SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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:
JUNE 30, 1998 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. 20006-3903
(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 X No
Number of shares of Common Stock outstanding as of August 12, 1998: 20,000
shares.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN OF THE MATTERS DISCUSSED IN THIS FORM 10-Q MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SECURITIES ACT AND THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS MAY INVOLVE
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS AND
PERFORMANCE OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS OR
PERFORMANCE EXPRESSED OR IMPLIED BY SUCH STATEMENTS. CAUTIONARY STATEMENTS
REGARDING THE RISKS ASSOCIATED WITH SUCH FORWARD-LOOKING STATEMENTS INCLUDE,
WITHOUT LIMITATION, THOSE STATEMENTS INCLUDED UNDER "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." CERTAIN OF SUCH
RISKS AND UNCERTAINTIES RELATE TO THE HIGHLY LEVERAGED NATURE OF THE COMPANY,
THE RESTRICTIONS IMPOSED ON THE COMPANY BY CERTAIN INDEBTEDNESS, THE SENSITIVITY
OF THE COMPANY TO ADVERSE TRENDS IN THE GENERAL ECONOMY, THE HIGH DEGREE OF
COMPETITION IN THE COMPANY'S INDUSTRY, THE IMPACT OF NEW TECHNOLOGIES AND
CHANGES IN FEDERAL COMMUNICATIONS COMMISSION REGULATIONS, THE VARIABILITY OF THE
COMPANY'S QUARTERLY RESULTS AND THE COMPANY'S SEASONALITY, AMONG OTHERS.
ALL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY ARE
EXPRESSLY QUALIFIED BY THE FOREGOING CAUTIONARY STATEMENTS.
ALLBRITTON COMMUNICATIONS COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Operations and 1
Retained Earnings for the Three and Nine Months
Ended June 30, 1997 and 1998
Consolidated Balance Sheets as of September 30, 1997 2
and June 30, 1998
Consolidated Statements of Cash Flows for the Nine 3
Months Ended June 30, 1997 and 1998
Notes to Interim Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial 5
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 11
Market Risk
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,
------------------ -----------------
1997 1998 1997 1998
---- ---- ---- ----
Operating revenues, net $ 46,543 $ 49,360 $ 131,359 $ 139,753
------ ------ ------- -------
Television operating expenses, excluding
depreciation and amortization 25,007 25,593 78,594 78,942
Depreciation and amortization 4,883 4,731 13,932 13,838
Corporate expenses 935 1,173 3,126 3,270
-------- ------- ------- -------
30,825 31,497 95,652 96,050
------ ------ ------ ------
Operating income 15,718 17,863 35,707 43,703
------ ------ ------ ------
Nonoperating income (expense)
Interest income
Related party 553 553 1,659 1,659
Other 42 85 166 1,027
Interest expense (10,775) (10,822) (31,913) (33,823)
Other, net (372) (151) (954) (721)
------ ------ ------- ------
(10,552) (10,335) (31,042) (31,858)
------ ------ ------- ------
Income before income taxes and
extraordinary item 5,166 7,528 4,665 11,845
Provision for income taxes 2,254 3,851 3,180 5,984
------- ------- ------- -------
Income before extraordinary item 2,912 3,677 1,485 5,861
Extraordinary loss on early repayment of debt,
net of related income tax benefit of $3,176 - - - (5,155)
------- ------- ------- --------
Net income 2,912 3,677 1,485 706
Retained earnings, beginning of period 43,675 41,864 45,102 44,835
------- ------- ------- --------
Retained earnings, end of period $ 46,587 $ 45,541 $ 46,587 $ 45,541
======= ======= ======= =======
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, 1998
ASSETS 1997 (UNAUDITED)
------------ ------------
Current assets
Cash and cash equivalents $ 7,421 $ 6,003
Accounts receivable, net 34,569 39,698
Program rights 15,244 3,762
Deferred income taxes 2,617 2,617
Interest receivable from related party 492 1,045
Other 2,405 2,266
--------- ----------
Total current assets 62,748 55,391
Intangible assets, net 150,493 146,234
Property, plant and equipment, net 51,921 49,670
Deferred financing costs and other 10,477 11,627
Cash surrender value of life insurance 4,674 5,312
Program rights 664 267
--------- ----------
$ 280,977 $ 268,501
======== ========
LIABILITIES AND STOCKHOLDER'S INVESTMENT
Current liabilities
Current portion of long-term debt $ 1,320 $ 1,359
Accounts payable 3,620 2,613
Accrued interest payable 10,765 8,114
Program rights payable 19,718 6,669
Accrued employee benefit expenses 3,728 3,525
Other accrued expenses 5,079 4,655
---------- ----------
Total current liabilities 44,230 26,935
Long-term debt 414,402 428,370
Program rights payable 966 462
Deferred rent and other 3,067 3,043
Accrued employee benefit expenses 1,836 1,941
Deferred income taxes 2,039 4,256
--------- ---------
466,540 465,007
------- -------
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 44,835 45,541
Distributions to owners, net (237,354) (249,003)
------- -------
Total stockholder's investment (185,563) (196,506)
------- -------
$ 280,977 $ 268,501
======= =======
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,
1997 1998
---- ----
Cash flows from operating activities:
Net income $ 1,485 $ 706
----- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,932 13,838
Other noncash charges 883 952
Extraordinary loss on early repayment of debt - 5,155
Provision for doubtful accounts 373 438
Loss (gain) on disposal of assets 90 (135)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (8,584) (5,567)
Program rights 13,142 11,879
Other current assets 293 (223)
Other noncurrent assets (98) (420)
Increase (decrease) in liabilities:
Accounts payable (1,919) (1,007)
Accrued interest payable (3,010) (2,651)
Program rights payable (14,352) (13,553)
Accrued employee benefit expenses (196) (98)
Other accrued expenses 435 (100)
Deferred rent and other liabilities (470) (24)
Deferred income taxes 2,128 2,217
------ -------
Total adjustments 2,647 10,701
------- ------
Net cash provided by operating activities 4,132 11,407
------- ------
Cash flows from investing activities:
Capital expenditures (9,467) (7,168)
Purchase of option (5,348) -
Proceeds from disposal of assets 21 316
------- ------
Net cash used in investing activities (14,794) (6,852)
------- ------
Cash flows from financing activities:
Proceeds from issuance of debt - 150,000
Deferred financing costs - (4,481)
Prepayment penalty on early repayment of debt - (5,842)
Draws (repayments) under lines of credit, net 22,200 (12,700)
Principal payments on long-term debt and capital lease obligations (319) (123,962)
Distributions to owners, net of certain charges (38,141) (89,744)
Repayments of distributions to owners 27,739 80,756
------ -------
Net cash provided by (used in) financing activities 11,479 (5,973)
------ -------
Net increase (decrease) in cash and cash equivalents 817 (1,418)
Cash and cash equivalents, beginning of period 12,108 7,421
------ -------
Cash and cash equivalents, end of period $ 12,925 $ 6,003
====== =======
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, 1998 are not necessarily indicative of the
results that can be expected for the entire fiscal year ending September 30,
1998. 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, 1997 which are contained in the Company's Form
10-K.
NOTE 2 - For the nine months ended June 30, 1997 and 1998, distributions to
owners were as follows:
1997 1998
---- ----
Distributions to owners, beginning of period $224,450 $237,354
Cash advances 38,502 92,800
Repayment of cash advances (27,739) (80,756)
Charge for Federal income taxes (361) (395)
------- -------
Distributions to owners, end of period $234,852 $249,003
======= =======
Weighted average amount of non-interest bearing
advances outstanding during the period $215,998 $228,782
======= =======
NOTE 3 - On January 22, 1998, the Company completed a $150,000 offering of its 8
7/8% Senior Subordinated Notes due 2008. The cash proceeds of the offering, net
of offering expenses, of approximately $146,000 were used to redeem the
Company's 11 1/2% Senior Subordinated Debentures due 2004 (the "11 1/2%
Debentures") on March 3, 1998 with the balance used to repay certain amounts
outstanding under the Company's revolving credit facility. The Company incurred
a loss, net of the related income tax effect, of $5,155 on the early
extinguishment of the 11 1/2% Debentures resulting primarily from the payment of
a call premium and write-off of remaining deferred financing costs.
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 and/or program ABC network-affiliated television stations
serving seven diverse geographic markets: WJLA in Washington, D.C.; WHTM in
Harrisburg, Pennsylvania; KATV in Little Rock, Arkansas; KTUL in Tulsa,
Oklahoma; WSET in Lynchburg, Virginia; WCIV in Charleston, South Carolina; and
WCFT in Tuscaloosa, Alabama (west of Birmingham, Alabama). The Company also
programs the ABC network affiliate WJSU-TV in Anniston, Alabama (east of
Birmingham, Alabama) pursuant to the terms of a local marketing agreement, and
owns a low power television station licensed to Birmingham, Alabama (WBMA-LP).
The Company operates WCFT-TV and programs WJSU-TV in tandem with WBMA-LP serving
the viewers of Birmingham, Tuscaloosa and Anniston.
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 fiscal
quarter. Years in which Olympic Games are held also cause cyclical fluctuations
in operating results depending on which television network is carrying Olympic
coverage.
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, 1998 principally
reflect increased demand by advertisers in the Washington, D.C. market as well
as increased audience share and advertising revenues in the Birmingham market.
The nine-month comparative results are also impacted by the effect of the
Company's $150,000 offering of its 8 7/8% Senior Subordinated Notes due 2008
(the "8 7/8% Notes") completed on January 22, 1998. The cash proceeds of the
offering, net of offering expenses, of approximately $146,000 were used to
redeem the Company's 11 1/2% Senior Subordinated Debentures due 2004 (the "11
1/2% Debentures") on March 3, 1998 with the balance used to repay certain
amounts outstanding under the Company's revolving credit facility. The Company
incurred a loss, net of the related income tax effect, of $5,155 on the early
extinguishment of the 11 1/2% Debentures resulting primarily from the payment of
a call premium and write-off of remaining deferred financing costs.
RESULTS OF OPERATIONS
Set forth below are selected consolidated financial data for the three and
nine months ended June 30, 1997 and 1998 in actual dollars (in thousands) and
the percentage change between the periods:
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
PERCENT PERCENT
1997 1998 CHANGE 1997 1998 CHANGE
-------- -------- ------ -------- --------- ------
Operating revenues, net $46,543 $49,360 6.1% $131,359 $139,753 6.4%
Total operating expenses 30,825 31,497 2.2% 95,652 96,050 0.4%
------ ------ ------ -------
Operating income 15,718 17,863 13.6% 35,707 43,703 22.4%
Nonoperating expenses, net 10,552 10,335 -2.1% 31,042 31,858 2.6%
Income tax provision 2,254 3,851 70.9% 3,180 5,984 88.2%
------- ------- ------- -------
Income before
extraordinary item 2,912 3,677 26.3% 1,485 5,861 294.7%
Extraordinary loss, net
of income tax benefit - - - - 5,155 -
------- ------- ------- ------
Net income $ 2,912 $ 3,677 26.3% $ 1,485 $ 706 -52.5%
======= ======= ======= ======
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, 1997 and 1998, 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,
1997 1998 1997 1998
---- ---- ---- ----
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands)
Local/regional <F1> $23,231 48.2 $24,849 48.6 $64,767 47.7 $70,648 48.8
National <F2> 20,555 42.6 20,958 41.0 53,978 39.8 58,421 40.4
Network compensation <F3> 1,660 3.4 1,682 3.3 4,699 3.5 4,738 3.3
Political <F4> 435 0.9 1,169 2.3 3,880 2.9 2,139 1.5
Trade & barter <F5> 2,020 4.2 2,034 4.0 5,842 4.3 6,115 4.2
Other revenue <F6> 295 0.7 394 0.8 2,485 1.8 2,554 1.8
-------- ------ ------- ------ ----- ---- ------ ----
Broadcast revenues 48,196 100.0 51,086 100.0 135,651 100.0 144,615 100.0
===== ===== ===== =====
Fees <F7> (1,701) (1,732) (4,571) (4,876)
------- ------ ------- -------
Broadcast revenue,
net of fees 46,495 49,354 131,080 139,739
Non-Broadcast revenue <F8> 48 6 279 14
-------- ------- ------- -------
Total net operating revenues $46,543 $49,360 $131,359 $139,753
======== ====== ======= =======
<FN>
<F1> Represents sale of advertising time to local and regional advertisers or agencies representing such
advertisers.
<F2> Represents sale of advertising time to agencies representing national advertisers.
<F3> Represents payment by networks for broadcasting or promoting network programming.
<F4> Represents sale of advertising time to political advertisers.
<F5> Represents value of commercial time exchanged for goods and services (trade) or syndicated programs
(barter).
<F6> 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.
<F7> Represents fees paid to national sales representatives and fees paid for music licenses.
<F8> Represents revenues from program syndication sales and other miscellaneous non-broadcast revenues.
</FN>
Net operating revenues for the three months ended June 30, 1998 totaled $49,360,
an increase of $2,817, or 6.1% when compared to net operating revenues of
$46,543 for the three months ended June 30, 1997. This increase resulted
principally from increased local and national advertising demand in the
Company's Birmingham and Washington, D.C. markets. The revenue growth in
Birmingham was achieved through increased audience and market share. The
expansion in audience and market share was the result of the Company's
development of the Birmingham operation.
Net operating revenues increased $8,394, or 6.4%, to $139,753 for the nine
months ended June 30, 1998 as compared to $131,359 for the same period in the
prior fiscal year. This year-to-date increase also principally resulted from
increased local and national advertising demand in the Company's Washington,
D.C. and Birmingham markets, partially offset by a decline in the Tulsa market
as well as decreased political advertising revenues in the majority of the
Company's markets.
Local/regional advertising revenues increased 7.0% and 9.1% during the three and
nine months ended June 30, 1998, respectively, versus the comparable periods in
Fiscal 1997. The increase for the three months ended June 30, 1998 of $1,618
over the three months ended June 30, 1997 was primarily attributable to market
share gains by the Birmingham stations and an improvement in the Washington,
D.C., Little Rock and Lynchburg local/regional advertising markets. The $5,881
increase in local/regional advertising revenues for the nine-month period ended
June 30, 1998 over the comparable period in the prior fiscal year was primarily
attributable to an improvement in the Washington, D.C., Little Rock and
Lynchburg local/regional advertising markets as well as market share gains by
the Birmingham stations, offset by a weakening in the Tulsa market for
local/regional advertisers.
National advertising revenues increased $403 and $4,443, or 2.0% and 8.2%, for
the three and nine months ended June 30, 1998, respectively, over the comparable
periods in Fiscal 1997. The increase for the three months ended June 30, 1998
was primarily a result of improvement in the Harrisburg and Lynchburg national
advertising markets combined with market share gains by the Birmingham stations,
offset by a weakening in the Tulsa and Little Rock markets for national
advertisers. The increase for the nine-month period ended June 30, 1998 was
principally attributable to an improvement in the Washington, D.C. and
Harrisburg national advertising markets and market share gains by the Birmingham
stations, offset by a weakening in the Tulsa market for national advertisers.
Political advertising revenues increased $734, or 168.7%, for the three months
ended June 30, 1998 as compared to the same period in Fiscal 1997. The increase
was largely attributable to local political races in the Birmingham and Little
Rock markets. For the year-to-date period ended June 30, 1998, political
advertising revenues decreased by $1,741, or 44.9% from the nine months ended
June 30, 1997. This decrease was primarily due to the national presidential
election as well as various high-profile local political races in several of the
Company's markets that took place during the first two quarters of Fiscal 1997
with no comparable political elections occurring during the same periods in the
current fiscal year.
7
No individual advertiser accounted for more than 5% of the Company's broadcast
revenues during the three or nine months ended June 30, 1997 or 1998.
TOTAL OPERATING EXPENSES
Total operating expenses for the three months ended June 30, 1998 totaled
$31,497, an increase of $672, or 2.2%, compared to total operating expenses of
$30,825 for the three-month period ended June 30, 1997. This increase was
primarily the result of an increase in television operating expenses, excluding
depreciation and amortization, of $586.
Total operating expenses for the nine-month period ended June 30, 1998 totaled
$96,050, an increase of $398, or 0.4%, compared to $95,652 for the nine months
ended June 30, 1997. This increase was primarily the result of an increase in
television operating expenses, excluding depreciation and amortization, of $348.
Television operating expenses, excluding depreciation and amortization,
increased $586 and $348, or 2.3% and 0.4%, for the three and nine months ended
June 30, 1998, respectively, as compared to the same periods in Fiscal 1997. The
nine-month expense increase was reduced by the non-recurring programming
expense of approximately $2,000 related to the Company's early termination of
a program contract incurred during the second quarter of Fiscal 1997.
Excluding this charge from Fiscal 1997 television operating expenses, such
expenses have increased 3.1% for the nine months ended June 30, 1998 versus the
comparable period in Fiscal 1997. The television operating expense increases for
the three and nine months ended June 30, 1998 were primarily attributable to
increased news and sales expenses across the majority of the Company's stations,
partially offset by reduced operating expenses in Birmingham for the nine-month
period.
OPERATING INCOME
For the three months ended June 30, 1998, operating income of $17,863 increased
$2,145, or 13.6%, when compared to operating income of $15,718 for the three
months ended June 30, 1997. For the three months ended June 30, 1998, the
operating margin increased to 36.2% from 33.8% for the comparable period in
Fiscal 1997. Operating income of $43,703 for the nine months ended June 30, 1998
increased $7,996, or 22.4%, when compared to operating income of $35,707 for the
same period in the prior fiscal year. For the nine months ended June 30, 1998,
the operating margin increased to 31.3% from 27.2% for the comparable period in
the prior fiscal year.
The increases in operating income and margin were the result of operating
revenues increasing at a greater rate than operating expenses as discussed
above. The Company's Fiscal 1997 operating margins were adversely impacted due
to the investment in the start-up operations in Birmingham (e.g., programming
and staffing changes, marketing and promotion activities, and depreciation
arising from capital expenditures for facility construction and equipment
purchases to integrate the operation) during the initial phase of Birmingham's
audience share development as well as the non-recurring program termination
expense.
8
NONOPERATING EXPENSES, NET
Interest expense of $10,822 for three months ended June 30, 1998 increased $47,
or 0.4%, as compared to $10,775 for the three-month period ended June 30, 1997.
The slight increase was related to higher average debt balances during Fiscal
1998, largely offset by a reduced average interest rate on debt as a result of
the Company's refinancing on January 22, 1998.
Interest expense for the nine months ended June 30, 1998 was $33,823, an
increase of $1,910, or 6.0%, as compared to $31,913 for the nine-month period
ended June 30, 1997. This increase was principally due to the incremental
interest expense associated with carrying both the newly-issued 8 7/8% Notes and
the 11 1/2% Debentures from January 22, 1998 until the redemption of the 11 1/2%
Debentures on March 3, 1998 after the redemption notice period was completed.
Had the Company redeemed the 11 1/2% Debentures on January 22, 1998, interest
expense for the nine months ended June 30, 1998 would have been $32,212, an
increase of $299, or 0.9%, as compared to the same period in Fiscal 1997.
The weighted average balance of debt was $412,310 and $453,660 for the nine
months ended June 30, 1997 and 1998, respectively, and the weighted average
interest rate on debt was 10.2% and 9.8% for the nine months ended June 30, 1997
and 1998, respectively. The increased weighted average debt balance during
Fiscal 1998 was primarily due to carrying both the newly-issued 8 7/8% Notes and
the 11 1/2% Debentures from January 22, 1998 until the redemption of the 11 1/2%
Debentures on March 3, 1998 after the redemption notice period was completed.
Had the Company redeemed the 11 1/2% Debentures on January 22, 1998, the
weighted average balance of debt would have been $429,060 for the nine months
ended June 30, 1998.
Interest income of $638 for the three months ended June 30, 1998 increased $43,
or 7.2%, as compared to interest income of $595 for the three months ended June
30, 1997. Interest income for the nine months ended June 30, 1998 was $2,686, an
increase of $861, or 47.2%, as compared to $1,825 for the nine-month period
ended June 30, 1997. The increase in interest income for the nine-month period
was due to interest earned from temporarily investing the majority of the
proceeds from the issuance of the 8 7/8% Notes for the period from January 22,
1998 until March 3, 1998 at which time the Company redeemed the 11 1/2%
Debentures.
INCOME TAXES
The provision for income taxes for the three months ended June 30, 1998 totaled
$3,851, an increase of $1,597, or 70.9%, when compared to the provision for
income taxes of $2,254 for the three months ended June 30, 1997. The increase is
directly related to the $2,362,or 45.7%, increase in the Company's income before
income taxes and extraordinary item (as previously discussed), as well as the
effect of certain state-level income tax considerations in the prior fiscal
quarter.
For the nine months ended June 30, 1998, the provision for income taxes
increased $2,804, or 88.2% when compared to the same period in the prior fiscal
year due to a $7,180, or 153.9% increase in income before income taxes and
extraordinary item (as previously discussed), offset by the effect of certain
state-level income tax considerations in the prior fiscal year-to-date period.
9
INCOME BEFORE EXTRAORDINARY ITEM
For the three and nine-month periods ended June 30, 1998 the Company had income
before extraordinary item of $3,677 and $5,861, respectively, compared to income
before extraordinary item of $2,912 and $1,485 for the same periods in the prior
fiscal year. The improved results for Fiscal 1998 as compared to Fiscal 1997
reflect the growth in operating revenues as discussed above.
NET INCOME
The net income for the three months ended June 30, 1998 was $3,677 as compared
to net income of $2,912 for the three months ended June 30, 1997 due to the
factors discussed above.
For the nine months ended June 30, 1998, the Company recorded net income of $706
as compared to net income of $1,485 for the nine-month period ended June 30,
1997. This decrease in net income reflects the $5,155 extraordinary loss on
early repayment of debt resulting primarily from the payment of a call premium
and write-off of remaining deferred financing costs, offset by the improved
results for Fiscal 1998 as discussed above.
BALANCE SHEET
Significant balance sheet fluctuations from September 30, 1997 to June 30, 1998
consisted of increased accounts receivable and long-term debt, offset by
decreases in program rights and program rights payable. In addition,
distributions to owners increased as a result of net cash advances made during
the nine months ended June 30, 1998. The increase in accounts receivable was the
result of growth in operating revenues as well as the seasonality of the
Company's revenue cycle. The increase in long-term debt was due to the Company's
refinancing transaction in January 1998. The decreases in program rights and
program rights payable reflect the annual cycle of the underlying program
contracts.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company's cash and cash equivalents aggregated
$6,003, and the Company had an excess of current assets over current
liabilities of $28,456.
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 $4,132 and $11,407 for the nine months
ended June 30, 1997 and 1998, respectively. The increase was primarily due to a
$4,376 increase in income before extraordinary item and a smaller increase in
accounts receivable during the first nine months of Fiscal 1998 than during the
same period of Fiscal 1997.
TRANSACTIONS WITH OWNERS. For the nine months ended June 30, 1997 and 1998 the
Company made cash advances to owners, net of repayments and certain charges,
totaling $10,402 and $11,649, 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 $196,506 at June 30, 1998, an increase of
$10,943, or 5.9%, from the September 30, 1997 deficit of $185,563. The increase
was due to a net increase in distributions to owners of $11,649, offset by net
income for the period of $706.
10
INDEBTEDNESS. The Company's total debt, including the current portion of
long-term debt, increased from $415,722 at September 30, 1997 to $429,729 at
June 30, 1998. This debt, net of applicable discounts, consists of $273,906 of 9
3/4% Debentures, $150,000 of 8 7/8% Notes and $5,823 of capital lease
obligations. The increase of $14,007 in total debt from September 30, 1997 to
June 30, 1998 was primarily due to the net increase of $27,000 in principal of
the newly-issued 8 7/8% Notes as compared to the 11 1/2% Debentures, offset by a
$12,700 decrease in amounts outstanding under the Company's $40,000 revolving
credit facility. The revolving credit facility is secured by the pledge of stock
of the Company and its subsidiaries and matures April 16, 2001. As of June 30,
1998, there were no amounts outstanding under the revolving credit facility. The
Company had $15,500 outstanding under the revolving credit facility as of August
12, 1998.
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, the Company must maintain specified
levels of operating cash flow and working capital and comply with other
financial covenants. Compliance with the financial covenants is measured at the
end of each quarter, and as of June 30, 1998, the Company was in compliance with
those covenants.
OTHER USES OF CASH. The Company anticipates that capital expenditures for Fiscal
1998 will approximate $10,000, including approximately $1,000 of an approximate
$3,000 project to enable WJLA to simultaneously broadcast its programming over
its second channel authorized to transmit a digital television signal. The
balance of the expenditures for this project are now anticipated to be incurred
during the first quarter of Fiscal 1999. The total amount may increase or
decrease depending upon changes in channel allocation or changes to the digital
television implementation strategy. Other Fiscal 1998 capital expenditures
include facility construction and technical equipment improvements across the
Company's television stations. Capital expenditures during the nine months ended
June 30, 1998 totaled $7,168.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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. 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 materially 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 12, 1998 /S/ LAWRENCE I. HEBERT
--------------- -----------------------------------
Date Name: Lawrence I. Hebert
Title: Chairman and Chief Executive
Officer
AUGUST 12, 1998 /S/ HENRY D. MORNEAULT
--------------- -----------------------------------
Date Name: Henry D. Morneault
Title: 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 Revolving Credit Agreement dated as of April 16, 1996 *
by and among Allbritton Communications Company certain
Banks, and The First National Bank of Boston, as agent.
(Incorporated by reference to Exhibit 4.4 of Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated
August 14, 1996.)
4.5 Modification No. 1 dated as of June 19, 1996 to *
Revolving Credit Agreement (Incorporated by reference
to Exhibit 4.5 of Company's Quarterly Report on Form
10-Q, No. 333-02302, dated May 15, 1997).
4.6 Modification No. 2 dated as of December 20, 1996 to *
Revolving Credit Agreement (Incorporated by reference
to Exhibit 4.6 of Company's Quarterly Report on Form
10-Q, No. 333-02302, dated May 15, 1997).
4.7 Modification No. 3 dated as of May 14, 1997 to *
Revolving Credit Agreement (Incorporated by reference
to Exhibit 4.7 of Company's Quarterly Report on Form
10-Q, No. 333-02302, dated May 15, 1997). Modification
No. 4 dated as of September 30, 1997 to Revolving
Credit
4.8 Agreement (Incorporated by reference to Exhibit 4.8 of *
Company's Form 10-K, No. 333-02302, dated December 22,
1997).
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 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.)
10.3 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.)
10.4 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.)
10.5 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.)
10.6 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.)
10.7 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.)
10.8 Tax Sharing Agreement effective as of September 30, *
1991 by and among Perpetual Corporation, Inc., ACC
and Allnewsco, Inc., as amended. (Incorporated by
reference to Exhibit 10.11 of Company's Registration
Statement on Form S-4, No. 333-02302, dated March 12,
1996.)
10.9 Time Brokerage Agreement dated as of December 21, 1995 *
by and between RKZ Television, Inc. and ACC.
(Incorporated by reference to Exhibit 10.11 of
Company's Registration Statement on Form S-4, No.
333-02302, dated March 12, 1996.)
10.10 Option Agreement dated December 21, 1995 by and *
between ACC and RKZ Television, Inc. (Incorporated by
reference to Exhibit 10.12 of Company's Registration
Statement on Form S-4, No. 333-02302, dated March 12,
1996.)
10.11 Amendment dated May 2, 1996 by and among TV Alabama, *
Inc., RKZ Television, Inc. and Osborn Communications
Corporation to Option Agreement dated December 21, 1995
by and between ACC and RKZ Television, Inc.
(Incorporated by reference to exhibit 10.13 of
Company's Form 10-K, No. 333-02302, dated December 30,
1996.)
10.12 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.)
10.13 Amendment to Network Affiliation Agreement (TV Alabama, *
Inc.) dated January 23, 1997 (Incorporated by
reference to Exhibit 10.15 to the Company's Form 10-Q,
No. 333-02302, dated February 14, 1997).
10.14 Pledge of Membership Interests Agreement dated as of *
September 30, 1997 by and among ACC; KTUL, LLC; KATV,
LLC; WCIV, LLC; and BankBoston, N.A. as Agent
(Incorporated by reference to Exhibit 10.16 of
Company's Form 10-K, No. 333-02302, dated December 22,
1997).
27. Financial Data Schedule (Electronic Filing Only)
----------------
*Previously filed