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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT
UNDER
SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE QUARTER ENDED MARCH 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ___________ TO ____________
COMMISSION FILE NUMBER 1-10321
ACKERLEY COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 91-1043807
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
800 FIFTH AVENUE,
SUITE 3770
SEATTLE, WA 98104
(206) 624-2888
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS:
YES X NO
----- -----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AT MAY 1, 1995
- ------------------------------------ --------------------------
COMMON STOCK, $.01 PAR VALUE 9,659,783 SHARES
CLASS B COMMON STOCK, $.01 PAR VALUE 5,907,011 SHARES
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994 . . . . . . . . . . . . . . 1
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND
MARCH 31, 1994. . . . . . . . . . . . . . . . . . . . . . . . . 2
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995
AND MARCH 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . 5
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------ ------------
ASSETS (IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 10,192 $ 2,288
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $1,168,000 IN 1995
AND $1,160,000 IN 1994 37,680 42,553
CURRENT PORTION OF BROADCAST RIGHTS 3,204 4,266
OTHER CURRENT ASSETS 6,642 7,310
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TOTAL CURRENT ASSETS 57,718 56,417
PROPERTY AND EQUIPMENT, NET 65,755 64,489
INTANGIBLES, NET 34,869 36,716
OTHER ASSETS 14,596 13,161
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TOTAL ASSETS $172,938 $170,783
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-------- --------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 5,860 $ 5,788
ACCRUED INTEREST 7,859 4,799
OTHER ACCRUED LIABILITIES 11,945 7,575
DEFERRED REVENUE 7,387 13,695
CURRENT PORTION OF LONG-TERM DEBT 8,777 7,777
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TOTAL CURRENT LIABILITIES 41,828 39,634
LONG-TERM DEBT - NONCURRENT PORTION 227,008 227,107
-------- --------
TOTAL LIABILITIES 268,836 266,741
STOCKHOLDERS' DEFICIENCY:
COMMON STOCK, $.01 PAR VALUE; 50,000,000 SHARES AUTHORIZED,
10,993,379 SHARES ISSUED AT MARCH 31, 1995 (10,937,379
AT DECEMBER 31, 1994) AND 9,618,433 SHARES OUTSTANDING AT
MARCH 31, 1995 (9,562,433 AT DECEMBER 31, 1994). 109 109
CLASS B COMMON STOCK, $.01 PAR VALUE; 6,972,230 SHARES
AUTHORIZED, 5,865,861 SHARES ISSUED AND OUTSTANDING AT
MARCH 31, 1995 (5,901,861 AT DECEMBER 31, 1994). 59 59
CAPITAL IN EXCESS OF PAR VALUE 3,097 3,007
DEFICIT (89,074) (89,044)
LESS COMMON STOCK IN TREASURY, AT COST (10,089) (10,089)
-------- --------
TOTAL STOCKHOLDERS' DEFICIENCY (95,898) (95,958)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $172,938 $170,783
-------- --------
-------- --------
</TABLE>
1
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ACKERLEY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1995 1994
------------ ------------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
REVENUE $ 63,266 $ 53,513
LESS AGENCY COMMISSIONS AND DISCOUNTS (6,475) (5,418)
-------- --------
NET REVENUE 56,791 48,095
EXPENSES AND OTHER INCOME:
OPERATING EXPENSES (47,164) (40,392)
DISPOSITION OF ASSETS -- 2,522
AMORTIZATION (1,019) (859)
DEPRECIATION (1,676) (1,676)
INTEREST EXPENSE (6,326) (6,145)
OTHER INCOME(EXPENSE), NET (147) 53
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TOTAL EXPENSES AND OTHER INCOME (56,332) (46,497)
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INCOME BEFORE INCOME TAX 459 1,598
INCOME TAX EXPENSE (25) (33)
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NET INCOME $ 434 $ 1,565
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NET INCOME PER COMMON SHARE $ 0.03 $ 0.10
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES 15,756 15,717
</TABLE>
2
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1995 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
CASH RECEIVED FROM CUSTOMERS $ 54,799 $ 48,060
CASH PAID TO SUPPLIERS AND EMPLOYEES (41,376) (38,270)
INTEREST PAID (2,965) (2,837)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 10,458 6,953
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF PROPERTY 44 13,093
CAPITAL EXPENDITURES (2,457) (1,083)
OTHER, NET (1,770) (285)
-------- --------
NET CASH PROVIDED BY (USED BY) INVESTING ACTIVITIES (4,183) 11,725
CASH FLOWS FROM FINANCING ACTIVITIES:
BORROWINGS UNDER CREDIT AGREEMENTS 55,950 2,000
PAYMENTS UNDER CREDIT AGREEMENTS (53,570) (16,125)
DIVIDENDS PAID (464) --
OTHER, NET (287) (251)
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NET CASH PROVIDED BY (USED BY) FINANCING ACTIVITIES 1,629 (14,376)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,904 4,302
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,288 6,732
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,192 $ 11,034
-------- --------
-------- --------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
NET INCOME $ 434 $ 1,565
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DISPOSITION OF ASSETS -- (2,522)
DEPRECIATION AND AMORTIZATION 2,695 2,535
GAIN ON THE SALE OF PROPERTY, PLANT AND EQUIPMENT (113) (66)
CHANGE IN ASSETS AND LIABILITIES:
DECREASE IN ACCOUNTS RECEIVABLE 4,688 4,704
DECREASE IN OTHER CURRENT ASSETS 668 1,944
INCREASE (DECREASE) IN ACCOUNTS PAYABLE
AND ACCRUALS 4,442 (514)
INCREASE IN ACCRUED INTEREST 3,060 2,813
DECREASE IN DEFERRED REVENUE (6,308) (4,701)
OTHER, NET 892 1,195
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NET CASH PROVIDED BY OPERATING ACTIVITIES $ 10,458 $ 6,953
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SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
BROADCAST RIGHTS ACQUIRED AND BROADCAST
OBLIGATIONS ASSUMED $ 749 $ 275
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</TABLE>
3
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ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PREPARATION
The interim financial statements are unaudited but, in the opinion of
management, reflect all normal and recurring adjustments necessary for a fair
presentation of results for such periods. The results of operations for any
interim period are not necessarily indicative of anticipated results for the
full year. These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.
NOTE 2. INCOME TAXES
The Company has no significant income tax liabilities primarily as a result of
operating losses incurred in prior years.
4
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
During the first three months of 1995, the Company achieved several firsts. The
Company had record first quarter gross sales of $63.3 million, generated first
quarter income before dispositions of assets and income taxes of $0.5 million
for the first time, and issued its first cash dividend of $.03 per share to
shareholders of common stock. In addition, as discussed below, the Company
successfully completed a restructuring of its senior bank debt.
The Company reported first quarter net income of $0.4 million. In the first
three months of 1995, the Company's net revenues increased over the same period
last year by $8.7 million or 18.1%, while the Company's Operating Cash Flow for
the quarter increased $1.7 million or 22.2% from the same period last year. The
net income for the quarter decreased $1.2 million compared to the first quarter
of 1994. However, when adjusted for the gain of $2.5 million on the disposition
of assets recognized in the first quarter of 1994, net income for the current
quarter increased $1.3 million on a comparable basis to the same period last
year.
On February 17, 1995, the Company completed a refinancing of its senior bank
debt. The refinancing consisted of the repayment of outstanding indebtedness of
approximately $51.3 million under the 1993 Credit Agreement, and the execution
of the 1995 Credit Agreement and the initial borrowing thereunder of
$52.0 million. Losses related to the extinguishment of debt were recorded as an
extraordinary item in the fourth quarter of 1994. Current maturities of long-
term debt reflect the refinancing as if it occurred at December 31, 1994.
As with many media companies that have grown through acquisitions, the Company's
acquisitions and dispositions of television and radio stations have resulted in
significant non-cash and non-recurring charges to income. For this reason, in
addition to net income, management believes that Operating Cash Flow (defined as
net revenue less operating expenses plus other income before amortization,
depreciation, interest expense and disposition of assets) is an appropriate
measure of the Company's financial performance. This measure excludes expenses
consisting of depreciation, amortization, interest and disposition of assets
because these are not considered by the Company to be costs of ongoing
operations. The Company uses Operating Cash Flow to pay interest and principal
on its long-term debt as well as to finance capital expenditures. Operating Cash
Flow, however, is not to be considered as an alternative to net income as an
indicator of the Company's operating performance or to cash flows as a measure
of the Company's liquidity.
5
<PAGE>
RESULTS OF OPERATIONS
The following two tables set forth certain historical financial and operating
data of the Company for the three months ended March 31, 1995 and March 31, 1994
including separate net revenue, operating expenses and other income, and
Operating Cash Flow information by segment. In 1995, the Company re-apportioned
some of its operations among its business segments. Prior years' data have been
reclassified to conform with the current apportionment method.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
As % As %
($000) of Net ($000) of Net
Amount Revenue Amount Revenue
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net revenue............................... $ 56,791 100.0% $ 48,095 100.0%
Operating expenses and other income:
Operating expenses...................... (47,164) (83.0) (40,392) (84.0)
Other income (expense), net............. (147) (0.3) 53 0.1
-------- ----- -------- -----
Total operating expenses and
other income......................... (47,311) (83.3) (40,339) (83.9)
-------- ----- -------- -----
Operating Cash Flow....................... 9,480 16.7 7,756 16.1
Other expenses:
Depreciation and amortization........... (2,695) (4.7) (2,535) (5.3)
Interest expense........................ (6,326) (11.1) (6,145) (12.8)
-------- ----- -------- -----
Total other expenses.................. (9,021) (15.8) (8,680) (18.1)
-------- ----- -------- -----
Income (loss) before disposition
of assets and income taxes............... 459 0.9 (924) (2.0)
Gain on disposition of assets............. -- -- 2,522 5.2
Income tax expense........................ (25) 0.0 (33) (0.1)
-------- ----- -------- -----
Net income................................ $434 0.9 $1,565 3.1
-------- ----- -------- -----
-------- ----- -------- -----
</TABLE>
6
<PAGE>
OPERATING INFORMATION BY BUSINESS SEGMENT
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1995 1994
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(in thousands)
<S> <C> <C>
NET REVENUE:
Out-of-home media.................................... $ 20,786 $ 17,970
Broadcasting......................................... 26,319 22,838
Other................................................ 9,686 7,287
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Total net revenue.............................. $ 56,791 $ 48,095
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-------- --------
OPERATING EXPENSES AND OTHER INCOME:
Out-of-home media.................................... $ 14,915 $ 14,068
Broadcasting......................................... 15,992 12,464
Other................................................ 16,404 13,807
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Total operating expenses and other income...... $ 47,311 $ 40,339
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OPERATING CASH FLOW:
Out-of-home media.................................... $ 5,871 $ 3,902
Broadcasting......................................... 10,327 10,374
Other................................................ (6,718) (6,520)
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Total Operating Cash Flow...................... $ 9,480 $ 7,756
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CHANGE IN NET REVENUE FROM PRIOR PERIODS:
Out-of-home media.................................... 15.7% 12.5%
Broadcasting......................................... 15.2 12.1
Other................................................ 32.9 3.7
Change in total net revenue.................... 18.1 10.9
OPERATING DATA AS A PERCENTAGE OF NET REVENUE:
Operating expenses and other income:
Out-of-home media.................................. 71.8% 78.3%
Broadcasting....................................... 60.8 54.6
Other.............................................. 169.4 189.5
Total operating expenses and other income...... 83.3 83.9
Operating Cash Flow:
Out-of-home media.................................. 28.2% 21.7%
Broadcasting....................................... 39.2 45.4
Other.............................................. (69.4) (89.5)
Total Operating Cash Flow...................... 16.7 16.1
</TABLE>
<PAGE>
THREE MONTHS ENDED MARCH 31, 1995 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1994
NET REVENUE. Net revenue for the quarter ended March 31, 1995, increased $8.7
million or 18.1% to $56.8 million from $48.1 million in 1994. The Company's
out-of-home media segment's net revenue increased $2.8 million or 15.7% mainly
due to increased national advertising sales. The Company's broadcasting segment
showed an increase of $3.5 million or 15.2% due to the addition of radio station
KUBE(FM) and increased rates and sales volume. Net revenue in the Company's
other businesses segment increased $2.4 million or 32.9% mainly due to increased
ticket sales from Sonics home games.
OPERATING EXPENSES AND OTHER INCOME. Operating expenses and other income
increased $7.0 million or 17.3% to $47.3 million in 1995 compared to $40.3
million in 1994. In the Company's out-of-home media segment, operating expenses
and other income increased slightly by $0.8 million or 6.0% to $14.9 million
from a combination of expenses related to increased sales and from the effects
of inflation on operating expenses. Operating expenses and other income in the
Company's broadcasting segment increased by $3.5 million or 28.3% to $16.0
million mostly due to the addition of KUBE(FM) and higher programming,
promotion, and production expenses. Operating expenses and other income from
the Company's other segment increased $2.6 million or 18.8% to $16.4 million
mainly from basketball operating expenses related to players' salaries and
transportation costs.
OPERATING CASH FLOW. Because the increase in net revenue was greater than the
increase in operating expense and other income, the Company's Operating Cash
Flow increased $1.7 million or 22.2% for the three months ended March 31, 1995
from the same period in 1994. The $2.0 million increase in the out-of-home
segment's Operating Cash Flow more than offset the $0.3 million decrease in the
Company's other segment's Operating Cash Flow for the quarter. The Operating
Cash Flow for the broadcasting segment showed little change from the comparable
period in 1994. Operating Cash Flow as a percentage of net revenue increased to
16.7% for the three months ended March 31, 1995 from 16.1% for the comparable
period in 1994.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
$0.2 million or 6.3% to $2.7 million in 1995 as compared to $2.5 million in
1994. This increase is mainly the result of the addition of radio station
KUBE(FM) in July of 1994.
INTEREST EXPENSE. Interest expense for the quarter ended March 31, 1995
increased $0.2 million or 2.9% to $6.3 million from $6.1 million in 1994 due to
an increase in the average interest rate applied to outstanding debt as well as
an increase in long-term debt from the addition of KUBE(FM).
INCOME TAX EXPENSE. For the first quarter of 1995, the Company incurred $25,000
in income tax expense under the alternative minimum tax compared to $33,000 of
income tax expense for the first quarter of 1994. Management anticipates that
the Company will continue to incur income tax expenses under the alternative
minimum tax until operating loss carryforwards are substantially reduced.
NET INCOME. Net income for the three months ended March 31, 1995 was $1.2
million lower than for the comparable period in 1994. This decrease was due to
a $2.5 million gain from a disposition of assets recognized in the first quarter
of 1994. When adjusted for this gain, net income for the first quarter of 1995
increased $1.3 million compared to the first quarter of 1994 reflecting the
strong increase in Operating Cash Flow generated during the first three months
of 1995.
8
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LIQUIDITY AND CAPITAL RESOURCES
Under the Credit Agreement, the Company presently has approximately $7.1 million
available for borrowing under the revolving credit facility. The Credit
Agreement and Subordinated Note Agreements require the consent of the banks and
other lenders prior to any material expansion of the Company's operations.
Presently, borrowings under the Credit Agreement bear annual interest at either
the prime rate plus 1.00% or LIBOR plus 2.25%. The Senior Notes bear annual
interest at 10.75%. The Subordinated Notes bear average annual interest at
10.58%. The borrowings and the Notes are subject to the Company's compliance
with certain financial ratios and covenants set forth in the Credit Agreement,
Senior Note Indenture and Subordinated Note Agreements. As of March 31, 1995,
the Company was in compliance with all such ratios and covenants. The
borrowings under the Credit Agreement and the Senior Notes are secured by the
pledge of stock of the Company's subsidiaries.
The Company's working capital decreased to $15.9 million at March 31, 1995 from
$16.8 million at December 31, 1994 mostly due to the increase in the current
portion of long-term debt. For the periods presented, the Company financed its
working capital needs from a combination of cash provided by operating
activities and borrowings under the Credit Agreement. Historically, the
Company's long-term liquidity needs for acquisitions have been financed by
additions to its long-term debt, principally through bank borrowings or private
placements of senior and subordinated debt. Capital expenditures for new
property and equipment have been financed with both cash provided by operating
activities and long-term debt. Cash provided by operating activities for the
first three months of 1995 increased to $10.5 million from $7.0 million in 1994.
At March 31, 1995, the Company's capital resources consisted of $10.2 million in
cash and cash equivalents and approximately $7.1 million available under the
Credit Agreement.
Capital expenditures for new property and equipment of $2.5 million in the first
three months of 1995 were financed with a combination of cash provided by
operating activities and borrowings under the Credit Agreement. These capital
expenditures were primarily for leasehold improvements at the new Key Arena -
the future home of the Sonics, as well as for advertising signs, displays,
vehicles and equipment, and broadcast equipment
On March 15, 1995, the Company paid its shareholders a cash dividend of $.03 per
share. The Company expects to continue to issue cash dividends as long as
operating results remain at or exceed current levels.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS: NO NEW EXHIBITS ARE BEING FILED WITH THIS REPORT.
(B) NO REPORTS ON FORM 8-K WERE FILED DURING THE THREE MONTHS
ENDED MARCH 31, 1995.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
ACKERLEY COMMUNICATIONS, INC.
DATED: MAY 11, 1995 BY
-----------------------------------
DENIS M. CURLEY
EXEC. VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER,
TREASURER AND SECRETARY
(PRINCIPAL FINANCIAL OFFICER)
10
