
Operating Cash Flow
Operating cash flow of $20,838 and $60,628 for the three and nine months ended
June 30, 2001, respectively, decreased $4,994 and $7,961, or 19.3% and 11.6%, as
compared to $25,832 and $68,589 for the three and nine-month periods ended June
30, 2000, respectively. These decreases were primarily the result of decreased
net operating revenues as discussed above. The Company believes that operating
cash flow, defined as operating income plus depreciation and amortization, is
important in measuring the Company's financial results and its ability to pay
principal and interest on its debt because of the Company's level of non-cash
expenses attributable to depreciation and amortization of intangible assets.
Operating cash flow does not purport to represent cash flows from operating
activities determined in accordance with generally accepted accounting
principles as reflected in the Company's consolidated financial statements, is
not a measure of financial performance under generally accepted accounting
principles, should not be considered in isolation or as a substitute for net
income or cash flows from operating activities and may not be comparable to
similar measures reported by other companies.
8
Nonoperating Expenses, Net
Interest expense of $10,515 for three months ended June 30, 2001 increased $291,
or 2.8%, as compared to $10,224 for the three-month period ended June 30, 2000.
The increase was due to an increased average balance of debt outstanding during
the three months ended June 30, 2001, partially offset by a decreased weighted
average interest rate on debt.
Interest expense for the nine months ended June 30, 2001 was $31,118, a decrease
of $889, or 2.8%, as compared to $32,007 for the nine-month period ended June
30, 2000. This decrease was principally due to a decreased average balance of
debt outstanding during the nine-month period ended June 30, 2001.
The average balance of debt outstanding, including capital lease obligations,
was $430,650 and $445,635 for the three months ended June 30, 2000 and 2001,
respectively, and the weighted average interest rate on debt was 9.4% and 9.3%
for the three-month periods ended June 30, 2000 and 2001, respectively.
The average balance of debt outstanding, including capital lease obligations,
was $450,898 and $437,751 for the nine months ended June 30, 2000 and 2001,
respectively, and the weighted average interest rate on debt was 9.4% for each
of the nine-month periods ended June 30, 2000 and 2001.
Income Taxes
The provision for income taxes for the three months ended June 30, 2001 totaled
$2,697, a decrease of $2,477, or 47.9%, when compared to the provision for
income taxes of $5,174 for the three months ended June 30, 2000. The decrease
was directly related to the $5,204, or 42.5%, decrease in the Company's income
before income taxes.
The provision for income taxes for the nine months ended June 30, 2001 totaled
$7,984, a decrease of $2,960, or 27.0%, when compared to the provision for
income taxes of $10,944 for the nine months ended June 30, 2000. The decrease
was directly related to the $5,917, or 22.7%, decrease in the Company's income
before income taxes as well as the one-time recognition of a tax benefit of
approximately $950 during the second quarter of Fiscal 2001 due to a recent
court ruling which enabled the Company to utilize previously unrecognized local
net operating loss carryforwards.
Net Income
For the three and nine months ended June 30, 2001, the Company recorded net
income of $4,340 and $12,207, respectively, as compared to net income of $7,067
and $15,164 for the three and nine months ended June 30, 2000, respectively. The
decreases of $2,727 and $2,957 during the three and nine months ended June 30,
2001 were due to the factors discussed above.
Balance Sheet
Significant balance sheet fluctuations from September 30, 2000 to June 30, 2001
consisted primarily of decreases in program rights and program rights payable,
which reflect the annual cycle of the underlying program contracts which
generally begins in September of each year.
9
Liquidity and Capital Resources
As of June 30, 2001, the Company's cash and cash equivalents aggregated $7,243,
and the Company had an excess of current assets over current liabilities of
$29,278.
Cash Provided by Operations. The Company's principal source of working capital
is cash flow from operations and borrowings under its revolving credit facility.
As reported in the consolidated statements of cash flows, the Company's net cash
provided by operating activities was $12,607 and $13,779 for the nine months
ended June 30, 2000 and 2001, respectively. The $1,172 increase in cash flows
from operating activities was principally due to decreased accounts receivable
as well as increased program rights, partially offset by decreased net income
and increased program rights payable.
Transactions with Owners. For the nine months ended June 30, 2000 and 2001, the
Company made cash advances to owners, net of repayments and certain charges,
totaling $14,894 and $11,976, respectively. The Company periodically makes
advances in the form of distributions to its parent. At present, the primary
source of repayment of the net advances is through the ability of the Company to
pay dividends or make other distributions to its parent, and there is no
immediate intent for the advances to be repaid. Accordingly, these advances have
been treated as a reduction of Stockholder's Investment and described as
"distributions" in the Company's consolidated financial statements.
Stockholder's deficit amounted to $219,665 at June 30, 2001, a decrease of $231,
or 0.1%, from the September 30, 2000 deficit of $219,896. The decrease was due
to net income for the period of $12,207, substantially offset by a net increase
in distributions to owners of $11,976.
Indebtedness. The Company's total debt, including the current portion of
long-term debt, decreased from $427,729 at September 30, 2000 to $427,262 at
June 30, 2001. This debt, net of applicable discounts, consisted of $274,254 of
9.75% Debentures, $150,000 of 8.875% Notes and $3,008 of capital lease
obligations at June 30, 2001. The decrease of $467 in total debt from September
30, 2000 to June 30, 2001 was primarily due to payments under capital lease
obligations, partially offset by $750 in new capital lease transactions. As of
September 30, 2000, there were no amounts outstanding under the Company's
$40,000 revolving credit facility. Effective March 27, 2001, the Company entered
into an amended and restated revolving credit facility in the amount of $50,000.
The amended and restated revolving credit facility is secured by the pledge of
stock of the Company and its subsidiaries and matures March 27, 2006. As of June
30, 2001, there were no amounts outstanding under the amended and restated
revolving credit facility.
Under the existing borrowing agreements, the Company is subject to restrictive
covenants that place limitations upon payments of cash dividends, issuance of
capital stock, investment transactions, incurrence of additional obligations and
transactions with affiliates. In addition, under the revolving credit facility,
the Company must maintain specified levels of operating cash flow and comply
with other financial covenants. Compliance with the financial covenants is
measured at the end of each quarter, and as of June 30, 2001, the Company was in
compliance with those financial covenants. The Company is also required to pay a
commitment fee ranging from .5% to .75% per annum based on the amount of any
unused portion of the revolving credit facility.
10
Other Uses of Cash. The Company anticipates that capital expenditures for Fiscal
2001 will approximate $6,000. Fiscal 2001 capital expenditures are primarily for
the acquisition of technical equipment and vehicles to support operations.
Capital expenditures during the nine months ended June 30, 2001 totaled $5,136,
of which $750 was financed through capital lease transactions.
The Company anticipates that its existing cash position, together with cash
flows generated by operating activities and amounts available under its
revolving credit facility will be sufficient to finance the operating cash flow
requirements of its stations, debt service requirements and anticipated capital
expenditures.
New Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets" was issued in June 2001. SFAS No. 142 addresses the financial
accounting and reporting for acquired goodwill and other intangible assets.
While SFAS No. 142 becomes effective for the Company's fiscal year ending
September 30, 2003, the Company intends to adopt this standard, as permitted,
effective October 1, 2001. The Company anticipates that the application of the
provisions of SFAS No. 142 will result in a significant reduction of
amortization expense related to intangible assets beginning in Fiscal 2002.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At June 30, 2001, the Company had other financial instruments consisting
primarily of long-term fixed interest rate debt. Such debt, with future
principal payments of $425,000, matures during the year ending September 30,
2008. At June 30, 2001, the carrying value of such debt was $424,254, the fair
value was $431,188 and the weighted average interest rate was 9.4%. The fair
market value of long-term fixed interest rate debt is subject to interest rate
risk. Generally, the fair market value of fixed interest rate debt will increase
as interest rates fall and decrease as interest rates rise. The Company
estimates the fair value of its long-term debt using either quoted market prices
or by discounting the required future cash flows under its debt using borrowing
rates currently available to the Company, as applicable. The Company actively
monitors the capital markets in analyzing its capital raising decisions.
11
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company currently and from time to time is involved in litigation incidental
to the conduct of its business, including suits based on defamation. The Company
is not currently a party to any lawsuit or proceeding which, in the opinion of
management, if decided adverse to the Company, would be likely to have a
material adverse effect on the Company's consolidated financial condition,
results of operations or cash flows.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
See Exhibit Index on pages 14-16.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
12
SIGNATURES
Pursuant to the requirements 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.
ALLBRITTON COMMUNICATIONS COMPANY
(Registrant)
August 3, 2001 /s/ Robert L. Allbritton
- -------------------------- -----------------------------------
Date Name: Robert L. Allbritton
Title: Chairman and Chief
Executive Officer
August 3, 2001 /s/ Stephen P. Gibson
- -------------------------- -----------------------------------
Date Name: Stephen P. Gibson
Title: Senior Vice President
and Chief Financial Officer
13
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
3.1 Certificate of Incorporation of ACC. (Incorporated by *
reference to Exhibit 3.1 of Company's Registration
Statement on Form S-4, No. 333-02302, dated March 12,
1996)
3.2 Bylaws of ACC. (Incorporated by reference to Exhibit 3.2 *
of Registrant's Registration Statement on Form S-4, No.
333-02302, dated March 12, 1996)
4.1 Indenture dated as of February 6, 1996 between ACC and *
State Street Bank and Trust Company, as Trustee, relating
to the Debentures. (Incorporated by reference to Exhibit
4.1 of Company's Registration Statement on Form S-4, No.
333-02302, dated March 12, 1996)
4.2 Indenture dated as of January 22, 1998 between ACC and *
State Street Bank and Trust Company, as Trustee, relating
to the Notes. (Incorporated by reference to Exhibit 4.1 of
Company's Registration Statement on Form S-4, No.
333-45933, dated February 9, 1998)
4.3 Form of 9.75% Series B Senior Subordinated Debentures due *
2007. (Incorporated by reference to Exhibit 4.3 of
Company's Registration Statement on Form S-4, No.
333-02302, dated March 12, 1996)
4.4 Amended and Restated Revolving Credit Agreement dated as *
of March 27, 2001 by and among Allbritton Communications
Company, certain financial institutions, and Fleet
National Bank, as Agent, and Deutsche Banc Alex. Brown
Inc., as Documentation Agent. (Incorporated by reference
to Exhibit 10.20 of the Company's Quarterly Report on Form
10-Q, No. 333-02302, dated May 10, 2001)
10.1 Network Affiliation Agreement (Harrisburg Television, *
Inc.). (Incorporated by reference to Exhibit 10.3 of
Company's Pre-effective Amendment No. 1 to Registration
Statement on Form S-4, dated April 22, 1996)
10.2 Side Letter Amendment to Network Affiliation Agreement *
(Harrisburg Television, Inc.) dated August 10, 1999.
(Incorporated by reference to Exhibit 10.2 of Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated August
16, 1999)
10.3 Network Affiliation Agreement (First Charleston Corp.). *
(Incorporated by reference to Exhibit 10.4 of Company's
Pre-effective Amendment No. 1 to Registration Statement on
Form S-4, dated April 22, 1996)
14
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
10.4 Side Letter Amendment to Network Affiliation Agreement *
(First Charleston Corp.) dated August 10, 1999.
(Incorporated by reference to Exhibit 10.4 of Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated August
16, 1999)
10.5 Network Affiliation Agreement (WSET, Incorporated). *
(Incorporated by reference to Exhibit 10.5 of Company's
Pre-effective Amendment No. 1 to Registration Statement on
Form S-4, dated April 22, 1996)
10.6 Side Letter Amendment to Network Affiliation Agreement *
(WSET, Incorporated) dated August 10, 1999. (Incorporated
by reference to Exhibit 10.6 of Company's Quarterly Report
on Form 10-Q, No. 333-02302, dated August 16, 1999)
10.7 Network Affiliation Agreement (WJLA-TV). (Incorporated by *
reference to Exhibit 10.6 of Company's Pre-effective
Amendment No. 1 to Registration Statement on Form S-4,
dated April 22, 1996)
10.8 Side Letter Amendment to Network Affiliation Agreement *
(WJLA-TV) dated August 10, 1999. (Incorporated by
reference to Exhibit 10.8 of Company's Quarterly Report on
Form 10-Q, No. 333-02302, dated August 16, 1999)
10.9 Network Affiliation Agreement (KATV Television, Inc.). *
(Incorporated by reference to Exhibit 10.7 of Company's
Pre-effective Amendment No. 1 to Registration Statement on
Form S-4, dated April 22, 1996)
10.10 Side Letter Amendment to Network Affiliation Agreement *
(KATV Television, Inc.) dated August 10, 1999.
(Incorporated by reference to Exhibit 10.10 of Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated August
16, 1999)
10.11 Network Affiliation Agreement (KTUL Television, Inc.). *
(Incorporated by reference to Exhibit 10.8 of Company's
Pre-effective Amendment No. 1 to Registration Statement on
Form S-4, dated April 22, 1996)
10.12 Side Letter Amendment to Network Affiliation Agreement *
(KTUL Television, Inc.) dated August 10, 1999.
(Incorporated by reference to Exhibit 10.12 of Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated August
16, 1999)
10.13 Network Affiliation Agreement (TV Alabama, Inc.). *
(Incorporated by reference to Exhibit 10.9 of Company's
Pre-effective Amendment No. 1 to Registration Statement on
Form S-4, dated April 22, 1996)
15
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
10.14 Amendment to Network Affiliation Agreement (TV Alabama, *
Inc.) dated January 23, 1997. (Incorporated by reference
to Exhibit 10.15 to the Company's Quarterly Report on Form
10-Q, No. 333-02302, dated February 14, 1997)
10.15 Side Letter Amendment to Network Affiliation Agreement (TV *
Alabama, Inc.) dated August 10, 1999. (Incorporated by
reference to Exhibit 10.15 of Company's Quarterly Report
on Form 10-Q, No. 333-02302, dated August 16, 1999)
10.16 Tax Sharing Agreement effective as of September 30, 1991 *
by and among Perpetual Corporation, ACC and ALLNEWSCO,
Inc., amended as of October 29, 1993. (Incorporated by
reference to Exhibit 10.11 of Company's Registration
Statement on Form S-4, No. 333-02302, dated March 12,
1996)
10.17 Second Amendment to Tax Sharing Agreement effective as of *
October 1, 1995 by and among Perpetual Corporation, ACC
and ALLNEWSCO, Inc. (Incorporated by reference to Exhibit
10.9 of the Company's Form 10-K, No. 333-02302, dated
December 22, 1998)
10.18 Master Lease Finance Agreement dated as of August 10, 1994 *
between BancBoston Leasing, Inc. and ACC, as amended.
(Incorporated by reference to Exhibit 10.16 of Company's
Registration Statement on Form S-4, No. 333-02302, dated
March 12, 1996)
10.19 Master Equipment Lease Agreement dated as of November 22, *
2000 between Fleet Capital Corporation and ACC.
(Incorporated by reference to Exhibit 10.19 of the
Company's Form 10-K, No. 333-02302, dated December 28,
2000)
10.20 Amended and Restated Pledge Agreement dated as of March *
27, 2001 by and among ACC, Allbritton Group, Inc.,
Allfinco, Inc., and Fleet National Bank, as Agent.
(Incorporated by reference to Exhibit 10.20 of the
Company's Quarterly Report on Form 10-Q, No. 333-02302,
dated May 10, 2001)
10.21 $20,000,000 Promissory Note of ALLNEWSCO, Inc. payable to *
KTUL, LLC. (Incorporated by reference to Exhibit 10.16 of
Company's Form 10-K, No. 333-02302, dated December 22,
1998)
- ----------------
*Previously filed
16