AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1998
REGISTRATION NUMBER 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
ALLBRITTON COMMUNICATIONS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 4833 74-180-3105
(STATE OR OTHER JURISDICTION PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
808 SEVENTEENTH STREET, N.W.
SUITE 300
WASHINGTON, D.C. 20006-3903
(202) 789-2130
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
LAWRENCE I. HEBERT
VICE CHAIRMAN & PRESIDENT
808 SEVENTEENTH STREET, N.W.
SUITE 300
WASHINGTON, D.C. 20006-3903
(202) 789-2130
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JERALD N. FRITZ, ESQ. MARILYN MOONEY, ESQ.
ALLBRITTON COMMUNICATIONS COMPANY FULBRIGHT & JAWORSKI L.L.P.
808 SEVENTEENTH STREET, N.W. 801 PENNSYLVANIA AVENUE, N.W.
SUITE 300 SUITE 400
WASHINGTON, D.C. 20006-3903 WASHINGTON, D.C. 20004-2604
(202) 789-2130 (202) 662-0200
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE 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 Principal, Maturity and Interest 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. [_]
CALCULATION OF REGISTRATION FEE
================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER NOTE(1) PRICE(1) FEE
- -------------------------------------------------------------------------------
8 7/8% Series B Senior
Subordinated Notes due
2008................. $150,000,000 100% $150,000,000 $44,250.00
================================================================================
(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 8 7/8% Series A
Senior Subordinated Notes due 2008 of ACC for which the securities
registered hereby will be exchanged, which is estimated to be the face
amount of such Notes.
----------------
THE REGISTRANTS HEREBY AMEND 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.
================================================================================
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED FEBRUARY 9, 1998
PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
8 7/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2008
($150,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
8 7/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
($150,000,000 PRINCIPAL AMOUNT)
OF
ALLBRITTON COMMUNICATIONS COMPANY
ALTHOUGH THE NOTES ARE TITLED "SENIOR," THE COMPANY HAS NOT ISSUED, AND DOES
NOT HAVE ANY CURRENT ARRANGEMENTS TO ISSUE, ANY SIGNIFICANT INDEBTEDNESS TO
WHICH THE NOTES WOULD BE SENIOR.
-----------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
-----------
Allbritton Communications Company, a Delaware corporation ("ACC"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions
sets forth in this Prospectus and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange up to an aggregate principal amount of
$150,000,000 of its 8 7/8% Series B Senior Subordinated Notes due 2008 (the
"Exchange Notes") for an equal principal amount of its outstanding 8 7/8%
Series A Senior Subordinated Notes due 2008 (the "Notes"), in integral
multiples of $1,000. The Exchange Notes will be senior unsecured obligations of
ACC and are substantially identical (including principal amount, interest rate,
maturity and redemption rights) to the Notes for which they may be exchanged
pursuant to this offer, except that (i) the offering and sale of the Exchange
Notes will have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and (ii) holders of Exchange Notes will not be entitled
to certain rights of holders under a Registration Rights Agreement dated as of
January 22, 1998 (the "Registration Rights Agreement"), among ACC and the
Initial Purchasers (as defined) of the Notes. The Notes have been, and the
Exchange Notes will be, issued under an Indenture dated as of January 22, 1998
(the "Indenture"), between ACC and State Street Bank and Trust Company, as
trustee (the "Trustee"). See "Description of the Exchange Notes." There will be
no proceeds to ACC from this offering; however, pursuant to the Registration
Rights Agreement, ACC will bear certain offering expenses.
The Exchange Notes will be general senior subordinated obligations of ACC and
will be subordinated in right of payment to all existing and future Senior Debt
(as defined herein) of ACC and will rank pari passu in right of payment with
ACC's existing 9 3/4% Senior Subordinated Debentures due 2007 (the "9 3/4%
Debentures"). As of December 31, 1997, after giving pro forma effect to the
sale of the Notes (and the application of the net proceeds thereof), Senior
Debt of ACC would have been approximately $11.3 million. The Exchange Notes
will also be effectively subordinated to all existing and future liabilities
(including trade payables) of ACC's subsidiaries. As of December 31, 1997,
after giving pro forma effect to the sale of the Notes (and the application of
the net proceeds thereof), ACC's subsidiaries would have had approximately
$26.2 million of total liabilities. See "Description of the Exchange Notes--
Subordination."
(continued on next page)
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 12 OF THIS PROSPECTUS, FOR A
DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED BY HOLDERS WHO TENDER NOTES IN
THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
(continued from previous page)
ACC will accept for exchange any and all validly tendered Notes on or prior
to 5:00 p.m., New York City time, on , 1998, unless extended (the
"Expiration Date"). Tenders of Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date; otherwise such tenders
are irrevocable. State Street Bank and Trust Company is acting as Exchange
Agent in connection with the Exchange Offer. The Exchange Offer is not
conditioned upon any minimum principal amount of Notes being tendered for
exchange but is otherwise subject to certain customary conditions. Assuming
the Registration Statement of which this Prospectus is a part becomes
effective prior to , 1998, if the Exchange Offer is consummated, holders of
the Notes, whether or not tendered, will not be entitled to the contingent
increase in interest rates provided for in the Registration Rights Agreement.
The Notes were sold by ACC on January 22, 1998, to the Initial Purchasers
(as defined herein) in transactions not registered under the Securities Act in
reliance upon the exemption provided in Section 4(2) of the Securities Act.
The Initial Purchasers subsequently placed the Notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act or
pursuant to offers and sales to non-U.S. persons that occurred outside the
United States within the meaning of Regulation S under the Securities Act.
Accordingly, the Notes may not be reoffered, resold or otherwise transferred
in the United States or to U.S. persons (as defined in Regulation S under the
Securities Act) unless so registered or unless an applicable exemption from
the registration requirements of the Securities Act is available. The Exchange
Notes are being offered hereunder in order to satisfy the obligations of ACC
under the Registration Rights Agreement. See "The Exchange Offer."
The Exchange Notes will bear interest from January 22, 1998, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date (as defined) to which interest on such
Debentures has been paid), at a rate equal to 8 7/8% per annum and on the same
terms as the Notes. Interest on the Exchange Notes will be payable
semiannually on February 1 and August 1 of each year commencing on the first
such date following the Expiration Date. Holders whose Notes are accepted for
exchange will be deemed to have waived the right to receive interest on the
Notes accrued on and after the date on which interest on the Exchange Notes
will begin to accrue.
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, ACC believes that Exchange Notes issued pursuant to this Exchange
Offer may be offered for resale, resold and otherwise transferred by a holder
(other than a broker-dealer, as set forth below) who is not an affiliate of
ACC without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided that the holder is acquiring the
Exchange Notes in its ordinary course of business and has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Debentures. Persons wishing to
exchange Notes in the Exchange Offer must represent to ACC that such
conditions have been met.
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 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 Notes where such Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. ACC has agreed that, for a period of 120 days after the Expiration
Date, it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been only a limited secondary market
for the Notes and no public market for the Notes or the Exchange Notes. ACC
does not intend to list the Exchange Notes on any national securities exchange
or to seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. The Initial Purchasers have
advised ACC that they intend to make a market in the Exchange Notes; however,
they are not obligated to do so and any market-making may be discontinued at
any time. As a result, ACC cannot determine whether an active public market
will develop for the Exchange Notes. See "Risk Factors--Absence of Public
Market."
ii
Any Notes not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent that any Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Notes could be adversely
affected. Following consummation of the Exchange Offer, the holders of Notes
will continue to be subject to the existing restrictions upon transfer thereof
and, except under limited circumstances set forth in the Registration Rights
Agreement, ACC will have no further obligation to such holders to provide for
the registration under the Securities Act of the Notes held by those holders.
ACC expects that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of Global Securities (as defined herein), which
will be deposited with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in the Global Securities representing the
Exchange Notes will be shown on, and transfers thereof will be effected
through, records maintained by the Depositary and its participants. After the
initial issuance of the Global Securities, Exchange Notes in certificated form
will be issued in exchange for the Global Securities on the terms set forth in
the Indenture. See "Description of the Exchange Notes--Book-Entry, Delivery
and Form."
----------------
No dealer, salesperson or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by ACC. This Prospectus does not constitute an
offer to sell or the solicitation of an offer to buy any security other than
the Exchange Notes offered hereby, nor does it constitute an offer to sell or
the solicitation of an offer to buy any of the Exchange Notes to any person in
any jurisdiction in which it is unlawful to make such an offer or solicitation
to such person. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN OF THE MATTERS DISCUSSED IN THIS PROSPECTUS, INCLUDING DOCUMENTS
INCORPORATED BY REFERENCE, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS FOR
PURPOSES OF THE SECURITIES ACT AND THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"). SUCH FORWARD-LOOKING STATEMENTS MAY INVOLVE
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS AND
PERFORMANCE OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS OR
PERFORMANCE EXPRESSED OR IMPLIED BY SUCH STATEMENTS. CAUTIONARY STATEMENTS
REGARDING THE RISKS ASSOCIATED WITH SUCH FORWARD-LOOKING STATEMENTS INCLUDE,
WITHOUT LIMITATION, THOSE STATEMENTS INCLUDED UNDER "RISK FACTORS" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." CERTAIN OF SUCH RISKS AND UNCERTAINTIES RELATE TO THE HIGHLY
LEVERAGED NATURE OF THE COMPANY, THE RESTRICTIONS IMPOSED ON THE COMPANY BY
CERTAIN INDEBTEDNESS, THE SENSITIVITY OF THE COMPANY TO ADVERSE TRENDS IN THE
GENERAL ECONOMY, THE HIGH DEGREE OF COMPETITION IN THE COMPANY'S INDUSTRY, THE
IMPACT OF NEW TECHNOLOGIES AND CHANGES IN FEDERAL COMMUNICATIONS COMMISSION
("FCC") REGULATIONS, THE VARIABILITY OF THE COMPANY'S QUARTERLY RESULTS AND
THE COMPANY'S SEASONALITY, AMONG OTHERS.
ALL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY
ARE EXPRESSLY QUALIFIED BY THE FOREGOING CAUTIONARY STATEMENTS.
------------------
iii
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" refers to WJLA-TV, a division of ACC (operator of WJLA-
TV, 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); "WCFT" refers to TV Alabama, Inc. (licensee of WCFT-TV,
Tuscaloosa, Alabama and WBMA-LP, Birmingham, Alabama); and "WJSU" refers to
Flagship Broadcasting, Inc. (licensee of WJSU-TV, Anniston, Alabama). The term
"ATP" refers to Allbritton Television Productions, Inc., the term "ANB" refers
to Allbritton News Bureau, Inc. and the term "Perpetual" refers to Perpetual
Corporation, which is controlled by Joe L. Allbritton, Chairman of ACC. "AGI"
refers to Allbritton Group, Inc., which is a wholly-owned subsidiary of
Perpetual and ACC's parent. "Westfield" refers to Westfield News Advertiser,
Inc., an affiliate of ACC that is wholly-owned by Joe L. Allbritton.
"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 programs WJSU and owns WCFT and WBMA-LP. "Allnewsco" refers
to ALLNEWSCO, Inc., an affiliate of ACC that is an 80%-owned subsidiary of
Perpetual. "RLA Trust" refers to the Robert Lewis Allbritton 1984 Trust for
the benefit of Robert L. Allbritton, Chief Operating Officer and a Director of
ACC, that owns 20% of Allnewsco. "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, "designated market area" ("DMA") is defined as a geographic
market designated by Nielsen Media Research, a subsidiary of Cognizant
Corporation ("Nielsen"), for the sale of national "spot" and local advertising
time sales. As used herein, (1) "Market rank (DMA)" is based on the Nielsen
Station Index for November of the years indicated; (2) "Total commercial
competitors in market" is the total number of commercial broadcast television
stations in the DMA with an audience rating of at least 1% in the 7:00 a.m. to
1:00 a.m., Sunday through Saturday time period; (3) "Station rank in market"
is the station's rank in the market based on its share of total viewing of
commercial broadcast television stations in the market for the time periods
referenced or, if no time period is indicated, such rank is based on 7:00 a.m.
to 1:00 a.m., Sunday through Saturday; and (4) "Station's audience share" is a
station's share of total viewing of commercial broadcast television stations
in the market for the time periods referenced or, if no time period is
indicated, such share is based on 7:00 a.m. to 1:00 a.m., Sunday through
Saturday. "Anniston Option" refers to ACC's option to purchase the assets of
WJSU. "Contribution" refers to a contribution by an affiliate in February 1996
of the capital stock of WSET and WCIV by which WSET and WCIV became wholly
owned subsidiaries of ACC. "Senior Credit Facility" refers to that certain
Revolving Credit Agreement by and between ACC, the financial institutions
party thereto, and BankBoston, N.A. dated as of April 16, 1996, as amended.
TABLE OF CONTENTS
PAGE
----
Available Information..................................................... v
Incorporation of Certain Documents by Reference........................... v
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 12
The Exchange Offer........................................................ 18
Use of Proceeds........................................................... 26
The Company............................................................... 27
Capitalization............................................................ 28
Selected Consolidated Financial Data...................................... 29
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 31
Business.................................................................. 45
Management................................................................ 58
Ownership of Capital Stock................................................ 61
Certain Transactions...................................................... 62
Description of Certain Indebtedness....................................... 64
Description of the Exchange Notes......................................... 65
Certain Tax Considerations................................................ 85
Plan of Distribution...................................................... 89
Legal Matters............................................................. 90
Experts................................................................... 90
Index to Financial Statements............................................. F-1
iv
AVAILABLE INFORMATION
ACC has filed with the Commission a Registration Statement on Form S-4 under
the Securities Act for the registration of the Exchange Notes offered hereby
(the "Registration Statement"). This Prospectus, which constitutes a part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain items of which are contained in
exhibits and schedules to the Registration Statement as permitted by the rules
and regulations of the Commission. For further information with respect to ACC
or the Exchange Notes offered hereby, reference is made to the Registration
Statement, including the exhibits and financial statement schedules thereto,
which may be inspected without charge at the public reference facilities
maintained by the Commission identified below, and copies of which may be
obtained from the Commission at prescribed rates. Statements made in this
Prospectus concerning the contents of any document referred to herein are not
necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
ACC currently files with the Commission reports, information and documents
specified in Section 13 of the Exchange Act and will furnish such reports to
the registered holders of the Exchange Notes. Annual reports of ACC containing
audited financial statements as well as unaudited quarterly financial reports
will be furnished to the Trustee under the Indenture relating to the Exchange
Notes. Reports and other information filed by ACC with the Commission in
accordance with the Exchange Act may be inspected and copied at the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following regional offices of the Commission: 7 World Trade Center,
Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. at prescribed rates. The Commission also maintains a Web Site
that contains reports and other information regarding ACC, and the address of
such site is http://www.sec.gov.
ACC expects that it will not be required to file any Exchange Act reports
with the Commission for periods after September 30, 1998. However, ACC has
agreed that it will continue to furnish the information required by the
Exchange Act to the Commission so long as any Exchange Notes are outstanding
even if it would be entitled under the Exchange Act not to furnish such
information. ACC has also agreed that, at any time when it is not required to
file reports with the Commission, the annual and quarterly reports furnished
to the Trustee under the Indenture will be sent to registered holders of the
Exchange Notes. Such reports will contain a narrative description of recent
developments in the business of ACC and its consolidated subsidiaries and
material changes in the financial condition and results of operations of ACC
and its consolidated subsidiaries. In addition, while any Exchange Notes
remain outstanding, the Company will make available upon request, to any
holder or prospective purchaser of the Exchange Notes, the information
required pursuant to Rule 144A(d)(4) promulgated under the Securities Act,
during any period in which the Company is not subject to Sections 13 or 15(d)
of the Exchange Act. Any such request should be directed to the Secretary of
the Company at 808 Seventeenth Street, Suite 300, Washington, D.C. 20006
(telephone number: (202) 789-2130).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus all
documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act, after the date of this Prospectus and prior to the
termination of this Exchange Offer, which documents shall be deemed to be a
part hereof from the date of filing such documents. Any statement contained in
a document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained therein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
v
The Company will furnish without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person,
a copy of any and all of the documents which have been incorporated by
reference herein, other than exhibits to the documents which have been
incorporated by reference herein unless such exhibits are specifically
incorporated by reference into such documents. Requests should be directed to
the Company at 808 Seventeenth Street, N.W., Suite 300, Washington, D.C.
20006-3903, Attention: Mr. Henry Morneault, Chief Financial Officer. In order
to ensure timely delivery of the documents, any requests should be made by
, 1998.
vi
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements, including the related notes thereto, appearing elsewhere in this
Prospectus. The consolidated financial data included herein consist of the
accounts of ACC and its consolidated subsidiaries (collectively, the
"Company"). Unless otherwise indicated, all market rank, station rank in market
and station audience rating and share data contained herein have been obtained
from the Nielsen Station Index dated November 1997. Unless otherwise indicated,
references to fiscal years are to the Company's fiscal years which end on
September 30 of the year indicated.
THE COMPANY
The Company owns and/or operates ABC network affiliated television stations
serving seven diverse geographic markets ranging from the 7th to the 117th
largest DMA in the United States. 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.
The following table sets forth general information for each of the Company's
owned and/or operated stations as of November 1997:
TOTAL
MARKET COMMERCIAL STATION RANK
DESIGNATED NETWORK CHANNEL RANK OR COMPETITORS AUDIENCE IN ACQUISITION
MARKET AREA STATION AFFILIATION FREQUENCY DMA(1) IN MARKET(2) SHARE(3) MARKET(4) DATE
----------- ------- ----------- --------- ------- ------------ -------- --------- -----------
Washington, D.C. ...... WJLA ABC 7/VHF 7 6 24% 1 01/29/76
Harrisburg-Lancaster-
York-Lebanon, PA...... WHTM ABC 27/UHF 45 5 26% 2 03/01/96
Little Rock, AR........ KATV ABC 7/VHF 56 5 34% 1 04/06/83
Tulsa, OK.............. KTUL ABC 8/VHF 58 5 30% 2 04/06/83
Lynchburg-Roanoke, VA.. WSET ABC 13/VHF 68 4 25% 2 01/29/76(5)
Charleston, SC......... WCIV ABC 4/VHF 117 5 20% 3 01/29/76(5)
Birmingham, AL(6)...... WBMA-LP ABC 58/UHF 51 5 -- -- 08/01/97
Tuscaloosa, AL......... WCFT ABC 33/UHF 187 2 68% 1 03/15/96
Anniston, AL(7)........ WJSU ABC 40/UHF 201 2 67% 1 --
- --------
(1) Represents market rank based on the Nielsen Station Index for November
1997.
(2) Represents the total number of commercial broadcast television stations in
the DMA with an audience rating of at least 1% in the 7:00 a.m. to 1:00
a.m., Sunday through Saturday, time period.
(3) Represents the station's share of total viewing of commercial broadcast
television stations in the DMA.
(4) Represents the station's rank in the DMA based on its share of total
viewing of commercial broadcast television stations in the DMA.
(5) 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.
(6) TV Alabama serves the Birmingham market by simultaneously broadcasting
identical programming over WBMA-LP, WCFT and WJSU (which TV Alabama
programs pursuant to a local marketing agreement). The market rank figures
reflect only the Birmingham market. The total commercial competitors in
market figures exclude WBMA-LP, because it is a low power television
station. The combined station audience share of commercial television
viewership of WBMA-LP, WCFT and WJSU in the Birmingham DMA is 19%. This
calculation is based on an 11% share for the combination of WBMA-LP, WCFT
and WJSU divided by the 59% commercial television viewership share within
the DMA at November 1997.
(7) Programmed Station.
1
BUSINESS AND OPERATING STRATEGY
The Company's business strategy is to focus on building net operating
revenues and net cash provided by operating activities (as defined by generally
accepted accounting principles). During Fiscal 1996, the Company and its
subsidiaries consummated several transactions that expanded their broadcast
holdings. The Company acquired an 80% interest in the assets and certain
liabilities of WHTM and WCFT (the "Acquisitions"). The Company, through an 80%-
owned subsidiary, also entered into a LMA to program, for a period of ten
years, WJSU, licensed to Anniston, Alabama (the "Anniston LMA"). In addition,
WSET and WCIV became wholly-owned subsidiaries of ACC through a contribution of
capital stock from an affiliate wholly-owned by Joe L. Allbritton.
The Company intends to pursue selective acquisition opportunities as they
arise. The Company's acquisition strategy is to target network-affiliated
television stations where it believes it can successfully apply its operating
strategy and where such stations can be acquired on attractive terms. Targets
include midsized growth markets with what the Company believes to be
advantageous business climates. Although the Company continues to review
strategic investment and acquisition opportunities, no agreements or
understandings are currently in place regarding any material investments or
acquisitions.
In addition, the Company constantly seeks to enhance net operating revenues
at a marginal incremental cost through its 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 66 radio stations in four states.
The Company's operating strategy focuses on four key elements:
Local News and Community Leadership. The Company's stations strive to be
local news leaders to exploit the revenue potential associated with local news
leadership. Since the acquisition of each station, the Company has focused on
building that station's local news programming franchise as the foundation for
building significant audience share. In each of its market areas, the Company
develops 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, management believes 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. The Company's 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 the Company 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.
Local Sales Development Efforts. The Company believes 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 the Company's
stations has developed such additional products, including high quality
programming of local interest (such as University of Arkansas football and
basketball games, Washington Redskins pre-season football games and related
shows) 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
2
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. Management believes that controlling costs is an essential
factor in achieving and maintaining the profitability of its stations. The
Company believes that by delivering highly targeted audience levels and
controlling programming and operating costs, the Company's stations can achieve
increased levels of revenue and operating cash flow. As the provider of ABC
network programming in each of its market areas, the Company has entered into
long-term stable affiliation agreements. Further, each station rigorously
manages its expenses through project accounting, a budgetary control process
which includes daypart revenue analysis and expense analysis. Moreover, each of
the stations closely monitors its staffing levels. As part of the planned
development of the Birmingham station during Fiscal 1996 and 1997, the Company
has made a continuing investment in the start-up operations, including
staffing, programming, marketing and promotional activities.
3
THE NOTE OFFERING
THE NOTES................... The Notes were sold by ACC on January 22,
1998, to Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated,
BancBoston Securities Inc. and CIBC
Oppenheimer Corp. (collectively, the "Initial
Purchasers") pursuant to a Purchase Agreement
dated January 14, 1998 (the "Purchase
Agreement"). The Initial Purchasers
subsequently resold the Notes to qualified
institutional buyers pursuant to Rule 144A
under the Securities Act or pursuant to
offers and sales to non-U.S. persons that
occurred outside the United States within the
meaning of Regulation S under the Securities
Act.
REGISTRATION RIGHTS
AGREEMENT.................. Pursuant to the Purchase Agreement, ACC and
the Initial Purchasers entered into a
Registration Rights Agreement dated January
22, 1998, which grants the holders of the
Notes certain exchange and registration
rights. The Exchange Offer is intended to
satisfy such exchange rights, which, except
under very limited circumstances, terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED.......... $150,000,000 aggregate principal amount of 8
7/8% Series B Senior Subordinated Notes due
2008.
THE EXCHANGE OFFER.......... $1,000 principal amount of the Exchange Notes
in exchange for each $1,000 principal amount
of Notes. As of the date hereof, $150,000,000
aggregate principal amount of Notes is
outstanding. ACC will issue the Exchange
Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of
the Commission set forth in no-action letters
issued to third parties, ACC believes that
Exchange Notes issued pursuant to the
Exchange Offer in exchange for Notes may be
offered for resale, resold and otherwise
transferred by any holder thereof (other than
a broker-dealer, as set forth below, and any
such holder that is an "affiliate" of ACC
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 such Exchange Notes are acquired in the
ordinary course of such holder's business and
that such holder does not intend to
participate and has no arrangement or
understanding with any person to participate
in the distribution of such Exchange Notes.
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
4
broker-dealer in connection with resales of
Exchange Notes received in exchange for Notes
where such Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities. ACC
has agreed that, for a period of 120 days
after the Expiration Date, it will make this
Prospectus available to any broker-dealer for
use in connection with any such resale. See
"Plan of Distribution."
Any holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution
of the Exchange Notes could not rely on the
position of the staff of the Commission
enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan
Stanley & Co. Incorporated (available June 5,
1991) or similar no-action letters and, in
the absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act
in connection with the resale transaction.
Failure to comply with such requirements in
such instance may result in such holder
incurring liability under the Securities Act
for which the holder is not indemnified by
ACC.
EXPIRATION DATE............. 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in
which case the term "Expiration Date" means
the latest date and time to which the
Exchange Offer is extended.
INTEREST ON THE EXCHANGE
NOTES AND THE NOTES........ The Exchange Notes will bear interest from
January 22, 1998, the date of issuance of the
Notes that are tendered in exchange for the
Exchange Notes (or the most recent Interest
Payment Date (as defined) to which interest
on such Notes has been paid). Accordingly,
holders of Notes that are accepted for
exchange will not receive interest on the
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
ACC. See "The Exchange Offer--Conditions."
The Exchange Offer is not conditioned upon
any minimum principal amount of Notes being
tendered.
PROCEDURES FOR TENDERING
NOTES...................... Each holder of Notes wishing to accept the
Exchange Offer must complete, sign and date
the accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
the Notes and any other required
documentation to the Exchange Agent at the
address set forth herein prior to 5:00 p.m.,
New York City time, on the Expiration Date.
By executing the Letter of Transmittal, each
holder will represent to ACC that, among
other things, the holder or the
5
person receiving such 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 such
Exchange Notes. In lieu of physical delivery
of the certificates representing Notes,
tendering holders may transfer Notes pursuant
to the procedure for book-entry transfer as
set forth under "The Exchange Offer--
Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender should
contact such registered holder promptly and
instruct such registered holder to tender on
such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its Notes, either
make appropriate arrangements to register
ownership of the Notes in such owner's 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
PRIOR TO THE EXPIRATION DATE. SEE "THE
EXCHANGE OFFER--PROCEDURES FOR TENDERING."
GUARANTEED DELIVERY
PROCEDURES................. Holders of Notes who wish to tender their
Notes and whose Notes are not immediately
available or who cannot deliver their 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 must tender
their Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS........... Tenders may be withdrawn 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 NOTES AND
DELIVERY OF EXCHANGE
NOTES...................... Subject to the terms and conditions of the
Offer, including the reservation of certain
rights by the Company, ACC will accept for
exchange any and all Notes that are properly
tendered in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration
Date. Subject to such terms and conditions,
the Exchange Notes issued pursuant to the
Exchange Offer will be delivered promptly
following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
FEDERAL INCOME TAX
CONSEQUENCES............... The exchange pursuant to the Exchange Offer
should not be a taxable event for Federal
income tax purposes. See "Certain Tax
Considerations."
6
EFFECT ON HOLDERS OF
NOTES...................... As a result of the making of this Exchange
Offer, ACC will have fulfilled one of its
obligations under the Registration Rights
Agreement, and holders of Notes who do not
tender their Notes will not, except under
very limited circumstances, have any further
registration rights under the Registration
Rights Agreement or otherwise. Such holders
will continue to hold the untendered Notes
and will be entitled to all the rights and
subject to all the limitations applicable
thereto under the Indenture, except to the
extent such rights or limitations, by their
terms, terminate or cease to have further
effectiveness as a result of the Exchange
Offer. All untendered Notes will continue to
be subject to certain restrictions on
transfer. Accordingly, if any Notes are
tendered and accepted in the Exchange Offer,
the trading market for the untendered Notes
could be adversely affected.
EXCHANGE AGENT.............. State Street Bank and Trust Company.
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes (which they replace) except that (i) the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (ii) the holders of Exchange Notes will
not be entitled to certain rights under the Registration Rights Agreement,
which rights will terminate when the Exchange Offer is consummated. The
Exchange Notes will evidence the same debt as the Notes and will be entitled to
the benefits of the Indenture. See "Description of the Exchange Notes."
SECURITIES OFFERED.......... $150,000,000 principal amount of 8 7/8%
Series B Senior Subordinated Notes due
February 1, 2008.
MATURITY DATE............... February 1, 2008.
INTEREST PAYMENT DATES...... February 1 and August 1 of each year,
commencing August 1, 1998.
OPTIONAL REDEMPTION......... The Exchange Notes will be redeemable at the
option of ACC, in whole or in part, at any
time on or after February 1, 2003 at the
redemption prices set forth herein, plus
accrued and unpaid interest, if any, to the
applicable date of redemption.
In addition, at any time on or prior to
February 1, 2001, ACC will have the option to
redeem up to 35% of the aggregate principal
amount of the Exchange Notes originally
issued in the Offering at a redemption price
equal to 108.875% of the aggregate 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 Exchange Notes
originally issued in the Exchange Offer
remains outstanding immediately after the
occurrence of such redemption.
Furthermore, at any time prior to February 1,
2003, upon a Change of Control, ACC will have
the option to redeem the Exchange
7
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. See "Description of the Exchange
Notes--Optional Redemption."
CHANGE OF CONTROL...........
In the event of a Change of Control, each
holder of Exchange Notes may require ACC to
repurchase all of the Exchange Notes held by
such holder at a purchase price equal to 101%
of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of
repurchase. See "Description of the Exchange
Notes--Change of Control."
RANKING..................... The Exchange Notes will be general senior
subordinated obligations of ACC and will be
subordinated in right of payment to all
existing and future Senior Debt of ACC and
will rank pari passu in right of payment with
the 9 3/4% Debentures and, until the date of
redemption thereof, the 11 1/2% Debentures.
See "Use of Proceeds." As of December 31,
1997, after giving pro forma effect to the
sale of the Notes (and the application of the
net proceeds thereof), Senior Debt of ACC
would have been approximately $11.3 million.
The Exchange Notes will also be effectively
subordinated to all existing and future
liabilities (including trade payables) of
ACC's subsidiaries. As of December 31, 1997,
after giving effect to the sale of the Notes
(and the application of the net proceeds
thereof), ACC's subsidiaries would have had
approximately $26.2 million of total
liabilities. See "Description of the Exchange
Notes--Subordination."
CERTAIN COVENANTS...........
The Indenture will contain certain covenants
that, among other things, will limit the
ability of ACC to: (i) incur Debt (as defined
herein) and issue preferred stock; (ii) make
Restricted Payments (as defined herein);
(iii) incur other subordinated Debt; (iv)
create certain liens; (v) enter into
transactions with affiliates; (vi) create
certain dividend and other payment
restrictions affecting subsidiaries; (vii)
make certain Asset Sales (as defined herein);
and (viii) engage in any merger,
consolidation or sale of substantially all
assets. See "Description of the Exchange
Notes--Certain Covenants."
EVENTS OF DEFAULT........... The Indenture provides for certain Events of
Default. See "Description of the Exchange Notes--
Events of Default."
USE OF PROCEEDS.............
There will be no cash proceeds to ACC from
the Exchange Offer. See "Use of Proceeds."
NO PRIOR PUBLIC MARKET FOR
THE EXCHANGE NOTES.......... The Exchange Notes will be new securities for
which there currently is no market. Although
the Initial Purchasers have informed ACC that
they currently intend to make a market in the
Exchange Notes, they are not obligated to do
so and any such market making may be
8
discontinued at any time without notice.
Accordingly, there can be no assurance as to
the development or liquidity of any market
for the Exchange Notes. ACC does not intend
to apply for listing of the Exchange Notes on
any securities exchange. See "Risk Factors--
Absence of Public Market."
TRUSTEE..................... State Street Bank and Trust Company.
DIRECTION OF TRUSTEE........ The Holders of a majority in principal amount
of the then outstanding Senior Notes will
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. See "Description of the
Exchange Notes--Concerning the Trustee."
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. See
"Description of the Exchange Notes--Rights
Upon Default."
RISK FACTORS
Prospective investors should consider all of the information contained in
this Prospectus before making an investment in the Exchange Notes. In
particular, prospective investors should carefully consider the factors set
forth under "Risk Factors."
9
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data for the fiscal years ended September
30, 1993, 1994, 1995, 1996 and 1997 are derived from the Company's Consolidated
Financial Statements. The summary consolidated financial data for the three
months ended December 31, 1996 and 1997 are derived from the Company's
Unaudited Consolidated Financial Statements. 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 the Consolidated Financial Statements and the notes thereto
included elsewhere herein.
THREE MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------------- ---------------
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA(1):
Operating revenues,
net.................... $109,867 $125,830 $138,151 $155,573 $172,828 $47,792 $51,320
Television operating
expenses, excluding
depreciation and
amortization........... 65,533 67,745 75,199 92,320 105,630 26,404 27,589
Depreciation and
amortization........... 5,771 5,122 4,752 10,257 19,652 4,294 4,802
Corporate expenses...... 3,231 4,250 3,753 5,112 4,382 974 1,062
Operating income........ 35,332 48,713 54,447 47,884 43,164 16,120 17,867
Interest expense........ 22,336 22,303 22,708 35,222 42,870 10,659 11,058
Interest income......... 2,408 2,292 2,338 3,244 2,433 611 628
Income before
extraordinary items and
cumulative effect of
changes in accounting
principles............. 7,586 17,360 19,909 8,293 424 3,194 4,023
Extraordinary items(2).. 1,485 -- -- (7,750) -- -- --
Cumulative effect of
changes in accounting
principles(3).......... (523) 3,150 -- -- -- -- --
Net income.............. 8,548 20,510 19,909 543 424 3,194 4,023
AS
ADJUSTED(4)
AS OF AS OF
AS OF SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
----------------------------------------------------- ------------ ------------
1993 1994 1995 1996 1997 1997 1997
--------- --------- --------- --------- --------- ------------ ------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA(1):
Total assets............ $ 91,218 $ 94,079 $ 99,605 $ 281,778 $ 280,977 $ 282,261 $ 283,941
Total debt(5)........... 197,154 199,473 198,919 402,993 415,722 425,095 435,170
Redeemable preferred
stock(6)............... 168 168 168 -- -- -- --
Stockholder's
investment............. (138,288) (136,961) (133,879) (172,392) (185,563) (189,552) (197,543)
AS AS
ADJUSTED(4) ADJUSTED(4)
FISCAL YEAR THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
FISCAL YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
------------------------------------------------- ------------- ---------------- ------------
1993 1994 1995 1996 1997 1997 1996 1997 1997
-------- -------- -------- --------- -------- ------------- ------- ------- ------------
(DOLLARS IN THOUSANDS)
CASH FLOW DATA(7):
Cash flows from
operating activities... $ 12,531 $ 18,267 $ 22,145 $ 28,370 $ 15,551 $ 16,781 $(3,549) $(1,133) $ (785)
Cash flows from
investing activities... (1,933) (1,420) (2,543) (165,109) (17,363) (17,363) (1,862) (2,543) (2,543)
Cash flows from
financing activities... (19,793) (16,905) (18,549) 145,031 (2,875) 7,425 (1,362) 1,031 1,031
AS AS
ADJUSTED(4) ADJUSTED(4)
FISCAL YEAR THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
FISCAL YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
------------------------------------------- ------------- ---------------- ------------
1993 1994 1995 1996 1997 1997 1996 1997 1997
------- ------- ------- ------- ------- ------------- ------- ------- ------------
(DOLLARS IN THOUSANDS)
FINANCIAL RATIOS AND
OTHER DATA(1):
Operating Cash Flow(8).. $41,103 $53,835 $59,199 $58,141 $62,816 $62,816 $20,414 $22,669 $22,669
Operating Cash Flow
Margin(9).............. 37.4% 42.8% 42.9% 37.4% 36.3% 36.3% 42.7% 44.2% 44.2%
Capital expenditures.... $ 1,972 $ 3,264 $ 2,777 $20,838 $12,140 $12,140 $ 1,874 $ 2,561 $ 2,561
Interest expense,
net(10)................ 19,928 20,011 20,370 31,978 40,437 38,244 10,048 10,430 9,808
Ratio of total debt to
Operating Cash
Flow(11)............... 4.80x 3.71x 3.36x 6.93x 6.62x 6.85x 5.01x 4.69x 4.80x
Ratio of Operating Cash
Flow to interest
expense, net........... 2.06x 2.69x 2.91x 1.82x 1.55x 1.64x 2.03x 2.17x 2.31x
Ratio of Operating Cash
Flow less capital
expenditures to
interest expense, net.. 1.96x 2.53x 2.77x 1.17x 1.25x 1.33x 1.85x 1.93x 2.05x
Ratio of earnings to
fixed charges(12)...... 1.63x 2.27x 2.41x 1.40x 1.03x 1.09x 1.51x 1.62x 1.71x
(Footnotes on following page)
10
FOOTNOTES
(Dollars in thousands)
(1) The consolidated statement of operations data, balance sheet data and
financial ratios and other data as of and for the year ended September 30,
1996 include the effects of significant transactions consummated by the
Company during the year that impact the comparability of Fiscal 1996 data
to previous years. Such transactions include the effects of a $275,000
offering of 9 3/4% Debentures, the Acquisitions, the acquisitions of the
Anniston LMA and Anniston Option, the early repayment of approximately
$74,704 in debt and payment of a prepayment penalty on such debt of
$12,934. These transactions are discussed in Management's Discussion and
Analysis of Financial Condition and Results of Operations as well as Note 3
and 6 of Notes to Consolidated Financial Statements. In addition, the
comparability of Fiscal 1997 and Fiscal 1996 data is impacted by the fact
that the results of operations of WHTM, WCFT and WJSU are included for the
full year in Fiscal 1997 as compared to the period from the date of
acquisition and the effective date of the Anniston LMA in Fiscal 1996.
(2) The extraordinary gain during Fiscal 1993 resulted from the use of net
operating loss carryforwards and carrybacks for state income tax reporting
purposes. The extraordinary loss during Fiscal 1996 resulted from a $7,750
loss, net of tax, on the early repayment of long-term debt (see Note 6 of
Notes to Consolidated Financial Statements).
(3) As required by generally accepted accounting principles, the Company
changed its method of accounting for nonpension postretirement benefits
during Fiscal 1993 and its method of accounting for income taxes during
Fiscal 1994.
(4) The unaudited consolidated balance sheet data as of December 31, 1997, As
Adjusted, give effect to the sale of the Notes and the application of the
net proceeds thereof as if each had occurred on such date. The unaudited
consolidated cash flow data and financial ratios and other data for the
fiscal year ended September 30, 1997, As Adjusted, and for the three months
ended December 31, 1997, As Adjusted, give effect to the sale of the Notes
and the application of the net proceeds thereof as if each had occurred on
October 1, 1996. The premium to be paid and costs to be incurred in
connection with the redemption of the 11 1/2% Debentures are not included
in the unaudited consolidated cash flow data and financial ratios and other
data for the year ended September 30, 1997, As Adjusted, or for the three
months ended December 31, 1997, As Adjusted, but will be reflected, net of
the related income tax benefit, as an extraordinary loss in the Company's
consolidated results of operations and cash flows when incurred. The
unaudited consolidated stockholder's investment as of December 31, 1997, As
Adjusted, gives effect to the premium to be paid and costs to be incurred,
net of income taxes, in connection with the redemption of the 11 1/2%
Debentures. See "Capitalization."
(5) Total debt is defined as long-term debt (including the current portion
thereof, and net of discount), short-term debt and capital lease
obligations.
(6) In September 1996, the Company purchased for cash the Series A redeemable
preferred stock at its redemption value of $168.
(7) 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."
(8) "Operating Cash Flow" is defined as operating income plus depreciation and
amortization. Programming expenses are included in television operating
expenses. The Company has included Operating Cash Flow data because it
understands that such data is 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
the 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.
(9) "Operating Cash Flow Margin" is defined as Operating Cash Flow as a
percentage of operating revenues, net.
(10) Interest expense, net is defined as interest expense less interest income.
(11) For the three months ended December 31, 1996 and 1997, the ratio of total
debt to Operating Cash Flow was computed by annualizing the Operating Cash
Flow for the respective period.
(12) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of income before extraordinary items and income taxes and
cumulative effects of changes in accounting principles plus fixed charges.
Fixed charges consist of interest expense, which includes interest on all
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).
11
RISK FACTORS
In addition to the other information set forth in this Prospectus,
prospective investors should carefully review the following risk factors in
evaluating an investment in the Exchange Notes.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
As of December 31, 1997, after giving pro forma effect to the sale of the
Notes (and the application of the net proceeds thereof), ACC's total amount of
debt outstanding would have been $435.2 million and ACC would have had a
stockholder's deficit of $197.5 million. In addition, after giving pro forma
effect to the sale of the Notes (and the application of the net proceeds
thereof), ACC's ratio of earnings to fixed charges and interest expense, net
would have been 1.09 to 1 and $38.2 million, respectively, for Fiscal 1997 and
1.71 to 1 and $9.8 million, respectively, for the three months ended December
31, 1997. The Indenture will permit ACC and its subsidiaries to incur
additional debt, subject to certain limitations. ACC currently plans to
finance any future acquisitions with the incurrence of additional debt,
subject to the limitations set forth in the Indenture. 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 ACC is leveraged could have important consequences to
holders of the Notes and the Exchange Notes, including, but not limited to,
the following: (i) ACC's ability to obtain additional financing in the future
for working capital, capital expenditures or general corporate or other
purposes may be impaired; (ii) a substantial portion of ACC's cash flow from
operations will be dedicated to the payment of the principal of and interest
on its debt and will not be available for other purposes; (iii) certain of
ACC's borrowings are at variable rates of interest, which could result in
higher interest expense in the event of increases in interest rates; and (iv)
the agreements governing ACC's long-term debt contain certain restrictive
financial and operating covenants, and the failure by ACC to comply with such
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."
ACC's ability to make scheduled payments of principal of, or to pay interest
on or to refinance its debt (including the Notes and the Exchange Notes)
depends on its future financial performance, which, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory
and other factors beyond its control. Based upon the Company's current level
of operations, management believes that available cash, together with
available borrowings under the Senior Credit Facility, will be adequate to
meet ACC's anticipated future requirements for working capital, capital
expenditures and scheduled payments of interest on its debt (including the
Notes and the Exchange Notes). There can be no assurance, however, that the
Company's business will generate sufficient cash flow from operations or that
future working capital borrowings will be available in an amount sufficient to
enable the Company to service its debt (including the Notes and the Exchange
Notes) or to make necessary capital expenditures or other expenditures.
Furthermore, there can be no assurance that ACC will be able to raise
additional capital for any such refinancing in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
SUBORDINATION
The Exchange Notes will be, and the Notes are, general senior subordinated
obligations of ACC and will be subordinated in right of payment to all
existing and future Senior Debt of ACC and will rank pari passu in right of
payment with the 9 3/4% Debentures and, until the date of redemption thereof,
the 11 1/2% Debentures. See "Use of Proceeds." As of December 31, 1997, after
giving pro forma effect to the sale of the Notes (and the application of the
net proceeds thereof), Senior Debt of ACC would have been approximately $11.3
million. In the event of the insolvency, bankruptcy, liquidation, dissolution,
reorganization or other winding-up of ACC, or, in the event of acceleration of
any debt of ACC upon the occurrence of an event of default, the assets of ACC
12
would be available to pay Obligations on the Notes and the Exchange Notes only
after holders of Senior Debt have been paid in full. Also, under certain
circumstances, payments to holders of the Notes and the Exchange Notes may be
subject to blockage by the holders of Senior Debt and redemption of the Notes
and the Exchange Notes upon a Change of Control is prohibited without the
consent of the lenders under the Senior Credit Facility. In addition, under
the Senior Credit Facility, ACC is required to apply all of the net proceeds
of certain asset sales to debt outstanding thereunder. See "Description of the
Exchange Notes--Subordination," "--Change of Control" and "--Certain
Covenants--Limitations on Asset Sales."
HOLDING COMPANY STRUCTURE; DEPENDENCE ON SUBSIDIARIES FOR REPAYMENT OF THE
EXCHANGE NOTES
ACC conducts a portion of its business through its subsidiaries. The
Exchange Notes will be, and the Notes are, effectively subordinated to all
existing and future liabilities (including trade payables) of ACC's
subsidiaries. As of December 31, 1997, after giving pro forma effect to the
sale of the Notes (and the application of the net proceeds thereof), ACC's
subsidiaries would have had approximately $26.2 million of total liabilities.
Four of the Company's owned and operated stations, KATV, KTUL, WSET and WCIV
are wholly owned subsidiaries of ACC; WJSU is programmed by an 80%-owned
subsidiary of ACC (TV Alabama); and WCFT is owned by TV Alabama and WHTM is
owned by Harrisburg TV, each of which are 80%-owned indirect subsidiaries of
ACC. Future acquisitions may be made through present or future subsidiaries;
therefore, ACC's cash flow from operations and consequent ability to service
its debt, including the Notes and the Exchange Notes, 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. ACC's subsidiaries will have
no obligation, contingent or otherwise, to make any funds available to ACC for
payment of the principal of or interest on the Notes and the Exchange Notes.
To the extent assets of ACC are or will be held by its subsidiaries, the
claims of holders of the Notes and the Exchange Notes will, in effect, be
subordinated to the claims of creditors, including trade creditors, of such
subsidiaries. As of December 31, 1997, 78% of the assets of ACC were held by
operating subsidiaries and, for Fiscal 1997 and for the three months ended
December 31, 1997, approximately 50% of ACC's net operating revenues were
derived from the operations of ACC's subsidiaries. Under the terms of the
Indenture, certain subsidiaries of ACC will be restricted in their ability to
incur debt in the future. See "Description of the Exchange Notes--Certain
Covenants."
NETWORK AFFILIATION
The Company's owned and operated stations are affiliated with the ABC
network. The Company's television viewership levels are materially dependent
upon programming provided by such network, and there can be no assurance that
such programming will achieve and maintain satisfactory viewership levels in
the future. Each of the Company's owned and/or operated 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 the Company has
owned them and the Company expects to continue to be able to renew such
affiliation agreements, no assurance can be given that such renewals will be
obtained. The non-renewal or termination of one or more of the network
affiliation agreements could have a material adverse effect on the Company's
results of operations. Continuation of ABC's affiliation agreement with WCFT
and WJSU is conditioned on WJSU's continuing to be programmed by ACC under the
Anniston LMA for the duration of the affiliation agreement. Changes by
Congress or by the FCC in the current regulatory treatment of LMA's for
television stations could have a material adverse effect on the Anniston LMA
which, in turn, could jeopardize the Company's ABC network affiliation in the
Birmingham, Tuscaloosa and Anniston markets. See "--Potential FCC Regulation
of Local Marketing Agreements."
TELEVISION INDUSTRY; COMPETITION AND TECHNOLOGY
The television industry is highly competitive. Some of the stations with
which the Company's stations compete are subsidiaries of large national or
regional companies that have greater resources, including financial resources,
than the Company. Technological innovation, and the resulting proliferation of
programming alternatives such as cable, direct satellite-to-home services and
home video rentals, have fractionalized television
13
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 television and 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 the Company's programming costs or impair
the Company's ability to acquire programming.
The 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
proposal, 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. Implementation of digital television service may impose additional
costs on television stations providing the new service, due to increased
equipment costs, and may affect the competitive nature of the market areas in
which the Company operates if competing stations adopt and implement the new
technology before the Company's stations. 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. See "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. 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. The Company is unable to predict the effect that
technological changes will have on the broadcast television industry or the
future results of the Company's operations. See "Business--Competition."
REGULATORY MATTERS
The broadcasting industry is subject to regulation by the FCC pursuant to
the Communications Act of 1934, as amended (the "Communications Act").
Approval of the FCC is required for the issuance, renewal and transfer of
television station operating licenses. In particular, the Company's business
is dependent upon its 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, there can be no assurance that the
Company's licenses will be renewed upon their expiration dates. All of the
Company's owned and operated stations are presently operating under regular
licenses that expire on the following dates: October 1, 2004 (WJLA and WSET);
December 1, 2004 (WCIV); June 1, 2005 (KATV); June 1, 1998 (KTUL); August 1,
1999 (WHTM); and April 1, 2005 (WCFT and WBMA). In addition, the license
issued to WJSU (which the Company programs pursuant to the Anniston LMA)
expires on April 1, 2005. In February 1998, a renewal application will be
filed by KTUL. 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 adversely affect the operation and ownership of ACC's
broadcast properties. It is impossible to predict the outcome of federal
legislation or the potential effect thereof on the Company's business. See
"Business--Legislation and Regulation."
POTENTIAL FCC REGULATION OF LOCAL MARKETING AGREEMENTS
The FCC currently is reviewing its "cross-interest policy," which
essentially prevents individuals from having meaningful "cross-interests" that
are not otherwise specifically prohibited by the application of the multiple
ownership rules. See "Business--Legislation and Regulation--Ownership
Matters." In connection with
14
such review, the FCC released a Further Notice of Proposed Rulemaking in
January 1995, which, among other things, seeks comments on the extent to which
time brokerage agreements (otherwise referred to as LMAs) between television
stations should be regulated. The FCC has permitted similar agreements for
radio broadcast stations and, to date, has not stated that LMAs between
television stations would be an impermissible business arrangement. There can
be no assurance, however, that the FCC will not prohibit or restrict
television LMAs as a result of the above-mentioned rulemaking or of any other
proceeding.
Changes by Congress or the FCC in the current regulatory treatment of LMAs
for television stations could have a material adverse effect on the Anniston
LMA which, in turn, could jeopardize the Company's ABC network affiliation in
the Birmingham, Tuscaloosa and Anniston markets. See "--Network Affiliation"
and "Business--Legislation and Regulation--Ownership Matters."
STOCKHOLDER'S INVESTMENT
ACC has made advances to certain related parties. Because, at present, such
related parties' primary sources of repayment of the advances is through the
ability of the Company to pay dividends or to make other distributions, these
advances have been treated as reductions to stockholder's investment and
described as "distributions" in the Company's consolidated balance sheets. The
stockholder's deficit at September 30, 1995, 1996 and 1997 and December 31,
1997 was approximately $133.9 million, $172.4 million, $185.6 million and
$189.6 million, respectively. As of December 31, 1997, after giving pro forma
effect to the sale of the Notes (and the application of the net proceeds
thereof), the stockholder's deficit would have been approximately $197.5
million. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." Under the Indenture,
future advances, loans, dividends and distributions by ACC will be subject to
certain restrictions. See "Description of the Exchange Notes--Certain
Covenants--Limitations on Restricted Payments" and "--Limitations on
Incurrence of Debt and Issuance of Preferred Stock." ACC anticipates that,
subject to such restrictions and subject to its payment obligations with
respect to the Notes and the Exchange Notes ACC will make distributions to
related parties in the future.
DEPENDENCE ON ADVERTISING REVENUES; EFFECT OF ECONOMIC CONDITIONS
The broadcast television industry is cyclical in nature, being affected by
prevailing economic conditions. Because the Company relies on sales of
advertising time for substantially all of its revenues, its operating results
are sensitive to general economic conditions and regional conditions in each
of the local markets in which the Company's stations operate. For Fiscal 1997
and for the three months ended December 31, 1997, WJLA accounted for
approximately one-half of the Company's total revenues. As a result, the
Company's results of operations are highly dependent on WJLA and, in turn, the
Washington, D.C. economy and, to a lesser extent, on each of the other local
economies in which the Company's stations operate. The Company is also
dependent on automotive-related advertising. Approximately 24%, 25%, 26% and
18% of the Company's total broadcast revenues for the years ended September
30, 1995, 1996 and 1997 and the three months ended December 31, 1997,
respectively, consisted of automotive-related advertising. A significant
decrease in such advertising could materially and adversely affect the
Company's operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations" and
"Business--Owned and/or Operated Stations."
CONTROL BY SOLE STOCKHOLDER; AFFILIATE TRANSACTIONS
Joe L. Allbritton, ACC's Chairman, controls ACC. See "Ownership of Capital
Stock." Accordingly, Mr. Allbritton is able to control 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. There can
be no assurance that the interests of Mr. Allbritton will not conflict with
the interests of the holders of the Notes and the Exchange Notes. In addition,
an affiliate of ACC engages in the television broadcast business. There can be
no assurance that such affiliate's ownership of television stations will not
conflict with ACC's business. See "Ownership of Capital Stock--ACC Common
Stock" and "Certain Transactions."
15
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer and conveyance laws, if
ACC, at the time it issued the Exchange Notes, (a) incurred such indebtedness
with the actual intent to hinder, delay or defraud creditors or (b)(i)
received less than reasonably equivalent value or fair consideration therefor
and (ii)(A) was insolvent at the time of such incurrence, (B) was rendered
insolvent by reason of such incurrence (and the application of the proceeds
thereof), (C) was engaged or was about to engage in a business or transaction
for which the assets remaining with ACC constituted unreasonably small capital
to carry on its business or (D) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they mature, then, in
each such case, a court of competent jurisdiction could avoid, in whole or in
part, the Exchange Notes or, in the alternative, fashion other equitable
relief such as subordinating the Exchange Notes to existing and future
indebtedness of ACC. The measure of insolvency for purposes of the foregoing
would likely vary depending upon the law applied in such case. Generally,
however, ACC would be considered insolvent if the sum of its debts, including
contingent liabilities, was greater than all of its assets at a fair
valuation, or if the present fair-saleable value of its assets was less than
the amount that would be required to pay the probable liabilities on its
existing debts, including contingent liabilities, as such debts become
absolute and matured. ACC's management believes that, for purposes of the
United States Bankruptcy Code and state fraudulent transfer and conveyance
laws, the Exchange Notes are being issued without the intent to hinder, delay
or defraud creditors and for proper purposes and in good faith; that ACC will
receive reasonably equivalent value or fair consideration therefor and that,
after the issuance of the Exchange Notes and the application of the net
proceeds thereof, ACC will be solvent, will have sufficient capital for
carrying on its business and will be able to pay its debts as they mature.
However, there can be no assurance that a court passing on such issues would
agree with the determination of ACC's management.
ABSENCE OF PUBLIC MARKET
The Notes currently are owned by a relatively small number of beneficial
owners. The Notes have not been registered under the Securities Act and will
be subject to restrictions on transferability to the extent that they are not
exchanged for the Exchange Notes. The Exchange Notes will constitute a new
issue of securities with no established trading market. Although the Exchange
Notes generally will be permitted to be resold or otherwise transferred by the
holders (who are not affiliates of the Company) without compliance with the
registration requirements under the Securities Act, the Company does not
intend to list the Exchange Notes on any national securities exchange or to
seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. However, the Notes are eligible
for trading in the NASD's Private Offerings, Resales and Trading Through
Automated Linkages (PORTAL) market. If the Notes or, if issued, the Exchange
Notes, are traded after their initial issuance, they may trade at a discount
from their initial offering price, depending upon prevailing interest rates,
the market for similar securities, the performance of the Company and certain
other factors. The Company has been advised by the Initial Purchasers that
they intend to make a market
in the Exchange Notes, as permitted by applicable laws and regulations;
however, the Initial Purchasers are not obligated to do so and any such market
making activities may be discontinued at any time without notice. In addition,
such market-making activity will be subject to the limits imposed by the
Securities Act and the Exchange Act and may be limited during the Exchange
Offer. Accordingly, no assurance can be given that an active public or other
market will develop for the Exchange Notes or as to the liquidity of or the
trading market for the Exchange Notes. Pursuant to the Registration Rights
Agreement, ACC is required to consummate the Exchange Offer for the Notes or
file the Shelf Registration Statement covering resales of the Notes within
120 days following the Issuance Date. Until ACC performs its obligations under
the Registration Rights Agreement, the Notes may only be offered or sold
pursuant to an exemption from the registration requirements of the Securities
Act and applicable state securities laws or pursuant to an effective
registration statement under the Securities Act and applicable state
securities laws.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Notes, a properly completed and duly executed Letter of
16
Transmittal and all other required documents. Therefore, holders of the Notes
desiring to tender such Notes in exchange for Exchange Notes should allow
sufficient time to ensure timely delivery. The Company is under no duty to
give notification of defects or irregularities with respect to the tenders of
Notes for exchange. Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to
be subject to the existing restrictions upon transfer thereof and, except in
very limited circumstances, the registration rights under the Registration
Rights Agreement will terminate upon consummation of the Exchange Offer. In
addition, any holder of Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes may be deemed
to have received restricted securities and, if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Notes, where such
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. See "Plan
of Distribution." To the extent that Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Notes could be adversely affected. See "--Consequences of the Exchange Offer
on Non-Tendering Holders of the Notes."
CONSEQUENCES OF THE EXCHANGE OFFER ON NON-TENDERING HOLDERS OF THE EXCHANGE
NOTES
The Company intends for the Exchange Offer to satisfy its registration
obligations under the Registration Rights Agreement. If the Exchange Offer is
consummated, the Company does not, except in very limited circumstances set
forth in the Registration Rights Agreement, intend to file further
registration statements for the sale or other disposition of Notes.
Consequently, following completion of the Exchange Offer, holders of Notes
seeking liquidity in their investment would have to rely on an exemption to
the registration requirements under applicable securities laws, including the
Securities Act, with respect to any sale or other disposition of the Notes.
17
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were sold by ACC on January 22, 1998 to the Initial Purchasers
pursuant to the Purchase Agreement. The Initial Purchasers subsequently placed
the Notes with qualified institutional buyers in reliance on Rule 144A under
the Securities Act or pursuant to offers and sales to non-U.S. persons that
occurred outside the United States within the meaning of Regulation S under
the Securities Act. As a condition to the purchase of the Notes by the Initial
Purchasers, ACC entered into the Registration Rights Agreement with the
Initial Purchasers, which requires, among other things, that promptly
following the sale of the Notes to the Initial Purchasers, ACC would (i) file
with the Commission a registration statement under the Securities Act with
respect to an issue of new notes of ACC identical in all material respects to
the Notes, (ii) use its best efforts to cause such registration statement to
become effective under the Securities Act and (iii), upon the effectiveness of
that registration statement, offer to the holders of the Notes the opportunity
to exchange their Notes for a like principal amount of Exchange Notes, which
would be issued without a restrictive legend and may be reoffered and resold
by the holder without restrictions or limitations under the Securities Act
(other than any such holder that is an "affiliate" of ACC within the meaning
of Rule 405 under the Securities Act), subject, in the case of certain broker-
dealers, to any requirement that they comply with the prospectus delivery
requirements referred to below. A copy of the Registration Rights Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The term "Holder" with respect to the Exchange Offer
means any person in whose name the Notes are registered on the books of ACC or
any other person who has obtained a properly completed bond power from the
registered holder, or any person whose Notes are held of record by The
Depository Trust Company who desires to deliver such Notes by book-entry
transfer at The Depository Trust Company.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Notes
may be offered for sale, resold or otherwise transferred by any Holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Based on an interpretation by the staff of the Commission set
forth in no-action letters issued to third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Notes may
be offered for resale, resold and otherwise transferred by any Holder of such
Exchange Notes (other than any such Holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act and except in
the case of broker-dealers, as set forth below) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
Holder's business and such Holder has no arrangement or understanding with any
person to participate in the distribution of such Exchange Notes. Any Holder
who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes could not rely on such interpretation by
the staff of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
By tendering in the Exchange Offer, each Holder of Notes will represent to
the Company that, among other things, (i) the Exchange Notes acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of business of
the person receiving such Exchange Notes, whether or not such person is such
Holder, (ii) neither the Holder of Notes nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such Exchange Notes and (iii) if the Holder is not a broker-
dealer, or is a broker-dealer but will not receive Exchange Notes for its own
account in exchange for Notes, neither the Holder nor any such other person is
engaged in or intends to participate in the distribution of such Exchange
Notes. If the tendering Holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for 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.
18
Following the consummation of the Exchange Offer, Holders of the Notes who
did not tender their Notes will not, except under very limited circumstances,
have any further registration rights under the Registration Rights Agreement,
and such Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Notes could be
adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, ACC will accept any and all Notes validly
tendered and not withdrawn prior to 5:00 p.m. New York City time, on the
Expiration Date. ACC will issue $1,000 principal amount of Exchange Notes in
exchange for $1,000 principal amount of outstanding Notes accepted in the
Exchange Offer. Holders may tender some or all of their Notes pursuant to the
Exchange Offer. However, 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 Notes except that (i) the Exchange Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer
thereof and (ii) the holders of the Exchange Notes will not be entitled to
certain rights under the Registration Rights Agreement, which rights will
terminate upon consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Notes and will be entitled to the benefits of
the Indenture.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of the Notes was outstanding and registered in the name of Cede & Co. as
nominee for The Depository Trust Company. ACC has fixed the close of business
on , 1998, 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.
Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. ACC intends 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.
ACC shall be deemed to have accepted validly tendered Notes when, as and if
ACC has given oral or written notice thereof to the Exchange Agent. The
Exchange Agent will act as agent for the tendering Holders for the purpose of
receiving the Exchange Notes from ACC.
If any tendered 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 Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer 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 Notes pursuant to
the Exchange Offer. ACC will pay all charges and expenses, other than transfer
taxes in certain circumstances, in connection with the Exchange Offer. See "--
Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless ACC, in its sole discretion, extends 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, ACC will notify the Exchange Agent of any
extension by oral or written notice and will mail to the registered Holders an
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
19
ACC reserves the right, in its sole discretion, (i) to delay accepting any
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 (ii) 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 registered holders. If the Exchange Offer is amended in
a manner determined by ACC to constitute a material change, ACC 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, ACC 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.
Without limiting the manner in which ACC may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, ACC shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely
release to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from January 22, 1998, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date (as defined) to which interest on such
Notes has been paid). Accordingly, Holders of Notes that are accepted for
exchange will not receive interest that is accrued but unpaid on such Notes at
the time of tender.
Interest on the Exchange Notes will be payable semi-annually on each
February 1 and August 1, commencing on the first such date following their
date of issuance.
PROCEDURES FOR TENDERING
Only a Holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a Holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the 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 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 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.
By executing the Letter of Transmittal, each Holder will make to ACC the
representation set forth below in the second paragraph under the heading
"Resale of Exchange Notes."
The tender by a Holder and the acceptance thereof by ACC will constitute
agreement between such Holder and ACC in accordance with the terms and subject
to the conditions set forth herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO ACC. HOLDERS MAY REQUEST
THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
20
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be 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 in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the registered
Holder of any Notes listed therein, such Notes must be endorsed or accompanied
by a properly completed bond power, signed by such registered Holder as such
registered Holder's name appears on such Notes with the signature thereon
guaranteed by an Eligible Institution.
If the Letter of Transmittal or any 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 ACC, evidence
satisfactory to ACC of their authority to so act must be submitted with the
Letter of Transmittal.
ACC understands that the Exchange Agent will make a request promptly after
the date of this Prospectus to establish accounts with respect to the Notes at
the book-entry transfer facility, The Depository Trust Company (the "Book-
Entry Transfer Facility"), 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 Notes by causing such Book-Entry Transfer Facility to transfer
such Notes into the Exchange Agent's account with respect to the Notes in
accordance with the Book-Entry Transfer Facility's procedures for such
transfer. Although delivery of the 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 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.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will
be determined by ACC in its sole discretion, which determination will be final
and binding. ACC reserves the absolute right to reject any and all Notes not
properly tendered or any Notes ACC's acceptance of which would, in the opinion
of counsel for ACC, be unlawful. ACC also reserves the right to waive any
defects, irregularities or conditions of tender as to particular Notes. ACC's
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 Notes must be cured within such time as ACC shall determine.
Although ACC intends to notify Holders of defects or irregularities with
respect to tenders of Notes, neither ACC, the Exchange Agent nor any other
person shall incur any liability for failure to give such notification.
Tenders of Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any 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.
21
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof), together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility) and any other documents required by the Letter of Transmittal,
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility) 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 Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of 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 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 herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of Notes transferred by book-
entry transfer, the name and number of the account at the Book-Entry Transfer
Facility to be credited), (iii) be signed by the Holder in the same manner as
the original signature on the Letter of Transmittal by which such Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Notes
register the transfer of such Notes into the name of the person withdrawing
the tender and (iv) specify the name in which any such 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 ACC, whose determination shall be final and binding on
all parties. Any old 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 thereto unless the Notes so withdrawn are validly
retendered. Any Notes that have been tendered but that are not accepted for
exchange will be returned to the Holder thereof without cost to such Holder as
soon as practicable after withdrawal, rejection of tendered or termination of
the Exchange Offer. Properly withdrawn Notes may be retendered by following
one of the procedures described above under "--Procedures for Tendering" at
any time prior to the Expiration Date.
22
CONDITIONS
Notwithstanding any other term of the Exchange Offer, ACC shall not be
required to accept for exchange, or to exchange Exchange Notes for, any Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if:
(a) 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 the sole judgment of ACC, might materially impair the ability of
ACC to proceed with the Exchange Offer or any material adverse development
has occurred in any existing action or proceeding with respect to ACC or
any of its subsidiaries; or
(b) any change, or any development involving a prospective change, in the
business or financial affairs of ACC or any of its subsidiaries has
occurred that, in the sole judgment of ACC, might materially impair the
ability of ACC to proceed with the Exchange Offer; or
(c) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted that, in the sole judgment
of ACC, might materially impair the ability of ACC to proceed with the
Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to ACC; or
(d) there shall occur a change in the current interpretation by the staff
of the Commission that permits the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Notes to be offered for resale, resold and
otherwise transferred by Holders thereof (other than broker-dealers and any
such Holder that is an "affiliate" of the Company 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
such Exchange Notes are acquired in the ordinary course of such Holders'
business and such Holders have no arrangement or understanding with any
person to participate in the distribution of such Exchange Notes; or
(e) any governmental approval has not been obtained, which approval ACC
shall, in its sole discretion, deem necessary for the consummation of the
Exchange Offer as contemplated hereby.
If ACC determines in its sole discretion that any of the conditions are not
satisfied, ACC may (i) refuse to accept any Notes and return all tendered
Notes to the tendering Holders, (ii) extend the Exchange Offer and retain all
Notes tendered prior to the expiration of the Exchange Offer, subject,
however, to the rights of Holders to withdraw such Notes (see "--Withdrawal of
Tenders") or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all properly tendered Notes that have not been
withdrawn. If such waiver constitutes a material change to the Exchange Offer,
ACC will promptly disclose such 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, ACC 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 day period.
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company, in whole or in part, in its sole discretion, although
the Company has no current intention of doing so. Any determination made by
the Company concerning an event, development or circumstance described or
referred to above will be final and binding on all parties.
EXCHANGE AGENT
State Street Bank and Trust Company 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:
By Registered or Certified Mail:
State Street Bank and Trust Company
Corporate Trust Department
Two International Place--Fourth Floor
Boston, MA 02110
Attention: Kellie Mullen
23
By Overnight Mail or Hand:
State Street Bank and Trust Company
Corporate Trust Department
Two International Place--Fourth Floor
Boston, MA 02110
Attention: Kellie Mullen
By Facsimile:
(617) 664-5784
Confirm: (617) 664-5539
Attention: Kellie Mullen
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by ACC. The principal
solicitation is being made by mail; however, additional solicitation may be
made by telegraph, telephone or in person by officers and regular employees of
ACC and its affiliates.
ACC has 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. ACC, however, will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith and pay other
registration expenses, including fees and expenses of the Trustee, filing
fees, blue sky fees and printing and distribution expenses.
ACC will pay all transfer taxes, if any, applicable to the exchange of the
Notes pursuant to the Exchange Offer. If, however, certificates representing
the Exchange Notes or the 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 Notes tendered, or if tendered
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 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 such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Notes
as reflected in ACC's 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 Notes
(which are expected to total approximately $4,000,000) will be amortized over
the term of the Exchange Notes.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third parties, ACC believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for Notes may be offered for
resale, resold and otherwise transferred by any holder of such Exchange Notes
(other than a broker-dealer, as set forth below, and any such holder that is
an "affiliate" of ACC 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 such Exchange Notes are acquired in the
ordinary course of such holder's business and that such holder does not intend
to participate and has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. Any holder who tenders
in the Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes may not rely on the
24
position of the staff of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988) and Morgan Stanley & Co. Incorporated
(available June 5, 1991), or similar no-action letters, but rather must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. In addition, any such resale
transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K of the Securities Act. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Notes, where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes. See "Plan of
Distribution."
By tendering in the Exchange Offer, each Holder will represent to ACC that,
among other things, (i) the Exchange Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is a Holder, (ii)
neither the Holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) the Holder and such other person acknowledge that if
they participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (a) they must, in the absence of an exemption therefrom, comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such Holder incurring liability
under the Securities Act for which such Holder is not indemnified by ACC.
Further, by tendering in the Exchange Offer, each Holder that may be deemed an
"affiliate" (as defined under Rule 405 of the Securities Act) of ACC will
represent to ACC that such Holder understands and acknowledges that the
Exchange Notes may not be offered for resale, resold or otherwise transferred
by that Holder without registration under the Securities Act or an exemption
therefrom.
As set forth above, affiliates of ACC are not entitled to rely on the
foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, ACC will have fulfilled
one of its obligations under the Registration Rights Agreement, and Holders of
Notes who do not tender their Notes will not, except under very limited
circumstances, have any further registration rights under the Registration
Rights Agreement or otherwise. Accordingly, any Holder of Notes that does not
exchange that Holder's Notes for Exchange Notes will continue to hold the
untendered Notes and will be entitled to all the rights and limitations
applicable thereto under the Indenture, except to the extent such rights or
limitations that, by their terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer.
The Notes that are not exchanged for Exchange Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Notes may be resold
only (i) to ACC (upon redemption thereof or otherwise), (ii) pursuant to an
effective registration statement under the Securities Act, (iii) so long as
the 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, (iv) 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 (v) 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.
Accordingly, if any Notes are tendered and accepted in the Exchange Offer,
the trading market for the untendered Notes could be adversely affected. See
"Risk Factors--Consequences of the Exchange Offer on Non-Tendering Holders of
the Notes" and "--Termination of Certain Rights."
25
TERMINATION OF CERTAIN RIGHTS
Holders of the Notes will not be entitled to certain rights under the
Registration Rights Agreement following the consummation of the Exchange
Offer. The rights that will terminate are (i), except in very limited
circumstances, the right to have the Company file with the Commission and use
its best efforts to have declared effective a shelf registration statement to
cover resales of the Notes by the holders thereof and (ii) the right to
receive additional interest if the registration statement of which this
Prospectus is a part or the shelf registration statement are not filed with,
or declared effective by, the Commission within certain specified time periods
or the Exchange Offer is not consummated within a specified time period.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Notes are urged to
consult their financial and tax advisors in making their 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 the
Company. 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 the affairs of the Company since the respective dates as
of which information is given herein. The Exchange Offer is not being made to
(nor will tender be accepted from or, on behalf of) holders of Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
However, the Company may, at its discretion, take such action as it may deem
necessary to make the Exchange Offer in any such jurisdiction and extend the
Exchange Offer to holders of Notes in such 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
behalf of the Company by one or more registered brokers or dealers which are
licensed under the laws of such jurisdiction.
ACC may in the future seek to acquire untendered Notes in open market or
privately negotiated transactions, through subsequent exchange offers or
otherwise. ACC has no present plans to acquire any Notes that are not tendered
in the Exchange Offer or to file a registration statement to permit resales of
any untendered Notes.
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of ACC's obligations
under the Purchase Agreement and the Registration Rights Agreement. ACC will
not receive any cash proceeds from the issuance of the Exchange Notes offered
hereby. In consideration for issuing the Exchange Notes contemplated in this
Prospectus, ACC will receive Notes in like principal amount, the form and
terms of which are the same as the form and terms of the Exchange Notes (which
replace the Notes), except as otherwise described herein. The Notes
surrendered in exchange for Exchange Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the Exchange Notes will not
result in any increase or decrease in the indebtedness of ACC. As such, no
effect has been given to the Exchange Offer in the selected consolidated
financial data or capitalization tables.
The net proceeds from the sale of the Notes were approximately $146 million
(net of commissions paid to the Initial Purchasers and estimated fees and
expenses incurred in connection therewith). ACC will use such net proceeds to
(i) redeem the 11 1/2% Debentures (including approximately $5.8 million
representing the premium relating to the redemption) and (ii) repay
approximately $17.2 million under the Senior Credit Facility (which bears
interest at a weighted average rate of 8.9% and expires on April 16, 2001).
See "Description of Certain Indebtedness."
26
THE COMPANY
ACC itself and through subsidiaries owns and operates ABC network-affiliated
television stations: WJLA in Washington, D.C.; WHTM in Harrisburg,
Pennsylvania; KATV in Little Rock, Arkansas; KTUL in Tulsa, Oklahoma; WSET in
Lynchburg, Virginia; WCIV in Charleston, South Carolina; WCFT in Tuscaloosa,
Alabama; and WBMA-LP, a low power television station licensed to Birmingham,
Alabama. WJLA is owned and operated by ACC, while the Company's remaining
owned and operated stations are owned by Harrisburg Television, Inc. (WHTM),
KATV, LLC (KATV), KTUL, LLC (KTUL), WSET, Incorporated (WSET), WCIV, LLC
(WCIV) and TV Alabama, Inc. (WCFT and WBMA-LP). Each of these is a wholly-
owned subsidiary of ACC, except Harrisburg TV and TV Alabama, each of which is
an indirect 80%-owned subsidiary of ACC. TV Alabama began programming WJSU, a
television station in Anniston, Alabama, east of Birmingham, under the
Anniston LMA effective December 29, 1995. Pursuant to merger agreements
effective September 30, 1997, KATV Television, Inc. became KATV, LLC; KTUL
Television, Inc. became KTUL, LLC and First Charleston Corp. became WCIV, LLC.
Each of these new entities is a Delaware limited liability company, wholly-
owned by ACC. 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. ACC and its subsidiaries are
Delaware corporations or limited liability companies. ACC's corporate
headquarters is located at 808 Seventeenth Street, N.W., Suite 300,
Washington, D.C. 20006-3903, and its telephone number at that address is (202)
789-2130.
27
CAPITALIZATION
The following table sets forth the short-term debt, which consists of
current installments of debt, and capitalization of the Company as of December
31, 1997 and as adjusted to give effect to the sale of the Notes (and the
application of the net proceeds thereof), as if the same had occurred on
December 31, 1997. See "Use of Proceeds." The issuance of the Exchange Notes
in exchange for the Notes will have no effect on the capitalization of the
Company.
DECEMBER 31, 1997
-------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
(DOLLARS IN THOUSANDS)
Current installments of debt(2)...................... $ 1,282 $ 1,282
========= =========
Debt (net of current installments):
Senior Credit Facility, maximum amount $40,000,
expiring April 16, 2001........................... $ 22,000 4,843
Capital lease obligations.......................... 5,197 5,197
11 1/2% Senior Subordinated Debentures due 2004
(less unamortized discount of $232)............... 122,768 --
9 3/4% Senior Subordinated Debentures due 2007
(less unamortized discount of $1,152)............. 273,848 273,848
8 7/8% Senior Subordinated Notes due 2008 ......... -- 150,000
--------- ---------
Total debt (net of current installments)......... 423,813 433,888
--------- ---------
Stockholder's investment:
Common stock....................................... 1 1
Capital in excess of par value..................... 6,955 6,955
Retained earnings(3)............................... 48,858 43,467
Distributions to owners, net(4).................... (245,366) (247,966)
--------- ---------
Total stockholder's investment................... (189,552) (197,543)
--------- ---------
Total capitalization(5)........................ $ 234,261 $ 236,345
========= =========
- --------
(1) The capitalization of the Company as of December 31, 1997, As Adjusted,
gives effect to the sale of the Notes and the application of the net
proceeds thereof as if each had occurred on such date.
(2) Represents current maturities of amounts due under capital lease
obligations.
(3) Retained earnings as of December 31, 1997. As Adjusted, gives effect to
the premium to be paid and costs to be incurred, net of income taxes, in
connection with the redemption of the 11 1/2% Debentures.
(4) ACC has periodically made advances to related parties. At present, the
related parties' primary source of repayment of the advances from ACC is
through the ability of ACC to pay dividends or make other distributions;
therefore, these advances from ACC have been treated as a reduction of
Stockholder's investment and described as "distributions" in the Company's
consolidated balance sheets. See Note 8 to the Consolidated Financial
Statements, "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Certain
Transactions."
(5) Excludes current installments of debt.
28
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the fiscal years ended
September 30, 1993, 1994, 1995, 1996 and 1997 are derived from the Company's
Consolidated Financial Statements. The summary consolidated financial data for
the three months ended December 31, 1996 and 1997 are derived from the
Company's Unaudited Consolidated Financial Statements. 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 the Consolidated Financial Statements and the notes
thereto included elsewhere herein.
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA(1):
Operating revenues,
net.................... $ 109,867 $ 125,830 $ 138,151 $ 155,573 $ 172,828 $ 47,792 $ 51,320
Television operating
expenses, excluding
depreciation and
amortization........... 65,533 67,745 75,199 92,320 105,630 26,404 27,589
Depreciation and
amortization........... 5,771 5,122 4,752 10,257 19,652 4,294 4,802
Corporate expenses...... 3,231 4,250 3,753 5,112 4,382 974 1,062
Operating income........ 35,332 48,713 54,447 47,884 43,164 16,120 17,867
Interest expense........ 22,336 22,303 22,708 35,222 42,870 10,659 11,058
Interest income......... 2,408 2,292 2,338 3,244 2,433 611 628
Income before
extraordinary items and
cumulative effect of
changes in accounting
principles............. 7,586 17,360 19,909 8,293 424 3,194 4,023
Extraordinary items(2).. 1,485 -- -- (7,750) -- -- --
Cumulative effect of
changes in accounting
principles(3).......... (523) 3,150 -- -- -- -- --
Net income.............. 8,548 20,510 19,909 543 424 3,194 4,023
AS OF SEPTEMBER 30, AS OF
----------------------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- --------- --------------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA(1):
Total assets............ $ 91,218 $ 94,079 $ 99,605 $ 281,778 $ 280,977 $ 282,261
Total debt(4)........... 197,154 199,473 198,919 402,993 415,722 425,095
Redeemable preferred
stock(5)............... 168 168 168 -- -- --
Stockholder's
investment............. (138,288) (136,961) (133,879) (172,392) (185,563) (189,552)
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
CASH FLOW DATA(6):
Cash flows from
operating activities... $ 12,531 $ 18,267 $ 22,145 $ 28,370 $ 15,551 $ (3,549) $ (1,133)
Cash flows from
investing activities... (1,933) (1,420) (2,543) (165,109) (17,363) (1,862) (2,543)
Cash flows from
financing activities... (19,793) (16,905) (18,549) 145,031 (2,875) (1,362) 1,031
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
FINANCIAL RATIOS AND
OTHER DATA(1):
Operating Cash Flow(7).. $ 41,103 $ 53,835 $ 59,199 $ 58,141 $ 62,816 $ 20,414 $ 22,669
Operating Cash Flow
Margin(8).............. 37.4% 42.8% 42.9% 37.4% 36.3% 42.7% 44.2%
Capital expenditures.... $ 1,972 $ 3,264 $ 2,777 $ 20,838 $ 12,140 $ 1,874 $ 2,561
Interest expense,
net(9)................. 19,928 20,011 20,370 31,978 40,437 10,048 10,430
Ratio of total debt to
Operating Cash
Flow(10)............... 4.80x 3.71x 3.36x 6.93x 6.62x 5.01x 4.69x
Ratio of Operating Cash
Flow to interest
expense, net........... 2.06x 2.69x 2.91x 1.82x 1.55x 2.03x 2.17x
Ratio of Operating Cash
Flow less capital
expenditures to
interest expense, net.. 1.96x 2.53x 2.77x 1.17x 1.25x 1.85x 1.93x
Ratio of earnings to
fixed charges(11)...... 1.63x 2.27x 2.41x 1.40x 1.03x 1.51x 1.62x
(Footnotes on following page)
29
FOOTNOTES
- --------
(Dollars in thousands)
(1) The consolidated statement of operations data, balance sheet data and
financial ratios and other data as of and for the year ended September 30,
1996 include the effects of significant transactions consummated by the
Company during the year that impact the comparability of Fiscal 1996 data
to previous years. Such transactions include the effects of a $275,000
offering of 9 3/4% Debentures, the Acquisitions, the acquisitions of the
Anniston LMA and Anniston Option, the early repayment of approximately
$74,704 in debt and payment of a prepayment penalty on such debt of
$12,934. These transactions are discussed in Management's Discussion and
Analysis of Financial Condition and Results of Operations as well as Notes
3 and 6 of Notes to Consolidated Financial Statements. In addition, the
comparability of Fiscal 1997 and Fiscal 1996 data is impacted by the fact
that the results of operations of WHTM, WCFT and WJSU are included for the
full year in Fiscal 1997 as compared to the period from the date of
acquisition and the effective date of the Anniston LMA in Fiscal 1996.
(2) The extraordinary gain during Fiscal 1993 resulted from the use of net
operating loss carryforwards and carrybacks for state income tax reporting
purposes. The extraordinary loss during Fiscal 1996 resulted from a $7,750
loss, net of tax, on the early repayment of long-term debt (see Note 6 of
Notes to Consolidated Financial Statements).
(3) As required by generally accepted accounting principles, the Company
changed its method of accounting for nonpension postretirement benefits
during Fiscal 1993 and its method of accounting for income taxes during
Fiscal 1994.
(4) Total debt is defined as long-term debt (including the current portion
thereof, and net of discount), short-term debt and capital lease
obligations.
(5) In September 1996, the Company purchased for cash the Series A redeemable
preferred stock at its redemption value of $168.
(6) 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."
(7) "Operating Cash Flow" is defined as operating income plus depreciation and
amortization. Programming expenses are included in television operating
expenses. The Company has included Operating Cash Flow data because it
understands that such data is 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 the Consolidated Financial Statements, is not a measure of financial
performance under generally accepted accounting principles, should not be
considered in isolation or as a substitute for net income or cash flows
from operating activities and may not be comparable to similar measures
reported by other companies.
(8) "Operating Cash Flow Margin" is defined as Operating Cash Flow as a
percentage of operating revenues, net.
(9) Interest expense, net is defined as interest expense less interest income.
(10) For the three months ended December 31, 1996 and 1997, the ratio of total
debt to Operating Cash Flow was computed by annualizing the Operating
Cash Flow for the respective period.
(11) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of income before extraordinary items and income taxes
and cumulative effects of changes in accounting principles plus fixed
charges. Fixed charges consist of interest expense, which includes
interest on all 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).
30
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
OVERVIEW
The Company owns and operates seven ABC network-affiliated television
stations: WJLA in Washington, D.C.; WHTM in Harrisburg, Pennsylvania; KATV in
Little Rock, Arkansas; KTUL in Tulsa, Oklahoma; WSET in Lynchburg, Virginia;
WCIV in Charleston, South Carolina; and WCFT in Tuscaloosa, Alabama (west of
Birmingham, Alabama). The Company also programs the ABC network affiliate WJSU
in Anniston, Alabama (east of Birmingham, Alabama) under the Anniston LMA, and
owns a low power television station licensed to Birmingham, Alabama (WBMA-LP).
The Company operates WCFT and programs WJSU in tandem with WBMA-LP serving the
viewers of Birmingham, Tuscaloosa and Anniston.
The operating revenues of the Company are derived from local and national
advertisers and, to a much lesser extent, from the networks and program
syndicators for the broadcast of programming and from commercial production
and tower rental activities. The primary operating expenses involved in owning
and operating television stations are employee compensation, programming, news
gathering, production, promotion and the solicitation of advertising.
Television stations receive revenues for advertising sold for placement
within and adjoining locally originated programming and adjoining their
network programming. Advertising is sold in time increments and is priced
primarily on the basis of a program's popularity among the specific audience
an advertiser desires to reach, as measured principally by quarterly audience
surveys. In addition, advertising rates are affected by the number of
advertisers competing for the available time, the size and demographic makeup
of the market areas served and the availability of alternative advertising
media in the market areas. Rates are highest during the most desirable viewing
hours (generally during local news programming and prime time), with
corresponding reductions during other hours.
The Company's advertising revenues are generally highest in the first and
third quarters of each fiscal year, due in part to increases in retail
advertising in the period leading up to and including the holiday season and
active advertising in the spring. The Company's operating expenses are spread
evenly throughout the year so that the fluctuation in operating results is
generally related to the fluctuation in the revenue cycle. In addition,
advertising revenues are generally higher during election years due to
spending by political candidates, which is typically heaviest during the
Company's first fiscal quarter. Years in which Olympic Games are held also
cause cyclical fluctuation in operating results depending on which television
network is carrying Olympic coverage.
The broadcast television industry is cyclical in nature, being affected by
prevailing economic conditions. Because the Company relies on sales of
advertising time for substantially all of its revenues, its operating results
are sensitive to general economic conditions and regional conditions in each
of the local market areas in which the Company's stations operate. For Fiscal
1996 and 1997 and for the three months ended December 31, 1997, WJLA accounted
for approximately one-half of the Company's total revenues. As a result, the
Company's results of operations are highly dependent on WJLA and, in turn, the
Washington, D.C. economy and, to a lesser extent, on each of the other local
economies in which the Company's stations operate. The Company is also
dependent on automotive-related advertising. Approximately 24%, 25%, 26% and
18% of the Company's total broadcast revenues for the years ended September
30, 1995, 1996, 1997 and the three months ended December 31, 1997,
respectively, consisted of automotive-related advertising. A significant
decrease in such advertising could materially and adversely affect the
Company's operating results.
FACTORS AFFECTING FISCAL 1996
There were significant factors which affected the results of operations for
the year ended September 30, 1996. In March 1996, the Company, through its
80%-owned subsidiaries, acquired the assets and certain
31
liabilities of WHTM and WCFT for $115,475 and $20,181, respectively (the
"Acquisitions"). The results of operations of WHTM and WCFT are included for
the period subsequent to the Acquisitions. Additionally, in
December 1995, the Company, through an 80%-owned subsidiary, entered into the
ten-year Anniston LMA with the owners of WJSU, a television station operating
in Anniston, Alabama. The operating revenues and expenses of WJSU are
therefore included in the Company's consolidated financial statements since
December 1995. The RLA Revocable Trust, created for the benefit of Robert
Allbritton, owns the remaining 20% interest in these subsidiaries. Robert
Allbritton is a Director and officer of the Company and is the son of Joe L.
Allbritton.
References to the "New Stations" in Management's Discussion and Analysis of
Financial Condition and Results of Operations are to WHTM, WCFT and WJSU as
programmed under the Anniston LMA.
In February 1996, the Company completed the offering of its 9 3/4%
Debentures. The proceeds from the offering of the 9 3/4% Debentures were used
to finance the Acquisitions for $135,656, acquire the Anniston Option for
$10,000, repay approximately $74,704 of debt which was outstanding under
senior secured promissory notes and other credit agreements and pay a related
prepayment penalty of $12,934. The remaining net proceeds were retained by the
Company for the construction of studio and transmission facilities in
Birmingham, Alabama and general corporate purposes.
OPERATING REVENUES
The following table depicts the principal types of operating revenues, net
of agency commissions, earned by the Company for each of the last three fiscal
years and for the three months ended December 31, 1996 and 1997, and the
percentage contribution of each to the total broadcast revenues of the
Company, before fees.
FISCAL YEAR ENDED SEPTEMBER 30, THREE MONTHS ENDED DECEMBER 31,
----------------------------------------------------- ---------------------------------
1995 1996 1997 1996 1997
----------------- ----------------- ----------------- ---------------- ----------------
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
-------- ------- -------- ------- -------- ------- ------- ------- ------- -------
Local/regional (1)...... $ 67,228 47.3% $ 77,248 48.0% $ 85,954 48.1% $22,525 45.7% $25,586 48.2%
National (2)............ 59,930 42.2% 64,277 40.0% 71,324 40.0% 18,639 37.8 21,619 40.7
Network compensation
(3).................... 2,623 1.9% 5,443 3.4% 6,223 3.5% 1,420 2.9 1,467 2.8
Political (4)........... 3,320 2.3% 3,160 2.0% 4,273 2.4% 3,376 6.9 917 1.7
Trade and barter (5).... 5,897 4.2% 7,119 4.4% 7,868 4.4% 1,915 3.9 2,144 4.0
Other revenues (6)...... 3,022 2.1% 3,489 2.2% 3,002 1.6% 1,376 2.8 1,350 2.6
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Broadcast revenues...... 142,020 100.0% 160,736 100.0% 178,644 100.0% 49,251 100.0% 53,083 100.0%
===== ===== ===== ===== =====
Fees (7)................ (4,789) (5,541) (6,068) (1,580) (1,768)
-------- -------- -------- ------- -------
Broadcast revenue, net
of fees................ 137,231 155,195 172,576 47,671 51,315
Non-broadcast revenue
(8).................... 920 378 252 121 5
-------- -------- -------- ------- -------
Total net operating
revenues............... $138,151 $155,573 $172,828 $47,792 $51,320
======== ======== ======== ======= =======
- --------
(1) Represents sale of advertising time to local and regional advertisers or
agencies representing such advertisers.
(2) Represents sale of advertising time to agencies representing national
advertisers.
(3) Represents payment by networks for broadcasting or promoting network
programming.
(4) Represents sale of advertising time to political advertisers.
(5) Represents value of commercial time exchanged for goods and services
(trade) or syndicated programs (barter).
(6) Represents miscellaneous revenue, principally receipts from tower rental,
production of commercials and revenue from the sales of University of
Arkansas sports programming to advertisers and radio stations.
(7) Represents fees paid to national sales representatives and fees paid for
music licenses.
(8) Represents revenues from program syndication sales and other miscellaneous
non-broadcast revenues.
32
Local/regional and national advertising constitute the Company's largest
categories of operating revenues, collectively representing almost 90% of the
Company's total broadcast revenues in each of the last three fiscal years and
for the three months ended December 31, 1997. Although the total percentage
contribution of local/regional and national advertising has been relatively
constant over such period, the growth rate of local/regional and national
advertising revenues varies annually based upon the demand and rates for
local/regional advertising time versus national advertising time in each of
the Company's markets. Local/regional advertising revenues increased 12.6%,
14.9% and 11.3% in Fiscal 1995, 1996 and 1997, respectively; and national
advertising revenues increased 6.8%, 7.3% and 11.0% during the same respective
periods. Each other individual category of revenues represented less than 5.0%
of the Company's total revenues for each of the last three fiscal years.
RESULTS OF OPERATIONS--THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE
THREE MONTHS ENDED DECEMBER 31, 1996
As compared to the same period in the prior fiscal year, the Company's
results of operations for the three months ended December 31, 1997 principally
reflect increased demand by advertisers in the Washington, D.C. market as well
as increased audience share and advertising revenues in the Birmingham market
together with reduced operating expenses for the Birmingham operation. These
positive results were partially offset by a significant decrease in political
advertising revenues due principally to the absence of significant elections
in the first quarter of Fiscal 1998.
Set forth below are selected consolidated financial data for the three
months ended December 31, 1996 and 1997 and the percentage change between the
periods:
THREE MONTHS
ENDED
DECEMBER 31,
--------------- PERCENTAGE
1996 1997 CHANGE
------- ------- ----------
Operating revenues, net........................... $47,792 $51,320 7.4%
Total operating expenses.......................... 31,672 33,453 5.6%
------- -------
Operating income.................................. 16,120 17,867 10.8%
Nonoperating expenses, net........................ 10,439 10,727 2.8%
Income tax provision.............................. 2,487 3,117 25.3%
------- -------
Net income........................................ $3,194 $4,023 26.0%
======= =======
Net Operating Revenues
Net operating revenues for the three months ended December 31, 1997 totaled
$51,320, an increase of $3,528, or 7.4%, when compared to net operating
revenues of $47,792 for the three months ended December 31, 1996. This
increase results principally from increased local and national advertising
demand partially offset by decreased political advertising revenues in the
majority of the Company's markets. The most significant quarterly revenue
increase was generated by the Washington, D.C. and Birmingham markets. WJLA's
revenue increase was achieved through a combination of overall improvement in
the Washington, D.C. advertising market and increased audience share,
particularly in local news. The revenue growth in Birmingham was achieved
through increased audience share. This expansion in audience share is the
result of the Company's development of the Birmingham operation.
Local/regional advertising revenues increased 13.6% during the three months
ended December 31, 1997 versus the comparable period in Fiscal 1997. The
increase for the three months ended December 31, 1997 of $3,061 over the three
months ended December 31, 1996 is primarily attributable to an improvement in
the Washington, D.C. local/regional advertising market and market share gains
by the Company's Birmingham stations.
National advertising revenues increased $2,980, or 16.0%, for the three
months ended December 31, 1997 over the comparable period in Fiscal 1997. The
increase for the three months ended December 31, 1997 is
33
primarily attributable to an improvement in the Washington, D.C. national
advertising market and market share gains by the Company's Birmingham
stations.
Political advertising revenues, which comprised 1.7% of the Company's total
net operating revenues for the three months ended December 31, 1997, decreased
by $2,459, or 72.8%, from the comparable period in Fiscal 1997. The decrease
is due primarily to the national presidential election as well as various
high-profile local political races in several of the Company's markets that
took place during the three months ended December 31, 1996 with no comparable
political elections occurring during the same period in Fiscal 1998.
No individual advertiser accounted for more than 5% of the Company's
broadcast revenues during the three months ended December 31, 1996 or 1997.
Total Operating Expenses
Total operating expenses for the three months ended December 31, 1997
totaled $33,453, an increase of $1,781, or 5.6%, compared to total operating
expenses of $31,672 for the three-month period ended December 31, 1996. This
increase consists of an increase in television operating expenses, excluding
depreciation and amortization, of $1,185, an increase in depreciation and
amortization of $508 and an increase in corporate expenses of $88.
Television operating expenses, excluding depreciation and amortization,
increased $1,185, or 4.5%, to $27,589 for the three months ended December 31,
1997 as compared to $26,404 for the three months ended December 31, 1996. The
increase in Fiscal 1998 is primarily attributable to increased sales, news and
programming expenses across the majority of the Company's stations partially
offset by reduced operating expenses in Birmingham.
Depreciation and amortization expense of $4,802 for the first three months
of Fiscal 1998 increased $508, or 11.8%, versus the comparable period in
Fiscal 1997. The increase for the three months ended December 31, 1997 is
principally the result of increased depreciation from the facility
construction and equipment purchases in Birmingham as well as from the
purchase of a corporate aircraft during Fiscal 1997.
Operating Income
For the three months ended December 31, 1997, operating income of $17,867
increased $1,747, or 10.8%, when compared to operating income of $16,120 for
the three months ended December 31, 1996. For the three months ended December
31, 1997, the operating margin increased to 34.8% from 33.7% for the
comparable period in Fiscal 1997. The increases in operating income and margin
were the result of operating revenues increasing at a greater rate than
operating expenses. In addition, the Company's Fiscal 1997 operating margins
were adversely impacted due to the investment in the start-up operations in
Birmingham (e.g., programming and staffing changes, marketing and promotion
activities, and capital expenditures for facility construction and equipment
purchases to integrate the operation) during the initial phase of Birmingham's
audience share development. The increase in operating margin for the first
quarter of Fiscal 1998 as compared to the first quarter of Fiscal 1997
reflected the increased audience share of the Birmingham stations together
with a reduction in operating expenses.
Nonoperating Expenses, Net
Interest expense of $11,058 for three months ended December 31, 1997
increased $399, or 3.7%, as compared to $10,659 for the three-month period
ended December 31, 1996. This increase is due to the incremental interest
expense associated with additional borrowings under the Company's Senior
Credit Facility and capital lease facility. The weighted average balance of
debt was $408,001 and $420,525 for the three months
34
ended December 31, 1996 and 1997, respectively, and the weighted average
interest rate on debt was 10.4% and 10.2% for the three months ended December
31, 1996 and 1997, respectively.
Income Taxes
The provision for income taxes for the three months ended December 31, 1997
totaled $3,117, an increase of $630, or 25.3%, when compared to the provision
for income taxes of $2,487 for the three months ended December 31, 1996. The
increase is directly related to the $1,459, or 25.7%, increase in the
Company's income before income taxes due to the factors discussed above.
Net Income
Net income for the three months ended December 31, 1997 was $4,023 as
compared to net income of $3,194 for the three months ended December 31, 1996
due to the factors discussed above.
Balance Sheet
Significant balance sheet fluctuations from September 30, 1997 to December
31, 1997 consisted of increased accounts receivable and long-term debt, offset
by decreases in program rights, accrued interest payable and program rights
payable. In addition, distribution to owners increased as a result of net cash
advances made during the three months ended December 31, 1997. The increase in
accounts receivable reflects the Company's continued revenue growth while the
program rights and accrued interest activity are related to the timing of cash
payments. The increase in long-term debt is primarily due to additional draws
under the Senior Credit Facility to fund working capital.
RESULTS OF OPERATIONS--FISCAL 1997 COMPARED TO FISCAL 1996
As compared to Fiscal 1996, the Company's results of operations for Fiscal
1997 principally reflect the effect of the New Stations as their results are
included for the entire year in Fiscal 1997 as compared to the period from the
date of acquisition in Fiscal 1996. Additional significant factors include
increased demand by advertisers in the Washington, D.C. market, offset by
continued spending in Birmingham. As part of the planned development of the
Birmingham operation, the Company has continued to make enhancements in its
local news and has increased its marketing activities to promote WCFT and WJSU
as the new ABC affiliates for the Birmingham market. These activities have
resulted in increased audience share, and management believes that expansion
in audience share will continue resulting in increasingly higher advertising
revenues.
Set forth below are selected consolidated financial data for Fiscal 1996 and
1997, respectively, and the percentage change between the years.
FISCAL YEAR ENDED
SEPTEMBER 30,
----------------- PERCENTAGE
1996 1997 CHANGE
-------- -------- ----------
Operating revenues, net....................... $155,573 $172,828 11.1 %
Total operating expenses...................... 107,689 129,664 20.4 %
-------- --------
Operating income.............................. 47,884 43,164 (9.9)%
Nonoperating expenses, net.................... 33,079 41,630 25.9 %
Income tax provision.......................... 7,812 1,110 (85.8)%
-------- --------
Income before minority interest and
extraordinary item........................... 6,993 424 (93.9)%
Minority interest in net losses of
Consolidated subsidiaries.................... 1,300 -- --
Extraordinary item, net of income tax
benefit...................................... 7,750 -- --
-------- --------
Net income.................................... $ 543 $ 424 (21.9)%
======== ========
Operating Cash Flow........................... $ 58,141 $ 62,816 8.0 %
======== ========
Net Operating Revenues
Net operating revenues for Fiscal 1997 totaled $172,828, an increase of
$17,255 or 11.1%, as compared to Fiscal 1996. The New Stations accounted for
$11,282, or 65.4% of the increase in net operating revenues. The majority of
this significant contribution by the New Stations is due to the fact that
results of the New Stations are included for the full year in Fiscal 1997 as
compared to the period from the date of acquisition in Fiscal 1996. The
balance of the increase results principally from increased local/regional and
national advertising in the Washington, D.C. and Little Rock markets offset by
a decline in the Charleston market.
35
Local/regional advertising revenues increased $8,706 or 11.3% over Fiscal
1996. The increase is largely attributable to a $6,127 increase in
local/regional revenues by the New Stations and revenue increases generated by
the Company's stations located in the Washington, D.C. and Little Rock
markets, offset by weakening in the Tulsa and Charleston markets for
local/regional advertisers.
National advertising revenues increased $7,047, or 11.0%, in Fiscal 1997
over the prior fiscal year. The increase is principally attributable to $4,003
generated by the New Stations and improvements in the Washington, D.C., Little
Rock and Tulsa markets offset by a weakening in the Charleston market for
national advertising.
No individual advertiser accounted for more than 5% of the Company's
broadcast revenues during Fiscal 1997 or 1996.
Increased network compensation revenue of $780, or 14.3%, over the Fiscal
1996 level is principally attributable to the incremental network compensation
of the New Stations during Fiscal 1997.
Total Operating Expenses
Total operating expenses in Fiscal 1997 were $129,664, an increase of
$21,975, or 20.4%, compared to total operating expenses of $107,689 in Fiscal
1996.
Television operating expenses (before depreciation, amortization and
corporate expenses) totaled $105,630 in Fiscal 1997, an increase of $13,310,
or 14.4% when compared to television operating expenses of $92,320 in Fiscal
1996. Television operating expenses of the New Stations accounted for 79.5% of
the increase. The New Stations accounted for a greater proportionate increase
in television operating expenses than in net operating revenues principally
due to the impact of Birmingham as discussed further below. The remaining
increase in television operating expenses is largely attributable to
approximately $2,000 of non-recurring program expense resulting from the
Company's early termination of a program contract. Excluding the New Stations
and the non-recurring program expense, Fiscal 1997 television operating
expenses increased approximately $727, or 0.9%, over the Fiscal 1996 level.
This expense increase over the prior year was concentrated in the news area,
which is consistent with the Company's operating strategy that emphasizes
local news leadership in each of its markets.
Depreciation and amortization expense of $19,652 in Fiscal 1997 increased
$9,395 from $10,257 in Fiscal 1996. The New Stations accounted for $8,843, or
88.8%, of the increase. This is due to the increased level of depreciable and
intangible assets which resulted principally from the acquisition of WHTM and
WCFT, the Anniston Option and capital equipment and leasehold improvements
associated with the new studio in Birmingham and transmission facilities in
Tuscaloosa and Anniston.
Corporate expenses in Fiscal 1997 decreased $730 from Fiscal 1996. The
decrease is principally due to a decrease in charitable contributions.
Operating Income
The operating results of the New Stations impacted the Company's
consolidated performance trends for Fiscal 1997 as compared to Fiscal 1996
primarily due to the fact that they are included for the entire period in
Fiscal 1997 as compared to the period from the date of acquisition in the
prior year. In addition, the operating results of the Birmingham operation had
a continuing impact on the Company's consolidated performance trends in Fiscal
1997 as compared to Fiscal 1996. The operating margins generated by the
Company in the aggregate were adversely impacted primarily due to the
Company's continuing investment in the start-up operations in Birmingham
(e.g., programming and staffing changes, marketing and promotional activities)
as well as due to the impact of the intangible amortization expense arising
from the Acquisitions and increased depreciation expense from capital
improvements made to the New Stations.
Operating income of $43,164 in Fiscal 1997 decreased $4,720 or 9.9%,
compared to operating income of $47,884 in Fiscal 1996. The operating profit
margin in Fiscal 1997 decreased to 25.0% from 30.8% for the
36
comparable period in the prior year. The decrease in operating profit and
margin was due primarily to operating expenses increasing at a greater rate
than operating revenue as discussed above.
Operating Cash Flow
Operating Cash Flow increased to $62,816 in Fiscal 1997 from $58,141 in
Fiscal 1996, an increase of $4,675, or 8.0%. This increase is a result of the
growth in net operating revenues as discussed above together with smaller
proportional television operating expenses and corporate expenses. The Company
believes that Operating Cash Flow, defined as operating income plus
depreciation and amortization, is important in measuring the Company's
financial results and its ability to pay principal and interest on its debt
because of the Company's level of non-cash expenses attributable to
depreciation and amortization of intangible assets. Operating Cash Flow does
not purport to represent cash flows from operating activities determined in
accordance with generally accepted accounting principles as reflected in the
Company's consolidated financial statements, is not a measure of financial
performance under generally accepted accounting principles, should not be
considered in isolation or as a substitute for net income or cash flows from
operating activities and may not be comparable to similar measures reported by
other companies.
Nonoperating Expenses, Net
Interest expense of $42,870 for Fiscal 1997 increased by $7,648, or 21.7%,
from $35,222 in Fiscal 1996. The increase is attributable to increased
interest expense from the issuance of the Company's 9 3/4% Debentures,
together with higher average working capital debt balances during Fiscal 1997
compared to the prior year. The average amount of debt outstanding and the
weighted average interest rate on such debt for Fiscal 1997 and 1996
approximated $413,723 and 10.2%, and $324,824 and 10.5%, respectively.
Interest income of $2,433 in Fiscal 1997 decreased $811, or 25.0%, as
compared to interest income of $3,244 in Fiscal 1996. The decrease was
primarily due to interest earned from temporarily investing certain proceeds
from the sale of the 9 3/4% Debentures during Fiscal 1996.
Income Taxes
The provision for income taxes in Fiscal 1997 of $1,110 decreased by $6,702,
or 85.8%, when compared to the provision for income taxes of $7,812 in Fiscal
1996. The decrease is directly related to the $13,271, or 89.6%, decrease in
income before income taxes, minority interest and extraordinary item (as
previously discussed).
Income Before Minority Interest and Extraordinary Item
Income before minority interest and extraordinary item in Fiscal 1997
decreased by $6,569, or 93.9%, from Fiscal 1996. As discussed previously, the
start-up nature of the Birmingham operation, the increased interest expense
and depreciation and amortization associated with the Acquisitions and the
non-recurring program expense adversely impacted the Fiscal 1997 results.
Net Income
Net income for Fiscal 1997 of $424 decreased $119, or 21.9%, when compared
to net income of $543 in Fiscal 1996. The decrease in net income is attributed
to the factors discussed above. Additionally, net income for Fiscal 1996
reflects the $7,750 extraordinary loss on early repayment of debt.
Balance Sheet
Significant balance sheet fluctuations from September 30, 1996 to September
30, 1997 consist of increased accounts receivable and long-term debt, offset
by decreases in cash and cash equivalents and accounts payable. In addition,
distributions to owners increased as a result of cash advances made during
Fiscal 1997. The increase in accounts receivable reflects the Company's
continued revenue growth while the offsetting decreases in cash and cash
equivalents and accounts payable are primarily attributable to the timing of
cash payments. The increase in long-term debt is related to additional draws
under its Senior Credit Facility and new capital leases to fund capital
expenditures, primarily in Birmingham, Alabama and Washington, D.C.
37
RESULTS OF OPERATIONS--FISCAL 1996 COMPARED TO FISCAL 1995
Set forth below are selected consolidated financial data for Fiscal 1995 and
1996, respectively, and the percentage change between the years.
FISCAL YEAR ENDED
SEPTEMBER 30,
----------------- PERCENTAGE
1995 1996 CHANGE
-------- -------- ----------
Operating revenues, net....................... $138,151 $155,573 12.6 %
Total operating expenses...................... 83,704 107,689 28.7 %
-------- --------
Operating income.............................. 54,447 47,884 (12.1)%
Nonoperating expenses, net.................... 20,603 33,079 60.6 %
Income tax provision.......................... 13,935 7,812 (43.9)%
-------- --------
Income before minority interest and
extraordinary item........................... 19,909 6,993 (64.9)%
Minority interest in net losses of
consolidated subsidiaries.................... -- 1,300 --
Extraordinary item, net of income tax
benefit...................................... -- 7,750 --
-------- --------
Net income.................................... $ 19,909 $ 543 (97.3)%
======== ========
Net Operating Revenues
Net operating revenues for Fiscal 1996 totaled $155,573, an increase of
$17,422, or 12.6%, as compared to Fiscal 1995. The New Stations accounted for
$14,916, or 85.6%, of the increase. The increase was primarily due to a
$14,367 or 11.3% increase in local/regional and national advertising and a
$2,820, or 107.5%, increase in network compensation compared to Fiscal 1995.
The increase in local/regional advertising revenue of $10,020, or 14.9%, over
the Fiscal 1995 level was largely attributable to $8,035 of local/regional
advertising revenue generated by the New Stations, coupled with increased
local/regional advertising revenue principally in the Little Rock, Tulsa and
Charleston markets which management attributes to an increase in total market
revenues and to certain changes in the competitive environment including, in
Charleston, advertising revenue increases from strong NBC prime time ratings
and the summer Olympics.
The increase in national advertising revenue of $4,347, or 7.3%, over the
Fiscal 1995 level was largely attributable to $5,525 of national advertising
generated by the New Stations, offset principally by a weakening of the
Washington, D.C. market for national advertisers.
Increased network compensation revenue of $2,820, or 107.5%, over the Fiscal
1995 level was primarily attributable to a new ten-year affiliation agreement
with ABC effective April 1996, with certain increases retroactive to August
1995. The new network compensation agreement increased annual network
compensation by approximately $2,200 from the Fiscal 1995 level. This new
compensation agreement, and to a lesser extent the incremental network
compensation attributable to the New Stations, accounted for the increase in
the Fiscal 1996 network compensation.
Total Operating Expenses
Total operating expenses in Fiscal 1996 were $107,689, an increase of
$23,985, or 28.7%, when compared to total operating expenses of $83,704 in
Fiscal 1995. Operating expenses, excluding the New Stations, increased 9.0%
from Fiscal 1995. Television operating expenses (before depreciation,
amortization and corporate expenses) totaled $92,320 in Fiscal 1996, an
increase of $17,121, or 22.8%, when compared to television operating expenses
of $75,199 in Fiscal 1995. Television operating expenses of the New Stations
accounted for approximately 63.4% of the increase. The remaining increase in
television operating expenses was due to increases in programming and news
expenses. The increase in programming expense relates primarily to an increase
in programming costs from the renewal of certain long-term program contracts
primarily at WJLA, KATV and WSET. The increase in news expense was primarily
due to increased staffing and other news related expenses such as research and
set design. WJLA accounted for a majority of the programming and news expense
38
increase. The Fiscal 1996 programming and local news expense trends are
consistent with the Company's operating strategy which emphasizes local news
leadership in each of its markets and the airing of high-quality non-network
programming to fill those periods of the broadcast day not programmed by the
network. The operating strategy as implemented in 1996 was reflected in the
establishment of a news bureau in York, Pennsylvania to expand the WHTM news
coverage and the hiring of well-known news personalities in the Birmingham
market.
Depreciation and amortization expense of $10,257 in Fiscal 1996 increased
$5,505, or 115.8%, from $4,752 in Fiscal 1995 primarily as a result of the
increased level of depreciable assets and intangible assets resulting
principally from the acquisitions of WHTM and WCFT, the Anniston Option and
capital equipment and leasehold improvements associated with the new studio in
Birmingham and transmission facilities in Tuscaloosa.
Corporate expenses were $5,112 in Fiscal 1996, an increase of $1,359, or
36.2%, compared to $3,753 in Fiscal 1995. The increase was due to increases in
various expenses, including compensation, consulting, audit and charitable
contributions.
Operating Income
For Fiscal 1996, operating income of $47,884 decreased by $6,563, or 12.1%,
compared to operating income of $54,447 in Fiscal 1995. The decrease was due
to increased revenue from the existing stations and the New Stations, offset
by increased operating, depreciation, amortization and corporate expenses, as
discussed above.
Nonoperating Expenses, Net
Interest expense of $35,222 for Fiscal 1996 increased by $12,514, or 55.1%
from $22,708 in Fiscal 1995. The increase is attributable to increased
interest expense from the issuance of the 9 3/4% Debentures, together with
higher average working capital debt balances and interest rates during the
first two quarters of Fiscal 1996 compared to the same periods in the prior
year. The average amount of debt outstanding and the average interest rate on
such debt for Fiscal 1996 and 1995 approximated $324,824 and 10.5%, and
$200,176 and 11.2%, respectively.
Interest income of $3,244 in Fiscal 1996 increased $906, or 38.8%, as
compared to interest income of $2,338 in Fiscal 1995. The increase was
primarily due to investment interest earned from investing excess proceeds
from the sale of the 9 3/4% Debentures.
Income Taxes
Income taxes in Fiscal 1996 of $7,812 decreased by $6,123, or 43.9%, when
compared to income taxes of $13,935 in Fiscal 1995. The decrease in income
taxes is principally attributable to a decrease in income before taxes of
$19,039.
Extraordinary Loss on Early Repayment of Debt
During Fiscal 1996, the Company incurred an extraordinary loss of $7,750,
net of income tax benefit, due to a prepayment penalty of $12,934 in
conjunction with the early repayment of $63,500 of debt.
Net Income
Net income for Fiscal 1996 of $543 decreased by $19,366, or 97.3%, when
compared to net income of $19,909 in Fiscal 1995. The decrease in net income
was attributable primarily to a decrease in income from operations of $6,563,
an increase in interest expense of $12,514, an increase in interest income of
$906, a decrease in income taxes of $6,123, and the extraordinary charge for
early repayment of debt, net of tax benefit,
39
of $7,750. Income before extraordinary loss in Fiscal 1996 was $8,293, a
decrease of $11,616, or 58.3%, as compared to Fiscal 1995.
Unaudited Pro Forma Results of Operations
The following reflects the unaudited pro forma consolidated results of
operations as if the offering of the 9 3/4% Debentures and the application of
net proceeds (including the Acquisitions, the acquisition of the Anniston
Option and the acquisition of the Anniston LMA) had occurred at the beginning
of the respective periods.
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------
PERCENTAGE
1995 1996 CHANGE
--------------- --------------- ----------
Operating revenues, net........ $ 162,300 $ 164,933 1.6 %
Total operating expense........ 105,818 116,774 10.4 %
Operating income............... 56,482 48,159 (14.7)%
Income taxes................... 8,146 5,717 (29.8)%
Income before extraordinary
item.......................... 9,679 4,204 (56.6)%
Net income..................... 1,929 (3,546) (283.8)%
Assuming that the offering of the 9 3/4% Debentures and the application of
net proceeds thereof occurred at the beginning of Fiscal 1995, net operating
revenues for Fiscal 1996 stated on an unaudited pro forma basis would have
totaled $164,933, an increase of $2,633, or 1.6%, as compared to Fiscal 1995
on an unaudited pro forma basis. This increase is attributable to a $2,506, or
1.8%, increase in net operating revenue excluding the New Stations and a $126,
or .5% increase in operating revenue from the New Stations. Total operating
expenses for Fiscal 1996 stated on an unaudited pro forma basis totaled
$116,774, an increase of $10,956, or 10.4%, over the unaudited pro forma
Fiscal 1995 level. This increase was directly attributable to the increased
operating expenses of $7,557, or 9.0%, excluding the New Stations, and $3,399,
or 15.4%, for the New Stations. The increase in operating expenses was
principally due to increases in programming costs, salaries and wages, news
research costs, set design costs, consulting and charitable contributions at
existing stations as well as costs associated with implementing the Company's
operating strategy related to the Anniston LMA and the Acquisitions. Increases
in operating expenses at the New Stations related primarily to salaries and
wages of new employees hired and other costs associated with establishing and
operating the new Birmingham facility.
Operating income for Fiscal 1996, stated on an unaudited pro forma basis,
totaled $48,159, a decrease of $8,323, or 14.7%, compared to Fiscal 1995
stated on an unaudited pro forma basis. The decrease in operating income is
attributable to the factors causing the increase in unaudited pro forma
operating revenues and expenses as previously discussed. The net loss for
Fiscal 1996 stated on an unaudited pro forma basis was $3,546, a decrease of
$5,475, or 283.8%, as compared to Fiscal 1995 stated on an unaudited pro forma
basis. The decrease was principally attributable to the factors discussed
above.
Balance Sheet
Significant balance sheet fluctuations from September 30, 1995 to September
30, 1996 consist of increased cash and cash equivalents, accounts receivable,
program rights, program rights payable, property, plant and equipment,
intangible assets, deferred financing costs, accounts payable, accrued
expenses, accrued interest payable and long-term debt, offset by decreases in
current notes payable. The increases in program rights and program rights
payable are the result of new program rights and program contracts assumed in
the Acquisitions. Distributions to owners increased due primarily to cash
advances made during Fiscal 1996 offset by an $18,371 non-cash dividend
declared by WSET and WCIV. The other changes are primarily the result of the
Acquisitions, the offering of the 9 3/4% Debentures, and new capital leases to
fund capital expenditures, primarily in Birmingham, Alabama.
40
LIQUIDITY AND CAPITAL RESOURCES
Cash Provided by Operations
The Company's primary source of liquidity is cash provided by operations and
borrowings under its Senior Credit Facility. Cash and cash equivalents
decreased $2,645 from September 30, 1997 to December 31, 1997, principally
resulting from net cash used in operations of $1,133, net capital expenditures
of $2,561 and net distributions to owners of $8,012, offset by a $9,300
increase in borrowings under the Senior Credit Facility. Cash used in
operations was primarily a result of net income plus depreciation and
amortization, offset by other changes in assets and liabilities, primarily an
increase in accounts receivable.
Cash and cash equivalents decreased $4,687 from September 30, 1996 to
September 30, 1997, principally resulting from net cash provided by operations
of $15,551 and a $10,600 increase in borrowings under the Senior Credit
Facility, offset by net capital expenditures of $12,140, the additional
payment under the Anniston Option of $5,348 and net distributions to owners of
$12,904. Cash provided by operations was primarily a result of net income plus
depreciation and amortization of $19,652, offset by other changes in assets
and liabilities, primarily an increase in accounts receivable, program rights,
deferred income taxes and accounts payable.
Cash and cash equivalents increased $8,292 from September 30, 1995 to
September 30, 1996, principally from net cash provided by operations of
$28,370, proceeds from the issuance of debt of $285,725, offset by net capital
expenditures of $20,838, the amounts paid for the Acquisitions and the
Anniston Option of $145,656, deferred financing costs of $7,605, a prepayment
penalty on early repayment of debt of $12,934, repayment of debt of $85,365
and net distributions to owners of $34,612. Cash provided by operations was
primarily a result of net income plus depreciation and amortization of
$10,257, an extraordinary loss on early repayment of debt (net of tax benefit)
of $7,750 and by other changes in assets and liabilities, primarily an
increase in accounts payable, accrued interest payable and program rights
payable. Depreciation and amortization, program rights payable, and accounts
payable increased predominantly due to the Acquisitions. The increase in
accrued interest payable is principally due to the higher debt balance
resulting from the issuance of the $275,000 9 3/4% Debentures during Fiscal
1996.
Distributions to Related Parties
The Company periodically makes advances in the form of distributions to
Perpetual. Prior to the Contribution, WSET and WCIV made cash advances to
Westfield. For Fiscal 1995, 1996, 1997 and the three months ended December 31,
1997, the Company made cash advances net of repayments to these related
parties of $28,711, $39,882, $12,904 and $10,073, respectively. In addition,
during Fiscal 1995 and 1996 and during the three months ended December 31,
1997, the Company was charged for federal income taxes by Perpetual and
Westfield and distributed certain tax benefits to Westfield totaling $11,930,
$836 and $2,061, respectively. During Fiscal 1997, the Company generated a
benefit from federal income taxes of $691. 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. In conjunction with the Contribution, WSET and WCIV declared non-
cash dividends in Fiscal 1996 to Westfield totaling $18,371 which represented
the cumulative net advances made to Westfield by WSET and WCIV prior to the
Contribution. As a result, the net change in distributions to related parties
during such periods were $16,781, $20,675, $12,904 and $8,012, respectively.
The advances to these related parties 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 the
ability of the Company 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 the Company's Consolidated Financial
Statements.
41
During Fiscal 1991, the Company made a $20,000 11.06% loan to Allnewsco.
This amount has been reflected in the Company's Consolidated Financial
Statements on a consistent basis with other distributions to owners. The loan
has stated repayment terms consisting of annual principal installments of
approximately $2,200 commencing January 1997 through January 2005 and payments
of interest semi-annually. During Fiscal 1997, the Company deferred the first
annual principal installment payment. The Company is currently renegotiating
the note to extend the maturity date to January 2008 and defer all principal
installments until maturity, with the principal balance also due upon demand.
Interest payments on the loan have been made in accordance with the terms of
the note, and the Company expects it will continue to receive such payments on
a current basis. To date, interest payments from Allnewsco have been funded by
advances from Perpetual to Allnewsco. The Company anticipates that such
payments will be funded in a similar manner for the foreseeable future.
However, there can be no assurance that Allnewsco will have the ability to
make such interest payments in the future.
Under the terms of the Company's borrowing agreements, future advances,
distributions and dividends to related parties are subject to certain
restrictions. The Company anticipates that, subject to such restrictions, the
Company will make distributions and loans to related parties in the future.
Indebtedness
On January 22, 1998, the Company completed a $150,000 offering of its 8 7/8%
Senior Subordinated Notes due 2008. The cash proceeds of the offering, net of
offering expenses, of approximately $146,000 will be used to redeem the
Company's 11 1/2% Debentures with the balance used to repay certain amounts
outstanding under the Company's Senior Credit Facility. A notice of redemption
has been issued for the redemption of the 11 1/2% Debentures on March 3, 1998.
The Company's total debt, including the current portion of long-term debt,
increased from $415,722 at September 30, 1997 to $425,095 at December 31,
1997. This debt, net of applicable discounts, consists of $273,848 of 9 3/4%
Debentures, $122,768 of 11 1/2% Debentures, $6,479 of capital lease
obligations and $22,000 under the Senior Credit Facility. The increase of
$9,373 in total debt from September 30, 1997 to December 31, 1997 is primarily
due to a $9,300 increase in amounts outstanding under the Senior Credit
Facility to fund working capital. The Company's Senior Credit Facility is
secured by the pledge of stock of the Company and its subsidiaries and matures
April 16, 2001.
Under the existing borrowing agreements, the Company agrees to abide by
restrictive covenants that place limitations upon payments of cash dividends,
issuance of capital stock, investment transactions, incurrence of additional
obligations and transactions with affiliates. In addition, the Company must
maintain specified levels of operating cash flow and working capital and
comply with other financial covenants. As of December 31, 1997, the Company
was in compliance with these financial covenants.
Other Uses of Cash
During Fiscal 1995, 1996, 1997 and the three months ended December 31, 1997,
the Company made $2,777, $20,838, $12,140 and $2,561, respectively, of capital
expenditures. The increase in capital expenditures in Fiscal 1996 and 1997 was
principally attributable to facility construction and equipment purchases in
Alabama associated with the consolidation of the operations of WCFT and WJSU
and the purchase of a corporate aircraft in Fiscal 1997. Capital expenditures
in the normal course of business are financed from cash flow from operations
or with capitalized leases and are primarily for the acquisition of technical
equipment and vehicles to support operations. The Company anticipates that
capital expenditures for Fiscal 1998 will approximate $12,000, including
approximately $3,000 to enable WJLA to simultaneously broadcast its
programming over its second channel authorized to transmit a digital
television signal. The amount may increase or decrease depending upon changes
in channel allocation or changes to the digital television implementation
strategy. Management expects that the source of funds for these anticipated
capital expenditures will be cash provided by operations and capitalized
leases. The Company has a $10,000 annually renewable lease credit facility for
the purpose of financing capital expenditures under capitalized leases. The
equipment under lease is at interest rates which vary
42
according to the lessor's cost of funds. This facility expires on March 1,
1998 and is renewable annually on mutually satisfactory terms. The Company
currently intends to renew this facility. At December 31, 1997, $6,479 was
outstanding under this lease credit facility.
The Company regularly enters 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 1995, 1996 and 1997 and the three months ended December 31, 1997, the
Company made cash payments of approximately $14,000, $15,700, $19,500 and
$3,500, respectively, for rights to television programs. The Fiscal 1997
amount includes the approximate $2,000 non-recurring program expense resulting
from the Company's early termination of a program contract. As of September
30, 1997, the Company had commitments to acquire further program rights
through September 30, 2002 totaling $44,099 and anticipates cash payments for
program rights will approximate $16,000 per year for the foreseeable future.
The Company currently intends to fund these commitments with cash provided by
operations.
The Company has begun an evaluation to ensure that its critical information
systems and technology are "Year 2000 compliant." "Year 2000 compliant" refers
to information systems and technology that accurately process date/time data
(including calculating, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries and, in particular, the years 1999 and
2000. The Company has and will continue to make certain investments in its
software systems and applications as a result of this evaluation. While no
current estimate is available, the total cost of ensuring "Year 2000
compliant" systems is not anticipated to have a material effect on the
Company's consolidated financial condition or results of operations.
Based upon the Company's current level of operations, management believes
that available cash, together with available borrowings under the Senior
Credit Facility and lease credit facility, will be adequate to meet the
Company's anticipated future requirements for working capital, capital
expenditures and scheduled payments of interest on its debt for the next
twelve months.
ACC's cash flow from operations and consequent ability to service its debt,
including the Notes and the Exchange Notes, 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, 1997, 78% of the
assets of ACC were held by operating subsidiaries and for Fiscal 1997 and for
the three months ended December 31, 1997, approximately 50% of ACC's net
operating revenues were derived from the operations of ACC's subsidiaries. See
"Risk Factors--Holding Company Structure; Dependence on Subsidiaries for
Repayment of the Exchange Notes."
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.
Taxes payable to Perpetual are not reduced by losses generated in prior years
by the Company. In addition, the amount payable by the Company to Perpetual
under the tax sharing agreement is 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 income tax return.
A District of Columbia income tax return is filed by the Company and
separate state income tax returns are filed by the Company's subsidiaries,
except for WSET. The operations of WSET are included in a combined state
income tax return filed with other affiliates. WSET's state income tax
liability is not reduced if losses of the affiliates are used to offset the
taxable income of WSET for purposes of the combined state income tax return.
The provision for income taxes is determined in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which requires that the consolidated amount of
43
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 and, prior to the Contribution,
Westfield, allocated a portion of their respective 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 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 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 the Company's consolidated financial condition
and consolidated results of operations for each of the periods presented was
not material.
NEW ACCOUNTING STANDARDS
Statements of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" were issued during the year ended
September 30, 1997. These statements, which become effective during the
Company's Fiscal 1999, address presentation and disclosure matters and will
have no impact on the Company's financial position or results of operations.
44
BUSINESS
TELEVISION INDUSTRY BACKGROUND
Commercial television broadcasting began in the United States on a regular
basis in the 1940s. Currently, there are 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 advertising and, to a much lesser extent, from network compensation,
revenues from studio rental and commercial production activities. Advertising
rates are set based upon a variety of factors, including a program's
popularity among viewers whom an advertiser wishes to attract, the number of
advertisers competing for the available time, the size and demographic makeup
of the market served by the station and the availability of alternative
advertising media in the market area. Advertising rates are also determined by
a station's overall ability to attract viewers in its market area, as well as
the station's ability to attract viewers among particular demographic groups
that an advertiser may be targeting. 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 211 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 the Company conducts
business, Washington, D.C. is a metered market while the remaining markets are
weekly diary markets. Nielsen has indicated, however, that the Birmingham
market will become metered in the Fall of 1998.
Historically, three major broadcast networks--ABC, NBC and CBS--dominated
broadcast television. In recent years, FOX has effectively 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 and WB recently have been launched as new
television networks.
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
45
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 are
becoming 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 or WB 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 or WB 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 achieves 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.
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 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 ("DBS") 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. At present, the nature of DBS service permits primarily national
programming but in selected markets, including Washington, D.C., a satellite
company is retransmitting locally originated programs and advertising back to
the originating local markets.
46
The Company believes that the market shares of television stations
affiliated with ABC, NBC and CBS declined during the 1980s primarily because
of the emergence of FOX and certain strong independent stations and
secondarily 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 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 will enable broadcasters to migrate 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 recently
authorized a transition plan to convert existing analog stations to digital by
temporarily authorizing a second channel to transmit programming digitally
with the return of the analog channel after the transition period. See "Risk
Factors--Television Industry; Competition and Technology."
STATION INFORMATION
The Company owns and/or operates ABC network affiliated television stations
serving seven diverse geographic markets, ranging from the 7th to the 117th
largest DMA in the United States. The following table sets forth general
information for each of the Company's owned and/or operated stations as of
November 1997:
TOTAL
MARKET COMMERCIAL STATION RANK
DESIGNATED NETWORK CHANNEL RANK OR COMPETITORS AUDIENCE IN ACQUISITION
MARKET AREA STATION AFFILIATION FREQUENCY DMA(1) IN MARKET(2) SHARE(3) MARKET(4) DATE
----------- ------- ----------- --------- ------- ------------ -------- --------- -----------
Washington, D.C. ....... WJLA ABC 7/VHF 7 6 24% 1 01/29/76
Harrisburg-Lancaster-
York-
Lebanon, PA............ WHTM ABC 27/UHF 45 5 26% 2 03/01/96
Little Rock, AR......... KATV ABC 7/VHF 56 5 34% 1 04/06/83
Tulsa, OK............... KTUL ABC 8/VHF 58 5 30% 2 04/06/83
Lynchburg-Roanoke, VA... WSET ABC 13/VHF 68 4 25% 2 01/29/76(5)
Charleston, SC.......... WCIV ABC 4/VHF 117 5 20% 3 01/29/76(5)
Birmingham, AL(6)....... WBMA-LP ABC 58/UHF 51 5 -- -- 08/01/97
Tuscaloosa, AL.......... WCFT ABC 33/UHF 187 2 68% 1 03/15/96
Anniston, AL(7)......... WJSU ABC 40/UHF 201 2 67% 1 --
- --------
(1) Represents market rank based on the Nielsen Station Index for November
1997.
(2) Represents the total number of commercial broadcast television stations in
the DMA with an audience rating of at least 1% in the 7:00 a.m. to 1:00
a.m., Sunday through Saturday, time period.
(3) Represents the station's share of total viewing of commercial broadcast
television stations in the DMA.
(4) Represents the station's rank in the DMA based on its share of total
viewing of commercial broadcast television stations in the DMA.
(5) 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.
(6) TV Alabama serves the Birmingham market by simultaneously broadcasting
identical programming over WBMA-LP, WCFT and WJSU (which TV Alabama
programs pursuant to the Anniston LMA). The market rank figures reflect
only the Birmingham market. The total commercial competitors in market
figures exclude WBMA-LP, because it is a low power television station. The
combined station audience share of commercial television viewership of
WBMA-LP, WCFT and WJSU in the Birmingham DMA is 19%. This calculation is
based on an 11% share for the combination of WBMA-LP, WCFT and WJSU
divided by the 59% commercial television viewership share within the DMA
at November 1997.
(7) Programmed Station.
47
BUSINESS AND OPERATING STRATEGY
The Company's business strategy is to focus on building net operating
revenues and net cash provided by operating activities. During Fiscal 1996,
the Company and its subsidiaries consummated several transactions that
expanded their broadcast holdings. The Company acquired an 80% interest in the
assets and certain liabilities of WHTM and WCFT. The Company, through an 80%-
owned subsidiary, also entered into a LMA to program, for a period of ten
years, WJSU, licensed to Anniston, Alabama. In addition, WSET and WCIV became
wholly-owned subsidiaries of ACC through the Contribution.
The Company intends to pursue selective acquisition opportunities as they
arise. The Company's acquisition strategy is to target network-affiliated
television stations where it believes it can successfully apply its operating
strategy and where such stations can be acquired on attractive terms. Targets
include midsized growth markets with what the Company believes to be
advantageous business climates. Although the Company continues to review
strategic investment and acquisition opportunities, no agreements or
understandings are currently in place regarding any material investments or
acquisitions.
In addition, the Company constantly seeks to enhance net operating revenues
at a marginal incremental cost through its 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 66 radio stations in four states.
The Company's operating strategy focuses on four key elements:
Local News and Community Leadership. The Company's stations are local news
leaders and exploit the revenue potential associated with local news
leadership. Since the acquisition of each station, the Company has focused on
building that station's local news programming franchise as the foundation for
building significant audience share. In each of its market areas, the Company
develops 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, management believes 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. The Company's 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 the Company 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.
Local Sales Development Efforts. The Company believes 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 the Company's
stations has developed such additional products, including high quality
programming of local interest (such as University of Arkansas football and
basketball games, Washington Redskins pre-season football games and related
shows) 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
48
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. Management believes that controlling costs is an essential
factor in achieving and maintaining the profitability of its stations. The
Company believes that by delivering highly targeted audience levels and
controlling programming and operating costs, the Company's stations can
achieve increased levels of revenue and operating cash flow. As the provider
of ABC network programming in each of its market areas, the Company has
entered into long-term stable affiliation agreements. Further, each station
rigorously manages its expenses through project accounting, a budgetary
control process which includes daypart revenue analysis and expense analysis.
Moreover, each of the stations closely monitors its staffing levels. As part
of the planned development of the Birmingham station during Fiscal 1996 and
1997, the Company has made a continuing investment in the start-up operations,
including staffing, programming, marketing and promotional activities.
OWNED AND/OR OPERATED STATIONS
WJLA: Washington, D.C.
Acquired by the Company 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 seventh largest
DMA, with approximately 1,928,000 television households. The Company believes
that this position historically permitted stations in this market to earn
higher advertising rates than its other owned and operated stations 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 market is served by six commercial television stations.
Approximately 46% of WJLA's 24-hours of daily broadcasting time consists of
programming that is either locally produced or purchased from non-network
sources.
WHTM: Harrisburg-Lancaster-York-Lebanon, Pennsylvania
Acquired by the Company 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, 1999. Harrisburg, Pennsylvania, which consists of
nine contiguous counties located in central Pennsylvania, is the 45th largest
DMA, reaching approximately 588,000 television households. Harrisburg is the
capital of Pennsylvania, and the government represents the area's largest
employer. The Harrisburg market is served by five commercial television
stations, one of which is a VHF station. Approximately 42% of WHTM's 24-hours
of daily broadcasting time consists of programming that is either locally
produced or purchased from non-network sources.
KATV: Little Rock, Arkansas
Acquired by the Company 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 481,000 television households. The Little Rock market
has a diversified economy, both serving as the seat of state and local
government and housing a significant concentration of businesses in the
medical services, transportation and insurance industries. The Little Rock
market is served by five commercial television stations. Approximately 40% of
KATV's 24-hours of daily broadcasting time consists of programming that is
either locally produced or purchased from non-network sources.
Capitalizing on its exclusive rights to the University of Arkansas
basketball and football schedules through the year 2000, KATV launched ARSN in
Fiscal 1994 by entering into programming sublicense agreements with a network
of 66 radio stations in four states. Pay-per-view and home video rights are
also controlled by ARSN.
KTUL: Tulsa, Oklahoma
Acquired by the Company 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, 1998. The application for renewal of
49
the FCC license will be submitted by February 1, 1998. Tulsa, Oklahoma is the
58th largest DMA, with approximately 468,000 television households. Because of
the demographic characteristics of the Tulsa DMA, the Company believes many
advertisers consider it an excellent national test market. Consequently, it
believes KTUL derives incremental advertising revenues from advertisers
seeking to test-market new products. The Tulsa market is served by six
commercial television stations. Approximately 50% of KTUL's 24-hours of daily
broadcasting time consists of programming that is either locally produced or
purchased from non-network sources.
WSET: Roanoke-Lynchburg, Virginia
Acquired by the Company in 1996 through the Contribution, WSET is an ABC
network affiliate pursuant to an affiliation agreement that expires on July
31, 2005. The Station's FCC license expires on October 1, 2004. The hyphenated
central Virginia market comprised of Lynchburg, Roanoke and Danville is the
68th largest DMA, with approximately 402,000 television households.
Lynchburg's economy includes high-tech manufacturing, cellular communications,
nuclear energy and machinery. Danville's chief industries include textiles,
tobacco processing, wood products and tire manufacturing. Roanoke is one of
Virginia's largest metropolitan regions and a hub of transportation, finance
and industry for the southwestern part of the state. The Lynchburg DMA is
served by four commercial television stations. Approximately 52% of WSET's 24
hours of daily broadcasting time consists of programming that is either
locally produced or purchased from non-network sources.
WCIV: Charleston, South Carolina
Acquired by the Company in 1996 through the Contribution, WCIV is an ABC
affiliate pursuant to an affiliation agreement that expires on August 20,
2006. The Station's FCC license expires on December 1, 2004. Charleston, South
Carolina is the 117th largest DMA, with approximately 215,000 television
households. Charleston's resurgent port economy has undergone significant
change during the past five years, achieving economic diversification.
Spending by the Department of Defense, however, is expected to continue to
represent a significant portion of the local economy. Tourism has stabilized
as the largest nonmilitary related industry, with about 7.5 million visitors
annually and 40,000 related jobs, followed by medical services and government.
The Charleston DMA is served by five commercial television stations.
Approximately 56% of WCIV's 24 hours of daily broadcasting time consists of
programming that is either locally produced or purchased from non-network
sources.
WBMA-LP/WCFT/WJSU: Birmingham/Tuscaloosa/Anniston, Alabama
The Company acquired WCFT in March 1996 and commenced programming of WJSU
pursuant to the Anniston LMA in December 1995. The Anniston LMA expires on
December 29, 2005. Both stations are ABC affiliates pursuant to an affiliation
agreement that expires on September 1, 2006. The FCC licenses for both
stations expire on April 1, 2005. The Company also owns a low power television
station licensed to Birmingham, Alabama (WBMA-LP). Birmingham, Alabama is the
51st largest DMA, encompassing approximately 546,000 television households.
Nielsen has given preliminary indications that it will collapse the Tuscaloosa
DMA (187th largest with approximately 59,000 television households) and the
Anniston DMA (201st largest with approximately 43,000 television households)
into the Birmingham DMA in the Fall of 1998. The resulting DMA would be the
39th largest with approximately 627,000 television households. The combined
markets of Birmingham, Tuscaloosa and Anniston are served by eight commercial
television stations, accounting for the Company's stations as one station.
In connection with the Anniston LMA, the Company entered into the Anniston
Option. The cost of the Anniston Option was $15,348,000 and it is exercisable
for additional consideration of $3,337,000. Exercise of the Anniston Option is
subject to certain conditions, including a change in FCC rules or a waiver
permitting common ownership of WCFT and WJSU. See "Legislation and
Regulation."
50
The Company serves the combined Birmingham/Tuscaloosa/Anniston market by
simultaneously transmitting identical programming from its studio in
Birmingham over both WCFT and WJSU. The stations are
listed on a combined basis by Nielsen as WBMA. TV Alabama has constructed new
studio facilities in Birmingham for the programming of both stations. The
Company has retained a news and sales presence in both Tuscaloosa and
Anniston, while at the same time maintaining its primary news and sales
presence in Birmingham. Approximately 35% of TV Alabama's 24 hours of daily
broadcasting time consists of programming that is either locally produced or
purchased from non-network sources.
NETWORK AFFILIATION AGREEMENTS AND RELATIONSHIP
WJLA, KATV, KTUL, WSET, WCIV, WHTM and WCFT/WJSU/WBMA-LP are ABC network
affiliates: their current affiliation agreements expire October 1, 2005, July
31, 2005, July 31, 2005, July 31, 2005, August 20, 2006, January 1, 2005, and
September 1, 2006, respectively. ABC has routinely renewed the affiliation
agreements with these stations; however, there can be no assurance that these
affiliation agreements will be renewed in the future. See "Risk Factors--
Network Affiliation." Continuation of ABC's affiliation agreement with WCFT
and WJSU is conditioned on WJSU's continuing to be programmed by ACC under the
Anniston LMA for the duration of the affiliation agreement. Changes by
Congress or by the FCC in the current regulatory treatment of LMA's for
television stations could have a material adverse effect on the Anniston LMA
which, in turn, could jeopardize the Company's ABC network affiliation in the
Birmingham, Tuscaloosa and Anniston markets. See "Risk Factors--Potential FCC
Regulation of Local Marketing Agreements." As one of the largest group owners
of ABC network affiliates in the nation, ACC believes it enjoys excellent
relations with the ABC network.
Generally, each affiliation agreement provides the Company's 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.
COMPETITION
Competition in the television industry, including each of the market areas
in which the Company's 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, 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 the Company's operations.
Audience: Stations compete for audience on the basis of program popularity,
which has a direct effect on advertising rates. A majority of the Company's
daily programming 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 other
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
51
serving as a distribution system for programming originated on the cable
system. Historically, cable operators have not sought to compete with
broadcast stations for a share of the local news audience. To the extent cable
operators elect to do so, their increased competition for local news audiences
could have an adverse effect on the Company's 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 and in-home satellite services. The Company's
television stations also face competition from high-powered direct broadcast
satellite services, such as DIRECT-TV, which transmit programming directly to
homes equipped with special receiving antennas or to cable television systems
for transmission to their subscribers.
Further advances in technology may 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. 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. The Company is unable to predict the effect that
technological changes will have on the broadcast television industry or the
future results of the Company's operations.
Programming: Competition for programming involves negotiating with national
program distributors or syndicators which sell first-run and rerun packages of
programming. The Company's stations compete against in-market broadcast station
competitors for off-network reruns (such as "Home Improvement") and first-run
product (such as "The Oprah Winfrey Show") for exclusive access to those
programs. 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. Competition for exclusive news stories and features is also endemic to
the television industry.
Advertising: Advertising rates are based upon the size of the market area in
which a station operates, the program's popularity among the viewers an
advertiser wishes to attract, the number of advertisers competing for the
available time, the demographic makeup of the market area served by the
station, the availability of alternative advertising media in the market area,
an aggressive and knowledgeable sales forces and the development of projects,
features and programs that tie advertiser messages to programming. The
Company's television stations compete for 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. The Company's 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. Matters subject to FCC
oversight include, but are not limited to, 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.
52
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 generally had been granted
for maximum terms of five years until the Telecommunications Act extended
license terms to eight years. 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
("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.
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, there can be no
assurance that each of the Company's broadcast licenses will be renewed in the
future. All of the stations' existing licenses were renewed for full five or
eight-year terms and are currently in effect. See "Risk Factors--Regulatory
Matters."
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. In addition, most broadcast licensees, including the
Company's licensees, must develop and implement equal employment opportunity
programs and must submit reports to the FCC with respect to these matters on an
annual basis and in connection with a license renewal application. The FCC also
has adopted rules that place additional obligations on television station
operators for maximum amounts of advertising and minimum amounts of programming
specifically targeted for children as well as additional public information and
reporting requirements.
Digital Television: The FCC has adopted rules for implementing 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 proposal, 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. Implementation
of DTV service may impose additional costs on television stations providing
the new service, due to increased equipment costs, and may affect the
competitive nature of the market areas in which the Company operates if
competing stations adopt and implement the new technology before the Company's
stations. 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.
Ownership Matters: The Communications Act contains a number of restrictions
on the ownership and control of broadcast licenses. Together with the FCC's
rules, it places limitations on alien ownership; common ownership of
broadcast, cable and newspaper properties; and ownership by those persons not
having the requisite "character" qualifications and those persons holding
"attributable" interests in the license.
53
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
television multiple ownership local contour overlap rule, the "Duopoly" rule,
generally prohibits ownership of attributable interests by a single entity in
two or more television stations which serve the same geographic market area.
The Telecommunications Act directs the FCC to reevaluate its local ownership
rules to consider potential modifications permitting ownership of more than
one station in a market area. The FCC has proposed to redefine the market area
for purposes of the Duopoly rule from a station's "Grade B" contour to its DMA
so long as there is no "Grade A" overlap in signals of the two stations. The
FCC also seeks comment on whether ownership of two UHF stations or a UHF/VHF
combination should be permissible.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. When
applying its multiple ownership or cross-ownership rules, the FCC generally
attributes the interests of corporate licensees to the holders of corporate
interests as follows: (i) any voting interest amounting to five percent or
more of the outstanding voting power of the corporate broadcast licensee
generally will be attributable; (ii) in general, no minority voting stock
interests will be attributable if there is a single holder of more than fifty
percent of the outstanding voting power of a corporate broadcast licensee and
(iii) in general, certain investment companies, insurance companies and banks
holding stock through their trust departments in trust accounts will be
considered to have an attributable interest only if they hold ten percent or
more of the outstanding voting power of a corporate broadcast licensee.
Furthermore, corporate officers and directors and general partners and
uninsulated limited partners of partnerships are personally attributed with
the media interests of the corporations or partnerships of which they are
officers, directors or partners. In the case of corporations controlling
broadcast licenses through one or more intermediate entities, similar
attribution standards generally apply to stockholders, officers and directors
of such corporations.
The FCC is conducting rulemaking proceedings to determine whether it should
relax its rules to facilitate greater minority and female ownership of
broadcasting facilities and whether it should modify its rules by (i)
restricting the availability of the single majority shareholder exemption,
(ii) attributing certain interests such as non-voting stock, debt and holdings
in limited liability companies and (iii) changing the attribution benchmarks.
The Company cannot predict the outcome of these proceedings or how they will
affect the Company's business. In light of the FCC's multiple ownership and
cross-ownership rules, an individual or entity that acquires an attributable
interest in the Company 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 the Company violates any of these ownership rules, the Company 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.
Under its "cross-interest policy," the FCC considers certain "meaningful"
relationships among competing media outlets in the same market, even if the
FCC's ownership rules do not specifically prohibit these relationships. Under
this policy, the FCC may consider significant equity interests combined with
an attributable interest in a media outlet in the same market, joint ventures
and common key employees among competitors. The cross-interest policy does not
necessarily prohibit all of these interests but requires that the FCC consider
whether, in a particular market, the "meaningful" relationships among
competitors could have a significant adverse effect upon economic competition
or program diversity. Neither the Company nor, to the best of the Company's
knowledge, any officer, director or shareholder of the Company holds an
interest in another radio or television station, cable television system or
daily newspaper that is inconsistent with the FCC's ownership rules and
policies.
Related to the Duopoly rule, the FCC has proposed the adoption of rules that
would modify the current treatment of the control and ownership attribution
with respect to LMAs entered into by television stations. The FCC proposes
that time brokerage of any other television station in the same market for
more than fifteen percent
54
of the brokered station's weekly broadcast hours would result in counting the
brokered station toward the brokering licensee's national and local multiple
ownership limits. The FCC has proposed that LMAs in existence prior to
November 6, 1996 be grandfathered for the length of their terms so as not to
place owners of stations in violation of the rules if such owners also program
another station pursuant to such LMAs. Although the Company cannot predict the
outcome of this proceeding, if the local multiple ownership rules are not
relaxed as proposed, attribution could preclude television LMAs in any market
where the time broker owns or has an attributable interest in another
television station. Changes by the FCC in its current policy regarding LMAs
for television stations could potentially have a material adverse effect on
the Anniston LMA, which, in turn, could jeopardize the Company's ABC network
affiliation in the Birmingham, Tuscaloosa and Anniston markets. See "Risk
Factors--Potential FCC Regulation of Local Marketing Agreements."
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 the Company
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 the
Company operates.
Other Legislation: Finally, 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 the Company's broadcast stations,
result in the loss or gain of audience share and advertising revenues for the
Company's stations and/or affect the ability of the Company to acquire or
finance additional broadcast stations.
EMPLOYEES
As of December 31, 1997, the Company employed in full-time positions 816
persons, including 196 at WJLA, 115 at KATV, 110 at KTUL, 106 at WHTM, 119 at
WCFT/WJSU/WBMA, 87 at WSET, 70 at WCIV and 13 in its corporate office. Of the
employees at WJLA, 94 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 AFTRA
contract was renegotiated effective June 1, 1996 through September 30, 1999.
The DGA contract was renegotiated effective July 16, 1996 through January 16,
2000. The NABET/CWA contract expired June 1, 1995. Members of this union have
been working without a contract since that time. WJLA management is in the
process of negotiating a new contract and anticipates resolving the
outstanding issues without any material adverse impact to the station. No
employees of the Company's other owned and/or operated stations are
represented by unions. The Company believes its relations with its employees
are satisfactory.
PROPERTIES
The Company maintains its 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.
KATV's broadcast tower, which met non-governmental wind-loading standards
when built, does not meet the current guidelines for wind-loading on broadcast
towers adopted in 1992. Because standards were modified
55
subsequent to the tower construction, KATV's tower is "grandfathered" under
the prior guidelines. Engineering studies, however, indicate that the tower
may be significantly overstressed under the revised guidelines, particularly
at sustained winds of 70 miles per hour and at risk of failing in such
sustained winds. KATV has taken steps to limit access to the area around the
tower and to avoid work on the tower during windy conditions. KATV is in the
process of making structural modifications to the tower and estimates that it
will cost approximately $450 to bring the tower within current guidelines. The
owner of KETS-TV, which has an antenna on the tower, has received a grant from
the National Telecommunications and Information Administration in the
Department of Commerce for matching funds to help offset the costs of tower
modification. In the event the tower failed prior to completion of structural
modifications, KATV would seek to continue transmission by direct fiber feeds
to cable television systems and temporary leased space on another neighboring
broadcast tower, although there can be no assurance that such an alternative
would be available at such time.
The following table describes the general characteristics of the Company's
principal real property:
APPROXIMATE LEASE EXPIRATION
FACILITY MARKET/USE OWNERSHIP SIZE DATE
-------- -------------------- ------------- --------------- ----------------
WJLA.................... Washington, D.C.
Office/Studio Leased 88,828 sq. ft. 11/31/03
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. 10/31/00
KATV.................... Little Rock, AR
Office/Studio Owned 20,500 sq. ft. N/A
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 Leased 1 acre 5/30/05
WSET.................... Lynchburg, VA
Office/Studio Owned 15,500 sq. ft. N/A
Tower/Transmitter Owned 2,700 sq. ft. N/A
WCIV.................... Mt. Pleasant, SC
Office/Studio Owned 21,700 sq. ft. N/A
Tower/Transmitter Leased 2,000 sq. ft. 8/31/06
WCFT/WJSU(1)............ Birmingham, AL
Office/Studio Leased 26,357 sq. ft 9/30/06
Satellite Dish Farm Leased 0.5 acres 9/30/06
Tower/Relay-Pelham Leased .08 acres 10/31/01
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(2)
Office/Studio Leased 7,273 sq. ft. 6 months notice
Tower-Blue Mtn. Owned 1.7 acres N/A
Gadsden Office Leased 1,000 sq. ft. Monthly
Tower-Bald Rock Leased 1 acre 8/29/16
- --------
(1) TV Alabama uses the pre-existing facilities of WCFT and WJSU to operate
news and sales bureaus in the Tuscaloosa and Anniston market areas.
(2) Although TV Alabama is currently programming these properties under the
Anniston LMA, Flagship Broadcasting, Inc. is the owner and lessee.
56
LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business, including suits based on
defamation. The Company is not currently a party to any lawsuit or proceeding
which, in the opinion of management, if decided adverse to the Company, would
be likely to have a material adverse effect on the Company's consolidated
financial condition, results of operations or cash flows.
ENVIRONMENTAL MATTERS
The Company is subject to changing federal, state and local environmental
standards, including those governing the handling and disposal of solid and
hazardous wastes, discharges to the air and water and the remediation of
contamination associated with releases of hazardous substances.
In particular, the Company is subject to liability under the Comprehensive
Environmental Response, Compensation and Liability Act, the Resource
Conservation and Recovery Act and analogous state laws for the investigation
and remediation of environmental contamination at properties owned and/or
operated by it and at off-site locations where it has arranged for the
disposal of hazardous substances. Courts have determined that liability under
these laws is, in most cases, joint and several, meaning that any responsible
party could be held liable for all costs necessary for investigating and
remediating a release or threatened release of hazardous substances.
WCIV is currently involved in remediating contamination associated with
releases of hazardous substances at its transmitter site. In September 1994,
approximately 2,000 gallons of electric generator fuel spilled from an above-
ground tank on the premises of WCIV. With the assistance of environmental
consultants and under supervision of the South Carolina Department of Health
and Environmental Control ("SCDHEC"), WCIV has undertaken remediation of the
contamination by installing wells for recovery of free product and monitoring
wells. Based upon the scope of the remediation required as determined by the
environmental consultants, the Company has estimated that any remaining costs
associated with the monitoring wells and related testing are nominal. However,
there can be no assurance that SCDHEC will not require further remedial
activities.
In October 1994, the Pennsylvania Department of Environmental Resources (the
"Pennsylvania Department") notified WHTM that it should remediate soils and
groundwater believed to be adversely affected by contamination associated with
an underground tank. The station's environmental consultant has advised the
Pennsylvania Department that it appears that contamination remaining on WHTM's
property did not emanate from its underground tank, which has been removed,
but is from an offsite source and that there is no threat to human health or
the environment which requires remediation. The matter remains unresolved.
In August 1995, concentrations of certain metals including arsenic, barium,
chromium and lead in the soil of a septic leach field were discovered on the
property of WCFT. The Company has been advised that these concentrations are in
the range of background concentrations for the area. The State of Alabama is in
the process of developing cleanup standards relating to such concentrations of
metal, and it is therefore uncertain what, if any, remediation will be
necessary.
Although there can be no assurance of the final resolution of these matters,
the Company does not believe that the amount of its liability at these
properties individually, or in the aggregate, will have a material adverse
effect on the Company's consolidated financial condition, results of
operations or cash flows.
57
MANAGEMENT
Executive officers and directors of ACC are as follows:
NAME AGE(1) TITLE
---- ------ -----
Joe L. Allbritton............ 72 Chairman and Director
Barbara B. Allbritton........ 60 Vice President and Director
Lawrence I. Hebert........... 51 President, Vice Chairman and Director
Robert L. Allbritton......... 28 Executive Vice President, Chief Operating
Officer and Director
Frederick J. Ryan, Jr........ 42 Senior Vice President, Vice Chairman and
Director
Jerald N. Fritz.............. 46 Vice President, Legal and Strategic
Affairs, General Counsel
Henry D. Morneault........... 47 Vice President and Chief Financial Officer
Ray P. Grimes II............. 48 Vice President, Broadcast Operations,
Deputy Chief Operating Officer
- --------
(1) As of December 22, 1997
Joe L. Allbritton is the founder of ACC and has been Chairman of the Board
of Directors since its inception. In addition to his position with ACC, Mr.
Allbritton has served as Chairman of the Board of Riggs National Corporation
("Riggs") (owner of banking operations in Washington, D.C., Maryland,
Virginia, Florida and internationally) from 1981 to the present; Chairman of
the Board of Riggs Bank N.A. ("Riggs Bank") since 1983 and its Chief Executive
Officer since 1982; Director of Riggs Bank Europe Ltd. since 1984 and its
Chairman of the Board since 1992; Chairman of the Board and owner since 1958
of Perpetual (owner of ACC and 80% owner through Allnewsco of NewsChannel 8, a
Virginia-based cable programming service); Chairman of Allnewsco since its
inception in 1990; Chairman of the Board and owner since 1988 of Westfield;
Chairman of the Board of Houston Financial Services Ltd. since 1977; Chairman
of the Board of WSET since 1974; a Manager of KATV, KTUL and WCIV since 1997;
Chairman of the Board of Allfinco, Harrisburg TV and TV Alabama since 1995;
Chairman of the Board of AGI and Allbritton Jacksonville, Inc. ("AJI") since
1996; and a Trustee and President of The Allbritton Foundation since 1971. Mr.
Allbritton is the husband of Barbara B. Allbritton and the father of Robert L.
Allbritton.
Barbara B. Allbritton has been a Director of ACC since its inception and one
of its Vice Presidents since 1980. In addition to her position with ACC, Mrs.
Allbritton has been a Director of Riggs since 1991; a Director and Vice
President of WSET since 1976; a Vice President and Director of Perpetual since
1978; a Director of Houston Financial Services since 1977; a Director of
Allnewsco since 1990; a Trustee and Vice President of The Allbritton
Foundation since 1971; a Director of Allfinco, Harrisburg TV and TV Alabama
since 1995; a Manager of KATV, KTUL and WCIV since 1997; and a Director of AGI
and AJI since 1996. Mrs. Allbritton is the wife of Joe L. Allbritton and the
mother of Robert L. Allbritton.
Lawrence I. Hebert has been Vice Chairman of the Board of ACC since 1983,
its President since 1984 and a Director of ACC since 1981; a Director of
Perpetual since 1980 and its President since 1981; President of Westfield
since 1988; President and a Director of Westfield News Publishing, Inc. since
1991; a Director of WSET since 1982; a Manager of KATV, KTUL and WCIV since
1997; Vice Chairman of the Board of Houston Financial Services since 1977; a
Director of Allnewsco since 1989; President and a Director of ATP since 1989;
a Vice President and a Director of Allfinco since 1995; and a Director of
Harrisburg TV and TV Alabama since 1995. He has been President and a Director
of AGI and a Director of AJI since 1996. In addition, Mr. Hebert was Vice
Chairman of the Board of Riggs from 1988 to 1993, and has been a Director of
Riggs since 1988; a Director
58
of Riggs Bank Europe Ltd. since 1987; a Director of Riggs Bank from 1981 to
1988; a Director of Allied Capital Corporation (venture capital fund) since
1989; and a Trustee of The Allbritton Foundation since 1997.
Robert L. Allbritton has been Executive Vice President and Chief Operating
Officer of ACC since 1994 and a Director of ACC since 1993. He has been a
Director of Allnewsco since 1992; a Director of Riggs Bank from 1994 to 1997
and Riggs Bank Europe Ltd. since 1994; a Director of Riggs since 1994; and a
Trustee and Vice President of The Allbritton Foundation since 1992. He has
been a Director of Perpetual since 1993; President and Director of Allfinco
and Harrisburg TV since 1995; Vice President and a Director of TV Alabama
since 1995; Vice President and a Director of AGI since 1996; Vice President
and a Director of AJI since 1996 and President of KTUL since 1997. He has been
a Manager of KATV, KTUL and WCIV since 1997. He is the son of Joe L. and
Barbara B. Allbritton.
Frederick J. Ryan, Jr. has been Vice Chairman, Senior Vice President and a
Director of ACC since January 1995. He also serves as Chairman of the ACC
Acquisitions Committee. He has been Vice President of Perpetual and Florida
Television, Inc. since 1996. He previously served as Chief of Staff to former
President Ronald Reagan (1989-95) and Assistant to the President in the White
House (1982-89). 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 a Director of Ford's Theatre, Vice Chairman of the Ronald Reagan
Presidential Library Foundation and Trustee of Ronald Reagan Institute of
Emergency Medicine at George Washington University. Mr. Ryan is a member of
the Board of Consultants for Riggs Bank and a Director of Riggs Bank Europe
Ltd. in London since 1996.
Jerald N. Fritz has been a Vice President of ACC since 1987, serving as its
General Counsel and overseeing strategic planning and governmental affairs. He
also has served as a Vice President of Westfield and ATP since 1988, a Vice
President of Allnewsco since 1989 and a Vice President of 78 Inc. and Allfinco
since 1995. He has been a Vice President of AGI since 1996. From 1981 to 1987,
Mr. Fritz held several positions with the FCC, including Chief of Staff, Legal
Counsel to the Chairman and Chief of the Common Carrier Bureau's Tariff
Division. Mr. Fritz practiced law with the Washington, D.C. firm of Pierson,
Ball & Dowd, specializing in communications law from 1978 to 1981 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 legal career with
the FCC in 1976 and began his career in broadcasting in 1973 with WGN-TV,
Chicago.
Henry D. Morneault has been a Vice President of ACC since 1992 when he
joined the Company. He served as Vice President, Finance and was named Chief
Financial Officer in 1994. He is also Vice President of AJI. Prior to joining
ACC, Mr. Morneault was a Vice President with Chemical Bank specializing in
media corporate finance. Mr. Morneault had been associated with Chemical Bank
since 1979 and founded and managed its Broadcast and Cable Industries Group.
Ray P. Grimes II has been with ACC since September 1993. He was Director of
Cable Enterprises/New Business Development for ACC from April 1994 until April
1995 when he became Vice President of Broadcast Operations and Deputy Chief
Operating Officer. He has also served as the Acting General Manager for WJLA
from December 1994 until March 1995 and the Acting General Manager for WHTM
from November 1996 until February 1997. Since 1995 he has been a Vice
President of Harrisburg TV and TV Alabama. Prior to joining ACC, Mr. Grimes
was associated with United Cable/United Artist/TCI Cable from 1988 through
1993.
59
EXECUTIVE COMPENSATION
The following table sets forth compensation paid to the Company's Chief
Executive Officer and the four most highly compensated Company executive
officers for Fiscal 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE (1)
-------------------------------------------------
NAME AND FISCAL OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
------------------ ------ -------- ------- ------------ ------------
Joe L. Allbritton............ 1997 $550,000 $115,500 (2)
Chairman.................... 1996 550,000 115,500 (2)
1995 550,000 104,800 (2)
Frederick J. Ryan, Jr. (3)... 1997 150,000 4,000 (4)
Senior Vice President....... 1996 150,000 3,500 (4)
1995 109,600
Jerald N. Fritz(3) (5)....... 1997 150,000 $50,000 4,800 (4)
Vice President, Legal....... 1996 140,000 50,000 5,300 (4)
and Strategic Affairs....... 1995 128,600 50,000 3,800 (4)
Henry D. Morneault (6)....... 1997 150,000 55,000 4,900 (4)
Chief Financial Officer..... 1996 136,000 50,000 5,400 (4)
1995 126,000 50,000 2,900 (4)
Ray P. Grimes II............. 1997 185,000 30,000 $30,200 (7) 4,700 (4)
Deputy Chief Operating...... 1996 185,000 30,000 38,400 (7) 3,800 (4)
Officer..................... 1995 162,700 25,000 45,000 (7) 1,900 (4)
- --------
(1) Lawrence I. Hebert, President of ACC, and Robert L. Allbritton, Executive
Vice President and Chief Operating Officer of ACC, are paid cash
compensation by Perpetual for services to Perpetual and other interests of
Joe L. Allbritton, including ACC. The allocated portion of such
compensation to ACC in each case is less than $100,000, and their
compensation is, therefore, not included herein.
(2) Represents the imputed premium cost related to certain split dollar life
insurance policies on the life of Mr. Allbritton. The annual premiums on
such policies are paid by ACC. Upon the death of the insured, ACC will
receive the cash value of the policies up to the amount of its
investments, 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.
(3) Frederick J. Ryan, Jr. and Jerald N. Fritz receive additional compensation
from Perpetual for services to Perpetual and other interests of Joe L.
Allbritton, including the Company. This additional compensation is not
allocated among these interests, and the Company does not reimburse
Perpetual for any portion of this additional compensation to Mr. Ryan and
Mr. Fritz. The portion of the additional compensation paid by Perpetual to
Mr. Ryan and Mr. Fritz that may be attributable to their services to the
Company has not been quantified. Such portion is not material to the
consolidated financial condition or results of operations of the Company.
(4) These amounts reflect annual contributions by ACC to the Company's 401(k)
Plan.
(5) Prior to Fiscal 1997, Jerald N. Fritz was paid compensation by ACC for
services to the Company and Perpetual. Perpetual reimbursed ACC for
$12,000 of Mr. Fritz's compensation in both Fiscal 1995 and 1996.
(6) Henry D. Morneault is paid compensation by ACC for services to the Company
and Perpetual. Perpetual has reimbursed ACC for $33,800, $33,800 and
$37,500 of Mr. Morneault's compensation in Fiscal 1995, 1996 and 1997,
respectively.
(7) Represents in Fiscal 1997 the compensation related to country club fees
($18,100) and other miscellaneous items; in Fiscal 1996, the compensation
related to a company provided automobile ($10,200), incentive trip
($11,600) and country club fees ($16,600); and in Fiscal 1995, commissions
paid ($27,000) and other miscellaneous items.
The Company does not have a Compensation Committee of its Board of
Directors. Compensation of executive officers is determined by Joe L.
Allbritton, Lawrence I. Hebert and Robert L. Allbritton. Directors of the
Company are not separately compensated for membership on the Board of Directors.
60
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
for directors and all other matters submitted to a vote of ACC's stockholder.
The capital stock of Perpetual held by Joe L. Allbritton (the "Perpetual
Capital Stock") has been pledged to secure indebtedness owed by him under a
loan agreement with a commercial bank. Under the terms of such pledge the bank
may, among other things, upon the occurrence of an event of default, sell the
Perpetual Capital Stock at a public or private sale and may exercise all
voting or consensual rights, subject to any required approval of the FCC. This
agreement with the bank contains customary representations, warranties and
default provisions, including restrictions upon his right to sell the
Perpetual Capital Stock and the right of Perpetual to sell the ACC Common
Stock through its ownership in AGI. Any such sale could constitute a "Change
of Control" under the Company's outstanding 9 3/4% Debentures, 11 1/2%
Debentures, Senior Credit Facility, and the Notes and the Exchange Notes.
61
CERTAIN TRANSACTIONS
(DOLLARS IN THOUSANDS)
DISTRIBUTIONS TO RELATED PARTIES
The Company periodically makes advances in the form of distributions to
Perpetual. Prior to the Contribution, WSET and WCIV made cash advances to
Westfield. For Fiscal 1995, 1996 and 1997 and the three months ended December
31, 1997, the Company made cash advances to these related parties of $42,853,
$52,667, $52,597 and $23,151, respectively. For Fiscal 1995, 1996 and 1997 and
the three months ended December 31, 1997, these related parties made
repayments on these cash advances of $14,142, $12,785, $39,693 and $13,078,
respectively. In addition, during Fiscal 1995, 1996 and 1997 and the three
months ended December 31, 1997, the Company (was charged for) generated a
benefit from federal income taxes of ($11,930), ($836), $691 and ($2,061),
respectively. The charges for federal income taxes in Fiscal 1995 and 1996 and
the three months ended December 31, 1997 were paid to Perpetual under the
terms of a tax sharing agreement between the companies. The income tax benefit
generated in Fiscal 1997 was effectively distributed to Perpetual as such
benefit will not be recognized in future years pursuant to the terms of such
tax sharing agreement. In conjunction with the Contribution, WSET and WCIV
declared non-cash dividends in Fiscal 1996 to Westfield totaling $18,371 which
represented the cumulative net advances made to Westfield by WSET and WCIV
prior to the Contribution. As a result, the net change in distributions to
related parties during such periods were $16,781, $20,675, $12,904 and $8,012,
respectively. The advances to these related parties are non-interest bearing
and, as such, do not reflect market rates of interest-bearing loans to
unaffiliated third parties.
At present, the primary source of repayment of net advances is through the
ability of the Company 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 the Company's Consolidated Financial
Statements.
During Fiscal 1991, the Company made a $20,000 11.06% loan to Allnewsco.
This amount has been reflected in the Company's Consolidated Financial
Statements on a consistent basis with other distributions to owners. The loan
has stated repayment terms consisting of annual principal installments of
approximately $2,200 commencing January 1997 through January 2005 and payments
of interest semi-annually. During Fiscal 1997, the Company deferred the first
annual principal installment payment. The Company is currently renegotiating
the note to extend the maturity date to January 2008 and defer all principal
installments until maturity, with the principal balance also due upon demand.
Interest payments on the loan have been made in accordance with the terms of
the note, and the Company expects it will continue to receive such payments on
a current basis. To date, interest payments from Allnewsco have been funded by
advances from Perpetual to Allnewsco. The Company anticipates that such
payments will be funded in a similar manner for the foreseeable future.
However, there can be no assurance that Allnewsco will have the ability to
make such interest payments in the future.
Under the terms of the Company's borrowing agreements, future advances,
distributions and dividends to related parties are subject to certain
restrictions. The Company anticipates that, subject to such restrictions, ACC
will make distributions and loans to related parties in the future. Subsequent
to December 31, 1997 and through January 31, 1998, the Company made additional
net distributions to owners of approximately $4,000.
MANAGEMENT FEES
Management fees of $180, $180, $343 and $85 were paid to Perpetual by the
Company for Fiscal 1995, 1996 and 1997 and the three months ended December 31,
1997, respectively. The Company expects to continue to pay management fees to
Perpetual at a monthly rate of $29 through the end of Fiscal 1998. The Company
also paid executive compensation in the form of management fees to Joe L.
Allbritton for each of Fiscal 1995, 1996 and 1997 in the amount of $550.
Management fees of $138 were paid to Joe L. Allbritton during the three months
ended December 31, 1997 and are expected to continue at a monthly rate of $46
through the end of Fiscal 1998. The Company believes that payments to
Perpetual and Mr. Allbritton will continue in the future. See "Management--
Executive Compensation." Management believes that the amount of the management
fees is at least as favorable to the Company as those prevailing for
comparable transactions with or involving unaffiliated parties.
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OTHER SERVICES
On July 1, 1995, 78, inc., a wholly-owned subsidiary of Perpetual, was
formed to provide sales, marketing and related services to both the Company
and Allnewsco. Certain employees of the Company became employees of 78, inc.
The Company was charged approximately $1,700 and $7,163 during Fiscal 1995 and
1996, respectively for services provided by 78, inc., which represents the
Company's share of 78, inc.'s costs relating to the provision of such
services, determined based on the Company's usage of such services. These
costs are included in television operating expenses in the consolidated
statements of operations. Effective October 1, 1996, the Company ceased
utilizing 78, inc. for the provision of these services and re-established
these functions internally. At September 30, 1996, the Company recorded a
$1,578 receivable from 78, inc. representing expenses paid on behalf of 78,
inc. by the Company during the year. On December 20, 1996, this receivable was
fully repaid by 78, inc.
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.
Taxes payable to Perpetual are not reduced by losses generated in prior years
by the Company. In addition, the amount payable by the Company to Perpetual
under the tax sharing agreement is not reduced if losses of other members of
the Perpetual group are utilized to offset taxable income of the Company for
purposes of the consolidated federal income tax return.
A District of Columbia income tax return is filed by the Company, and
separate state income tax returns are filed by the Company's subsidiaries,
except for WSET. The operations of WSET are included in a combined state
income tax return filed with other affiliates. WSET's state income tax
liability is not reduced if losses of the affiliates are used to offset the
taxable income of WSET for purposes of the combined state income tax return.
The provision for income taxes is determined in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
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, and prior to the Contribution, Westfield, allocated a
portion of their respective 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
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 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.
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, approximately 36.9% of the common stock of which is deemed to be
beneficially owned by Riggs' Chairman, Joe L. Allbritton. During Fiscal 1995,
1996 and 1997 and the three months ended December 31, 1997, ACC incurred
expenses to Riggs Bank of $167, $192, $220 and $65, respectively for this
space. ACC expects to pay approximately $260 for such space during Fiscal 1998
in its entirety. Management believes the same terms and conditions would have
prevailed had they been negotiated with a nonaffiliated company.
LOCAL ADVERTISING REVENUES
WJLA received for Fiscal 1995 and 1996 local advertising revenues from Riggs
Bank of approximately $174 and $148, respectively. Although WJLA did not
receive any local advertising revenues from Riggs Bank during Fiscal 1997 or
the three months ended December 31, 1997, it is anticipated that Riggs Bank
may advertise on WJLA in the future. The amount of advertising it may purchase
is unknown. Management believes that the terms of the transactions would be
substantially the same or at least as favorable to ACC as those prevailing for
comparable transactions with or involving nonaffiliated companies.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITY
The Senior Credit Facility provides for borrowings of up to $40 million.
Such Senior Credit Facility will expire April 16, 2001 and interest thereunder
will be payable at rates from prime to prime plus 1.25% or LIBOR plus 1% to
2.50%, depending upon certain financial operating tests. The Senior Credit
Facility is 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. BankBoston,
N.A., an affiliate of BancBoston Securities Inc., one of the Initial
Purchasers, is the agent and a lender under the Senior Credit Facility. See
'"Plan of Distribution." In addition, the Notes and the Exchange Notes will be
subordinated to the prior payment in full in cash or cash equivalents of all
Obligations of ACC under the Senior Credit Facility. As of December 31, 1997,
the amount outstanding under the Senior Credit Facility was $22.0 million. See
"Description of the Exchange Notes--Subordination."
CAPITAL LEASE FACILITY
ACC has a $10 million line of credit available under the Capital Lease
Facility with BancBoston Leasing, Inc., an affiliate of BancBoston Securities,
Inc., one of the Initial Purchasers, for the purpose of financing equipment
purchases, which will constitute Senior Debt to which the Exchange Notes will
be subordinated. At December 31, 1997, ACC had $6.5 million outstanding
thereunder. Drawings under the Capital Lease Facility are amortized over a
five year period with principal and interest paid monthly, are secured by the
equipment under lease and bear interest at various rates based on the lender's
cost of funds. 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, and ownership of the equipment reverts to ACC
or such subsidiary, as the case may be, at the end of the lease term. The
unused portion of the Capital Lease Facility expires in March 1998 and is
renewable on an annual basis by mutual agreement of the parties. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Indebtedness" and "Plan of
Distribution."
11 1/2% SENIOR SUBORDINATED DEBENTURES DUE 2004
Upon the closing of the sale of the Notes, the irrevocable notice of
redemption was sent to the holders of the 11 1/2% Debentures announcing the
redemption of 11 1/2% Debentures on March 3, 1998 at a redemption price of
104.75% of the aggregate principal amount thereof, together with accrued
interest to such date of redemption. See "Use of Proceeds."
9 3/4% SENIOR SUBORDINATED DEBENTURES DUE 2007
The 9 3/4% Debentures are general unsecured senior subordinated obligations
of ACC, and the Notes and the Exchange Notes will rank pari passu in right of
payment with the 9 3/4% Debentures. The 9 3/4% Debentures total $275 million
in aggregate principal amount and mature on November 30, 2007.
The 9 3/4% Debentures are redeemable at the option of ACC at any time on or
after November 30, 2002 at redemption prices declining ratably from 103.90% of
the principal amount thereof for the twelve months beginning November 30, 2002
to 100% of the principal amount thereof on and after November 30, 2005, plus,
in each case, accrued and unpaid interest, if any, to the applicable date of
redemption.
The indenture pursuant to which the 9 3/4% Debentures 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."
Issuance of the Notes did not and the Exchange Notes will not violate the
covenant limiting the incurrence of debt.
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DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes offered hereby will be issued as a separate series of
notes pursuant to the same indenture dated January 22, 1998 (the "Indenture")
between ACC and State Street Bank and Trust Company, as trustee (the
"Trustee"). The terms of the Exchange Notes and the 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 and the Notes, and the Exchange Notes and the 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
holders of the Notes are referred to the Indenture, which is incorporated
herein by reference, a copy of which has been 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 Notes and the Exchange Notes are sometimes referred
to herein, collectively, as the "Senior Notes."
GENERAL
The Exchange Notes will be general senior subordinated obligations of ACC
and will be subordinated in right of payment to all existing and future Senior
Debt of ACC and will rank pari passu in right of payment with ACC's existing 9
3/4% Debentures and, until the date of redemption thereof, the 11 1/2%
Debentures. See "Use of Proceeds."
As of the date of the Indenture, all of ACC's Subsidiaries will be
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 Notes, in aggregate
principal amount to $150.0 million and will mature on February 1, 2008.
Interest on the Exchange Notes will accrue at the rate of 8.875% per annum and
will be payable in cash, semi-annually in arrears on February 1 and August 1
of each year, commencing on August 1, 1998, to Holders of record on the
immediately preceding January 15 and July 15. The Exchange Notes will be
issued only in registered form, with coupons, in denominations of $1,000 and
integral multiples thereof. Interest on the Exchange 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 Exchange Notes will be payable, and the
Exchange 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 Exchange Notes to pay a sum sufficient to cover any tax or
other governmental charge payable in connection with certain transfers or
exchanges of the Exchange Notes. Initially, the Trustee will act as paying
agent and registrar under the Indenture.
OPTIONAL REDEMPTION
Except as set forth below, the Exchange Notes, like the Notes, will not be
redeemable at ACC's option prior to February 1, 2003. Thereafter, the Senior
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
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of redemption, if redeemed during the twelve-month period beginning on
February 1 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2003.............................................................. 104.438%
2004.............................................................. 102.958
2005.............................................................. 101.479
2006 and thereafter............................................... 100.000
In addition, at any time on or prior to February 1, 2001, ACC will have the
option to redeem up to 35% of the aggregate principal amount of the Senior
Notes originally issued at a redemption price equal to 108.875% 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 Senior 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 February 1, 2003, upon a Change of Control
(as defined herein), ACC will have the option to redeem the Senior 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 Senior Note, the greater of
(i) 1.0% of the then outstanding principal amount of such Senior Note and (ii)
(a) the present value of all remaining required interest and principal
payments due on such Senior Note and all premium payments relating thereto
assuming a redemption date of February 1, 2003, computed using a discount rate
equal to the Treasury Rate plus 50 basis points minus (b) the then outstanding
principal amount of such Senior 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 February 1, 2003; provided, however, that
if the then remaining term to February 1, 2003 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 February 1, 2003 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.
MANDATORY REDEMPTION
ACC will not be required to make mandatory redemption or sinking fund
payments with respect to the Senior Notes.
SELECTION AND NOTICE OF REDEMPTION
If less than all of the Senior Notes are to be redeemed at any time,
selection of Senior 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 Senior Notes are listed, or, if the Senior
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 Senior Notes of
$1,000 or less
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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 Senior
Note is to be redeemed in part only, the notice of redemption that relates to
such Senior Note shall state the portion of the principal amount thereof to be
redeemed. A new Senior 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 Senior 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 will require, under certain circumstances, that ACC make an offer to
purchase Senior Notes in the amount and at the purchase price specified
therein. See "--Change of Control" and "--Certain Covenants--Limitation on
Asset Sales." Any such offer will be 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 will be required to purchase the
specified principal amount of the Senior Notes tendered or, if a lesser amount
of the Senior Notes has been tendered, all of the tendered Senior 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 Senior Notes is given within 30 days after the occurrence of
such Change of Control in accordance with the provisions described under "--
Optional Redemption," ACC will be 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 Senior 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 Senior Notes. In the event that a Change of
Control occurs and the Holders exercise their right to require ACC to purchase
Senior 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.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Senior
Notes will be 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 Senior 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 Senior Notes to Senior Debt
and any securities issued in exchange for Senior Debt that have a maturity no
earlier than that of the Senior Notes).
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ACC also may not make any payment upon or in respect of the Senior 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 Senior 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 will further require that ACC promptly notify the holders of
Senior Debt if payment of the Senior 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, 1997, after giving
pro forma effect to the sale of the Notes (and the application of the net
proceeds thereof), the principal amount of Senior Debt outstanding would have
been approximately $11.3 million. The Indenture will limit, 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 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 Senior 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 9 3/4% Debentures and,
until the date of redemption thereof, the 11 1/2% Debentures, which rank pari
passu in right of payment with the Senior Notes.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants discussed
below.
LIMITATIONS ON INCURRENCE OF DEBT AND ISSUANCE OF PREFERRED STOCK
The Indenture will provide 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
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(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 Senior Notes.
The foregoing limitations will 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 $45.0 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 Senior 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 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 9 3/4% Debentures and, until the
date of redemption thereof, the 11 1/2% Debentures;
(iv) Debt represented by the Senior Notes;
(v) Debt existing on the date of the Indenture;
(vi) other Debt incurred after the date of the Indenture 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 the
Company 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
69
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 Senior Notes as the Debt being so
exchanged, refinanced or refunded.
The Indenture will also provide 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 will provide 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 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 Senior 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) 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 will not prohibit:
(x) 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;
(y) 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); and
(z) the payment of any dividend by a Majority Owned Subsidiary to holders
of its Capital 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.
LIMITATIONS ON OTHER SUBORDINATED DEBT
The Indenture will provide 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 Senior Notes.
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LIMITATIONS ON LIENS SECURING SUBORDINATED DEBT
The Indenture will provide 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 Senior 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 Senior 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 Senior Notes) the obligation or liability secured by
such Lien.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
The Indenture will provide 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 shall be 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, (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 will provide 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 the date of
the Indenture, (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 the date of
the Indenture.
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LIMITATIONS ON ASSET SALES
The Indenture will provide 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 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,
(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 or (c) to redeem 9 3/4% Debentures
in accordance with the provisions of the indenture governing the 9 3/4%
Debentures.
When the aggregate amount of Excess Proceeds exceeds $5.0 million, ACC will
be required to make an offer to all Holders of Senior 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 Senior 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 Senior 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 Senior Notes and Pari Passu Debt surrendered exceeds the
amount of Excess Proceeds, the Trustee will be required to select the Senior
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 will provide 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 Senior Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, (iii) immediately
after such transaction, no Default or Event of Default shall have occurred and
be continuing; and (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
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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 will provide that each of the following constitutes an Event
of Default: (i) the failure by ACC to pay interest on any of the Senior 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 Senior 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 Senior Notes then outstanding; (iv) the
failure by ACC to comply with any of its other agreements or covenants in the
Senior 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 Senior 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; (vii) certain events of bankruptcy, insolvency or
reorganization of ACC or any of its Restricted Subsidiaries; and (viii) any
failure by ACC to redeem the 11 1/2% Debentures within 60 days of the sale of
the Notes. The Indenture will provide that the Trustee must, within 90 days
after the occurrence of a Default or Event of Default, give to the Holders of
the Senior 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 Senior 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
will provide 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 Senior Notes then outstanding will be 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 Senior 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 Senior 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 Senior 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 Senior
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 Senior 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
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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 Senior Notes then outstanding will 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 the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Senior 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 Senior Notes. If an Event of Default
occurs prior to February 1, 2003 by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding the prohibition on redemption of the Senior Notes prior to February
1, 2003, 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 Senior Notes.
A Holder of a Senior Note may pursue a remedy with respect to the Indenture
or the Senior Notes only if (i) the Holder of a Senior 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 Senior Notes make a
written request to the Trustee to pursue the remedy; (iii) such Holder or
Holders of Senior 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 Senior 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 Senior 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 Senior 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 Senior Note selected for redemption or any Senior Note for a period of 15
Business Days before a selection of such Senior Note to be redeemed. The
registered Holder of a Senior 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 Senior Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Senior Notes then
outstanding (including, without limitation, consents obtained in connection
with a purchase of or tender offer or exchange offer for Senior Notes), and
any existing default or compliance with any provision of the Indenture or the
Senior Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Senior Notes (including, without
limitation, consents obtained in connection with a purchase of or tender offer
or exchange offer for Senior Notes).
The Indenture will contain provisions permitting ACC and the Trustee, with
the consent of the Holders of not less than a majority in aggregate principal
amount of the Senior Notes then outstanding, to amend or
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supplement the Indenture or any supplemental indenture or the rights of the
Holders of Senior Notes; provided that no such modification may, without the
consent of each Holder of such Senior Notes affected thereby; (i) reduce the
principal amount of Senior 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 Senior Note; (iii) reduce the principal of or extend the
fixed maturity of any Senior Note or alter the optional or mandatory
redemption provisions (including the purchase price specified for any offers
to purchase Senior 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 Senior Note; (v) make any Senior Note payable in money
other than that stated in any Senior 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 Senior
Notes, ACC and the Trustee may amend or supplement the Indenture or the Senior
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Senior Notes in addition to or in place of certificated Senior
Notes, to provide for the assumption of ACC's obligations to Holders of Senior
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 Senior 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 Senior Notes ("Legal Defeasance")
except for (i) the rights of Holders of outstanding Senior Notes to receive
payments in respect of the principal of, premium, if any, and interest on such
Senior Notes when such payments are due from the trust referred to below, (ii)
ACC's obligations with respect to the Senior Notes concerning issuing
temporary Senior Notes, registration of Senior Notes, mutilated, destroyed,
lost or stolen Senior 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 Senior 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 Senior 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 Senior 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 Senior Notes on the stated maturity date or on the applicable
redemption date, as the case may be, and ACC must specify whether the Senior
Notes are being defeased to maturity or to a particular redemption date; (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 Senior 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 Senior 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
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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
Senior 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.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Senior 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 Senior 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 Senior
Notes will 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 will be 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 will be
under no obligation to exercise any of its rights or powers 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.
BOOK-ENTRY, DELIVERY AND FORM
The Exchange Notes will initially be represented by a single, permanent
global Exchange Note, in definitive, fully registered form without interest
coupons (the "Global Exchange Note") and will be deposited with the Trustee as
custodian for the Depository Trust Company, New York, New York ("DTC") and
registered in the name of Cede & Co., or such other nominee as DTC may
designate. The Global Exchange Note will be subject to certain restrictions on
transfer set forth therein and in the Indenture.
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DTC has advised ACC as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of the New York Banking Law, 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 provision
of Section 17A of the Exchange Act. 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
("indirect participants").
Upon the issuance of the Global Exchange Note, DTC or its custodian will
credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Exchange Note to
the accounts of persons who have accounts with DTC. Ownership of beneficial
interests in the Global Exchange Note will be limited to persons who have
accounts with DTC ("participants") or persons who hold interests through
participants. Ownership of beneficial interests in the Global Exchange Note
will be shown on, and the transfer of that 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).
So long as DTC or its nominee is the registered owner or holder of the
Global Exchange Note, DTC or such nominee, as the case may be, will be
considered the sole record owner or holder of the Exchange Note represented by
such Global Exchange Note for all purposes under the Indenture and the
Exchange Notes. Beneficial owners of Exchange Notes evidenced by the Global
Exchange Note will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Accordingly,
each person owning a beneficial interest in a Global Note must rely on the
procedures of the Depositary and, if such person is not a Participant, on the
procedures of the Participant through which such person owns its interest, to
exercise any rights of a holder under the Indenture. The Company understands
that under existing industry practices, if it requests any action of holders
or if an owner of a beneficial interest in a Global Note desires to give or
take any action which a holder is entitled to give or take under the
Indenture, the Depositary would authorize the Participants holding the
relevant beneficial interests to give or take such action, and such
Participants would authorize beneficial owners through such Participants to
give or take such actions or would otherwise act upon the instructions of
beneficial owners holding through them. No beneficial owners of an interest in
the Global Exchange Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture.
Payments of the principal of, premium, if any, and interest on the Global
Exchange Note will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Neither ACC, the Trustee, nor 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 Exchange Note or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interest.
ACC expects that DTC or its nominee, upon receipt of any payment of
principal of, premium, if any, or interest on the Global Exchange Note will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial ownership interests in the principal amount of such
Global Exchange Note, as shown on the records of DTC or its nominee. ACC also
expects that payments by participants to owners of beneficial interests in the
Global Exchange Note held through such participants will be governed by
standing instructions and customary practices, 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.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. If an owner of Exchange Notes requires physical
delivery of certificated Exchange Notes for any reason,
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including to sell Exchange Notes to persons in states that require such
delivery of such Exchange Notes or to pledge such Exchange Notes, such owner
must transfer its interest in the Global Exchange Note, in accordance with the
normal procedures of DTC and the procedures set forth in the Indenture.
Neither ACC 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.
Subject to certain conditions, any person having a beneficial interest in
the Global Exchange Note may, upon request to the Trustee, exchange such
beneficial interest for Exchange Notes in certificated form ("Certificated
Exchange Notes"). Upon any such issuance, the Trustee is required to register
such Certificated Exchange Notes in the name of, and cause the same to be
delivered to, such person or persons (or the nominee of any thereof). In
addition, if DTC is at any time unwilling or unable to continue as a
depositary for the Global Exchange Note and a successor depositary is not
appointed by ACC within 90 days, ACC will issue Certificated Exchange Notes in
exchange for the Global Exchange Note.
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 $.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.
"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
78
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 Corporation 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 Standard & Poor's Corporation 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, (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.
"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
79
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, 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
Exchange Notes or the date on which no Exchange Notes remain outstanding.
"11 1/2% Debentures" means the $125,000,000 in aggregate principal amount of
11 1/2% Senior Subordinated Debentures due August 15, 2004 of ACC outstanding
on the date of the Indenture.
"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.
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"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 (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 $275,000,000 in aggregate principal amount of
9 3/4% Senior Subordinated Debentures due November 30, 2007 of ACC outstanding
on the date of the Indenture.
"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
81
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 Exchange 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 the date of the
Indenture. 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 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
Senior 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).
"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 the
date of the Indenture, (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
82
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), (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.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of January 22, 1998 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.
"Refinancing" shall have the meaning specified in the indenture governing
the 11 1/2% Debentures, as in effect on the date of the Indenture.
"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, Chief Operating
Officer and a director of ACC.
"Senior Credit Facility" means the senior secured revolving credit facility
dated as of April 16, 1996 between ACC and BankBoston N.A. (as successor to
The First National Bank of Boston), 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 between ACC
and Perpetual dated as of September 30, 1979.
"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,
83
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 (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 the date of the Indenture 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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CERTAIN TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax considerations
relevant to Holders of the Senior 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 Senior 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, insurance companies, tax-exempt
organizations, or investors who have hedged the risk of owning Senior Notes,
may be subject to special rules. In addition, this discussion is limited to
persons that will hold the Senior Notes as "capital assets" within the meaning
of section 1221 of the Code.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP, EXCHANGE AND
DISPOSITION OF THE SENIOR 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 an individual that is a citizen
or resident of the United States (including certain former citizens and former
long-term residents), a corporation, partnership or other entity 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 (ii) one or more U.S. persons have authority to control all
substantial decisions of the trust. A "Non-U.S. Holder" is a Holder who is not
a U.S. Holder.
EXCHANGE
The issuance of the Exchange Notes to Holders of the Notes pursuant to the
terms set forth in this prospectus should not constitute a recognition event
for federal income tax purposes. Consequently, no gain or loss should be
recognized by Holders of the 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 Notes exchanged therefor. Holders should be
considered to have held the Exchange Notes from the time of their original
acquisition of the Notes.
INTEREST INCOME
Interest on the Senior 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. Because the issue
price of the Notes equaled their stated principal amount with a de minimis
discount, the Notes were not issued with original issue discount ("OID") and
consequently the Exchange Notes should not have any OID.
MARKET DISCOUNT
Under the market discount rules, if a U.S. Holder of a Senior Note (other
than a Holder who purchased the Note upon original issuance) purchases the
Senior Note at a market discount (i.e., at a price below its stated principal
amount) in excess of a statutorily-defined de minimis amount and thereafter
recognizes gain upon a disposition or retirement of the Senior Note, then the
lesser of the gain recognized or the portion of the market discount that
accrued on a ratable basis (or, if elected, on a constant interest rate basis)
generally will be treated as ordinary income at the time of the disposition.
Moreover, any market discount in a Senior Note may be taxable to a U.S. Holder
to the extent of appreciation in the value of the Senior Note at the time of
certain otherwise non-taxable transactions (e.g., gifts). Absent an election
to include market discount in income as it accrues, a
85
U.S. Holder of a market discount Senior Note may be required to defer a
portion of any interest expense that otherwise may be deductible on any
indebtedness incurred or maintained to purchase or carry such Senior Note
until the U.S. Holder disposes of the Senior Note in a taxable transaction.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Senior Note, unless
the U.S. Holder elects to accrue on a constant interest method. A U.S. Holder
may elect to include market discount in income currently as it accrues (on
either a ratable or constant interest method), in which case the rule
described above regarding deferral of interest deductions will not apply. This
election to include market discount in income currently, once made, applies to
all market discount obligations acquired after the first taxable year to which
the election applies and may not be revoked without the consent of the IRS.
AMORTIZABLE BOND PREMIUM
A U.S. Holder that purchases a Senior Note for an amount in excess of the
principal amount will be considered to have purchased the Senior Note at a
"Premium," equal to such excess and may elect to amortize the premium over the
remaining term of the Senior Note on a constant yield method. However, if the
Senior Note is purchased at a time when the Senior Note may be optionally
redeemed by the Company for an amount that is in excess of its principal
amount, special rules may apply that could result in a deferral of the
amortization of bond premium until later in the term of the Senior Note. The
amount amortized in any year will be treated as a reduction of the U.S.
Holder's interest income from the Senior Note. A U.S. Holder that elects to
amortize bond premium must reduce its tax basis in the Senior Note by the
premium amortized. Bond premium on a Senior Note held by a U.S. Holder that
does not make such election will decrease the gain or increase the loss
otherwise recognized on disposition of the Senior Note. The election to
amortize premium on a constant yield method, once made, applies to all debt
obligations held or subsequently acquired by the electing U.S. Holder on or
after the first day of the first taxable year to which the election applies
and may not be revoked without the consent of the IRS.
SALE, EXCHANGE OR RETIREMENT OF THE SENIOR NOTES
Each U.S. Holder of a Senior Note generally will recognize gain or loss on
the sale, exchange, redemption, retirement or other disposition of the Senior
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 Senior Note
(generally, the cost of the Senior Note plus any market discount previously
included in income by the U.S. Holder, less amortized bond premium and any
principal payments received by the U.S. Holder). Any such gain or loss
recognized on the sale, exchange, redemption, retirement or other disposition
of a Senior Note should be capital gain or loss (except as discussed under
"Market Discount" above), and would be long-term capital gain or loss if the
Senior Note had been held for more than one year at the time of the sale or
exchange. If the Senior Note had been held by a noncorporate taxpayer for more
than 18 months, such capital gain generally may be subject to tax at a lower
tax rate. The deduction of capital losses is subject to certain limitations.
U.S. Holders of Senior Notes should consult tax advisors regarding the
treatment of capital gains and losses.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A U.S. Holder of Senior Notes may be subject to "backup withholding" at a
rate of 31% with respect to certain "reportable payments," including interest
payments and, under certain circumstances, principal payments on the Senior
Notes. 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 within a
reasonable time after the request therefor, (ii) furnishes an incorrect TIN,
(iii) fails to properly report interest or (iv) fails to provide a certified
statement, signed under penalties of perjury, that the TIN
86
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 the Company with its
correct TIN also may be subject to penalties imposed by the IRS. Any amount
withheld from a payment to a U.S. Holder under the backup withholding rules is
creditable 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 Senior 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.
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
Senior Note. No United States federal withholding tax will be imposed with
respect to the payment by the Company or its paying agent of principal,
premium, if any, or interest on a Senior Note owned by a Non-U.S. Holder (the
"Portfolio Interest Exception"), provided that (i) 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 of the Company entitled to vote and is not a
controlled foreign corporation with respect to the United States that is
related to the Company actually or constructively through stock ownership and
(ii) the Company, its paying agent or the person who would otherwise be
required to withhold tax receives either (A) a statement, which may be
provided on a Form W-8 or substitute form (an "Owner's Statement") signed
under penalties of perjury by the beneficial owner of the Senior Note in which
the owner certifies that the owner is not a United States person, or, in the
case of an individual, that he is neither a citizen nor a resident of the
United States, and which provides the owner's name and address, or (B) a
statement signed under penalties of perjury by the Financial Institution
holding the Senior 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 Senior Note on behalf of the owner of the
Senior Note. 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% (or lower applicable treaty
rate) 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 the Company with an
IRS Form 4224 (or substitute form) stating that the interest paid on the
Senior Notes is not subject to withholding tax because it is effectively
connected with the beneficial owner's conduct of a trade or business in the
United States.
In general, gain recognized by a Non-U.S. Holder upon the redemption,
retirement, sale, exchange or other disposition of a Senior 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 Senior Note and certain other requirements are met.
Backup withholding and information reporting requirements do not apply to
payments of interest made by the Company 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. If any
payments of principal and interest are made to the beneficial owner of a
Senior Note by or through the foreign office of a foreign custodian, foreign
nominee or other foreign agent of such beneficial owner, or if the foreign
office of a foreign "broker" (as defined in applicable Treasury regulations)
pays the proceeds of the sale of a Senior 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
87
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
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 no 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 at a rate of 31% and
information reporting unless the Holder certifies under penalties of perjury
that it is a Non-U.S. Holder or otherwise establishes an exemption.
Recently issued Treasury regulations modify certain of the certification
requirements described above. These modifications will become generally
effective for interest payments made beginning January 1, 1999. The Company or
its paying agent may request new withholding exemption forms from Holders in
order to qualify for continued exemption from withholding under the Treasury
regulations when they become effective. For example, under recently issued
Treasury regulations, a Non-U.S. Holder will be required to provide a Form W-8
(or substitute form) to the withholding agent on which such Holder provides
its name, address and taxpayer identification number and states, under penalty
of perjury, that the interest paid on a Senior Note and the gain on the sale,
exchange or other disposition of a Senior Note is not effectively connected
with such Holder's United States trade or business in order to obtain an
exemption from withholding tax on payments made beginning January 1, 1999.
If a Non-U.S. Holder is engaged in a trade or business in the United States
and if interest on a Senior 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 and on gain realized on the sale,
exchange or other disposition of a Senior 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 a Senior Note will be included in such foreign corporation's
effectively connected earnings and profits.
Subject to applicable estate tax treaty provisions, Senior Notes held at the
time of death (or Senior 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's 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 stock of the Company entitled to vote or hold the
Senior Notes in connection with a United States trade or business.
88
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 Notes
where such Notes were acquired as a result of market-making activities or
other trading activities. ACC has agreed that, for a period of 120 days after
the date of this Prospectus, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale. In addition until , 1998, all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.
ACC 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, ACC 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. ACC has 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 ACC of the happening of any event that makes any
statement in the Prospectus untrue in any material respect or that requires
the making of any changes in the Prospectus in order to make the statements
therein not misleading (which notice ACC agrees to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of the Prospectus until
ACC has amended or supplemented the Prospectus to correct such misstatement or
omission and has furnished copies of the amended or supplemental Prospectus to
such broker-dealer. If ACC shall give any such notice to suspend the use of
the Prospectus, it shall 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.
89
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 the Company.
EXPERTS
The consolidated financial statements of Allbritton Communications Company as
of September 30, 1996 and 1997 and for each of the three years in the period
ended September 30, 1997 included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
90
ALLBRITTON COMMUNICATIONS COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of September 30, 1996 and 1997 and
December 31, 1997 (unaudited)........................................... F-3
Consolidated Statements of Operations and Retained Earnings for the Years
Ended September 30, 1995, 1996 and 1997 and for the Three Months Ended
December 31, 1996 and 1997 (unaudited).................................. F-4
Consolidated Statements of Cash Flows for the Years Ended September 30,
1995, 1996 and 1997 and for the Three Months Ended December 31, 1996 and
1997 (unaudited)........................................................ F-5
Notes to Consolidated Financial Statements............................... F-6
Financial Statement Schedule for the Years Ended September 30, 1995, 1996
and 1997
II-Valuation and Qualifying Accounts and Reserves....................... F-16
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
Allbritton Communications Company
In our opinion, the accompanying consolidated financial statements,
including the financial statement schedule, listed in the index on page F-1
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, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards 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 the opinion expressed above.
PRICE WATERHOUSE LLP
Washington, D.C.
November 25, 1997
F-2
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT SHARE INFORMATION)
SEPTEMBER 30, DECEMBER 31,
-------------------- ------------
1996 1997 1997
--------- --------- ------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents................. $ 12,108 $ 7,421 $ 4,776
Accounts receivable, less allowance for
doubtful accounts of $1,385, $1,618 and
$1,684................................... 29,219 34,569 43,428
Program rights............................ 16,298 15,244 11,360
Deferred income taxes..................... 1,473 2,617 2,619
Receivable from related party............. 1,578 -- --
Interest receivable from related party.... 492 492 1,045
Other..................................... 1,795 2,405 3,074
--------- --------- ---------
Total current assets.................... 62,963 62,748 66,302
Property, plant and equipment, net.......... 52,333 51,921 51,372
Intangible assets, net...................... 150,187 150,493 149,079
Deferred financing costs and other.......... 11,780 10,477 10,038
Deferred income taxes....................... 76 -- --
Cash surrender value of life insurance...... 3,787 4,674 4,887
Program rights.............................. 652 664 583
--------- --------- ---------
$ 281,778 $ 280,977 $ 282,261
========= ========= =========
LIABILITIES AND STOCKHOLDER'S INVESTMENT
Current liabilities
Current portion of long-term debt......... $ 806 $ 1,320 $ 1,282
Accounts payable.......................... 6,091 3,620 4,689
Accrued interest payable.................. 10,724 10,765 7,706
Program rights payable.................... 20,199 19,718 16,491
Accrued employee benefit expenses......... 3,043 3,728 2,537
Other accrued expenses.................... 4,822 5,079 7,198
--------- --------- ---------
Total current liabilities............... 45,685 44,230 39,903
Long-term debt.............................. 402,187 414,402 423,813
Program rights payable...................... 1,391 966 507
Deferred rent and other..................... 3,201 3,067 3,110
Accrued employee benefit expenses........... 1,706 1,836 1,870
Deferred income taxes....................... -- 2,039 2,610
--------- --------- ---------
Total liabilities....................... 454,170 466,540 471,813
--------- --------- ---------
Commitments and contingent liabilities (Note
10)
Stockholder's investment
Preferred stock, $1 par value, 800 shares
authorized, none issued.................. -- -- --
Common stock, $.05 par value, 20,000
shares authorized, issued and
outstanding.............................. 1 1 1
Capital in excess of par value............ 6,955 6,955 6,955
Retained earnings......................... 45,102 44,835 48,858
Distributions to owners, net (Note 8)..... (224,450) (237,354) (245,366)
--------- --------- ---------
Total stockholder's investment.......... (172,392) (185,563) (189,552)
--------- --------- ---------
$ 281,778 $ 280,977 $ 282,261
========= ========= =========
See accompanying notes to consolidated financial statements.
F-3
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------- --------------------
1995 1996 1997 1996 1997
-------- -------- -------- --------- ---------
(UNAUDITED)
Operating revenues, net... $138,151 $155,573 $172,828 $ 47,792 $ 51,320
-------- -------- -------- --------- ---------
Television operating
expenses, excluding
depreciation and
amortization............. 75,199 92,320 105,630 26,404 27,589
Depreciation and
amortization............. 4,752 10,257 19,652 4,294 4,802
Corporate expenses........ 3,753 5,112 4,382 974 1,062
-------- -------- -------- --------- ---------
83,704 107,689 129,664 31,672 33,453
-------- -------- -------- --------- ---------
Operating income.......... 54,447 47,884 43,164 16,120 17,867
Nonoperating income
(expense)
Interest income
Related party.......... 2,212 2,212 2,212 553 553
Other.................. 126 1,032 221 58 75
Interest expense........ (22,708) (35,222) (42,870) (10,659) (11,058)
Other, net.............. (233) (1,101) (1,193) (391) (297)
-------- -------- -------- --------- ---------
Income before income
taxes, minority interest
and extraordinary item... 33,844 14,805 1,534 5,681 7,140
Provision for income
taxes.................... 13,935 7,812 1,110 2,487 3,117
-------- -------- -------- --------- ---------
Income before minority
interest and
extraordinary item....... 19,909 6,993 424 3,194 4,023
Minority interest in net
losses of consolidated
subsidiaries............. -- 1,300 -- -- --
Extraordinary loss on
early repayment of debt,
net of income tax benefit
of $5,387................ -- 7,750 -- -- --
-------- -------- -------- --------- ---------
Net income................ 19,909 543 424 3,194 4,023
Retained earnings,
beginning of year........ 43,077 62,940 45,102 45,102 44,835
Dividend from WSET and
WCIV to Westfield (Note
8)....................... -- (18,371) -- -- --
Tax benefit distributed... (46) (10) (691) -- --
-------- -------- -------- --------- ---------
Retained earnings, end of
year..................... $ 62,940 $ 45,102 $ 44,835 $ 48,296 $ 48,858
======== ======== ======== ========= =========
See accompanying notes to consolidated financial statements.
F-4
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS
ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------- ------------------
1995 1996 1997 1996 1997
-------- --------- -------- -------- --------
(UNAUDITED)
Cash flows from operating
activities:
Net income................. $ 19,909 $ 543 $ 424 $ 3,194 $ 4,023
-------- --------- -------- -------- --------
Adjustments to reconcile
net income to net cash
provided by (used in) op-
erating activities:
Depreciation and amortiza-
tion...................... 4,752 10,257 19,652 4,294 4,802
Minority interest in net
losses of consolidated
subsidiaries.............. -- (1,300) -- -- --
Other noncash charges...... 427 997 1,182 297 298
Noncash tax benefit dis-
tributed.................. -- -- (691) -- --
Extraordinary loss on
early repayment of debt... -- 7,750 -- -- --
Provision for doubtful ac-
counts.................... 755 752 576 121 147
(Gain) loss on disposal of
assets.................... (190) 90 28 58 (4)
Changes in assets and lia-
bilities:
(Increase) decrease in
assets:
Accounts receivable...... (4,566) (1,130) (5,926) (8,940) (9,006)
Program rights........... (1,856) (1,240) 1,042 4,327 3,965
Receivable from related
party................... -- (1,578) 1,578 553 (553)
Other current assets..... 1,104 21 (342) (553) (669)
Other noncurrent assets.. (1,075) (1,370) (545) (131) (34)
Deferred income taxes.... (113) 1,686 971 825 569
Increase (decrease) in
liabilities:
Accounts payable......... (393) 3,483 (2,471) (1,263) 1,069
Accrued interest pay-
able.................... 59 6,249 41 (2,870) (3,059)
Program rights payable... 3,718 1,589 (906) (3,155) (3,686)
Accrued employee benefit
expenses................ (246) 547 815 (713) (1,157)
Other accrued expenses... (274) 887 257 954 2,119
Deferred rent and other
liabilities............. 134 137 (134) (547) 43
-------- --------- -------- -------- --------
Total adjustments....... 2,236 27,827 15,127 (6,743) (5,156)
-------- --------- -------- -------- --------
Net cash provided by
(used in) operating ac-
tivities............... 22,145 28,370 15,551 (3,549) (1,133)
-------- --------- -------- -------- --------
Cash flows from investing
activities:
Capital expenditures....... (2,777) (20,838) (12,140) (1,874) (2,561)
Purchase of option to ac-
quire assets of WJSU...... -- (10,000) (5,348) -- --
Proceeds from disposal of
assets.................... 234 85 125 12 18
Acquisitions, net of cash
acquired.................. -- (135,656) -- -- --
Minority interest invest-
ment in consolidated sub-
sidiaries................. -- 1,300 -- -- --
-------- --------- -------- -------- --------
Net cash used in invest-
ing activities......... (2,543) (165,109) (17,363) (1,862) (2,543)
-------- --------- -------- -------- --------
Cash flows from financing
activities:
Proceeds from issuance of
debt...................... -- 285,725 -- -- --
Deferred financing costs... -- (7,605) -- -- --
Prepayment penalty on early
repayment of debt......... -- (12,934) -- -- --
Draws (repayments) under
lines of credit, net...... 500 (5,000) 10,600 5,500 9,300
Principal payments on long-
term debt and capital
leases.................... (2,222) (80,365) (571) (62) (257)
Distributions to owners,
net of certain charges.... (30,923) (47,397) (52,597) (17,420) (21,090)
Repayments of distributions
to owners................. 14,142 12,785 39,693 10,620 13,078
Other...................... (46) (178) -- -- --
-------- --------- -------- -------- --------
Net cash (used in) pro-
vided by financing ac-
tivities............... (18,549) 145,031 (2,875) (1,362) (1,031)
-------- --------- -------- -------- --------
Net increase (decrease) in
cash and cash equivalents.. 1,053 8,292 (4,687) (6,773) (2,645)
Cash and cash equivalents,
beginning of year.......... 2,763 3,816 12,108 12,108 7,421
-------- --------- -------- -------- --------
Cash and cash equivalents,
end of year................ $ 3,816 $ 12,108 $ 7,421 $ 5,335 $ 4,776
======== ========= ======== ======== ========
See accompanying notes to consolidated financial statements.
F-5
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1--THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Allbritton Communications Company (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 and operates
seven ABC network affiliate television stations which include:
Station Market
------- ------
WJLA Washington, D.C.
WHTM Harrisburg/York/Lancaster/Lebanon, Pennsylvania
WBMA/WCFT Birmingham/Tuscaloosa, Alabama
KATV Little Rock, Arkansas
KTUL Tulsa, Oklahoma
WSET Lynchburg, Virginia
WCIV Charleston, South Carolina
The Company also programs WJSU in Anniston, Alabama under a local marketing
agreement (LMA) and engages in various activities relating to the production
and distribution of television programming.
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. Minority interest
represents a minority owner's 20% share of the net losses of two of the
Company's subsidiaries, to the extent of the minority interest investment.
Use of estimates and assumptions--The preparation of financial statements in
conformity with generally accepted accounting principles requires 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.
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
F-6
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
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 and network affiliations, favorable terms on contracts and leases and
the option to acquire the assets of WJSU (the Option) (see Note 3). 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 and network affiliations are amortized over
40 years, the premiums for favorable terms on contracts and leases are
amortized over the terms of the related contracts and leases (19 to 25 years),
and the Option is amortized over the term of the Option and the associated LMA
(10 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, 1997 had an overnight repurchase agreement with a financial
institution for $6,560. 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. Taxes payable to Perpetual are not reduced by losses generated
in prior years by the Company. In addition, the amount payable by the Company
to Perpetual under the tax sharing agreement is 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 income tax return.
Prior to the Contribution (see Note 2), the operations of WSET and WCIV were
included in a consolidated federal income tax return filed by Westfield News
Advertiser, Inc. (Westfield), an affiliate of the Company which is 100% owned
by Mr. Joe L. Allbritton. In accordance with the terms of tax sharing
agreements between Westfield and WSET and WCIV, federal income tax liabilities
of WSET and WCIV were paid to Westfield and
F-7
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
were computed based upon statutory federal income tax rates applied to each
entity's taxable income. For periods subsequent to the Contribution, the
operations of WSET and WCIV are included in the consolidated federal income
tax return filed by Perpetual in accordance with the tax sharing agreement
between the Company and Perpetual.
A District of Columbia income tax return is filed by the Company, and
separate state income tax returns are filed by the Company's subsidiaries,
except for WSET. The operations of WSET are included in a combined state
income tax return filed with other affiliates. WSET's state income tax
liability is not reduced if losses of the affiliates are used to offset the
taxable income of WSET for purposes of the combined state income tax return.
The provision for income taxes is determined in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
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, and prior to the Contribution, Westfield, allocate a
portion of their respective 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
losses for federal 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--Statements of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" were issued during the year
ended September 30, 1997. These statements, which become effective during the
Company's fiscal year 1999, address presentation and disclosure matters and
will have no impact on the Company's financial position or results of
operations.
Unaudited interim financial data--The interim financial data are unaudited;
however, in the opinion of management, the interim data include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair statement of the results for the interim periods presented. The results
of operations for the three months ended December 31, 1997 are not necessarily
indicative of the results that can be expected for the entire fiscal year
ending September 30, 1998.
NOTE 2--CONTRIBUTION OF WSET AND WCIV
The common stock of WSET and WCIV, which was formerly held by Westfield, was
contributed to the Company on March 1, 1996 (the Contribution). Since the
Contribution represents a transfer of assets between entities under common
control, the amounts transferred were recorded at historical cost. Further, as
the Company, WSET and WCIV were indirectly owned by Mr. Joe L. Allbritton for
all periods in which the consolidated financial statements are presented, the
Company's consolidated financial statements have been retroactively restated
to reflect the Contribution (See Note 8).
F-8
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--ACQUISITIONS, LOCAL MARKETING AGREEMENT AND ASSOCIATED OPTION
In March 1996, the Company acquired an 80% interest in the assets and
certain liabilities of WHTM and WCFT for approximately $135,656. The
acquisitions were accounted for as purchases and accordingly, the cost of the
acquired entities was assigned to the identifiable tangible and intangible
assets acquired and liabilities assumed based on their fair values at the
respective dates of the purchases. The results of operations of WHTM and WCFT
are included in the Company's consolidated financial statements for the
periods subsequent to the acquisitions.
In December 1995, the Company, through an 80%-owned subsidiary, entered into
a ten-year LMA with the owner of WJSU, a television station operating in
Anniston, Alabama. The LMA provides for the Company to supply program services
to WJSU and to retain all revenues from advertising sales. In exchange, the
Company pays all station operating expenses and certain management fees to the
station's owner. The operating revenues and expenses of WJSU are therefore
included in the Company's consolidated financial statements since December
1995. In connection with the LMA, the Company entered into the Option to
acquire the assets of WJSU. The cost of the Option totaled $15,348, of which
$10,000 was paid in December 1995 and $5,348 was paid in January 1997. The
Option is exercisable, subject to certain conditions, for additional
consideration of $3,337.
The following pro forma summary presents the unaudited consolidated results
of operations of the Company for the years ended September 30, 1995 and 1996
as if the offering of the Debentures (see Note 6) and the application of the
net proceeds thereof (including the above acquisitions and LMA) had occurred
at the beginning of fiscal year 1995. The results presented in the pro forma
summary do not necessarily reflect the results that would have actually been
obtained if the offering, acquisitions and LMA had occurred at the beginning
of each year.
YEARS ENDED SEPTEMBER 30,
-------------------------
1995 1996
------------ ------------
(UNAUDITED)
Operating revenues, net........................ $ 162,300 $ 164,933
Income before extraordinary item............... 9,679 4,204
Net income (loss).............................. 1,929 (3,546)
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
SEPTEMBER 30,
------------------
1996 1997
-------- --------
Buildings and leasehold improvements.................. $ 19,538 $ 20,391
Furniture, machinery and equipment.................... 89,503 97,685
Equipment under capital leases........................ 4,727 7,277
-------- --------
113,768 125,353
Less accumulated depreciation......................... (64,868) (78,353)
-------- --------
48,900 47,000
Land.................................................. 2,517 2,508
Construction-in-progress.............................. 916 2,413
-------- --------
$ 52,333 $ 51,921
======== ========
Depreciation and amortization expense was $3,771, $6,723 and $14,155 for the
years ended September 30, 1995, 1996 and 1997, respectively, which includes
amortization of equipment under capital leases.
F-9
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5--INTANGIBLE ASSETS
Intangible assets consist of the following:
SEPTEMBER 30,
------------------
1996 1997
-------- --------
Broadcast licenses and network affiliations........... $149,788 $150,243
Option to purchase the assets of WJSU................. 10,000 15,348
Other intangibles..................................... 7,648 7,648
-------- --------
167,436 173,239
Less accumulated amortization......................... (17,249) (22,746)
-------- --------
$150,187 $150,493
======== ========
Amortization expense was $981, $3,534 and $5,497 for the years ended
September 30, 1995, 1996 and 1997, respectively. The Company does not
separately allocate amounts between broadcast licenses and network
affiliations.
NOTE 6--LONG-TERM DEBT
Outstanding debt consists of the following:
SEPTEMBER 30,
------------------
1996 1997
-------- --------
Senior Subordinated Debentures, due November 30, 2007
with interest payable semi-annually at 9 3/4%......... $275,000 $275,000
Senior Subordinated Debentures, due August 15, 2004
with interest payable semi-annually at 11 1/2%, manda-
tory sinking fund payment of $60,500 and $62,500 due
August 15, 2003 and 2004, respectively................ 123,000 123,000
Senior Credit Facility, maximum amount of $40,000, ex-
piring April 16, 2001, secured by the outstanding
stock of the Company and its subsidiaries, interest
payable quarterly at various rates from prime to prime
plus 1.25% or LIBOR plus 1% to 2.5%, depending on cer-
tain financial operating tests (10,000 at 8.22% and
$2,700 at 9.75% at September 30, 1997)................ 2,100 12,700
Master Lease Finance Agreement, maximum amount of
$10,000, secured by the assets acquired, interest pay-
able monthly at variable rates as determined on the
acquisition date for each asset purchased (8.41%-8.93%
at September 30, 1997) (See Note 10).................. 4,466 6,444
-------- --------
404,566 417,144
Less unamortized discount.............................. (1,573) (1,422)
-------- --------
402,993 415,722
Less current maturities................................ (806) (1,320)
-------- --------
$402,187 $414,402
======== ========
On February 6, 1996, the Company completed a $275,000 offering of its 9 3/4%
Senior Subordinated Debentures due 2007 (the Debentures) at a discount of
$1,375. A portion of the proceeds of the offering were used to finance the
acquisitions of WHTM, WCFT and the Option and to repay amounts outstanding
under certain previously existing financing facilities. A prepayment penalty
on the early repayment of one of the
F-10
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
facilities and the accelerated amortization of the related unamortized deferred
financing costs totaled approximately $13,137 before applicable income tax
benefit of approximately $5,387. This loss was reflected as an extraordinary
loss of $7,750 in the consolidated statements of operations for the year ended
September 30, 1996.
Unamortized deferred financing costs of $9,916 and $8,935 at September 30,
1996 and 1997, respectively, are included in deferred financing costs and other
noncurrent assets in the consolidated balance sheets. Amortization of the
deferred financing costs for the years ended September 30, 1995, 1996 and 1997
was $385, $835 and $1,031, respectively, which is included in other
nonoperating expenses.
Under the existing financing agreements, the Company agrees to abide by
restrictive covenants which place limitations upon payments of cash dividends,
issuance of capital stock, investment transactions, incurrence of additional
obligations and transactions with Perpetual and other related parties. In
addition, the Company must maintain specified levels of operating cash flow
and/or working capital and comply with other financial covenants. The Company
is also required to pay a commitment fee of .375% per annum based on any unused
portion of the Senior Credit Facility.
Future principal maturities, excluding payments under the Master Lease
Finance Agreement, during the next five years include $12,700 due in 2001.
The Company estimates the fair value of its Senior Subordinated Debentures
and amounts outstanding under its Senior Credit Facility to be approximately
$397,900 and $416,800 at September 30, 1996 and 1997, respectively.
NOTE 7--INCOME TAXES
The provision (benefit) for income taxes consists of the following:
YEARS ENDED SEPTEMBER 30,
----------------------------
1995 1996 1997
--------- -------- --------
Current
Federal................................... $ 11,749 $ 5,297 $ (691)
State..................................... 2,299 812 830
--------- -------- --------
14,048 6,109 139
--------- -------- --------
Deferred
Federal................................... (143) 215 1,443
State..................................... 30 1,488 (472)
--------- -------- --------
(113) 1,703 971
--------- -------- --------
$ 13,935 $ 7,812 $ 1,110
========= ======== ========
A prepayment penalty on the early repayment of a financing facility during
the year ended September 30, 1996 resulted in an extraordinary loss (see Note
6). This extraordinary loss of $7,750 is presented net of the applicable income
tax benefit in the accompanying statement of operations. The $5,387 benefit for
income taxes arising from the extraordinary loss consisted of a $4,598 benefit
for federal income tax purposes at the statutory rate of 35% and a $789 benefit
for local income tax purposes, net of the federal effect.
F-11
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The components of deferred income tax assets (liabilities) are as follows:
SEPTEMBER 30,
----------------
1996 1997
------- -------
Deferred income tax assets:
State and local operating loss carryforwards.......... $ 2,637 $ 2,924
Deferred rent......................................... 1,063 1,118
Accrued employee benefits............................. 1,015 1,134
Allowance for accounts receivable..................... 549 653
Other................................................. 415 657
------- -------
5,679 6,486
Less: valuation allowance............................. (1,908) (1,675)
------- -------
3,771 4,811
------- -------
Deferred income tax liabilities:
Depreciation and amortization......................... (2,222) (4,233)
------- -------
Net deferred income tax assets.......................... $ 1,549 $ 578
======= =======
The Company has approximately $55,482 in state and local operating loss
carryforwards in certain jurisdictions available for future use for state and
local income tax purposes. Of these operating loss carryforwards, $2,761
expire between 1999 and 2000, $11,943 expire between 2004 and 2007, and
$40,778 expire between 2009 and 2012. The change in the valuation allowance
for deferred tax assets of $(379), $1,020 and $(233) during the years ended
September 30, 1995, 1996 and 1997, respectively, principally resulted from
management's evaluation of the recoverability of the loss carryforwards.
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,
-----------------------------
1995 1996 1997
-------- -------- ---------
Statutory federal income tax rate......... 35.0% 35.0% 34.0%
State income taxes, net of federal income
tax benefit.............................. 5.2 4.8 20.2
Non-deductible expenses, principally
amortization of certain intangible
assets, insurance premiums and meals and
entertainment............................ 1.8 4.5 33.2
Change in valuation allowance............. (1.1) 6.9 (15.2)
Other, net................................ 0.3 1.6 0.2
-------- -------- ---------
Effective income tax rate................. 41.2% 52.8% 72.4%
======== ======== =========
NOTE 8--TRANSACTIONS WITH OWNERS AND RELATED PARTIES
In the ordinary course of business, the Company makes cash advances in the
form of distributions to Perpetual. Prior to the Contribution, WSET and WCIV
made cash advances to Westfield. 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
Company's consolidated balance sheets.
F-12
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The following summarizes these and certain other transactions with related
parties:
THREE MONTHS
YEARS ENDED SEPTEMBER 30, ENDED
---------------------------- DECEMBER 31,
1995 1996 1997 1997
-------- -------- -------- ------------
(UNAUDITED)
Distributions to owners,
beginning of year.............. $186,994 $203,775 $224,450 $237,354
Cash advances................... 42,853 52,667 52,597 23,151
Repayment of cash advances...... (14,142) (12,785) (39,693) (13,078)
(Charge) benefit for federal
income taxes................... (11,884) (826) 691 (2,061)
Dividends declared by WSET and
WCIV........................... -- (18,371) -- --
Tax benefit distributed......... (46) (10) (691) --
-------- -------- -------- --------
Distributions to owners, end of
year........................... $203,775 $224,450 $237,354 $245,366
======== ======== ======== ========
Weighted average amount of non-
interest bearing advances
outstanding during the year.... $178,761 $197,205 $218,026 $226,230
======== ======== ======== ========
Subsequent to December 31, 1997 and through January 31, 1998, the Company
made additional net distributions to owners of approximately $4,000.
In connection with the transactions by which the Contribution was
consummated, WSET and WCIV declared non-cash dividends to Westfield in the
amount of $18,371 which represented the cumulative net advances made from WSET
and WCIV to Westfield as of the date of the Contribution. The dividend has
therefore been reflected as a reduction to retained earnings and distributions
to owners during the year ended September 30, 1996.
Included in distributions to owners is a $20,000 loan made in 1991 by the
Company to ALLNEWSCO, Inc. (Allnewsco), an affiliate of the Company which is
owned by Mr. Joe L. Allbritton. This amount has been included in the
consolidated financial statements on a consistent basis with other cash
advances to related parties. The $20,000 note receivable from Allnewsco has
stated repayment terms consisting of annual principal installments
approximating $2,220 commencing January 1997 through January 2005. During the
year ended September 30, 1997, the Company deferred the first annual principal
installment payment. The Company is currently renegotiating the note to extend
the maturity to January 2008 and defer all principal installments until
maturity, with the principal balance also due upon demand. The note has a
stated interest rate of 11.06% and interest is payable semi-annually. During
each of the years ended September 30, 1995, 1996 and 1997, the Company earned
interest income from this note of approximately $2,200. At September 30, 1996
and 1997, interest receivable from Allnewsco under this note totaled $492.
Allnewsco is current on its interest payments.
Management fees of $180, $180 and $343 were paid to Perpetual by the Company
for the years ended September 30, 1995, 1996 and 1997, 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, 1995, 1996 and 1997. Management
fees are included in corporate expenses in the consolidated statements of
operations and management believes such charges to be reasonable.
Charitable contributions of approximately $283 and $685 were paid to the
Allbritton Foundation by the Company for the years ended September 30, 1995
and 1996, respectively.
The Company maintains banking relationships with and leases certain office
space from Riggs Bank N.A. (Riggs). Riggs is a wholly-owned subsidiary of
Riggs National Corporation, of which Mr. Joe L. Allbritton is the 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 at September 30,
1996 and 1997. Additionally, the Company incurred
F-13
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
$167, $192 and $220 in rental expense related to office space leased from
Riggs for the years ended September 30, 1995, 1996 and 1997, respectively.
On July 1, 1995, 78, Inc., also a wholly-owned subsidiary of Perpetual, was
formed to provide sales, marketing and related services to both the Company
and Allnewsco. Certain employees of the Company became employees of 78, Inc.
The Company was charged approximately $7,163 during the year ended September
30, 1996 for services provided by 78, Inc., which represents the Company's
share of 78, Inc.'s costs relating to the provision of such services,
determined based on the Company's usage of such services. These costs are
included in television operating expenses in the consolidated statements of
operations. Effective October 1, 1996, the Company ceased utilizing 78, Inc.
for the provision of these services and re-established these functions
internally. At September 30, 1996, the Company recorded a $1,578 receivable
from 78, Inc. representing expenses paid on behalf of 78, Inc. by the Company.
This receivable was fully repaid by 78, Inc. during the year ended September
30, 1997.
NOTE 9--RETIREMENT PLANS
A defined contribution savings plan is maintained for eligible employees of
the Company and certain of its affiliates who have been employed for at least
one year and have completed 1,000 hours of service. 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 of the
employee. The amounts contributed to the plan by the Company on behalf of its
employees totaled approximately $509, $602 and $691 for the years ended
September 30, 1995, 1996 and 1997, 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 $182, $308 and $316 for the years ended
September 30, 1995, 1996 and 1997, respectively.
NOTE 10--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 2004.
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, 1997 are
as follows:
OPERATING CAPITAL
LEASES LEASES
--------- -------
Year ending September 30,
1998................................................. $ 3,084 $ 1,791
1999................................................. 3,408 1,779
2000................................................. 3,439 1,764
2001................................................. 3,232 1,478
2002................................................. 3,090 659
2003 and thereafter.................................. 5,015 --
------- -------
$21,268 7,471
=======
Less: amounts representing imputed interest............ (1,027)
-------
6,444
Less: current portion.................................. (1,320)
-------
Long-term portion of capital lease obligations......... $ 5,124
=======
F-14
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Rental expense under operating leases aggregated approximately $2,600,
$2,700 and $2,900 for the years ended September 30, 1995, 1996 and 1997,
respectively.
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, 1997. Under these agreements, the
Company must make specific minimum payments approximating the following:
Year ending September 30,
1998........................................................... $ 1,453
1999........................................................... 15,888
2000........................................................... 14,590
2001........................................................... 7,139
2002........................................................... 5,029
-------
$44,099
=======
The Company has entered into various employment contracts. Future payments
under such contracts as of September 30, 1997 approximate $3,596, $1,791,
$667, and $267 for the years ending September 30, 1998, 1999, 2000, and 2001,
respectively.
The Company has entered into various deferred compensation agreements with
certain employees. Under these agreements, the Company is required to make
payments aggregating approximately $2,456 during the years 2000 through 2012.
At September 30, 1996 and 1997, the Company has recorded a deferred
compensation liability of approximately $912 and $1,035, respectively, which
is included as a component of noncurrent accrued employee benefit expenses in
the 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 11--SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest totaled $22,481, $28,973 and $42,829 during the years
ended September 30, 1995, 1996 and 1997, respectively. Cash paid for state
income taxes totaled $2,148, $679 and $792 during the years ended September
30, 1995, 1996 and 1997, respectively. Non-cash investing and financing
activities consist of entering into capital leases totaling $1,127, $3,554 and
$2,549 during the years ended September 30, 1995, 1996 and 1997, respectively,
and declaring a non-cash dividend from WSET and WCIV to Westfield of $18,371
during the year ended September 30, 1996.
NOTE 12--SUBSEQUENT EVENT (UNAUDITED)
On January 22, 1998, the Company completed a $150,000 offering of its 8 7/8%
Senior Subordinated Notes due 2008. The cash proceeds of the offering, net of
offering expenses, of approximately $146,000 will be used to redeem the
Company's 11 1/2% Debentures with the balance used to repay certain amounts
outstanding under the Company's Senior Credit Facility. A notice of redemption
has been issued for the redemption of the 11 1/2% Debentures on March 3, 1998.
The Company will incur a loss, net of the related income tax effect, of
approximately $5,400 on the early extinguishment of the 11 1/2% Debentures.
F-15
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,
1995:
Allowance for doubtful
accounts............. $ 757 $ 755 -- $(444)(2) $1,068
====== ====== === ===== ======
Valuation allowance
for deferred income
tax assets........... $1,267 -- -- $(379)(3) $ 888
====== ====== === ===== ======
Year ended September 30,
1996:
Allowance for doubtful
accounts............. $1,068 $ 752 -- $(435)(2) $1,385
====== ====== === ===== ======
Valuation allowance
for deferred income
tax assets........... $ 888 $1,750(1) -- $(730)(3) $1,908
====== ====== === ===== ======
Year ended September 30,
1997:
Allowance for doubtful
accounts............. $1,385 $ 576 -- $(343)(2) $1,618
====== ====== === ===== ======
Valuation allowance
for deferred income
tax assets........... $1,908 $ 574(1) -- $(807)(3) $1,675
====== ====== === ===== ======
- --------
(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 net reduction of valuation allowance relating to certain net
operating loss carryforwards.
F-16
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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
1. Purchase Agreement dated January 14, 1998 by and among ACC, Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
BancBoston Securities Inc. and CIBC Oppenheimer Corp.
3.1 Certificate of Incorporation of ACC (Incorporated by reference to
Exhibit 3.1 of Company's Registration Statement on Form S-4, No. 333-
02302, dated March 12, 1996).
3.2 Bylaws of ACC (Incorporated by reference to Exhibit 3.2 of Registrant's
Registration Statement on Form S-4, No. 333-02302, dated March 12,
1996).
4.1 Indenture dated as of January 22, 1998 between ACC and State Street Bank
and Trust Company, as Trustee, relating to the Notes.
4.2 Indenture dated as of February 6, 1996 between ACC and The First
National Bank of Boston, as Trustee, relating to 9 3/4% Senior
Subordinated Debentures due 2007 (Incorporated by reference to Exhibit
4.1 of Company's Registration Statement on Form S-4, No. 333-02302,
dated March 12, 1996).
4.3 Form of 8 7/8% Series B Senior Subordinated Notes due 2008.
4.4 Revolving Credit Agreement dated as of April 16, 1996 by and among
Allbritton Communications Company, certain Banks, and The First National
Bank of Boston, as agent (Incorporated by reference to Exhibit 4.4 of
Company's Quarterly Report on Form 10-Q, No. 333-02302, dated August 14,
1996).
II-1
4.5 Modification No. 1 dated as of June 19, 1996 to Revolving Credit
Agreement (Incorporated by reference to Exhibit 4.5 of Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated May 15, 1997).
4.6 Modification No. 2 dated as of December 20, 1996 to Revolving Credit
Agreement (Incorporated by reference to Exhibit 4.6 of Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated May 15, 1997).
4.7 Modification No. 3 dated as of May 14, 1997 to Revolving Credit
Agreement (Incorporated by reference to Exhibit 4.7 of Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated May 15, 1997).
4.8 Modification No. 4 dated as of September 30, 1997 to Revolving Credit
Agreement (Incorporated by reference to Exhibit 4.8 of Company's Form
10-K, No. 333-02302, dated December 22, 1997).
5.1 Opinion of Fulbright & Jaworski L.L.P., as to the validity of the
Notes. *
8.1 Opinion of Fulbright & Jaworski L.L.P., as to certain tax matters.*
10.1 Registration Rights Agreement by and among ACC, Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, BancBoston
Securities Inc. and CIBC Oppenheimer dated January 22, 1998.
10.2 Network Affiliation Agreement (Harrisburg Television, Inc.)
(Incorporated by reference to Exhibit 10.3 of Company's Pre-effective
Amendment No. 1 to Registration Statement on Form S-4, dated April 22,
1996).
10.3 Network Affiliation Agreement (First Charleston Corp.) (Incorporated
by reference to Exhibit 10.4 of Company's Pre-effective Amendment No.
1 to Registration Statement on Form S-4, dated April 22, 1996).
10.4 Network Affiliation Agreement (WSET, Incorporated) (Incorporated by
reference to Exhibit 10.5 of Company's Pre-effective Amendment No. 1
to Registration Statement on Form S-4, dated April 22, 1996).
10.5 Network Affiliation Agreement (WJLA-TV) (Incorporated by reference to
Exhibit 10.6 of Company's Pre-effective Amendment No. 1 to
Registration Statement on Form S-4, dated April 22, 1996).
10.6 Network Affiliation Agreement (KATV Television, Inc.) (Incorporated by
reference to Exhibit 10.7 of Company's Pre-effective Amendment No. 1
to Registration Statement on Form S-4, dated April 22, 1996).
10.7 Network Affiliation Agreement (KTUL Television, Inc.) (Incorporated by
reference to Exhibit 10.8 of Company's Pre-effective Amendment No. 1
to Registration Statement on Form S-4, dated April 22, 1996).
10.8 Network Affiliation Agreement (TV Alabama, Inc.) (Incorporated by
reference to Exhibit 10.9 of Company's Pre-effective Amendment No. 1
to Registration Statement on Form S-4, dated April 22, 1996).
10.9 Tax Sharing Agreement effective as of September 30, 1991 by and among
Perpetual Corporation, Inc., ACC and Allnewsco, Inc., as amended
(Incorporated by reference to Exhibit 10.11 of Company's Registration
Statement on Form S-4, No. 333-02302, dated March 12, 1996).
10.10 Time Brokerage Agreement dated as of December 21, 1995 by and between
RKZ Television, Inc. and ACC (Incorporated by reference to Exhibit
10.11 of Company's Registration Statement on Form S-4, No. 333-02302,
dated March 12, 1996).
II-2
10.11 Option Agreement dated December 21, 1995 by and between ACC and RKZ
Television, Inc. (Incorporated by reference to Exhibit 10.12 of
Company's Registration Statement on Form S-4, No. 333-02302, dated
March 12, 1996).
10.12 Amendment dated May 2, 1996 by and among TV Alabama, Inc., RKZ
Television, Inc. and Osborn Communications Corporation to Option
Agreement dated December 21, 1995 by and between ACC and RKZ
Television, Inc. (Incorporated by reference to Exhibit 10.13 of
Company's Form 10-K, No. 333-02302, dated December 30, 1996).
10.13 Master Lease Finance Agreement dated as of August 10, 1994 between
BancBoston Leasing, Inc. and ACC, as amended (Incorporated by
reference to Exhibit 10.16 of Company's Registration Statement on Form
S-4, No. 333-02302, dated March 12, 1996).
10.14 Amendment to Network Affiliation Agreement (TV Alabama, Inc.) dated
January 23, 1997 (Incorporated by reference to Exhibit 10.15 to the
Company's Form 10-Q, No. 333-02302, dated February 14, 1997).
10.15 Pledge of Membership Interests Agreement dated as of September 30,
1997 by and among ACC; KTUL, LLC; KATV, LLC; WCIV, LLC; and
BankBoston, N.A. as Agent (Incorporated by reference to Exhibit 10.16
of Company's Form 10-K, No. 333-02302, dated December 22, 1997).
12. Statement of Computation of Ratios.
21. Subsidiaries of ACC.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).*
23.3 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 8.1).*
24. Powers of Attorney.
25. Statement of Form T-1 of Eligibility and Qualification under the Trust
Indenture Act of 1939 of State Street Bank and Trust Company, as
Trustee under the Indenture, relating to the 8 7/8% Series B Senior
Subordinated Notes 2008.
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-16).
- --------
* To be filed by amendment.
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;
II-3
(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-4
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 9,
1998.
Allbritton Communications Company
(Registrant)
By /s/ Henry D. Morneault
-----------------------------------
HENRY D. MORNEAULT
CHIEF FINANCIAL 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, Principal February 9, 1998
- ------------------------------------
JOE L. ALLBRITTON* Executive Officer and
Director
/s/ Barbara B. Allbritton Vice President and February 9, 1998
- ------------------------------------
BARBARA B. ALLBRITTON* Director
/s/ Robert L. Allbritton Executive Vice President, February 9, 1998
- ------------------------------------
ROBERT L. ALLBRITTON* Chief Operating Officer
and Director
/s/ Lawrence I. Hebert Vice Chairman, President February 9, 1998
- ------------------------------------
LAWRENCE I. HEBERT and Director
/s/ Frederick J. Ryan, Jr. Vice Chairman, Senior Vice February 9, 1998
- ------------------------------------
FREDERICK J. RYAN, JR.* President and Director
/s/ Henry D. Morneault Vice President and Chief February 9, 1998
- ------------------------------------
HENRY D. MORNEAULT Financial Officer
/s/ Stephen P. Gibson Vice President and Principal February 9, 1998
- ------------------------------------
STEPHEN P. GIBSON Accounting Officer
*BY ATTORNEY-IN-FACT
/s/ Jerald N. Fritz
- ------------------------------------
JERALD N. FRITZ
II-5
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
1. Purchase Agreement dated January 14, 1998 by and among ACC, Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
BancBoston Securities Inc. and CIBC Oppenheimer Corp.
3.1 Certificate of Incorporation of ACC (Incorporated by reference to
Exhibit 3.1 of Company's Registration Statement on Form S-4, No. 333-
02302, dated March 12, 1996).
3.2 Bylaws of ACC (Incorporated by reference to Exhibit 3.2 of
Registrant's Registration Statement on Form S-4, No. 333-02302, dated
March 12, 1996).
4.1 Indenture dated as of January 22, 1998 between ACC and State Street
Bank and Trust Company, as Trustee, relating to the Notes.
4.2 Indenture dated as of February 6, 1996 between ACC and The First
National Bank of Boston, as Trustee, relating to 9 3/4% Senior
Subordinated Debentures due 2007 (Incorporated by reference to Exhibit
4.1 of Company's Registration Statement on Form S-4, No. 333-02302,
dated March 12, 1996).
4.3 Form of 8 7/8% Series B Senior Subordinated Notes due 2008.
4.4 Revolving Credit Agreement dated as of April 16, 1996 by and among
Allbritton Communications Company, certain Banks, and The First
National Bank of Boston, as agent (Incorporated by reference to
Exhibit 4.4 of Company's Quarterly Report on Form 10-Q, No. 333-02302,
dated August 14, 1996).
4.5 Modification No. 1 dated as of June 19, 1996 to Revolving Credit
Agreement (Incorporated by reference to Exhibit 4.5 of Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated May 15, 1997).
4.6 Modification No. 2 dated as of December 20, 1996 to Revolving Credit
Agreement (Incorporated by reference to Exhibit 4.6 of Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated May 15, 1997).
4.7 Modification No. 3 dated as of May 14, 1997 to Revolving Credit
Agreement (Incorporated by reference to Exhibit 4.7 of Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated May 15, 1997).
4.8 Modification No. 4 dated as of September 30, 1997 to Revolving Credit
Agreement (Incorporated by reference to Exhibit 4.8 of Company's Form
10-K, No. 333-02302, dated December 22, 1997).
5.1 Opinion of Fulbright & Jaworski L.L.P., as to the validity of the
Notes. *
8.1 Opinion of Fulbright & Jaworski L.L.P., as to certain tax matters.*
10.1 Registration Rights Agreement by and among ACC, Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, BancBoston
Securities Inc. and CIBC Oppenheimer dated January 22, 1998.
10.2 Network Affiliation Agreement (Harrisburg Television, Inc.)
(Incorporated by reference to Exhibit 10.3 of Company's Pre-effective
Amendment No. 1 to Registration Statement on Form S-4, dated April 22,
1996).
10.3 Network Affiliation Agreement (First Charleston Corp.) (Incorporated
by reference to Exhibit 10.4 of Company's Pre-effective Amendment No.
1 to Registration Statement on Form S-4, dated April 22, 1996).
10.4 Network Affiliation Agreement (WSET, Incorporated) (Incorporated by
reference to Exhibit 10.5 of Company's Pre-effective Amendment No. 1
to Registration Statement on Form S-4, dated April 22, 1996).
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.5 Network Affiliation Agreement (WJLA-TV) (Incorporated by reference to
Exhibit 10.6 of Company's Pre-effective Amendment No. 1 to
Registration Statement on Form S-4, dated April 22, 1996).
10.6 Network Affiliation Agreement (KATV Television, Inc.) (Incorporated by
reference to Exhibit 10.7 of Company's Pre-effective Amendment No. 1
to Registration Statement on Form S-4, dated April 22, 1996).
10.7 Network Affiliation Agreement (KTUL Television, Inc.) (Incorporated by
reference to Exhibit 10.8 of Company's Pre-effective Amendment No. 1
to Registration Statement on Form S-4, dated April 22, 1996).
10.8 Network Affiliation Agreement (TV Alabama, Inc.) (Incorporated by
reference to Exhibit 10.9 of Company's Pre-effective Amendment No. 1
to Registration Statement on Form S-4, dated April 22, 1996).
10.9 Tax Sharing Agreement effective as of September 30, 1991 by and among
Perpetual Corporation, Inc., ACC and Allnewsco, Inc., as amended
(Incorporated by reference to Exhibit 10.11 of Company's Registration
Statement on Form S-4, No. 333-02302, dated March 12, 1996).
10.10 Time Brokerage Agreement dated as of December 21, 1995 by and between
RKZ Television, Inc. and ACC (Incorporated by reference to Exhibit
10.11 of Company's Registration Statement on Form S-4, No. 333-02302,
dated March 12, 1996).
10.11 Option Agreement dated December 21, 1995 by and between ACC and RKZ
Television, Inc. (Incorporated by reference to Exhibit 10.12 of
Company's Registration Statement on Form S-4, No. 333-02302, dated
March 12, 1996).
10.12 Amendment dated May 2, 1996 by and among TV Alabama, Inc., RKZ
Television, Inc. and Osborn Communications Corporation to Option
Agreement dated December 21, 1995 by and between ACC and RKZ
Television, Inc. (Incorporated by reference to Exhibit 10.13 of
Company's Form 10-K, No. 333-02302, dated December 30, 1996).
10.13 Master Lease Finance Agreement dated as of August 10, 1994 between
BancBoston Leasing, Inc. and ACC, as amended (Incorporated by
reference to Exhibit 10.16 of Company's Registration Statement on Form
S-4, No. 333-02302, dated March 12, 1996).
10.15 Amendment to Network Affiliation Agreement (TV Alabama, Inc.) dated
January 23, 1997 (Incorporated by reference to Exhibit 10.15 to the
Company's Form 10-Q, No. 333-02302, dated February 14, 1997).
10.16 Pledge of Membership Interests Agreement dated as of September 30,
1997 by and among ACC; KTUL, LLC; KATV, LLC; WCIV, LLC; and
BankBoston, N.A. as Agent (Incorporated by reference to Exhibit 10.16
of Company's Form 10-K, No. 333-02302, dated December 22, 1997).
12. Statement of Computation of Ratios.
21. Subsidiaries of ACC.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).*
23.3 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 8.1).*
24. Powers of Attorney.
25. Statement of Form T-1 of Eligibility and Qualification under the Trust
Indenture Act of 1939 of State Street Bank and Trust Company, as
Trustee under the Indenture, relating to the 8 7/8% Series B Senior
Subordinated Notes 2008.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
99.1 Letter of Transmittal.
99.2 Notice of Guaranteed Delivery.
- --------
* To be filed by amendment.