<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT
UNDER
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13D OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000
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
THE ACKERLEY GROUP, 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)
1301 FIFTH AVENUE
SUITE 4000
SEATTLE, WASHINGTON 98101
(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 periods 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.
Title of Class Outstanding at May 1, 2000
-------------- --------------------------
Common Stock, $.01 par value 23,886,178 shares
Class B Common Stock, $.01 par value 11,088,700 shares
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999........................................ 1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999........................... 2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999........................... 3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........................ 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................... 9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................ 14
SIGNATURES.................................................................. 15
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE ACKERLEY GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
---------------
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
---------- ------------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 55,475 $ 2,808
Accounts receivable, net of allowance 60,229 61,133
Current portion of broadcast rights 5,555 6,752
Prepaid expenses 8,633 15,777
Deferred tax asset 4,740 13,819
Other current assets 2,405 3,607
--------- ---------
Total current assets 137,037 103,896
Property and equipment, net 142,663 142,851
Goodwill, net 271,344 219,478
Other intangibles, net 19,592 22,899
Other assets 43,528 39,312
--------- ---------
Total assets $ 614,164 $ 528,436
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,806 $ 6,827
Accrued interest 3,993 10,936
Accrued wages and commissions 6,195 5,475
Other accrued liabilities 12,997 10,902
Income taxes payable 101,709 ---
Deferred revenue 8,649 21,067
Current portion of broadcasting obligations 6,392 8,242
Litigation accrual --- 7,911
Current portion of long-term debt 4,385 10,832
--------- ---------
Total current liabilities 151,126 82,192
Long-term debt, less current portion 256,370 403,761
Other long-term liabilities 14,841 15,194
--------- ---------
Total liabilities 422,337 501,147
Stockholders' equity:
Common stock, par value $.01 per share--authorized 50,000,000
shares; issued March 31, 2000 - 25,258,814 and
December 31, 1999 - 25,251,419 shares; and outstanding
March 31, 2000 - 23,883,868 and December 31, 1999 - 252 252
23,876,473 shares
Class B common stock, par value $.01 per share--authorized
11,406,510 shares; issued and outstanding March 31, 2000
- 11,088,700 and December 31, 1999 - 11,088,730 shares 111 111
Capital in excess of par value 57,464 57,478
Accumulated earnings (deficit) 144,089 (20,463)
Less common stock in treasury, at cost (10,089) (10,089)
--------- ---------
Total stockholders' equity 191,827 27,289
--------- ---------
Total liabilities and stockholders' equity $ 614,164 $ 528,436
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 4
THE ACKERLEY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
---------------
<TABLE>
<CAPTION>
For the Three Month
Periods Ended March 31,
2000 1999
--------- ---------
(In thousands, except
per share amounts)
<S> <C> <C>
Revenue $ 91,320 $ 75,117
Less agency commissions and discounts (9,018) (7,421)
--------- ---------
Net revenue 82,302 67,696
Expenses (other income):
Operating expenses 73,716 60,164
Depreciation and amortization expense 8,112 4,723
Interest expense 5,617 7,311
Stock compensation expense 10 244
Net gain on dispositions of assets (281,357) (1,626)
--------- ---------
Total expenses and other income (193,902) 70,816
--------- ---------
Income (loss) before income taxes 276,204 (3,120)
Income tax expense (benefit) 110,953 (572)
--------- ---------
Income (loss) before extraordinary item 165,251 (2,548)
Extraordinary item: loss on debt extinguishment --- (1,373)
--------- ---------
Net income (loss) $ 165,251 $ (3,921)
========= =========
Income (loss) per common share - basic, before
extraordinary item $ 4.73 $ (0.08)
Extraordinary item: loss on debt extinguishment --- (0.04)
--------- ---------
Net income (loss) per common share - basic $ 4.73 $ (0.12)
========= =========
Income (loss) per common share - diluted,
before extraordinary item $ 4.72 $ (0.08)
Extraordinary item: loss on debt extinguishment --- (0.04)
--------- ---------
Net income (loss) per common share - diluted $ 4.72 $ (0.12)
========= =========
Dividends per common share $ 0.02 $ 0.02
========= =========
Dividends per common share, diluted $ 0.02 $ 0.02
========= =========
Weighted average number of common shares 34,970 31,627
Weighted average number of common shares - diluted 35,023 31,882
</TABLE>
See Notes to Condensed Consolidated Financial Statements
2
<PAGE> 5
THE ACKERLEY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
---------------
<TABLE>
<CAPTION>
For the Three Month
Periods Ended March 31,
2000 1999
--------- ----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Reconciliation of net income (loss) to net
cash used in operating activities:
Net income (loss) $ 165,251 $ (3,921)
Stock compensation expense 10 244
Deferred tax expense (benefit) 110,953 (1,092)
Debt extinguishment, net of taxes --- 1,373
Depreciation and amortization 8,112 4,723
Amortization of deferred financing costs 422 429
Net gain on dispositions of assets (281,357) (1,626)
Amortization of broadcast rights 2,596 2,727
Income from barter transactions (283) (576)
Gain on termination of interest rate swap agreement (223) ---
Change in assets and liabilities:
Accounts receivable 982 (2,152)
Prepaid expenses 2,406 (2,742)
Other current assets and other assets 442 1,211
Accounts payable, accrued interest, and accrued wages
and commissions (6,302) 2,816
Other accrued liabilities and other long-term liabilities (7,882) 4,435
Deferred revenues (12,418) (15,690)
Current portion of broadcast obligations (3,317) (3,289)
--------- ---------
Net cash used in operating activities (20,608) (13,130)
Cash flows from investing activities
Proceeds from disposition of assets 307,692 1,626
Proceeds from sale of property and equipment --- 175
Capital expenditures (7,521) (5,919)
Payments for acquisitions (56,199) (42,564)
Payments for investments (17,000) ---
--------- ---------
Net cash provided by (used in) investing activities 226,972 (46,682)
Cash flows from financing activities:
Borrowings under credit agreements 43,000 169,063
Payments under credit agreements (196,496) (104,274)
Payments under capital lease obligations (235) (220)
Note redemption prepayment fees --- (1,208)
Payments of deferred financing costs --- (5,632)
Proceeds from stock issuance 34 ---
--------- ---------
Net cash provided by (used in) financing activities (153,697) 57,729
Net increase (decrease) in cash and cash equivalents 52,667 (2,083)
Cash and cash equivalents at beginning of period 2,808 4,630
--------- ---------
Cash and cash equivalents at end of period $ 55,475 $ 2,547
========= =========
Supplemental disclosure of noncash transactions:
Broadcast rights acquired and broadcast obligations $ 1,024 $ 1,567
assumed
Property and equipment acquired through barter 103 606
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE> 6
THE ACKERLEY GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. The balance sheet at December 31, 1999 has been
derived from the audited consolidated financial statements at that date. The
accompanying condensed consolidated financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
normal and recurring adjustments necessary for a fair presentation of the
financial position and the results of operations for such periods have been
included. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
The results of operations for any interim period are not necessarily
indicative of anticipated results for the full year. The Company's results of
operations may vary from quarter to quarter due in part to the timing of
acquisitions and to seasonal variations in the operations of the television
broadcasting, radio broadcasting, and sports & entertainment segments. In
particular, the Company's net revenue and net income historically have been
affected positively during the NBA basketball season (the first, second, and
fourth quarters) and by increased advertising activity in the second and fourth
quarters.
Certain prior year's amounts have been reclassified to conform to the
2000 presentation.
NOTE 2. ACQUISITIONS AND DISPOSITIONS
Sale of Florida Outdoor Advertising Operations. On January 5, 2000, the
Company sold substantially all of the assets of its outdoor advertising
operations serving the Miami-Fort Lauderdale and West Palm Beach-Fort Pierce,
Florida markets to Eller Media Company, a subsidiary of Clear Channel
Communications, Inc. for approximately $300.0 million in cash, subject to
certain post-closing adjustments, plus the assumption of certain liabilities.
The Company recorded a gain on the transaction of approximately $272.4 million
in the first quarter of 2000.
Sale of KCBA(TV) and Acquisition of KION(TV). On January 12, 2000, the
Company sold substantially all of the assets of KCBA(TV), the FOX affiliate
licensed to Monterey, California, for approximately $11.0 million and entered
into a local marketing agreement with the purchaser to provide programming and
sales services. The Company recorded a gain on the sale of KCBA(TV) of
approximately $8.9 million in the first quarter of 2000. Concurrent with this
sale, the Company exercised its option to purchase substantially all the assets
of KION(TV), the CBS affiliate licensed to Salinas, California. The Company paid
approximately $6.3 million in 1996 and 1997 for the option to purchase KION(TV),
and the purchase price for the station assets was approximately $7.7 million.
The Company recorded net assets with estimated fair values aggregating $1.9
million and goodwill of $12.1 million in connection with the transaction. From
April 24, 1996 until closing of the transaction, the Company provided
programming and sales services under a local marketing agreement with the
previous owner.
Acquisition of WUTR(TV). On January 20, 2000, the Company purchased
substantially all of the assets of WUTR(TV), the ABC affiliate licensed to
Utica, New York, for approximately $7.9 million. From June 30, 1997 until
closing of the transaction, the Company provided programming and sales services
under a local marketing agreement with the previous owner. The Company recorded
net assets with estimated fair values aggregating $1.7 million and goodwill of
$6.2 million in connection with the
4
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transaction.
Acquisition of Outdoor Advertising Company in Bellingham, Washington. On
January 31, 2000, the Company purchased substantially all of the assets of an
outdoor advertising company in Bellingham, Washington for approximately $2.9
million. The Company recorded net assets with estimated fair values aggregating
$1.1 million and goodwill of $1.8 million in connection with the transaction.
Acquisition of Outdoor Advertising Company in Washington and Oregon. On
January 13, 2000, the Company entered into agreements to purchase substantially
all of the assets of an outdoor advertising company serving portions of
Washington and Oregon for approximately $14.6 million plus the assumption of
certain liabilities. The Company paid $7.5 million of the purchase price on
February 1, 2000 and the remaining balance on March 1, 2000. The Company
recorded net assets with estimated fair values aggregating $2.9 million and
goodwill of $11.7 million in connection with the transaction.
Investment in WETM(TV). On February 1, 2000, the Company entered into a
local marketing agreement with Smith Television of New York, Inc. ("STNY") to
provide programming and sales services to WETM(TV), the NBC affiliate licensed
to Elmira, New York. The Company also purchased a 20% non-voting equity interest
in STNY for approximately $17.0 million. Beginning in August 2003, STNY may
require the Company to exchange the interest in STNY, plus $11.0 million in
cash, for all the assets of WETM(TV). Under certain circumstances, the Company
may have an option to purchase all or a controlling interest in STNY.
Acquisition of WBGH-LP. On February 1, 2000, the Company purchased
substantially all of the assets, other than the FCC license, of WBGH-LP, a
low-power NBC affiliate licensed to Binghamton, New York, for approximately $9.0
million. The Company recorded net assets with estimated fair values aggregating
$0.1 million and goodwill of $8.9 million in connection with the transaction.
The Company entered into a local marketing agreement with the FCC licensee of
WBGH-LP to provide programming and sales services pending FCC approval of the
transaction. On April 28, 2000, the FCC license was transferred to the Company
for no additional consideration.
Acquisition of Outdoor Advertising Company in New Jersey and New York
City. On March 31, 2000, the Company acquired substantially all of the assets of
an outdoor advertising company in New Jersey and New York City for approximately
$19.8 million. The Company recorded net assets with estimated fair values
aggregating $4.9 million and goodwill of $14.9 million in connection with the
transaction.
Acquisition of WWTI(TV). On March 31, 2000, the Company entered into an
agreement to purchase substantially all of the assets of WWTI(TV), the ABC
affiliate licensed to Watertown, New York, for approximately $6.0 million. The
Company has entered into a local marketing agreement with the owner of the
station to provide programming and sales services pending FCC approval and
closing of the transaction.
Acquisition of KJEO(TV). On May 8, 2000, the Company entered into an
agreement to purchase substantially all of the assets of KJEO(TV), the CBS
affiliate licensed to Fresno, California, for approximately $60.0 million. In
connection with the transaction, the Company paid $6.0 million of the purchase
price into an escrow account, with the balance to be paid at closing.
5
<PAGE> 8
Acquisition of KKFX-LP. On May 9, 2000, the Company purchased
substantially all of the assets of a low-power television station, KKFX-LP, the
FOX affiliate licensed to the Santa Barbara-Santa Maria-San Luis Obispo,
California market. The purchase price is approximately $15.4 million. From April
1, 2000 until closing of the transaction, the Company provided programming and
sales services under a local marketing agreement with the previous owner.
NOTE 3.DEBT
On January 5, 2000, the Company applied some of the proceeds from the
sale of its Florida outdoor advertising operations (as discussed in Note 2) to
fully repay outstanding borrowings under the 1999 Credit Agreement, consisting
of $43.0 million under the Revolver and $150.0 million under the Term Loan. In
connection with the transaction, the Company amended the 1999 Credit Agreement
to waive, on a one-time basis, the mandatory requirement to apply 100% of net
proceeds from asset dispositions to permanently repay borrowings under the
Revolver and to provide for a new commitment amount under the Revolver of
approximately $147.9 million. Additionally, the Company amended the 1999 Credit
Agreement to provide for a delayed-draw term loan facility of approximately
$126.8 million (the "2000 Term Loan"). The Company may borrow, through no more
than two separate borrowings, the maximum amount available under the 2000 Term
Loan.
NOTE 4. SHAREHOLDERS' EQUITY
On November 10, 1999, the Company's Board of Directors adopted, subject
to shareholder approval, an Employee Stock Purchase Plan (the "Plan"), and
reserved 1,500,000 shares of Common Stock for issuance under the Plan. On May 1,
2000, the Company's shareholders approved the Plan, and the Plan commenced
effective January 1, 2000.
On February 1, 2000, the Company granted 212,000 options to purchase
Common Stock to certain employees. The exercise price of these options
represented the market price of the Company's stock on the date of grant.
NOTE 5. TELEVISION BROADCAST GROUP RESTRUCTURING
On April 6, 1999, the Company announced the launch of Digital
CentralCasting, a digital broadcasting system which allows the Company to
consolidate back-office functions such as operations, programming, advertising
scheduling, and accounting for all of the television stations within a regional
group at one station. To implement this strategy, the Company has organized
fifteen of the television stations it owns and/or programs into the following
three regional station groups: New York (WIXT, WOKR, WIVT, WBGH-LP, WUTR, WETM,
and WWTI), Central California (KCOY, KKFX-LP, KION, and KGET), and North Coast
(KCBA, KMTR, KVIQ, and KFTY).
The Company expects to complete the implementation of Digital
CentralCasting for all of its television station groups by the second quarter of
2000. The Company recorded a $1.1 million restructuring charge in the second
quarter of 1999 relating to the implementation of Digital CentralCasting. This
restructuring charge consisted primarily of costs associated with employee staff
reductions. As of March 31, 2000, termination benefits of approximately $0.4
million, representing 44 employees, had been paid and charged to the
restructuring accrual. Approximately 50 total employees are currently estimated
to be terminated in connection with the restructuring.
NOTE 6. LITIGATION ACCRUAL
The Company and two of its executive officers were defendants in a
wrongful termination suit brought by former employees. On February 29, 1996, a
jury issued a verdict awarding the plaintiffs
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<PAGE> 9
compensatory and punitive damages of approximately $13.0 million. At December
31, 1995, the Company initially recorded an accrual of $14.2 million, including
estimated additional legal costs, related to the verdict. Following post-trial
motions, the punitive damages award was reduced, and in 1997, the Company
reduced the accrual related to this litigation by $5.0 million.
On October 1, 1998, the U.S. Court of Appeals for the Ninth Circuit
ruled in the Company's favor, holding that the plaintiffs did not have a valid
claim under the Federal Fair Labor Standards Act and striking the award of
damages, including all punitive damages. The Court of Appeals remanded the case
for further consideration of whether the plaintiffs had a valid claim under the
Washington State Fair Labor Standards Act.
On March 9, 1999, the Court of Appeals issued an order referring the
case to an 11-judge panel for a new hearing, which was held on April 23, 1999.
On June 10, 1999, the Court of Appeals reinstated the District Court verdict in
favor of the plaintiffs. The Company petitioned for review of this decision by
the U.S. Supreme Court, which was denied without comment by the Court on January
18, 2000. Accordingly, the Company paid awarded damages, accrued interest
thereon, and plaintiff attorney's fees of approximately $7.5 million in the
first quarter of 2000.
NOTE 7. INDUSTRY SEGMENT INFORMATION
The Company organizes its segments based on the products and services
from which revenues are generated. The Company evaluates segment performance and
allocates resources based on Segment Operating Cash Flow. The Company defines
Operating Cash Flow as net revenue less operating expenses before amortization,
depreciation, interest, litigation, stock compensation expenses and net gain on
dispositions of assets. Segment Operating Cash Flow is defined as Operating Cash
Flow before corporate overhead.
Selected financial information for these segments for the three month
periods ended March 31, 2000 and 1999 is presented as follows:
<TABLE>
<CAPTION>
OUTDOOR TELEVISION RADIO SPORTS &
MEDIA BROADCASTING BROADCASTING ENTERTAINMENT CONSOLIDATED
-------- ------------ ------------ ------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
THREE MONTH PERIOD ENDED
MARCH 31, 2000:
Net revenue $ 17,717 $ 22,525 $ 6,527 $ 35,533 $ 82,302
Segment operating expenses (11,788) (18,902) (4,260) (33,347) (68,297)
-------- -------- -------- -------- --------
Segment Operating Cash Flow $ 5,929 $ 3,623 $ 2,267 $ 2,186 $ 14,005
======== ======== ======== ========
Corporate overhead (5,419)
--------
Operating Cash Flow 8,586
Other (expenses) income:
Depreciation and
amortization expense (8,112)
Interest expense (5,617)
Stock compensation expense (10)
Net gain on dispositions
of assets 281,357
--------
Income before income taxes $276,204
========
Segment assets $104,021 $287,123 $ 58,686 $ 48,106 $497,936
======== ======== ======== =========
Corporate assets 116,228
--------
Total assets $614,164
========
</TABLE>
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<TABLE>
<CAPTION>
OUTDOOR TELEVISION RADIO SPORTS &
MEDIA BROADCASTING BROADCASTING ENTERTAINMENT CONSOLIDATED
-------- ------------ ------------ ------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
THREE MONTH PERIOD ENDED
MARCH 31, 1999:
Net revenue $ 19,990 $ 16,251 $ 5,221 $ 26,234 $ 67,696
Segment operating expenses (12,957) (16,291) (3,452) (23,652) (56,352)
-------- -------- -------- -------- --------
Segment Operating Cash Flow $ 7,033 $ (40) $ 1,769 $ 2,582 11,344
======== ========= ======== ========
Corporate overhead (3,812)
--------
Operating Cash Flow 7,532
Other (expenses) income:
Depreciation and
amortization expense (4,723)
Interest expense (7,311)
Stock compensation expense (244)
Net gain on dispositions
of assets 1,626
--------
Income before income taxes and
extraordinary item $ (3,120)
=========
Segment assets $ 88,114 $115,644 $ 57,964 $ 39,343 $301,065
======== ======== ======== =========
Corporate assets 65,733
--------
Total assets $366,798
========
</TABLE>
The increase in assets from the outdoor media and television
broadcasting segments as of March 31, 2000 compared to December 31, 1999 is
primarily due to the acquisitions of three outdoor advertising companies and
television stations KION, WUTR, and WBGH-LP, as discussed in Note 2.
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We reported net income of $165.3 million for the first three months of
2000, compared to a net loss of $3.9 million for the first three months of 1999.
Net revenue for the first three months of 2000 increased over the same period
last year by $14.6 million, or 22%, while our Operating Cash Flow (as defined
below) increased by $1.1 million, or 15%.
On April 14, 2000, we paid a $.02 per share dividend.
During 2000, we sold our Florida outdoor advertising operations and
acquired three outdoor advertising companies. In addition, we acquired three
television stations for which we previously provided programming and sales
services under local marketing agreements. We also entered into local marketing
agreements to provide programming and sales services to four additional
television stations. These transactions are more fully described in Note 2 to
the Condensed Consolidated Financial Statements.
As with many media companies, our acquisitions and dispositions have
resulted in significant non-cash and non-recurring charges to income. For this
reason, in addition to net income, our management believes that Operating Cash
Flow (defined as net revenue less operating expenses before amortization,
depreciation, interest, litigation, stock compensation expenses and net gain on
dispositions of assets) is an appropriate measure of the Company's financial
performance. Similarly, our management believes that Segment Operating Cash Flow
(defined as Operating Cash Flow before corporate overhead) is an appropriate
measure of our segments' financial performance. These measures exclude certain
expenses that management does not consider to be costs of ongoing operations. We
use Operating Cash Flow to pay interest and principal on our long-term debt as
well as to finance capital expenditures. Operating Cash Flow and Segment
Operating Cash Flow, however, are not to be considered alternatives to net
income as an indicator of our operating performance or to cash flows as a
measure of our liquidity.
RESULTS OF OPERATIONS
The following tables set forth certain historical financial and
operating data for the three month periods ended March 31, 2000 and 1999,
including net revenue, operating expenses, and Operating Cash Flow information
by segment:
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED MARCH 31,
-------------------------------------------------------------
2000 1999
---------------------------- ----------------------------
(DOLLARS IN THOUSANDS)
AS % OF AS % OF
AMOUNT NET REVENUE AMOUNT NET REVENUE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net revenue ............................. $ 82,302 100.0% $ 67,696 100.0%
Segment operating expenses .............. 68,297 83.0% 56,352 83.2%
Corporate overhead ...................... 5,419 6.6% 3,812 5.6%
--------- ---------
Total operating expenses ...... 73,716 89.6% 60,164 88.9%
--------- ---------
Operating Cash Flow ..................... 8,586 10.4% 7,532 11.1%
Other expenses and (income):
Depreciation and amortization expense 8,112 9.9% 4,723 7.0%
Interest expense .................... 5,617 6.8% 7,311 10.8%
Stock compensation expense .......... 10 0.0% 244 0.4%
Net gain on dispositions of assets .. (281,357) (341.9%) (1,626) (2.4%)
--------- ---------
Total other expenses and income (267,618) 325.2% 10,652 15.7%
--------- ---------
Income (loss) before income taxes ....... 276,204 335.6% (3,120) (4.6%)
</TABLE>
9
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<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED MARCH 31,
-------------------------------------------------------------
2000 1999
---------------------------- ----------------------------
(DOLLARS IN THOUSANDS)
AS % OF AS % OF
AMOUNT NET REVENUE AMOUNT NET REVENUE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Income tax expense (benefit) .......... 110,953 134.8% (572) (0.8%)
-------- --------
Income (loss) before extraordinary item 165,251 200.8% (2,548) (3.8%)
Extraordinary item .................... -- -- (1,373) (2.0%)
-------- --------
Net income (loss) ..................... $165,251 200.8% $ (3,921) (5.8%)
======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
MARCH 31,
---------------------------
2000 1999
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net revenue:
Outdoor media.......................................... $17,717 $19,990
Television broadcasting................................ 22,525 16,251
Radio broadcasting..................................... 6,527 5,221
Sports & entertainment................................. 35,533 26,234
------- -------
Total net revenue................................. $82,302 $67,696
======= =======
Segment operating expenses:
Outdoor media.......................................... $11,788 $12,957
Television broadcasting................................ 18,902 16,291
Radio broadcasting..................................... 4,260 3,452
Sports & entertainment................................. 33,347 23,652
------- -------
Total segment operating expenses.................. $68,297 $56,352
======= =======
Operating Cash Flow:
Outdoor media.......................................... $ 5,929 $ 7,033
Television broadcasting................................ 3,623 (40)
Radio broadcasting..................................... 2,267 1,769
Sports & entertainment................................. 2,186 2,582
------- -------
Total segment Operating Cash Flow................. 14,005 11,344
Corporate overhead..................................... (5,419) (3,812)
------- -------
Total Operating Cash Flow......................... $ 8,586 $ 7,532
======= =======
Change in net revenue from prior periods:
Outdoor media.......................................... (11.4%) (24.5%)
Television broadcasting................................ 38.6% 11.8%
Radio broadcasting..................................... 25.0% 5.3%
Sports & entertainment................................. 35.4% (25.2%)
Change in total net revenue....................... 21.6% (16.5%)
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
MARCH 31,
---------------------------
2000 1999
------- -------
<S> <C> <C>
Segment operating expenses as a % of segment net revenue:
Outdoor media.......................................... 66.5% 64.8%
Television broadcasting................................ 83.9% 100.2%
Radio broadcasting..................................... 65.3% 66.1%
Sports & entertainment................................. 93.8% 90.2%
Total segment operating expenses as a % of
total net revenue................................. 83.0% 83.2%
Operating Cash Flow as a % of segment net revenue:
Outdoor media.......................................... 33.5% 35.2%
Television broadcasting................................ 16.1% (0.2)%
Radio broadcasting..................................... 34.7% 33.9%
Sports & entertainment................................. 6.2% 9.8%
Total Operating Cash Flow as a % of total
net revenue....................................... 10.4% 11.1%
</TABLE>
THREE MONTH PERIOD ENDED MARCH 31, 2000 COMPARED WITH THREE MONTH PERIOD ENDED
MARCH 31, 1999
Net Revenue. Our net revenue for the first quarter of 2000 was $82.3
million. This represented an increase of $14.6 million, or 22%, compared to
$67.7 million in the first quarter of 1999. Changes in net revenue were as
follows:
Outdoor Media. Our net revenue from our outdoor media segment for the
first quarter of 2000 decreased by $2.3 million, or 12%, compared to the
first quarter of 1999. This decrease was due primarily to the sale of
our Florida outdoor advertising operations in January 2000. Excluding
our Florida outdoor advertising operations, our net revenue for the
first quarter of 2000 from our outdoor media segment increased by $3.7
million, or 27%, compared to the first quarter of 1999. This increase
resulted primarily from an increase in both national and local sales.
Television Broadcasting. Our net revenue for the first quarter of 2000
from our television broadcasting segment increased by $6.2 million, or
38%, compared to the first quarter of 1999. This increase was due mainly
to the addition of television stations WETM and WBGH in February 2000,
WOKR in April 1999, and KTVF in August 1999. Excluding these
transactions, our net revenue for the first quarter of 2000 from our
television broadcasting segment increased by $2.2 million, or 15%,
compared to the first quarter of 1999. This increase was due primarily
to increased political advertising in the first quarter of 2000.
Radio Broadcasting. Our net revenue for the first quarter of 2000 from
our radio broadcasting segment increased by $1.3 million, or 25%,
compared to the first quarter of 1999. This increase was due primarily
to an increase in both national and local sales.
Sports & Entertainment. Our net revenue for the first quarter of 2000
from our sports & entertainment segment increased by $9.3 million, or
35%, compared to the first quarter of 1999. This increase was due
primarily to commencement of the full 1999-2000 basketball season in
contrast to the cancellation of preseason and regular season games
through February 4, 1999 as a result of the NBA lockout.
Segment Operating Expenses. Our segment operating expenses (which
exclude corporate overhead) for the first quarter of 2000 were $68.3 million.
This represented an increase of $11.9 million, or 21%,
11
<PAGE> 14
compared to $56.4 million for the first quarter of 1999. Changes in segment
operating expenses were as follows:
Outdoor Media. Our operating expenses for the first quarter of 2000 from
our outdoor media segment decreased by $1.2 million, or 9%, compared to
the first quarter of 1999. This decrease was due primarily to the sale
of our Florida outdoor advertising operations in January 2000. Excluding
our Florida outdoor advertising operations, our operating expenses for
the first quarter of 2000 from our outdoor media segment increased by
$2.3 million, or 25%, from 1999. This increase was primarily due to
higher lease costs and increased expenses related to the expansion of
our national sales force.
Television Broadcasting. Our operating expenses for the first quarter of
2000 from our television broadcasting segment increased by $2.6 million,
or 16%, compared to the first quarter of 1999. This increase was due
mainly to the addition of stations WETM and WBGH in February 2000, WOKR
in April 1999, and KTVF in August 1999. Excluding these transactions,
our operating expenses for the first quarter of 2000 from our television
broadcasting segment decreased by $0.3 million, or 2%, compared to the
first quarter of 1999.
Radio Broadcasting. Our operating expenses for the first quarter of 2000
from our radio broadcasting segment increased by $0.8 million, or 23%,
compared to the first quarter of 1999. This increase was due primarily
to higher expenses relating to increased sales activity.
Sports & Entertainment. Our operating expenses for the first quarter of
2000 from our sports & entertainment segment increased by $9.6 million,
or 41%, compared to the first quarter of 1999. This increase was due
primarily to the commencement of the full 1999-2000 basketball season in
contrast to the cancellation of preseason and regular season games
through February 4, 1999 as a result of the NBA lockout.
Corporate Overhead Expenses. Our corporate overhead expenses for the
first quarter of 2000 were $5.4 million. This represented an increase of $1.6
million, or 42%, compared to the first quarter of 1999. This increase was
primarily a result of increased travel costs and employment-related expenses.
Operating Cash Flow. Our Operating Cash Flow for the first quarter of
2000 was $8.6 million. This represented an increase of $1.1 million, or 15%,
compared to $7.5 million for the first quarter of 1999. The increase in
Operating Cash Flow from our television broadcasting and radio broadcasting
segments was partially offset by the decrease in Operating Cash Flow from our
outdoor media and sports & entertainment segments and the increase in corporate
overhead expenses. Operating Cash Flow as a percentage of total net revenue
decreased slightly to 10% for the first quarter of 2000 compared to 11% for the
first quarter of 1999.
Depreciation and Amortization Expenses. Our depreciation and
amortization expenses were $8.1 million for the first quarter of 2000. This
represented an increase of $3.4 million, or 72%, compared to $4.7 million for
the first quarter of 1999. This increase resulted primarily from depreciation
and amortization expenses relating to our business acquisitions during 2000 and
1999.
Interest Expense. Our interest expense was $5.6 million for the first
quarter of 2000. This represented a decrease of $1.7 million, or 23%, compared
to the first quarter of 1999. This decrease was due primarily to lower average
debt balances during the first quarter of 2000, which reflected the application
of proceeds from the sale of our Florida outdoor advertising operations in
January 2000.
Stock Compensation Expense. We recognized stock compensation expense of
$0.2 million for the first quarter of 1999. This expense primarily related to
the amendment of certain stock option agreements. There were no such
transactions in the first quarter of 2000.
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<PAGE> 15
Net Gain on Dispositions of Assets. We recognized a net gain on
disposition of assets of $281.4 million for the first quarter of 2000 due to the
sale of our Florida outdoor advertising operations and television station KCBA
in California in January 2000. For the first quarter of 1999, we recognized a
net gain on dispositions of assets of $1.6 million, which represented the final
cash payment received on the sale of our airport advertising operations in June
1998.
Income Tax Expense. We recognized income tax expense of $111.0 million
for the first quarter of 2000 based on our income before income taxes of $276.2
million. For the first quarter of 1999, we recorded an income tax benefit of
$0.6 million as a result of our loss before income taxes of $3.1 million.
Extraordinary Item. In the first quarter of 1999, we replaced our
existing credit agreement with a new $325.0 million credit agreement and
redeemed our $20.0 million 10.48% Senior Subordinated Notes. These transactions
resulted in an aggregate charge of $1.4 million, net of taxes, primarily
consisting of the write-off of deferred financing costs and prepayment fees.
There were no such transactions in the first quarter of 2000.
Net Income. Our net income was $165.3 million for the first quarter of
2000, compared to our net loss of $3.9 million for the first quarter of 1999.
This increase was due primarily to the sale of our Florida outdoor advertising
operations in January 2000.
LIQUIDITY AND CAPITAL RESOURCES
On January 5, 2000, we sold substantially all of our assets of our
outdoor advertising operations serving the Miami-Fort Lauderdale and West Palm
Beach-Fort Pierce, Florida markets for approximately $300.0 million in cash,
plus the assumption of certain liabilities. Concurrent with the transaction, we
applied net proceeds from the sale to fully repay outstanding borrowings under
the 1999 Credit Agreement, consisting of $43.0 million under the Revolver and
$150.0 million under the Term Loan. These transactions are more fully described
in Notes 2 and 3 to the Condensed Consolidated Financial Statements.
During 2000, we purchased substantially all of the assets of three
outdoor advertising companies and television stations KION, WUTR, WBGH-LP, and
KKFX-LP. These acquisitions were financed with borrowings under our 1999 Credit
Agreements and proceeds from the sale of our Florida outdoor advertising
operations. These transactions are more fully described in Note 2 to the
Condensed Consolidated Financial Statements.
Under the 1999 Credit Agreement, we can choose to have interest
calculated at rates based on either a base rate or LIBOR plus defined margins
which vary based on our total leverage ratio. As of March 31, 2000, the annual
interest rate of borrowings under the 1999 Credit Agreement was approximately
8.91%.
We have pledged substantially all of our subsidiaries' outstanding stock
and assets as collateral for amounts due under the 1999 Credit Agreement. Thus,
if we default under the 1999 Credit Agreement, the lenders may take possession
of and sell some or substantially all of our subsidiaries or their assets.
In addition, the 1999 Credit Agreement and the Indenture for the 9%
Senior Subordinated Notes restrict, among other things, our ability to borrow,
pay dividends, repurchase outstanding shares of our stock, and sell or transfer
our assets. They also contain restrictive covenants requiring us to maintain
certain financial ratios. As of March 31, 2000, we were in compliance with all
such ratios and covenants.
Our working capital decreased by $35.8 million at March 31, 2000 from
$21.7 million at December 31, 1999 primarily due to increased accrued income
taxes, offset by increased cash, relating to the sale of our Florida outdoor
advertising operations.
13
<PAGE> 16
We expended $7.5 million for capital expenditures in the first quarter
of 2000, compared to $5.9 million in the corresponding quarter in 1999. Capital
expenditures in the first quarter of 2000 were primarily for broadcasting
equipment, and leasehold improvements.
For the periods presented, we financed our working capital needs
primarily from cash provided by operating activities and bank borrowings. Over
that period, long-term liquidity needs, including for acquisitions and to
refinance our indebtedness, have been financed through additions to long-term
debt, principally through bank borrowings and the issuance of subordinated debt
securities and, to a lesser extent, through issuance of common stock. Capital
expenditures for new property and equipment have been financed with both cash
provided by operating activities and long-term debt. Cash used in operating
activities for the first quarter of 2000 was $20.6 million, an increase from
cash used in operating activities of $13.1 million for the first quarter of
1999.
On April 14, 2000, we paid our shareholders a cash dividend of $.02 per
share.
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
As reported in our annual report on Form 10-K for the period ending
December 31, 1999, following the U.S. Supreme Court denial of our
petition for review of the decision of the Ninth Circuit Court of
Appeals we paid awarded damages, accrued interest thereon, and plaintiff
attorney's fees of approximately $7.5 million in the first quarter of
2000. See Note 16 of the Notes to Condensed Consolidated Financial
Statements.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule for the three month period ended March 31,
2000.
(b) Reports on Form 8-K:
(1) Current Report on Form 8-K, filed January 12, 2000 reporting the
Company's sale of substantially all of its Miami/Ft. Lauderdale
and West Palm Beach outdoor billboard assets held by its
wholly-owned subsidiaries.
(2) Current Report on Form 8-K/A, filed March 21, 2000 providing
proforma financial information in connection with the Company's
sale of substantially all of Miami/Ft. Lauderdale and the West
Palm Beach outdoor billboard assets held by its wholly-owned
subsidiaries.
14
<PAGE> 17
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.
THE ACKERLEY GROUP, INC.
DATED: May 11, 2000 By: /s/ Denis M. Curley
---------------------------------------
Denis M. Curley
Co-President, Chief Operating Officer
and Chief Financial Officer,
Treasurer and Secretary
15
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<PERIOD-END> MAR-31-2000
<CASH> 55,475
<SECURITIES> 0
<RECEIVABLES> 60,229
<ALLOWANCES> 1,733
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<PP&E> 142,663
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