As filed with the Securities and Exchange Commission on February 3, 2003
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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ALLBRITTON COMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
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Delaware 4833 74-1803105
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
808 Seventeenth Street, N.W.
Suite 300
Washington, DC 20006-3903
(202) 789-2130
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Stephen P. Gibson Senior Vice President & Chief Financial Officer
808 Seventeenth Street, N.W.
Suite 300
Washington, DC 20006-3903
(202) 789-2130
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
with copies to:
Jerald N. Fritz, Esq. Marilyn Mooney, Esq.
Allbritton Communications Fulbright & Jaworski
Company L.L.P.
808 Seventeenth Street, 801 Pennsylvania Avenue,
N.W. N.W.
Suite 300 Suite 400
Washington, D.C. Washington, D.C. 20004
20006-3903
(202) 789-2130 (202) 662-0200
Fax: (202) 530-0318 Fax: (202) 662-4643
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Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Amount maximum maximum
Title of each class of to be offering price aggregate Amount of
Securities to be registered registered per Note (1) offering price (1) registration fee
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7 3/4% Series B Senior Subordinated
Notes due 2012..................... $275,000,000 100% $275,000,000 $25,300
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(1) Pursuant to Rule 457(f) under the Securities Act of 1933, the registration
fee has been calculated based on the market value of the 7 3/4% Series A
Senior Subordinated Notes due 2012 of ACC for which the securities
registered hereby will be exchanged, which is estimated to be the face
amount of such Notes.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion dated February 3, 2003
PROSPECTUS
Offer to Exchange
all outstanding
7 3/4% Series A Senior Subordinated Notes due 2012
($275,000,000 principal amount outstanding)
for
7 3/4% Series B Senior Subordinated Notes due 2012
($275,000,000 principal amount)
of
ALLBRITTON COMMUNICATIONS COMPANY
We are offering to exchange up to an aggregate principal amount of $275.0
million of our 7 3/4% series B senior subordinated notes due 2012 for an equal
principal amount of our 7 3/4% series A senior subordinated notes due 2012,
which were initially sold on December 20, 2002. The terms of the exchange notes
we will issue in the exchange offer are substantially identical to those of the
initial notes, except that transfer restrictions and registration rights
relating to the initial notes will not apply to the exchange notes.
The exchange offer will expire at 5:00 p.m., New York City time, on ,
2003, unless extended. Tenders of initial notes may be withdrawn at any time
before the expiration of the exchange offer. All initial notes that are validly
tendered and not withdrawn by the expiration date will be exchanged. Any
initial notes not tendered and accepted in the exchange offer will remain
outstanding and will continue to be subject to the existing transfer
restrictions.
The exchange notes will be unsecured and subordinated to all of our existing
and future senior debt, including borrowings under our senior credit facility.
In addition, the exchange notes will rank equal to the initial notes not
exchanged in this exchange offer and our $150.0 million of 8 7/8% senior
subordinated notes due 2008. The exchange notes will also rank equal to $180.0
million principal amount of 7 3/4% senior subordinated notes due 2012, referred
to as the additional notes, which we have agreed to issue, subject to customary
closing conditions, on or about February 6, 2003. We intend to use the proceeds
from the sale of the additional notes to redeem our 8 7/8% notes and repay
outstanding borrowings under our senior credit facility. The additional notes
will be issued under the same indenture as the initial notes and the exchange
notes, and the initial notes, the exchange notes and the additional notes will
be a single class of securities for all purposes under the indenture pursuant
to which the initial notes were, and the exchange notes and additional notes
will be, issued. When we use the term "notes" in this prospectus, the term
includes the initial notes, the exchange notes and the additional notes.
As of December 31, 2002, as adjusted to reflect (1) the purchase and
redemption of our 9 3/4% senior subordinated debentures with the proceeds from
the sale of the initial notes and borrowings under our senior credit facility
and (2) the issuance of the additional notes and the use of proceeds from their
sale to redeem our outstanding 8 7/8% notes and repay borrowings under our
senior credit facility, we would have had (1) $22.5 million of senior debt
outstanding, which ranked senior to the notes, including the exchange notes,
(2) $48.5 million available for borrowing under our senior credit facility,
which would also rank senior to the notes, including the exchange notes, and
(3) $451.9 million (net of unamortized discount) of notes outstanding,
including the exchange notes. The exchange notes will also be effectively
subordinated to all existing and future liabilities (including trade payables)
of our subsidiaries. As of December 31, 2002, our subsidiaries had
approximately $29.6 million of total liabilities.
The exchange notes are new securities, and there is currently no established
market for them. We cannot assure you that a market for the exchange notes will
develop or be liquid.
Before participating in this exchange offer please refer to the "Risk Factors"
section of this prospectus, which begins on page 14.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
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The date of this prospectus is , 2003
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included or
incorporated by reference in this prospectus, including, without limitation,
statements in the section titled "Risk Factors" and elsewhere in this
prospectus regarding our future financial position, business strategy, budgets,
projected costs and plans and objectives of management for future operations,
are forward-looking statements. In addition, forward-looking statements
generally can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "intend," "estimate," "anticipate," "believe" or
"continue" or the negative thereof or variations thereon or similar
terminology. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, these expectations may not prove to
be correct. Important factors that could cause actual results to differ
materially from our expectations, which we refer to as cautionary statements,
are disclosed under "Risk Factors" and elsewhere in this prospectus, including,
without limitation, in conjunction with the forward-looking statements included
or incorporated in this prospectus. These forward-looking statements involve
risks and uncertainties, including current trend information, that may cause
our actual future activities and results of operations to be materially
different from those suggested or described in this prospectus. 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 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 and pay-per-view 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 operating efficiencies from the
Allnewsco acquisition.
All subsequent written and oral forward-looking statements attributable to
us, or persons acting on any of our behalf, are expressly qualified in their
entirety by the cautionary statements. We undertake no obligation to update
forward-look statements to reflect developments or information obtained after
the date on the cover page of this prospectus.
i
INDUSTRY DATA
In this prospectus, we rely on and refer to information regarding market
data obtained from internal surveys, market research, publicly available
information and industry publications. Although we believe the information is
reliable, we cannot guarantee the accuracy or completeness of the information
and have not independently verified it. The terms "market area," "designated
market area" and "DMA" refer to the term Designated Market Area, developed by
Nielsen Media Research, Inc. ("Nielsen"), and are used by the television
industry to indicate a geographically distinct television market.
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Depending on the context in which they are used, the following "call
letters" refer either to the corporate owner of the station indicated or the
station itself: "WJLA" and "NewsChannel 8" together refer to WJLA/NewsChannel
8, a division of Allbritton Communications Company, or ACC (operator of WJLA-TV
and NewsChannel 8, Washington, D.C.); "WHTM" refers to Harrisburg Television,
Inc. (licensee of WHTM-TV, Harrisburg, Pennsylvania); "KATV" refers to KATV,
LLC (licensee of KATV, Little Rock, Arkansas); "KTUL" refers to KTUL, LLC
(licensee of KTUL, Tulsa, Oklahoma); "WCIV" refers to WCIV, LLC (licensee of
WCIV, Charleston, South Carolina); "WSET" refers to WSET, Incorporated
(licensee of WSET-TV, Lynchburg, Virginia); and "WCFT," "WJSU" and "WBMA" refer
to TV Alabama, Inc. (licensee of WCFT-TV, Tuscaloosa, Alabama, WJSU-TV,
Anniston, Alabama, and WBMA-LP, Birmingham, Alabama.) The term "ACCLI" refers
to ACC Licensee, Inc. (licensee of WJLA and NewsChannel 8). The term "ATP"
refers to Allbritton Television Productions, Inc. and the term "Perpetual"
refers to Perpetual Corporation, which is controlled by Joe L. Allbritton,
Chairman of the Executive Committee of the Board of Directors of ACC. "AGI"
refers to Allbritton Group, Inc., which is ACC's parent and a subsidiary
controlled by Perpetual. "Allfinco" refers to Allfinco, Inc., a wholly-owned
subsidiary of ACC. "Harrisburg TV" refers to Harrisburg Television, Inc., an
80%-owned subsidiary of Allfinco. "TV Alabama" refers to TV Alabama, Inc., an
80%-owned subsidiary of Allfinco that owns WCFT, WJSU and WBMA-LP. "Allnewsco"
refers to ALLNEWSCO, Inc., an affiliate of ACC that is a 99%-owned subsidiary
of Perpetual. "RLA Revocable Trust" refers to the trust of the same name that
owns 20% of each of Harrisburg TV and TV Alabama.
As used herein, "senior credit facility" refers to that certain Amended and
Restated Revolving Credit Agreement by and among ACC, the subsidiaries of ACC
party thereto, the financial institutions party thereto, Deutsche Bank
Securities Inc. and Fleet National Bank dated as of March 27, 2001, as amended.
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PROSPECTUS SUMMARY
In this prospectus, the terms "Allbritton," "our," "us," "we" and "Company"
refer to Allbritton Communications Company, the issuer of the initial notes and
the exchange notes, and its subsidiaries, and "ACC" refers solely to Allbritton
Communications Company. When we use the term "notes" in this prospectus, the
term includes the initial notes, the exchange notes and the additional notes.
The following summary contains basic information about us, this exchange offer
and the exchange notes. It likely does not contain all the information that is
important to you. For a more complete understanding of our business, this
exchange offer and the exchange notes, we encourage you to read this entire
document and the documents we have referred you to.
Our Company
We own and operate ABC network-affiliated television stations serving seven
geographic markets ranging from the 8th to the 105th largest designated market
area, or DMA, reaching approximately 4.9% of the television households in the
United States. We also own NewsChannel 8, which provides 24-hour per day basic
cable television programming primarily focused on regional and local news for
the Washington, D.C. metropolitan area. The operations of NewsChannel 8 have
been integrated with WJLA, our Washington, D.C. ABC affiliate. ACC was founded
in 1974 and is a subsidiary of Allbritton Group, Inc. ("AGI"), which is
wholly-owned by Perpetual Corporation, which in turn is controlled by Joe L.
Allbritton, ACC's Chairman of the Executive Committee of the Board of Directors.
The following table sets forth general information for each of our owned and
operated stations as of November 2002:
Total
Analog Digital Market Commercial Station
Designated Network Channel Channel Rank or Competitors Audience Rank in Acquisition
Market Area Station Affiliation Frequency Allocation DMA (1) in Market (2) Share (3) Market (4) Date
----------- ------- ----------- --------- ---------- ------- ------------- --------- ---------- -----------
Washington, D.C........... WJLA ABC 7/VHF 39 8 6 21% 2 01/29/76
Birmingham (Anniston and WBMA/ ABC -- -- 40 7 22% 2 --
Tuscaloosa), AL (5)...... WCFT/
WJSU
Birmingham............... WBMA ABC 58/UHF -- -- -- -- -- 08/01/97
Anniston................. WJSU ABC 40/UHF 58 -- -- -- -- 03/22/00(6)
Tuscaloosa............... WCFT ABC 33/UHF 5 -- -- -- -- 03/15/96
Harrisburg-Lancaster-York-
Lebanon, PA.............. WHTM ABC 27/UHF 10 47 4 25% 2 03/01/96
Little Rock, AR........... KATV ABC 7/VHF 22 56 5 31% 1 04/06/83
Tulsa, OK................. KTUL ABC 8/VHF 10 60 6 33% 2 04/06/83
Roanoke-Lynchburg, VA..... WSET ABC 13/VHF 34 67 4 27% 2 01/29/76(7)
Charleston, SC............ WCIV ABC 4/VHF 34 105 5 16% 3 01/29/76(7)
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(1) Represents market rank based on the Nielsen Station Index for November 2002.
(2) Represents the total number of commercial broadcast television stations in
the DMA with an audience share of at least 1% in the 6:00 a.m. to 2:00
a.m., Sunday through Saturday, time period.
(3) Represents the station's share of total viewing of commercial broadcast
television stations in the DMA for the time period of 6:00 a.m. to 2:00
a.m., Sunday through Saturday.
(4) Represents the station's rank in the DMA based on its share of total
viewing of commercial broadcast television stations in the DMA for the time
period of 6:00 a.m. to 2:00 a.m., Sunday through Saturday.
(5) TV Alabama serves the Birmingham market by simultaneously broadcasting
identical programming over WBMA, WCFT and WJSU. The stations are listed on
a combined basis by Nielsen as WBMA+, the call sign of the low power
television station.
(6) We began programming WJSU pursuant to a local marketing agreement in
December 1995. In connection with the local marketing agreement, we entered
into an option to purchase the assets of WJSU. We exercised our option to
acquire WJSU and completed the acquisition of WJSU on March 22, 2000. See
"Our Business--Owned Stations--WBMA/WCFT/WJSU: Birmingham (Anniston and
Tuscaloosa), Alabama."
(7) WSET and WCIV have been indirectly owned and operated by Joe L. Allbritton
since 1976. On March 1, 1996, WSET and WCIV became wholly-owned
subsidiaries of ACC.
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Business and Operating Strategy
Our business strategy is to focus on building net operating revenues and net
cash provided by operating activities. We intend to pursue selective
acquisition opportunities as they arise. Our acquisition strategy is to target
network-affiliated television stations where we believe we can successfully
apply our operating strategy and where such stations can be acquired on
attractive terms. Targets include stations in midsized growth markets with what
we believe to be advantageous business climates. Although we continue to review
strategic investment and acquisition opportunities, no agreements or
understandings are currently in place regarding any material investments or
acquisitions.
In addition, we constantly seek to enhance net operating revenues at a
marginal incremental cost through our use of existing personnel and programming
capabilities. For example, KATV operates the Arkansas Razorback Sports Network
("ARSN"), which provides University of Arkansas sports programming to a network
of 69 radio stations in six states. Certain broadcast television, cable
pay-per-view and home video rights are also controlled by ARSN.
On September 16, 2002, ACC completed its acquisition of certain of the
assets of Allnewsco, constituting the operations of NewsChannel 8, which
provides 24-hour per day basic cable television programming primarily focused
on regional and local news for the Washington, D.C. metropolitan area. The
operations of NewsChannel 8 have been integrated with those of WJLA in a new
studio and office facility, creating the first newsgathering duopoly in the
Nation's Capital. The combination of these two operations will allow for
certain operational efficiencies, primarily in the areas of newsgathering,
administration, finance, operations, promotions and human resources. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General Factors Affecting Our Business."
Our operating strategy focuses on four key elements:
Local News and Community Leadership. Our stations strive to be local news
leaders to exploit the revenue potential associated with local news leadership.
Since the acquisition of each station, we have focused on building that
station's local news programming franchise as the foundation for building
significant audience share. In each of our market areas, we develop additional
information-oriented programming designed to expand the stations' hours of
commercially valuable local news and other programming with relatively small
incremental increases in operating expenses. Local news programming is
commercially valuable because of its high viewership level, the attractiveness
to advertisers of the demographic characteristics of the typical news audience
(allowing stations to charge higher rates for advertising time) and the
enhanced ratings of other programming in time periods adjacent to the news. In
addition, we believe strong local news product has helped differentiate local
broadcast stations from the increasing number of cable programming competitors
that generally do not provide this material.
High Quality Non-Network Programming. Our stations are committed to
attracting viewers through an array of syndicated and locally-produced
programming to fill those periods of the broadcast day not programmed by the
network. We select programming based on our ability to attract audiences highly
valued in terms of demographic makeup on a cost-effective basis and reflects a
focused strategy to migrate and hold audiences from program to program
throughout dayparts. Audiences highly valued in terms of demographic makeup
include women aged 18-49 and all adults aged 25-54. These demographic groups
are perceived by advertisers as the groups with the majority of buying
authority and decision-making in product selection.
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Local Sales Development Efforts. We believe that television stations with a
strong local presence and active community relations can realize additional
revenue from advertisers through the development and promotion of special
programming and marketing events. Each of our stations has developed such
additional products, including high quality programming of local interest (such
as University of Arkansas football and basketball games) and sponsored
community events. These sponsored community events have included health fairs,
contests, job fairs, parades and athletic events and have provided advertisers,
who are offered participation in such events, an opportunity to direct a
marketing program to targeted audiences. These additional products have proven
successful in attracting incremental advertising revenues. The stations also
seek to maximize their local sales efforts through the use of extensive
research and targeted demographic studies.
Cost Control. We believe that controlling costs is an essential factor in
achieving and maintaining the profitability of our stations. We believe that by
delivering highly targeted audience levels and controlling programming and
operating costs, our stations can achieve increased levels of revenue and
operating cash flow. Each station rigorously manages its expenses through a
budgetary control process and project accounting, which include an analysis of
revenue and programming costs by daypart. Moreover, each of the stations
closely monitors its staffing levels.
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ACC is a Delaware corporation formed in 1974. Our corporate headquarters are
located at 808 Seventeenth Street, N.W., Suite 300, Washington, D.C.
20006-3903, and our telephone number is (202) 789-2130.
3
The Exchange Offer
Securities Offered.......... $275.0 million aggregate principal amount of
7 3/4% series B senior subordinated notes due
2012.
The Exchange Offer.......... $1,000 principal amount of the exchange notes in
exchange for each $1,000 principal amount of
initial notes. As of the date hereof, $275.0
million aggregate principal amount of initial
notes is outstanding. We will issue the exchange
notes to holders on or promptly after the
expiration of the exchange offer.
Resale of Exchange Notes.... Based on an interpretation by the staff of the
Securities and Exchange Commission, or the
Commission, set forth in no-action letters issued
to third parties, but subject to the immediately
following sentence, we believe that exchange
notes issued pursuant to the exchange offer in
exchange for initial notes may be offered for
resale, resold and otherwise transferred by any
holder thereof without compliance with the
registration and prospectus delivery provisions
of the Securities Act. However, any purchaser of
initial notes who is an affiliate of ACC or who
intends to participate in the exchange offer for
the purpose of distributing the exchange notes:
. will not be able to rely on the
interpretation by the staff of the Commission
set forth in the no-action letters described
above;
. will not be able to tender initial notes in
the exchange offer; and
. must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any sale or
transfer of the initial notes, unless the
sale or transfer is made under an exemption
from those requirements.
Each holder of the initial notes who wishes to
exchange initial notes for exchange notes in the
exchange offer will be required to make certain
representations, including representations that:
. it is not an affiliate;
. it is not a broker-dealer tendering initial
notes acquired directly from ACC or if it is
such a broker-dealer, it will comply with the
registration and prospectus delivery
requirements of the Securities Act to the
extent applicable;
. any exchange notes to be received by it will
be acquired in the ordinary course of its
business;
4
. it has no arrangement or understanding with
any person to participate in the
distribution, within the meaning of the
Securities Act, of the exchange notes in
violation of the Securities Act; and
. it is not acting on behalf of any person who
could not truthfully make the representations
described in the four preceding bullet points.
Each broker-dealer that receives exchange notes
for its own account pursuant to the exchange
offer must acknowledge that it will deliver a
prospectus in connection with any resale of such
exchange notes. The letter of transmittal states
that by so acknowledging and by so delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This prospectus,
as it may be amended or supplemented from time to
time, may be used by a broker-dealer in
connection with resales of exchange notes
received in exchange for initial notes where the
initial notes were acquired by the broker-dealer
as a result of market-making activities or other
trading activities. ACC has agreed that, for a
period of 120 days from the date of this
prospectus, it will make this prospectus
available to any broker-dealer for use in
connection with any such resale. Please refer to
"Plan of Distribution."
Expiration Date............. 5:00 p.m., New York City time, on , 2003
unless we decide to extend the exchange offer.
Interest on the Exchange
Notes and the Initial Notes The exchange notes will bear interest from
December 20, 2002, the date of issuance of the
initial notes. Accordingly, holders of initial
notes that are accepted for exchange will not
receive interest on the initial notes that is
accrued but unpaid at the time of tender.
Conditions to the
Exchange Offer............ The exchange offer is subject to certain
customary conditions, which may be waived by us.
Please refer to "The Exchange Offer--Conditions."
The exchange offer is not conditioned upon any
minimum principal amount of initial notes being
tendered.
Procedures for Tendering
Initial Notes............. To participate in the exchange offer, you must
complete, sign and date the letter of
transmittal, or a facsimile of the letter of
transmittal, and transmit it together with all
other documents required by the letter of
transmittal, including
5
the initial notes to be exchanged, to the
exchange agent at the address indicated on the
cover page of the letter of transmittal before
the expiration date of the exchange offer. By
executing the letter of transmittal, each holder
will represent to ACC that, among other things,
the holder or the person receiving the exchange
notes, whether or not such person is the holder,
is acquiring the exchange notes in the ordinary
course of business and that neither the holder
nor any such other person has any arrangement or
understanding with any person to participate in
the distribution of the exchange notes. In lieu
of physical delivery of the certificates
representing initial notes, tendering holders may
transfer initial notes pursuant to the procedure
for book-entry transfer as set forth under "The
Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners......... If your initial notes are registered in the name
of a broker, dealer, commercial bank, trust
company or other nominee and you wish to tender,
you should contact that person promptly and
instruct them to tender your initial notes on
your behalf. If you wish to tender on your own
behalf, you must, prior to completing and
executing the letter of transmittal and
delivering your initial notes, either make
appropriate arrangements to register ownership of
the initial notes in your name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time and may not be able to be
completed before the expiration date of the
exchange offer. Please refer to "The Exchange
Offer--Procedures for Tendering" for more
information.
Guaranteed Delivery
Procedures................ If you wish to tender initial notes that are not
immediately available or you cannot deliver your
initial notes, the letter of transmittal or any
other documents required by the letter of
transmittal to the exchange agent, or comply with
the procedures for book-entry transfer, prior to
the expiration date of the exchange offer, you
must tender your initial notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal Rights........... You may withdraw your tender of initial notes at
any time prior to 5:00 p.m., New York City time,
on the expiration date pursuant to the procedures
described under "The Exchange Offer--Withdrawal
of Tenders."
Acceptance of Initial Notes
And Delivery of Exchange
Notes..................... If all conditions required for proper acceptance
of the initial notes are fulfilled, we will
accept for exchange any and all initial notes
that are properly tendered in the exchange
6
offer prior to 5:00 p.m., New York City time, on
the expiration date. We will deliver the exchange
notes as promptly as practicable after the
expiration date and acceptance of the initial
notes for exchange. Please refer to "The Exchange
Offer--Terms of the Exchange Offer" for more
information.
Use of Proceeds............. We will not receive any proceeds from the
issuance of the exchange notes. We are making
this exchange offer solely to satisfy certain of
our obligations under a registration rights
agreement with the initial purchasers of the
initial notes. Please refer to the section in
this prospectus entitled "Use of Proceeds" for a
discussion of our use of the proceeds from the
issuance of the initial notes.
Federal Income
Tax Consequences.......... Exchanging your initial notes for exchange notes
pursuant to the exchange offer generally should
not be a taxable event for federal income tax
purposes. Please refer to "Certain Tax
Considerations."
Consequences of Failure To
Exchange Initial Notes.... If you do not exchange your initial notes in this
exchange offer, you will no longer be able to
obligate us to register the initial notes under
the Securities Act except in the limited
circumstances provided under our registration
rights agreement relating to your inability to
participate in the exchange offer as a matter of
law or Commission policy. In addition, you will
not be able to resell, offer to resell or
otherwise transfer the initial notes unless they
are registered under the Securities Act, or
unless you resell, offer to resell or otherwise
transfer them under an exemption from the
registration requirements of, or in a transaction
not subject to, the Securities Act. Further, to
the extent initial notes are tendered and
accepted in the exchange offer, the trading
market for the untendered initial notes could be
adversely affected. Please refer to "Risk Factors
-- Risks Relating to the Exchange Offer --Your
failure to participate in the exchange offer will
have adverse consequences."
Exchange Agent.............. U.S. Bank National Association.
7
The Exchange Notes
The exchange notes have the same financial terms and covenants as the
initial notes, which are as follows:
Issuer...................... Allbritton Communications Company.
Notes Offered............... $275.0 million aggregate principal amount of
7 3/4% series B senior subordinated notes due
2012.
The indenture allows us to issue additional
notes, subject to our compliance with the
limitations on incurrence of additional
indebtedness contained in the indenture. On
January 28, 2003, we agreed, subject to customary
closing conditions, to issue an additional $180.0
million principal amount of our 7 3/4% senior
subordinated notes due 2012 as described under
"Description of Certain Indebtedness--Offering of
Additional 7 3/4% Senior Subordinated Notes due
2012". The initial notes, the exchange notes and
the additional notes will be a single class of
securities for all purposes under the indenture.
Maturity.................... December 15, 2012.
Interest Rate............... 7 3/4% per year (calculated using a 360-day year).
Interest Payment Dates...... June 15 and December 15, beginning on June 15,
2003. Interest will accrue from December 20, 2002.
Ranking..................... The exchange notes, like the initial notes and
the additional notes, will be unsecured and
subordinated to all of our existing and future
senior debt, including borrowings under our
senior credit facility. In addition, the notes,
including the exchange notes, will rank equal to
our $150.0 million of 8 7/8% senior subordinated
notes due 2008. As of December 31, 2002, as
adjusted to reflect (1) the purchase and
redemption of our 9 3/4% senior subordinated
debentures with the proceeds from the sale of the
initial notes and borrowings under our senior
credit facility and (2) the issuance of the
additional notes and the use of proceeds from
their sale to redeem our outstanding 8 7/8% notes
and repay borrowings under our senior credit
facility, we would have had (1) $22.5 million of
senior debt outstanding, which ranked senior to
the notes, including the exchange notes, (2)
$48.5 million available for borrowing under our
senior credit facility, which would also rank
senior to the notes, including the exchange
notes, and (3) $451.9 million (net of unamortized
discount) of notes outstanding, including the
exchange notes. The notes, including the exchange
notes, will also be effectively subordinated to
all existing and future liabilities (including
trade payables) of our subsidiaries. As of
December 31, 2002, our subsidiaries had
approximately $29.6 million of total liabilities.
8
Guarantees.................. The notes, including the exchange notes, are not
guaranteed by any of our subsidiaries.
Optional Redemption......... Except as described below under "--Optional
Redemption After Public Equity Offerings," we
cannot redeem the notes, including the exchange
notes, until December 15, 2007. Thereafter we may
redeem some or all of the notes at the redemption
prices listed in the "Description of the Exchange
Notes" section under the heading "Optional
Redemption," plus accrued and unpaid interest.
Optional Redemption After
Public Equity Offerings... At any time (which may be more than once) before
December 15, 2005, we may redeem up to 35% of the
outstanding notes with money that we raise in one
or more public equity offerings, as long as:
. we pay 107.750% of the face amount of the
notes, plus accrued and unpaid interest;
. we redeem the notes within 60 days of
completing the public equity offering; and
. at least 65% of the aggregate principal amount
of notes issued in this offering remains
outstanding afterwards.
Change of Control Offer..... If we experience a change of control, we must
give holders of the exchange notes the
opportunity to sell us their exchange notes at
101% of their face amount, plus accrued and
unpaid interest. Certain highly leveraged
transactions and certain transactions with our
management and our affiliates that may adversely
affect holders of the exchange notes do not
constitute a change of control. A change of
control will result in an event of default under
our senior credit facility and could result in
the acceleration of all indebtedness under our
senior credit facility, which constitutes senior
indebtedness. Upon a change of control, we will
also be required to repurchase all of the
outstanding existing 8 7/8% notes, of which
$150.0 million principal amount is currently
outstanding, and any outstanding initial notes
and additional notes.
We might not be able to pay you the required
price for exchange notes you present to us at the
time of a change of control, because:
. we might not have enough funds at that time; or
. the terms of our senior debt may prevent us
from paying.
Asset Sale Proceeds......... If we or our subsidiaries engage in asset sales,
we generally must either repay senior debt,
invest the net cash proceeds from such sales in a
business similar to ours or make an offer to
purchase a principal amount of the
9
exchange notes equal to the excess net cash
proceeds. The purchase price of the exchange
notes will be 100% of their principal amount,
plus accrued and unpaid interest. If we elect to
make an offer to purchase the exchange notes, we
will also be required to make an offer to
purchase our 8 7/8% senior subordinated notes,
and any outstanding initial notes and additional
notes.
Certain Indenture Provisions The indenture governing the notes, including the
exchange notes, contains covenants limiting our
(and most or all of our subsidiaries') ability to:
. incur additional debt and issue preferred stock;
. make restricted payments (including paying
dividends or distributions on, or redeeming or
repurchasing, our capital stock);
. create liens on our assets to secure debt;
. enter into transactions with affiliates;
. enter into restrictions affecting the ability
of our subsidiaries to make distributions,
loans or advances to us;
. transfer and sell assets; and
. merge or consolidate with another company.
These covenants are subject to a number of
important limitations and exceptions.
Absence of a Public Market
for the Notes............. The exchange notes are new securities, and there
is currently no established market for them. We
cannot assure you that a market for the exchange
notes will develop or be liquid. The initial
notes are currently eligible for trading on the
NASD's PORTAL market. Following commencement of
the exchange offer, you may continue to trade the
initial notes on the NASD's PORTAL market if you
have not tendered them. The exchange notes will
not be eligible for trading in this market.
Risk Factors................ See "Risk Factors" for a description of certain
of the risks you should consider before tendering
your initial notes in the exchange offer.
10
SUMMARY CONSOLIDATED FINANCIAL DATA
(dollars in thousands)
The summary consolidated financial data for the fiscal years ended
September 30, 1998, 1999, 2000, 2001 and 2002 are derived from our audited
consolidated financial statements. The summary consolidated financial data for
the three months ended December 31, 2001 and 2002 are derived from our
unaudited consolidated financial statements. The results of operations for the
three months ended December 31, 2002 are not necessarily indicative of the
results that can be expected for the entire fiscal year ending September 30,
2003. The information in this table should be read in conjunction with
"Selected Consolidated Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated
financial statements and the notes thereto included elsewhere herein. Please
note that the data below reflect the combined results for the Company and
Allnewsco for all of the periods presented. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--General Factors
Affecting Our Business."
Three Months
Ended
Fiscal Year Ended September 30, December 31,
--------------------------------------------- ---------------
1998 (a) 1999 2000 2001 2002 2001 2002
-------- -------- -------- -------- -------- ------- -------
Statement of Operations Data:
Operating revenues, net....... $192,287 $197,566 $216,495 $202,541 $196,169 $52,936 $58,509
Television operating expenses,
excluding depreciation and
amortization................. 116,368 120,301 124,727 124,597 126,001 32,470 32,128
Depreciation and
amortization (b)............. 19,844 18,552 16,624 15,045 13,310 3,301 2,589
Corporate expenses............ 4,568 4,339 4,873 5,641 6,004 1,382 1,458
Operating income.............. 51,507 54,374 70,271 57,258 50,854 15,783 22,334
Interest expense.............. 44,340 42,154 42,212 41,682 41,561 10,466 11,098
Interest expense-related party 3,294 3,623 3,891 4,064 785 180 --
Interest income............... 1,117 280 331 321 94 32 120
Interest income-related party. -- 226 303 213 92 45 44
(Loss) income before
cumulative effect of change
in accounting principle...... (3,671) 4,007 12,811 6,354 3,514 2,699 7,223
Cumulative effect of change in
accounting principle (b)..... -- -- -- -- -- -- 2,973
Net (loss) income............. (3,671) 4,007 12,811 6,354 3,514 2,699 4,250
As
Adjusted (c)
As of As of
As of September 30, December 31, December 31,
----------------------------------------------------- ------------ ------------
1998 1999 2000 2001 2002 2002 2002
--------- --------- --------- --------- --------- ------------ ------------
Balance Sheet Data:
Total assets............ $ 283,831 $ 279,875 $ 273,645 $ 258,610 $ 268,994 $ 541,442 $ 265,445
Total debt (d).......... 429,691 429,629 427,729 426,860 440,443 722,440 474,435
Stockholder's investment (210,175) (221,643) (234,163) (230,817) (247,073) (253,690) (276,932)
11
As Adjusted (c) As Adjusted (c)
Fiscal Year Three Months Three Months
Ended Ended Ended
Fiscal Year Ended September 30, September 30, December 31, December 31,
----------------------------------------------- --------------- ---------------- ---------------
1998 1999 2000 2001 2002 2002 2001 2002 2002
------- -------- -------- -------- -------- --------------- ------- ------- ---------------
Cash Flow Data (e):
Cash flow from
operating activities. $24,544 $ 25,218 $ 30,626 $ 25,156 $ 28,020 $ 30,925 $(2,952) $ 7,701 $ 8,791
Cash flow from
investing activities. (8,800) (10,568) (8,466) (5,782) (46,458) (46,458) (684) (1,418) (1,418)
Cash flow from
financing activities. (9,029) (14,350) (24,666) (23,626) 16,908 34,290 (237) (8,999) 13,133
Financial Ratios
and Other Data:
Operating Cash
Flow (f)............. $71,351 $ 72,926 $ 86,895 $ 72,303 $ 64,164 $ 64,164 $19,084 $24,923 $24,923
Operating Cash Flow
Margin (g)........... 37.1% 36.9% 40.1% 35.7% 32.7% 32.7% 36.1% 42.6% 42.6%
Capital expenditures.. 9,803 12,140 5,167 6,560 26,332 26,332 717 1,422 1,422
Interest expense,
net (h).............. 43,223 41,874 41,881 41,361 41,467 37,366 10,434 10,978 9,175
Ratio of total debt to
Operating Cash
Flow (i)............. 6.02 5.89 4.92 5.90 6.86 7.29 5.59 7.25 4.76
Ratio of Operating
Cash Flow to
interest expense,
net.................. 1.65 1.74 2.07 1.75 1.55 1.72 1.83 2.27 2.72
Ratio of Operating
Cash Flow less
capital
expenditures to
interest expense,
net.................. 1.42 1.45 1.95 1.59 0.91 1.01 1.76 2.14 2.56
Ratio of earnings to
fixed charges (j).... (a) 1.18 1.53 1.25 1.16 1.31(k) 1.44 1.94 2.32(k)
- --------
(a) Effective October 1, 2002, gains and losses for the extinguishment of debt
are generally required to be classified as a nonoperating gain or loss
rather than as an extraordinary item. As required, we have reclassified the
$5,155 Fiscal 1998 loss from the early repayment of debt to nonoperating
expenses. The reclassification of this loss also impacted the ratio of
earnings to fixed charges calculation, resulting in earnings being
inadequate to cover fixed charges for the year ended September 30, 1998.
Additional earnings of $3,872 would have been required to attain a ratio of
one-to-one.
(b) As required by generally accepted accounting principles, effective
October 1, 2002 we changed our method of accounting for intangible assets.
As a result, we ceased amortization of our broadcast license intangible
assets effective October 1, 2002. In addition, we recorded a non-cash,
after-tax impairment charge of $2,973 relating to the carrying value of our
broadcast licenses. See Note 3 to our consolidated financial statements for
the year ended September 30, 2002 and Note 4 to our consolidated financial
statements for the three months ended December 31, 2002.
(c) The as adjusted unaudited consolidated balance sheet data as of
December 31, 2002 give effect to (1) the purchase and redemption of our
9 3/4% senior subordinated debentures with the proceeds from the sale of
the initial notes and borrowings under our senior credit facility and (2)
the issuance of the additional notes and the use of proceeds from their
sale to redeem our outstanding 8 7/8% senior subordinated notes and repay
borrowings under our senior credit facility, as if each had occurred on
such date. The as adjusted unaudited consolidated cash flow data and
financial ratios and other data (except for the ratio of earnings to fixed
charges) for the fiscal year ended September 30, 2002 and for the three
months ended December 31, 2002 give effect to (1) the issuance of the
initial notes and the use of proceeds from their sale, together with
borrowings under our senior credit facility, to purchase and redeem our
9 3/4% debentures and (2) the issuance of the additional notes and the use
of proceeds from their sale to redeem our outstanding 8 7/8% notes and
repay borrowings under our senior credit facility, as if each had occurred
on October 1,
12
2001. The premiums and costs in connection with the redemption of our 9 3/4%
debentures and our 8 7/8% notes are not included in the as adjusted
unaudited consolidated cash flow data and financial ratios and other data
for the year ended September 30, 2002 or for the three months ended December
31, 2002, but will be reflected in our consolidated results of operations
and cash flows during the quarter ending March 31, 2003. The as adjusted
unaudited consolidated stockholder's investment as of December 31, 2002
gives effect to the premiums and costs, net of income taxes, in connection
with the purchase and redemption of the 9 3/4% debentures and the redemption
of the 8 7/8% notes. See "Capitalization."
(d) Total debt is defined as long-term debt (including the current portion
thereof, and net of discount) and capital lease obligations.
(e) Cash flows from operating, investing and financing activities were
determined in accordance with generally accepted accounting principles. See
"Consolidated Financial Statements--Consolidated Statements of Cash Flows."
(f) "Operating Cash Flow" is defined as operating income plus depreciation and
amortization. Programming expenses are included in television operating
expenses. We have included Operating Cash Flow data because we understand
that such data are used by investors to measure a company's ability to fund
its operations and service debt. Operating Cash Flow does not purport to
represent cash flows from operating activities determined in accordance
with generally accepted accounting principles as reflected in our
consolidated financial statements, is not a measure of financial
performance under generally accepted accounting principles, should not be
considered in isolation or as a substitute for net income or cash flows
from operating activities and may not be comparable to similar measures
reported by other companies.
(g) "Operating Cash Flow Margin" is defined as Operating Cash Flow as a
percentage of operating revenues, net.
(h) Interest expense, net is defined as non-related party interest expense less
non-related party interest income.
(i) For the three months ended December 31, 2001 and 2002, the ratio of total
debt to Operating Cash Flow was computed by annualizing the Operating Cash
Flow for the respective period.
(j) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of income before cumulative effect of change in accounting
principle and income taxes plus fixed charges. Fixed charges consist of
non-related party interest cost, which includes interest (both expensed and
capitalized) on all non-related party debt, amortization of deferred
financing costs and debt discount and that portion of rental expenses
representative of interest (deemed to be one-third of total expense which
is a reasonable approximation of the interest).
(k) The as adjusted ratio of earnings to fixed charges for the fiscal year
ended September 30, 2002 and for the three months ended December 31, 2002
gives effect to the issuance of the initial notes and the use of the net
proceeds thereof, as well as borrowings under our senior credit facility,
to purchase and redeem our 9 3/4% debentures, as if each had occurred on
October 1, 2001. The as adjusted ratio of earnings to fixed charges for the
fiscal year ended September 30, 2002 and for three months ended December
31, 2002 would have been the same if we had also given effect to the
issuance of the additional notes and the application of their net proceeds
to redeem our outstanding 8 7/8% notes and to repay borrowings under the
senior credit facility, as if each had occurred on October 1, 2001.
13
RISK FACTORS
You should consider carefully the risks described below, together with the
other information included in or incorporated by reference into this
prospectus, before you make a decision to tender the initial notes in the
exchange offer. If any of the following risks actually occurs, our business,
financial condition, operating results and prospects could be materially
affected, which in turn could adversely affect our ability to repay the notes.
Risks Relating to the Exchange Offer
Your failure to participate in the exchange offer will have adverse
consequences.
The initial notes were not registered under the Securities Act or under the
securities laws of any state and you may not resell them, offer them for resale
or otherwise transfer them unless they are subsequently registered or resold
under an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your initial notes for
exchange notes pursuant to the exchange offer, or if you do not properly tender
your initial notes in the exchange offer, you will not be able to resell, offer
to resell or otherwise transfer the initial notes unless they are registered
under the Securities Act or unless you resell, offer to resell or otherwise
transfer them under an exemption from the registration requirements of, or in a
transaction not subject to, the Securities Act. We do not plan to register the
initial notes under the Securities Act, and you will no longer be able to
obligate us to register the initial notes under the Securities Act except in
the limited circumstances provided under our registration rights agreement
relating to your inability to participate in the exchange offer as a matter of
law or Commission policy.
The issuance of the exchange notes may adversely affect the market for the
initial notes.
Following commencement of the exchange offer, you may continue to trade
initial notes in the NASD's PORTAL market. However, because we expect that most
holders of initial notes will elect to exchange initial notes, we expect that
the liquidity of the market for any initial notes remaining after completion of
the exchange offer may be substantially limited.
Certain persons who participate in the exchange offer must deliver a prospectus
in connection with resales of the exchange notes.
Based on certain no-action letters issued by the staff of the Commission, we
believe that you may offer for resale, resell or otherwise transfer the
exchange notes without compliance with the registration and prospectus delivery
requirements of the Securities Act. However, in some instances described in
this prospectus under "Exchange Offer" you will remain obligated to comply with
the registration and prospectus delivery requirements of the Securities Act to
transfer your exchange notes. In these cases, if you transfer any exchange note
without delivering a prospectus meeting the requirements of the Securities Act
or without an exemption from registration of your exchange notes under the
Securities Act, you may incur liability under the Securities Act. We do not and
will not assume or indemnify you against this liability.
You must comply with the exchange offer procedures in order to receive new,
freely tradable notes.
Delivery of exchange notes in exchange for initial notes tendered and
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of the following:
. certificates for initial notes or a book-entry confirmation of a
book-entry transfer of initial notes into the exchange agent's account at
The Depository Trust Company, New York, New York, as depository,
14
. a completed and signed letter of transmittal, or facsimile, with any
required signature guarantees, or, in the case of a book-entry transfer,
an agent's message if the tendering holder does not deliver a letter of
transmittal, and
. any other documents required by the letter of transmittal.
Therefore, holders of initial notes who would like to tender initial notes
in exchange for exchange notes should be sure to allow enough time for the
initial notes to be delivered on time. We are not required to notify you of
defects or irregularities in tenders of initial notes for exchange. Initial
notes that are not tendered or that are tendered but we do not accept for
exchange will, following consummation of the exchange offer, continue to be
subject to the existing transfer restrictions under the Securities Act and,
upon consummation of the exchange offer, certain registration and other rights
under the registration rights agreement will terminate. Please refer to
"Exchange Offer--Procedures for Tendering," "Exchange Offer--Consequences of
Failure to Exchange" and "Exchange Offer--Termination of Certain Rights."
Risks Relating to the Notes and Our Other Indebtedness
Our substantial debt could adversely affect our financial condition and prevent
us from fulfilling our obligations under the notes.
We have a substantial amount of debt. As of December 31, 2002, after giving
pro forma effect to (1) the purchase and redemption of our 9 3/4% senior
subordinated debentures with the proceeds from the sale of the initial notes
and borrowings under our senior credit facility and (2) the issuance of the
additional notes and the use of proceeds from their sale to redeem our
outstanding 8 7/8% senior subordinated notes and repay borrowings under our
senior credit facility, our total debt outstanding would have been $474.4
million (net of unamortized discount) and we would have had a stockholder's
deficit of $276.9 million. In addition, after giving pro forma effect to (1)
the issuance of the initial notes and the use of proceeds from their sale,
together with borrowings under our senior credit facility, to purchase and
redeem our 9 3/4% debentures and (2) the issuance of the additional notes and
the use of proceeds from their sale to redeem our outstanding 8 7/8% notes and
repay borrowings under our senior credit facility, for fiscal 2002 our ratio of
earnings to fixed charges and non-related party interest expense, net would
have been 1.31 to 1 and $37.4 million, respectively, and for the three months
ended December 31, 2002 our ratio of earnings to fixed charges and non-related
party interest expense, net, would have been 2.32 to 1 and $9.2 million,
respectively. The indenture governing the notes permits us and our subsidiaries
to incur additional debt, subject to certain limitations, and we have agreed,
subject to customary conditions, to issue the additional notes. We may finance
any future acquisitions with the incurrence of additional debt, subject to the
limitations set forth in our debt agreements. See "Capitalization," "Selected
Consolidated Financial Data" and "Description of the Exchange Notes--Certain
Covenants--Limitations on Incurrence of Debt and Issuance of Preferred Stock."
The degree to which we are leveraged could have important consequences to
you. For example, it could:
. make it more difficult for us to satisfy our obligations with respect to
the notes (including the additional notes, if issued), our 8 7/8% notes
and our obligations under our senior credit facility;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, which will reduce amounts available
for working capital, capital expenditures and other general corporate
purposes;
. result in the sale of one or more of our stations to reduce our debt
service obligations;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
15
. increase our vulnerability to general adverse economic and industry
conditions;
. place us at a competitive disadvantage compared to our competitors with
less debt; and
. limit our ability to borrow additional funds.
In addition, debt incurred under our senior credit facility bears interest
at variable rates. An increase in the interest rates on our debt will reduce
the funds available to repay the notes and our other debt and for operations
and future business opportunities and will make us more vulnerable to the
consequences of our leveraged capital structure.
The agreements governing our long-term debt contain certain restrictive
financial and operating covenants. Any failure to comply with these covenants
could result in an event of default under the applicable instrument, which
could permit acceleration of the debt under such instrument and in some cases
acceleration of debt under other instruments that contain cross- default or
cross-acceleration provisions. See "Description of Certain Indebtedness,"
"Description of the Exchange Notes--Certain Covenants--Limitation on Incurrence
of Debt and Issuance of Preferred Stock" and "--Events of Default."
We may be able to incur significantly more debt in the future, which will
increase the risks related to our indebtedness.
The terms of the indenture do not fully prohibit us or our subsidiaries from
incurring substantial additional debt in the future. As of December 31, 2002,
on a pro forma basis after giving effect to additional borrowings under our
senior credit facility in connection with the purchase and redemption of the
9 3/4% debentures and repayment of borrowings with a portion of the proceeds
from the sale of the additional notes, we had an additional $48.5 million
available (subject to certain borrowing conditions) for additional borrowings
under our senior credit facility. All of the borrowings under this facility are
senior to the notes, including the exchange notes. If new debt is added to our
current debt levels, the risks described above relating to having substantial
debt could increase.
To service our debt, we will require a significant amount of cash, which
depends on many factors beyond our control.
Our ability to make payments on and to refinance our debt, including the
notes, our 8 7/8% notes and our senior credit facility, will depend on our
ability to generate cash in the future. This, to an extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control.
We cannot assure you that our business will generate sufficient cash flow or
that future borrowings will be available to us in an amount sufficient to
enable us to pay our debt, including the notes, or to fund our other liquidity
needs. If our future cash flow from operations and other capital resources are
insufficient to pay our obligations as they mature or to fund our liquidity
needs, we may be forced to reduce or delay our business activities and capital
expenditures, sell assets, obtain additional equity capital or restructure or
refinance all or a portion of our debt, including the notes, on or before
maturity. We cannot assure you that we will be able to refinance any of our
debt, including the notes, on a timely basis or on satisfactory terms, if at
all. In addition, the terms of our existing debt, including the notes, our
8 7/8% notes and our senior credit facility, and other future debt may limit
our ability to pursue any of these alternatives. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
16
Our senior credit facility, the indenture governing the notes and the indenture
governing our 8 7/8% notes impose operational and financial restrictions on us.
Our senior credit facility, the indenture governing our 8 7/8% notes and the
indenture governing the notes include restrictive covenants that, among other
things, restrict our ability to:
. incur additional debt and issue preferred stock;
. pay dividends and make distributions;
. issue stock of subsidiaries;
. make certain investments;
. repurchase stock, the 8 7/8% notes or the notes;
. create liens;
. enter into transactions with affiliates;
. enter into sale-leaseback transactions;
. transfer and sell assets; and
. merge or consolidate.
Our senior credit facility also requires us to maintain financial ratios.
All of these restrictive covenants may restrict our ability to expand or to
pursue our business strategies. Our ability to comply with these and other
covenants of our indentures and senior credit facility may be affected by
changes in our business condition or results of operations, adverse regulatory
developments or other events beyond our control. The breach of any of these
covenants would result in a default under our debt. If we default, we could be
prohibited from making payments with respect to the notes until the default is
cured or all debt under our senior credit facility or other senior debt is paid
in full. This default could allow our creditors to accelerate the related debt,
as well as any other debt to which a cross-acceleration or cross-default
provision applies. If our indebtedness were to be accelerated, we cannot assure
you that we would be able to repay it. In addition, a default could give the
lenders the right to terminate any commitments they had made to provide us with
further funds. See "Description of Certain Indebtedness" and "Description of
the Exchange Notes."
The notes are contractually subordinated in right of payment to our senior debt.
The notes are senior subordinated obligations of ACC ranking junior to all
of our existing and future senior debt and equal in right of payment with all
of our existing and future senior subordinated debt. The notes are
contractually subordinated in right of payment to borrowings under our senior
credit facility. As of December 31, 2002, on a pro forma basis after giving
effect to borrowings under our senior credit facility in connection with the
purchase and redemption of our 9 3/4% debentures and repayment of borrowings
under our senior credit facility with a portion of the proceeds from the sale
of the additional notes, we would have had $22.5 million of senior debt
outstanding and $48.5 million available for borrowing under our senior credit
facility. The senior credit facility is secured by a pledge of the stock of ACC
and its subsidiaries. The indenture governing the notes limits, and in some
(but not all) instances prohibits, the incurrence of additional debt.
In addition, all payments on the notes will be blocked in the event of a
payment default under the senior credit facility and may be blocked for up to
179 consecutive days in any given year in the event of non-payment defaults on
senior debt. In the event of a default on the notes and any resulting
acceleration of the notes, the holders of senior debt then outstanding will be
entitled to payment in full in cash of all obligations in respect of such
senior debt before any payment or distribution may be made with respect to the
notes.
17
In bankruptcy, liquidation or reorganization or similar proceeding relating
to us, holders of the notes will participate with trade creditors and all other
holders of subordinated debt in the assets remaining after we have paid all of
our senior debt. However, because the indenture requires that amounts otherwise
payable to holders of the notes in a bankruptcy or similar proceeding be paid
to holders of senior debt instead, holders of the notes may receive
proportionately less than holders of trade payables in any such proceeding. In
any of these cases, we cannot assure you that sufficient assets will remain to
make any payments on the notes.
We are a holding company and depend on our subsidiaries for repayment of the
notes, which will be structurally subordinated to the liabilities of our
subsidiaries.
We conduct a portion of our business through our subsidiaries. As a result,
the notes will be effectively subordinated to all existing and future
liabilities (including trade payables) of our subsidiaries. Our subsidiaries
have not guaranteed the notes. As of December 31, 2002, our subsidiaries had
approximately $29.6 million of total liabilities reflected on our balance
sheet. Four of our stations, KATV, KTUL, WSET and WCIV, are wholly owned
subsidiaries; WBMA, WCFT and WJSU are owned by TV Alabama and WHTM is owned by
Harrisburg TV, each of which is an 80%-owned indirect subsidiary of ACC. Future
acquisitions may be made through present or future subsidiaries; therefore, our
cash flow from operations and consequent ability to service our debt, including
the notes, is, in part, dependent upon the earnings of our subsidiaries and the
distribution (through dividends or otherwise) of those earnings to ACC, or upon
loans, advances or other payments of funds by those subsidiaries to ACC.
Moreover, the payment of dividends and the making of loans or advances to ACC
by its subsidiaries are subject to various business considerations of the
subsidiaries.
Our subsidiaries will have no obligation, contingent or otherwise, to make
any funds available to us for payment of the principal of or interest on the
notes. To the extent our assets are or will be held by our subsidiaries, the
claims of holders of the notes will, in effect, be subordinated to the claims
of creditors, including trade creditors, of such subsidiaries. As of December
31, 2002, 33% of our assets were held by operating subsidiaries and, for Fiscal
2002 and for the three months ended December 31, 2002, approximately 50% of our
net operating revenues were derived from the operations of our subsidiaries.
Under the terms of the indenture, certain of our subsidiaries are restricted in
their ability to incur debt in the future. See "Description of the Exchange
Notes--Certain Covenants."
We may not be able to finance a change of control offer required by the
indenture.
If we were to experience a change of control, the indenture governing the
notes requires us to offer to repurchase all of the notes then outstanding at
101% of their principal amount, plus accrued and upaid interest to the date of
repurchase. A change of control under the indenture governing the notes would
also constitute a change of control under the indenture governing
our currently existing 8 7/8% notes, pursuant to which we would be required to
offer to repurchase those notes. If a change of control were to occur, we
cannot assure you that we would have sufficient funds to repurchase the notes
or any of our currently existing 8 7/8% notes. In fact, we expect that we would
require third-party financing, but we cannot assure you that we would be able
to obtain that financing on favorable terms or at all. These purchase
requirements may delay or make it harder for others to obtain control of
Allbritton.
Our senior credit facility restricts our ability to repurchase the notes,
even when we are required to do so by the indenture in connection with a change
of control. In addition, a change of control will result in an event of default
under our senior credit facility and could cause the acceleration of our debt.
The inability to repay the debt, if accelerated, and to repurchase all of
18
the tendered notes, would constitute an event of default under the indenture.
Any future debt we incur may also contain restrictions on repurchases in the
event of a change of control or similar event.
Our controlling stockholder may have interests that conflict with holders of
the notes.
Joe L. Allbritton, Chairman of the Executive Committee of ACC's Board,
controls Allbritton. Accordingly, Mr. Allbritton is able to control our
operations and policies, and the vote on all matters submitted to a vote of
ACC's stockholder, including, but not limited to, electing directors, adopting
amendments to ACC's certificate of incorporation and approving mergers or sales
of substantially all of ACC's assets. Circumstances may occur in which the
interests of Mr. Allbritton, as the controlling equity holder, could be in
conflict with the interests of the holders of the notes. In addition, Mr.
Allbritton could pursue acquisitions, divestitures or other transactions that,
in his judgment, could enhance his equity investment, even though such
transactions might involve risks to the holders of the notes. See "Ownership of
Capital Stock--ACC Common Stock" and "Certain Relationships and Related
Transactions."
We have paid dividends and made advances to related parties, and we expect to
continue to do so in the future.
ACC has made advances to certain related parties. Because, at present, such
related parties' primary sources of repayment of the advances is through our
ability to pay dividends or to make other distributions, these advances have
been treated as reductions to stockholder's investment in our consolidated
balance sheets. The stockholder's deficit at September 30, 2000, 2001 and 2002
and December 31, 2002 was approximately $234.2 million, $230.8 million, $247.1
million and $253.7 million, respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Certain Relationships and Related Transactions." Under
the indenture governing the notes, future advances, loans, dividends and
distributions by us are subject to certain restrictions, although we have the
ability to pay a dividend or make an advance of up to $25.0 million without
restriction. See "Description of the Exchange Notes--Certain
Covenants--Limitations on Restricted Payments" and "--Limitations on Incurrence
of Debt and Issuance of Preferred Stock." We anticipate that, subject to such
restrictions, applicable law and payment obligations with respect to the notes
and our other debt, ACC will make advances, distributions or dividends to
related parties in the future.
If an active trading market does not develop for the exchange notes, you may
not be able to resell them.
The exchange notes will be registered under the Securities Act but will not
be eligible for trading on the NASD's PORTAL market, and we do not intend to
list the exchange notes on any national securities exchange or to seek the
admission of the exchange notes to trading in the NASD's Automated Quotation
System. The exchange notes will constitute a new issue of securities with no
established trading market, and there can be no assurance as to:
. the development of any market for the exchange notes;
. the liquidity of any market for the exchange notes that may develop;
. your ability to sell your exchange notes; or
. the price at which you would be able to sell your exchange notes.
We have been advised by the initial purchasers of the initial notes that
they presently intend to make a market in the exchange notes. However, they are
not obligated to do so and may discontinue any market-making activity with
respect to the exchange notes at any time without notice. If a market for the
exchange notes were to exist, the exchange notes could trade at prices that may
be higher or lower than their principal amount or purchase price, depending on
many factors, including prevailing interest rates, the market for similar notes
and our financial performance.
19
Risks Relating to Our Business
We are dependent on our affiliation with the ABC television network.
All of our television stations are affiliated with the ABC network. Our
television viewership levels are materially dependent upon programming provided
by ABC, and there can be no assurance that such programming will achieve and
maintain satisfactory viewership levels in the future. Each of our television
stations has entered into a long-term affiliation agreement with the ABC
network, the earliest of which is scheduled to terminate in 2005. Although ABC
has continually renewed its affiliation with the television stations for as
long as we have owned them and we expect to continue to be able to renew such
affiliation agreements, we cannot assure you that such renewals will be
obtained or that they will reflect the same general terms. The non-renewal or
termination of one or more of the network affiliation agreements or alteration
of terms could have a material adverse effect on our results of operations.
NewsChannel 8 is dependent on cable operators for carriage of its programming.
NewsChannel 8 is party to affiliation agreements with cable operators for
the carriage of its programming to subscribers. Each of the affiliation
agreements has an expiration date of December 31, 2011. The news service
operated by NewsChannel 8 is entirely dependent upon carriage by the cable
operators. Although these agreements have been renewed by the cable operators
in the past, there can be no assurance that these agreements will be renewed
upon expiration or whether the same general terms and conditions can be
retained. The non-renewal or termination of one or more of these cable
affiliation agreements or alteration of terms could adversely affect our
results of operations.
Competition from other broadcasters and changes in technology could adversely
affect our operations.
The television industry is highly competitive. Some of the stations with
which our stations compete are subsidiaries of large national or regional
companies that have greater resources, including financial resources, than we
do. Technological innovation, and the resulting proliferation of programming
alternatives such as cable, direct satellite-to-home services and home video
rentals, have fractionalized television viewing audiences and subjected
television broadcast stations to new types of competition. Over the past
decade, cable television has captured an increasing market share, while the
overall viewership of the major networks has generally declined. In addition,
the expansion of cable and direct broadcast satellite distribution along with
other industry changes have increased, and may continue to increase,
competitive demand for programming. Such increased demand, together with rising
production costs, may in the future continue to increase our programming costs
or impair our ability to acquire programming.
The Federal Communications Commission, or FCC, has adopted rules for
implementing digital (including high-definition) television ("DTV") service in
the United States. Implementation of DTV is intended to improve the technical
quality of television. Under certain circumstances, however, conversion to DTV
operations may reduce a station's geographical coverage area. The FCC has
allotted a second broadcast channel to each full-power commercial television
station for DTV operation. Under the rules, stations are required to phase in
their DTV operations on the second channel over a transition period and to
surrender their non-DTV channel later. Implementation of digital television
service may impose additional costs on television stations providing the new
service, due to increased equipment and operational costs, and may affect the
competitive nature of the market areas in which we operate if competing
stations adopt and implement the new technology before we do. We cannot assure
you that our stations will be able to increase revenue to offset such costs. We
will incur significant expense
20
in the conversion to DTV operations and are unable to predict the extent or
timing of consumer demand for any such DTV services. See "Our
Business--Legislation and Regulation--Digital Television."
Further advances in technology may also increase competition for household
audiences and advertisers. Video compression techniques, now under development
for use with current cable channels or direct broadcast satellites, are
expected to reduce the bandwidth required for television signal transmission.
These compression techniques, as well as other technological developments, are
applicable to all video delivery systems, including over-the-air broadcasting,
and have the potential to provide vastly expanded programming to highly
targeted audiences. Local broadcast stations themselves may now use excess
capacity in their DTV allocation to "multicast" discrete program offerings
within the base channel. Reduction in the cost of creating additional channel
capacity could lower entry barriers for new channels and encourage the
development of increasingly specialized "niche" programming. This ability to
reach very defined audiences may alter the competitive dynamics for advertising
expenditures. We are unable to predict the effect that technological changes
will have on the broadcast television industry or the future results of our
operations. See "Our Business--Competition."
Federal regulation of the broadcasting industry limits our operating
flexibility.
The broadcasting industry is subject to regulation by the FCC pursuant to
the Communications Act of 1934, as amended. Approval of the FCC is required for
the issuance, renewal and transfer of television station operating licenses. In
particular, our business is dependent upon our continuing to hold broadcasting
licenses from the FCC that are issued for terms of eight years. While in the
vast majority of cases such licenses are renewed by the FCC, we cannot assure
you that our licenses will be renewed upon their expiration dates. All of our
stations are operating under regular licenses that expire on the following
dates: October 1, 2004 (WJLA and WSET); December 1, 2004 (WCIV); April 1, 2005
(WCFT, WJSU, WBMA); June 1, 2005 (KATV); June 1, 2006 (KTUL); and August 1,
2007 (WHTM). Congress and the FCC currently have under consideration, and may
in the future adopt, new laws, regulations and policies regarding a wide
variety of matters (including technological changes) that could, directly or
indirectly, materially and adversely affect the operation and ownership of our
broadcast properties. It is impossible to predict the outcome of federal
legislation or the potential effect thereof on our business. See "Our
Business--Legislation and Regulation."
We depend on advertising revenue, which can vary substantially from period to
period based on many factors beyond our control.
The broadcast television industry is cyclical in nature, being affected by
prevailing economic conditions. Because we rely on sales of advertising time
for substantially all of our revenues, our operating results are sensitive to
general economic conditions and regional conditions in each of the local
markets in which our stations operate. For Fiscal 2002 and the three months
ended December 31, 2002, the Washington, D.C. advertising market accounted for
approximately one-half of our total revenues. As a result, our results of
operations are highly dependent on WJLA/News Channel 8 and, in turn, the
Washington, D.C. economy and, to a lesser extent, on each of the other local
economies in which our stations operate. We are also dependent on
automotive-related advertising. Approximately 25%, 26%, 28%, 26% and 24% of our
total broadcast revenues for the fiscal years ended September 30, 2000, 2001
and 2002 and the three months ended December 31, 2001 and 2002, respectively,
consisted of automotive-related advertising. A significant decrease in such
advertising could materially and adversely affect our operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" and "Our Business--Owned Stations."
21
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes in exchange for the outstanding initial notes. We are making this
exchange offer solely to satisfy our obligations under a registration rights
agreement with the initial purchasers of the initial notes. In consideration
for issuing the exchange notes, we will receive initial notes in like aggregate
principal amount.
After deducting the initial purchasers' discount and commissions and our
estimated expenses of the offering, the net proceeds from the sale of the
initial notes were approximately $270.2 million.
On December 6, 2002, we commenced a cash tender offer to purchase all our
outstanding 9 3/4% senior subordinated debentures due 2007 at a price of $1,034
plus accrued and unpaid interest for each $1,000 principal amount of 9 3/4%
debentures tendered. In connection with the tender offer, we solicited and
obtained the necessary consents to amend the indenture pursuant to which the
9 3/4% debentures were issued to eliminate substantially all the restrictive
covenants and certain events of default. We paid $5.00 for each $1,000
principal amount of 9 3/4% debentures that consented to the amendment prior to
5:00 p.m. on December 20, 2002. On January 7, 2003, we accepted for payment and
purchased $255.6 million principal amount of 9 3/4% debentures validly tendered
and not withdrawn.
On January 21, 2003, we redeemed all 9 3/4% debentures not tendered in the
tender offer at a redemption price of 103.9% of the face value of the 9 3/4%
debentures, plus accrued interest.
We used approximately $268.0 million of the net proceeds from the sale of
the initial notes to purchase $255.6 million principal amount of our 9 3/4%
debentures tendered in the tender offer and to pay accrued interest thereon. We
used approximately $20.4 million, comprised of the remaining net proceeds and a
draw-down under our senior credit facility, to redeem the $19.4 million
principal amount of our 9 3/4% debentures which remained outstanding and to pay
the redemption premium and accrued interest thereon.
22
CAPITALIZATION
The following table sets forth our cash and cash equivalents, short-term
debt, which consists of current installments of debt, and capitalization as of
December 31, 2002:
. on an actual basis; and
. as adjusted to give effect to (1) the purchase and redemption of our
9 3/4% senior subordinated debentures with the proceeds from the sale of
the initial notes and borrowings under our senior credit facility and (2)
the issuance of the additional notes and the use of proceeds from their
sale to redeem our outstanding 8 7/8% senior subordinated notes and repay
borrowings under our senior credit facility, as if such transactions had
occurred on December 31, 2002. See "Use of Proceeds."
The initial notes surrendered in exchange for the exchange notes will be
retired and cancelled. Accordingly, the issuance of the exchange notes in
exchange for the initial notes will have no effect on the capitalization of ACC.
December 31, 2002
--------------------
As
Actual Adjusted
--------- ---------
(dollars in thousands)
Cash and cash equivalents........................................... $ 3,583 $ 3,583
========= =========
Restricted cash(1).................................................. $ 275,000 $ --
========= =========
Current installments of debt:
Capital lease obligations........................................ $ 538 $ 538
9 3/4% Senior Subordinated Debentures due 2007 (less unamortized
discount of $571).............................................. 274,429 --
--------- ---------
Total current installments of debt........................... $ 274,967 $ 538
========= =========
Debt (net of current installments):
Revolving Credit Agreement, maximum amount $70,000, expiring
March 27, 2006................................................. $ 22,000 $ 21,475
Capital lease obligations........................................ 473 473
8 7/8% Senior Subordinated Notes due 2008........................ 150,000 --
7 3/4% Senior Subordinated Notes due 2012 (less unamortized
discount of $3,051 as adjusted)................................ 275,000 451,949
--------- ---------
Total debt (net of current installments)..................... 447,473 473,897
--------- ---------
Stockholder's investment:
Common stock..................................................... 1 1
Capital in excess of par value................................... 49,631 49,631
Retained earnings(2)............................................. 9,167 (4,778)
Distributions to owners, net(3).................................. (312,489) (321,786)
--------- ---------
Total stockholder's investment............................... (253,690) (276,932)
--------- ---------
Total capitalization(4)................................... $ 193,783 $ 196,965
========= =========
- --------
(1) Restricted cash represents proceeds from the sale of the initial notes held
in escrow pending their use to purchase and redeem the 9 3/4% debentures.
(2) Retained earnings as of December 31, 2002, as adjusted, gives effect to the
premiums and costs, net of income taxes, in connection with the purchase
and redemption of the 9 3/4% debentures and the redemption of the 8 7/8%
notes.
(3) We have periodically made advances to related parties. At present, the
related parties' primary source of repayment of the advances is through our
ability to pay dividends or make other distributions; therefore, these
advances have been treated as a reduction of Stockholder's investment. See
Note 9 to our consolidated financial statements for the year ended
September 30, 2002, "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Certain Relationships and Related Transactions."
(4) Excludes current installments of debt.
23
SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands)
The selected consolidated financial data for the fiscal years ended
September 30, 1998, 1999, 2000, 2001 and 2002 are derived from our audited
consolidated financial statements. The selected consolidated financial data for
the three months ended December 31, 2001 and 2002 are derived from our
unaudited consolidated financial statements. The results of operations for the
three months ended December 31, 2002 are not necessarily indicative of the
results that can be expected for the entire fiscal year ending September 30,
2003. The information in this table should be read in conjunction with "Summary
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the notes thereto included elsewhere herein. Please note that
the data below reflect the combined results for the Company and Allnewsco for
all of the periods presented. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General Factors Affecting Our
Business."
Three Months
Ended
Fiscal Year Ended September 30, December 31,
--------------------------------------------- ---------------
1998(a) 1999 2000 2001 2002 2001 2002
-------- -------- -------- -------- -------- ------- -------
Statement of Operations Data:......................
Operating revenues, net............................ $192,287 $197,566 $216,495 $202,541 $196,169 $52,936 $58,509
Television operating expenses, excluding
depreciation and amortization..................... 116,368 120,301 124,727 124,597 126,001 32,470 32,128
Depreciation and amortization (b).................. 19,844 18,552 16,624 15,045 13,310 3,301 2,589
Corporate expenses................................. 4,568 4,339 4,873 5,641 6,004 1,382 1,458
Operating income................................... 51,507 54,374 70,271 57,258 50,854 15,783 22,334
Interest expense................................... 44,340 42,154 42,212 41,682 41,561 10,466 11,098
Interest expense-related party..................... 3,294 3,623 3,891 4,064 785 180 --
Interest income.................................... 1,117 280 331 321 94 32 120
Interest income-related party...................... -- 226 303 213 92 45 44
(Loss) income before cumulative effect of change in
accounting principle.............................. (3,671) 4,007 12,811 6,354 3,514 2,699 7,223
Cumulative effect of change in accounting
principle (b)..................................... -- -- -- -- -- -- 2,973
Net (loss) income.................................. (3,671) 4,007 12,811 6,354 3,514 2,699 4,250
As of September 30, As of
----------------------------------------------------- December 31,
1998 1999 2000 2001 2002 2002
--------- --------- --------- --------- --------- ------------
Balance Sheet Data:.....
Total assets............ $ 283,831 $ 279,875 $ 273,645 $ 258,610 $ 268,994 $ 541,442
Total debt (c).......... 429,691 429,629 427,729 426,860 440,443 722,440
Stockholder's investment (210,175) (221,643) (234,163) (230,817) (247,073) (253,690)
24
Three Months
Ended
Fiscal Year Ended September 30, December 31,
----------------------------------------------- ----------------
1998 1999 2000 2001 2002 2001 2002
------- -------- -------- -------- -------- ------- -------
Cash Flow Data (d):
Cash flow from operating activities........... $24,544 $ 25,218 $ 30,626 $ 25,156 $ 28,020 $(2,952) $ 7,701
Cash flow from investing activities........... (8,800) (10,568) (8,466) (5,782) (46,458) (684) (1,418)
Cash flow from financing activities........... (9,029) (14,350) (24,666) (23,626) 16,908 (237) (8,999)
Financial Ratios and Other Data:
Operating Cash Flow (e)....................... $71,351 $ 72,926 $ 86,895 $ 72,303 $ 64,164 $19,084 $24,923
Operating Cash Flow Margin (f)................ 37.1% 36.9% 40.1% 35.7% 32.7% 36.1% 42.6%
Capital expenditures.......................... 9,803 12,140 5,167 6,560 26,332 717 1,422
Interest expense, net (g)..................... 43,223 41,874 41,881 41,361 41,467 10,434 10,978
Ratio of total debt to Operating Cash Flow (h) 6.02 5.89 4.92 5.90 6.86 5.59 7.25
Ratio of Operating Cash Flow to interest
expense, net................................. 1.65 1.74 2.07 1.75 1.55 1.83 2.27
Ratio of Operating Cash Flow less capital
expenditures to interest expense, net........ 1.42 1.45 1.95 1.59 0.91 1.76 2.14
Ratio of earnings to fixed charges (i)........ (a) 1.18 1.53 1.25 1.16 1.44 1.94
Footnotes
(a) Effective October 1, 2002, gains and losses from the extinguishment of debt
are generally required to be classified as a nonoperating gain or loss
rather than as an extraordinary item. As required, we have reclassified the
$5,155 Fiscal 1998 loss from the early repayment of debt to nonoperating
expenses. The reclassification of this loss also impacted the ratio of
earnings to fixed charges calculation, resulting in earnings being
inadequate to cover fixed charges for the year ended September 30, 1998.
Additional earnings of $3,872 would have been required to attain a ratio of
one-to-one.
(b) As required by generally accepted accounting principles, effective
October 1, 2002 we changed our method of accounting for intangible assets.
As a result, we ceased amortization of our broadcast license intangible
assets effective October 1, 2002. In addition, we recorded a non-cash,
after-tax impairment charge of $2,973 relating to the carrying value of our
broadcast licenses. See Note 3 to our consolidated financial statements for
the year ended September 30, 2002 and Note 4 to our consolidated financial
statements for the three months ended December 31, 2002.
(c) Total debt is defined as long-term debt (including the current portion
thereof, and net of discount) and capital lease obligations.
(d) Cash flows from operating, investing and financing activities were
determined in accordance with generally accepted accounting principles. See
"Consolidated Financial Statements--Consolidated Statements of Cash Flows."
(e) "Operating Cash Flow" is defined as operating income plus depreciation and
amortization. Programming expenses are included in television operating
expenses. We have included Operating Cash Flow data because we understand
that such data are used by investors to measure a company's ability to fund
its operations and service debt. Operating Cash Flow does not purport to
represent our cash flows from operating activities determined in accordance
with generally accepted accounting principles as reflected in our
consolidated financial statements, is not a measure of financial
performance under generally accepted accounting principles, should not be
considered in isolation or as a substitute for net income or cash flows
from operating activities and may not be comparable to similar measures
reported by other companies.
(f) "Operating Cash Flow Margin" is defined as Operating Cash Flow as a
percentage of operating revenues, net.
(g) Interest expense, net is defined as non-related party interest expense less
non-related party interest income.
(h) For the three months ended December 31, 2001 and 2002, the ratio of total
debt to Operating Cash Flow was computed by annualizing the Operating Cash
Flow for the respective period.
(i) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of income before cumulative effect of change in accounting
principle and income taxes plus fixed charges. Fixed charges consist of
non-related party interest cost, which includes interest (both expensed and
capitalized) on all non-related party debt, amortization of deferred
financing costs and debt discount and that portion of rental expenses
representative of interest (deemed to be one-third of total expense which
is a reasonable approximation of the interest).
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(dollars in thousands)
General Factors Affecting Our Business
The Company
We own ABC network-affiliated television stations serving seven geographic
markets: WJLA in Washington, D.C.; WCFT in Tuscaloosa, Alabama, WJSU in
Anniston, Alabama and WBMA-LP, a low power television station licensed to
Birmingham, Alabama (we operate WCFT and WJSU in tandem with WBMA-LP serving
the viewers of the Birmingham, Tuscaloosa and Anniston market as a single
programming source); WHTM in Harrisburg, Pennsylvania; KATV in Little Rock,
Arkansas; KTUL in Tulsa, Oklahoma; WSET 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 have been integrated with
WJLA.
Acquisitions and Basis of Financial Presentation
On September 16, 2002, ACC completed its acquisition of certain of the
assets of Allnewsco, in exchange for $20,000 in cash and the cancellation of a
$20,000 note receivable from Allnewsco. The assets acquired consisted primarily
of cable affiliation agreements and certain technical equipment and vehicles
related to the operations of NewsChannel 8, which provides 24-hour per day
basic cable television programming primarily focused on regional and local news
for the Washington, D.C. metropolitan area. The operations of NewsChannel 8
have been integrated with those of WJLA in a new studio and office facility,
creating the first newsgathering duopoly in the Nation's Capital. Allnewsco has
been controlled since its inception by Perpetual, which also controls ACC.
Because both ACC and Allnewsco are controlled by Perpetual, ACC was required to
account for the acquisition as a transfer of assets within a group under common
control.
Under this accounting, the Company and Allnewsco are treated as if they had
always been combined for accounting and financial reporting purposes. As a
result, our consolidated financial statements have been restated for all
periods prior to the asset acquisition to reflect the combined results of the
Company and Allnewsco. In addition to combining the separate historical results
of the Company and Allnewsco, the consolidated financial statements include all
adjustments necessary to conform accounting methods and presentation, to the
extent they were different, and to eliminate significant intercompany
transactions. All amounts for all periods presented, unless otherwise
specified, in this Management's Discussion and Analysis reflect the combined
results of the Company and Allnewsco.
Our consolidated financial statements, however, do not reflect any potential
revenue increases or expense savings that we anticipate will result in the
future from the integration of the operations of ACC and Allnewsco. In
addition, as ACC did not acquire all of the assets or assume all of the
liabilities of Allnewsco, certain expenses reported in the consolidated
financial statements will not be incurred by ACC subsequent to the acquisition.
Specifically, ACC did not acquire or assume amounts due from Allnewsco to
Perpetual. The accompanying consolidated financial statements include $3,891,
$4,064 and $785 of related party interest expense incurred by Allnewsco
relating to amounts due from Allnewsco to Perpetual during the years ended
September 30, 2000, 2001 and 2002, respectively. We will not incur such related
party interest expense subsequent to the acquisition date of September 16,
2002. Accordingly, no such related party interest expense was incurred during
the three months ended December 31, 2002.
26
We previously programmed WJSU pursuant to the Anniston Local Marketing
Agreement, or LMA. In connection with the Anniston LMA, we entered into an
option to purchase the assets of WJSU. We exercised our option to acquire WJSU
on September 14, 1999 and completed the acquisition on March 22, 2000. Our
consolidated results of operations include operating revenues and operating
expenses of WJSU from December 29, 1995 to March 21, 2000 pursuant to the terms
of the Anniston LMA, and since March 22, 2000 as an owned station.
Business
Our operating revenues are derived from local and national advertisers and,
to a much lesser extent, the ABC network and program syndicators for the
broadcast of programming, cable operators and direct broadcast satellite, or
DBS, providers in the form of subscriber fees, and other broadcast-related
activities. The primary operating expenses involved in owning and operating
television stations are employee compensation, programming, newsgathering,
production, promotion and the solicitation of advertising.
Television stations receive revenues for advertising sold for placement
within and adjoining locally originated and network programming. Advertising
rates are set based upon a variety of factors, including the size and
demographic makeup of the market served by the station, a program's popularity
among viewers whom an advertiser wishes to attract, the number of advertisers
competing for the available time, the availability of alternative advertising
media in the market area, a station's overall ability to attract viewers in its
market area and the station's ability to attract viewers among particular
demographic groups that an advertiser may be targeting. Advertising rates are
also affected by an aggressive and knowledgeable sales force and the
development of projects, features and programs that tie advertiser messages to
programming.
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. During years in which Olympic Games are held, there is
additional demand for advertising time and, as a result, increased advertising
revenue associated with Olympic broadcasts. The 2002 Winter Olympic Games were
broadcast by NBC in February 2002 in connection with NBC's United States
television rights to the Olympic Games, which extend through 2008.
Our cash flow from operations is also affected on a quarterly basis by the
timing of cash collections and interest payments on our debt. Cash receipts are
usually much 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
debt are higher during the first and third fiscal quarters and, following
issuance of the additional notes and the redemption of the 8 7/8% senior
subordinated notes, will 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
flow from operating activities for the full fiscal year.
The broadcast television industry is cyclical in nature, being affected by
prevailing economic conditions. Because we rely on sales of advertising time
for substantially all of our revenues, our operating results are sensitive to
general economic conditions and regional conditions in each of the local market
areas in which our stations operate. For Fiscal 2000, 2001
27
and 2002 and the three months ended December 31, 2002, the Washington, D.C.
advertising market accounted for approximately one-half of our total revenues.
As a result, our results of operations are highly dependent on WJLA/NewsChannel
8 and, in turn, the Washington, D.C. economy and, to a lesser extent, on each
of the other local economies in which our stations operate. We are also
dependent on automotive-related advertising. Approximately 25%, 26%, 28%, 26%
and 24% of our total broadcast revenues for the years ended September 30, 2000,
2001 and 2002, and the three months ended December 31, 2001 and 2002,
respectively, consisted of automotive-related advertising. A significant
decrease in such advertising in the future could materially and adversely
affect our operating results.
Net Operating Revenues
The following table depicts the principal types of operating revenues, net
of agency commissions, earned by us during each of the last three fiscal years
and the three months ended December 31, 2001 and 2002 and the percentage
contribution of each to our total broadcast revenues, before fees.
Three Months Ended
Fiscal Year Ended September 30, December 31,
---------------------------------------------------- --------------------------------
2000 2001 2002 2001 2002
---------------- ---------------- ---------------- --------------- ---------------
Dollars Percent Dollars Percent Dollars Percent Dollars Percent Dollars Percent
-------- ------- -------- ------- -------- ------- ------- ------- ------- -------
Local and national (1).. $198,364 88.7% $179,962 86.1% $173,909 86.1% $47,044 86.0% $45,438 75.7%
Political (2)........... 4,910 2.2% 8,354 4.0% 7,371 3.7% 1,751 3.2% 7,908 13.2%
Network compensation (3) 2,930 1.3% 2,975 1.4% 3,700 1.8% 679 1.2% 1,396 2.3%
Trade and barter (4).... 8,786 3.9% 7,760 3.7% 7,307 3.6% 1,941 3.5% 1,805 3.0%
Other revenues (5)...... 8,759 3.9% 9,940 4.8% 9,604 4.8% 3,314 6.1% 3,469 5.8%
-------- ----- -------- ----- -------- ----- ------- ----- ------- ----
Broadcast revenues...... 223,749 100.0% 208,991 100.0% 201,891 100.0% 54,729 100.0% 60,016 100%
===== ===== ===== ===== ====
Fees (6)................ (7,254) (6,450) (5,722) (1,793) (1,507)
-------- -------- -------- ------- -------
Operating revenues, net. $216,495 $202,541 $196,169 $52,936 $58,509
======== ======== ======== ======= =======
- --------
(1) Represents sale of advertising time to local and national advertisers,
either directly or through agencies representing such advertisers, net of
agency commission.
(2) Represents sale of advertising time to political advertisers.
(3) Represents payment by networks for broadcasting or promoting network
programming.
(4) Represents value of commercial time exchanged for goods and services
(trade) or syndicated programs (barter).
(5) Represents other revenue, principally from cable and DBS 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.
(6) Represents fees paid to national sales representatives and fees paid for
music licenses.
Local and national advertising constitutes our largest category of operating
revenues, representing 85%-90% of our total broadcast revenues in each of the
last three full fiscal years. Each other individual category of revenues
represented less than 5.0% of our total revenues for each of the last three
fiscal years. Local and national advertising revenues increased 11.7% in Fiscal
2000, and decreased 9.3%, 3.4% and 3.4% in Fiscal 2001 and 2002 and for the
three months ended December 31, 2002, respectively.
28
Results of Operations -- Three Months Ended December 31, 2002 Compared to the
Three Months Ended December 31, 2001
Set forth below are selected consolidated financial data for the three
months ended December 31, 2001 and 2002 and the percentage change between the
periods:
Three Months Ended
December 31,
----------------------
Percent
2001 2002 Change
------- ------- -------
Operating revenues, net........................................... $52,936 $58,509 10.5%
Total operating expenses.......................................... 37,153 36,175 -2.6%
------- -------
Operating income.................................................. 15,783 22,334 41.5%
Nonoperating expenses, net........................................ 10,944 11,278 3.1%
Income tax provision.............................................. 2,140 3,833 79.1%
------- -------
Income before cumulative effect of change in accounting principle. 2,699 7,223 167.6%
Cumulative effect of change in accounting principle, net of income
tax benefit..................................................... -- 2,973 --
------- -------
Net income........................................................ $ 2,699 $ 4,250 57.5%
======= =======
Net Operating Revenues
Net operating revenues for the three months ended December 31, 2002 totaled
$58,509, an increase of $5,573, or 10.5%, when compared to net operating
revenues of $52,936 for the three months ended December 31, 2001. This increase
resulted principally from increased political advertising revenues in all but
one of our markets.
Local and national advertising revenues decreased $1,606, or 3.4%, for the
three months ended December 31, 2002 from the comparable period in Fiscal 2002.
The decrease for the three months ended December 31, 2002 was largely due to
the displacement of local and national advertisers during the peak political
advertising month of October 2002, and to a lesser extent, due to a slightly
reduced level of prime-time inventory available for sale as discussed below
related to network compensation.
Political advertising revenues increased $6,157 during the three months
ended December 31, 2002. Political advertising revenue increased in all but one
of our markets due to several high-profile local political races affecting our
markets for the November 2002 elections, partially offset by advertising
leading up to a November 2001 local political election affecting our
Washington, D.C. and Lynchburg markets.
Network compensation revenue increased $717, or 105.6%, during the three
months ended December 31, 2002 as compared to the same period in the prior
year. The increase was principally due to the July 31, 2002 expiration of
certain amendments to our network affiliation agreements. Under these
amendments, ABC, for a three-year period, provided our stations with additional
prime-time inventory, limited participation rights in a new cable television
"soap" channel, and enhanced program exclusivity and commercial inventory
guarantees in exchange for reduced annual network compensation, the return of
certain Saturday morning inventory from the stations, and more flexibility in
repurposing of ABC programming. Upon the expiration of these amendments,
compensation rates and inventory allocations reverted to their pre-modification
levels. We routinely consult with the network in relation to the levels of
program clearances, preemptions, compensation and inventory availabilities.
29
No individual advertiser accounted for more than 5% of our broadcast
revenues during the three months ended December 31, 2001 or 2002.
Total Operating Expenses
Total operating expenses for the three months ended December 31, 2002
totaled $36,175, a decrease of $978, or 2.6%, compared to total operating
expenses of $37,153 for the three-month period ended December 31, 2001. This
net decrease consisted of a decrease in television operating expenses,
excluding depreciation and amortization, of $342, a decrease in depreciation
and amortization of $712 and an increase in corporate expenses of $76.
Television operating expenses, excluding depreciation and amortization,
decreased $342, or 1.1%, to $32,128 for the three months ended December 31,
2002 as compared to $32,470 for the three months ended December 31, 2001. This
decrease reflects our continuing focus on controlling programming and operating
costs as well as expense savings related to the integration of the operations
of WJLA and NewsChannel 8.
Depreciation and amortization expense of $2,589 for the first three months
of Fiscal 2003 decreased $712, or 21.6%, versus the comparable period in Fiscal
2002. The decrease for the three months ended December 31, 2002 was principally
the result of our adoption of SFAS No. 142 effective October 1, 2002. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to periodic impairment tests. Other
intangible assets will continue to be amortized over their useful lives. The
non-amortization provisions of SFAS No. 142 resulted in a $1,022 decrease in
amortization expense during the three months ended December 31, 2002 as
compared to the same period in the prior fiscal year. Assuming we had adopted
SFAS No. 142 at the beginning of Fiscal 2002, depreciation and amortization
expense for the three months ended December 31, 2001 would have been $2,279,
which would have resulted in a current period increase in depreciation and
amortization expense of $310, or 13.6%, due to increased depreciation expense
associated with the buildout of studio and office space and acquisition of
technical equipment for the new WJLA/NewsChannel 8 facility.
Operating Income
For the three months ended December 31, 2002, operating income of $22,334
increased $6,551, or 41.5%, when compared to operating income of $15,783 for
the three months ended December 31, 2001. For the three months ended December
31, 2002, the operating margin increased to 38.2% from 29.8% for the comparable
period in Fiscal 2002. Assuming we had adopted SFAS No. 142 at the beginning of
Fiscal 2002, operating income and operating margin for the three months ended
December 31, 2001 would have been $16,805 and 31.7%, respectively, which would
have resulted in a current period increase in operating income of $5,529, or
32.9%. The increases in operating income and operating margin were primarily
the result of increased net operating revenues as discussed above.
Operating Cash Flow
Operating cash flow of $24,923 for the three months ended December 31, 2002
increased $5,839, or 30.6%, as compared to $19,084 for the three-month period
ended December 31, 2001. This increase was primarily the result of increased
net operating revenues as discussed above. We believe that operating cash flow,
defined as operating income plus depreciation and amortization, is important in
measuring our financial results and our ability to pay principal and interest
on our debt because of our non-cash expenses attributable to depreciation and
30
amortization. Operating cash flow does not purport to represent cash flows from
operating activities determined in accordance with generally accepted
accounting principles as reflected in our consolidated financial statements, is
not a measure of financial performance under generally accepted accounting
principles, should not be considered in isolation or as a substitute for net
income or cash flows from operating activities and may not be comparable to
similar measures reported by other companies.
Nonoperating Expenses, Net
Non-related party interest expense of $11,098 for the three months ended
December 31, 2002 increased $632, or 6.0%, as compared to $10,466 for the
three-month period ended December 31, 2001. This increase was the result of the
incremental interest expense associated with carrying both the initial notes
and the 9 3/4% senior subordinated debentures from December 20, 2002 through
December 31, 2002. In connection with our cash tender offer to purchase all of
the outstanding 9 3/4% debentures, we purchased $255,576 principal amount on
January 7, 2003, and the remaining principal amount of $19,424 was redeemed on
January 21, 2003 after the redemption notice period was completed. Had we
purchased or redeemed the 9 3/4% debentures on December 20, 2002, interest
expense for the three months ended December 31, 2002 would have been $10,353, a
decrease of $113, or 1.1%, as compared to the same period in Fiscal 2002. In
addition, the average balance of debt outstanding, including capital lease
obligations, would have been $441,988, and the weighted average interest rate
on debt would have been 9.1%. This compares to an average balance of debt
outstanding, including capital lease obligations, of $451,821 and a weighted
average interest rate on debt of 9.2% for the three months ended December 31,
2001.
Income Taxes
The provision for income taxes for the three months ended December 31, 2002
totaled $3,833, an increase of $1,693, or 79.1%, when compared to the provision
for income taxes of $2,140 for the three months ended December 31, 2001. The
increase was directly related to the $6,217, or 128.5%, increase in our income
before income taxes and cumulative effect of change in accounting principle,
partially offset by a decrease in our overall effective income tax rate for
Fiscal 2003.
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 will no
longer be amortized but will be subject to periodic impairment tests. Our
indefinite lived intangible assets consist of broadcast licenses. Other
intangible assets will 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
31
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
Net income for the three months ended December 31, 2002 was $4,250 as
compared to net income of $2,699 for the three months ended December 31, 2001.
The increase of $1,551, or 57.5%, was due to the factors discussed above.
Balance Sheet
Significant balance sheet fluctuations from September 30, 2002 to December
31, 2002 consisted primarily of restricted cash and increased short-term debt.
The restricted cash and increased short-term debt balances reflect the proceeds
from the issuance of the initial notes held in escrow until the purchase and
redemption of our 9 3/4% debentures was completed as of January 21, 2003.
Additional balance sheet fluctuations from September 30, 2002 to December
31, 2002 consisted of increases 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. The decrease in accrued interest payable reflects the timing of interest
payments under our debt obligations.
32
Results of Operations--Fiscal 2002 Compared to Fiscal 2001
Set forth below are selected consolidated financial data for Fiscal 2001 and
2002, respectively, and the percentage change between the years.
Fiscal Year Ended
September 30,
----------------- Percentage
2001 2002 Change
-------- -------- ----------
Operating revenues, net... $202,541 $196,169 (3.1)%
Total operating expenses.. 145,283 145,315 0.0%
-------- --------
Operating income.......... 57,258 50,854 (11.2)%
Nonoperating expenses, net 46,272 43,385 (6.2)%
Income tax provision...... 4,632 3,955 (14.6)%
-------- --------
Net income................ $ 6,354 $ 3,514 (44.7)%
======== ========
Operating cash flow....... $ 72,303 $ 64,164 (11.3)%
======== ========
The results above include the combined operations of the Company and
Allnewsco for both periods presented. The combining selected financial data for
Fiscal 2001 and 2002, respectively, are as follows:
Fiscal Year Ended September 30, 2001 Fiscal Year Ended September 30, 2002
----------------------------------------- --------------------------------------------
Company Allnewsco Adjustment(2) Combined Company Allnewsco(1) Adjustment(2) Combined
-------- --------- ------------- -------- -------- ------------ ------------- --------
Operating revenues,
net................ $190,618 $11,923 $202,541 $185,944 $10,225 $196,169
Total operating
expenses........... 132,777 12,506 145,283 133,803 11,512 145,315
-------- ------- -------- -------- ------- --------
Operating income
(loss)............. 57,841 (583) 57,258 52,141 (1,287) 50,854
Nonoperating
expenses, net...... 39,935 6,337 46,272 39,908 3,477 43,385
Income tax provision
(benefit).......... 7,262 -- $(2,630) 4,632 5,765 -- $(1,810) 3,955
-------- ------- ------- -------- -------- ------- ------- --------
Net income (loss)... $ 10,644 $(6,920) $ 2,630 $ 6,354 $ 6,468 $(4,764) $ 1,810 $ 3,514
======== ======= ======= ======== ======== ======= ======= ========
Operating cash flow. $ 72,112 $ 191 $ 72,303 $ 65,118 $ (954) $ 64,164
======== ======= ======== ======== ======= ========
- --------
(1) Allnewsco's results are for the period from October 1, 2001 through the
acquisition date of September 16, 2002.
(2) Adjustment represents the income tax benefit associated with combining the
Company and Allnewsco. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations-Fiscal
2002 Compared to Fiscal 2001--Income Taxes."
Net Operating Revenues
As compared to Fiscal 2001, our results of operations for Fiscal 2002
principally reflect a decrease in net operating revenues. Net operating
revenues for Fiscal 2002 totaled $196,169, a decrease of $6,372, or 3.1%, as
compared to Fiscal 2001. This decrease resulted principally from decreased
local and national advertising revenue in most of our markets.
Local and national advertising revenues decreased $6,053, or 3.4%, from
Fiscal 2001. Local and national advertising revenues declined in most of our
markets during Fiscal 2002 due in large part to declining audience ratings for
ABC network prime-time programming across all of our markets. The general
weakness in television advertising which began during Fiscal 2001 also
contributed to this decline during the first nine months of Fiscal 2002, but
improved in the fourth fiscal quarter, with local and national advertising
revenues increasing by 6.4%. Fiscal
33
2002 local and national advertising revenues were particularly affected in our
Washington, D.C. market related to the operations of WJLA and NewsChannel 8.
Political advertising revenues decreased by $983, or 11.8%, in Fiscal 2002
from Fiscal 2001. This decrease was primarily due to the fact that a
substantial amount of the advertising related to the national presidential
election and certain high-profile local political races in November 2000
occurred during our Fiscal 2001. This revenue was largely replaced in Fiscal
2002 by advertising from a high-profile local election in our Washington, D.C.
market in November 2001 and from advertising leading up to certain high-profile
local elections in November 2002, primarily in our Little Rock, Washington,
D.C. and Harrisburg markets.
No individual advertiser accounted for more than 5% of our broadcast
revenues during Fiscal 2002 or 2001.
Total Operating Expenses
Total operating expenses in Fiscal 2002 were $145,315, an increase of $32
compared to total operating expenses of $145,283 in Fiscal 2001. This net
increase consisted of an increase in television operating expenses, excluding
depreciation and amortization, of $1,404, a decrease in depreciation and
amortization of $1,735 and an increase in corporate expenses of $363.
Television operating expenses, excluding depreciation and amortization,
totaled $126,001 in Fiscal 2002, an increase of $1,404, or 1.1%, when compared
to television operating expenses of $124,597 in Fiscal 2001. This increase was
due primarily to a $750 charge during the third quarter of Fiscal 2002 for
one-time lease related costs associated with the relocation of WJLA to new
studio and office space as well as various costs associated with the physical
move and integration during the fourth quarter of Fiscal 2002. Additionally,
included in the Fiscal 2002 operating expenses of Allnewsco are severance and
related costs associated with the significant reduction in workforce done in
anticipation of the integration with WJLA. Such costs, while included in our
consolidated financial statements, were incurred by Allnewsco prior to the date
of acquisition by ACC and will not recur subsequent to the acquisition.
Depreciation and amortization expense of $13,310 in Fiscal 2002 decreased
$1,735, or 11.5%, from $15,045 in Fiscal 2001. The decrease was primarily
attributable to decreased depreciation on assets acquired in Birmingham during
Fiscal 1996, partially offset by increased depreciation of assets placed in
service during the fourth quarter of Fiscal 2002 related to the buildout of
studio and office space and acquisition of technical equipment for the new
WJLA/NewsChannel 8 facility.
Corporate expenses in Fiscal 2002 increased $363, or 6.4%, from Fiscal 2001.
The increase was primarily due to personnel and various consulting and legal
costs, partially offset by decreases in key-man life insurance expense.
Operating Income
Operating income of $50,854 in Fiscal 2002 decreased $6,404, or 11.2%,
compared to operating income of $57,258 in Fiscal 2001. The operating profit
margin in Fiscal 2002 decreased to 25.9% from 28.3% for the prior fiscal year.
The decreases in operating income and margin were primarily the result of
decreased net operating revenues as discussed above.
34
Operating Cash Flow
Operating cash flow decreased to $64,164 in Fiscal 2002 from $72,303 in
Fiscal 2001, a decrease of $8,139, or 11.3%. This decrease was primarily the
result of decreased net operating revenues as discussed above. We believe that
operating cash flow, defined as operating income plus depreciation and
amortization, is important in measuring our financial results and our ability
to pay principal and interest on our debt because of our level of non-cash
expenses attributable to depreciation and amortization of intangible assets.
Operating cash flow does not purport to represent cash flows from operating
activities determined in accordance with generally accepted accounting
principles as reflected in our consolidated financial statements, is not a
measure of financial performance under generally accepted accounting
principles, should not be considered in isolation or as a substitute for net
income or cash flows from operating activities and may not be comparable to
similar measures reported by other companies.
Nonoperating Expenses, Net
Non-related party interest expense decreased by $121, or 0.3%, from $41,682
in Fiscal 2001 to $41,561 in Fiscal 2002. This decrease was principally due to
a decreased weighted average interest rate on debt outstanding during Fiscal
2002, partially offset by an increased average balance of debt outstanding
during the same period. The average balance of debt outstanding, including
capital lease obligations, was $441,619 and $449,125 for Fiscal 2001 and 2002,
respectively, and the weighted average interest rate on debt was 9.4% and 9.2%
for the years ended September 30, 2001 and 2002, respectively.
Perpetual historically advanced cash to Allnewsco in the form of unsecured
demand notes bearing interest at a rate of 7.5%. Related party interest expense
incurred by Allnewsco associated with these notes, and reported in our
consolidated financial statements, was $4,064 and $785 during the years ended
September 30, 2001 and 2002, respectively. The decrease in interest expense
during Fiscal 2002 was due to the reclassification, effective September 28,
2001, of $46,291 from notes payable to equity, thus decreasing the level of
notes payable outstanding during Fiscal 2002. As we did not acquire or assume
amounts due from Allnewsco to Perpetual, such related party interest expense
incurred by Allnewsco will not be incurred by us subsequent to the acquisition
date of September 16, 2002.
Income Taxes
The provision for income taxes in Fiscal 2002 of $3,955 decreased by $677,
or 14.6%, when compared to the provision for income taxes of $4,632 in Fiscal
2001. The decrease was directly related to the $3,517, or 32.0%, decrease in
our income before income taxes, partially offset by the one-time recognition of
a tax benefit of approximately $950 during Fiscal 2001 as well as an increase
in our overall effective income tax rate in Fiscal 2002.
Because Perpetual has historically filed consolidated federal and Virginia
state income tax returns including the operating results of both the Company
and Allnewsco, certain tax benefits were realized by Perpetual associated with
Allnewsco's net operating losses in the consolidated tax returns. In accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes," the combined results of the Company and Allnewsco have been
adjusted to reflect the historical tax benefits which would have been recorded
for financial reporting purposes by the combined entity during each period
presented.
35
Net Income
Net income for Fiscal 2002 of $3,514 decreased $2,840, or 44.7%, when
compared to net income of $6,354 in Fiscal 2001. The decrease in net income was
attributable to the decline in operating results for Fiscal 2002 as discussed
above.
Results of Operations--Fiscal 2001 Compared to Fiscal 2000
Set forth below are selected consolidated financial data for Fiscal 2000 and
2001, respectively, and the percentage change between the years.
Fiscal Year Ended
September 30,
----------------- Percentage
2000 2001 Change
-------- -------- ----------
Operating revenues, net... $216,495 $202,541 (6.4)%
Total operating expenses.. 146,224 145,283 (0.6)%
-------- --------
Operating income.......... 70,271 57,258 (18.5)%
Nonoperating expenses, net 46,891 46,272 (1.3)%
Income tax provision...... 10,569 4,632 (56.2)%
-------- --------
Net income................ $ 12,811 $ 6,354 (50.4)%
======== ========
Operating cash flow....... $ 86,895 $ 72,303 (16.8)%
======== ========
The results above include the combined operations of the Company and
Allnewsco for both periods presented. The combining selected financial data for
Fiscal 2000 and 2001, respectively, are as follows:
Fiscal Year Ended September 30, 2000 Fiscal Year Ended September 30, 2001
----------------------------------------- -----------------------------------------
Company Allnewsco Adjustment(1) Combined Company Allnewsco Adjustment(1) Combined
-------- --------- ------------- -------- -------- --------- ------------- --------
Operating revenues, net. $205,307 $11,188 $216,495 $190,618 $11,923 $202,541
Total operating expenses 134,150 12,074 146,224 132,777 12,506 145,283
-------- ------- -------- -------- ------- --------
Operating income (loss). 71,157 (886) 70,271 57,841 (583) 57,258
Nonoperating expenses,
net.................... 40,723 6,168 46,891 39,935 6,337 46,272
Income tax provision
(benefit).............. 13,250 -- $(2,681) 10,569 7,262 -- $(2,630) 4,632
-------- ------- ------- -------- -------- ------- ------- --------
Net income (loss)....... $ 17,184 $(7,054) $ 2,681 $ 12,811 $ 10,644 $(6,920) $ 2,630 $ 6,354
======== ======= ======= ======== ======== ======= ======= ========
Operating cash flow..... $ 86,817 $ 78 $ 86,895 $ 72,112 $ 191 $ 72,303
======== ======= ======== ======== ======= ========
- --------
(1) Adjustment represents the income tax benefit associated with combining the
Company and Allnewsco. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations-Fiscal
2001 Compared to Fiscal 2000--Income Taxes."
Net Operating Revenues
As compared to Fiscal 2000, our results of operations for Fiscal 2001
principally reflect a decrease in net operating revenues. Net operating
revenues for Fiscal 2001 totaled $202,541, a decrease of $13,954, or 6.4%, as
compared to Fiscal 2000. This decrease resulted principally from decreased
local and national advertising revenue in most of our markets, particularly in
the Washington, D.C. market. The decreases in local and national advertising
revenues were partially offset by significantly increased political advertising
revenue in all but one of our markets.
36
Additionally, our net operating revenues for Fiscal 2001 were adversely
impacted by the tragic events of September 11, 2001. We estimate that we lost
advertising revenues of up to $2,500 due to commercial-free news coverage and
advertiser cancellations during the period following September 11, 2001.
Local and national advertising revenues decreased $18,402, or 9.3%, from
Fiscal 2000. This decrease resulted principally from decreased local and
national advertising revenue in most of our markets, particularly in the
Washington, D.C. market. There was a substantial decrease in internet-related
advertising which had contributed to the strong growth of the Washington, D.C.
market during Fiscal 2000.
Political advertising revenues increased by $3,444, or 70.1%, in Fiscal 2001
from Fiscal 2000. This increase was primarily due to the national presidential
election and high-profile local political races affecting the Little Rock,
Washington, D.C. and Lynchburg markets in November 2000. The increase was
partially offset by Fiscal 2000 political advertising leading up to the
national presidential and local elections in November 2000.
No individual advertiser accounted for more than 5% of our broadcast
revenues during Fiscal 2001 or 2000.
Total Operating Expenses
Total operating expenses in Fiscal 2001 were $145,283, a decrease of $941,
or 0.6%, compared to total operating expenses of $146,224 in Fiscal 2000. This
net decrease consisted of a decrease in television operating expenses,
excluding depreciation and amortization, of $130, a decrease in depreciation
and amortization of $1,579 and an increase in corporate expenses of $768.
Television operating expenses, excluding depreciation and amortization,
totaled $124,597 in Fiscal 2001, a decrease of $130, or 0.1%, when compared to
television operating expenses of $124,727 in Fiscal 2000. Television operating
expenses during Fiscal 2001 included a decrease in programming expenses related
to a reduction in the number of one-time and non-recurring programming events
occurring during the first and fourth quarters of Fiscal 2001 as compared to
the same periods in Fiscal 2000. Excluding these expenses from the prior
period, television operating expenses increased 1.6% during Fiscal 2001.
Depreciation and amortization expense of $15,045 in Fiscal 2001 decreased
$1,579, or 9.5%, from $16,624 in Fiscal 2000. The decrease was primarily
attributable to the completion of the acquisition of WJSU on March 22, 2000.
Prior to March 22, 2000, the costs to acquire the option to purchase WJSU were
being amortized over the ten-year term of the option. Since completion of the
acquisition, the portion of the purchase price assigned to the broadcast
license of WJSU is being amortized over its estimated useful life of 40 years.
Corporate expenses in Fiscal 2001 increased $768, or 15.8%, from Fiscal
2000. The increase was primarily due to increased personnel and key-man life
insurance expenses.
Operating Income
Operating income of $57,258 in Fiscal 2001 decreased $13,013, or 18.5%,
compared to operating income of $70,271 in Fiscal 2000. The operating profit
margin in Fiscal 2001 decreased to 28.3% from 32.5% for the prior fiscal year.
The decreases in operating income and margin were primarily the result of
decreased net operating revenues as discussed above.
37
Operating Cash Flow
Operating cash flow decreased to $72,303 in Fiscal 2001 from $86,895 in
Fiscal 2000, a decrease of $14,592, or 16.8%. This decrease was primarily the
result of decreased net operating revenues as discussed above. We believe that
operating cash flow, defined as operating income plus depreciation and
amortization, is important in measuring our financial results and our ability
to pay principal and interest on our debt because of our level of non-cash
expenses attributable to depreciation and amortization of intangible assets.
Operating cash flow does not purport to represent cash flows from operating
activities determined in accordance with generally accepted accounting
principles as reflected in our consolidated financial statements, is not a
measure of financial performance under generally accepted accounting
principles, should not be considered in isolation or as a substitute for net
income or cash flows from operating activities and may not be comparable to
similar measures reported by other companies.
Nonoperating Expenses, Net
Non-related party interest expense decreased by $530, or 1.3%, from $42,212
in Fiscal 2000 to $41,682 in Fiscal 2001. This decrease was principally due to
a decreased average balance of debt outstanding during Fiscal 2001. The average
balance of debt outstanding, including capital lease obligations, was $445,403
and $441,619 for Fiscal 2000 and 2001, respectively, and the weighted average
interest rate on debt was 9.4% for each of the years ended September 30, 2000
and 2001.
Perpetual historically advanced cash to Allnewsco in the form of unsecured
demand notes bearing interest at a rate of 7.5%. Related party interest expense
incurred by Allnewsco associated with these notes, and reported in our
consolidated financial statements, was $3,891 and $4,064 during the years ended
September 30, 2000 and 2001, respectively. As we did not acquire or assume
amounts due from Allnewsco to Perpetual, such related party interest expense
incurred by Allnewsco will not be incurred by us subsequent to the acquisition
date of September 16, 2002.
Income Taxes
The provision for income taxes in Fiscal 2001 of $4,632 decreased by $5,937,
or 56.2%, when compared to the provision for income taxes of $10,569 in Fiscal
2000. The decrease was directly related to the $12,394, or 53.0%, decrease in
our income before income taxes as well as the one-time recognition of a tax
benefit of approximately $950 during Fiscal 2001 due to a court ruling that
enabled us to utilize previously unrecognized local net operating loss
carryforwards.
Because Perpetual has historically filed consolidated federal and Virginia
state income tax returns including the operating results of both the Company
and Allnewsco, certain tax benefits were realized by Perpetual associated with
Allnewsco's net operating losses in the consolidated tax returns. In accordance
with SFAS No. 109, the combined results of the Company and Allnewsco have been
adjusted to reflect the historical tax benefits which would have been recorded
for financial reporting purposes by the combined entity during each period
presented.
Net Income
Net income for Fiscal 2001 of $6,354 decreased $6,457, or 50.4%, when
compared to net income of $12,811 in Fiscal 2000. The decrease in net income
was attributable to the decline in operating results for Fiscal 2001 as
discussed above.
38
Liquidity and Capital Resources
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 affected on
a quarterly basis by the timing of cash collections and interest payments on
our debt. Cash receipts are usually much 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 debt are higher during the first and third fiscal
quarters and, following issuance of the additional notes and the redemption of
the 8 7/8% notes, will 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 flow
from operating activities for the full fiscal year.
As reported in our Consolidated Statements of Cash Flows, our net cash
provided by operating activities was $30,626, $25,156, $28,020 and $7,701 for
Fiscal 2000, 2001 and 2002 and the three months ended December 31, 2002,
respectively.
Distributions to Related Parties
We have periodically made advances in the form of distributions to
Perpetual. For Fiscal 2000 and 2001 and the three months ended December 31,
2002, we made cash advances net of repayments to Perpetual of $25,733, $23,580
and $9,211, respectively. During Fiscal 2002, we received net repayments of
distributions to owners of $48. The advances to Perpetual are non-interest
bearing and, as such, do not reflect market rates of interest-bearing loans to
unaffiliated third parties.
At present, the primary sources of repayment of 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.
On September 16, 2002, ACC completed its acquisition of certain of the
assets of Allnewsco, in exchange for $20,000 in cash and the cancellation of a
$20,000 note receivable from Allnewsco. See "--General Factors Affecting Our
Business." The cash portion of the purchase price paid to Allnewsco was
subsequently repaid to us from Perpetual in the form of a repayment of
distributions to owners.
During Fiscal 2000, 2001 and 2002, we were charged by Perpetual and made
payments to Perpetual for federal and state income taxes totaling $8,808,
$4,500 and $186, respectively. During the three months ended December 31, 2002,
ACC was charged by Perpetual for federal and state income taxes in the amount
of $722, and ACC made payments to Perpetual for such taxes of $2,378.
Additionally, because Perpetual has historically filed consolidated federal and
Virginia state income tax returns including the operating results of both the
Company and Allnewsco, certain tax benefits were realized by Perpetual
associated with Allnewsco's net operating losses in the consolidated tax
returns. In accordance with SFAS No. 109, the combined results of the Company
and Allnewsco have been adjusted to reflect the historical tax benefits which
would have been recorded for financial reporting purposes by the combined
entity during each period presented. The benefit recorded during Fiscal 2000,
2001 and 2002 was $2,681, $2,630 and $1,810, respectively. During Fiscal 2002,
our combined results reflect a combined benefit from federal income taxes of
$2,571. This benefit was effectively distributed to Perpetual as such benefit
will not be recognized in future years pursuant to the terms of the tax sharing
agreement between the companies.
39
Perpetual historically advanced cash to Allnewsco in the form of unsecured
demand notes bearing interest at a rate of 7.5%. Notes issued during Fiscal
2000, 2001 and 2002 amounted to $3,083, $2,493 and $3,895, respectively, with
no cash repayments during any of these years. Effective September 28, 2001,
Allnewsco authorized the issuance of 67,000 shares of common stock to Perpetual
in exchange for the reclassification of $46,291 and $20,709 from notes payable
and accrued interest payable, respectively. The reclassification resulted in an
increase in capital in excess of par value in our consolidated financial
statements. The notes payable from Allnewsco to Perpetual are included in
distributions to owners in our consolidated financial statements, conforming
the presentation of cash transactions between ACC, Allnewsco and Perpetual. As
we did not acquire or assume amounts due from Allnewsco to Perpetual, no amount
is outstanding from us under such notes at December 31, 2002.
During Fiscal 1991, we loaned $20,000 to Allnewsco. The $20,000, 11.06% note
receivable from Allnewsco was due in January 2008, with the principal balance
also due upon demand. Since our historical consolidated financial statements
have been restated to reflect the combined results of the Company and Allnewsco
as of the beginning of the earliest period presented, the loan amount as well
as the related interest income/expense have been eliminated as intercompany
transactions for all periods presented. At closing of the Allnewsco
transaction, we cancelled the $20,000 note as part of the consideration for the
acquisition.
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 the notes and our other debt, ACC will
make advances, distributions or dividends to related parties in the future.
Indebtedness
Our total debt, including the current portion of long-term debt, increased
from $440,443 at September 30, 2002 to $722,440 at December 31, 2002. This
debt, net of applicable discounts, consisted of $275,000 of 7 3/4% senior
subordinated notes due December 15, 2012; $274,429 of 9 3/4% senior
subordinated debentures due November 30, 2007; $150,000 of 8 7/8% senior
subordinated notes due February 1, 2008; $22,000 of draws under our senior
credit facility; and $1,011 of capital lease obligations. The increase of
$281,997 in total debt from September 30, 2002 to December 31, 2002 was
primarily due to the issuance of the initial notes on December 20, 2002 as well
as $7,136 in net draws under the senior credit facility. As of January 21,
2003, we had used the proceeds from the initial notes to purchase and redeem
all of the outstanding 9 3/4% debentures.
Effective March 27, 2001, we entered into an amended and restated revolving
credit facility, which is our senior credit facility, in the amount of $50,000,
and effective May 15, 2002, the senior credit facility was increased from
$50,000 to $70,000. The 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 which 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, 2002, we were in compliance with those financial
covenants. The senior credit
40
facility was amended as of December 6, 2002 to adjust certain of the financial
covenants for the remaining term of the facility. 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
0.50% to 0.75% per annum based on the amount of any unused portion of the
senior credit facility.
On December 20, 2002, we issued $275,000 principal amount of the initial
notes at par. As of January 21, 2003, we had used the net proceeds from the
offering, together with approximately $15,500 of borrowings under our senior
credit facility, to purchase and redeem all of our outstanding 9 3/4%
debentures as well as to pay the fees and expenses associated with the offering
of the initial notes. The issuance of the initial notes and the related
purchase and redemption of the 9 3/4% debentures will reduce our annual
payments of interest on our debt by approximately $5,000. We will record a
pre-tax loss of $14,307 as a result of the purchase and redemption of our
9 3/4% debentures during the quarter ending March 31, 2003.
On January 28, 2003, we entered into a purchase agreement pursuant to which
we agreed, subject to customary closing conditions, to issue an additional
$180,000 principal amount of our 7 3/4% notes at a price of 98.305%. While we
can provide no assurance that the offering of the additional notes will close,
we intend to use the proceeds to redeem our 8 7/8% notes, fund the redemption
premium for the 8 7/8% notes, pay the fees and expenses associated with the
offering of the additional notes and repay borrowings outstanding under our
senior credit facility. If we close the offering of the additional notes
resulting in the redemption of the 8 7/8% notes, we will incur a pre-tax loss
of approximately $9,000 during the quarter ending March 31, 2003.
As of December 31, 2002, as adjusted to reflect (1) the purchase and
redemption of our 9 3/4% debentures with the proceeds from the sale of the
initial notes and borrowings under our senior credit facility and (2) the
issuance of the additional notes and the use of proceeds from their sale to
redeem our outstanding 8 7/8% notes and repay borrowings under our senior
credit facility, we would have had $474,435 (net of unamortized discount) of
debt outstanding.
Other Uses of Cash
During Fiscal 2000, 2001 and 2002 and the three months ended December 31,
2002, we made $5,167, $6,560, $26,332 and $1,422, respectively, of capital
expenditures, of which $750 and $24 were financed through capital lease
transactions during Fiscal 2001 and 2002, respectively. The increased level of
capital expenditures during Fiscal 2002 related primarily to the buildout of
studio and office space and acquisition of technical equipment for
WJLA/NewsChannel 8. At this time, we estimate that capital expenditures for
Fiscal 2003 will approximate $10,000 and will primarily be for the
implementation of DTV service in our remaining markets 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.
We regularly enter into program contracts for the right to broadcast
television programs produced by others and program commitments for the right to
broadcast programs in the future. Such programming commitments are generally
made to replace expiring or canceled program rights. During Fiscal 2000, 2001
and 2002 and the three months ended December 31, 2002, we made cash payments of
approximately $20,500, $24,000, $22,100 and $4,400, respectively, for rights to
television programs. The fluctuations in cash payments between the three years
is primarily due to the timing of cash payments. We anticipate cash payments
for program rights will approximate $21,000 per year or less for the next
several years. We currently intend to fund these commitments with cash provided
by operations.
41
We completed our acquisition of WJSU on March 22, 2000. See "Our
Business--Owned Stations--WBMA/WCFT/WJSU: Birmingham (Anniston and Tuscaloosa),
Alabama." We funded the purchase price of $3,372 with cash provided by
operations.
The following table presents the long-term debt maturities, required
payments under contractual agreements for broadcast rights, future minimum
lease payments under noncancellable leases and guaranteed payments under
employment contracts and deferred compensation agreements as of September 30,
2002:
Fiscal Year Ending September 30,
--------------------------------------
2003 2004 2005 2006 2007 Thereafter Total
------- ------- ------- ------- ------ ---------- --------
Long-term debt.......... $ -- $ -- $ -- $14,864 $ -- $425,000 $439,864
Programming contracts --
currently available... 22,993 1,327 425 134 -- -- 24,879
Programming contracts --
future commitments.... 3,361 19,918 13,139 3,021 104 -- 39,543
Operating leases........ 3,595 3,542 3,444 3,465 2,791 30,129 46,966
Capital leases.......... 638 268 180 180 30 -- 1,296
Employment contracts.... 6,775 980 300 212 -- -- 8,267
Deferred compensation... -- -- 219 369 369 1,110 2,067
------- ------- ------- ------- ------ -------- --------
Total................ $37,362 $26,035 $17,707 $22,245 $3,294 $456,239 $562,882
======= ======= ======= ======= ====== ======== ========
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.
ACC's cash flow from operations and consequent ability to service its debt
is, in part, dependent upon the earnings of its subsidiaries and the
distribution (through dividends or otherwise) of those earnings to ACC, or upon
loans, advances or other payments of funds by those subsidiaries to ACC. As of
December 31, 2002, 33% of the assets of ACC were held by operating subsidiaries
and for Fiscal 2002 and the three months ended December 31, 2002, approximately
50% of ACC's net operating revenues were derived from the operations of ACC's
subsidiaries.
Income Taxes
Our operations are included in a consolidated federal income tax return
filed by Perpetual. In accordance with the terms of a tax sharing agreement
between ACC and Perpetual, we are required to pay to Perpetual our federal
income tax liability, computed based upon statutory federal income tax rates
applied to our consolidated taxable income. We file separate state income tax
returns with the exception of Virginia, which is included in a combined state
income tax return filed by Perpetual. In accordance with the terms of the tax
sharing agreement, we are required to pay to Perpetual our combined Virginia
income tax liability, computed based upon statutory Virginia income tax rates
applied to our combined Virginia net taxable income. Taxes payable to Perpetual
are not reduced by losses generated in prior years by us. In addition, the
amounts payable by us to Perpetual under the tax sharing agreement are not
reduced if losses of other members of the Perpetual group are utilized to
offset our taxable income for purposes of the Perpetual consolidated federal or
Virginia state income tax returns.
The provision for income taxes is determined in accordance with SFAS No.
109, which requires that the consolidated amount of current and deferred income
tax expense for a group that files a consolidated income tax return be
allocated among members of the group when those members issue separate
financial statements. Perpetual allocates a portion of its
42
consolidated current and deferred income tax expense to us as if we and our
subsidiaries were separate taxpayers. We record deferred tax assets, to the
extent it is considered more likely than not that such assets will be realized
in future periods, and deferred tax liabilities for the tax effects of the
differences between the bases of our assets and liabilities for tax and
financial reporting purposes. To the extent a deferred tax asset would be
recorded due to the incurrence of losses for federal or Virginia state income
tax purposes, any such benefit recognized is effectively distributed to
Perpetual as such benefit will not be recognized in future years pursuant to
the tax sharing agreement.
Inflation
The impact of inflation on our consolidated financial condition and
consolidated results of operations for each of the periods presented was not
material.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires us to make
judgments and estimations that affect the amounts reported in our consolidated
financial statements and accompanying notes. We base our estimates on
historical experience and assumptions we consider reasonable at the time of
making those estimates. We evaluate our estimates on an on-going basis. Actual
results may differ from these estimates under different circumstances or using
different assumptions. We consider the following accounting policies to be
critical to our business operations and the understanding of our financial
condition and results of operations.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If the
economy and/or the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make their payments, additional
allowances may be required.
Intangible Assets
Intangible assets consist of values assigned to broadcast licenses as well
as favorable terms on contracts and leases. The amounts assigned to intangible
assets were based on the results of independent valuations. Definite lived
intangible assets are being amortized on a straight-line basis over their
estimated useful lives. We assess the recoverability of definite lived
intangible assets on an ongoing basis by evaluating whether amounts can be
recovered through undiscounted cash flows over the remaining amortization
period. We assess the recoverability of indefinite lived intangible assets
through periodic impairment tests. Intangible assets, net of accumulated
amortization, were $132,408, $128,150 and $123,108 as of September 30, 2001 and
2002 and December 31, 2002, respectively.
SFAS No. 142, "Goodwill and Other Intangible Assets," was issued in June
2001. SFAS No. 142 addresses the financial accounting and reporting for
acquired goodwill and other intangible assets. Under the new rules, goodwill
and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to periodic impairment tests. Other intangible
assets will continue to be amortized over their useful lives. We adopted SFAS
No. 142 effective October 1, 2002. 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
43
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.
The performance of impairment tests under SFAS No. 142 requires significant
management judgement. Future events affecting cash flows and market conditions
could result in an impairment loss. Any resulting impairment loss could have a
material adverse impact on our financial position and results of operations.
Income Taxes
We recognize deferred tax assets and liabilities based on the differences
between the financial statement carrying amounts and the tax bases of assets
and liabilities. We regularly review our deferred tax assets for recoverability
and establish a valuation allowance based on historical taxable income,
projected future taxable income and the expected timing of the reversals of
existing temporary differences. If we are unable to generate sufficient taxable
income, or if there is a material change in the actual effective tax rates or
time period within which the underlying temporary differences become taxable or
deductible, we could be required to establish a valuation allowance against all
or a significant portion of our deferred tax assets resulting in a substantial
increase in our effective tax rate and an adverse impact on our operating
results.
New Accounting Standards
SFAS No. 142, "Goodwill and Other Intangible Assets," was issued in June
2001. SFAS No. 142 addresses the financial accounting and reporting for
acquired goodwill and other intangible assets. See "--Critical Accounting
Policies and Estimates--Intangible Assets."
SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections," was issued in April 2002 and
primarily eliminates the requirement that gains or losses associated with early
debt extinguishments be accounted for as extraordinary items. SFAS No. 145 will
likely require any future gains or losses associated with early extinguishments
of debt to be recorded as a component of income from continuing operations
rather than as an extraordinary item. This standard is effective for our fiscal
year ending September 30, 2003. As a result of the purchase and redemption of
our 9 3/4% debentures in January 2003, we will record a pre-tax loss of $14,307
during the quarter ending March 31, 2003. Additionally, if we close the
offering of the additional notes resulting in the redemption of our 8 7/8%
notes, we will incur a pre-tax loss of approximately $9,000 during the quarter
ending March 31, 2003. These losses will be reflected as a component of income
from continuing operations rather than net of tax as an extraordinary item. The
other provisions of SFAS No. 145 are not expected to have a material effect on
our financial position or results of operations.
SFAS No. 143, "Accounting for Asset Retirement Obligations," was issued in
June 2001 to address diversity in practice for recognizing obligations
associated with the retirement of tangible long-lived assets. SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-
44
Lived Assets," was issued in August 2001 to establish a single accounting model
for long-lived assets to be disposed of by sale and to address issues
surrounding the impairment of long-lived assets. SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities," was issued in June 2002 to
address financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity." These standards are effective for our fiscal year
ending September 30, 2003 and their adoption will not have a material impact on
our financial position or results of operations.
Quantitative and Qualitative Disclosures about Market Risk
At December 31, 2002, we had other financial instruments consisting
primarily of long-term fixed interest rate debt. Such debt, excluding the
9 3/4% debentures which were fully redeemed as of January 21, 2003, with future
principal payments of $425,000, matures February 1, 2008 ($150,000) and
December 15, 2012 ($275,000). At December 31, 2002, the carrying value of such
debt was $425,000, the fair value was $430,750 and the weighted average
interest rate was 8.15%. 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 using
either quoted market prices or by discounting the required future cash flows
under our debt using borrowing rates currently available to us, as applicable.
We actively monitor the capital markets in analyzing our capital raising
decisions. On January 28, 2003, we entered into a purchase agreement pursuant
to which we agreed, subject to customary closing conditions, to issue the
additional notes at a price of 98.305%. We intend to use the proceeds to redeem
our 8 7/8% notes and fund the redemption premium for the 8 7/8% notes.
45
TELEVISION INDUSTRY BACKGROUND
Commercial television broadcasting began in the United States on a regular
basis in the 1940s. Currently, there is a limited number of channels available
for broadcasting in any one geographic area, and the license to operate a
broadcast television station is granted by the FCC. Television stations that
broadcast over the VHF band (channels 2-13) of the spectrum generally have some
competitive advantage over television stations that broadcast over the UHF band
(channels 14-69) of the spectrum because VHF channels usually have better
signal coverage and operate at a lower transmission cost. However, the
improvement of UHF transmitters and receivers, the complete elimination from
the marketplace of VHF-only receivers and the expansion of cable television
systems have reduced the competitive advantage of television stations
broadcasting over the VHF band.
Television station revenues are primarily derived from local, regional and
national advertisers and, to a much lesser extent, from networks and program
syndicators for the broadcast of programming and from other broadcast-related
activities. Advertising rates are set based upon a variety of factors,
including the size and demographic makeup of the market served by the station,
a program's popularity among viewers whom an advertiser wishes to attract, the
number of advertisers competing for the available time, the availability of
alternative advertising media in the market area, a station's overall ability
to attract viewers in its market area and the station's ability to attract
viewers among particular demographic groups that an advertiser may be
targeting. Advertising rates are also affected by an aggressive and
knowledgeable sales force and the development of projects, features and
programs that tie advertiser messages to programming. Because broadcast
television stations rely on advertising revenues, they are sensitive to
cyclical changes in the economy. The size of advertisers' budgets, which are
affected by broad economic trends, affect both the broadcast industry in
general and the revenues of individual broadcast television stations.
United States television stations are grouped by Nielsen into 210 generally
recognized television market areas that are ranked in size according to various
formulae based upon actual or potential audience. Each market area is
designated as an exclusive geographic area consisting of all counties in which
the home-market commercial stations receive the greatest percentage of total
viewing hours. The specific geographic markets are called Designated Market
Areas, or DMAs.
Nielsen, which provides audience-measuring services, periodically publishes
data on estimated audiences for television stations in the various DMAs
throughout the country. These estimates are expressed in terms of both the
percentage of the total potential audience in the DMA viewing a station (the
station's "rating") and the percentage of the audience actually watching
television (the station's "share"). Nielsen provides such data on the basis of
total television households and selected demographic groupings in the DMA.
Nielsen uses two methods of determining a station's ratings and share. In
larger DMAs, ratings are determined by a combination of meters connected
directly to selected household television sets and weekly viewer-completed
diaries of television viewing, while in smaller markets ratings are determined
by weekly diaries only. Of the market areas in which we conduct business,
Washington, D.C. and Birmingham, Alabama are metered markets while the
remaining markets are weekly diary markets.
Historically, three major broadcast networks--ABC, NBC and CBS--dominated
broadcast television. In recent years, FOX has evolved into the fourth major
network, although the hours of network programming produced by FOX for its
affiliates are fewer than those produced by the other three major networks. In
addition, UPN, WB and recently PAX TV have been launched
46
as new broadcast television networks, along with specialized networks,
Telemundo, Univision and TV Azteca.
The affiliation by a station with one of the four major networks has a
significant impact on the composition of the station's programming, revenues,
expenses and operations. A typical affiliate station receives approximately 9
to 13 hours of each day's programming from the network. This programming, along
with cash payments ("network compensation"), is provided to the affiliate by
the network in exchange for a substantial majority of the advertising time sold
during the airing of network programs. The network then sells this advertising
time for its own account. The affiliate retains the revenues from time sold
during breaks in and between network programs and during programs produced by
the affiliate or purchased from non-network sources. In acquiring programming
to supplement network programming, network affiliates compete primarily with
affiliates of other networks and independent stations in their market areas.
Cable systems generally do not compete with local stations for programming,
although various national cable networks from time to time have acquired
programs that would have otherwise been offered to local television stations.
In addition, a television station may acquire programming through barter
arrangements. Under barter arrangements, which have become increasingly popular
with both network affiliates and independents, a national program distributor
can receive advertising time in exchange for the programming it supplies, with
the station paying no fee or a reduced fee for such programming.
An affiliate of UPN, WB or PAX TV receives a smaller portion of each day's
programming from its network compared to an affiliate of ABC, CBS, NBC or FOX.
As a result, affiliates of UPN, WB or PAX TV must purchase or produce a greater
amount of their programming, resulting in generally higher programming costs.
These stations, however, retain a larger portion of the inventory of
advertising time and the revenues obtained therefrom compared to stations
affiliated with the major networks, which may partially offset their higher
programming costs.
In contrast to a network affiliated station, an independent station
purchases or produces all of the programming that it broadcasts, generally
resulting in higher programming costs, although the independent station is, in
theory, able to retain its entire inventory of advertising time and all of the
revenue obtained from the sale of such time. Barter and cash-plus-barter
arrangements, however, have become increasingly popular among all stations.
Public broadcasting outlets in most communities compete with commercial
broadcasters for viewers but not for advertising dollars.
Broadcast television stations compete for advertising revenues primarily
with other broadcast television stations and, to a lesser extent, with radio
stations, cable system operators and programmers and newspapers serving the
same market. Traditional network programming, and recently FOX programming,
generally achieve higher audience levels than syndicated programs aired by
independent stations. However, as greater amounts of advertising time become
available for sale by independent stations and FOX affiliates in syndicated
programs, those stations typically achieve a share of the television market
advertising revenues greater than their share of the market area's audience.
Consolidation of cable system ownership in discrete markets (so-called
"clustering") has enabled some cable operators to more efficiently sell time to
local advertisers.
Through the 1970s, network television broadcasting enjoyed virtual dominance
in viewership and television advertising revenues because network-affiliated
stations only competed with each other in local markets. Beginning in the
1980s, this level of dominance
47
began to change as the FCC authorized more local stations and marketplace
choices expanded with the growth of independent stations and cable television
services.
Cable television systems were first constructed in significant numbers in
the 1970s and were initially used to retransmit broadcast television
programming to paying subscribers in areas with poor broadcast signal
reception. In the aggregate, cable-originated programming has emerged as a
significant competitor for viewers of broadcast television programming,
although no single cable programming network regularly attains audience levels
amounting to more than a small fraction of any of the major broadcast networks.
The advertising share of cable networks increased during the 1970s and 1980s as
a result of the growth in cable penetration (the percentage of television
households that are connected to a cable system). Notwithstanding such
increases in cable viewership and advertising, over-the-air broadcasting
remains the dominant distribution system for mass market television advertising.
Direct broadcast satellite service has recently been introduced as a new
competitive distribution method. Home users purchase or lease satellite dish
receiving equipment and subscribe to a monthly service of programming options.
Legislation was enacted in November 1999 that permits local stations, under
specified conditions, to be carried on satellite which will retransmit those
signals back to the originating market. As DBS providers expand their
facilities, an increasing number of local stations will be carried as
"local-to-local" signals, aided by a legal requirement that mandates the
carriage of all local broadcast signals if one is retransmitted. Of our
stations, WJLA, WHTM, WBMA/WCFT/WJSU and KTUL are currently carried on DBS
systems, transmitting to the Washington, D.C., Harrisburg, Birmingham and Tulsa
markets, respectively.
We believe that the market shares of television stations affiliated with
ABC, NBC and CBS declined during the 1980s and 1990s because of the emergence
of FOX and certain strong independent stations and because of increased cable
penetration. Independent stations have emerged as viable competitors for
television viewership share, particularly as a result of the availability of
first-run, network-quality and regional sports programming. In addition, there
has been substantial growth in the number of home satellite dish receivers and
video cassette recorders, which has further expanded the number of programming
alternatives available to household audiences.
Terrestrially-distributed television broadcast stations use analog
transmission technology. Recent advances in digital transmission technology
formats have enabled some broadcasters to begin migration from analog to
digital broadcasting. Digital technologies provide cleaner video and audio
signals as well as the ability to transmit "high definition television" with
theatre screen aspect ratios, higher resolution video and "noise-free" sound.
Digital transmission also permits dividing the transmission frequency into
multiple discrete channels of standard definition television. The FCC has
authorized a transition plan to convert existing analog stations to digital by
temporarily offering a second channel to transmit programming digitally with
the return of the analog channel after the transition period. See "Our
Business--Legislation and Regulation--Digital Television." Of our stations,
only WJLA in Washington, D.C. broadcasts with both an analog and digital signal
at this time.
48
OUR BUSINESS
We own and operate ABC network-affiliated television stations serving seven
geographic markets: WJLA in Washington, D.C.; WCFT in Tuscaloosa, Alabama, WJSU
in Anniston, Alabama and WBMA-LP, a low power television station licensed to
Birmingham, Alabama (we operate WCFT and WJSU in tandem with WBMA-LP serving
the viewers of the Birmingham, Tuscaloosa and Anniston market as a single
programming source); WHTM in Harrisburg, Pennsylvania; KATV in Little Rock,
Arkansas; KTUL in Tulsa, Oklahoma; WSET in Lynchburg, Virginia; and WCIV in
Charleston, South Carolina. Our stations broadcast to the 8th, 40th, 47th,
56th, 60th, 67th and 105th largest national media markets in the United States,
respectively, as defined by Nielsen Media Research, Inc., and reach
approximately 4.9% of United States television households. We also own
NewsChannel 8, which provides 24-hour per day basic cable television
programming primarily focused on regional and local news for the Washington,
D.C. metropolitan area. The operations of NewsChannel 8 have been integrated
with WJLA.
Station Information
The following table sets forth general information for each of our owned
stations as of November 2002:
Market Total
Rank Commercial Rank
Analog Digital or Competitors Station in
Network Channel Channel DMA in Market Audience Market Acquisition
Designated Market Area Station Affiliation Frequency Allocation (1) (2) Share (3) (4) Date
- ---------------------- -------------- ----------- --------- ---------- ------ ----------- --------- ------ -----------
Washington, D.C....... WJLA ABC 7/VHF 39 8 6 21% 2 01/29/76
Birmingham
(Anniston and
Tuscaloosa),
AL (5)............... WBMA/WCFT/WJSU ABC -- -- 40 7 22% 2 --
Birmingham.......... WBMA ABC 58/UHF -- -- -- -- -- 08/01/97
Anniston............ WJSU ABC 40/UHF 58 -- -- -- -- 03/22/00(6)
Tuscaloosa.......... WCFT ABC 33/UHF 5 -- -- -- -- 03/15/96
Harrisburg-Lancaster-
York-Lebanon, PA..... WHTM ABC 27/UHF 10 47 4 25% 2 03/01/96
Little Rock, AR....... KATV ABC 7/VHF 22 56 5 31% 1 04/06/83
Tulsa, OK............. KTUL ABC 8/VHF 10 60 6 33% 2 04/06/83
Roanoke-Lynchburg, WSET ABC 13/VHF 34 67 4 27% 2 01/29/76(7)
VA...................
Charleston, SC........ WCIV ABC 4/VHF 34 105 5 16% 3 01/29/76(7)
- --------
(1) Represents market rank based on the Nielsen Station Index for November 2002.
(2) Represents the total number of commercial broadcast television stations in
the DMA with an audience share of at least 1% in the 6:00 a.m. to 2:00
a.m., Sunday through Saturday, time period.
(3) Represents the station's share of total viewing of commercial broadcast
television stations in the DMA for the time period of 6:00 a.m. to 2:00
a.m., Sunday through Saturday.
(4) Represents the station's rank in the DMA based on its share of total
viewing of commercial broadcast television stations in the DMA for the time
period of 6:00 a.m. to 2:00 a.m., Sunday through Saturday.
(5) TV Alabama serves the Birmingham market by simultaneously broadcasting
identical programming over WBMA, WCFT and WJSU. The stations are listed on
a combined basis by Nielsen as WBMA+, the call sign of the low power
television station.
(6) We began programming WJSU pursuant to a local marketing agreement in
December 1995. In connection with the local marketing agreement, we entered
into an option to purchase the assets of WJSU. We exercised our option to
acquire WJSU and completed our acquisition of WJSU on March 22, 2000. See
"Owned Stations--WBMA/WCFT/WJSU: Birmingham (Anniston and Tuscaloosa),
Alabama."
(7) WSET and WCIV have been indirectly owned and operated by Joe L. Allbritton
since 1976. On March 1, 1996, WSET and WCIV became wholly-owned
subsidiaries of ACC.
49
Business and Operating Strategy
Our business strategy is to focus on building net operating revenues and net
cash provided by operating activities. We intend to pursue selective
acquisition opportunities as they arise. Our acquisition strategy is to target
network-affiliated television stations where we believe we can successfully
apply our operating strategy and where such stations can be acquired on
attractive terms. Targets include stations in midsized growth markets with what
we believe to be advantageous business climates. Although we continue to review
strategic investment and acquisition opportunities, no agreements or
understandings are currently in place regarding any material investments or
acquisitions.
In addition, we constantly seek to enhance net operating revenues at a
marginal incremental cost through our use of existing personnel and programming
capabilities. For example, KATV operates the Arkansas Razorback Sports Network,
which provides University of Arkansas sports programming to a network of 69
radio stations in six states. Certain broadcast television, cable pay-per-view
and home video rights are also controlled by ARSN.
On September 16, 2002, ACC completed its acquisition of certain of the
assets of Allnewsco, constituting the operations of NewsChannel 8, which
provides 24-hour per day basic cable television programming primarily focused
on regional and local news for the Washington, D.C. metropolitan area. The
operations of NewsChannel 8 have been integrated with those of WJLA in a new
studio and office facility, creating the first newsgathering duopoly in the
Nation's Capital. The combination of these two operations will allow for
certain operational efficiencies, primarily in the areas of newsgathering,
administration, finance, operations, promotions and human resources. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - General Factors Affecting Our Business."
Our operating strategy focuses on four key elements:
Local News and Community Leadership. Our stations strive to be local news
leaders to exploit the revenue potential associated with local news leadership.
Since the acquisition of each station, we have focused on building that
station's local news programming franchise as the foundation for building
significant audience share. In each of our market areas, we develop additional
information-oriented programming designed to expand the stations' hours of
commercially valuable local news and other programming with relatively small
incremental increases in operating expenses. Local news programming is
commercially valuable because of its high viewership level, the attractiveness
to advertisers of the demographic characteristics of the typical news audience
(allowing stations to charge higher rates for advertising time) and the
enhanced ratings of other programming in time periods adjacent to the news. In
addition, we believe strong local news product has helped differentiate local
broadcast stations from the increasing number of cable programming competitors
that generally do not provide this material.
High Quality Non-Network Programming. Our stations are committed to
attracting viewers through an array of syndicated and locally-produced
programming to fill those periods of the broadcast day not programmed by the
network. This programming is selected by us based on its ability to attract
audiences highly valued in terms of demographic makeup on a cost-effective
basis and reflects a focused strategy to migrate and hold audiences from
program to program throughout dayparts. Audiences highly valued in terms of
demographic makeup include women aged 18-49 and all adults aged 25-54. These
demographic groups are perceived by advertisers as the groups with the majority
of buying authority and decision-making in product selection.
50
Local Sales Development Efforts. We believe that television stations with a
strong local presence and active community relations can realize additional
revenue from advertisers through the development and promotion of special
programming and marketing events. Each of our stations has developed such
additional products, including high quality programming of local interest (such
as University of Arkansas football and basketball games) and sponsored
community events. These sponsored events have included health fairs, contests,
job fairs, parades and athletic events and have provided advertisers, who are
offered participation in such events, an opportunity to direct a marketing
program to targeted audiences. These additional products have proven successful
in attracting incremental advertising revenues. The stations also seek to
maximize their local sales efforts through the use of extensive research and
targeted demographic studies.
Cost Control. We believe that controlling costs is an essential factor in
achieving and maintaining the profitability of our stations. We believe that by
delivering highly targeted audience levels and controlling programming and
operating costs, our stations can achieve increased levels of revenue and
operating cash flow. Each station rigorously manages its expenses through a
budgetary control process and project accounting, which include an analysis of
revenue and programming costs by daypart. Moreover, each of the stations
closely monitors its staffing levels.
Owned Stations
WJLA: Washington, D.C.
Acquired by ACC in 1976, WJLA is an ABC network affiliate pursuant to an
affiliation agreement that expires on October 1, 2005. The station's FCC
license expires on October 1, 2004. Washington, D.C. is the eighth largest DMA,
with approximately 2,169,000 television households. We believe that stations in
this market generally earn higher advertising rates than stations in smaller
markets because many national advertising campaigns concentrate their spending
in the top ten media markets and on issue-oriented advertising in Washington,
D.C. The Washington, D.C. market is served by six commercial television
stations.
On September 16, 2002, ACC completed its acquisition of certain of the
assets of Allnewsco, constituting the operations of NewsChannel 8, which
provides 24-hour per day basic cable television programming primarily focused
on regional and local news for the Washington, D.C. metropolitan area. The
operations of NewsChannel 8 have been integrated with those of WJLA in a new
studio and office facility, creating the first newsgathering duopoly in the
Nation's Capital. The combination of these two operations will allow for
certain operational efficiencies, primarily in the areas of newsgathering,
administration, finance, operations, promotions and human resources. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General Factors Affecting Our Business."
WBMA/WCFT/WJSU: Birmingham (Anniston and Tuscaloosa), Alabama
We acquired WCFT in March 1996 and commenced programming WJSU, licensed to
Anniston (Birmingham), Alabama, under a ten-year Time Brokerage Agreement
(referred to herein as the Anniston LMA) effective December 29, 1995. Under the
Anniston LMA, we supplied program services to WJSU and retained all revenues
from advertising sales. In exchange, we paid all station operating expenses and
certain management fees to the station's owner. In connection with the Anniston
LMA, we entered into an option to purchase the assets of WJSU. We exercised our
option to acquire WJSU on September 14, 1999 and completed the acquisition on
March 22, 2000. We also own a low power television station licensed to
Birmingham, Alabama (WBMA). In October 1998, Nielsen collapsed the Tuscaloosa
DMA and
51
the Anniston DMA into the Birmingham DMA creating the 40th largest DMA with
approximately 690,000 television households. The Birmingham DMA is served by
seven commercial television stations.
We serve the Birmingham market by simultaneously transmitting identical
programming from our studio in Birmingham over WCFT, WJSU and WBMA. The
stations are listed on a combined basis by Nielsen as WBMA+. TV Alabama
maintains studio facilities in Birmingham for the operation of the stations. We
have retained a news and sales presence in both Tuscaloosa and Anniston, while
at the same time maintaining our primary news and sales presence in Birmingham.
The ABC network affiliation is based upon carriage on both WCFT and WJSU and
expires on September 1, 2006. The FCC licenses for the three stations expire on
April 1, 2005.
WHTM: Harrisburg-Lancaster-York-Lebanon, Pennsylvania
Acquired by us in 1996, WHTM is an ABC network affiliate pursuant to an
affiliation agreement that expires on January 1, 2005. The station's FCC
license expires August 1, 2007. The Harrisburg-Lancaster-York-Lebanon market,
which consists of nine contiguous counties located in central Pennsylvania, is
the 47th largest DMA, reaching approximately 627,000 television households.
Harrisburg is the capital of Pennsylvania, and the government represents the
area's largest employer. The Harrisburg market is served by four commercial
television stations, one of which is a VHF station.
KATV: Little Rock, Arkansas
Acquired by us in 1983, KATV is an ABC network affiliate pursuant to an
affiliation agreement that expires on July 31, 2005. The station's FCC license
expires on June 1, 2005. The Little Rock market is the 56th largest DMA, with
approximately 524,000 television households. The Little Rock market has a
diversified economy, both serving as the seat of state and local government and
home to commercial businesses. The Little Rock market is served by five
commercial television stations.
Capitalizing on its exclusive rights to the University of Arkansas
basketball and football schedules through the year 2005, KATV launched ARSN in
Fiscal 1994 by entering into programming sublicense agreements with a network
of 69 radio stations in six states. Certain broadcast television, cable
pay-per-view and home video rights are also controlled by ARSN.
KTUL: Tulsa, Oklahoma
Acquired by us in 1983, KTUL is an ABC network affiliate pursuant to an
affiliation agreement that expires on July 31, 2005. The station's FCC license
expires on June 1, 2006. Tulsa, Oklahoma is the 60th largest DMA, with
approximately 497,000 television households. The Tulsa market is served by six
commercial television stations.
WSET: Roanoke-Lynchburg, Virginia
Acquired by us in 1996, WSET has been indirectly owned and operated by Joe
L. Allbritton since 1976. The station is an ABC network affiliate pursuant to
an affiliation agreement that expires on July 31, 2005. WSET's FCC license
expires on October 1, 2004. The hyphenated central Virginia market comprised of
Lynchburg, Roanoke and Danville is the 67th largest DMA, with approximately
445,000 television households. The Lynchburg DMA is served by four commercial
television stations.
52
WCIV: Charleston, South Carolina
Acquired by us in 1996, WCIV has been indirectly owned and operated by Joe
L. Allbritton since 1976. The station is an ABC affiliate pursuant to an
affiliation agreement that expires on August 20, 2006. WCIV's FCC license
expires on December 1, 2004. Charleston, South Carolina is the 105th largest
DMA, with approximately 263,000 television households. The Charleston DMA is
served by five commercial television stations.
Network Affiliation Agreements and Relationship
Each of our stations is an ABC affiliate with affiliation agreement
expiration dates as follows:
WHTM January 1, 2005
KATV July 31, 2005
KTUL July 31, 2005
WSET July 31, 2005
WJLA October 1, 2005
WCIV August 20, 2006
WBMA/WCFT/WJSU September 1, 2006
ABC has routinely renewed the affiliation agreements with stations; however,
we cannot assure you that these affiliation agreements will be renewed in the
future or under the same general terms. As one of the largest group owners of
ABC network affiliates in the nation, we believe that we enjoy excellent
relations with the ABC network.
Generally, each affiliation agreement provides our stations with the right
to broadcast programs transmitted by the network that includes designated
advertising time the revenue from which the network retains. For every hour or
fraction thereof that the station elects to broadcast network programming, the
network pays the station compensation, as specified in each affiliation
agreement, or as agreed upon by the network and the stations. Typically,
prime-time programming generates the highest hourly rates. Under specified
conditions, rates are subject to increase or decrease by the network during the
term of each affiliation agreement, with provisions for advance notice and
right of termination on behalf of the station in the event of a reduction in
rates.
Effective August 11, 1999, our network affiliation agreements with ABC were
amended. Under the amendments, ABC, for a three-year period, provided our
stations with additional prime-time inventory, limited participation rights in
a new cable television "soap" channel, and enhanced program exclusivity and
commercial inventory guarantees in exchange for reduced annual network
compensation, the return of certain Saturday morning inventory from the
stations, and more flexibility in repurposing of ABC programming. Upon the
expiration of this agreement, compensation rates and inventory allocations
reverted to their pre-modification levels. We routinely consult with the
network in relation to the levels of program clearances, preemptions,
compensation and inventory availabilities.
Competition
Competition in the television industry, including each of the market areas
in which our stations compete, takes place on several levels: competition for
audience, competition for programming (including news) and competition for
advertisers. Additional factors material to a television station's competitive
position include signal coverage and assigned frequency. The television
broadcasting industry is continually faced with technological change and
innovation,
53
the possible rise or fall in popularity of competing entertainment and
communications media and actions of federal regulatory bodies, including the
FCC, any of which could possibly have a material adverse effect on our
operations.
Audience: Stations compete for audience on the basis of program popularity,
which has a direct effect on advertising rates. A substantial portion of our
daily programming at our stations is supplied by ABC. In those periods, the
stations are totally dependent upon the performance of the ABC network programs
in attracting viewers. Non-network time periods are programmed by the station
with a combination of self-produced news, public affairs and entertainment
programming, including news and syndicated programs purchased for cash, cash
and barter or barter-only. Independent stations, the number of which has
increased significantly over the past decade, have also emerged as viable
competitors for television viewership share, particularly as the result of the
availability of first-run network-quality programming from FOX.
The development of methods of television transmission other than
over-the-air broadcasting and, in particular, the growth of cable television
has significantly altered competition for audience share in the television
industry. These alternative transmission methods can increase competition for a
broadcasting station both by bringing into its market area distant broadcasting
signals not otherwise available to the station's audience and by serving as a
distribution system for programming originated on the cable system. Although
historically cable operators have not sought to compete with broadcast stations
for a share of the local news audience, cable operators have made recent
inroads to this market as well, particularly in the area of local sports
channels. Increased competition for local audiences could have an adverse
effect on our advertising revenues.
Other sources of competition include home entertainment systems (including
video cassette recorder and playback systems, videodiscs and television game
devices), multipoint distribution systems, multichannel multipoint distribution
systems, wireless cable, satellite master antenna television systems and some
low-power services. Our television stations also face competition from
high-powered direct broadcast satellite services, such as DirecTV and Echostar,
which transmit programming directly to homes equipped with special receiving
antennas. Local broadcast stations themselves may now use excess capacity in
their digital television allocation to "multicast" discrete program offerings
within the base channel.
Further advances in technology may increase competition for household
audiences and advertisers. Video compression techniques, now under development
for use with current cable channels, internet-relayed video and direct
broadcast satellites, are expected to reduce the bandwidth required for
television signal transmission. These compression techniques, as well as other
technological developments, are applicable to all video delivery systems,
including over-the-air broadcasting, and have the potential to provide vastly
expanded programming to highly targeted audiences. Reduction in the cost of
creating additional channel capacity could lower entry barriers for new
channels and encourage the development of increasingly specialized niche
programming. This ability to reach very defined audiences is expected to alter
the competitive dynamics for advertising expenditures. We are unable to predict
the effect that technological changes will have on the broadcast television
industry or the future results of our operations.
Programming: Competition for programming involves negotiating with national
program distributors or syndicators which sell first-run and rerun packages of
programming. Our stations compete against in-market broadcast station
competitors for off-network reruns (such as "Frasier") and first-run products
(such as "The Oprah Winfrey Show") for exclusive access to those programs.
Cable systems generally do not compete with local stations for programming;
54
however, local cable operators are increasingly consolidating ownership of
systems within various markets, enabling them to bid on local sports
programming in competition with traditional broadcasters. In addition, various
national cable networks from time to time have acquired programs that would
have otherwise been offered to local television stations. Competition for
exclusive news stories and features is also endemic to the television industry.
Advertising: Advertising rates are set based upon a variety of factors,
including the size and demographic makeup of the market served by the station,
a program's popularity among viewers whom an advertiser wishes to attract, the
number of advertisers competing for the available time, the availability of
alternative advertising media in the market area, a station's overall ability
to attract viewers in its market area and the station's ability to attract
viewers among particular demographic groups that an advertiser may be
targeting. Advertising rates are also affected by an aggressive and
knowledgeable sales force and the development of projects, features and
programs that tie advertiser messages to programming. Our television stations
compete for local and national advertising revenues with other television
stations in their respective markets as well as with other advertising media,
such as newspapers, radio, magazines, outdoor advertising, transit advertising,
yellow page directories, direct mail and local cable systems. Competition for
advertising dollars in the broadcasting industry occurs primarily in individual
market areas. Generally, a television broadcasting station in the market does
not compete with stations in other market areas. Our television stations are
located in highly competitive market areas.
Legislation and Regulation
The ownership, operation and sale of television stations are subject to the
jurisdiction of the FCC under the Communications Act of 1934 (the
"Communications Act"). Matters subject to FCC oversight include the assignment
of frequency bands for broadcast television; the approval of a television
station's frequency, location and operating power; the issuance, renewal,
revocation or modification of a television station's FCC license; the approval
of changes in the ownership or control of a television station's licensee; the
regulation of equipment used by television stations; and the adoption and
implementation of regulations and policies concerning the ownership, operation,
programming and employment practices of television stations. The FCC has the
power to impose penalties, including fines or license revocations, upon a
licensee of a television station for violations of the FCC's rules and
regulations.
The following is a brief summary of certain provisions of the Communications
Act and of specific FCC regulations and policies affecting broadcast
television. Reference should be made to the Communications Act, FCC rules and
the public notices and rulings of the FCC for further information concerning
the nature and extent of FCC regulation of broadcast television stations.
License Renewal: Broadcast television licenses are generally granted for
maximum terms of eight years. The main licenses are supported by various
"auxiliary" licenses for point-to-point microwave, remote location electronic
newsgathering and program distribution between the studio and transmitter
locations. License terms are subject to renewal upon application to the FCC,
but they may be renewed for a shorter period upon a finding by the FCC that the
"public interest, convenience and necessity" would be served thereby. Under the
Telecommunications Act of 1996 (the "Telecommunications Act"), the FCC must
grant a renewal application if it finds that the station has served the public
interest, there have been no serious violations of the Communications Act or
FCC rules, and there have been no other violations of the Communications Act or
FCC rules by the licensee that, taken together, would constitute a pattern of
abuse. If the licensee fails to meet these requirements, the FCC may either
deny the license or grant it on terms and conditions as are appropriate after
notice and opportunity for hearing.
55
In the vast majority of cases, television broadcast licenses are renewed by
the FCC even when petitions to deny or competing applications are filed against
broadcast license renewal applications. However, we cannot assure that each of
our broadcast licenses will be renewed in the future. All of the stations'
existing licenses were renewed for full terms and are currently in effect.
Programming and Operation: The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually has
relaxed or eliminated many of the more formalized procedures it had developed
to promote the broadcast of certain types of programming responsive to the
needs of a station's community of license. However, broadcast station licensees
must continue to present programming that is responsive to local community
problems, needs and interests and to maintain certain records demonstrating
such responsiveness. Complaints from viewers concerning a station's programming
often will be considered by the FCC when it evaluates license renewal
applications, although such complaints may be filed at any time and generally
may be considered by the FCC at any time. Stations also must follow various FCC
rules that regulate, among other things, political advertising, sponsorship
identifications, the advertisements of contests and lotteries, obscene and
indecent broadcasts and technical operations, including limits on radio
frequency radiation. The FCC also has adopted rules that place additional
obligations on television station operators for closed-captioning of
programming for the hearing impaired, equal employment opportunity obligations,
maximum amounts of advertising and minimum amounts of programming specifically
targeted for children and special obligations relating to political candidate
advertising, as well as additional public information and reporting
requirements.
Digital Television: The FCC has adopted rules for implementing digital
(including high-definition) television service in the United States.
Implementation of DTV is intended to improve the technical quality of
television. Under certain circumstances, however, conversion to DTV operations
may reduce a station's geographical coverage area. The FCC has allotted a
second broadcast channel to each full-power commercial television station for
DTV operation. The FCC's DTV allotment plan is based on the use of a "core" DTV
spectrum between channels 2 and 51. Under the FCC's rules, stations will be
required to phase-in their DTV operations on the second channel over a
transition period and to surrender their non-DTV channel later. This period is
designed to facilitate the supply of television receivers and cable
demodulation boxes that will operate with the new DTV frequencies. The FCC has
adopted standards for the transmission of DTV signals. These standards will
serve as the basis for the phased conversion to digital transmission.
Our stations have been assigned the following digital channel allocations by
the FCC: WJLA-39, WCFT-5, WJSU-58, WHTM-10, KATV-22, KTUL-10, WSET-34 and
WCIV-34. Of these stations, WJLA is currently operating on its assigned DTV
channel. WJSU had requested a change from channel 58 to 9, but the FCC has
dismissed that request. The station is seeking reconsideration of that action.
The FCC established May 1, 2002 as the date by which all commercial television
stations were to have implemented DTV service. The FCC has recognized that, due
to exigent circumstances relating to tower construction, equipment availability
and other factors, extensions of time for construction of digital operations
will be necessary, and the FCC has adopted streamlined procedures to affect
such extensions. Extension of time requests for the construction of DTV
facilities were granted for our unbuilt DTV operations in order to accommodate
requests for changed DTV frequencies and other delaying factors beyond the
control of the stations. We anticipate that implementation of DTV service will
be completed at the following stations during Fiscal 2003: KATV, KTUL, WSET,
WCIV, WHTM and WCFT.
56
Implementation of DTV service will impose substantial additional costs on
television stations providing the new service because of the need to purchase
additional equipment and because some stations will need to operate at higher
utility costs. We cannot assure you that our television stations will be able
to increase revenue to offset such costs. We are unable to predict what future
actions the FCC might take with respect to DTV service, nor can we predict the
effect of the FCC's present DTV implementation plan or such future actions on
our business. We will incur significant expense in the conversion to DTV
operations, and are unable to predict the extent or timing of consumer demand
for any such DTV services.
Ownership Matters: The Communications Act in conjunction with various
antitrust statutes contain restrictions on the ownership and control of
broadcast licenses. Together with the FCC's rules, those laws place limitations
on alien ownership; common ownership of television, radio and newspaper
properties; and ownership by those persons not having the requisite "character"
qualifications and those persons holding "attributable" interests in the
license.
The FCC's television national multiple ownership rules limit the audience
reach of television stations in which any entity may hold an attributable
interest to 35 percent of total United States audience reach. The FCC's local
television multiple ownership rule, the "Duopoly" rule, was revised in
September 1999 and now generally permits ownership of attributable interests by
a single entity in no more than two television stations which serve the same
DMA unless both stations are among the top four rated in the market or there
are fewer than eight, full power, independently owned television stations
remaining in the market. Similar restrictions limit the number of radio
stations that may be co-owned with a television station in a market as well as
common newspaper/broadcast station ownership.
In light of the FCC's multiple ownership and cross-ownership rules, an
individual or entity that acquires an attributable interest in ACC may violate
the FCC's rules if that acquirer also has an attributable interest in other
television or radio stations, or in cable television systems or daily
newspapers, depending on the number and location of those radio or television
stations, cable television systems or daily newspapers. Such an acquirer also
may be restricted in the companies in which it may invest, to the extent that
those investments give rise to an attributable interest. If an individual or
entity with an attributable interest in ACC violates any of these ownership
rules, we may be unable to obtain from the FCC the authorizations needed to
conduct its television station business, may be unable to obtain FCC consents
for certain future acquisitions, may be unable to obtain renewals of its
licenses and may be subject to other material adverse consequences.
The FCC is in the process of a fundamental review of all its ownership rules
with the announced intention of completing its review by mid-2003. It is
unknown what changes, if any, will be adopted and whether or to what extent
those changes will affect us or the competitive impact on the stations.
Additional Competition in the Video Services Industry: The
Telecommunications Act also eliminates the overall ban on telephone companies
offering video services and permits the ownership of cable television companies
by telephone companies in their service areas (or vice versa) in certain
circumstances. Telephone companies providing such video services will be
regulated according to the transmission technology they use. The
Telecommunications Act also permits telephone companies to hold an ownership
interest in the programming carried over such systems. Although we cannot
predict the effect of the removal of these barriers to telephone company
participation in the video services industry, it may have the effect of
increasing competition in the television broadcast industry in which we operate.
57
Other Legislation: The foregoing does not purport to be a complete summary
of all the provisions of the Telecommunications Act or of the regulations and
policies of the FCC thereunder. Congress and the FCC have under consideration,
and in the future may consider and adopt, (i) other changes to existing laws,
regulations and policies or (ii) new laws, regulations and policies regarding a
wide variety of matters that could affect, directly or indirectly, the
operation, ownership and profitability of our broadcast stations. Also, certain
of the foregoing matters are now, or may become, the subject of court
litigation, and we cannot predict the outcome of any such litigation or the
impact on our business.
Employees
As of December 31, 2002, we employed in full and part-time positions 943
persons, including 265 at WJLA/NewsChannel 8, 140 at KATV, 130 at KTUL, 107 at
WHTM, 109 at WBMA/WCFT/WJSU, 100 at WSET, 80 at WCIV and 12 in our corporate
office. Of the employees at WJLA, 126 are represented by three unions: the
American Federation of Television and Radio Artists ("AFTRA"), the Directors
Guild of America ("DGA") or the National Association of Broadcast Employees and
Technicians/Communications Workers of America ("NABET/CWA"). The NABET/CWA
collective bargaining agreement expires January 31, 2005. The AFTRA collective
bargaining agreement expires September 30, 2003. The DGA collective bargaining
agreement expired January 16, 2000. Subsequent to the integration of WJLA and
NewsChannel 8, the NLRB conducted an election in which the combined directors
of WJLA and NewsChannel 8 elected representation by DGA. The parties have
commenced negotiations for a collective bargaining agreement for the new unit.
No employees of our other owned stations are represented by unions. We believe
our relations with our employees are satisfactory.
Properties
We maintain our corporate headquarters in Washington, D.C., occupying leased
office space of approximately 9,300 square feet.
The types of properties required to support each of the stations include
offices, studios, transmitter sites and antenna sites. The stations' studios
are co-located with their office space while transmitter sites and antenna
sites are generally located away from the studios in locations determined to
provide maximum market signal coverage.
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The following table describes the general characteristics of our principal
real property:
Lease
Expiration
Facility Market/Use Ownership Approximate Size Date
- -------- ---------- ------------- ------------------------ ----------
WJLA/News
Channel 8 Rosslyn, VA
Office/Studio Leased 79,870 sq. ft. 6/30/17
Prince Georges, MD
Tower-Weather Leased 1 acre 3/31/06
Washington, D.C.
Tower/Transmitter Joint Venture 108,000 sq. ft. N/A
WHTM Harrisburg, PA
Office/Studio Owned 14,000 sq. ft. N/A
Tower/Transmitter Owned 2,801 sq. ft. N/A
Adjacent Land Leased 6,808 sq. ft. 10/31/05
York, PA
Office/Studio Leased 1,200 sq. ft. 7/01/06
KATV Little Rock, AR
Office/Studio Owned 20,500 sq. ft. N/A
Office/Studio Leased 1,500 sq. ft. 1/31/06
Tower/Transmitter Owned 188 acres N/A
Annex/Garage Owned 67,400 sq. ft. N/A
KTUL Tulsa, OK
Office/Studio Owned 13,520 sq. ft. N/A
Tower/Transmitter Owned 160 acres N/A
Tower-Cushing Leased 1 acre 6/30/05
WSET Lynchburg, VA
Office/Studio Owned 15,500 sq. ft. N/A
Tower/Transmitter Owned 2,700 sq. ft. N/A
Danville, VA
Office/Studio Leased 2,150 sq. ft. 2/29/06
WCIV Mt. Pleasant, SC
Office/Studio Owned 21,700 sq. ft. N/A
Tower/Transmitter Leased 2,000 sq. ft. 8/31/06
WBMA/WCFT/WJSU Birmingham, AL
Office/Studio/Dish Farm Leased 26,357 sq. ft./0.5 acres 9/30/06
Tower/Relay-Pelham Leased .08 acres 10/31/06
Tower/Relay-Red Mtn. Owned .21 acres N/A
Tuscaloosa, AL
Office/Studio Owned 9,475 sq. ft. N/A
Tower-Tuscaloosa Owned 10.5 acres N/A
Tower-AmSouth Leased 134.3 acres 4/30/06
Anniston, AL
Office/Studio Leased 6,100 sq. ft. 4/1/11
Tower-Blue Mtn. Owned 1.7 acres N/A
Tower-Bald Rock Leased 1 acre 8/29/16
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.
59
MANAGEMENT
Executive officers and directors of ACC are as follows:
Name Age Title
- ---- --- -----
Joe L. Allbritton..... 78 Chairman of the Executive Committee and Director
Barbara B. Allbritton. 65 Executive Vice President and Director
Robert L. Allbritton.. 33 Chairman, Chief Executive Officer and Director
Lawrence I. Hebert.... 56 Vice Chairman and Director
Frederick J. Ryan, Jr. 47 Vice Chairman, President, Chief Operating Officer and
Director
Jerald N. Fritz....... 51 Senior Vice President, Legal and Strategic Affairs, General
Counsel
Stephen P. Gibson..... 38 Senior Vice President and Chief Financial Officer
- --------
JOE L. ALLBRITTON is the founder of ACC and was Chairman of the Board of
Directors from its inception in 1974 until 1998 when he became Chairman of its
Executive Committee. Through ACC and its various subsidiaries and affiliates
(including Perpetual), Mr. Allbritton has presided over the growth of the
television group, radio, cable news services, television production and
newspapers in large, medium and small markets. His corporate experience ranges
from media to financial institutions, insurance, property management,
cemetaries/mortuaries and the Internet. In addition to his position with ACC,
Mr. Allbritton has led Riggs National Corporation ("Riggs") (owner of banking
operations in Washington, D.C., Maryland, Virginia, Florida and
internationally) since 1981, first as its Chairman and CEO (1981-2001) and
currently as its Vice Chairman. He has served on the boards of and chaired
numerous philanthropic organizations including the Allbritton Foundation. Mr.
Allbritton is the husband of Barbara B. Allbritton and the father of Robert L.
Allbritton. See "Certain Relationships and Related Transactions."
BARBARA B. ALLBRITTON has been a Director of ACC since its inception, Vice
President of ACC from 1980 to 2001 and Executive Vice President since 2001. She
currently serves or has served as an officer and/or director of each of ACC's
television subsidiaries, as well as Perpetual and Riggs. Mrs. Allbritton is the
wife of Joe L. Allbritton and the mother of Robert L. Allbritton. See "Certain
Relationships and Related Transactions."
ROBERT L. ALLBRITTON has been Chairman of the Board of Directors and Chief
Executive Officer of ACC since February 2001 and a Director of ACC since 1993.
He also serves as a member of the Executive Committee of the Board of Directors
of ACC. Mr. Allbritton was Executive Vice President and Chief Operating Officer
of ACC from 1994 to 1998 and President of ACC from 1998 to 2001. He is also an
officer and/or director of Perpetual and each of ACC's television subsidiaries.
He has been involved in management of the television properties at both the
corporate and daily operational levels, including financial, technical,
strategic, programming, sales, news and promotion. In addition to his positions
with ACC, Mr. Allbritton has been the Chairman of the Board of Directors and
Chief Executive Officer of Riggs since February 2001 and a Director of Riggs
since 1994. He is the son of Joe L. and Barbara B. Allbritton. See "Certain
Relationships and Related Transactions."
LAWRENCE I. HEBERT has been involved with the Allbritton organizations since
1970, including their various banking, insurance, newspaper, radio, television
and other operations. He has been Vice Chairman of the Board of ACC since
February 2001 and is a member of the
60
Executive Committee of the Board of Directors of ACC. Mr. Hebert has been a
Director of ACC since 1981 and is the former President (1984-1998), as well as
Chairman and Chief Executive Officer (1998-2001), of ACC. He has also been a
Director of Perpetual since 1980 and its President since 1981. In addition,
Mr. Hebert has served as President and Chief Executive Officer of Riggs Bank
N.A. since February 2001, has been involved in advisory or board positions with
Riggs since 1981 and is currently serving as a Director of Riggs. He is also a
Director of Allied Capital Corporation (venture capital fund) and a Trustee of
The Allbritton Foundation.
FREDERICK J. RYAN, JR. has been President of ACC since February 2001, Chief
Operating Officer since 1998 and a Director and its Vice Chairman since 1995.
He has served as Senior Vice President and Executive Vice President of ACC and
is an officer of each of its television subsidiaries. He previously served as
Chief of Staff to former President Ronald Reagan (1989-1995) and Assistant to
the President in the White House (1982-1989). Prior to his government service,
Mr. Ryan was an attorney with the Los Angeles firm of Hill, Farrer and Burrill.
Mr. Ryan presently serves as Chairman of the Ronald Reagan Presidential Library
Foundation, a Director of Ford's Theatre and Trustee of Ronald Reagan Institute
of Emergency Medicine at George Washington University. Mr. Ryan is a Director
of Riggs Bank N.A. and Chairman of its International Committee; a Director of
Riggs Bank Europe Ltd. in London; and was a member of the Board of Consultants
for Riggs Bank N.A. (1996-2000).
JERALD N. FRITZ has been part of ACC's management since 1987, currently
serving as a Senior Vice President. He serves as its General Counsel and also
oversees strategic planning and governmental affairs. From 1981 to 1987, Mr.
Fritz held several positions with the FCC, including Chief of Staff and Legal
Counsel to the Chairman. Mr. Fritz was in private practice from 1978 to 1981,
specializing in communications law, and from 1980 to 1983 was on the adjunct
faculty of George Mason University Law School teaching communications law and
policy. Mr. Fritz began his career in broadcasting in 1973 with WGN-TV,
Chicago. He currently serves as an elected director of the National Association
of Broadcasters ("NAB") and a member of the Governing Committee of the
Communications Forum of the American Bar Association. He serves on the Futures
and Copyright Committees of the NAB and the Legislative Committee of the ABC
Affiliates Association.
STEPHEN P. GIBSON has been a Senior Vice President of ACC since February
2001 and a Vice President since 1997. He has served as Chief Financial Officer
since 1998 and Controller from 1997 when he joined us to 1998. He is also
Treasurer of The Allbritton Foundation and Vice President of Perpetual and each
of ACC's television subsidiaries. Prior to joining ACC, Mr. Gibson served as
Controller for COMSAT RSI Plexsys Wireless Systems, a provider of wireless
telecommunications equipment and services, from 1994 to 1997. From 1987 to
1994, Mr. Gibson held various positions with the accounting firm of Price
Waterhouse LLP, the latest as Audit Manager. He currently serves as an elected
director of the Broadcast Cable Financial Management Association.
61
Executive Compensation
The following table sets forth compensation paid to our Chief Executive
Officer and our four other most highly compensated executive officers for
Fiscal 2002, 2001 and 2000:
Summary Compensation Table (1)
Fiscal All Other
Name and Principal Position Year Salary Bonus Compensation
--------------------------- ------ -------- ------- ------------
Joe L. Allbritton (2) 2002 $550,000 -- $112,900(3)
Chairman of the Executive 2001 550,000 -- 135,100(3)
Committee 2000 550,000 -- 121,700(3)
Robert L. Allbritton (1) (4) 2002 250,000 $75,000 --
Chairman and 2001 250,000 75,000 --
Chief Executive Officer 2000 200,000 75,000 --
Lawrence I. Hebert (1) (4) 2002 200,000 75,000 --
Vice Chairman 2001 200,000 75,000 --
2000 200,000 75,000 --
Frederick J. Ryan, Jr. (1) (5) 2002 217,500 75,000 5,100(6)
President and Chief 2001 217,500 75,000 5,400(6)
Operating Officer 2000 200,000 75,000 4,700(6)
Jerald N. Fritz (7) 2002 210,000 55,000 5,300(6)
Senior Vice President, Legal 2001 200,000 55,000 5,500(6)
and Strategic Affairs 2000 180,000 50,000 4,600(6)
- --------
(1) In February 2001, Robert L. Allbritton was named Chairman and Chief
Executive Officer of ACC, succeeding Lawrence I. Hebert, and Frederick J.
Ryan, Jr. was named President of ACC, succeeding Robert L. Allbritton.
(2) Salary consists of management fees paid by ACC.
(3) Represents the imputed premium cost related to certain split dollar life
insurance policies on the life of Mr. Joe L. Allbritton. The annual
premiums on such policies are paid by ACC. Upon the death of the insured,
we will receive our investment balance in the policies, and the remaining
proceeds will be paid to the insured's beneficiary. The imputed premium
cost is calculated on the difference between the face value of the policy
and the cash surrender value.
(4) Robert L. Allbritton, Chairman and Chief Executive Officer of ACC, and
Lawrence I. Hebert, Vice Chairman of ACC, are paid cash compensation by
Perpetual for services to Perpetual and other interests of Joe L.
Allbritton, including ACC. The portion of such compensation related to ACC
is allocated to ACC and included as compensation above. In addition,
Mr. Robert L. Allbritton is paid management fees directly by ACC which are
also included as compensation above.
(5) Frederick J. Ryan, Jr. receives additional compensation from Perpetual for
services to Perpetual and other interests of Joe L. Allbritton, including
ACC. This additional compensation is not allocated among these interests,
and ACC does not reimburse Perpetual for any portion of this additional
compensation to Mr. Ryan. The portion of the additional compensation paid
by Perpetual to Mr. Ryan that may be attributable to his services to us has
not been quantified. Such portion is not material to our consolidated
financial condition or results of operations.
(6) These amounts reflect annual contributions by ACC to our 401(k) Plan.
(7) Jerald N. Fritz is paid compensation by ACC for services to us and
Perpetual. Perpetual has reimbursed ACC for $31,000, $34,000 and $31,500 of
the compensation shown in the table for Mr. Fritz in Fiscal 2000, 2001 and
2002, respectively.
We do not have a Compensation Committee of our Board of Directors.
Compensation of executive officers is determined by Joe L. Allbritton, Robert
L. Allbritton and Lawrence I. Hebert. Our directors are not separately
compensated for membership on the Board of Directors.
62
OWNERSHIP OF CAPITAL STOCK
The authorized capital stock of ACC consists of 20,000 shares of common
stock, par value $0.05 per share (the "ACC Common Stock"), all of which is
outstanding, and 1,000 shares of preferred stock, 200 shares of which have been
designated for issue as Series A Redeemable Preferred Stock, par value $1.00
per share (the "Series A Preferred Stock"), no shares of which are issued and
outstanding.
ACC Common Stock
Joe L. Allbritton controls Perpetual. Perpetual owns 100% of the outstanding
common stock of AGI, and AGI owns 100% of the outstanding ACC Common Stock.
There is no established public trading market for ACC Common Stock.
Each share of ACC Common Stock has an equal and ratable right to receive
dividends when and as declared by the Board of Directors of ACC out of assets
legally available therefor.
In the event of a liquidation, dissolution or winding up of ACC, holders of
ACC Common Stock are entitled to share ratably in assets available for
distribution after payments to creditors and to holders of any preferred stock
of ACC that may at the time be outstanding. The holders of ACC Common Stock
have no preemptive rights to subscribe to additional shares of capital stock of
ACC. Each share of ACC Common Stock is entitled to one vote in elections of
directors and all other matters submitted to a vote of ACC's stockholder.
63
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(dollars in thousands)
Distributions to Related Parties
ACC has periodically made advances in the form of distributions to
Perpetual. For Fiscal 2000, 2001 and 2002 and the three months ended December
31, 2002, ACC made cash advances to Perpetual of $275,024, $197,680, $342,567
and $12,420, respectively. For Fiscal 2000, 2001 and 2002 and the three months
ended December 31, 2002, Perpetual made repayments on these cash advances of
$249,291, $174,100, $342,615 and $3,209, 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. In addition, ACC was
charged by Perpetual and made payments to Perpetual for federal and state
income taxes in the amount of $8,808, $4,500 and $186 during Fiscal 2000, 2001
and 2002, respectively. During the three months ended December 31, 2002, ACC
was charged by Perpetual for federal and state income taxes in the amount of
$722, and ACC made payments to Perpetual for such taxes of $2,378. The net
change in distributions to related parties during Fiscal 2000, 2001 and 2002
and the three months ended December 31, 2002 was an increase (decrease) of
$25,733, $23,580, $(48) and $10,867, respectively. As a result of making
advances of tax payments in accordance with the terms of the tax sharing
agreement between ACC and Perpetual, we earned interest income from Perpetual
in the amount of $303, $213, $92 and $44 during Fiscal 2000, 2001 and 2002 and
the three months ended December 31, 2002. See "--Income Taxes" below.
Additionally, because Perpetual has historically filed consolidated federal
and Virginia state income tax returns including the operating results of both
ACC and Allnewsco, certain tax benefits were realized by Perpetual associated
with Allnewsco's net operating losses in the consolidated tax returns. In
accordance with SFAS No. 109, the combined results of ACC and Allnewsco have
been adjusted to reflect the historical tax benefits which would have been
recorded for financial reporting purposes by the combined entity during each
period presented. The benefit recorded during Fiscal 2000, 2001 and 2002 was
$2,681, $2,630 and $1,810, respectively. During Fiscal 2002, our combined
results reflect a combined benefit from federal income taxes of $2,571. This
benefit was effectively distributed to Perpetual as such benefit will not be
recognized in future years pursuant to the terms of the tax sharing agreement
between the companies.
At present, the primary source of repayment of 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.
Perpetual historically advanced cash to Allnewsco in the form of unsecured
demand notes bearing interest at a rate of 7.5%. Notes issued during Fiscal
2000, 2001 and 2002 amounted to $3,083, $2,493 and $3,895, respectively, with
no cash repayments during any of these years. Effective September 28, 2001,
Allnewsco authorized the issuance of 67,000 shares of common stock to Perpetual
in exchange for the reclassification of $46,291 and $20,709 from notes payable
and accrued interest payable, respectively. The reclassification resulted in an
increase in capital in excess of par value in our consolidated financial
statements. The notes payable from Allnewsco to Perpetual are included in
distributions to owners in our consolidated financial statements, conforming
the presentation of cash transactions between ACC, Allnewsco and Perpetual. As
we did not acquire or assume amounts due from Allnewsco to Perpetual, no amount
is outstanding from us under such notes at December 31, 2002.
64
During Fiscal 1991, we loaned $20,000 to Allnewsco. The $20,000, 11.06% note
receivable from Allnewsco was due in January 2008, with the principal balance
also due upon demand. Since our historical consolidated financial statements
have been restated to reflect the combined results of the Company and Allnewsco
as of the beginning of the earliest period presented, the loan amount as well
as the related interest income/expense have been eliminated as intercompany
transactions for all periods presented. At closing of the Allnewsco
transaction, we cancelled the $20,000 note as part of the consideration for the
acquisition.
Under the terms of the agreements governing 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 the notes and our other debt, ACC will
make advances, distributions or dividends to related parties in the future.
Management Fees
We paid management fees of $500, $500, $600 and $125 to Perpetual for Fiscal
2000, 2001 and 2002 and the three months ended December 31, 2002, respectively.
We also paid executive compensation in the form of management fees to Joe L.
Allbritton in the amount of $550 for each of Fiscal 2000, 2001 and 2002 and to
Robert L. Allbritton in the amount of $190, $200 and $200 during Fiscal 2000,
2001 and 2002, respectively. Management fees of $138 and $50 were paid to Joe
L. Allbritton and Robert L. Allbritton, respectively, during the three months
ended December 31, 2002. We expect to pay total management fees to Perpetual,
Joe L. Allbritton and Robert L. Allbritton during Fiscal 2003 of approximately
$500, $550 and $200, respectively. We believe that payments to Perpetual, Joe
L. Allbritton and Robert L. Allbritton will continue in the future and that the
amount of the management fees is at least as favorable to us as those
prevailing for comparable transactions with or involving unaffiliated parties.
Income Taxes
Our operations are included in a consolidated federal income tax return
filed by Perpetual. In accordance with the terms of a tax sharing agreement
between ACC and Perpetual, ACC is required to pay to Perpetual its federal
income tax liability, computed based upon statutory federal income tax rates
applied to our consolidated taxable income. We file separate state income tax
returns with the exception of Virginia, which is included in a combined state
income tax return filed by Perpetual. In accordance with the terms of the tax
sharing agreement, we are required to pay to Perpetual our combined Virginia
income tax liability, computed based upon statutory Virginia income tax rates
applied to our combined Virginia net taxable income. Taxes payable to Perpetual
are not reduced by losses generated in prior years by us. In addition, the
amounts payable by us to Perpetual under the tax sharing agreement are not
reduced if losses of other members of the Perpetual group are utilized to
offset our taxable income for purposes of the Perpetual consolidated federal or
Virginia state income tax returns.
The provision for income taxes is determined in accordance with SFAS No.
109, which requires that the consolidated amount of current and deferred income
tax expense for a group that files a consolidated income tax return be
allocated among members of the group when those members issue separate
financial statements. Perpetual allocates a portion of its consolidated current
and deferred income tax expense to us as if we and our subsidiaries were
separate taxpayers. We record deferred tax assets, to the extent it is
considered more likely than not that such assets will be realized in future
periods, and deferred tax liabilities for the tax effects of the differences
between the bases of its assets and liabilities for tax and financial reporting
purposes. To the extent a deferred tax asset would be recorded due to the
incurrence of losses for federal or Virginia state income tax purposes, any
such benefit recognized is effectively distributed to Perpetual as such benefit
will not be recognized in future years pursuant to the tax sharing agreement.
65
Office Space
ACC leases corporate headquarters space from Riggs Bank, which owns office
buildings in Washington, D.C. Riggs Bank is a wholly-owned subsidiary of Riggs.
According to the most recently filed Schedule 13D amendment, approximately
41.3% of the common stock of Riggs is deemed to be beneficially owned by Riggs'
Vice Chairman, Joe L. Allbritton, and 7.2% of the common stock is deemed to be
beneficially owned by Riggs' director, Barbara B. Allbritton, including in each
case 7.1% of the common stock of which Mr. and Mrs. Allbritton share beneficial
ownership. During Fiscal 2000, 2001 and 2002 and the three months ended
December 31, 2002, ACC paid Riggs Bank $283, $297, $328 and $82, respectively,
for the office space. ACC expects to pay a total of approximately $335 for such
space during Fiscal 2003. We believe that the terms of the lease are
substantially the same or at least as favorable to ACC as those prevailing for
comparable leases involving nonaffiliated companies.
Local Advertising Revenues
We generated $378, $191 and $44 in advertising revenues from Riggs Bank
during Fiscal 2000, 2001 and 2002, respectively. While WJLA and NewsChannel 8
did not generate any advertising revenues from Riggs Bank during the three
months ended December 31, 2002, the amount of total advertising, if any, that
Riggs Bank may purchase on WJLA or NewsChannel 8 in the future is unknown. We
believe that the terms of the transactions are substantially the same or at
least as favorable to ACC as those prevailing for comparable transactions with
or involving nonaffiliated companies.
Company Aircraft
During Fiscal 2001 and 2002, Riggs utilized our aircraft on several
occasions and was charged $20 and $27, respectively, for such usage. Riggs did
not use our aircraft in Fiscal 2000 or during the three months ended December
31, 2002. We do not know whether Riggs will utilize the aircraft during the
remainder of Fiscal 2003. The rates charged for use of the aircraft represent
the maximum rates allowed by the Federal Aviation Administration for
non-charter companies. Such rates are not comparable to rates charged by
charter companies.
Internet Services
We have entered into various agreements with Irides, LLC ("Irides") to
provide certain of our stations with web site design, hosting and maintenance
services. Irides is a wholly-owned subsidiary of Allbritton New Media, Inc.
("ANMI") which in turn is an 80%-owned subsidiary of Perpetual. The remaining
20% of ANMI is owned by Robert L. Allbritton, who has options to acquire up to
a total of 80% ownership of ANMI. We incurred fees of $209, $167, $110 and $30
to Irides during Fiscal 2000, 2001 and 2002 and the three months ended December
31, 2002, respectively. We expect to pay fees to Irides for services performed
totaling approximately $110 during Fiscal 2003. We believe that the terms and
conditions of the agreements are substantially the same or at least as
favorable to us as those prevailing for comparable transactions with or
involving nonaffiliated companies.
66
DESCRIPTION OF CERTAIN INDEBTEDNESS
Senior Credit Facility
Our senior credit facility provides for borrowings of up to $70.0 million.
Borrowings under the facility bear interest at rates from prime plus 0.25% to
prime plus 1.50% or LIBOR plus 1.50% to 2.75%, depending upon certain financial
operating tests. Our obligations under the facility are secured by a pledge of
all of the stock of ACC and all of the stock of ACC's subsidiaries held
directly or indirectly by ACC. The facility will expire March 27, 2006. The
notes are subordinated to the prior payment in full in cash or cash equivalents
of all our obligations under our senior credit facility. As of December 31,
2002, the amount outstanding under the senior credit facility was $22.0
million. See "Description of the Exchange Notes--Subordination."
Fleet National Bank, an affiliate of Fleet Securities, Inc., one of the
initial purchasers of the initial notes, is the agent and a lender under the
senior credit facility. Deutsche Bank Securities Inc., one of the initial
purchasers of the initial notes, is the documentation agent under, and an
affiliate of Deutsche Bank Securities Inc. is a lender under, the senior credit
facility.
Capital Leases
At December 31, 2002, we had $1.0 million outstanding under certain capital
lease agreements with Fleet Capital Corporation, an affiliate of Fleet
Securities, Inc., one of the initial purchasers of the initial notes, which
constitutes senior debt to which the notes are subordinated. All commitments
under the agreements have expired, and outstanding drawings are being amortized
over a five-year period with principal and interest paid monthly through
November 2006. Our obligations are secured by the equipment under lease and
bear interest at various rates ranging from 6.45% to 7.43%. ACC leases the
equipment for the duration of the lease (usually for a term of five years), and
may, with the consent of the lessor, sublease the equipment to a subsidiary.
Ownership of the equipment reverts to ACC or such subsidiary, as the case may
be, at the end of the lease term. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Indebtedness."
9 3/4% Senior Subordinated Debentures due 2007
On December 6, 2002, we commenced a cash tender offer to purchase all of our
outstanding 9 3/4% senior subordinated debentures due 2007 at a price of $1,034
plus accrued and unpaid interest for each $1,000 principal amount of 9 3/4%
debentures tendered. In connection with the tender offer, we solicited and
obtained the necessary consents to amend the indenture pursuant to which the
93/4% debentures were issued to eliminate substantially all the restrictive
covenants and certain events of default. We paid $5.00 for each $1,000
principal amount of 9 3/4% debentures that consented to the amendment prior
to 5:00 p.m. on December 20, 2002. On January 7, 2003, we accepted for payment
and purchased $255.6 million principal amount of 9 3/4% debentures validly
tendered and not withdrawn.
On January 21, 2003, we redeemed the $19.4 million principal amount of
9 3/4% debentures not tendered in the tender offer at a redemption price of
103.9% of the face value of the 9 3/4% debentures, plus accrued interest. See
"Use of Proceeds."
8 7/8% Senior Subordinated Notes due 2008
Our 8 7/8% senior subordinated notes are general unsecured senior
subordinated obligations of ACC and rank pari passu in right of payment with
the notes. The 8 7/8% notes total $150 million in aggregate principal amount
and mature on February 1, 2008.
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The indenture pursuant to which the 8 7/8% notes were issued contains
certain covenants including, but not limited to, covenants with respect to the
following matters: (i) limitations on the incurrence of debt and issuance of
preferred stock; (ii) limitations on other subordinated debt; (iii) limitations
on making restricted payments; (iv) limitations on transactions with
affiliates; (v) limitations on dividend and other payment restrictions
affecting subsidiaries; (vi) limitations on liens; (vii) limitations on sale of
assets and subsidiary stock; and (viii) limitations on merger, consolidation or
sale of substantially all assets. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Indebtedness."
Immediately following the closing of the sale of the additional notes, we
expect to send a notice of redemption to the holders of our 8 7/8% notes to
redeem all notes at a redemption price of 104.438% of the face value of the
8 7/8% notes, plus accrued interest. We expect the redemption date will be on
or about March 7, 2003.
Offering of Additional 7 3/4% Senior Subordinated Notes due 2012
On January 28, 2003, we entered into a purchase agreement pursuant to which
we agreed, subject to customary closing conditions, to issue an additional
$180.0 million principal amount of our 7 3/4% senior subordinated notes due
2012. The additional notes, the initial notes and the exchange notes will be
issued under the same indenture and will be a single class of securities for
all purposes under the indenture.
On or before the issuance date of the additional notes, we will enter into a
registration rights agreement with the purchasers of the additional notes in
which we will agree to use our best efforts to make an offer to exchange the
additional notes for registered, publicly tradable notes that have
substantially identical terms as the additional notes. We will use our best
efforts to issue in the exchange offer for the additional notes the same
exchange notes that we issue in the exchange offer for the initial notes so
that, following the completion of the exchange offers for the initial notes and
the additional notes, there will be only one class of registered, publicly
tradable notes outstanding.
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EXCHANGE OFFER
Purpose of Exchange Offer
In connection with the sale of the initial notes, ACC entered into a
registration rights agreement with the initial purchasers in which ACC agreed,
for the benefit of the holders of the initial notes, to use its best efforts,
at its own expense, to:
. file with the Commission no later than February 3, 2003 the exchange
offer registration statement with respect to the exchange offer for the
exchange notes, which will have terms identical to those of the initial
notes, except that the exchange notes will not contain transfer
restrictions or provide for interest rate increases;
. cause the exchange offer registration statement to be declared effective
under the Securities Act no later than April 19, 2003; and
. complete the exchange offer no later than May 19, 2003.
The exchange offer being made here, if commenced and completed within the
time periods described in the preceding paragraph, will satisfy those
requirements under the registration rights agreement. If we are unable to
complete the exchange offer, we will be obligated under our registration rights
agreement to file a shelf registration statement with the Commission
registering the initial notes for resale by the holders of the initial notes.
This prospectus, together with the letter of transmittal, is being sent to
all record holders of initial notes as of , 2003.
We are making the exchange offer in reliance on the position of the
Commission as set forth in several no-action letters to third parties. However,
we have not sought our own no-action letter. Based on these interpretations by
the Commission, but subject to the immediately following sentence, ACC believes
that the exchange notes issued pursuant to the exchange offer may be offered
for resale, resold and otherwise transferred by holders thereof without further
compliance with the registration and prospectus delivery requirements of the
Securities Act. However, any purchaser of initial notes who is an "affiliate"
of ACC or who intends to participate in the exchange offer for the purpose of
distributing the exchange notes:
. will not be able to rely on the interpretation by the staff of the
Commission set forth in the no-action letters described above;
. will not be able to tender initial notes in the exchange offer; and
. must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer of the initial
notes, unless the sale or transfer is made under an exemption from those
requirements.
Each holder of the initial notes who wishes to exchange initial notes for
exchange notes in the exchange offer will be required to make certain
representations, including representations that:
. it is not an "affiliate";
. it is not a broker-dealer tendering initial notes acquired directly from
ACC or if it is such a broker-dealer, it will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable;
. any exchange notes to be received by it will be acquired in the ordinary
course of its business;
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. it has no arrangement or understanding with any person to participate in
the distribution (within the meaning of the Securities Act) of the
exchange notes in violation of the Securities Act; and
. it is not acting on behalf of any person who could not truthfully make
the representations described in the four preceding bullet points.
In addition, in connection with any resales of exchange notes, any
broker-dealer who acquired initial notes for its own account (referred to in
this prospectus as a participating broker-dealer) as a result of market-making
activities or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The Commission has taken the position that
participating broker-dealers may fulfill their prospectus delivery requirements
with respect to the exchange notes, other than a resale of an unsold allotment
from the original sale of the initial notes, with the prospectus contained in
the exchange offer registration statement. ACC has agreed to make available for
a period of up to 120 days from the date of this prospectus a prospectus
meeting the requirements of the Securities Act to any participating
broker-dealer and any other persons, if any, with similar prospectus delivery
requirements, for use in connection with any resale of exchange notes. A
participating broker-dealer or any other person that delivers such a prospectus
to purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the registration rights agreement, including certain
indemnification rights and obligations provided for in the registration rights
agreement.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, a distribution of the
exchange notes. If the holder is a broker-dealer that will receive exchange
notes for its own account in exchange for initial notes that were acquired as a
result of market making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with
any resale of such exchange notes.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all initial notes
validly tendered and not withdrawn prior to 5:00 p.m. New York City time, on
the expiration date. We will issue $1,000 principal amount of exchange notes in
exchange for $1,000 principal amount of outstanding initial notes accepted in
the exchange offer. You may tender some or all of your initial notes pursuant
to the exchange offer. However, initial notes may be tendered only in integral
multiples of $1,000.
The form and terms of the exchange notes are the same as the form and terms
of the initial notes except that (i) the exchange notes have been registered
under the Securities Act and will not bear legends restricting their transfer
and (ii) the holders of the exchange notes will not be entitled to certain
rights under our registration rights agreement, which rights will terminate
upon consummation of the exchange offer. The exchange notes will evidence the
same debt as the initial notes, will be issued under the same indenture as the
initial notes and will be entitled to the benefits of the indenture.
As of the date of this prospectus, $275.0 million aggregate principal amount
of the initial notes was outstanding. We have fixed the close of business on
, 2003, as the record date for the exchange offer for purposes of
determining the person to whom this prospectus and the letter of transmittal
will be mailed initially.
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In connection with the issuance of the initial notes, we arranged for the
initial notes originally purchased by qualified institutional buyers and those
sold in reliance on Regulation S under the Securities Act to be issued and
transferable in book-entry form through the facilities of The Depository Trust
Company, or DTC, acting as depository. Except as described under "Book-Entry;
Delivery and Form," the exchange notes will be issued in the form of a global
note registered in the name of DTC or its nominee and each beneficial owner's
interest in it will be transferable in book-entry form through DTC. See
"Book-Entry; Delivery and Form."
You do not have any appraisal or dissenters' rights under the General
Corporation Law of Delaware or the indenture in connection with the exchange
offer. We intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of
the Commission thereunder, including Rule 14e-1 thereunder.
We will be deemed to have accepted validly tendered initial notes when, as
and if we have given oral or written notice of acceptance to the exchange
agent. The exchange agent will act as agent for the tendering holders for the
purpose of receiving the exchange notes from us.
If any tendered initial notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted initial notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the expiration date.
You will not be required to pay brokerage commissions or fees or, subject to
the instructions in the letter of transmittal, transfer taxes with respect to
the exchange of initial notes pursuant to the exchange offer. We will pay all
charges and expenses, other than transfer taxes in certain circumstances, in
connection with the exchange offer. Please refer to "--Fees and Expenses."
Expiration Date, Extensions, Amendments
The expiration date of the exchange offer shall be 5:00 p.m., New York City
time, on , 2003 unless we, in our sole discretion, extend the exchange
offer, in which case the term "expiration date" shall mean the latest date and
time to which the exchange offer is extended.
To extend the exchange offer, we will notify the exchange agent of any
extension by oral or written notice and will make a public announcement, each
prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
We reserve the right, in our sole discretion, (1) to delay accepting any
initial notes, to extend the exchange offer or to terminate the exchange offer
if any of the conditions set forth below under "--Conditions" shall not have
been satisfied, by giving oral or written notice of such delay, extension or
termination to the exchange agent or (2) to amend the terms of the exchange
offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the exchange agent. If the exchange offer is amended in a manner
determined by us to constitute a material change, we will promptly disclose
such amendment by means of a prospectus supplement that will be distributed to
the registered holders, and, depending upon the significance of the amendment
and the manner of disclosure to the registered holders, we will extend the
exchange offer for a period of five to 10 business days if the exchange offer
would otherwise expire during such five to 10 business day period.
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Without limiting the manner in which we may choose to make public
announcement of any delay, extension, amendment or termination of the exchange
offer, and subject to applicable laws, we shall have no obligation to publish,
advertise or otherwise communicate any such public announcement, other than by
making a timely release through an appropriate news agency.
Interest on the Exchange Notes
The exchange notes will bear interest from December 20, 2002, the date of
issuance of the initial notes. Accordingly, holders of initial notes that are
accepted for exchange will not receive interest on the initial notes that is
accrued but unpaid at the time of tender.
Interest on the exchange notes will be payable semi-annually on each June 15
and December 15, commencing on the first such date following their date of
issuance.
Procedures for Tendering
Only a holder of initial notes may tender such notes in the exchange offer.
To tender in the exchange offer, you must complete, sign and date the letter of
transmittal, or a facsimile thereof, have the signatures on the letter of
transmittal guaranteed if required by the letter of transmittal and mail or
otherwise deliver the letter of transmittal or such facsimile, together with
the initial notes and any other required documents, to the exchange agent prior
to 5:00 p.m., New York City time, on the expiration date. To be tendered
effectively, the initial notes, letter of transmittal and other required
documents must be received by the exchange agent at the address set forth below
under "--Exchange Agent" prior to 5:00 p.m., New York City time, on the
expiration date. Delivery of the initial notes may be made by book-entry
transfer in accordance with the procedures described below. Confirmation of
such book-entry transfer must be received by the exchange agent prior to the
expiration date.
The tender by you and the acceptance by us will constitute agreement between
you and us in accordance with the terms and subject to the conditions set forth
herein and in the letter of transmittal.
The method of delivery of initial notes and the letter of transmittal and
all other required documents to the exchange agent is at your election and
risk. Instead of delivery by mail, we recommend that you use an overnight or
hand delivery service. In all cases, you should allow sufficient time to assure
delivery to the exchange agent before the expiration date. You should not send
the letter of transmittal or initial notes to us. You must deliver all
documents to the exchange agent at its address provided below. You may also
request your respective brokers, dealers, commercial banks, trust companies or
nominees to tender your initial notes on your behalf.
If your initial notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender, you
should contact the registered holder promptly and instruct it to tender on your
behalf. If you, as beneficial owner, wish to tender on your own behalf, you
must, prior to completing and executing the letter of transmittal and delivery
of initial notes, either make appropriate arrangements to register ownership of
the initial notes in your name or obtain a properly completed bond power from
the registered holder. The transfer of registered ownership may take a
considerable period of time.
Signatures on the letter of transmittal or a notice of withdrawal must be
guaranteed by a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent
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in the United States or an "eligible guarantor institution" within the meaning
of Rule 17Ad-15 under the Exchange Act, each an eligible institution, unless
the initial notes are tendered
. by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal or
. for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the registered
holder of any initial notes listed in the letter of transmittal, those initial
notes must be endorsed or accompanied by a properly completed bond power,
signed by the registered holder as the registered holder's name appears on
those initial notes with the signature on the bond power guaranteed by an
eligible institution.
If the letter of transmittal or any initial notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal.
We understand that the exchange agent will make a request promptly after the
date of this prospectus to establish accounts with respect to the initial notes
at the book-entry transfer facility of The Depository Trust Company for the
purpose of facilitating the exchange offer, and subject to the establishment
thereof, any financial institution that is a participant in the book-entry
transfer facility's system may make book-entry delivery of the initial notes by
causing such book-entry transfer facility to transfer the initial notes into
the exchange agent's account with respect to the initial notes in accordance
with the book-entry transfer facility's procedures for such transfer. Although
delivery of the initial notes may be effected through book-entry transfer into
the exchange agent's account at the book-entry transfer facility, an
appropriate letter of transmittal properly completed and duly executed with any
required signature guarantee, or an agent's message if the tendering holder
does not deliver a letter of transmittal, and all other required documents must
in each case be transmitted to and received or confirmed by the exchange agent
at its address set forth below on or prior to the expiration date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to the
book-entry transfer facility does not constitute delivery to the exchange
agent. The term agent's message means a message, transmitted by DTC to, and
received by, the exchange agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgement
from its participant tendering initial notes which are the subject of this
book-entry confirmation that this participant has received and agrees to be
bound by the terms of the letter of transmittal, and that we may enforce the
letter of transmittal against the participant.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered initial notes and withdrawal of tendered
initial notes will be determined by us in our sole discretion, which
determination will be final and binding. We reserve the absolute right to
reject any and all initial notes not properly tendered or any initial notes our
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right to waive any defects, irregularities or conditions of tender
as to particular initial notes. Our interpretation of the terms and conditions
of the exchange offer, including the instructions in the letter of transmittal,
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of initial notes must be cured within
such time as we shall determine.
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Although we intend to request the exchange agent to notify you of defects or
irregularities with respect to tenders of your initial notes, neither we, the
exchange agent nor any other person shall incur any liability for failure to
give such notification. Tenders of initial notes will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
initial notes received by the exchange agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the exchange agent to the tendering holders, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
Guaranteed Delivery Procedures
If you wish to tender initial notes and (1) they are not immediately
available or (2) you cannot deliver your initial notes, the letter of
transmittal or any other documents required by the letter of transmittal to the
exchange agent before the expiration date or (3) you cannot comply with the
procedures for book-entry transfer prior to the expiration date, you may still
effect a tender if:
. the tender is made through an eligible institution;
. prior to the expiration date, the exchange agent receives from the
eligible institution a properly completed and duly executed notice of
guaranteed delivery, by facsimile transmission, mail or hand delivery,
setting forth your name and address, the certificate number(s) of your
initial notes and the principal amount of initial notes tendered, stating
that a tender of initial notes is being made and guaranteeing that, within
three New York Stock Exchange trading days after the expiration date, the
letter of transmittal, or facsimile of the letter of transmittal, together
with the certificate(s) representing the initial notes, or a confirmation of
book-entry transfer of the initial notes into the exchange agent's account
at the book-entry transfer facility along with an agent's message if you do
not deliver a letter of transmittal, and any other documents required by the
letter of transmittal, will be deposited by the eligible institution with
the exchange agent; and
. such properly completed and executed letter of transmittal, or
facsimile of the letter of transmittal, as well as the certificate(s)
representing all tendered initial notes in proper form for transfer, or a
confirmation of book-entry transfer of the initial notes into the exchange
agent's account at the book-entry transfer facility along with an agent's
message if you do not deliver a letter of transmittal, and all other
documents required by the letter of transmittal, are received by the
exchange agent within three New York Stock Exchange trading days after the
expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their initial notes according to the
guaranteed delivery procedures set forth above.
Withdrawals of Tenders
Tenders of initial notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the expiration date.
To withdraw a tender of initial notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth below prior to 5:00 p.m., New York City time, on
the expiration date. Any such notice of withdrawal must
. specify the name of the person having deposited the initial notes to
be withdrawn,
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. identify the initial notes to be withdrawn, including the certificate
number(s) and principal amount of the initial notes, or, in the case of
initial notes transferred by book-entry transfer, the name and number of the
account at the book-entry transfer facility to be credited,
. be signed by the holder in the same manner as the original signature
on the letter of transmittal by which the initial notes were tendered,
including any required signature guarantees, or be accompanied by documents
of transfer sufficient to have the trustee with respect to the initial notes
register the transfer of the initial notes into the name of the person
withdrawing the tender, and
. specify the name in which any initial notes are to be registered, if
different from that of the depositor.
A purported notice of withdrawal which lacks any of the required information
will not be an effective withdrawal of a tender previously made. All questions
as to the validity, form and eligibility, including time of receipt, of such
notices will be determined by us, whose determination shall be final and
binding on all parties. Any initial notes so withdrawn will be deemed not to
have been validly tendered for purposes of the exchange offer, and no exchange
notes will be issued with respect to withdrawn initial notes unless the initial
notes so withdrawn are validly retendered. Any initial notes that have been
tendered but that are not accepted for exchange will be returned to the holder
without cost to the holder as soon as practicable after withdrawal, rejection
of tendered notes or termination of the exchange offer. Properly withdrawn
initial notes may be retendered by following one of the procedures described
above under "--Procedures for Tendering" at any time prior to the expiration
date.
Conditions
Notwithstanding any other term of the exchange offer, we shall not be
required to accept for exchange, or to exchange exchange notes for, any initial
notes, and may terminate or amend the exchange offer as provided in this
prospectus before the acceptance of the initial notes, if:
. any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the exchange offer
that, in our sole judgment, might materially impair our ability to proceed
with the exchange offer or any material adverse development has occurred in
any existing action or proceeding with respect to us; or
. any change, or any development involving a prospective change, in our
business or financial affairs has occurred that, in our sole judgment, might
materially impair our ability to proceed with the exchange offer; or
. any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted that, in our sole judgment,
might materially impair our ability to proceed with the exchange offer or
materially impair the contemplated benefits of the exchange offer to us; or
. a change occurs in the current interpretation by the staff of the
Commission that permits the exchange notes issued pursuant to the exchange
offer in exchange for initial notes to be offered for resale, resold and
otherwise transferred by holders, other than broker-dealers and any holder
that is our "affiliate" within the meaning of Rule 405 under the Securities
Act, without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided that the exchange notes are
acquired in the ordinary course of the holders' business and the holders
have no arrangement or understanding with any person to participate in the
distribution of the exchange notes; or
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. any governmental approval has not been obtained, which approval we
shall, in our sole discretion, deem necessary for the consummation of the
exchange offer as contemplated in this prospectus.
If we determine in our sole discretion that any of the conditions are not
satisfied, we may (1) refuse to accept any initial notes and return all
tendered initial notes to the tendering holders, (2) extend the exchange offer
and retain all initial notes tendered prior to the expiration of the exchange
offer, subject, however, to the rights of holders to withdraw the initial notes
as described under "--Withdrawal of Tenders" or (3) waive the unsatisfied
conditions with respect to the exchange offer and accept all properly tendered
initial notes that have not been withdrawn. If the waiver constitutes a
material change to the exchange offer, we will promptly disclose the waiver by
means of a prospectus supplement that will be distributed to the registered
holders, and, depending upon the significance of the waiver and the manner of
disclosure to the registered holders, we will extend the exchange offer for a
period of five to 10 business days if the exchange offer would otherwise expire
during that five to 10 day period.
The foregoing conditions are for our sole benefit and may be waived by us,
in whole or in part, in our sole discretion, although we have no current
intention of doing so. Any determination made by us concerning an event,
development or circumstance described or referred to above will be final and
binding on all parties.
Exchange Agent
U.S. Bank National Association has been appointed as exchange agent for the
exchange offer. Questions and requests for assistance, requests for additional
copies of this prospectus or of the letter of transmittal and requests for
notice of guaranteed delivery should be directed to the exchange agent
addressed as follows:
U.S. Bank National Association
Corporate Trust Services
180 East Fifth Street
St. Paul, MN 55101
Attention: Specialized Finance
By facsimile:
(651) 244-1537
Confirm: (651) 244-1197
Attention: Specialized Finance
Questions:
1-800-934-6802
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telephone or in person by our officers and regular employees and our
affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will
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reimburse it for its reasonable out-of-pocket expenses in connection with its
services and pay other registration expenses, including fees and expenses of
the trustee, filing fees, blue sky fees, if any, and printing and distribution
expenses.
We will pay all transfer taxes, if any, applicable to the exchange of the
initial notes pursuant to the exchange offer. If, however, certificates
representing the exchange notes or the initial notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued
in the name of, any person other than the registered holder of the initial
notes tendered, or if tendered initial notes are registered in the name of any
person other than the person signing the letter of transmittal, or if a
transfer tax is imposed for any reason other than the exchange of the initial
notes pursuant to the exchange offer, then the amount of any such transfer
taxes, whether imposed on the registered holder or any other person, will be
payable by the tendering holder. If satisfactory evidence of payment of
transfer taxes or exemption from transfer taxes is not submitted with the
letter of transmittal, the amount of the transfer taxes will be billed directly
to the tendering holder.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the
initial notes as reflected in our accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized. The
expenses of the exchange offer and the expenses related to the issuance of the
initial notes (which are expected to total approximately $4.8 million) will be
amortized over the term of the notes.
Consequences of Failure to Exchange
As a result of the making of this exchange offer, we will have fulfilled one
of our obligations under our registration rights agreement, and holders of
initial notes who do not tender their initial notes will not, except under
limited circumstances related to a holder's inability to participate in the
exchange offer as a matter of law or Commission policy, have any further
registration rights under our registration rights agreement or otherwise.
Accordingly, if you do not exchange your initial notes for exchange notes, you
will continue to hold the untendered initial notes and will be entitled to all
the rights and limitations applicable to initial notes under the indenture,
except to the extent the rights or limitations that, by their terms, terminate
or cease to have further effectiveness as a result of the exchange offer.
The initial notes that are not exchanged for exchange notes pursuant to the
exchange offer will remain restricted securities. Accordingly, those initial
notes may be resold only
. to us upon redemption of the initial notes or otherwise,
. pursuant to an effective registration statement under the Securities Act,
. so long as the initial notes are eligible for resale pursuant to Rule
144A, to a qualified institutional buyer within the meaning of Rule 144A
under the Securities Act in a transaction meeting the requirements of
Rule 144A,
. outside the United States to a foreign person pursuant to the exemption
from the registration requirements of the Securities Act provided by
Regulation S thereunder, or
. pursuant to another available exemption from the registration
requirements of the Securities Act,
in each case in accordance with any applicable securities laws of any state of
the United States.
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Accordingly, if any initial notes are tendered and accepted in the exchange
offer, the trading market for the untendered initial notes could be adversely
affected. Please refer to "Risk Factors--Risks Relating to the Exchange
Offer--Your failure to participate in the exchange offer will have adverse
consequences" and "--Termination of Certain Rights."
Termination of Certain Rights
You will not be entitled to certain rights under our registration rights
agreement following the consummation of the exchange offer. The rights that
will terminate are (1), except in limited circumstances related to a holder's
inability to participate in the exchange offer as a matter of law or Commission
policy, the right to have us file with the Commission and use our best efforts
to have declared effective a shelf registration statement to cover resales of
the initial notes and (2) the right to receive additional interest if the
registration statement of which this prospectus is a part is not declared
effective by April 19, 2003, the exchange offer is not completed by May 19,
2003 or the shelf registration statement is not declared effective by May 19,
2003.
Other
Participation in the exchange offer is voluntary and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
No person has been authorized to give any information or to make any
representations in connection with the exchange offer other than those
contained in this prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by us.
Neither the delivery of this prospectus nor any exchange made hereunder shall,
under any circumstances, create any implication that there has been no change
in our affairs since the respective dates as of which information is given in
this prospectus. The exchange offer is not being made to, nor will tenders be
accepted from or, on behalf of, holders of initial notes in any jurisdiction in
which the making of the exchange offer or the acceptance of the exchange offer
would not be in compliance with the laws of the jurisdiction. However, we may,
at our discretion, take such action as we may deem necessary to make the
exchange offer in any such jurisdiction and extend the exchange offer to
holders of initial notes in the jurisdiction. In any jurisdiction the
securities laws or blue sky laws of which require the exchange offer to be made
by a licensed broker or dealer, the exchange offer is being made on our behalf
by one or more registered brokers or dealers which are licensed under the laws
of the jurisdiction.
We may in the future seek to acquire untendered initial notes in open market
or privately negotiated transactions, through subsequent exchange offers or
otherwise. We have no present plans to acquire any initial notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any untendered initial notes.
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DESCRIPTION OF THE EXCHANGE NOTES
The exchange notes offered hereby will be issued pursuant to an indenture
dated as of December 20, 2002 (the "Indenture") between ACC and U.S. Bank
National Association, as successor-in-interest to State Street Bank and Trust
Company, as trustee (the "Trustee"). The terms of the exchange notes and the
initial notes will be substantially identical to each other, except as
described below. Under the terms of the Indenture, the covenants and events of
default will apply equally to the exchange notes, the initial notes and the
additional notes and the exchange notes, the initial notes and the additional
notes will be treated as one class for all actions to be taken by the holders
thereof and for determining their respective rights under the Indenture. The
terms of the exchange notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act"), as in effect on the date of the Indenture. The
following summary of certain provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture and the
Trust Indenture Act. The exchange notes are subject to all such provisions, and
we refer you to the Indenture, which we have filed as an exhibit to the
registration statement of which this prospectus is a part. The definitions of
certain terms used in the following summary are set forth below under
"--Certain Definitions." The initial notes, the exchange notes and the
additional notes are sometimes referred to herein, collectively, as the "notes."
General
The notes are general senior subordinated obligations of ACC and are
subordinated in right of payment to all existing and future Senior Debt of ACC
and rank pari passu in right of payment with ACC's existing 8 7/8% Notes.
As of the date of the Indenture, all of ACC's Subsidiaries were Restricted
Subsidiaries; however, under certain circumstances, ACC will be able to
designate certain current Subsidiaries or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
Principal, Maturity and Interest
The exchange notes will be limited, together with the initial notes, in
aggregate principal amount to $275.0 million. The notes mature on December 15,
2012. Additional notes may be issued from time to time, subject to the
limitations set forth under "--Certain Covenants--Limitations on Incurrence of
Additional Debt and Issuance of Preferred Stock." Interest on the notes accrues
at the rate of 7 3/4% per annum and is payable in cash, semi-annually in
arrears, on June 15 and December 15 of each year, commencing on June 15, 2003,
to Holders of record on the immediately preceding June 1 and December 1. The
notes will be issued only in registered form, without coupons, in denominations
of $1,000 and integral multiples thereof. Interest on the notes will accrue
from the most recent date to which interest has been paid or, if no interest
has been paid, from the date of original issuance. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months. Principal of,
premium, if any, and interest on the notes will be payable, and the notes are
transferable, at the office or agency of ACC maintained for such purpose within
the City and State of New York or, at the option of ACC, payment of interest
may be made by check mailed to the Holders at their respective addresses set
forth in the register of Holders. ACC may require the holders of the notes to
pay a sum sufficient to cover any tax or other governmental charge payable in
connection with certain transfers or exchanges of the notes. Initially, the
Trustee will act as paying agent and registrar under the Indenture.
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Optional Redemption
Except as set forth below, the exchange notes, like the initial notes, will
not be redeemable at ACC's option prior to December 15, 2007. Thereafter, the
notes will be subject to redemption, at the option of ACC, in whole or in part,
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued
and unpaid interest, if any, to the applicable date of redemption, if redeemed
during the twelve-month period beginning on December 15 of the years indicated
below:
Year Percentage
---- ----------
2007............... 103.875%
2008............... 102.583
2009............... 101.292
2010 and thereafter 100.000
In addition, at any time on or prior to December 15, 2005, ACC will have the
option to redeem up to 35% of the aggregate principal amount of the notes
originally issued at a redemption price equal to 107.750% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the applicable
date of redemption, with the net proceeds of one or more public offerings of
ACC Common Stock; provided that at least 65% of the aggregate principal amount
of the notes originally issued remains outstanding immediately after the
occurrence of such redemption; and, provided further, that each such redemption
shall occur within 60 days of the date of the closing of the applicable public
offering.
Furthermore, at any time prior to December 15, 2005, upon a Change of
Control (as defined herein), ACC will have the option to redeem the notes, in
whole or in part, within 180 days of such Change of Control, at a redemption
price equal to the sum of (i) the principal amount thereof, plus (ii) accrued
and unpaid interest, if any, to the applicable date of redemption, plus (iii)
the Applicable Premium.
"Applicable Premium" means, with respect to a note, the greater of (i) 1.0%
of the then outstanding principal amount of such note and (ii) (a) the present
value of all remaining required interest and principal payments due on such
note and all premium payments relating thereto assuming a redemption date of
December 15, 2007, computed using a discount rate equal to the Treasury Rate
plus 50 basis points minus (b) the then outstanding principal amount of such
note and minus (c) accrued and unpaid interest paid on the date of redemption.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519)
which has become publicly available at least two business days prior to the
date fixed for repayment (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining term to December 15, 2007; provided, however, that
if the then remaining term to December 15, 2007 is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average
yields of United States Treasury securities for which such yields are given,
except that if the then remaining term to December 15, 2007 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
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No Mandatory Redemption
ACC will not be required to make mandatory redemption or sinking fund
payments with respect to the notes.
Selection and Notice of Redemption
If less than all of the notes are to be redeemed at any time, selection of
notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the notes are listed, or, if the notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of notes to be redeemed at its
registered address. If any note is to be redeemed in part only, the notice of
redemption that relates to such note shall state the portion of the principal
amount thereof to be redeemed. A new note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original note. On and after the redemption date,
interest will cease to accrue on notes or portions of them called for
redemption.
Offers to Purchase
Upon the occurrence of a Change of Control or certain Asset Sales, the
Indenture requires, under certain circumstances, that ACC make an offer to
purchase notes in the amount and at the purchase price specified therein. See
"--Change of Control" and "--Certain Covenants--Limitations on Asset Sales."
Any such offer is required to remain open for a period of 20 business days
following its commencement, except to the extent that a longer period is
required by applicable law. No later than five business days after the
termination of such an offer, ACC is required to purchase the specified
principal amount of the notes tendered or, if a lesser amount of the notes has
been tendered, all of the tendered notes, upon the terms specified in the
Indenture.
Change of Control
In the event of a Change of Control, unless irrevocable notice of redemption
for all of the notes is given within 30 days after the occurrence of such
Change of Control in accordance with the provisions described under "--Optional
Redemption," ACC is required to make an offer to purchase, on the last business
day of the fiscal quarter of ACC next following the occurrence of such Change
of Control, all of the notes then outstanding at a purchase price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of purchase. Prior to the commencement of any such offer, but in any
event within 90 days after the occurrence of a Change of Control, ACC will (i)
to the extent then required to be repaid, repay in full all outstanding Senior
Debt or (ii) obtain the requisite consents, if required, under agreements
governing such Senior Debt to permit the redemption of notes. In the event that
a Change of Control occurs and the Holders exercise their right to require ACC
to purchase notes, if such purchase constitutes a "tender offer" for the
purposes of Rule 14e-1 under the Exchange Act at that time, ACC will comply
with the requirements of Rule 14e-1 as then in effect with respect to such
purchase.
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Subordination
The payment of principal of, premium, if any, and interest on the notes is
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter incurred.
Upon any distribution to creditors of ACC in a liquidation or dissolution of
ACC or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to ACC or its property, or in an assignment for the benefit
of creditors or any marshalling of ACC's assets and liabilities, the holders of
Senior Debt will be entitled to receive irrevocable payment in full in cash or
Cash Equivalents reasonably satisfactory to such holders of all Obligations due
in respect of such Senior Debt (including interest after the commencement of
any such proceeding at the rate specified in the applicable Senior Debt,
regardless of whether such post-petition interest is allowed in such
proceeding) before the Holders will be entitled to receive any payment with
respect to the notes; and until all Obligations with respect to Senior Debt are
irrevocably paid in full in cash or Cash Equivalents reasonably satisfactory to
the holders of Senior Debt, any distribution to which the Holders would be
entitled will be made to the holders of Senior Debt (except that, in either
case, Holders may receive securities that are subordinated at least to the same
extent as the Notes to (a) Senior Debt and (b) any securities issued in
exchange for Senior Debt that have a maturity no earlier than that of the
notes).
ACC also may not make any payment upon or in respect of the notes (except in
such subordinated securities) if (i) a default in the payment of the principal
of, premium, if any, or interest on Designated Senior Debt occurs and is
continuing beyond any applicable period of grace or (ii) any other default
occurs and is continuing with respect to Designated Senior Debt that permits
holders of Designated Senior Debt as to which such default relates to
accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from ACC or the holders of any Designated Senior
Debt. Payments on the notes may and shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and (b)
in the case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been accelerated. No new period of payment blockage
may be commenced unless and until 360 days have elapsed since the effectiveness
of the immediately prior Payment Blockage Notice. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice.
The Indenture also requires that ACC promptly notify the holders of Senior
Debt if payment of the notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders may recover less ratably than creditors of
ACC who are holders of Senior Debt or other creditors of ACC who are not
subordinated to holders of Senior Debt. As of December 31, 2002, after giving
pro forma effect to the borrowings under the senior credit facility in
connection with the purchase and redemption of the 9 3/4% Debentures and the
repayment of borrowings under the senior credit facility with a portion of the
proceeds from the sale of the additional notes, the principal amount of Senior
Debt outstanding would have been approximately $22.5 million. The Indenture
limits, subject to certain financial tests, the amount of additional Debt,
including Senior Debt, that ACC and its Restricted Subsidiaries may incur. See
"--Certain Covenants--Limitations on Incurrence of Debt and Issuance of
Preferred Stock."
"Designated Senior Debt" means (i) so long as any Senior Bank Debt is
outstanding, the Senior Bank Debt and (ii) thereafter, any other Senior Debt
permitted under the Indenture, the
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principal amount of which is $25.0 million or more and that has been designated
by ACC as "Designated Senior Debt."
"Senior Bank Debt" means the Debt now or hereafter outstanding under the
Senior Credit Facility, as such agreement may be restated, further amended,
supplemented or otherwise modified or replaced from time to time hereafter,
together with any refunding or replacement of such Debt, to the extent that any
such Debt was permitted by the Indenture to be incurred.
"Senior Debt" means (a) the Senior Bank Debt, (b) all additional Debt that
is permitted under the Indenture that is not by its terms pari passu with or
subordinated to the notes, (c) all Obligations of ACC with respect to the
foregoing clauses (a) and (b), including post-petition interest and (d) all
(including all subsequent) renewals, extensions, amendments, refinancings,
repurchases or redemptions, modifications, replacements or refundings thereof
(whether or not coincident therewith) that are permitted by the Indenture.
Notwithstanding anything to the contrary in the foregoing, Senior Debt shall
not include (i) any Debt of ACC to any of its Restricted Subsidiaries, (ii) any
Debt incurred for the purchase of goods or materials or for services obtained
in the ordinary course of business (other than with the proceeds of borrowings
from banks or other financial institutions), (iii) any Debt incurred in
violation of the Indenture or (iv) the 8 7/8% Notes, which rank pari passu in
right of payment with the notes.
Certain Covenants
The Indenture contains, among others, the following covenants discussed
below.
Limitations on Incurrence of Debt and Issuance of Preferred Stock
The Indenture provides that ACC will not, and will not permit any of its
Restricted Subsidiaries to, (i) directly or indirectly, create, incur, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Debt (including Acquired
Debt) or (ii) issue any shares of preferred stock; provided, however, that ACC
may (a) issue preferred stock that is not Disqualified Stock at any time and
(b) incur Debt (including Acquired Debt) or issue shares of Disqualified Stock
if, in each case, the Debt to Operating Cash Flow Ratio of ACC and its
Restricted Subsidiaries at the time of the incurrence of such Debt or the
issuance of such shares of Disqualified Stock, after giving pro forma effect
thereto, is 7:1 or less; provided further, that any such Debt incurred by ACC
that is not Senior Debt shall have a Weighted Average Life to Maturity no
shorter than the Weighted Average Life to Maturity of the notes.
The foregoing limitations do not apply to the incurrence of any of the
following (collectively, "Permitted Debt"):
(i) revolving credit Debt of ACC under the Senior Credit Facility not to
exceed $100.0 million at any time outstanding;
(ii) intercompany Debt between or among ACC and any of its Wholly Owned
Restricted Subsidiaries or a Majority Owned Subsidiary made pursuant to an
intercompany note in the form attached as an exhibit to the Indenture which
provides that any such Debt of ACC is subordinated to the Notes; provided,
that (x) any disposition, pledge or transfer of any such Debt to a Person
(other than ACC or a Wholly Owned Restricted Subsidiary or a Majority Owned
Subsidiary) will be deemed to be an incurrence of such Debt by the obligor
not permitted by this clause (ii) and (y) any transaction pursuant to which
any Wholly
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Owned Restricted Subsidiary or a Majority Owned Subsidiary that has Debt
owing to ACC or any other Wholly Owned Restricted Subsidiary or a Majority
Owned Subsidiary ceases to be a Wholly Owned Restricted Subsidiary or a
Majority Owned Subsidiary will be deemed to be the incurrence of Debt by ACC
or such other Wholly Owned Restricted Subsidiary or a Majority Owned
Subsidiary that is not permitted by this clause (ii);
(iii) Debt represented by the existing 8 7/8% Notes;
(iv) Debt represented by the initial notes and the exchange notes;
(v) Debt existing on December 20, 2002, the date of the Indenture;
(vi) other Debt incurred after December 20, 2002, by ACC in an aggregate
principal amount at any time outstanding not to exceed $40.0 million less
the sum of (a) the aggregate principal amount of Debt incurred plus (b) the
aggregate liquidation preference of preferred stock issued by Restricted
Subsidiaries pursuant to clause (vii) of this paragraph;
(vii) Debt incurred and shares of preferred stock issued by Restricted
Subsidiaries, so long as the sum of (a) the aggregate principal amount of
all outstanding Debt of Restricted Subsidiaries plus (b) the aggregate
liquidation preference of all outstanding preferred stock of Restricted
Subsidiaries shall not exceed at any time $20.0 million less the aggregate
principal amount of Debt in excess of $20.0 million incurred by ACC pursuant
to clause (vi) of this paragraph;
(viii) the incurrence by ACC or any of its Restricted Subsidiaries of
Debt in connection with the acquisition of assets or a new Restricted
Subsidiary; provided that such Debt was incurred by the prior owner of such
assets or such Restricted Subsidiary prior to such acquisition by ACC or one
of its Restricted Subsidiaries and was not incurred in connection with, or
in contemplation of, such acquisition by ACC or one of its Restricted
Subsidiaries; and, provided further, that the Debt to Operating Cash Flow
Ratio of ACC and its Restricted Subsidiaries after giving pro forma effect
to such acquisition and such incurrence would be 7:1 or less;
(ix) Debt in respect of interest rate protection or hedging arrangements
entered into by ACC to fix the floating interest rate or float the fixed
interest rate of any Debt permitted to be incurred under the Indenture; and
(x) Debt of ACC incurred in exchange for or the proceeds of which are
used to exchange, refinance or refund any of the foregoing Debt so long as
(a) the principal amount of the Debt incurred does not exceed the principal
amount (plus any premium) of the Debt so exchanged, refinanced or refunded,
plus the amount of reasonable expenses incurred in connection therewith, (b)
the Debt incurred does not have an average life shorter than the average
life of the Debt being so exchanged, refinanced or refunded and (c) if
applicable, the Debt incurred ranks as subordinated in right of payment to
the notes as the Debt being so exchanged, refinanced or refunded.
The Indenture also provides that ACC will not permit any of its Unrestricted
Subsidiaries to incur Debt that would be recourse to ACC or any Restricted
Subsidiary or any of their respective assets.
Limitations on Restricted Payments
The Indenture provides that ACC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, (i) declare or pay any
dividend on, or make any payment
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or distribution in respect of, or purchase, redeem or retire for value any
Capital Stock of ACC or any of its Restricted Subsidiaries (except Capital
Stock held by ACC or a Wholly Owned Restricted Subsidiary or Majority Owned
Subsidiary), other than in exchange for ACC's own Capital Stock (other than
Disqualified Stock); (ii) make any principal payment on, or redeem, repurchase,
defease or otherwise acquire or retire for value, more than one year prior to a
scheduled principal payment or maturity, Debt of ACC that is expressly
subordinated in right of payment to the notes; or (iii) make any Restricted
Investments (such payments and other actions described in the immediately
preceding clauses (i), (ii) and (iii) collectively, "Restricted Payments"),
unless at the time of and after giving effect to such proposed Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be
continuing; and
(b) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made after June 30, 1992 (net of any
Restricted Payments repaid to ACC or any of its Restricted Subsidiaries to
the extent not included in clause (2) below and any Restricted Payment made
by ACC pursuant to clause (z) below) shall not exceed, at the date of
determination, the sum of (1) an amount equal to ACC's Cumulative Operating
Cash Flow from June 30, 1992 to the end of ACC's most recently ended full
fiscal quarter, taken as a single accounting period, less the product of 1.4
times ACC's Cumulative Total Interest Expense from June 30, 1992 to the end
of ACC's most recently ended full fiscal quarter, taken as a single
accounting period, plus (2) an amount equal to the net cash proceeds
received by ACC as capital contributions to ACC (other than from any of its
Restricted Subsidiaries and other than from the return of advances made by
Perpetual in connection with the Refinancing) after June 30, 1992, or from
the issuance and sale by ACC (other than to any of its Restricted
Subsidiaries) after June 30, 1992 of Capital Stock (other than Disqualified
Stock), plus (3) $3.5 million.
The foregoing provisions do not prohibit:
(w) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(x) any transaction with an officer or director of ACC entered into in
the ordinary course of business (including compensation or employee benefit
arrangements with any officer or director of ACC);
(y) the payment of any dividend by a Majority Owned Subsidiary to
holders of its Capital Stock; and
(z) so long as no Default or Event of Default shall have occurred and be
continuing, one or more Restricted Payments in an aggregate amount of up to
$25.0 million on or after December 20, 2002; provided that after giving
effect to any such Restricted Payment ACC could incur $1.00 of additional
indebtedness under the first paragraph of the covenant entitled "Limitations
on Incurrence of Debt and Issuance of Preferred Stock."
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of ACC's Board of Directors set forth
in an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by ACC or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
At the conclusion of each calendar month, ACC will deliver to the Trustee an
Officers' Certificate identifying the Restricted Payments made during the prior
month, stating that such Restricted Payments were permitted and setting forth
the amount of Restricted Payments still available to be made, which
calculations may be based upon ACC's latest available financial statements.
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Limitations on Other Subordinated Debt
The Indenture provides that ACC will not incur or permit to remain
outstanding any Debt that is subordinated or junior in right of payment to any
Senior Debt and senior in any respect in right of payment to the notes.
Limitations on Liens Securing Subordinated Debt
The Indenture provides that ACC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien securing Debt that is pari passu with or subordinated
in right of payment to the notes (other than Permitted Liens) upon any of its
property or assets (including intercompany notes), now owned or acquired after
the date of the Indenture, or any income or profits therefrom, except if the
notes are directly secured equally and ratably with (or prior to, in the case
of Liens with respect to Debt that is subordinated in right of payment to the
notes) the obligation or liability secured by such Lien.
Limitations on Transactions with Affiliates
The Indenture provides that ACC will not, and will not permit any of its
Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into, amend or make any contract, agreement, understanding, loan, advance
or guarantee with, or for the benefit of, any Affiliate (each of the foregoing,
an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to
ACC or the relevant Restricted Subsidiary than those that would be obtained
in a comparable transaction with an unrelated Person and
(ii) ACC delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of ACC's Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above and that such Affiliate Transaction has
been approved by a majority of the members of ACC's Board of Directors
and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
investment banking firm of national standing.
Notwithstanding the foregoing, each of the following is deemed not to be an
Affiliate Transaction:
(1) any transaction with an officer or director of ACC entered
into in the ordinary course of business (including compensation or
employee benefit arrangements with any officer or director of ACC),
(2) any transaction entered into by ACC or any of its Restricted
Subsidiaries with another Restricted Subsidiary of ACC,
(3) transactions in existence on the date of the Indenture,
(4) payments made by ACC substantially in conformity with past
practices to reimburse Perpetual for any group insurance policies
purchased by Perpetual to the extent that the coverage of such
policies includes ACC, its Restricted Subsidiaries and their
respective operations,
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(5) payments by ACC to Perpetual in respect of tax liabilities
pursuant to the terms of the Tax Sharing Agreement, as amended to and
in effect on the date of the Indenture or thereafter amended to the
extent such subsequent amendment is not disadvantageous to ACC or its
Subsidiaries, and
(6) Restricted Payments permitted under the covenant described
above under the caption "--Limitations on Restricted Payments" and
any Permitted Investment.
Limitations on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that ACC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to
(i) (a) pay dividends or make any other distributions to ACC or any of
its Restricted Subsidiaries
(1) on its Capital Stock or
(2) with respect to any other interest or participation in, or
measured by, its profits, or
(b) pay any Debt owed to ACC or any of its Restricted Subsidiaries,
(ii) make loans or advances to ACC or any of its Restricted Subsidiaries
or
(iii) transfer any of its properties or assets to ACC or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of
(A) Debt existing on December 20, 2002,
(B) Debt permitted to be incurred pursuant to clauses (vi) or (vii)
of the second paragraph of the covenant described above under the
caption "--Limitations on Incurrence of Debt and Issuance of Preferred
Stock" or
(C) any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings
thereof; provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or
refinancings are no more restrictive with respect to such dividend and
other payment restrictions than those contained in the agreements
governing such Debt as in effect on December 20, 2002.
Limitations on Asset Sales
The Indenture provides that ACC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, engage in any Asset Sale
unless
(i) ACC (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee) of the assets or
Capital Stock issued or sold or otherwise disposed of and
(ii) at least 85% of the consideration therefor received by ACC or such
Restricted Subsidiary is in the form of cash or Cash Equivalents; provided,
however, that ACC (or the Restricted Subsidiary, as the case may be) may
receive Permitted Asset Sale Consideration in lieu of cash or Cash
Equivalents if ACC and its Restricted Subsidiaries could incur, on a
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pro forma basis after giving effect to such Asset Sale and receipt of such
Permitted Asset Sale Consideration as if the same had occurred at the
beginning of the most recent four full fiscal quarters ending immediately
prior to the date of such Asset Sale, at least $1.00 of additional Debt
(other than Permitted Debt) pursuant to the covenant described above under
the caption "--Limitations on Incurrence of Debt and Issuance of Preferred
Stock.''
Within one year after the receipt of any Net Proceeds from any Asset Sale, ACC
(or the Restricted Subsidiary, as the case may be) may apply such Net Proceeds,
at its option,
(a) to retire Senior Debt or
(b) to the purchase of a controlling interest in another business or to
the purchase of capital assets, in each case, in the same line of business
as ACC was engaged in on the date of the Indenture.
When the aggregate amount of Excess Proceeds exceeds $5.0 million, ACC will
be required to make an offer to all Holders of notes and, to the extent
required by the terms thereof, the holders of Pari Passu Debt (an "Asset Sale
Offer"), to purchase the maximum principal amount of notes and any such Pari
Passu Debt that may be purchased out of the Excess Proceeds, at an offer price
in cash in an amount equal to 100% of the principal amount (or accreted value,
as applicable) thereof, plus accrued and unpaid interest, if any, to the date
of purchase, in accordance with the procedures set forth in the Indenture or
the agreements governing Pari Passu Debt, as applicable. To the extent that the
aggregate amount of notes and Pari Passu Debt tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, ACC may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
notes and Pari Passu Debt surrendered exceeds the amount of Excess Proceeds,
the Trustee will be required to select the notes and Pari Passu Debt to be
purchased on a pro rata basis, based upon the principal amount (or accreted
value, as applicable) thereof surrendered in such Asset Sale Offer. Upon
completion of such offer to purchase, the amount of Excess Proceeds will be
reset at zero.
Limitations on Merger, Consolidation or Sale of Substantially All Assets
The Indenture provides that ACC may not consolidate or merge with or into
any other Person (whether or not ACC is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets (determined on a consolidated basis for ACC and
its Restricted Subsidiaries) in one or more related transactions, to another
corporation, Person or entity (other than the merger of a Wholly Owned
Restricted Subsidiary of ACC into another Wholly Owned Restricted Subsidiary of
ACC or into ACC) unless
(i) ACC is the surviving corporation or the entity or the Person formed
by or surviving any such consolidation or merger (if other than ACC) or to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia,
(ii) the entity or Person formed by or surviving any such consolidation
or merger (if other than ACC) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all of the obligations of ACC under the notes and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to
the Trustee and under the Registration Rights Agreement,
(iii) immediately after such transaction, no Default or Event of Default
shall have occurred and be continuing; and
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(iv) ACC or the entity or Person formed by or surviving any such
consolidation or merger (if other than ACC), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made
(A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of ACC
immediately preceding the transaction and
(B) will, at the time of such transaction and after giving pro forma
effect thereto, be permitted to incur at least $1.00 of additional Debt
(other than Permitted Debt) pursuant to the covenant described above
under the caption "--Limitations on Incurrence of Debt and Issuance of
Preferred Stock."
Events of Default
The Indenture provides that each of the following constitutes an Event of
Default:
(i) the failure by ACC to pay interest on any of the notes when the same
becomes due and payable and the continuance of any such failure for 30 days
(whether or not prohibited by the subordination provisions of the Indenture);
(ii) the failure to pay principal of or premium, if any, on any of the
notes when and as the same shall become due and payable at maturity, upon
acceleration, optional or mandatory redemption, required repurchase or
otherwise (whether or not prohibited by the subordination provisions of the
Indenture);
(iii) the failure by ACC to comply with any of the provisions described
above under the captions "--Limitations on Incurrence of Debt and Issuance
of Preferred Stock," "--Limitations on Restricted Payments" and
"--Limitations on Merger, Consolidation or Sale of Substantially All Assets"
and continuance of such failure for 30 days after written notice is given to
ACC by the Trustee or to ACC and the Trustee by the Holders of 25% in
aggregate principal amount of the notes then outstanding;
(iv) the failure by ACC to comply with any of its other agreements or
covenants in the notes or the Indenture and continuance of such failure for
60 days after written notice is given to ACC by the Trustee or to ACC and
the Trustee by the Holders of 25% in aggregate principal amount of the notes
then outstanding;
(v) an event of default occurs under any mortgage, indenture or other
instrument governing any Debt of ACC or any of its Restricted Subsidiaries
for borrowed money, whether such Debt now exists or shall hereafter be
created, if
(a) such event of default results from the failure to pay at
maturity $5.0 million or more in principal amount of such Debt or
(b) as a result of such event of default the maturity of $5.0
million or more in principal amount of such Debt has been accelerated
prior to its stated maturity;
(vi) any final judgments aggregating $5.0 million or more are rendered
against ACC or any of its Restricted Subsidiaries that remain undischarged
for a period (during which execution shall not be effectively stayed) of 60
days; and
(vii) certain events of bankruptcy, insolvency or reorganization of ACC
or any of its Restricted Subsidiaries.
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The Indenture provides that the Trustee must, within 90 days after the
occurrence of a Default or Event of Default, give to the Holders of the notes
notice of all uncured Defaults or Events of Defaults known to it; provided
that, except in the case of a Default or Event of Default in payment on any
note, the Trustee may withhold such notice if a committee of its Responsible
Officers in good faith determines that the withholding of such notice is in the
interest of the Holders. The Indenture provides that ACC is required to furnish
annually to the Trustee a certificate as to its compliance with the terms of
the Indenture.
Rights Upon Default
The Trustee or the Holders of not less than 25% in aggregate principal
amount of notes then outstanding are authorized, upon the happening of any
Event of Default specified in the Indenture, to declare (a "Declaration") due
and payable all unpaid principal of, premium, if any, and accrued and unpaid
interest, if any, on all notes issued under the Indenture then outstanding (the
"Default Amount"). Upon any such Declaration, the Default Amount shall become
immediately due and payable. If an Event of Default arises from certain events
of bankruptcy or insolvency, all outstanding notes will become due and payable
without further action or notice.
The Holders of not less than a majority in principal amount of the then
outstanding notes by notice to the Trustee are authorized to waive any Default
or Event of Default and rescind any Declaration if the Event of Default is
cured or waived, except a continuing Default or Event of Default in the payment
of the principal of, premium, if any, or interest on any note held by a
non-consenting Holder, or a Default or Event of Default with respect to a
provision which cannot be modified or amended without the consent of the Holder
of each outstanding note affected. Subject to the provisions of the Indenture
relating to the duties of the Trustee, the Trustee may refuse to perform any
duty or exercise any right or power unless it receives indemnity satisfactory
to it against any loss, liability or expense. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in principal amount of
the notes then outstanding have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of ACC with the
intention of avoiding payment of the premium that ACC would have had to pay if
ACC then had elected to redeem the notes pursuant to the optional redemption
provisions of the Indenture, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law upon the
acceleration of the notes. If an Event of Default occurs prior to December 15,
2007 by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of ACC with the intention of avoiding the prohibition on redemption
of the notes prior to December 15, 2007, then the premium specified in the
Indenture shall also become immediately due and payable to the extent permitted
by law upon the acceleration of the notes.
A Holder of a note may pursue a remedy with respect to the Indenture or the
notes only if
(i) the Holder of a note gives to the Trustee written notice of a
continuing Event of Default;
(ii) the Holders of at least 25% in principal amount of the then
outstanding notes make a written request to the Trustee to pursue the remedy;
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(iii) such Holder or Holders of notes offer and, if requested, provide
to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(iv) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(v) during such 60-day period the Holders of a majority in principal
amount of the then outstanding notes do not give the Trustee a direction
inconsistent with the request.
No Personal Liability of Directors, Officers, Employees and Shareholders
No past, present or future director, officer, employee, incorporator,
stockholder or other Affiliate of ACC, as such, shall have any liability for
any obligations of ACC under the notes or the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
holder by accepting an exchange note waives and releases all such liability;
such waiver and release are part of the consideration for issuance of the
exchange notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
Transfer and Exchange
A Holder may transfer or exchange notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and ACC may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
Neither ACC nor the Registrar is required to transfer or exchange any note
selected for redemption or any note for a period of 15 business days before a
selection of such note to be redeemed. The registered Holder of a note will be
treated as the owner of it for all purposes under the Indenture.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture or
the notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of or
tender offer or exchange offer for notes), and any existing default or
compliance with any provision of the Indenture or the notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding notes (including, without limitation, consents obtained in
connection with a purchase of or tender offer or exchange offer for notes).
The Indenture contains provisions permitting ACC and the Trustee, with the
consent of the Holders of not less than a majority in aggregate principal
amount of the notes then outstanding, to amend or supplement the Indenture or
any supplemental indenture or the rights of the Holders of notes; provided that
no such modification may, without the consent of each Holder of such notes
affected thereby,
(i) reduce the principal amount of notes whose Holders must consent to
an amendment, supplement or waiver;
(ii) reduce the rate of or extend the time for payment of interest on
any note;
(iii) reduce the principal of or extend the fixed maturity of any note
or alter the optional or mandatory redemption provisions (including the
purchase price specified for
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any offers to purchase notes pursuant to the "Limitations on Asset Sales"
covenant or the "Change of Control" covenant requiring redemption) with
respect thereto;
(iv) waive a Default in the payment of the principal of, premium, if
any, or interest on any note;
(v) make any note payable in money other than that stated in any note; or
(vi) make a change in certain waiver, payment and amendment provisions
of the Indenture.
Notwithstanding the foregoing, without the consent of any Holder of notes,
ACC and the Trustee may amend or supplement the Indenture or the notes to cure
any ambiguity, defect or inconsistency, to provide for uncertificated notes in
addition to or in place of certificated notes, to provide for the assumption of
ACC's obligations to Holders of notes in the case of a merger or consolidation,
to make any change that would provide any additional rights or benefits to the
Holders of notes or that does not adversely affect the legal rights under the
Indenture of any such Holder.
Legal Defeasance and Covenant Defeasance
ACC may, at its option and at any time, elect to have all of its obligations
discharged with respect to the outstanding notes ("Legal Defeasance") except for
(i) the rights of Holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on such notes
when such payments are due from the trust referred to below;
(ii) ACC's obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or stolen
notes and the maintenance of an office or agency for payment and money for
security payments held in trust;
(iii) the rights, powers, trusts, duties and immunities of the Trustee,
and ACC's obligations in connection therewith; and
(iv) the Legal Defeasance provisions of the Indenture.
In addition, ACC may, at its option and at any time, elect to have the
obligations of ACC released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the notes. In the event Covenant Defeasance occurs,
certain events (not including nonpayment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) ACC must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the outstanding notes on the stated maturity date or on the applicable
redemption date, as the case may be, and ACC must specify whether the notes
are being defeased to maturity or to a particular redemption date;
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(ii) in the case of Legal Defeasance, ACC shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that
(A) ACC has received from, or there has been published by, the
Internal Revenue Service a ruling or
(B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, the
Holders of the outstanding notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, ACC shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that the Holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of deposit;
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which ACC or any of its
Restricted Subsidiaries is a party or by which ACC or any of its Restricted
Subsidiaries is bound;
(vi) ACC must have delivered to the Trustee an opinion of counsel to the
effect that after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(vii) ACC must deliver to the Trustee an Officers' Certificate stating
that the deposit was not made by ACC with the intent of preferring the
Holders of notes over the other creditors of ACC with the intent of
defeating, hindering, delaying or defrauding other creditors of ACC;
(viii) ACC must deliver to the Trustee an opinion of counsel to the
effect that the trust described above will not be subject to the
subordination provisions of the Indenture; and
(ix) ACC must deliver to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent provided for
or relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
notes, as expressly provided for in the Indenture) as to all outstanding notes
when:
(1) either:
(a) all the notes theretofore authenticated and delivered (except
lost, stolen or destroyed notes which have been replaced or paid and
notes for whose payment
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money has theretofore been deposited in trust or segregated and held in
trust by ACC and thereafter repaid to ACC or discharged from such trust)
have been delivered to the Trustee for cancellation; or
(b) all notes not theretofore delivered to the Trustee for
cancellation have become due and payable and ACC has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the notes to the date of deposit
together with irrevocable instructions from ACC directing the Trustee to
apply such funds to the payment thereof at maturity or redemption, as
the case may be;
(2) ACC has paid all other sums payable under the Indenture by ACC; and
(3) ACC has delivered to the Trustee an Officers' Certificate and an
opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been
complied with.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any notes are outstanding, ACC, at
its 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 Commission on Forms 10-Q and
10-K, if ACC was required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report thereon by ACC's
certified independent accountants and
(ii) all current reports that would be required to be filed with the
Commission on Form 8-K if ACC was required to file such reports.
In addition, whether or not required by the rules and regulations of the
Commission, ACC will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not accept such
a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, ACC has agreed that, for so
long as any notes remain outstanding, they will furnish to the Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of ACC, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise.
The Holders of a majority in principal amount of the then outstanding notes
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that in case an Event of Default shall occur
(which shall not be cured), the Trustee is required, in the exercise of its
power, to use the degree of care of a prudent person in the conduct of their
own affairs. Subject to such provisions, the Trustee is under no obligation to
exercise any of its rights or powers
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under the Indenture at the request of any Holder, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
Certain Definitions
Set forth below is a summary of certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"ACC Common Stock" means the common stock of ACC, par value $0.05 per share.
"Acquired Debt" of any specified Person means Debt of any other Person
existing at the time such other Person merged with or into or became a
Subsidiary of such specified Person, including Debt incurred in connection
with, or in contemplation of, such other Person becoming a Subsidiary of such
specified Person.
"Affiliate" means a Person
(a) that directly or indirectly through one or more intermediaries
controls, is controlled by or is under direct or indirect common control
with ACC or any Restricted Subsidiary,
(b) that directly or indirectly through one or more intermediaries
beneficially owns or holds 5% or more of any class of voting stock of ACC or
any Restricted Subsidiary or
(c) 5% or more of the voting stock (or in the case of a Person that is
not a corporation, 5% or more of the equity interests) of which is
beneficially owned or held by ACC or any Restricted Subsidiary.
The term "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with") shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"AGI" means Allbritton Group, Inc.
"Asset Sale" means
(a) any sale, lease, conveyance or other disposition of assets by ACC or
a Restricted Subsidiary (including by way of a sale and leaseback
transaction other than a Capitalized Lease Obligation) and
(b) any sale or issuance of Equity Interests of a Restricted Subsidiary,
in each case, in one or more related transactions involving assets having a
fair market value, or that result in aggregate proceeds, of $2.5 million or
more; provided, however, that (i) Permitted Asset Swaps and (ii) sales of
obsolete equipment in the ordinary course of business will not be deemed to
be Asset Sales.
"Broadcast Related Business" means any business, the majority of whose
revenues are derived from, or whose assets are used or useful in, the broadcast
of television or radio programming and any ancillary businesses relating
thereto.
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"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in the common or preferred equity (however designated) of such
Person, including, without limitation, partnership interests (whether general
or limited) and membership interests, but excluding convertible debt securities.
"Capitalized Lease Obligation" means, with respect to any Person for any
period, an obligation of such Person to pay rent or other amounts under a lease
that is required to be capitalized for financial reporting purposes in
accordance with GAAP; and the amount of such obligation shall be the
capitalized amount shown on the balance sheet of such Person as determined in
accordance with GAAP.
"Cash Equivalents" means
(a) direct obligations of the United States of America or any agency
thereof, or obligations guaranteed by the United States of America; provided
that in each case such obligations mature within one year from the date of
acquisition thereof,
(b) certificates of deposit maturing within one year from the date of
creation thereof issued by
(i) any U.S. national or state banking institution having capital,
surplus and undivided profits aggregating at least $250,000,000 and
rated at least A by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P"), and A by Moody's Investors Service, Inc. or
(ii) Riggs Bank N.A.,
(c) commercial paper maturing within 270 days after the issuance thereof
that has the highest credit rating of either S&P or Moody's Investors
Service, Inc.,
(d) Riggs National Corporation Master Notes, each with a stated maturity
the duration of which shall not exceed two years,
(e) Riggs Bank N.A. Eurodollar Deposits, each with a stated maturity the
duration of which shall not exceed two years,
(f) Riggs Bank N.A. Repurchase Agreements, each with a stated maturity
the duration of which shall not exceed two years,
(g) Riggs Bank N.A. Bankers Acceptances, each with a stated maturity the
duration of which shall not exceed two years,
(h) Riggs Bank N.A. Eurodollar Certificates of Deposit, each with a
stated maturity the duration of which shall not exceed two years,
(i) Riggs AP Bank Ltd. Certificates of Deposit, each with a stated
maturity the duration of which shall not exceed two years and
(j) Riggs AP Bank Ltd. Cash Eurodollar Deposits, each with a stated
maturity the duration of which shall not exceed two years.
"Change of Control" means
(a) any transaction (including a merger or consolidation) the result of
which is that any Person or Group (as defined in Rule 13d-5 of the Exchange
Act) other than the Principals acquires, directly or indirectly, more than
50% of the total voting power of all classes of voting stock of ACC, or
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(b) any transaction (including a merger or consolidation) the result of
which is that any Person or Group (as defined in Rule 13d-5 of the Exchange
Act) other than the Principals has a sufficient number of its or their
nominees elected to the board of directors of ACC or any entity directly or
indirectly controlling ACC such that such nominees so elected (whether new
or continuing as directors) shall constitute a majority of the board of
directors of ACC or such entity, as the case may be, or
(c) the sale of all or substantially all of the Capital Stock or assets
of ACC to any Person or Group (as defined in Rule 13d-5 of the Exchange Act)
other than to the Principals as an entirety or substantially as an entirety
in one transaction or a series of related transactions or
(d) the sale of the broadcasting property known as of the date of the
Indenture as WJLA-TV.
"Consolidated Net Income" means, for any fiscal period, the consolidated net
earnings or loss of ACC and its Restricted Subsidiaries as the same would
appear on a consolidated statement of earnings of ACC for such fiscal period
prepared in accordance with GAAP; provided that
(a) any extraordinary gain (but not loss) and any gain (but not loss) on
sales of assets outside the ordinary course of business, in each case
together with any related provision for taxes, realized during such period
shall be excluded,
(b) the results of operations of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded and
(c) net income attributable to any Person other than a Restricted
Subsidiary of ACC shall be included only to the extent of the amount of cash
dividends or distributions actually paid to ACC or a Restricted Subsidiary
of ACC during such period.
In computing Consolidated Net Income, gains and losses associated with the
early extinguishment of debt shall be determined in accordance with GAAP prior
to the effectiveness of SFAS No. 145.
"Consolidated Net Worth" with respect to any Person means the equity of the
common and preferred stockholders of such Person and its Subsidiaries
(excluding any redeemable preferred stock and any cumulated foreign currency
translation adjustment), as determined on a consolidated basis and in
accordance with GAAP.
"Cumulative Operating Cash Flow" means, with respect to ACC and its
Restricted Subsidiaries, as of any date of determination, Operating Cash Flow
from June 30, 1992 to the end of ACC's most recently ended full fiscal quarter
prior to such date, taken as a single accounting period.
"Cumulative Total Interest Expense" means, with respect to ACC and its
Restricted Subsidiaries, as of any date of determination, Total Interest
Expense from June 30, 1992 to the end of ACC's most recently ended full fiscal
quarter prior to such date, taken as a single accounting period.
"Debt" of any Person as of any date means and includes, without duplication,
(a) all indebtedness of such Person, contingent or otherwise, in respect
of borrowed money, including all interest, fees and expenses owed with
respect thereto (whether or not the recourse of the lender is to the whole
of the assets of such Person or only to a portion thereof), or evidenced by
bonds, notes, debentures or similar instruments, or representing the
deferred and unpaid balance of the purchase price of any property or
interest therein,
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except any such balance that constitutes a trade payable, if and to the
extent such indebtedness would appear as a liability upon a balance sheet of
such Person prepared on a consolidated basis in accordance with GAAP,
(b) all Capitalized Lease Obligations of such Person,
(c) all Obligations of such Person in respect of letters of credit or
letter of credit reimbursement (whether or not such items would appear on
the balance sheet of such Person),
(d) all Obligations of such Person in respect of interest rate
protection and foreign currency hedging arrangements and
(e) all Guarantees by such Person of items that would constitute Debt
under this definition (whether or not such items would appear on such
balance sheet);
provided, however, that the term Debt shall not include any Obligations of ACC
and its Restricted Subsidiaries with respect to Film Contracts entered into in
the ordinary course of business. The amount of Debt of any Person at any date
shall be, without duplication, the principal amount that would be shown on a
balance sheet of such Person prepared as of such date in accordance with GAAP
and the maximum determinable liability of any contingent Obligations referred
to in clause (e) above at such date. The Debt of ACC and its Restricted
Subsidiaries shall not include any Obligations of Unrestricted Subsidiaries.
"Debt to Operating Cash Flow Ratio" means, as of any date of determination,
the ratio of
(a) the aggregate principal amount of all outstanding Debt of ACC and
its Restricted Subsidiaries as of such date on a consolidated basis, plus
the aggregate liquidation preference of all outstanding preferred stock of
the Restricted Subsidiaries of ACC as of such date on a consolidated basis
(excluding any such preferred stock held by ACC or a Wholly Owned Restricted
Subsidiary of ACC), plus the aggregate liquidation preference or redemption
amount of all Disqualified Stock of ACC (excluding any such Disqualified
Stock held by ACC or a Wholly Owned Restricted Subsidiary of ACC)
outstanding as of such date to
(b) the Operating Cash Flow of ACC and its Restricted Subsidiaries on a
consolidated basis for the four most recent full fiscal quarters ending
immediately prior to such date for which internal financial statements are
available, determined on a pro forma basis after giving effect to all
acquisitions or dispositions of assets made by ACC and its Restricted
Subsidiaries from the beginning of such four-quarter period through such
date of determination as if such acquisition or disposition had occurred at
the beginning of such four-quarter period.
"Default" means any event that is, or with the passing of time or giving of
notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the earlier of the maturity date of the notes
or the date on which no notes remain outstanding.
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"8 7/8% Notes" means the $150.0 million in aggregate principal amount of
8 7/8% Senior Subordinated Notes due February 1, 2008 of ACC outstanding on
December 20, 2002.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into or exchangeable for Capital Stock).
"Excess Proceeds" means any Net Cash Proceeds from any Asset Sale that are
not applied or invested as provided under the caption titled "--Certain
Covenants--Limitations on Asset Sales."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"fair market value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer under no compulsion to buy.
"Film Contracts" means contracts with suppliers that convey the right to
broadcast specified films, video-tape motion pictures, syndicated television
programs or sports or other programming.
"GAAP" means, as of any date, generally accepted accounting principles in
the United States and not including any interpretations or regulations that
have been proposed but that have not become effective.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any Debt.
"Investments" of any Person means all investments by such Person in other
Persons (including Affiliates) in the forms of loans (including Guarantees),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Debt, Capital Stock or
other securities and all other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP.
"Lien" means any lien, security interest, charge or encumbrance of any kind
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, and any agreement to give any security interest).
"Majority Owned Subsidiary" means a Restricted Subsidiary
(a) the majority of the Equity Interests of which are owned, directly or
indirectly, by ACC and
(b) the remainder of the Equity Interests of which are owned by an RLA
Trust.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or Cash
Equivalents received by ACC or any of its Restricted Subsidiaries in respect of
any Asset Sale, including all cash or Cash Equivalents received upon any sale,
liquidation or other exchange of Permitted Asset Sale Consideration, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof
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(after taking into account any available tax credits or deductions and any tax
sharing arrangements), amounts required to be applied to the repayment of Debt
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets.
"9 3/4% Debentures" means the $275.0 million in aggregate principal amount
of 9 3/4% Senior Subordinated Debentures due November 30, 2007 of ACC
outstanding on December 20, 2002.
"Obligations" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Debt.
"Operating Cash Flow" means, with respect to ACC and its Restricted
Subsidiaries for any period, the Consolidated Net Income of ACC and its
Restricted Subsidiaries for such period, plus
(a) extraordinary net losses and net losses on sales of assets outside
of the ordinary course of business to the extent that such losses were
deducted in computing Consolidated Net Income, plus
(b) provision for taxes based on income or profits, to the extent such
provision for taxes was included in computing such Consolidated Net Income,
and any provision for taxes utilized in computing the net losses under
clause (a) hereof, plus
(c) Total Interest Expense of ACC and its Restricted Subsidiaries for
such period, plus
(d) depreciation, amortization and all other non-cash charges, to the
extent such depreciation, amortization and other non-cash charges were
deducted in computing such Consolidated Net Income (including amortization
of goodwill and other intangibles).
Notwithstanding the foregoing, in the case of
(a) extraordinary net losses and net losses on sales of assets outside
of the ordinary course of business,
(b) provisions for taxes based on income or profits,
(c) Total Interest Expense and
(d) depreciation, amortization and other non-cash charges,
in each case, of Restricted Subsidiaries of ACC that are not Wholly Owned
Restricted Subsidiaries of ACC, only such portion of such items as corresponds
to the percentage of the common equity of such Restricted Subsidiary that is
owned, directly or indirectly, by ACC shall be added to the Consolidated Net
Income of ACC and its Restricted Subsidiaries in determining Operating Cash
Flow of ACC and its Restricted Subsidiaries.
"Pari Passu Debt" means Debt that ranks pari passu in right of payment with
the notes.
"Permitted Asset Sale Consideration" means up to an aggregate of $50.0
million in fair market value of marketable, publicly traded equity or debt
securities (other than Cash Equivalents) received by ACC and its Restricted
Subsidiaries in connection with all Asset Sales effected since December 20,
2002. The fair market value of any Permitted Asset Sale Consideration shall be
determined by ACC's Board of Directors and shall cease to be counted towards
the aggregate limitations referred to above to the extent such consideration is
reduced
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to cash or Cash Equivalents. In no event shall the amount of outstanding
Permitted Asset Sale Consideration be reduced by the value of any security or
other instrument that has been written off by ACC or any of its Restricted
Subsidiaries.
"Permitted Asset Swap" means a disposition by ACC or any Restricted
Subsidiary of the broadcast operations of a television station (excluding WJLA)
for like kind broadcast assets (or a controlling interest in the Capital Stock
of a Person owning like kind broadcast assets); provided that
(i) ACC's Board of Directors shall have approved such disposition and
exchange and determined the fair market value of the assets subject to such
transaction as evidenced by a board resolution evidenced in an Officers'
Certificate or such fair market value has been determined by a written
opinion of an investment banking firm of national standing or other
recognized independent expert with experience appraising the terms and
conditions of the type of transaction contemplated thereby and
(ii) after giving pro forma effect thereto as if the same had occurred
at the beginning of the applicable four-quarter period, ACC would be
permitted to incur $1.00 of additional Debt (other than Permitted Debt)
under the covenant described above under the caption "--Certain
Covenants--Limitations on Incurrence of Debt and Issuance of Preferred
Stock."
"Permitted Investments" means
(a) any Investments in ACC or in a Wholly Owned Restricted Subsidiary or
a Majority Owned Subsidiary,
(b) loans up to an aggregate of $1.5 million outstanding at any one time
to employees pursuant to benefits available to the employees of ACC or any
Restricted Subsidiary from time to time in the ordinary course of business,
(c) any Investments in the notes,
(d) any Investments in Cash Equivalents,
(e) Investments by ACC or any Restricted Subsidiary in a Person, if as a
result of such Investment
(i) such Person becomes a Wholly Owned Restricted Subsidiary or a
Majority Owned Subsidiary, or
(ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, ACC or a Wholly Owned Restricted Subsidiary or Majority
Owned Subsidiary,
(f) any Investment the sole consideration for the acquisition of which
is ACC Common Stock,
(g) any Investments in a Wholly Owned Restricted Subsidiary or a
Majority Owned Subsidiary engaged in a Broadcast Related Business; provided
that at the time of and after giving pro forma effect to such Investment as
if the same had occurred at the beginning of the applicable four-quarter
period, ACC would be permitted to incur $1.00 of additional Debt (other than
Permitted Debt) under the covenant described above under the caption
"--Certain Covenants--Limitations on Incurrence of Debt and Issuance of
Preferred Stock," and
(h) other Investments that do not exceed $10.0 million in the aggregate
at any time outstanding (measured as of the date made, and without giving
effect to subsequent changes in value).
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"Permitted Liens" means
(a) Liens securing any Senior Debt permitted to be incurred under the
Indenture,
(b) Liens in favor of ACC,
(c) Liens on property of a Person existing at the time such Person is
merged or consolidated with ACC or any Restricted Subsidiary,
(d) Liens on property existing at the time of acquisition thereof by ACC
or any Restricted Subsidiary,
(e) purchase money Liens incurred to secure all or any part of the
purchase price of property, which Liens shall not cover any property other
than that being acquired, purchased, improved or constructed, and shall not
cover property purchased, acquired, constructed or improved more than one
year before the creation of such Lien,
(f) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business,
(g) Liens existing on December 20, 2002,
(h) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted;
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor,
(i) Liens incidental to the conduct of the business of ACC or any
Restricted Subsidiary that are not incurred in connection with the borrowing
of money or the obtaining of advances or credit (other than trade credit in
the ordinary course of business) and do not in the aggregate materially
detract from the value of the property or materially impair the use thereof
in the operation of business by ACC or such Restricted Subsidiary, and
(j) Liens to secure any extension, renewal, refinancing or refunding (or
successive extensions, renewals, refinancings or refundings), in whole or in
part, of any Debt secured by any Liens referred to in the foregoing clauses
(a) through (i) above,
provided that, in the case of clauses (c), (d), (e) and (g), such Lien is
limited to all or part of the specific property securing the original Lien and
the principal amount of such Debt is not increased except as permitted under
the provisions of the Indenture.
"Perpetual" means Perpetual Corporation, the indirect corporate parent of
ACC.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"Principals" means
(a) Joe L. Allbritton,
(b) all other Persons to whom Joe L. Allbritton is related by blood,
adoption or marriage,
(c) all trusts solely for the benefit of one or more of the Persons
described in the foregoing clauses (a) and (b),
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(d) all charitable trusts or not-for-profit corporations formed by
Joe L. Allbritton under and described in Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended, and
(e) all other Persons of which Persons described in the foregoing
clauses (a) through (d) collectively own more than 50% of the voting stock,
partnership interests, membership interests or other voting equity interests.
"Refinancing" means collectively the following transactions that occurred in
1992: (i) the prepayment of $100,000,000 Secured Promissory Notes due
January 11, 2005 (the "Secured Promissory Notes"), (ii) the lowering of the
interest rate on the $70,000,000 of Secured Promissory Notes remaining
outstanding, (iii) the return of $11,490,000 of advances by Perpetual and (iv)
the issuance of $123,000,000 principal amount of 11 1/2% Senior Subordinated
Debentures due August 15, 2004.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of December 20, 2002 by and among ACC and the other parties named on
the signature pages thereto, as such agreement may be amended, modified or
supplemented from time to time, and any similar registration rights agreement
entered into in connection with the issuance of Additional Notes.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" means a Subsidiary of ACC other than an Unrestricted
Subsidiary.
"RLA Trust" means either of the Robert Lewis Allbritton 1984 Trust or the
RLA Revocable Trust, in each case for the benefit of Robert L. Allbritton, or
any other trust for the benefit of Robert L. Allbritton, Chairman of the Board
of Directors and Chief Executive Officer of ACC.
"Senior Credit Facility" means the amended and restated revolving credit
facility dated as of March 27, 2001 among ACC, the Subsidiaries of ACC party
thereto, the financial institutions party thereto, Fleet National Bank, as
agent, and Deutsche Bank Securities Inc., as documentation agent, as restated,
amended, refinanced, supplemented or otherwise modified or replaced from time
to time.
"Subsidiary" of any Person means a corporation or other entity a majority of
whose Capital Stock with voting power, under ordinary circumstances, entitling
holders of such Capital Stock to elect the Board of Directors or other
governing body, is at the time, directly or indirectly, owned by such Person
and/or a Subsidiary or Subsidiaries of such Person.
"Tax Sharing Agreement" means that certain Tax Sharing Agreement, effective
as of September 30, 1991, by and among Perpetual, ACC and ALLNEWSCO, Inc., as
amended through December 20, 2002.
"Total Interest Expense" means, for any period, the interest expense (net of
interest income) of ACC and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP, whether paid or
accrued, to the extent such expense was deducted in computing Consolidated Net
Income (including amortization of original issue discount, non-cash interest
payments and the interest component of capital leases, but excluding
amortization of debt issuance costs and exchangeable preferred stock issuance
costs).
"Unrestricted Subsidiary" means
(a) any Subsidiary of ACC that at the time of determination shall have
been designated an Unrestricted Subsidiary by ACC's Board of Directors, as
provided below, and
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(b) any Subsidiary of an Unrestricted Subsidiary.
ACC's Board of Directors may designate any Subsidiary of ACC (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary;
provided that
(x) the Subsidiary to be so designated
(i) has total assets with a fair market value at the time of such
designation of $1,000 or less or
(ii) is being so designated simultaneously with the acquisition by
ACC of such Subsidiary by merger or consolidation with an Unrestricted
Subsidiary and
(y) immediately after giving effect to such designation, no Default or
Event of Default shall have occurred and be continuing.
ACC's Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing, including, without limitation, under the covenants described above
under the captions "--Limitations on Incurrence of Debt and Issuance of
Preferred Stock" and "--Limitations on Liens Securing Subordinated Debt,"
assuming the incurrence by ACC and its Restricted Subsidiaries at the time of
such designation of all existing Debt and Liens of the Unrestricted Subsidiary
to be so designated as a Restricted Subsidiary. Any such designation by ACC's
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the resolution of ACC's Board of Directors giving effect to
such designation and a certificate certifying that such designation complied
with the foregoing conditions. Notwithstanding the foregoing or any other
provision of the Indenture to the contrary, no assets of the broadcasting
operations known as of December 20, 2002 as WJLA, KTUL, KATV, WSET, WCIV, WHTM,
WCFT, WJSU and WBMA may be held at any time by Unrestricted Subsidiaries, other
than assets transferred to Unrestricted Subsidiaries in the ordinary course of
business that in the aggregate are not material to such broadcasting operations.
"Weighted Average Life to Stated Maturity" means, as of the date of
determination with respect to any Debt, the quotient obtained by dividing
(i) the sum of the products of
(a) the number of years from the date of determination to the date
or dates of each successive scheduled principal payment of such Debt
multiplied by
(b) the amount of each such principal payment by
(ii) the sum of all such principal payments.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of
the outstanding shares of voting stock of which are owned, directly or
indirectly, by ACC.
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BOOK-ENTRY; DELIVERY AND FORM
Except as described below, we will initially issue the exchange notes in the
form of one or more registered exchange notes in global form without coupons.
We will deposit each global note on the date of the closing of the exchange
offer with, or on behalf of, The Depository Trust Company, or DTC, in New York,
New York, and register the exchange notes in the name of DTC or its nominee, in
each case for credit to an account of a direct or indirect participant in DTC
as described below.
The Global Notes
We expect that pursuant to procedures established by DTC (1) upon the
issuance of the global notes, DTC or its custodian will credit, on its internal
system, the principal amount at maturity of the individual beneficial interests
represented by such global notes to the respective accounts of persons who have
accounts with such depositary and (2) ownership of beneficial interests in the
global notes will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants). Ownership of beneficial
interests in the global notes will be limited to persons who have accounts with
DTC, or participants, or persons who hold interests through participants.
So long as DTC, or its nominee, is the registered owner or holder of the
notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the exchange notes represented by such global notes for all
purposes under the Indenture. No beneficial owner of an interest in the global
notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a global note to such persons may be limited
to that extent. Because DTC can act only on behalf of its participants, which
in turn act on behalf of indirect participants and certain banks, the ability
of a person having beneficial interests in a global note to pledge such
interest to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interests, may be affected by the
lack of a physical certificate evidencing such interests.
Payments of the principal of, premium (if any), and interest on, the global
notes will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of us, the Trustee or any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment of principal,
premium, if any, or interest on the global notes, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the global notes as shown on the records
of DTC or its nominee. We also expect that payments by participants to owners
of beneficial interests in the global notes held through such participants will
be governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants. None of ACC or the Trustee will be liable for any delay by DTC or
any of its participants in identifying the beneficial owners of
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the exchange notes, and ACC and the Trustee may conclusively rely on and will
be protected in relying on instructions from DTC or its nominee as the
registered owner of the exchange notes for all purposes.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
certificated security for any reason, including to sell exchange notes to
persons in states which require physical delivery of the exchange notes, or to
pledge such securities, such holder must transfer its interest in a global
note, in accordance with the normal procedures of DTC and with the procedures
set forth in the Indenture.
DTC has advised us that it will take any action permitted to be taken by a
holder of exchange notes only at the direction of one or more participants to
whose account the DTC interests in the global notes are credited and only in
respect of such portion of the aggregate principal amount of exchange notes as
to which such participant or participants has or have given such direction.
However, if there is an event of default under the Indenture, DTC will exchange
the global notes for certificated securities.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions
of Section 17A of the Securities Exchange Act of 1934, as amended. DTC was
created to hold securities for its participants and facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the DTC system
is available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global note among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither we nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Exchange of Book-Entry Securities for Certificated Securities
A global note is exchangeable for definitive notes in registered
certificated form if (1) DTC (x) notifies ACC that is unwilling or unable to
continue as depository for the global note and ACC thereupon fails to appoint a
successor depository or (y) has ceased to be a clearing agency registered under
the Securities Exchange Act, (2) ACC, at its option, notifies the Trustee in
writing that it elects to cause the issuance of the exchange notes in
certificated form or (3) there shall have occurred and be continuing a default
or an event of default with respect to the exchange notes. In all cases,
certificated securities delivered in exchange for any global note or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of DTC in accordance with its
customary procedures.
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CERTAIN TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax considerations
relevant to holders of initial notes who are considering exchanging initial
notes for exchange notes. This discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury regulations, administrative
pronouncements and judicial decisions now in effect, all of which are subject
to change (possibly with retroactive effect) or different interpretations,
which may affect the tax consequences described herein.
This discussion does not purport to deal with all aspects of federal income
taxation that may be relevant to the notes, and it is not intended to be wholly
applicable to all categories of investors, some of which, such as dealers in
securities, financial institutions, expatriates, insurance companies,
partnerships or other pass-through entities, tax-exempt organizations, or
investors who have hedged the risk of owning notes, may be subject to special
rules. In addition, this discussion is limited to persons that will hold the
notes as "capital assets" within the meaning of section 1221 of the Code.
Holders of initial notes are urged to consult their own tax advisors as to
the particular tax consequences to them of the exchange of initial notes for
exchange notes and the ownership and disposition of the notes, including the
applicability of any federal tax laws or any state, local or foreign tax laws,
and any changes (or proposed changes) in applicable tax laws or interpretations
thereof.
As used herein, the term "U.S. holder" means a beneficial owner of a note
that is, for U.S. federal income tax purposes, an individual that is a citizen
or resident of the United States, a corporation created or organized in or
under the laws of the United States or any political subdivision thereof, an
estate the income of which is subject to United States federal income taxation
regardless of its source, or a trust if (i) a U.S. court is able to exercise
primary supervision over the administration of the trust and one or more U.S.
persons have authority to control all substantial decisions of the trust or
(ii) a valid election has been made to treat the trust as a U.S. person. A
"non-U.S. holder" is a holder who is a non-resident alien or a corporation,
estate or trust that is not a U.S. holder.
If a partnership holds the notes, the tax treatment of a partner generally
will depend on the status of the partner and on the activities of the
partnership. Partners or partnerships holding the notes should consult their
tax advisors regarding the tax consequences of the ownership and disposition of
the notes.
Exchange
The issuance of the exchange notes to a holder of initial notes pursuant to
the terms set forth in this prospectus should not constitute a taxable exchange
for U.S. federal income tax purposes. Consequently, no gain or loss should be
recognized by holders of the initial notes upon receipt of the exchange notes.
For purposes of determining gain or loss upon the subsequent sale or exchange
of the exchange notes, a holder's basis in the exchange notes should be the
same as such holder's basis in the initial notes exchanged therefor. Holders
should be considered to have held the exchange notes from the time of their
original acquisition of the initial notes.
U.S. Holders
Interest Income
Interest on the notes will be includable in the income of a U.S. holder as
ordinary income at the time such interest is received or accrued in accordance
with such holder's regular method of accounting for U.S. federal income tax
purposes.
107
Market Discount
If a U.S. holder purchased an initial note prior to the exchange offer for
an amount that is less than its "revised issue price," the amount of such
difference is treated as "market discount" for U.S. federal income tax
purposes, unless such difference is less than .0025 multiplied by the stated
redemption price at maturity multiplied by the number of complete years until
maturity (from the date of acquisition). The revised issue price of a note for
these purposes should be equal to its issue price. If a U.S. holder exchanges
an initial note, with respect to which there is market discount, for an
exchange note pursuant to the exchange offer, the market discount applicable to
the initial note should carry over to the exchange note so received.
Under the market discount rules of the Code, a U.S. holder is required to
treat any gain on the sale, exchange, retirement or other taxable disposition
of a note as ordinary income to the extent of the accrued market discount that
has not been previously included in income. If a U.S. holder disposes of a note
with market discount in certain otherwise nontaxable transactions, such holder
may be required to include accrued market discount as ordinary income as if the
holder had sold the note at its then fair market value. In general, market
discount accrues on a ratable basis over the remaining term of the note. A U.S.
holder may, however, make an irrevocable election to accrue market discount on
a constant yield to maturity basis. A U.S. holder may elect to include market
discount in income currently as it accrues. An election made to include market
discount in income as it accrues will apply to all debt instruments that a U.S.
holder acquires on or after the first day of the first taxable year to which
the election applies and is irrevocable without the consent of the Internal
Revenue Service.
A U.S. holder might be required to defer all or a portion of the interest
expense on indebtedness incurred or continued to purchase or carry a note with
market discount unless such U.S. holder has elected to include market discount
in income as it accrues.
The rules governing market discount are complex and U.S. holders should
consult their own tax advisors concerning the application of these rules.
Amortizable Bond Premium
In general, if a U.S. holder purchased an initial note prior to the exchange
offer for an amount in excess of its face amount, such excess will constitute
"amortizable bond premium." If a U.S. holder exchanges an initial note, with
respect to which there is bond premium, for an exchange note pursuant to the
exchange offer, the bond premium applicable to the initial note should carry
over to the exchange note so received. In general, a U.S. holder may elect to
amortize the bond premium as an offset to interest income otherwise required to
be included in income in respect of the note during the taxable year using a
constant-yield method over the remaining term of the note (or, if it results in
a smaller amount of amortizable premium, until an earlier call date). Under
U.S. Treasury Regulations, the amount of amortizable bond premium that may be
deducted in any accrual period is limited to the amount by which a U.S.
holder's total interest inclusions on the note in prior accrual periods exceed
the total amount treated as a bond premium deduction in prior accrual periods.
If any of the excess bond premium is not deductible, that amount is carried
forward to the next accrual period. Any election to amortize bond premium
applies to all taxable debt instruments acquired by the U.S. holder on or after
the first day of the first taxable year to which such election applies and may
be revoked only with the consent of the Internal Revenue Service.
Sale, Exchange or Retirement of the Notes
Each U.S. holder of a note generally will recognize gain or loss on the
sale, exchange (other than an exchange pursuant to the exchange offer described
herein), redemption, retirement or
108
other taxable disposition of the note measured by the difference (if any)
between (i) the amount of cash and the fair market value of any property
received (except to the extent that such cash or other property is attributable
to the payment of accrued interest not previously included in income, which
amount will be taxable as ordinary income) and (ii) the U.S. holder's adjusted
tax basis in the note (generally, the cost of the note, increased by any
accrued market discount previously included in income by the U.S. holder , and
decreased by the amount of any amortizable bond premium taken with respect to
such note). Subject to the discussion of market discount above, any such gain
or loss recognized on the sale, exchange, redemption, retirement or other
taxable disposition of a note should be capital gain or loss, and would be
long-term capital gain or loss if the note had been held for more than one year
at the time of the sale, exchange, redemption, retirement or other taxable
disposition of the note. Under current law, long-term capital gains of
non-corporate holders generally are subject to tax at a maximum rate of 20%.
The deduction of capital losses is subject to certain limitations. Prospective
U.S. holders should consult tax advisors regarding the treatment of capital
gains and losses.
Backup Withholding and Information Reporting
A U.S. holder of notes may be subject to "backup withholding" with respect
to certain "reportable payments," including interest and principal payments on
the notes and the proceeds received upon the sale or other disposition of such
notes. The current backup withholding tax rate is 30%, which rate is scheduled
to be reduced in increments to 28% in 2006 and increased to 31% in 2011. These
backup withholding rules apply if the U.S. holder, among other things, (i)
fails to furnish a social security number or other taxpayer identification
number ("TIN") certified under penalties of perjury, (ii) furnishes an
incorrect TIN, (iii) has been notified by the IRS that it is subject to back-up
withholding because it failed to properly report interest or (iv) fails to
provide a certified statement, signed under penalties of perjury, that the TIN
furnished is the correct number and that such U.S. holder is not subject to
backup withholding. A U.S. holder who does not provide us with a correct TIN
also may be subject to penalties imposed by the IRS. The backup withholding tax
is not an additional tax and any amount withheld from a payment to a U.S.
holder under the backup withholding rules will be refunded or credited against
the holder's federal income tax liability, provided that the required
information is furnished to the IRS. Backup withholding will not apply,
however, with respect to payments made to certain U.S. holders, including
corporations and tax-exempt organizations ("exempt recipients"), provided their
exemptions from backup withholding are properly established.
The amount of any "reportable payments," including interest, made to the
record U.S. holders of notes (other than to holders which are exempt
recipients) and the amount of tax withheld, if any, with respect to such
payments will be reported to such U.S. holders and to the IRS for each calendar
year.
U.S. holders should consult their tax advisors regarding the application of
backup withholding in their particular situation, the availability of an
exemption from backup withholding and the procedure for obtaining an exemption,
if available.
Non-U.S. Holders
The following discussion is a summary of certain United States federal
income tax and estate tax consequences to a non-U.S. holder that holds a note.
Special rules may apply to certain non-U.S. holders such as "controlled foreign
corporations," "passive foreign investment companies" and "foreign personal
holding companies." Such entities should consult their tax advisors to
determine the U.S. federal, state, local or foreign tax consequences that may
be relevant to them.
109
Interest Income
The United States federal withholding tax will not be imposed with respect
to the payment by us or our paying agent of interest on a note owned by a
non-U.S. holder that is not effectively connected with such non-U.S. holder's
U.S. trade or business (the "Portfolio Interest Exception"), provided that
. the non-U.S. holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock entitled to
vote,
. the non-U.S. holder is not a controlled foreign corporation with respect
to the United States that is related to us actually or constructively
through stock ownership, and
. the non-U.S. holder is not a bank whose receipt of interest is received
on an extension of credit made pursuant to a loan agreement entered into
in the ordinary course of its trade or business
and we, our paying agent or the person who would otherwise be required to
withhold tax receives either
. a statement, provided on an IRS Form W-8BEN or substitute form (an
"Owner's Statement"), signed under penalties of perjury by the beneficial
owner of the note in which the owner certifies as to its non-U.S. status
and which provides the owner's name and address, or
. a statement signed under penalties of perjury by the Financial
Institution holding the note on behalf of the beneficial owner, together
with a copy of the Owner's Statement.
As used herein, the term "Financial Institution" means a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business and that holds a
note on behalf of the owner of the note. An Owner's Statement is generally
effective for the remainder of the year of signature plus three full calendar
years, unless a change in circumstances makes any information on the form
incorrect. Special rules apply to non-U.S. holders that are foreign
partnerships. In general, the foreign partnership will be required to provide a
properly executed IRS Form W-8IMY and attach thereto an appropriate
certification by each partner.
A non-U.S. holder who does not qualify for the Portfolio Interest Exception,
would, under current law, generally be subject to U.S. federal withholding tax
at a flat rate of 30% on interest payments. However, a non-U.S. holder will not
be subject to the 30% withholding tax if such non-U.S. holder provides us with
(i) a properly executed IRS Form W-8BEN (or substitute form) claiming an
exemption from or reduction in withholding under the benefit of an applicable
income tax treaty or (ii) a properly executed IRS Form W-8ECI (or substitute
form) stating that interest paid on the note is not subject to withholding tax
because it is effectively connected with such non-U.S. holder's conduct of a
trade or business in the U.S.
Effectively Connected Income
If a non-U.S. holder is engaged in a trade or business in the United States
and if interest or gain on a note is effectively connected with the conduct of
such trade or business, the non-U.S. holder, although exempt from United States
federal withholding tax as discussed above, will be subject to United States
federal income tax on such interest or gain realized on the sale, exchange or
other taxable disposition of a note on a net income basis in the same manner as
if the holder were a U.S. holder. In addition, if such holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30%, or
applicable lower tax treaty rate, of its effectively connected earnings and
profits for the taxable year, subject to adjustments. For this purpose,
interest on, or gain with respect to, a note that is considered effectively
connected income will be included in such foreign corporation's effectively
connected earnings and profits.
110
Sale, Exchange or Retirement of the Notes
In general, gain recognized by a non-U.S. holder upon the redemption,
retirement, sale, exchange or other taxable disposition of a note (including
any gain representing accrued market discount) will not be subject to United
States federal income tax unless such gain or loss is effectively connected
with a trade or business in the United States. However, a non-U.S. holder may
be subject to United States federal income tax at a flat rate of 30% (unless
exempt by an applicable treaty) on any such gain if the non-U.S. holder is an
individual present in the U.S. for 183 days or more during the taxable year of
the disposition of the note and certain other requirements are met.
Backup Withholding and Information Reporting
Backup withholding and information reporting requirements do not apply to
payments of principal and interest made by us or a paying agent to non-U.S.
holder if the Owner's Statement described above is received, provided that the
payor does not have actual knowledge that the holder is a U.S. holder. However,
certain information reporting requirements may still apply with respect to
interest payments even if certification is provided. If a foreign office of a
foreign "broker" (as defined in applicable Treasury regulations) pays the
proceeds of the sale of a note to the seller thereof, backup withholding and
information reporting will not apply. Information reporting requirements (but
not backup withholding) will apply, however, to a payment by a foreign office
of a broker that is a United States person, that derives 50% or more of its
gross income for certain periods from the conduct of a trade or business in the
United States for a specified three-year period, that is a foreign partnership
controlled by U.S. persons or engaged in a U.S. trade or business, or that is a
"controlled foreign corporation" (generally, a foreign corporation controlled
by certain United States shareholders) with respect to the United States unless
the broker has documentary evidence in its records that the holder is a
non-U.S. holder and certain other conditions are met or the holder otherwise
establishes an exemption. Payment by a United States office of a broker is
subject to both backup withholding (currently at a rate of 30%) and information
reporting unless the holder certifies under penalties of perjury that it is a
non-U.S. holder or otherwise establishes an exemption. The backup withholding
tax is not an additional tax and any amounts withheld under the backup
withholding rules will be allowed as a refund or a credit against the non-U.S.
holder's federal income tax liability, provided that the required information
is furnished to the IRS. Non-U.S. holders should consult their tax advisors
regarding the application of backup withholding in their particular situation,
the availability of an exemption from backup withholding and the procedure for
obtaining an exemption, if available.
Subject to applicable estate tax treaty provisions, notes held at the time
of death (or notes transferred before death but subject to certain retained
rights or powers) by an individual who at the time of death is a non-U.S.
holder will not be included in such non-U.S. holder's gross estate for United
States federal estate tax purposes, provided that the individual does not
actually or constructively own 10% or more of the total combined voting power
of all classes of our stock entitled to vote or hold the notes in connection
with a United States trade or business.
111
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. The prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for initial
notes where such initial notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, for a period of
120 days after the date of this prospectus, we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 2003, all dealers effecting
transactions in the exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sales of the exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchaser or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells the exchange notes that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of exchange notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 120 days after the date of this prospectus, we will promptly
send additional copies of this prospectus and any amendment or supplement to
this prospectus to any broker-dealer that requests such documents in the letter
of transmittal. We have agreed to pay certain expenses incident to the exchange
offer, but excluding the commissions or concessions of any brokers or dealers,
and will indemnify the holders of the exchange notes, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
By acceptance of this exchange offer, each broker-dealer that receives
exchange notes for its own account pursuant to the exchange offer agrees that,
upon receipt of notice from us of the happening of any event that makes any
statement in this prospectus untrue in any material respect or that requires
the making of any changes in this prospectus in order to make the statements
herein not misleading, which notice we agree to deliver promptly to such
broker-dealer, such broker-dealer will suspend use of this prospectus until we
have amended or supplemented this prospectus to correct such misstatement or
omission and have furnished copies of the amended or supplemental prospectus to
such broker-dealer. If we give any such notice to suspend the use of this
prospectus, we will extend the 120-day period referred to above by the number
of days during the period from and including the date of the giving of such
notice to and including when broker-dealers shall have received copies of the
supplemented or amended prospectus necessary to permit resales of the exchange
notes.
112
LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for
ACC by Fulbright & Jaworski L.L.P., Washington, D.C., counsel to ACC.
EXPERTS
The consolidated financial statements of Allbritton Communications Company
as of September 30, 2001 and 2002 and for each of the three years in the period
ended September 30, 2002 included in this prospectus have been audited by
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement on Form S-4 under
the Securities Act relating to the exchange offer that incorporates important
business and financial information about us that is not included in or
delivered with this prospectus. This prospectus does not contain all of the
information included in the registration statement. The information is
available from us without charge to holders of the initial notes as specified
below. If we have made references in this prospectus to any contracts,
agreements or other documents and also filed any of those contracts, agreements
or documents as exhibits to the registration statement, you should read the
relevant exhibit for a more complete understanding of the document or matter
involved.
We currently file with the Commission reports, information and documents
specified in Section 13 of the Securities Exchange Act and will furnish such
reports to the trustee under the indenture, which will furnish the reports to
the registered holders of the notes. The reports and other information that we
file with the Commission in accordance with the Securities Exchange Act may be
inspected and copied at the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at the Commission's other public
reference facilities. Please call 1-800-SEC-0330 for further information on the
operation and location of the Commission's public reference facilities. The
Commission also maintains a web site at http://www.sec.gov, which contains
reports and other information regarding registrants that file electronically
with the Commission.
We expect that we will not be required by Commission rules to file any
Securities Exchange Act reports with the Commission for periods after September
30, 2003. However, we have agreed that we will continue to furnish the reports
required by the Securities Exchange Act to the Commission so long as any notes
are outstanding even if we would be entitled under the Securities Exchange Act
not to furnish such reports, unless the Commission will not accept such reports
for filing. We have also agreed that, whether or not we are required to file
reports with the Commission, we will continue to furnish the Securities
Exchange Act reports to the trustee under the indenture, and such reports will
continue to be sent to registered holders of the notes. In addition, while any
notes remain outstanding, we will make available upon request, to any holder or
prospective purchaser of the notes, the information required pursuant to Rule
144A(d)(4) promulgated under the Securities Act, during any period in which we
are not subject to Sections 13 or 15(d) of the Securities Exchange Act. Any
such request should be directed to the Secretary of ACC at 808 Seventeenth
Street, Suite 300, Washington, D.C. 20006 (telephone number: (202) 789-2130).
113
ALLBRITTON COMMUNICATIONS COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants.................................................... F-2
Consolidated Balance Sheets as of September 30, 2001 and 2002........................ F-3
Consolidated Statements of Operations and Retained Earnings for Each of the Years
Ended September 30, 2000, 2001 and 2002............................................ F-4
Consolidated Statements of Cash Flows for Each of the Years Ended September 30, 2000,
2001 and 2002...................................................................... F-5
Notes to Consolidated Financial Statements........................................... F-6
Consolidated Balance Sheets as of September 30, 2002 and December 31, 2002
(unaudited)........................................................................ F-20
Consolidated Statements of Operations and Retained Earnings for the Three Months
Ended December 31, 2001 and 2002 (unaudited)....................................... F-21
Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2001
and 2002 (unaudited)............................................................... F-22
Notes to Interim Consolidated Financial Statements (unaudited)....................... F-23
Financial Statement Schedule for the Years Ended September 30 2000, 2001 and 2002
II--Valuation and Qualifying Accounts and Reserves................................. F-27
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
Allbritton Communications Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Allbritton
Communications Company (an indirectly wholly-owned subsidiary of Perpetual
Corporation) and its subsidiaries at September 30, 2001 and 2002, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2002, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Washington, D.C.
November 15, 2002, except as to Note 12, for which the date is December 6, 2002
F-2
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share information)
September 30,
--------------------
2001 2002
--------- ---------
ASSETS
Current assets
Cash and cash equivalents........................................... $ 7,829 $ 6,299
Accounts receivable, less allowance for doubtful accounts of $1,174
and $1,047........................................................ 36,815 37,167
Program rights...................................................... 20,145 19,272
Deferred income taxes............................................... 727 807
Other............................................................... 2,485 2,140
--------- ---------
Total current assets............................................ 68,001 65,685
Property, plant and equipment, net..................................... 39,304 56,573
Intangible assets, net................................................. 132,408 128,150
Deferred financing costs and other..................................... 8,364 7,177
Cash surrender value of life insurance................................. 9,198 10,362
Program rights......................................................... 1,335 1,047
--------- ---------
$ 258,610 $ 268,994
========= =========
LIABILITIES AND STOCKHOLDER'S INVESTMENT
Current liabilities
Current portion of long-term debt................................... $ 1,479 $ 574
Accounts payable.................................................... 2,713 3,003
Accrued interest payable............................................ 11,164 11,313
Program rights payable.............................................. 23,667 22,993
Accrued employee benefit expenses................................... 4,676 4,906
Other accrued expenses.............................................. 5,272 10,370
--------- ---------
Total current liabilities....................................... 48,971 53,159
Long-term debt......................................................... 425,381 439,869
Program rights payable................................................. 2,038 1,886
Deferred rent and other................................................ 1,261 3,089
Accrued employee benefit expenses...................................... 1,815 1,879
Deferred income taxes.................................................. 9,961 16,185
--------- ---------
Total liabilities............................................... 489,427 516,067
--------- ---------
Commitments and contingent liabilities (Note 11)
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...................................... 74,956 49,631
Retained earnings................................................... 3,974 4,917
Distributions to owners, net (Note 9)............................... (309,748) (301,622)
--------- ---------
Total stockholder's investment.................................. (230,817) (247,073)
--------- ---------
$ 258,610 $ 268,994
========= =========
See accompanying notes to consolidated financial statements.
F-3
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Dollars in thousands)
Year Ended September 30,
----------------------------
2000 2001 2002
-------- -------- --------
Operating revenues, net.................................. $216,495 $202,541 $196,169
-------- -------- --------
Television operating expenses, excluding depreciation and
amortization........................................... 124,727 124,597 126,001
Depreciation and amortization............................ 16,624 15,045 13,310
Corporate expenses....................................... 4,873 5,641 6,004
-------- -------- --------
146,224 145,283 145,315
-------- -------- --------
Operating income......................................... 70,271 57,258 50,854
Nonoperating income (expense)
Interest income
Related party..................................... 303 213 92
Other............................................. 331 321 94
Interest expense
Related party..................................... (3,891) (4,064) (785)
Other............................................. (42,212) (41,682) (41,561)
Other, net............................................ (1,422) (1,060) (1,225)
-------- -------- --------
Income before income taxes............................... 23,380 10,986 7,469
Provision for income taxes............................... 10,569 4,632 3,955
-------- -------- --------
Net income............................................... 12,811 6,354 3,514
Retained earnings, beginning of year..................... (15,191) (2,380) 3,974
Tax benefit distributed.................................. -- -- (2,571)
-------- -------- --------
Retained earnings, end of year........................... $ (2,380) $ 3,974 $ 4,917
======== ======== ========
See accompanying notes to consolidated financial statements.
F-4
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended September 30,
-------------------------------
2000 2001 2002
--------- --------- ---------
Cash flows from operating activities:
Net income................................................................. $ 12,811 $ 6,354 $ 3,514
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................... 16,624 15,045 13,310
Other noncash charges................................................... 1,433 1,315 1,512
Noncash tax benefits.................................................... (2,681) (2,630) (2,571)
Provision for doubtful accounts......................................... 538 783 677
Loss on disposal of assets.............................................. 32 36 139
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable............................................... (3,879) 2,735 (2,548)
Program rights.................................................... (1,630) (608) 1,161
Other current assets.............................................. (197) 127 218
Other noncurrent assets........................................... (910) (1,438) (1,012)
Deferred income taxes............................................. 295 240 (80)
Increase (decrease) in liabilities:
Accounts payable.................................................. (730) (728) 535
Accrued interest payable.......................................... -- 5 (65)
Accrued interest payable--related parties......................... 3,791 3,263 552
Program rights payable............................................ 2,432 (1,120) (826)
Accrued employee benefit expenses................................. (125) (418) 243
Other accrued expenses............................................ 971 555 5,198
Deferred rent and other liabilities............................... (740) (592) 1,839
Deferred income taxes............................................. 2,591 2,232 6,224
--------- --------- ---------
Total adjustments............................................... 17,815 18,802 24,506
--------- --------- ---------
Net cash provided by operating activities....................... 30,626 25,156 28,020
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures....................................................... (5,167) (5,810) (26,308)
Exercise of option to acquire assets of WJSU............................... (3,372) -- --
Acquisition of certain assets of Allnewsco................................. -- -- (20,213)
Proceeds from disposal of assets........................................... 73 28 63
--------- --------- ---------
Net cash used in investing activities........................... (8,466) (5,782) (46,458)
--------- --------- ---------
Cash flows from financing activities:
Draws under line of credit, net............................................ -- -- 14,864
Deferred financing costs................................................... -- (804) (291)
Principal payments on long-term debt and capital leases.................... (2,016) (1,735) (1,422)
Distributions to owners, net of certain charges............................ (275,024) (197,680) (342,753)
Repayments of distributions to owners...................................... 249,291 174,100 342,615
Notes issued from Allnewsco to Perpetual................................... 3,083 2,493 3,895
--------- --------- ---------
Net cash (used in) provided by financing activities............. (24,666) (23,626) 16,908
--------- --------- ---------
Net decrease in cash and cash equivalents..................................... (2,506) (4,252) (1,530)
Cash and cash equivalents, beginning of year.................................. 14,587 12,081 7,829
--------- --------- ---------
Cash and cash equivalents, end of year........................................ $ 12,081 $ 7,829 $ 6,299
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................................. $ 41,981 $ 41,484 $ 41,420
========= ========= =========
Cash paid for interest to related parties............................... $ 100 $ 800 $ 233
========= ========= =========
Cash paid for state income taxes........................................ $ 529 $ 911 $ 624
========= ========= =========
Non-cash investing and financing activities:
Equipment acquired under capital leases................................. $ -- $ 750 $ 24
========= ========= =========
Reclassification of notes payable to common stock....................... $ -- $ 46,291 $ --
========= ========= =========
Reclassification of accrued interest payable to common stock............ $ -- $ 20,709 $ --
========= ========= =========
See accompanying notes to consolidated financial statements.
F-5
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1--THE COMPANY
Allbritton Communications Company (ACC or the Company) is an indirectly
wholly-owned subsidiary of Perpetual Corporation (Perpetual), a Delaware
corporation, which is controlled by Mr. Joe L. Allbritton. The Company owns ABC
network-affiliated television stations serving seven geographic markets:
Station Market
------- ------
WJLA Washington, D.C.
WBMA/WCFT/WJSU Birmingham (Anniston and Tuscaloosa), Alabama
WHTM Harrisburg-Lancaster-York-Lebanon, Pennsylvania
KATV Little Rock, Arkansas
KTUL Tulsa, Oklahoma
WSET Roanoke-Lynchburg, Virginia
WCIV Charleston, South Carolina
The Company also provides 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 have been integrated with WJLA.
Based upon regular assessments of its operations, the Company has determined
that the economic characteristics, services, production processes, customer
type and distribution methods for the Company's operations are substantially
similar and have therefore been aggregated as one reportable segment.
NOTE 2--ACQUISITION OF ALLNEWSCO AND BASIS OF PRESENTATION
On March 5, 2002, the Company entered into an asset purchase agreement with
ALLNEWSCO, Inc. (Allnewsco). The Company consummated the transaction on
September 16, 2002, acquiring certain of the assets of Allnewsco in exchange
for $20,000 in cash and the cancellation of a $20,000 note receivable from
Allnewsco. The assets acquired consisted primarily of cable affiliation
agreements and certain technical equipment and vehicles related to its
newsgathering and cable distribution operations. Allnewsco has been controlled
since its inception by Perpetual which also controls the Company. Because both
the Company and Allnewsco are controlled by Perpetual, the Company is required
to account for the acquisition as a transfer of assets within a group under
common control. Under this accounting, the Company and Allnewsco are treated as
if they have always been combined for accounting and financial reporting
purposes. As a result, the Company's consolidated financial statements have
been restated for all periods prior to the asset acquisition to reflect the
combined results of the Company and Allnewsco as of the beginning of the
earliest period presented. In addition to combining the separate historical
results of the Company and Allnewsco, the consolidated financial statements
include all adjustments necessary to conform accounting methods and
presentation, to the extent they were different, and to eliminate significant
intercompany transactions.
F-6
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Selected combining financial data for the years ended September 30, 2000,
2001 and 2002 is as follows:
ACC Allnewsco Adjustment Combined
-------- --------- ---------- --------
Year Ended September 30, 2000
Net operating revenues.... $205,307 $11,188 -- $216,495
Net income................ 17,184 (7,054) $2,681 12,811
Year Ended September 30, 2001
Net operating revenues.... 190,618 11,923 -- 202,541
Net income................ 10,644 (6,920) 2,630 6,354
Year Ended September 30, 2002
Net operating revenues.... 185,944 10,225 -- 196,169
Net income................ 6,468 (4,764) 1,810 3,514
The operating results of Allnewsco presented above consist of the full
fiscal years ended September 30, 2000 and 2001, and the period from October 1,
2001 through the acquisition date by ACC of September 16, 2002.
The adjustment to net income represents the income tax benefit associated
with combining ACC and Allnewsco. Because Perpetual has historically filed
consolidated federal and Virginia state income tax returns including the
operating results of both ACC and Allnewsco, certain tax benefits were realized
by Perpetual associated with Allnewsco's net operating losses in the
consolidated tax returns. In accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," the combined results
of ACC and Allnewsco have been adjusted to reflect the historical tax benefits
which would have been recorded for financial reporting purposes by the combined
entity during each period presented.
As the Company did not acquire all of the assets or assume all of the
liabilities of Allnewsco, certain expenses reported in the consolidated
financial statements will not be incurred subsequent to the asset acquisition.
Specifically, the Company did not acquire or assume amounts due from Allnewsco
to Perpetual. The accompanying consolidated financial statements include
$3,891, $4,064 and $785 of related party interest expense relating to amounts
due from Allnewsco to Perpetual during the years ended September 30, 2000, 2001
and 2002, respectively, that will not recur subsequent to the acquisition. The
excess of the $40,000 purchase price over the net book value of the Allnewsco
assets and liabilities acquired by the Company of $25,325 has been recorded as
an adjustment to the Company's capital in excess of par value upon consummation
of the transaction.
NOTE 3--SIGNIFICANT ACCOUNTING POLICIES
Consolidation--The consolidated financial statements include the accounts of
the Company and its wholly and majority-owned subsidiaries after elimination of
all significant intercompany accounts and transactions.
Use of estimates and assumptions--The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of America requires
F-7
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates and assumptions.
Revenue recognition--Revenues are generated principally from sales of
commercial advertising and are recorded as the advertisements are broadcast net
of agency and national representative commissions and music license fees. For
certain program contracts which provide for the exchange of advertising time in
lieu of cash payments for the rights to such programming, revenue is recorded
as advertisements are broadcast at the estimated fair value of the advertising
time given in exchange for the program rights. Subscriber fee revenues are
recognized in the period during which programming is provided, pursuant to
affiliation agreements with cable television systems and direct broadcast
satellite service providers.
Cash and cash equivalents--The Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.
Program rights--The Company has entered into contracts for the rights to
television programming. Payments related to such contracts are generally made
in installments over the contract period. Program rights which are currently
available and the liability for future payments under such contracts are
reflected in the consolidated balance sheets. Program rights are amortized
primarily using the straight-line method over the twelve month rental period.
Certain program rights with lives greater than one year are amortized using
accelerated methods. Program rights expected to be amortized in the succeeding
year and amounts payable within one year are classified as current assets and
liabilities, respectively. The program rights are reflected in the consolidated
balance sheets at the lower of unamortized cost or estimated net realizable
value based on management's expectation of the net future cash flows to be
generated by the programming.
Property, plant and equipment--Property, plant and equipment are recorded at
cost and depreciated over the estimated useful lives of the assets. Maintenance
and repair expenditures are charged to expense as incurred and expenditures for
modifications and improvements which increase the expected useful lives of the
assets are capitalized. Depreciation expense is computed using the
straight-line method for buildings and straight-line and accelerated methods
for furniture, machinery and equipment. Leasehold improvements are amortized
using the straight-line method over the lesser of the term of the related lease
or the estimated useful lives of the assets. The useful lives of property,
plant and equipment for purposes of computing depreciation and amortization
expense are:
Buildings....................................... 15-40 years
Leasehold improvements.......................... 5-32 years
Furniture, machinery and equipment and equipment
under capital leases.......................... 3-20 years
Intangible assets--Intangible assets consist of values assigned to broadcast
licenses as well as favorable terms on contracts and leases. Additionally,
prior to the completion of the Company's acquisition of WJSU on March 22, 2000,
intangible assets included the option to
F-8
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
acquire the assets of WJSU (the Option) (see Note 4). The amounts assigned to
intangible assets were based on the results of independent valuations and are
amortized on a straight-line basis over their estimated useful lives. Broadcast
licenses are amortized over 40 years and the premiums for favorable terms on
contracts and leases are amortized over the terms of the related contracts and
leases (19 to 25 years). Prior to the completion of the Company's acquisition
of WJSU, the Option was amortized over the term of the Option and the
associated local marketing agreement (10 years). Since completion of the
acquisition, the portion of the purchase price assigned to the broadcast
license of WJSU is being amortized over its estimated useful life of 40 years.
The Company assesses the recoverability of intangible assets on an ongoing
basis by evaluating whether amounts can be recovered through undiscounted cash
flows over the remaining amortization period.
Deferred financing costs--Costs incurred in connection with the issuance of
long-term debt are deferred and amortized to other nonoperating expense on a
straight-line basis over the term of the underlying financing agreement. This
method does not differ significantly from the effective interest rate method.
Deferred rent--Rent concessions and scheduled rent increases in connection
with operating leases are recognized as adjustments to rental expense on a
straight-line basis over the associated lease term.
Concentration of credit risk--Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of certain
cash and cash equivalents and receivables from advertisers. The Company invests
its excess cash with high-credit quality financial institutions and at
September 30, 2002 had an overnight repurchase agreement with a financial
institution for $3,159. Concentrations of credit risk with respect to
receivables from advertisers are limited as the Company's advertising base
consists of large national advertising agencies and high-credit quality local
advertisers. As is customary in the broadcasting industry, the Company does not
require collateral for its credit sales which are typically due within thirty
days.
Income taxes--The operations of the Company are included in a consolidated
federal income tax return filed by Perpetual. In accordance with the terms of a
tax sharing agreement between the Company and Perpetual, the Company is
required to pay to Perpetual its federal income tax liability, computed based
upon statutory federal income tax rates applied to the Company's consolidated
taxable income. The Company files separate state income tax returns with the
exception of Virginia which is included in a combined state income tax return
filed by Perpetual. In accordance with the terms of the tax sharing agreement,
the Company is required to pay to Perpetual its combined Virginia income tax
liability, computed based upon statutory Virginia income tax rates applied to
the Company's combined Virginia net taxable income. Taxes payable to Perpetual
are not reduced by losses generated in prior years by the Company. In addition,
the amounts payable by the Company to Perpetual under the tax sharing agreement
are not reduced if losses of other members of the Perpetual group are utilized
to offset taxable income of the Company for purposes of the Perpetual
consolidated federal or Virginia income tax returns.
F-9
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
The provision for income taxes is determined in accordance with SFAS No.
109, which requires that the consolidated amount of current and deferred income
tax expense for a group that files a consolidated income tax return be
allocated among members of the group when those members issue separate
financial statements. Perpetual allocates a portion of its consolidated current
and deferred income tax expense to the Company as if the Company and its
subsidiaries were separate taxpayers. The Company records deferred tax assets,
to the extent it is more likely than not that such assets will be realized in
future periods, and deferred tax liabilities for the tax effects of the
differences between the bases of its assets and liabilities for tax and
financial reporting purposes. To the extent a deferred tax asset would be
recorded due to the incurrence of net losses for federal or Virginia state
income tax purposes, any such benefit recognized is effectively distributed to
Perpetual as such benefit will not be recognized in future years pursuant to
the tax sharing agreement.
Fair value of financial instruments--The carrying amount of the Company's
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and program rights payable approximate fair value due to the short
maturity of those instruments. The Company estimates the fair value of its
long-term debt using either quoted market prices or by discounting the required
future cash flows under its debt using borrowing rates currently available to
the Company, as applicable.
Earnings per share--Earnings per share data are not presented since the
Company has only one shareholder.
New pronouncements--SFAS No. 142, "Goodwill and Other Intangible Assets,"
was issued in June 2001. SFAS No. 142 addresses the financial accounting and
reporting for acquired goodwill and other intangible assets. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to periodic impairment tests. Other
intangible assets will continue to be amortized over their useful lives. We
adopted SFAS No. 142 effective October 1, 2002. Upon adoption, the Company
performed the first of the required impairment tests on its indefinite lived
intangible assets. The fair value of the Company's 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, 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.
F-10
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
The following table adjusts reported net income for the years ended
September 30, 2000, 2001 and 2002 (prior to the adoption date of SFAS No. 142)
to exclude amortization of indefinite lived intangible assets:
Years Ended September 30,
-------------------------
2000 2001 2002
------- ------ ------
Net income
As reported.................................... $12,811 $6,354 $3,514
Amortization of broadcast licenses, net of tax. 2,696 2,744 2,744
------- ------ ------
Adjusted....................................... $15,507 $9,098 $6,258
======= ====== ======
SFAS No. 143, "Accounting for Asset Retirement Obligations," was issued in
June 2001 to address diversity in practice for recognizing obligations
associated with the retirement of tangible long-lived assets. SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," was issued in
August 2001 to establish a single accounting model for long-lived assets to be
disposed of by sale and to address issues surrounding the impairment of
long-lived assets. SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," was issued in June 2002 to address financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity."
These standards are effective for the Company's fiscal year ending September
30, 2003 and their adoption will not have a material impact on the Company's
financial position or results of operations.
SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections," was issued in April 2002 and
primarily eliminates the requirement that gains or losses associated with early
debt extinguishments be accounted for as extraordinary items. SFAS No. 145 will
likely require any future gains or losses associated with early extinguishments
of debt to be recorded as a component of income from continuing operations
rather than as an extraordinary item. This standard is effective for the
Company's fiscal year ending September 30, 2003. The other provisions of SFAS
No. 145 are not expected to have a material effect on the Company's financial
position or results of operations.
NOTE 4--LOCAL MARKETING AGREEMENT, ASSOCIATED OPTION AND ACQUISITION OF WJSU
On December 29, 1995, the Company, through an 80%-owned subsidiary, entered
into a ten-year local marketing agreement (LMA) with the owner of WJSU, a
television station operating in Anniston, Alabama. The LMA provided for the
Company to supply program services to WJSU and to retain all revenues from
advertising sales. In exchange, the Company paid all station operating expenses
and certain management fees to the station's owner. In connection with the LMA,
the Company entered into the Option to acquire the assets of WJSU at a cost of
$15,348. The Company exercised its option to acquire WJSU on September 14, 1999
and completed the acquisition on March 22, 2000 for additional consideration of
$3,372. The total cost to acquire and exercise the Option was $18,720. The
acquisition was accounted for as a purchase and accordingly, the cost of the
acquired entity was assigned to the identifiable tangible and
F-11
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
intangible assets acquired based on their fair values at the date of purchase.
The consolidated results of operations of the Company include operating
revenues and operating expenses of WJSU from December 29, 1995 to March 21,
2000 pursuant to the terms of the LMA, and since March 22, 2000 as an owned
station.
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
September 30,
--------------------
2001 2002
--------- ---------
Buildings and leasehold improvements $ 27,921 $ 30,257
Furniture, machinery and equipment.. 121,693 129,589
Equipment under capital leases...... 10,067 10,067
--------- ---------
159,681 169,913
Less accumulated depreciation....... (124,483) (116,829)
--------- ---------
35,198 53,084
Land................................ 2,889 2,889
Construction-in-progress............ 1,217 600
--------- ---------
$ 39,304 $ 56,573
========= =========
Depreciation and amortization expense was $11,356, $10,541 and $9,052 for
the years ended September 30, 2000, 2001 and 2002, respectively, which includes
amortization of equipment under capital leases.
NOTE 6--INTANGIBLE ASSETS
Intangible assets consist of the following:
September 30,
------------------
2001 2002
-------- --------
Broadcast licenses........... $169,723 $169,723
Other intangibles............ 6,174 6,174
-------- --------
175,897 175,897
Less accumulated amortization (43,489) (47,747)
-------- --------
$132,408 $128,150
======== ========
Amortization expense was $5,268, $4,504 and $4,258 for the years ended
September 30, 2000, 2001 and 2002, respectively.
F-12
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
NOTE 7--LONG-TERM DEBT
Outstanding debt consists of the following:
September 30,
------------------
2001 2002
-------- --------
Senior Subordinated Debentures, due November 30, 2007 with interest
payable semi-annually at 9.75%.......................................... $275,000 $275,000
Senior Subordinated Notes, due February 1, 2008 with interest payable
semi-annually at 8.875%................................................. 150,000 150,000
Amended and Restated Revolving Credit Agreement, maximum amount
of $70,000, expiring March 27, 2006, secured by the outstanding stock of
the Company and its subsidiaries, interest payable quarterly at various
rates from prime plus 0.25% or LIBOR plus 1.5% depending on certain
financial operating tests (4.43% at September 30, 2002)................. -- 14,864
Master Lease Finance Agreement, expired March 1, 2000 for new
acquisitions, secured by the assets acquired, interest payable monthly
at variable rates as determined on the acquisition date for each asset
purchased (7.34%-8.32% at September 30, 2002) (See Note 11)............. 1,827 521
Master Equipment Lease Agreement, expired June 30, 2002 for new
acquisitions, secured by the assets acquired, interest payable monthly
at variable rates as determined on the acquisition date for each asset
purchased (6.45% at September 30, 2002) (See Note 11)................... 750 658
-------- --------
427,577 441,043
Less unamortized discount................................................. (717) (600)
-------- --------
426,860 440,443
Less current maturities................................................... (1,479) (574)
-------- --------
$425,381 $439,869
======== ========
Unamortized deferred financing costs of $7,351 and $6,376 at September 30,
2001 and 2002, respectively, are included in deferred financing costs and other
noncurrent assets in the accompanying consolidated balance sheets. Amortization
of the deferred financing costs for the years ended September 30, 2000, 2001
and 2002 was $1,140, $1,190 and $1,266, respectively, which is included in
other nonoperating expenses.
Under the existing financing agreements, the Company is subject to
restrictive covenants which place limitations upon payments of cash dividends,
issuance of capital stock, investment transactions, incurrence of additional
obligations and transactions with affiliates. In addition, under the Revolving
Credit Agreement, the Company must maintain compliance with certain financial
covenants. As of September 30, 2002, the Company was in compliance with such
covenants. The Company is 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
Revolving Credit Agreement.
The Company estimates the fair value of its Senior Subordinated Debentures
and Senior Subordinated Notes to be approximately $425,000 and $436,000 at
September 30, 2001 and 2002, respectively. The carrying value of the Company's
Revolving Credit Agreement approximates fair value as borrowings bear interest
at market rates.
F-13
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
NOTE 8--INCOME TAXES
The provision for (benefit from) income taxes consists of the following:
Years ended September 30,
----------------------
2000 2001 2002
------- ------ -------
Current
Federal. $ 6,099 $1,909 $(2,571)
State... 1,584 251 382
------- ------ -------
7,683 2,160 (2,189)
------- ------ -------
Deferred
Federal. 2,234 2,017 5,564
State... 652 455 580
------- ------ -------
2,886 2,472 6,144
------- ------ -------
$10,569 $4,632 $ 3,955
======= ====== =======
The components of deferred income tax assets (liabilities) are as follows:
September 30,
------------------
2001 2002
-------- --------
Deferred income tax assets:
State and local operating loss carryforwards. $ 1,902 $ 2,075
Accrued employee benefits.................... 1,035 1,149
Deferred rent................................ 512 983
Allowance for accounts receivable............ 407 410
Other........................................ 156 132
-------- --------
4,012 4,749
Less valuation allowance..................... (1,820) (1,993)
-------- --------
2,192 2,756
-------- --------
Deferred income tax liabilities:
Depreciation and amortization................ (11,426) (18,134)
-------- --------
Net deferred income tax liabilities............. $ (9,234) $(15,378)
======== ========
The Company has approximately $45,500 in state and local operating loss
carryforwards in certain jurisdictions available for future use for state and
local income tax purposes which expire in various years from 2006 through 2017.
The change in the valuation allowance for deferred tax assets of $166, ($584)
and $173 during the years ended September 30, 2000, 2001 and 2002,
respectively, principally resulted from management's evaluation of the
recoverability of the loss carryforwards.
F-14
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
The following table reconciles the statutory federal income tax rate to the
Company's effective income tax rate for income before extraordinary loss:
Years ended September 30,
------------------------
2000 2001 2002
---- ---- ----
Statutory federal income tax rate...................................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit.................. 7.5 7.1 7.9
Non-deductible expenses, principally amortization of certain intangible
assets, insurance premiums and meals and entertainment............... 2.4 6.2 8.7
Change in valuation allowance.......................................... 0.7 (5.3) 2.3
Other, net............................................................. 0.6 0.2 0.1
---- ---- ----
Effective income tax rate.............................................. 45.2% 42.2% 53.0%
==== ==== ====
NOTE 9--TRANSACTIONS WITH OWNERS AND RELATED PARTIES
Distributions to Owners, Net
In the ordinary course of business, the Company makes cash advances in the
form of distributions to Perpetual. At present, the primary source of repayment
of the net advances from the Company is through the ability of the Company to
pay dividends or make other distributions. There is no immediate intent for
these amounts to be repaid. Accordingly, such amounts have been treated as a
reduction of stockholder's investment and described as "distributions" in the
accompanying consolidated balance sheets. The weighted average amount of
non-interest bearing advances outstanding was $280,149, $303,785 and $323,885
during Fiscal 2000, 2001 and 2002, respectively.
Additionally, Perpetual historically advanced cash to Allnewsco in the form
of unsecured demand notes bearing interest at a rate of 7.5%. The notes payable
from Allnewsco to Perpetual are included in distributions to owners in the
accompanying consolidated balance sheet at September 30, 2001, conforming the
presentation of cash transactions between the Company, Allnewsco and Perpetual.
Effective September 28, 2001, Allnewsco authorized the issuance of 67,000
shares of common stock to Perpetual in exchange for the reclassification of
$46,291 and $20,709 from notes payable and accrued interest payable,
respectively. As ACC did not acquire or assume amounts due from Allnewsco to
Perpetual, no amount is outstanding from the Company under such notes at
September 30, 2002.
The operations of the Company are included in a consolidated federal income
tax return and a combined Virginia state income tax return filed by Perpetual.
The Company is charged by Perpetual and makes payments to Perpetual for federal
and Virginia state income taxes which are computed in accordance with the terms
of a tax sharing agreement between the Company and Perpetual. Because Perpetual
has historically filed consolidated federal and Virginia state income tax
returns including the operating results of both ACC and Allnewsco, certain tax
benefits were realized by Perpetual associated with Allnewsco's net operating
losses in the consolidated tax returns. In accordance with SFAS No. 109, the
combined results of ACC and Allnewsco have been adjusted to reflect the
historical tax benefits which would have been recorded for financial reporting
purposes by the combined entity during each period presented. The cumulative
effect of the tax benefits associated with combining ACC and Allnewsco of
$17,772 has been reflected as a receivable which was not acquired upon
consummation of the Allnewsco transaction.
F-15
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
The components of distributions to owners and the related activity during
Fiscal 2000, 2001 and 2002 consist of the following:
Federal and
ACC Allnewsco Virginia state Net
Distributions Notes Payable Income Tax Distributions
to Owners to Perpetual Receivable to Owners
------------- ------------- -------------- -------------
Balance as of September 30, 1999.............. $ 252,357 $(50,223) $ 12,275 $ 214,409
Cash advances to Perpetual.................... 275,024 275,024
Repayment of cash advances from
Perpetual................................... (249,291) (249,291)
Issuance of notes payable to Perpetual........ (3,083) (3,083)
Charge for federal and state income taxes..... (8,808) (8,808)
Payment of income taxes....................... 8,808 8,808
Tax benefit associated with combining ACC
and Allnewsco............................... 2,681 2,681
--------- -------- -------- ---------
Balance as of September 30, 2000.............. 278,090 (53,306) 14,956 239,740
Cash advances to Perpetual.................... 197,680 197,680
Repayment of cash advances from
Perpetual................................... (174,100) (174,100)
Issuance of notes payable to Perpetual........ (2,493) (2,493)
Reclassification of notes payable to equity in
the common stock of Allnewsco............... 46,291 46,291
Charge for federal and state income taxes..... (4,500) (4,500)
Payment of income taxes....................... 4,500 4,500
Tax benefit associated with combining ACC
and Allnewsco............................... 2,630 2,630
--------- -------- -------- ---------
Balance as of September 30, 2001.............. 301,670 (9,508) 17,586 309,748
Cash advances to Perpetual.................... 342,567 342,567
Repayment of cash advances from
Perpetual................................... (342,615) (342,615)
Issuance of notes payable to Perpetual........ (3,895) (3,895)
Benefit for federal and state income taxes,
including tax benefit associated with
combining ACC and Allnewsco of $1,810....... 2,571 2,571
Payment of income taxes....................... 186 186
Distribution of tax benefit................... (2,571) (2,571)
Allnewsco balances not acquired............... 13,403 (17,772) (4,369)
--------- -------- -------- ---------
Balance as of September 30, 2002.............. $ 301,622 $ -- $ -- $ 301,622
========= ======== ======== =========
Subsequent to September 30, 2002 and through November 15, 2002, the Company
made additional net distributions to owners of $16.
F-16
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Other Transactions with Related Parties
During 1991, the Company loaned $20,000 to Allnewsco. The $20,000, 11.06%
note receivable from Allnewsco was due in January 2008, with the principal
balance also due upon demand. Since the historical consolidated financial
statements have been restated to reflect the combined results of the Company
and Allnewsco as of the beginning of the earliest period presented, the loan
amount as well as the related interest income/expense have been eliminated as
intercompany transactions for all periods presented. At closing of the
Allnewsco transaction, the Company cancelled the $20,000 note as part of the
consideration for the acquisition.
During the years ended September 30, 2000, 2001 and 2002, the Company earned
interest income from Perpetual of $303, $213 and $92, respectively, as a result
of making advances of tax payments in accordance with the terms of the tax
sharing agreement between the Company and Perpetual.
Management fees of $500, $500 and $600 were paid to Perpetual by the Company
for the years ended September 30, 2000, 2001 and 2002, respectively. The
Company also paid management fees to Mr. Joe L. Allbritton in the amount of
$550 for each of the years ended September 30, 2000, 2001 and 2002 and to Mr.
Robert L. Allbritton in the amount of $190, $200 and $200 for the years ended
September 30, 2000, 2001 and 2002, respectively. Management fees are included
in corporate expenses in the consolidated statements of operations.
During the year ended September 30, 2000, the Company entered into various
agreements with Irides, LLC (Irides) to provide the Company's stations with
certain web site design, hosting and maintenance services. Irides is an
affiliate of the Company which is controlled by Mr. Joe L. Allbritton. The
Company paid fees of $209, $167 and $110 to Irides during the years ended
September 30, 2000, 2001 and 2002, respectively. These fees are included in
television operating expenses in the consolidated statements of operations.
The Company maintains banking and advertising relationships with and leases
certain office space from Riggs Bank N.A. (Riggs Bank). Riggs is a wholly-owned
subsidiary of Riggs National Corporation (Riggs), of which Mr. Joe L.
Allbritton is the Vice Chairman of the Board of Directors and a significant
stockholder. The majority of the Company's cash and cash equivalents was on
deposit with Riggs Bank at September 30, 2001 and 2002. During the years ended
September 30, 2000, 2001 and 2002, the Company generated $378, $191 and $44,
respectively, in advertising revenue from Riggs Bank. Additionally, the Company
incurred $283, $297 and $328 in rental expense related to office space leased
from Riggs Bank for the years ended September 30, 2000, 2001 and 2002,
respectively. During the years ended September 30, 2001 and 2002, Riggs
utilized the Company's aircraft on several occasions and was charged $20 and
$27, respectively, for such usage. There was no usage of the Company's aircraft
by Riggs during the year ended September 30, 2000.
NOTE 10--RETIREMENT PLANS
A defined contribution savings plan is maintained for eligible employees of
the Company and certain of its affiliates. Under the plan, employees may
contribute a portion of their compensation subject to Internal Revenue Service
limitations and the Company contributes an amount equal to 50% of the
contribution of the employee not to exceed 6% of the compensation
F-17
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
of the employee. The amounts contributed to the plan by the Company on behalf
of its employees totaled approximately $1,035, $863 and $1,039 for the years
ended September 30, 2000, 2001 and 2002, respectively.
The Company also contributes to certain other multi-employer union pension
plans on behalf of certain of its union employees. The amounts contributed to
such plans totaled approximately $361, $331 and $360 for the years ended
September 30, 2000, 2001 and 2002, respectively.
NOTE 11--COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases office and studio facilities and machinery and equipment
under operating and capital leases expiring in various years through 2017.
Certain leases contain provisions for renewal and extension. Future minimum
lease payments under operating and capital leases which have remaining
noncancelable lease terms in excess of one year as of September 30, 2002 are as
follows:
Operating Capital
Leases Leases
--------- -------
Year ending September 30,
2003....................................... $ 3,595 $ 638
2004....................................... 3,542 268
2005....................................... 3,444 180
2006....................................... 3,465 180
2007....................................... 2,791 30
2008 and thereafter........................ 30,129 --
------- ------
$46,966 1,296
=======
Less: amounts representing imputed interest... (117)
------
1,179
Less: current portion......................... (574)
------
Long-term portion of capital lease obligations $ 605
======
Rental expense under operating leases aggregated approximately $3,200,
$3,300 and $3,800 for the years ended September 30, 2000, 2001 and 2002,
respectively.
F-18
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
The Company has entered into contractual commitments in the ordinary course
of business for the rights to television programming which is not yet available
for broadcast as of September 30, 2002. Under these agreements, the Company
must make specific minimum payments approximating the following:
Year ending September 30,
2003.................. $ 3,361
2004.................. 19,918
2005.................. 13,139
2006.................. 3,021
2007.................. 104
-------
$39,543
=======
The Company has entered into various employment contracts. Future guaranteed
payments under such contracts as of September 30, 2002 approximate the
following:
Year ending September 30,
2003.................. $6,775
2004.................. 980
2005.................. 300
2006.................. 212
------
$8,267
======
The Company has entered into various deferred compensation agreements with
certain employees. Under these agreements, the Company is required to make
payments aggregating approximately $2,067 during the years 2005 through 2012.
At September 30, 2001 and 2002, the Company has recorded a deferred
compensation liability of approximately $1,013 and $1,163, respectively, which
is included as a component of noncurrent accrued employee benefit expenses in
the accompanying consolidated balance sheets.
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business, including suits based on defamation.
The Company is not currently a party to any lawsuit or proceeding which, in the
opinion of management, if decided adverse to the Company, would be likely to
have a material adverse effect on the Company's consolidated financial
condition, results of operations or cash flows.
NOTE 12 - SUBSEQUENT EVENTS
On December 6, 2002, the Company priced a new $275,000 offering of 7.75%
Senior Subordinated Notes due 2012 (the 7.75% Notes). Subject to customary
closing conditions, the 7.75% Notes are to be issued under an indenture to be
dated on or about December 20, 2002, with the cash proceeds to be used to
purchase or redeem the Company's existing 9.75% Senior Subordinated Debentures.
In addition, the Revolving Credit Agreement was amended to adjust certain of
the financial covenants.
F-19
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
2002 2002
------------- ------------
ASSETS (unaudited)
Current assets
Cash and cash equivalents............................... $ 6,299 $ 3,583
Restricted cash (Note 3)................................ -- 275,000
Accounts receivable, net................................ 37,167 42,882
Program rights.......................................... 19,272 14,294
Deferred income taxes................................... 807 807
Other................................................... 2,140 2,929
--------- -----------
Total current assets................................ 65,685 339,495
Property, plant and equipment, net......................... 56,573 55,448
Intangible assets, net..................................... 128,150 123,108
Deferred financing costs and other......................... 7,177 11,924
Cash surrender value of life insurance..................... 10,362 10,688
Program rights............................................. 1,047 779
--------- -----------
$ 268,994 $ 541,442
========= ===========
LIABILITIES AND STOCKHOLDER'S INVESTMENT
Current liabilities
Current portion of long-term debt (Note 3).............. $ 574 $ 274,967
Accounts payable........................................ 3,003 3,449
Accrued interest payable................................ 11,313 8,596
Program rights payable.................................. 22,993 19,382
Accrued employee benefit expenses....................... 4,906 3,830
Other accrued expenses.................................. 10,370 11,279
--------- -----------
Total current liabilities........................... 53,159 321,503
Long-term debt............................................. 439,869 447,473
Program rights payable..................................... 1,886 1,481
Deferred rent and other.................................... 3,089 4,690
Accrued employee benefit expenses.......................... 1,879 1,868
Deferred income taxes...................................... 16,185 18,117
--------- -----------
Total liabilities................................... 516,067 795,132
--------- -----------
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....................................... 4,917 9,167
Distributions to owners, net (Note 5)................... (301,622) (312,489)
--------- -----------
Total stockholder's investment...................... (247,073) (253,690)
--------- -----------
$ 268,994 $ 541,442
========= ===========
See accompanying notes to interim consolidated financial statements.
F-20
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,
------------------
2001 2002
-------- --------
Operating revenues, net........................................... $ 52,936 $ 58,509
-------- --------
Television operating expenses, excluding depreciation and
amortization.................................................... 32,470 32,128
Depreciation and amortization..................................... 3,301 2,589
Corporate expenses................................................ 1,382 1,458
-------- --------
37,153 36,175
-------- --------
Operating income.................................................. 15,783 22,334
-------- --------
Nonoperating income (expense)
Interest income
Related party.............................................. 45 44
Other...................................................... 32 120
Interest expense...............................................
Related party.............................................. (180) --
Other...................................................... (10,466) (11,098)
Other, net..................................................... (375) (344)
-------- --------
(10,944) (11,278)
-------- --------
Income before income taxes and cumulative effect of change in
accounting principle............................................ 4,839 11,056
Provision for income taxes........................................ 2,140 3,833
-------- --------
Income before cumulative effect of change in accounting principle. 2,699 7,223
Cumulative effect of change in accounting principle, net of income
tax benefit of $2,027 (Note 4).................................. -- 2,973
-------- --------
Net income........................................................ 2,699 4,250
Retained earnings, beginning of period............................ 3,974 4,917
-------- --------
Retained earnings, end of period.................................. $ 6,673 $ 9,167
======== ========
See accompanying notes to interim consolidated financial statements.
F-21
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,
--------------------
2001 2002
--------- ---------
Cash flows from operating activities:
Net income.............................................................. $ 2,699 $ 4,250
--------- ---------
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization........................................ 3,301 2,589
Cumulative effect of change in accounting principle.................. -- 2,973
Other noncash charges................................................ 340 363
Noncash tax benefits................................................. (393) --
Provision for doubtful accounts...................................... 139 131
Loss (gain) on disposal of assets.................................... 19 (4)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable............................................ (7,952) (5,846)
Program rights................................................. 5,410 5,246
Other current assets........................................... 62 (789)
Other noncurrent assets........................................ (334) (307)
Increase (decrease) in liabilities:
Accounts payable............................................... 818 446
Accrued interest payable....................................... (3,333) (2,717)
Accrued interest payable - related party....................... 170 --
Program rights payable......................................... (5,124) (4,016)
Accrued employee benefit expenses.............................. (695) (1,087)
Other accrued expenses......................................... 1,131 909
Deferred rent and other liabilities............................ (135) 1,601
Deferred income taxes.......................................... 925 3,959
--------- ---------
Total adjustments............................................ (5,651) 3,451
--------- ---------
Net cash (used in) provided by operating
activities.................................................. (2,952) 7,701
--------- ---------
Cash flows from investing activities:
Capital expenditures.................................................... (693) (1,422)
Proceeds from disposal of assets........................................ 9 4
--------- ---------
Net cash used in investing activities........................ (684) (1,418)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt.......................................... -- 275,000
Placement of proceeds from issuance of debt into escrow................. -- (275,000)
Draws under line of credit, net......................................... -- 7,136
Deferred financing costs................................................ (63) (5,100)
Principal payments on capital lease obligations......................... (471) (168)
Notes issued from Allnewsco to Perpetual................................ 393 --
Distributions to owners, net of certain charges......................... (120,561) (14,076)
Repayments of distributions to owners................................... 120,465 3,209
--------- ---------
Net cash used in financing activities........................ (237) (8,999)
--------- ---------
Net decrease in cash and cash equivalents................................... (3,873) (2,716)
Cash and cash equivalents, beginning of period.............................. 7,829 6,299
--------- ---------
Cash and cash equivalents, end of period.................................... $ 3,956 $ 3,583
========= =========
Non-cash investing and financing activities:
Equipment acquired under capital leases................................. $ 24 $ --
========= =========
See accompanying notes to interim consolidated financial statements.
F-22
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 ("Perpetual")) and its subsidiaries
(collectively, "ACC" or 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,
2002 are not necessarily indicative of the results that can be expected for the
entire fiscal year ending September 30, 2003. 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, 2002 which are contained in the Company's Form 10-K.
NOTE 2 -- On September 16, 2002, the Company acquired certain of the assets
of ALLNEWSCO, Inc. ("Allnewsco") in exchange for $20,000 in cash and the
cancellation of a $20,000 note receivable from Allnewsco. Allnewsco has been
controlled since its inception by Perpetual which also controls the Company.
Because both the Company and Allnewsco are controlled by Perpetual, the Company
was required to account for the acquisition as a transfer of assets within a
group under common control. Under this accounting, the Company and Allnewsco
are treated as if they have always been combined for accounting and financial
reporting purposes. As a result, the Company's consolidated financial
statements have been restated for all periods prior to the asset acquisition to
reflect the combined results of the Company and Allnewsco as of the beginning
of the earliest period presented. In addition to combining the separate
historical results of the Company and Allnewsco, the consolidated financial
statements include all adjustments necessary to conform accounting methods and
presentation, to the extent they were different, and to eliminate significant
intercompany transactions.
Selected combining financial data for the three months ended December 31,
2001 are as follows:
ACC Allnewsco Adjustment Combined
------- --------- ---------- --------
Net operating revenues $50,153 $ 2,783 $52,936
Net income............ 3,341 (1,035) $393 2,699
The adjustment to net income represents the income tax benefit associated
with combining the Company and Allnewsco.
As the Company did not acquire all of the assets or assume all of the
liabilities of Allnewsco, certain expenses reported in the consolidated
financial statements will not be incurred subsequent to the asset acquisition.
Specifically, the Company did not acquire or assume amounts due from Allnewsco
to Perpetual. The accompanying consolidated financial statements include $180
of related party interest expense relating to amounts due from
F-23
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
(unaudited)
Allnewsco to Perpetual during the three months ended December 31, 2001 that
will not recur subsequent to the acquisition. Accordingly, no such related
party interest expense was incurred during the three months ended December 31,
2002.
NOTE 3 -- On December 20, 2002, the Company issued $275,000 principal amount
of 7.75% Senior Subordinated Notes due 2012 (the "7.75% Notes") at par. The net
proceeds were used to purchase and redeem the Company's $275,000 9.75% Senior
Subordinated Debentures due 2007 (the "9.75% Debentures"). At December 31,
2002, the 7.75% Notes had been issued and the gross proceeds were held in
escrow for purchase and redemption of the 9.75% Debentures. As of January 21,
2003, all of the 9.75% Debentures had been purchased or redeemed. The Company
will record a pre-tax loss of $14,307 as a result of the purchase and
redemption of its 9.75% Debentures during the quarter ending March 31, 2003
(see Note 6).
On January 28, 2003, the Company entered into a purchase agreement pursuant
to which it agreed, subject to customary closing conditions, to issue an
additional $180,000 principal amount of its 7.75% Notes at a price of 98.305%.
The net proceeds will be used to redeem the Company's existing $150,000 8.875%
Senior Subordinated Notes due 2008 (the "8.875% Notes"), fund the redemption
premium for the 8.875% Notes, pay the fees and expenses associated with the
offering of the additional 7.75% Notes and repay borrowings outstanding under
the Company's senior credit facility. If the Company closes the offering of the
additional 7.75% Notes resulting in the redemption of the 8.875% Notes, the
Company will incur a pre-tax loss of approximately $9,000 during the quarter
ending March 31, 2003 (see Note 6).
NOTE 4 -- Effective October 1, 2002, the Company adopted Statement of
Financial Accounting Standards (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 will no longer be
amortized but will be subject to periodic impairment tests. The Company's
indefinite lived intangible assets consist of broadcast licenses. Other
intangible assets will continue to be amortized over their useful lives of 11
to 25 years.
Upon adoption, the Company performed the first of the required impairment
tests on its indefinite lived intangible assets. The fair value of the
Company's 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, 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 broadcast licenses at September 30, 2002 and
December 31, 2002 was $127,290 and $122,290, respectively, with the decrease
representing the $5,000 pre-tax impairment charge discussed above.
F-24
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
(unaudited)
Other intangible assets at September 30, 2002 and December 31, 2002
consisted of the following:
September 30, December 31,
2002 2002
------------- ------------
Gross carrying amount... $6,174 $6,174
Accumulated amortization 5,314 5,356
------ ------
Net carrying amount..... $ 860 $ 818
====== ======
The following table adjusts reported income before cumulative effect of
change in accounting principle and reported net income for the three months
ended December 31, 2001 (prior to the adoption date of SFAS No. 142) to exclude
amortization of indefinite lived intangible assets:
Income Before
Cumulative Effect
of Change in Net
Accounting Principle Income
-------------------- ------
Three Months Ended December 31, 2001
As reported................................... $2,699 $2,699
Amortization of broadcast licenses, net of tax 686 686
------ ------
Adjusted...................................... $3,385 $3,385
====== ======
NOTE 5 -- For the three months ended December 31, 2001 and 2002,
distributions to owners and related activity consisted of the following:
Federal and
Allnewsco Virginia State Net
Distributions Notes Payable Income Tax Distributions
to Owners to Perpetual Receivable to Owners
------------- ------------- -------------- -------------
Balance as of September 30, 2001......... $ 301,670 $(9,508) $17,586 $ 309,748
Cash advances to Perpetual............... 119,409 119,409
Repayment of cash advances to Perpetual.. (120,465) (120,465)
Issuance of notes payable to Perpetual... (393) (393)
Charge for federal and state income taxes (1,335) (1,335)
Payment of income taxes.................. 2,487 2,487
Tax benefit associated with combining
ACC and Allnewsco...................... 393 393
--------- ------- ------- ---------
Balance as of December 31, 2001.......... $ 300,614 $(9,901) $19,131 $ 309,844
========= ======= ======= =========
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
========= ======= ======= =========
F-25
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
(unaudited)
The weighted average amount of non-interest bearing advances outstanding was
$324,726 and $303,505 during the three months ended December 31, 2001 and 2002,
respectively.
NOTE 6 -- SFAS No. 145, "Rescission of FASB Statement Nos. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical Corrections," was issued in
April 2002 and primarily eliminates the requirement that gains or losses
associated with early debt extinguishments be accounted for as extraordinary
items. SFAS No. 145 will likely require any future gains or losses associated
with early extinguishments of debt to be recorded as a component of income from
continuing operations rather than as an extraordinary item. This standard is
effective for the Company's fiscal year ending September 30, 2003. As a result
of the purchase and redemption of its 9.75% Debentures in January 2003, the
Company will record a pre-tax loss of $14,307 during the quarter ending March
31, 2003. Additionally, if the Company closes the offering of the additional
7.75% Notes resulting in the redemption of the 8.875% Notes, the Company will
incur a pre-tax loss of approximately $9,000 during the quarter ending March
31, 2003. These losses will be reflected as a component of income from
continuing operations rather than net of tax as an extraordinary item. The
other provisions of SFAS No. 145 are not expected to have a material effect on
the Company's financial position or results of operations.
SFAS No. 143, "Accounting for Asset Retirement Obligations," was issued in
June 2001 to address diversity in practice for recognizing obligations
associated with the retirement of tangible long-lived assets. SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," was issued in
August 2001 to establish a single accounting model for long-lived assets to be
disposed of by sale and to address issues surrounding the impairment of
long-lived assets. SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," was issued in June 2002 to address financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity."
These standards are effective for the Company's fiscal year ending September
30, 2003 and their adoption will not have a material impact on the Company's
financial position or results of operations.
F-26
SCHEDULE II
ALLBRITTON COMMUNICATIONS COMPANY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in thousands)
Balance at Charged Balance at
beginning to costs Charged to end of
Classification of year and expenses other accounts Deductions year
- -------------- ---------- ------------ -------------- ---------- ----------
Year ended September 30, 2000:
Allowance for doubtful accounts.. $1,549 $538 -- $(766)(2) $1,321
====== ==== ===== ===== ======
Valuation allowance for deferred
income tax assets.............. $2,238 $166(1) -- $ -- $2,404
====== ==== ===== ===== ======
Year ended September 30, 2001:
Allowance for doubtful accounts.. $1,321 $783 -- $(930)(2) $1,174
====== ==== ===== ===== ======
Valuation allowance for deferred
income tax assets.............. $2,404 $314(1) -- $(898)(3) $1,820
====== ==== ===== ===== ======
Year ended September 30, 2002:
Allowance for doubtful accounts.. $1,174 $677 $(191)(4) $(613)(2) $1,047
====== ==== ===== ===== ======
Valuation allowance for deferred
income tax assets.............. $1,820 $173(1) -- $ -- $1,993
====== ==== ===== ===== ======
- --------
(1) Represents valuation allowance established related to certain net operating
loss carryforwards and other deferred tax assets for state income tax
purposes.
(2) Write-off of uncollectible accounts, net of recoveries and collection fees.
(3) Represents reduction of valuation allowance relating to certain net
operating loss carryforwards.
(4) Represents the Allnewsco allowance balance at September 16, 2002 which was
not acquired by the Company.
F-27
- --------------------------------------------------------------------------------
-----------------
PROSPECTUS
-----------------
ALLBRITTON COMMUNICATIONS COMPANY
Offer to Exchange
All outstanding
73/4% Series A Senior Subordinated Notes due 2012
($275,000,000 principal amount outstanding)
for
73/4% Series B Senior Subordinated Notes due 2012
($275,000,000 principal amount)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything to you other than the information contained
in this prospectus. You must not rely on unauthorized information or
representations.
This prospectus does not offer to sell or ask for offers to buy any of the
securities in any jurisdiction where it is unlawful, where the person making
the offer is not qualified to do so, or to any person who can not legally be
offered the securities.
The information in this prospectus is current only as of the date on its
cover, and may change after that date. For any time after the cover date of
this offering memorandum, we do not represent that our affairs are the same as
described or that the information in this prospectus is correct -- nor do we
imply those things by delivering this prospectus or selling securities to you.
-----------------
TABLE OF CONTENTS
Page
- ----
Prospectus Summary..................... 1
Risk Factors........................... 14
Use of Proceeds........................ 22
Capitalization......................... 23
Selected Consolidated Financial Data... 24
Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................... 26
Television Industry Background......... 46
Our Business........................... 49
Management............................. 60
Ownership of Capital Stock............. 63
Certain Relationships and Related
Transactions......................... 64
Description of Certain Indebtedness.... 67
Exchange Offer......................... 69
Description of the Exchange Notes...... 79
Book Entry; Delivery and Form.......... 105
Certain Tax Considerations............. 107
Plan of Distribution................... 112
Legal Matters.......................... 113
Experts................................ 113
Where You Can Find More Information.... 113
Index to Consolidated Financial
Statements........................... F-1
- --------------------------------------------------------------------------------
PART II
Information Not Required in Prospectus
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("DGCL") and Article
Sixth of ACC's Certificate of Incorporation provide for indemnification of
ACC's directors and officers in a variety of circumstances which may include
liabilities under the Securities Act of 1933. Article Sixth provides that
unless otherwise determined by the Board of Directors of ACC, ACC shall
indemnify to the full extent permitted by the laws of Delaware as from time to
time in effect, the persons described in Section 145 of DGCL. In addition,
Article Sixth authorizes ACC and the Board of Directors to provide additional
rights of indemnity.
The general effect of the provisions in ACC's Certificate of Incorporation
and DGCL is to provide that ACC shall indemnify its directors and officers
against all liabilities and expenses actually and reasonably incurred in
connection with the defense or settlement of any judicial or administrative
proceedings in which they become involved by reason of their status as
corporate directors or officers, if they acted in good faith and in the
reasonable belief that their conduct was neither unlawful (in the case of
criminal proceedings) nor inconsistent with the best interests of ACC. With
respect to legal proceedings by or in the right of ACC in which a director or
officer is adjudged liable for improper performance of his duty to ACC or
another enterprise which such person served in a similar capacity at the
request of ACC, indemnification is limited by such provisions to that amount
which is permitted by the court.
Pursuant to authority granted the Board of Directors under Article VII,
Section 2 of the By-Laws, ACC maintains officers' and directors' liability
insurance which insures against liabilities that officers and directors of ACC
may incur in such capacities.
Reference is made to the Purchase Agreement filed as Exhibit 1 which
provides for indemnification of the directors and officers of ACC signing the
registration statement and certain controlling persons of ACC against certain
liabilities, including those arising under the Securities Act in certain
instances, of the initial purchasers of the initial notes.
II-1
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
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 Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 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 Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 2002).
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 Registrant's Current Report on Form 8-K, dated March 6, 2002).
3.1 Certificate of Incorporation of ACC. (Incorporated by reference to Exhibit
3.1 of Registrant'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 January 22, 1998 between ACC and State Street Bank
and Trust Company, as Trustee, relating to 8 7/8% Senior Subordinated Notes due
2008. (Incorporated by reference to Exhibit 4.1 of Registrant's Registration
Statement on Form S-4, No. 333-45933, dated February 10, 1998).
4.2 Indenture dated as of December 20, 2002 between ACC and State Street Bank
and Trust Company, as Trustee, relating to 7 3/4% Senior Subordinated Notes due
2012. (Incorporated by reference to Exhibit 4.1 of Registrant's Current Report
on Form 8-K, dated December 20, 2002).
4.3 Form of 7 3/4% Series B Senior Subordinated Notes due 2012. (Incorporated
by reference to Exhibit 4.7 of Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended December 31, 2002).
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 Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 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
Registrant's Annual Report on Form 10-K for the fiscal year ended September 30,
2001).
4.6 Second Amendment dated as of May 15, 2001 to the Amended and Restated
Revolving Credit Agreement. (Incorporated by reference to Exhibit 4.6 of
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 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
Registrant's Annual Report on Form 10-K for the fiscal year ended September 30,
2002).
II-2
5.1 Opinion of Fulbright & Jaworski L.L.P., as to the validity of the exchange
notes.
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 Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended December 31, 2002).
10.2 Network Affiliation Agreement (Harrisburg Television, Inc.) (Incorporated
by reference to Exhibit 10.3 of Registrant's Pre-effective Amendment No. 1 to
Registration Statement on Form S-4, No. 333-02302, dated April 22, 1996).
10.3 Network Affiliation Agreement (First Charleston Corp.) (Incorporated by
reference to Exhibit 10.4 of Registrant's Pre-effective Amendment No. 1 to
Registration Statement on Form S-4, No. 333-02302, dated April 22, 1996).
10.4 Network Affiliation Agreement (WSET, Incorporated) (Incorporated by
reference to Exhibit 10.5 of Registrant's Pre-effective Amendment No. 1 to
Registration Statement on Form S-4, No. 333-02302, dated April 22, 1996).
10.5 Network Affiliation Agreement (WJLA-TV) (Incorporated by reference to
Exhibit 10.6 of Registrant's Pre-effective Amendment No. 1 to Registration
Statement on Form S-4, No. 333-02302, dated April 22, 1996).
10.6 Network Affiliation Agreement (KATV Television, Inc.) (Incorporated by
reference to Exhibit 10.7 of Registrant's Pre-effective Amendment No. 1 to
Registration Statement on Form S-4, No. 333-02302, dated April 22, 1996).
10.7 Network Affiliation Agreement (KTUL Television, Inc.) (Incorporated by
reference to Exhibit 10.8 of Registrant's Pre-effective Amendment No. 1 to
Registration Statement on Form S-4, No. 333-02302, dated April 22, 1996).
10.8 Network Affiliation Agreement (TV Alabama, Inc.) (Incorporated by
reference to Exhibit 10.9 of Registrant's Pre-effective Amendment No. 1 to
Registration Statement on Form S-4, No. 333-02302, dated April 22, 1996).
10.9 Amendment to Network Affiliation Agreement (TV Alabama, Inc.) dated
January 23, 1997. (Incorporated by reference to Exhibit 10.15 of Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 1996).
10.10 Tax Sharing Agreement effective as of October 1, 1995 by and among
Perpetual Corporation, Inc., ACC and ALLNEWSCO, Inc., as amended as of October
29, 1993. (Incorporated by reference to Exhibit 10.11 of Registrant's
Registration Statement on Form S-4, No. 333-02302 dated March 12, 1996).
10.11 Second Amendment to Tax Sharing Agreement effective as of October 1,
1995 by and among Perpetual Corporation, Inc., ACC and ALLNEWSCO, Inc.
(Incorporated by reference to Exhibit 10.9 of Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1998).
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 Registrant's Registration Statement on Form S-4, No.
333-02302, dated March 12, 1996).
10.13 Master Lease Finance Agreement dated as of November 22, 2000 between
Fleet Capital Corporation and ACC. (Incorporated by reference to Exhibit 10.19
of Registrant's Annual Report on Form 10-K for the fiscal year ended September
30, 2000).
II-3
10.14 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 Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2001).
10.15 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 Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended December 31, 2002).
10.16 Joinder Agreement dated as of December 13, 2002 by ACC Licensee, Inc. to
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 Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended December 31, 2002).
12. Statement of Computation of Ratios.
21. Subsidiaries of ACC. (Incorporated by reference to Exhibit 21 of
Registrant's Annual Report on Form 10-K for the fiscal year ended September 30,
2002).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
24. Powers of Attorney.
25. Statement of Form T-1 of Eligibility and Qualification under the Trust
Indenture Act of 1939 of U.S. Bank National Association, as successor to State
Street Bank and Trust Company, as Trustee under the Indenture, relating to the
7 3/4% Series B Senior Subordinated Notes due 2012.
99.1 Letter of Transmittal.
99.2 Notice of Guaranteed Delivery.
(b) Consolidated Financial Statement Schedule
(ii) Valuation and Qualifying Accounts and Reserves (see page F-27).
II-4
Item 22. Undertakings.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of
the Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(6) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first-class mail or equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the request.
(7) To supply by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein, that was not
the subject of and included in the registration statement when it became
effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Washington, D.C. on February 3, 2003.
ALLBRITTON COMMUNICATIONS COMPANY
(Registrant)
By /s/ ROBERT L. ALLBRITTON
--------------------------------------
Robert L. Allbritton
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Name Title Date
---- ----- ----
/s/ JOE L. ALLBRITTON Chairman of the Executive February 3, 2003
- ----------------------------- Committee and Director
Joe L. Allbritton*
/s/ BARBARA B. ALLBRITTON Executive Vice President and February 3, 2003
- ----------------------------- Director
Barbara B. Allbritton*
/s/ ROBERT L. ALLBRITTON Chairman, Chief Executive February 3, 2003
- ----------------------------- Officer and Director
Robert L. Allbritton (Principal Executive
Officer)
/s/ LAWRENCE I. HEBERT Vice Chairman and Director February 3, 2003
- -----------------------------
Lawrence I. Hebert
/s/ FREDERICK J. RYAN, JR. Vice Chairman, February 3, 2003
- ----------------------------- President, Chief Operating
Frederick J. Ryan, Jr. Officer and Director
/s/ STEPHEN P. GIBSON Senior Vice President and February 3, 2003
- ----------------------------- Chief Financial Officer
Stephen P. Gibson (Principal Financial
Officer)
/s/ ELIZABETH A. HALEY Vice President and Controller February 3, 2003
- ----------------------------- (Principal Accounting
Elizabeth A. Haley Officer)
*By Attorney-in-Fact
/s/ STEPHEN P. GIBSON
- ---------------------------
Stephen P. Gibson
Exhibit Index
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 Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 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 Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 2002).
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 Registrant's Current Report on Form 8-K, dated March 6, 2002).
3.1 Certificate of Incorporation of ACC. (Incorporated by reference to Exhibit
3.1 of Registrant'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 January 22, 1998 between ACC and State Street Bank
and Trust Company, as Trustee, relating to 8 7/8% Senior Subordinated Notes due
2008. (Incorporated by reference to Exhibit 4.1 of Registrant's Registration
Statement on Form S-4, No. 333-45933, dated February 10, 1998).
4.2 Indenture dated as of December 20, 2002 between ACC and State Street Bank
and Trust Company, as Trustee, relating to 7 3/4% Senior Subordinated Notes due
2012. (Incorporated by reference to Exhibit 4.1 of Registrant's Current Report
on Form 8-K, dated December 20, 2002).
4.3 Form of 7 3/4% Series B Senior Subordinated Notes due 2012. (Incorporated
by reference to Exhibit 4.7 of Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended December 31, 2002).
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 Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 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
Registrant's Annual Report on Form 10-K for the fiscal year ended September 30,
2001).
4.6 Second Amendment dated as of May 15, 2001 to the Amended and Restated
Revolving Credit Agreement. (Incorporated by reference to Exhibit 4.6 of
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 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
Registrant's Annual Report on Form 10-K for the fiscal year ended September 30,
2002).
5.1 Opinion of Fulbright & Jaworski L.L.P., as to the validity of the exchange
notes.
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 Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended December 31, 2002).
10.2 Network Affiliation Agreement (Harrisburg Television, Inc.) (Incorporated
by reference to Exhibit 10.3 of Registrant's Pre-effective Amendment No. 1 to
Registration Statement on Form S-4, No. 333-02302, dated April 22, 1996).
10.3 Network Affiliation Agreement (First Charleston Corp.) (Incorporated by
reference to Exhibit 10.4 of Registrant's Pre-effective Amendment No. 1 to
Registration Statement on Form S-4, No. 333-02302, dated April 22, 1996).
10.4 Network Affiliation Agreement (WSET, Incorporated) (Incorporated by
reference to Exhibit 10.5 of Registrant's Pre-effective Amendment No. 1 to
Registration Statement on Form S-4, No. 333-02302, dated April 22, 1996).
10.5 Network Affiliation Agreement (WJLA-TV) (Incorporated by reference to
Exhibit 10.6 of Registrant's Pre-effective Amendment No. 1 to Registration
Statement on Form S-4, No. 333-02302, dated April 22, 1996).
10.6 Network Affiliation Agreement (KATV Television, Inc.) (Incorporated by
reference to Exhibit 10.7 of Registrant's Pre-effective Amendment No. 1 to
Registration Statement on Form S-4, No. 333-02302, dated April 22, 1996).
10.7 Network Affiliation Agreement (KTUL Television, Inc.) (Incorporated by
reference to Exhibit 10.8 of Registrant's Pre-effective Amendment No. 1 to
Registration Statement on Form S-4, No. 333-02302, dated April 22, 1996).
10.8 Network Affiliation Agreement (TV Alabama, Inc.) (Incorporated by
reference to Exhibit 10.9 of Registrant's Pre-effective Amendment No. 1 to
Registration Statement on Form S-4, No. 333-02302, dated April 22, 1996).
10.9 Amendment to Network Affiliation Agreement (TV Alabama, Inc.) dated
January 23, 1997. (Incorporated by reference to Exhibit 10.15 of Registrant's
Quarterly Report on Form 10-Q for the fiscal year ended December 31, 1996).
10.10 Tax Sharing Agreement effective as of October 1, 1995 by and among
Perpetual Corporation, Inc., ACC and ALLNEWSCO, Inc., as amended as of October
29, 1993. (Incorporated by reference to Exhibit 10.11 of Registrant's
Registration Statement on Form S-4, No. 333-02302 dated March 12, 1996).
10.11 Second Amendment to Tax Sharing Agreement effective as of October 1,
1995 by and among Perpetual Corporation, Inc., ACC and ALLNEWSCO, Inc.
(Incorporated by reference to Exhibit 10.9 of Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1998).
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 Registrant's Registration Statement on Form S-4, No.
333-02302, dated March 12, 1996).
10.13 Master Lease Finance Agreement dated as of November 22, 2000 between
Fleet Capital Corporation and ACC. (Incorporated by reference to Exhibit 10.19
of Registrant's Annual Report on Form 10-K for the fiscal year ended September
30, 2000).
10.14 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 Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2001).
10.15 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 Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended December 31, 2002).
10.16 Joinder Agreement dated as of December 13, 2002 by ACC Licensee, Inc. to
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 Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended December 31, 2002).
12. Statement of Computation of Ratios.
21. Subsidiaries of ACC. (Incorporated by reference to Exhibit 21 of
Registrant's Annual Report on Form 10-K for the fiscal year ended September 30,
2002).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
24. Powers of Attorney.
25. Statement of Form T-1 of Eligibility and Qualification under the Trust
Indenture Act of 1939 of U.S. Bank National Association, as successor to State
Street Bank and Trust Company, as Trustee under the Indenture, relating to the
7 3/4% Series B Senior Subordinated Notes due 2012.
99.1 Letter of Transmittal.
99.2 Notice of Guaranteed Delivery.