________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
---------
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended Commission file number:
December 31, 2003 333-02302
ALLBRITTON COMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 74-1803105
(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
---------
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 No X (1)
------- -------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
------- -------
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Number of shares of Common Stock outstanding as of February 12, 2004:
20,000 shares.
(1) Although the Company has not been subject to such filing requirements for
the past 90 days, it has filed all reports required to be filed by Section
15(d) of the Securities Exchange Act of 1934 during the preceding 12
months. Pursuant to Section 15(d) of the Securities Exchange Act of 1934,
the Company's duty to file reports became automatically suspended as of
October 1, 2003 as a result of having fewer than 300 holders of record of
each class of its debt securities outstanding as of that date, but the
Company has agreed under the terms of certain long-term debt to continue
these filings in the future.
________________________________________________________________________________
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 OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN SUCH
FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, WITHOUT LIMITATION, OUR
OUTSTANDING INDEBTEDNESS AND OUR HIGH DEGREE OF LEVERAGE; THE RESTRICTIONS
IMPOSED ON US BY THE TERMS OF OUR 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,
PAY-PER-VIEW SERVICES AND HOME VIDEO AND ENTERTAINMENT SERVICES; THE IMPACT OF
NEW TECHNOLOGIES; CHANGES IN FEDERAL COMMUNICATIONS COMMISSION REGULATIONS;
DECREASES IN THE DEMAND FOR ADVERTISING DUE TO WEAKNESS IN THE ECONOMY; THE
VARIABILITY OF OUR QUARTERLY RESULTS AND OUR SEASONALITY; AND OUR ABILITY TO
REALIZE THE EXPECTED OPERATIONAL EFFICIENCIES FROM THE ALLNEWSCO ACQUISITION.
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.
ALLBRITTON COMMUNICATIONS COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2003
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Operations and Retained Earnings for
the Three Months Ended December 31, 2002 and 2003.............. 1
Consolidated Balance Sheets as of September 30, 2003 and
December 31, 2003.............................................. 2
Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 2002 and 2003............................... 3
Notes to Interim Consolidated Financial Statements............. 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 13
Item 4. Controls and Procedures........................................ 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............ 14
Item 6. Exhibits and Reports on Form 8-K............................... 14
Signatures.............................................................. 15
Exhibit Index........................................................... 16
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
December 31,
------------------
2002 2003
---- ----
Operating revenues, net................................ $ 58,509 $ 54,796
------ ------
Television operating expenses, excluding
depreciation and amortization..................... 32,128 33,786
Depreciation and amortization.......................... 2,589 2,332
Corporate expenses..................................... 1,458 1,275
------ ------
36,175 37,393
------ ------
Operating income....................................... 22,334 17,403
------ ------
Nonoperating income (expense)
Interest income
Related party................................. 44 19
Other......................................... 120 5
Interest expense.................................. (11,098) (9,177)
Other, net........................................ (344) (352)
------ ------
(11,278) (9,505)
------ ------
Income before income taxes and cumulative
effect of change in accounting principle.......... 11,056 7,898
Provision for income taxes............................. 3,833 2,901
------ ------
Income before cumulative effect of
change in accounting principle.................... 7,223 4,997
Cumulative effect of change in accounting
principle, net of income tax benefit
of $2,027 (Note 2)................................ 2,973 --
------ ------
Net income............................................. 4,250 4,997
Retained earnings, beginning of period................. 4,917 (4,964)
------ ------
Retained earnings, end of period....................... $ 9,167 $ 33
====== ======
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)
December 31,
September 30, 2003
2003 (unaudited)
Assets ------------ -----------
Current assets
Cash and cash equivalents.......................... $ 3,278 $ 3,482
Accounts receivable, net........................... 38,663 43,546
Program rights..................................... 18,862 13,906
Deferred income taxes.............................. 842 842
Other.............................................. 2,140 1,837
------- -------
Total current assets.......................... 63,785 63,613
Property, plant and equipment, net....................... 53,577 52,721
Intangible assets, net................................... 122,982 122,940
Deferred financing costs and other....................... 10,004 9,689
Cash surrender value of life insurance................... 10,848 11,165
Program rights........................................... 814 681
------- -------
$ 262,010 $ 260,809
======= =======
Liabilities and Stockholder's Investment
Current liabilities
Current portion of long-term debt.................. $ 237 $ 151
Accounts payable................................... 2,556 3,674
Accrued interest payable........................... 10,553 1,763
Program rights payable............................. 22,530 17,996
Accrued employee benefit expenses.................. 4,579 4,122
Other accrued expenses............................. 5,400 6,310
------- -------
Total current liabilities..................... 45,855 34,016
Long-term debt........................................... 467,451 478,968
Program rights payable................................... 1,443 1,165
Deferred rent and other.................................. 4,148 3,961
Accrued employee benefit expenses........................ 1,970 2,002
Deferred income taxes.................................... 16,943 17,850
------- -------
Total liabilities............................. 537,810 537,962
------- -------
Stockholder's investment
Preferred stock, $1 par value, 1,000 shares
authorized, none issued......................... -- --
Common stock, $.05 par value, 20,000 shares
authorized, issued and outstanding.............. 1 1
Capital in excess of par value..................... 49,631 49,631
Retained earnings.................................. (4,964) 33
Distributions to owners, net....................... (320,468) (326,818)
------- -------
Total stockholder's investment.................. (275,800) (277,153)
------- -------
$ 262,010 $ 260,809
======= =======
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)
Three Months Ended
December 31,
---------------------
2002 2003
---- ----
Cash flows from operating activities:
Net income....................................................... $ 4,250 $ 4,997
------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization................................. 2,589 2,332
Cumulative effect of change in accounting principle........... 2,973 --
Other noncash charges......................................... 363 374
Provision for doubtful accounts............................... 131 139
Gain on disposal of assets.................................... (4) (3)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable..................................... (5,846) (5,022)
Program rights.......................................... 5,246 5,089
Other current assets.................................... (789) 303
Other noncurrent assets................................. (307) (249)
Increase (decrease) in liabilities:
Accounts payable........................................ 446 1,118
Accrued interest payable................................ (2,717) (8,790)
Program rights payable.................................. (4,016) (4,812)
Accrued employee benefit expenses....................... (1,087) (425)
Other accrued expenses.................................. 909 910
Deferred rent and other liabilities..................... 1,601 (187)
Deferred income taxes................................... 3,959 907
------- -------
3,451 (8,316)
------- -------
Net cash provided by (used in) operating activities..... 7,701 (3,319)
------- -------
Cash flows from investing activities:
Capital expenditures............................................. (1,422) (1,434)
Proceeds from disposal of assets................................. 4 3
------- -------
Net cash used in investing activities................... (1,418) (1,431)
------- -------
Cash flows from financing activities:
Proceeds from issuance of debt................................... 275,000 --
Placement of proceeds from issuance of debt into escrow.......... (275,000) --
Principal payments on capital lease obligations.................. (168) (123)
Draws under line of credit, net.................................. 7,136 11,500
Deferred financing costs......................................... (5,100) (73)
Distributions to owners, net of certain charges.................. (14,076) (6,350)
Repayments of distributions to owners............................ 3,209 --
------- -------
Net cash (used in) provided by financing activities..... (8,999) 4,954
------- -------
Net (decrease) increase in cash and cash equivalents................... (2,716) 204
Cash and cash equivalents, beginning of period......................... 6,299 3,278
------- -------
Cash and cash equivalents, end of period............................... $ 3,583 $ 3,482
======= =======
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 except share information)
(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 months ended December 31, 2003 are not necessarily indicative of the
results that can be expected for the entire fiscal year ending September 30,
2004. 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, 2003 which are contained in the Company's Form
10-K.
NOTE 2 - Upon adoption of Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets," on October 1, 2002, the Company
performed the first of the required impairment tests on its indefinite lived
intangible assets. As a result of these tests, it was determined that one of the
Company's broadcast licenses was impaired. Accordingly, the Company recorded a
non-cash, after-tax impairment charge of $2,973 related to the carrying value of
its indefinite lived intangible assets. This charge was recorded as a cumulative
effect of a change in accounting principle during the three months ended
December 31, 2002.
The carrying value of the Company's indefinite lived intangible assets,
consisting of its broadcast licenses, at September 30, 2003 and December 31,
2003 was $122,290. The carrying value of the Company's other intangible assets,
consisting of favorable terms on contracts and leases, was as follows:
September 30, December 31,
2003 2003
------------ -----------
Gross carrying amount.................... $ 6,174 $ 6,174
Less accumulated amortization............ (5,482) (5,524)
----- -----
Net carrying amount...................... $ 692 $ 650
===== =====
Amortization expense was $42 for each of the three-month periods ended December
31, 2002 and 2003.
4
NOTE 3 - For the three months ended December 31, 2002 and 2003, distributions to
owners and related activity consisted of the following:
Federal and
Distributions Virginia state Net
to Owners Income Tax Distributions
and Dividends Receivable to Owners
------------- -------------- -------------
Balance as of September 30, 2002................ $ 301,622 $ -- $ 301,622
Cash advances to Perpetual...................... 12,420 12,420
Repayment of cash advances to Perpetual......... (3,209) (3,209)
Charge for federal and state income taxes....... (722) (722)
Payment of income taxes......................... 2,378 2,378
------- ------- -------
Balance as of December 31, 2002................. $ 310,833 $ 1,656 $ 312,489
======= ======= =======
Balance as of September 30, 2003................ $ 320,468 $ -- $ 320,468
Cash advances to Perpetual...................... 4,270 4,270
Charge for federal and state income taxes....... (1,860) (1,860)
Payment of income taxes......................... 3,940 3,940
------- ------- -------
Balance as of December 31, 2003................. $ 324,738 $ 2,080 $ 326,818
======= ======= =======
The average amount of non-interest bearing advances outstanding was $303,505 and
$317,319 during the three months ended December 31, 2002 and 2003, respectively.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(dollars in thousands except share information)
Overview
As used herein, the terms the "Company," "our," "us," or "we" refer to
Allbritton Communications Company and its subsidiaries and "ACC" refers solely
to Allbritton Communications Company.
We own ABC network-affiliated television stations serving seven 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 (we operate WCFT-TV and WJSU-TV in tandem with WBMA-LP
serving the viewers of the Birmingham, Tuscaloosa and Anniston market as a
single programming source); 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. We also provide 24-hour per day basic cable
television programming to the Washington, D.C. market, through NewsChannel 8,
primarily focused on regional and local news for the Washington, D.C.
metropolitan area. The operations of NewsChannel 8 are integrated with WJLA.
Our 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 our 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 our first and fourth fiscal quarters.
Fiscal 2003 Financing Transactions
The three-month comparative results are impacted by the effect of our two
financing transactions completed during the first half of Fiscal 2003. On
December 20, 2002, we issued $275,000 principal amount of 7 3/4% senior
subordinated notes at par. As of January 21, 2003, we had used the net proceeds
of the offering, together with borrowings under our senior credit facility, to
purchase and redeem all of our outstanding 9 3/4% senior subordinated debentures
as well as to pay the fees and expenses associated with the offering of the
7 3/4% notes.
On February 6, 2003, we issued an additional $180,000 principal amount of our
7 3/4% notes at a price of 98.305%. We used the net proceeds to redeem our
existing 8 7/8% senior subordinated notes, fund the redemption premium for the
8 7/8% notes, pay the fees and expenses associated with the offering of the
additional 7 3/4% notes and repay borrowings outstanding under our senior credit
facility. On March 10, 2003, all of the 8 7/8% notes were redeemed.
The issuance of the 7 3/4% notes and the related purchase and redemption of the
9 3/4% debentures and the redemption of the 8 7/8% notes will reduce our annual
payments of interest on our debt by approximately $5,000. See "--Nonoperating
expenses, net."
6
Results of Operations
Set forth below are selected consolidated financial data for the three months
ended December 31, 2002 and 2003 and the percentage change between the periods:
Three Months Ended
December 31,
------------------- Percent
2002 2003 Change
---- ---- -------
Operating revenues, net .................... $ 58,509 $ 54,796 -6.3%
Total operating expenses.................... 36,175 37,393 3.4%
------ ------
Operating income............................ 22,334 17,403 -22.1%
Nonoperating expenses, net.................. 11,278 9,505 -15.7%
Income tax provision........................ 3,833 2,901 -24.3%
------ ------
Income before cumulative effect of
change in accounting principle............ 7,223 4,997 -30.8%
Cumulative effect of change in
accounting principle, net of income
tax benefit............................... 2,973 -- -100.0%
------ ------
Net income.................................. $ 4,250 $ 4,997 17.6%
====== ======
Operating cash flow<F1>..................... $ 24,923 $ 19,735 -20.8%
====== ======
<FN>
- -------
<F1> Operating cash flow is not a measure of performance calculated in accordance
with GAAP. For a definition of operating cash flow and a reconciliation of
operating cash flow to operating income, please refer to "Operating Cash Flow".
</FN>
Net Operating Revenues
The following table depicts the principal types of operating revenues, net of
agency commissions, earned by us for the three months ended December 31, 2002
and 2003, and the percentage contribution of each to our total broadcast
revenues, before fees:
Three Months Ended December 31,
-------------------------------
2002 2003
---- ----
Dollars Percent Dollars Percent
------- ------- ------- -------
Local and national<F1>................. $ 45,438 75.7 $ 49,070 87.6
Political<F2>.......................... 7,908 13.2 493 0.9
Network compensation<F3>............... 1,396 2.3 1,318 2.3
Trade and barter<F4>................... 1,805 3.0 1,666 3.0
Other revenue<F5>...................... 3,469 5.8 3,493 6.2
------ ----- ------ -----
Broadcast revenues..................... 60,016 100.0 56,040 100.0
===== =====
Fees<F6>............................... (1,507) (1,244)
------ ------
Operating revenues, net ............... $ 58,509 $ 54,796
====== ======
<FN>
- ----------
<F1> Represents sale of advertising time to local and national advertisers,
either directly or through agencies representing such advertisers, net of
agency commission.
<F2> Represents sale of advertising time to political advertisers.
<F3> Represents payment by networks for broadcasting or promoting network
programming.
<F4> Represents value of commercial time exchanged for goods and services
(trade) or syndicated programs (barter).
<F5> Represents other revenue, principally from cable and direct broadcast
satellite subscriber fees, the sales of University of Arkansas sports
programming to advertisers and radio stations as well as receipts from
tower rental and production of commercials.
<F6> Represents fees paid to national sales representatives and fees paid for
music licenses.
</FN>
7
Net operating revenues for the three months ended December 31, 2003 totaled
$54,796, a decrease of $3,713, or 6.3%, when compared to net operating revenues
of $58,509 for the three months ended December 31, 2002.
Local and national advertising revenues increased $3,632, or 8.0%, during the
three months ended December 31, 2003 versus the comparable period in Fiscal
2003. Local and national advertising revenue increased in a majority of our
markets during the three months ended December 31, 2003. The increase for the
three months ended December 31, 2003 reflected increased demand among local and
national advertisers as well as the prior year displacement of local and
national advertisers during the peak political advertising month of October
2002.
Political advertising revenues decreased by $7,415 to $493 for the three months
ended December 31, 2003 as compared to the three months ended December 31, 2002.
Political advertising revenue decreased in all of our markets due to several
high-profile local political races affecting our markets for the November 2002
elections, which generated substantial revenue in the first quarter of Fiscal
2003 with no comparable races or elections taking place during the first quarter
of Fiscal 2004.
No individual advertiser accounted for more than 5% of our broadcast revenues
during the three months ended December 31, 2002 or 2003.
Total Operating Expenses
Total operating expenses for the three months ended December 31, 2003 totaled
$37,393, an increase of $1,218, or 3.4%, compared to total operating expenses of
$36,175 for the three-month period ended December 31, 2002. This net increase
consisted of an increase in television operating expenses, excluding
depreciation and amortization, of $1,658, a decrease in depreciation and
amortization of $257 and a decrease in corporate expenses of $183.
Television operating expenses, excluding depreciation and amortization,
increased $1,658, or 5.2%, for the three months ended December 31, 2003 as
compared to the comparable period in Fiscal 2003. This increase was due
primarily to an overall increase in our employee compensation and benefits of
5.5% as well as an incremental $289 of news-related promotional expenses
specifically at our Washington, D.C. station. The overall increase in employee
compensation and benefits during the three months ended December 31, 2003
resulted principally from increased news costs in Washington, D.C. as well as
increased sales commissions and health insurance costs across all of our
stations.
Depreciation and amortization expense decreased $257, or 9.9%, for the three
months ended December 31, 2003 versus the comparable period in Fiscal 2003. This
decrease was principally the result of decreased depreciation associated with
the new WJLA/NewsChannel 8 facility during its second full year of depreciation
in Fiscal 2004.
Corporate expenses decreased $183, or 12.6%, during the three months ended
December 31, 2003, as compared to the same period in the prior fiscal year. This
decrease was due primarily to decreased key-man life insurance expense.
Operating Income
For the three months ended December 31, 2003, operating income of $17,403
decreased $4,931, or 22.1%, when compared to operating income of $22,334 for the
three months ended December 31,
8
2002. For the three months ended December 31, 2003, the operating margin
decreased to 31.8% from 38.2% for the comparable period in Fiscal 2003. The
decreases in operating income and margin during the three months ended December
31, 2003 were primarily the result of decreased net operating revenues as well
as increased television operating expenses, excluding depreciation and
amortization, as discussed above.
Operating Cash Flow
Operating cash flow of $19,735 for the three months ended December 31, 2003
decreased $5,188, or 20.8%, as compared to $24,923 for the three-month period
ended December 31, 2002. The decrease during the three months ended December 31,
2003 was primarily the result of decreased net operating revenues as well as
increased television operating expenses, excluding depreciation and
amortization, as discussed above.
We define operating cash flow as operating income plus depreciation and
amortization. Although operating cash flow is not a measure of performance
calculated in accordance with generally accepted accounting principles ("GAAP"),
we believe it is useful for investors in our debt securities and users of our
financial statements in understanding our results of operations. Management
believes that operating cash flow is useful because it is widely used in the
broadcasting industry as a measure of operating performance and is used by
investors and by analysts who report on the performance of broadcast companies.
Operating cash flow also is generally recognized as a tool in applying valuation
methodologies for companies in the media industry. In addition, management
closely monitors operating cash flow in determining our ability to maintain
compliance with certain financial covenants of our indebtedness. Nevertheless,
you should not consider operating cash flow in isolation from or as a substitute
for operating income, net income, cash flow from operating activities and other
operations or cash flow statement data prepared in accordance with GAAP, or as a
measure of performance or liquidity prepared in accordance with GAAP. Moreover,
because operating cash flow is not a measure calculated in accordance with GAAP,
this performance measure is not necessarily comparable to similarly titled
measures employed by other companies.
The following table provides a reconciliation of operating cash flow (a non-GAAP
financial measure) to operating income (as presented in our statements of
operations):
Three Months Ended December 31,
-------------------------------
2002 2003
---- ----
Operating income......................... $ 22,334 $ 17,403
Add:
Depreciation and amortization............ 2,589 2,332
------ ------
Operating cash flow...................... $ 24,923 $ 19,735
====== ======
Nonoperating Expenses, Net
Interest Expense. Interest expense of $9,177 for the three months ended December
31, 2003 decreased $1,921, or 17.3%, as compared to $11,098 for the three-month
period ended December 31, 2002. The average balance of debt outstanding,
including capital lease obligations, for the three months ended December 31,
2002 and 2003 was $475,600 and $470,285, respectively, and the weighted average
interest rate on debt was 9.14% and 7.64% for the three months ended December
31, 2002 and 2003, respectively. The decrease in interest expense was primarily
due to the reduced weighted average interest rate on debt resulting from the two
financing transactions completed during the first half of
9
Fiscal 2003 as well as the incremental interest expense incurred during the
three months ended December 31, 2002 associated with the first financing
transaction.
Incremental interest expense was incurred related to carrying both the then
newly issued 7 3/4% notes and the 9 3/4% debentures from December 20, 2002
through December 31, 2002. All of the 9 3/4% debentures were either purchased
during January 2003 or redeemed after the redemption notice period was completed
in January 2003. Had we purchased or redeemed the 9 3/4% debentures on December
20, 2002 when the 7 3/4% notes were issued, interest expense for the three
months ended December 31, 2002 would have been $10,353. This would have resulted
in a decrease in interest expense of $1,176, or 11.4%, during the three months
ended December 31, 2003 as compared to the three months ended December 31, 2002.
This reflects the lower weighted average interest rate on debt, partially offset
by a higher average balance of debt outstanding during the three months ended
December 31, 2003. The average balance of debt outstanding, including capital
lease obligations, would have been $441,988 for the three months ended December
31, 2002, and the weighted average interest rate on debt would have been 9.11%.
Income Taxes
The provision for income taxes for the three months ended December 31, 2003
totaled $2,901, a decrease of $932, or 24.3%, as compared to the provision for
income taxes of $3,833 for the three months ended December 31, 2002. The
decrease in the provision for income taxes during the three months ended
December 31, 2003 was primarily due to the $3,158, or 28.6%, decrease in pre-tax
income.
Cumulative Effect of Change in Accounting Principle
Effective October 1, 2002, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 addresses the financial accounting and
reporting for acquired goodwill and other intangible assets. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives are no
longer amortized but are subject to periodic impairment tests. Our indefinite
lived intangible assets consist of broadcast licenses. Other intangible assets
continue to be amortized over their useful lives of 11 to 25 years.
Upon adoption, we performed the first of the required impairment tests on our
indefinite lived intangible assets. The fair value of our broadcast licenses was
determined by applying an estimated market multiple to the broadcast cash flow
generated by the respective market. Market multiples were determined based on
recent transactions within the industry, information available regarding
publicly traded peer companies and the respective station's competitive position
within its market. Appropriate allocation was made to each of the station's
tangible and intangible assets in determining the fair value of the station's
broadcast licenses. As a result of these tests, we determined that one of our
broadcast licenses was impaired. Accordingly, we recorded a non-cash, after-tax
impairment charge of $2,973 related to the carrying value of our indefinite
lived intangible assets. This charge was recorded as a cumulative effect of a
change in accounting principle during the three months ended December 31, 2002.
Net Income
For the three months ended December 31, 2003, the Company recorded net income of
$4,997 as compared to net income of $4,250 for the three months ended December
31, 2002. The increase of $747 during the three months ended December 31, 2003
was due to the factors discussed above.
10
Balance Sheet
Significant balance sheet fluctuations from September 30, 2003 to December 31,
2003 consisted primarily of an increase in accounts receivable and decreases in
program rights, accrued interest payable and program rights payable. The
increase in accounts receivable was the result of the seasonality of our revenue
cycle. The decrease in program rights and program rights payable reflects the
annual cycle of the underlying program contracts which generally begins in
September of each year. Accrued interest payable decreased due to making the
scheduled semi-annual interest payment on our long-term fixed interest rate debt
on December 15, 2003.
Liquidity and Capital Resources
As of December 31, 2003, our cash and cash equivalents aggregated $3,482, and we
had an excess of current assets over current liabilities of $29,597.
Cash Provided by Operations. Our principal source of working capital is cash
flow from operations and borrowings under our senior credit facility. As
discussed above, our operating results are cyclical in nature primarily as a
result of seasonal fluctuations in advertising revenues, which are generally
highest in the first and third quarters of each fiscal year. Our cash flow from
operations is also impacted on a quarterly basis by the timing of cash
collections and interest payments on debt. Cash receipts are usually greater
during the second and fourth fiscal quarters as the collection of advertising
revenue typically lags the period in which such revenue is recorded. Scheduled
semi-annual interest payments on our long-term fixed interest rate debt have
been higher during the first and third fiscal quarters, and as a result of the
redemption of our 8 7/8% notes, will now occur only in such quarters. As a
result, our cash flows from operating activities as reflected in our
consolidated financial statements are generally significantly higher during our
second and fourth fiscal quarters, and such quarters comprise a substantial
majority of our cash flows from operating activities for the full fiscal year.
As reported in the consolidated statements of cash flows, our net cash provided
by operating activities was $7,701 for the three months ended December 31, 2002,
and our net cash used in operating activities was $3,319 for the three months
ended December 31, 2003. The $11,020 decrease in cash flows from operating
activities was primarily due to decreased pre-tax income of $3,158 as well as a
change in the timing and amount of our scheduled semi-annual interest payments
on our long-term fixed interest rate debt resulting from the financing
transactions completed during the first half of Fiscal 2003. Accrued interest
payable decreased by $8,790 during the three months ended December 31, 2003 as
compared to a decrease of $2,717 during the three months ended December 31,
2002, resulting in a $6,073 decrease in cash flows from operating activities
during the three months ended December 31, 2003 as compared to the same period
in the prior fiscal year. We have no scheduled interest payments on our
long-term fixed interest rate debt for the upcoming second fiscal quarter ending
March 31, 2004 as compared to payments of $10,928 for the same quarter in Fiscal
2003.
Transactions with Owners. We have periodically made advances in the form of
distributions to Perpetual Corporation ("Perpetual"). During the three months
ended December 31, 2002 and 2003, we made cash advances, net of repayments, to
Perpetual of $9,211 and $4,270, respectively. The advances to Perpetual are
non-interest bearing and, as such, do not reflect market rates of
interest-bearing loans to unaffiliated third parties.
11
At present, the primary source of repayment of the net advances is through our
ability to pay dividends or make other distributions, and there is no immediate
intent for the amounts to be repaid. Accordingly, these advances have been
treated as a reduction of stockholder's investment and are described as
"distributions" in our consolidated financial statements.
Under the terms of the agreements relating to our indebtedness, future advances,
distributions and dividends to related parties are subject to certain
restrictions. We anticipate that, subject to such restrictions, applicable law
and payment obligations with respect to our indebtedness, we will make advances,
distributions or dividends to related parties in the future.
During the three months ended December 31, 2002 and 2003, we made
interest-bearing advances of tax payments to Perpetual in accordance with the
terms of the tax sharing agreement between Perpetual and us of $2,378 and
$3,940, respectively. We were charged by Perpetual for federal and state income
taxes totaling $722 and $1,860 during the three months ended December 31, 2002
and 2003, respectively.
Stockholder's deficit amounted to $277,153 at December 31, 2003, an increase of
$1,353, or 0.5%, from the September 30, 2003 deficit of $275,800. The increase
was due to a net increase in distributions to owners of $6,350, partially offset
by net income for the period of $4,997.
Indebtedness. Our total debt, including the current portion of long-term debt,
increased from $467,688 at September 30, 2003 to $479,119 at December 31, 2003.
This debt, net of applicable discounts, consisted of $452,140 of 7 3/4% senior
subordinated notes due December 15, 2012, $26,500 of draws under our senior
credit facility and $479 of capital lease obligations at December 31, 2003. The
increase of $11,431 in total debt from September 30, 2003 to December 31, 2003
was primarily due to an additional $11,500 in net draws under the senior credit
facility, reflecting the quarterly cycle of our cash flows from operations as
discussed above.
Our $70,000 senior credit facility is secured by the pledge of stock of ACC and
its subsidiaries and matures March 27, 2006. Interest is payable quarterly at
various rates from prime plus 0.25% or LIBOR plus 1.50% depending on certain
financial operating tests.
Under the existing borrowing agreements, we are 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 senior credit facility, we
must maintain compliance with certain financial covenants. Compliance with the
financial covenants is measured at the end of each quarter, and as of December
31, 2003, we were in compliance with those financial covenants. The senior
credit facility was amended as of December 10, 2003 to adjust a financial
covenant for the first half of the year ending September 30, 2004. We believe
that the amendment allows us sufficient operational flexibility to remain in
compliance with the financial covenants. We are also required to pay a
commitment fee ranging from 0.5% to 0.75% per annum based on the amount of any
unused portion of the senior credit facility.
The indenture for our long-term debt provides that, whether or not required by
the rules and regulations of the SEC, so long as any senior notes are
outstanding, we, at our expense, will furnish to each holder (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the SEC on Forms 10-Q and 10-K, if we were required to file such
forms, including a "Management's
12
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual financial information only, a report thereon by our
certified independent accountants and (ii) all current reports that would be
required to be filed with the SEC on Form 8-K if we were required to file such
reports. In addition, the indenture also provides that, whether or not required
by the rules and regulations of the SEC, we will file a copy of all such
information and reports with the SEC for public availability (unless the SEC
will not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. Although our duty to file such
reports with the SEC was automatically suspended pursuant to Section 15(d) of
the Securities Exchange Act of 1934, effective October 1, 2003, we will continue
to file such reports in accordance with the indenture.
Other Uses of Cash. We anticipate that capital expenditures for Fiscal 2004 will
approximate $7,000 and will be primarily for the implementation of DTV service
in our two remaining markets (Birmingham and Harrisburg) and the acquisition of
technical equipment and vehicles to support ongoing operations across our
stations. We expect that the source of funds for these anticipated capital
expenditures will be cash provided by operations and borrowings under the senior
credit facility. Capital expenditures during the three months ended December 31,
2003 totaled $1,434.
Based upon our current level of operations, we believe that available cash,
together with cash flows generated by operating activities and amounts available
under the senior credit facility, will be adequate to meet our anticipated
future requirements for working capital, capital expenditures and scheduled
payments of interest on our debt.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At December 31, 2003, we had other financial instruments consisting primarily of
long-term fixed interest rate debt. Such debt, with future principal payments of
$455,000, matures December 15, 2012. At December 31, 2003, the carrying value of
such debt was $452,140, the fair value was approximately $472,000 and the
interest rate was 7 3/4%. 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. We estimate the fair value of our long-term debt by using quoted
market prices, as available, or by discounting the required future cash flows
under our debt using borrowing rates currently available to us. We actively
monitor the capital markets in analyzing our capital raising decisions.
Item 4. Controls and Procedures
The Company has performed an evaluation of its disclosure controls and
procedures (as defined by Exchange Act rule 15d-15(e)) as of December 31, 2003.
Based on this evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that the disclosure controls and procedures are
effective in providing reasonable assurances that material information required
to be in this Form 10-Q is made known to them by others on a timely basis.
There were no changes in the Company's internal control over financial reporting
during the quarter ended December 31, 2003 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
13
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
We currently and from time to time are involved in litigation incidental to the
conduct of our business, including suits based on defamation and employment
activity. We are not currently a party to any lawsuit or proceeding which, in
our opinion, if decided adverse to us, would be likely to have a material
adverse effect on our consolidated financial condition, results of operations or
cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the Company held on November 24, 2003,
each of the directors of the Company was re-elected to serve until the next
annual meeting and until his or her successor is elected and qualified.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
See Exhibit Index on pages 16-19.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
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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)
February 12, 2004 /s/ Robert L. Allbritton
- ----------------------------- --------------------------------------
Date Name: Robert L. Allbritton
Title: Chairman and Chief
Executive Officer
February 12, 2004 /s/ Stephen P. Gibson
- ----------------------------- --------------------------------------
Date Name: Stephen P. Gibson
Title: Senior Vice President
and Chief Financial Officer
15
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page No.
----------- ---------------------- --------
1.1 Purchase Agreement dated December 6, 2002 by and among *
ACC, Deutsche Bank Securities Inc. and Fleet Securities,
Inc. (Incorporated by reference to Exhibit 1 of the
Company's Form 10-K, No. 333-02302, dated December 17,
2002)
1.2 Purchase Agreement dated January 28, 2003 by and among *
ACC, Deutsche Bank Securities Inc. and Fleet Securities,
Inc. (Incorporated by reference to Exhibit 1.2 of the
Company's Quarterly Report on Form 10-Q, No. 333-02302,
dated February 3, 2003)
2.1 Asset Purchase Agreement between ALLNEWSCO, Inc. and *
Allbritton Communications Company, dated as of March 5,
2002. (Incorporated by reference to Exhibit 2.1 of the
Company's Report on Form 8-K, No. 333-02302, dated March
5, 2002)
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 December 20, 2002 between ACC and *
State Street Bank and Trust Company, as Trustee, relating
to the 7 3/4% Senior Subordinated Notes due 2012.
(Incorporated by reference to Exhibit 4.1 of the Company's
Report on Form 8-K, No. 333-02302, dated December 23,
2002)
4.2 Supplemental Indenture dated as of February 6, 2003 *
between ACC and U.S. Bank National Association
(successor-in-interest to State Street Bank and Trust
Company), as Trustee, to the Indenture dated as of
December 20, 2002 between ACC and State Street Bank and
Trust Company, as Trustee, relating to the 7 3/4% Senior
Subordinated Notes due 2012. (Incorporated by reference to
Exhibit 4.1 of the Company's Report on Form 8-K, No.
333-02302, dated February 6, 2003)
4.3 Form of 7 3/4% Series B Senior Subordinated Notes due *
2012. (Incorporated by reference to Exhibit 4.7 of the
Company's Quarterly Report on Form 10-Q, No. 333-02302,
dated February 3, 2003)
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Exhibit No. Description of Exhibit Page No.
----------- ---------------------- --------
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 4.4 of the Company's Quarterly Report on Form
10-Q, No. 333-02302, dated May 10, 2001)
4.5 First Amendment dated as of December 19, 2001 to the *
Amended and Restated Revolving Credit Agreement.
(Incorporated by reference to Exhibit 4.5 of the Company's
Form 10-K, No. 333-02302, dated December 27, 2001)
4.6 Second Amendment dated as of May 15, 2002 to the Amended *
and Restated Revolving Credit Agreement. (Incorporated by
reference to Exhibit 4.6 of the Company's Quarterly Report
on Form 10-Q, No. 333-02302, dated August 14, 2002)
4.7 Third Amendment dated as of December 6, 2002 to the *
Amended and Restated Revolving Credit Agreement.
(Incorporated by reference to Exhibit 4.6 of the Company's
Form 10-K, No. 333-02302, dated December 17, 2002)
4.8 Fourth Amendment dated as of December 10, 2003 to the *
Amended and Restated Revolving Credit Agreement.
(Incorporated by reference to Exhibit 4.8 of the Company's
Form 10-K, No. 333-02302, dated December 12, 2003)
10.1 Registration Rights Agreement by and among ACC, Deutsche *
Bank Securities Inc. and Fleet Securities Inc. dated
December 20, 2002. (Incorporated by reference to Exhibit
10.1 of the Company's Quarterly Report on Form 10-Q, No.
333-02302, dated February 3, 2003)
10.2 Registration Rights Agreement by and among ACC, Deutsche *
Bank Securities Inc. and Fleet Securities Inc. dated
February 6, 2003. (Incorporated by reference to Exhibit
10.2 of the Company's Registration Statement on Form S-4,
No. 333-02302, dated April 11, 2003)
10.3 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)
17
Exhibit No. Description of Exhibit Page No.
----------- ---------------------- --------
10.4 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)
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 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)
10.7 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)
10.8 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)
10.9 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)
10.10 Amendment to Network Affiliation Agreement (TV Alabama, *
Inc.) dated January 23, 1997. (Incorporated by reference
to Exhibit 10.15 of the Company's Quarterly Report on Form
10-Q, No. 333-02302, dated February 14, 1997)
10.11 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)
10.12 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)
18
Exhibit No. Description of Exhibit Page No.
----------- ---------------------- --------
10.13 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)
10.14 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)
10.15 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)
10.16 Supplement No. 1 dated as of December 13, 2002 to the *
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 10.15 of the
Company's Quarterly Report on Form 10-Q, No. 333-02302,
dated February 3, 2003)
10.17 Joinder Agreement dated as of December 13, 2002 by ACC *
Licensee, Inc. to the 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
10.16 of the Company's Quarterly Report on Form 10-Q, No.
333-02302, dated February 3, 2003)
14. Code of Ethics for Senior Financial Officers. *
(Incorporated by reference to Exhibit 14 of the Company's
Form 10-K, No. 333-02302, dated December 12, 2003)
31.1 Certification of Chairman and Chief Executive Officer
pursuant to Rule 15d-14(a) of the Securities Exchange Act
of 1934, as amended.
31.2 Certification of Senior Vice President and Chief Financial
Officer pursuant to Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended.
- -----------------
*Previously filed
19