<PAGE>
Rule 424(b)(3) Prospectus
Registration No. 333-02302
PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
9 3/4% SERIES A SENIOR SUBORDINATED DEBENTURES DUE 2007 ($275,000,000
PRINCIPAL AMOUNT OUTSTANDING) FOR 9 3/4% SERIES B SENIOR SUBORDINATED
DEBENTURES DUE 2007 ($275,000,000 PRINCIPAL AMOUNT)
OF
ALLBRITTON COMMUNICATIONS COMPANY
ALTHOUGH THE DEBENTURES ARE TITLED "SENIOR," THE COMPANY HAS NOT ISSUED, AND
DOES NOT HAVE ANY CURRENT ARRANGEMENTS TO ISSUE, ANY SIGNIFICANT INDEBTEDNESS
TO WHICH THE DEBENTURES WOULD BE SENIOR.
----------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE 5,
1996, UNLESS EXTENDED.
----------------
Allbritton Communications Company, a Delaware corporation ("ACC" or the
"Company"), 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 $275,000,000 of its 9 3/4% Series B Senior Subordinated
Debentures due 2007 (the "Exchange Debentures") for an equal principal amount
of its outstanding 9 3/4% Series A Senior Subordinated Debentures due 2007
(the "Debentures"), in integral multiples of $1,000. The Exchange Debentures
will be senior unsecured obligations of ACC and are substantially identical
(including principal amount, interest rate, maturity and redemption rights) to
the Debentures for which they may be exchanged pursuant to this offer, except
that (i) the offering and sale of the Exchange Debentures will have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), and (ii) holders of Exchange Debentures will not be entitled to certain
rights of holders under a Registration Rights Agreement dated as of February
6, 1996 (the "Registration Rights Agreement"), among ACC and the Initial
Purchasers (as defined) of the Debentures. The Debentures have been, and the
Exchange Debentures will be, issued under an Indenture dated as of February 6,
1996 (the "Indenture"), between ACC and State Street Bank and Trust Company,
as trustee (the "Trustee"). See "Description of Exchange Debentures." 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 Debentures 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 (including borrowings of up to $40.0
million under the New Senior Credit Agreement (as defined herein) and
borrowings of up to $3.0 million under the Capital Lease Facility (as defined
herein)) and will rank pari passu in right of payment with ACC's existing 11
1/2% Senior Subordinated Debentures due 2004 (the "11 1/2% Debentures"). As of
December 31, 1995, after giving pro forma effect to the sale of the Debentures
(and the application of the net proceeds thereof), Senior Debt of ACC would
have been approximately $1.1 million. The Exchange Debentures will also be
effectively subordinated to all existing and future liabilities (including
trade payables) of ACC's subsidiaries. As of December 31, 1995, after giving
pro forma effect to the sale of the Debentures (and the application of the net
proceeds thereof), ACC's subsidiaries would have had approximately $12.6
million of total liabilities. See "Description of the Exchange Debentures--
Subordination."
(continued on next page)
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 18 OF THIS PROSPECTUS, FOR A
DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED BY HOLDERS WHO TENDER
DEBENTURES 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 May 6, 1996
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(continued from previous page)
ACC will accept for exchange any and all validly tendered Debentures on or
prior to 5:00 p.m., New York City time, on June 5, 1996, unless extended (the
"Expiration Date"). Tenders of Debentures 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 Debentures 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 May 6, 1996, if the Exchange Offer is consummated, holders
of the Debentures, whether or not tendered, will not be entitled to the
contingent increase in interest rates provided for in the Registration Rights
Agreement.
The Debentures were sold by ACC on February 6, 1996, 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 Debentures with
qualified institutional buyers in reliance upon Rule 144A under the Securities
Act. Accordingly, the Debentures may not be reoffered, resold or otherwise
transferred in the United States unless so registered or unless an applicable
exemption from the registration requirements of the Securities Act is
available. The Exchange Debentures are being offered hereunder in order to
satisfy the obligations of ACC under the Registration Rights Agreement. See
"The Exchange Offer."
The Exchange Debentures will bear interest from February 6, 1996, the date
of issuance of the Debentures that are tendered in exchange for the Exchange
Debentures (or the most recent Interest Payment Date (as defined) to which
interest on such Debentures has been paid), at a rate equal to 9 3/4% per
annum and on the same terms as the Debentures. Interest on the Exchange
Debentures will be payable semiannually on May 31 and November 30 of each year
commencing on the first such date following the Expiration Date. Holders whose
Debentures are accepted for exchange will be deemed to have waived the right
to receive interest on the Debentures accrued on and after the date on which
interest on the Exchange Debentures 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 Debentures 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 Debentures 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 Debentures in the Exchange Offer must
represent to ACC that such conditions have been met.
Each broker-dealer that receives Exchange Debentures for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of Exchange Debentures. 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 Debentures received in exchange for Debentures where
such Debentures 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 Debentures and no public market for the Debentures or the Exchange
Debentures. ACC does not intend to list the Exchange Debentures 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 Debentures; however, they are not obligated to do so and any
2
<PAGE>
market-making may be discontinued at any time. As a result, ACC cannot
determine whether an active public market will develop for the Exchange
Debentures. See "Risk Factors--Absence of Public Market."
Any Debentures not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent that any Debentures are tendered and accepted in
the Exchange Offer, a holder's ability to sell untendered Debentures could be
adversely affected. Following consummation of the Exchange Offer, the holders
of Debentures 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
Debentures held by those holders.
ACC expects that the Exchange Debentures 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 Debentures will be shown on, and transfers thereof to qualified
institutional buyers will be effected through, records maintained by the
Depositary and its participants. After the initial issuance of the Global
Securities, Exchange Debentures in certificated form will be issued in
exchange for the Global Securities on the terms set forth in the Indenture.
See "Description of Exchange Debentures--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 Debentures offered hereby, nor does it constitute an offer to
sell or the solicitation of an offer to buy any of the Exchange Debentures 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 AUGUST 5, 1996 (90 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE DEBENTURES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
3
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As used herein, unless the context otherwise requires, the term "ACC" refers
to Allbritton Communications Company. Depending on the context in which they
are used, the following "call letters" refer either to the corporate owner of
the station indicated or to 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 Television, Inc. (licensee of KATV, Little Rock,
Arkansas); "KTUL" refers to KTUL Television, Inc. (licensee of KTUL, Tulsa,
Oklahoma); "WCIV" refers to First Charleston Corp. (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 "WJSU" refers to RKZ Television, Inc.
(licensee of WJSU-TV, Anniston, Alabama). The term "ATP" refers to Allbritton
Television Productions, Inc. and the term "Perpetual" refers to Perpetual
Corporation, which is wholly owned 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 operates WJSU and owns WCFT. "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
for the benefit of Robert L. Allbritton 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 the A.C. Nielsen Co. ("Nielsen") for the sale of national
"spot" and local advertising time sales. As used herein, (1) the term "BIA"
refers to Investing in Television, 1995 Market Report, published by BIA
Publications, Inc., (2) "Market revenue" data are based on the unaudited total
broadcast television revenues, net of agency commissions, in a DMA, unless
otherwise indicated, as compiled by independent accounting firms in each
market based upon data provided to such firms by each television broadcast
station in such market, or from BIA; (3) "Market rank (DMA)" is based on the
Nielsen Station Index for November of the years indicated and for February
1996; (4) "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; (5) "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; (6)
"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.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................. 5
Incorporation of Certain Documents
by Reference.......................................................... 5
Prospectus Summary..................................................... 6
Risk Factors........................................................... 18
The Exchange Offer..................................................... 25
Certain Federal Income Tax
Consequences.......................................................... 33
Use of Proceeds........................................................ 34
The Company............................................................ 35
Proposed Acquisitions.................................................. 39
Capitalization......................................................... 40
Selected Unaudited Pro Forma
Consolidated Financial Data........................................... 41
Selected Consolidated Historical
Financial Data........................................................ 49
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............................................. 51
Business............................................................... 64
Management............................................................. 87
Ownership of Capital Stock............................................. 90
Certain Transactions................................................... 91
Description of Certain Indebtedness.................................... 93
Description of the Exchange Debentures................................. 94
Plan of Distribution................................................... 115
Legal Matters.......................................................... 115
Experts................................................................ 116
Index to Financial Statements.......................................... F-1
</TABLE>
4
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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 Debentures 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 Debentures 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 facility maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, 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.
Any time that ACC is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), it shall furnish the
information required to be filed with the Commission to the Trustee and the
holders of the Debentures and the Exchange Debentures. ACC has agreed that,
even if it is entitled under the Exchange Act not to furnish such information
to the Commission, it will nonetheless continue to furnish information that
would be required to be furnished by ACC by Section 13 of the Exchange Act to
the Trustee and the holders of the Debentures or Exchange Debentures as if it
were subject to such periodic reporting requirements.
In addition, ACC has agreed that for so long as any of the Debentures
remains outstanding it will make available to any prospective purchaser of the
Debentures or beneficial owner of the Debentures in connection with any sale
thereof the information required by Rule 144A(d)(4) under the Securities Act
either until such time as ACC has exchanged the Debentures for the Exchange
Debentures or until such time as the holders thereof have disposed of such
Debentures pursuant to an effective registration statement filed by ACC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
ALLBRITTON COMMUNICATIONS COMPANY, 808 SEVENTEENTH STREET, N.W., SUITE 300,
WASHINGTON, D.C. 20006-3903, ATTENTION: CHIEF FINANCIAL OFFICER (TELEPHONE
NUMBER: (202) 789-2130). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUESTS SHOULD BE MADE BY MAY 24, 1996. ACC undertakes to provide without
charge to each person to whom a copy of this Prospectus has been delivered,
upon the written or oral request of any such person, a copy of any or all of
the documents incorporated by reference herein, other than the exhibits to
such documents, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates. Written or
oral requests for such copies should be directed to the address set forth
above.
5
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and 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 wholly owned subsidiaries (which together include WJLA, KATV, KTUL,
WSET and WCIV) (collectively, the "Company"). The consolidated financial data
included herein do not include the accounts of WHTM which became an 80%- owned
subsidiary on March 1, 1996 in a purchase transaction or the accounts of WCFT
which became an 80%-owned subsidiary on March 15, 1996 in a purchase
transaction. 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 1995 and all "effective
buying income" ("EBI"), market population, household growth and retail sales
data contained herein have been obtained from reports published by Sales &
Marketing Management. Unless otherwise indicated, references to fiscal years
are to the Company's fiscal years that end on September 30 of the year
indicated.
THE COMPANY
ACC owns and operates seven network-affiliated television broadcasting
stations (the "Owned and Operated Stations") located in diverse geographic
markets, ranging from the 7th to the 187th largest DMA in the United States.
Five of the stations are affiliated with the ABC Television Network ("ABC").
WCIV is affiliated with the NBC Television Network ("NBC") but has agreed to
become affiliated with ABC beginning in August 1996. WCFT is affiliated with
CBS but has agreed to become affiliated with ABC beginning September 1, 1996,
subject to FCC approval by August 1, 1996 of a transmitter tower move. On March
1, 1996, ACC acquired the ABC affiliate, WHTM, in the Harrisburg, Pennsylvania
market. On March 15, 1996, ACC acquired the CBS affiliate, WCFT, in Tuscaloosa,
Alabama (west of Birmingham) (the "Tuscaloosa Acquisition" and, together with
WHTM, the "Acquisitions"). In addition, on December 29, 1995, ACC began
operating a television station in Anniston, Alabama (east of Birmingham) under
a local marketing agreement or "LMA" (the "Anniston LMA"). See "The Company."
In connection with the Tuscaloosa Acquisition and the Anniston LMA, ACC
proposes to serve the Birmingham, Alabama market as an ABC affiliate by
simultaneously broadcasting identical programming over both stations (together,
the "Birmingham Stations"). ABC network affiliation for the Birmingham Stations
is subject to certain conditions. On a pro forma basis, after giving effect to
the sale of the Debentures (and the application of the net proceeds thereof),
including the Acquisitions and the Anniston LMA (collectively, the "New Station
Transactions"), the Company's net operating revenues and net income would have
been approximately $162.3 million and $10.5 million, respectively, for Fiscal
1995 and $44.9 million and $3.4 million, respectively, for the three months
ended December 31, 1995. See "Proposed Acquisitions" and "Selected Unaudited
Pro Forma Consolidated Financial Data."
In addition, ACC is engaged in the production and distribution of television
programming through Allbritton Television Productions ("ATP"), a wholly owned
subsidiary of ACC.
ACC is indirectly wholly owned by Perpetual Corporation ("Perpetual"), a
corporation wholly owned by Joe L. Allbritton, ACC's Chairman, who has owned
broadcast television stations for over 20 years. ACC's senior management has an
average of 14 years of experience in the television industry. The general
managers of the Company's Owned and Operated Stations have an average of 25
years of experience in the television broadcasting industry and four of six
such general managers have held their current position for at least five years.
See "Management."
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The following table sets forth general information for each of the Company's
Owned and/or Operated Stations as of February 1996:
<TABLE>
<CAPTION>
TOTAL
MARKET COMMERCIAL STATION RANK
NETWORK CHANNEL/ RANK OR COMPETITORS AUDIENCE IN ACQUISITION
MARKET AREA STATION AFFILIATION FREQUENCY DMA IN MARKET SHARE MARKET DATE
----------- ------- ----------- --------- ------- ----------- -------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OWNED AND/OR OPERATED STATIONS:
Washington, D.C.(1) WJLA ABC 7/VHF 7 7 24% 3 1/29/76
Harrisburg-Lancaster-
York-Lebanon, PA(1) WHTM ABC 27/UHF 44 5 25% 2 3/1/96
Little Rock, AR(1) KATV ABC 7/VHF 58 5 38% 1 4/6/83
Tulsa, OK(1) KTUL ABC 8/VHF 59 6 30% 2 4/6/83
Lynchburg-Roanoke,
VA(1) WSET ABC 13/VHF 67 4 22% 3 1/29/76(3)
Charleston, SC(1) WCIV NBC(2) 4/VHF 108 5 25% 3 1/29/76(3)
Birmingham, AL(4)(5) WCFT/WJSU ABC -- 51(6) 5 N/A N/A --
Tuscaloosa(1)/ WCFT CBS 33/UHF 187 2 27% 1 3/15/96
Anniston(7) WJSU CBS 40/UHF 199 2 19% 1 --
</TABLE>
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(1) Owned Station.
(2) WCIV has agreed to become affiliated with ABC beginning in August 1996.
(3) 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. See "The Company--Contribution of WSET and WCIV to
ACC."
(4) Subject to ABC network affiliation, TV Alabama, an 80% indirectly owned
subsidiary of ACC, proposes to serve the Birmingham market by
simultaneously broadcasting identical programming over both WCFT serving
Tuscaloosa and WJSU (which TV Alabama operates pursuant to the Anniston
LMA) serving Anniston. The market rank figures reflect the Birmingham,
Tuscaloosa and Anniston markets; Nielsen assigns WCFT to the Tuscaloosa DMA
(rank 187) and WJSU to the Anniston DMA (rank 199). Commercial competitors
include stations in Birmingham, Tuscaloosa and Anniston. ABC network
affiliation is subject to a condition, and there can be no assurance that
such condition will be satisfied. See "Proposed Acquisitions--Birmingham."
(5) ABC has entered into an affiliation agreement with WCFT and WJSU for ten
years conditioned on FCC approval by August 1, 1996 of an application to
relocate either WCFT's or WJSU's transmitter tower site to a site from
which the station can deliver a level of signal over Birmingham that is
reasonably satisfactory to ABC. The Company's obligations under the
Anniston LMA are not contingent on continued CBS Television Network ("CBS")
affiliation or future ABC affiliation. WCFT currently is a CBS affiliate,
but has agreed to affiliate with ABC effective September 1996. The absence
of either CBS or ABC affiliation would result in TV Alabama operating WCFT
and WJSU as independent stations or as affiliates of United Paramount
Network ("UPN") or Warner Brothers Network ("WB"). CBS has been notified
that WCFT and WJSU anticipate termination of the CBS affiliation agreement
at both stations no later than September 30, 1996. There can be no
assurance that the condition to ABC network affiliation at WCFT and WJSU
will be satisfied. See "Risk Factors--Network Affiliation."
(6) According to BIA, if the Birmingham, Tuscaloosa and Anniston markets were
combined, the resulting market would rank as the nation's 39th largest on
the basis of television households.
(7) Operated Station.
7
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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). The Company's net operating revenues and net
cash provided by operating activities have grown by 43% and 227%, respectively,
from Fiscal 1991 to Fiscal 1995. The Company's net operating revenues,
operating income and net cash provided by operating activities, however,
reflected a decline in the first quarter of Fiscal 1996 over Fiscal 1995,
principally due to decreased political revenues and increased operating
expenses.
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 mid-sized growth markets with what the Company believes to be
advantageous business climates that include state capitals. 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 other than those described in this Prospectus.
In addition, the Company continually 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 85 radio stations over five states.
The Company's operating strategy focuses on four key elements:
LOCAL NEWS LEADERSHIP. Each station seeks to capitalize on the viewing
loyalties and revenue opportunities associated with a strong local news
franchise. Such a franchise helps differentiate local broadcast stations from
increasing numbers of cable program competitors that generally do not provide
strong local news coverage. See "Business--Owned and Operated Stations."
HIGH QUALITY NON-NETWORK PROGRAMMING. Each station is committed to attracting
audiences with highly valued demographic characteristics through syndicated and
locally produced non-network programming. For several of the stations, such
programming includes "Wheel of Fortune," "Jeopardy" and "The Oprah Winfrey
Show," which are the top three nationally ranked first-run syndicated programs.
See "Business--Programming."
LOCAL SALES DEVELOPMENT EFFORTS. Each station seeks to achieve a strong local
presence coupled with active community relations to gain additional advertising
revenues through the development and promotion of special programming and
marketing events, such as Washington Redskins preseason football games and
related shows, University of Arkansas football and basketball games, University
of Oklahoma football programs and educational and community-related
programming. The stations also conduct psychographic research (i.e., the
process by which potential customers of advertisers are identified
geographically by zip code and matched with certain lifestyle, income and
buying preferences) specifically to enhance their sales efforts. See
"Business--Owned and Operated Stations."
COST CONTROL. Each station emphasizes control of its programming and
operating costs through project accounting, daypart revenue analysis and
industry category expense analysis to exploit the high operating leverage
associated with a television broadcast property. In addition, the Company, as a
television station group owner, believes that it has the ability to enter into
advantageous group programming purchases such as those with King World
Productions, Inc. (syndicator of "The Oprah Winfrey Show," "Wheel of Fortune"
and "Jeopardy"). As the provider of ABC network programming in five markets,
which will increase to seven markets upon ABC network affiliation of the
Birmingham Stations (which is subject to a condition) and affiliation of WCIV
with ABC beginning in August 1996, the Company believes that its ability to
enter into stable affiliation agreements is further enhanced.
8
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OTHER TRANSACTIONS
NEW SENIOR CREDIT AGREEMENT
On April 16, 1996, ACC entered into a New Senior Credit Agreement. Under the
New Senior Credit Agreement, which will expire no later than 2001, ACC may
borrow up to $40,000,000. The New Senior Credit Agreement replaced a credit
facility for $10,000,000 that expired on March 31, 1996 (the "Credit
Facility"). At the time ACC borrows money under the New Senior Credit
Agreement, it may elect to pay interest at rates equal to either (i) LIBOR plus
a margin of 1% to 2% or (ii) the lower of the base rate announced by the agent
for the lenders or the overnight federal funds rate announced by the Federal
Reserve Bank of New York plus a margin of up to 75 basis points. The amount of
the margin in either case depends upon certain financial operating tests. ACC's
obligations under the New Senior Credit Agreement are secured by a pledge of
all of the common stock of ACC and its subsidiaries, including stock of
Allfinco's subsidiaries held by Allfinco. The Debentures are and the Exchange
Debentures will be subordinated to the prior payment in full in cash or cash
equivalents of all Obligations of ACC under the New Senior Credit Agreement.
9
<PAGE>
THE DEBENTURE OFFERING
THE DEBENTURES.............. The Debentures were sold by ACC on February
6, 1996, to Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated
and Salomon Brothers Inc (collectively, the
"Initial Purchasers") pursuant to a Purchase
Agreement dated February 1, 1996 (the
"Purchase Agreement"). The Initial Purchasers
subsequently resold the Debentures to
qualified institutional buyers pursuant to
Rule 144A under the Securities Act.
REGISTRATION RIGHTS
AGREEMENT................... Pursuant to the Purchase Agreement, ACC and
the Initial Purchasers entered into a
Registration Rights Agreement dated February
6, 1996, which grants the holders of the
Debentures 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.......... $275,000,000 aggregate principal amount of 9
3/4% Series B Senior Subordinated Debentures
due 2007.
THE EXCHANGE OFFER.......... $1,000 principal amount of the Exchange
Debentures in exchange for each $1,000
principal amount of Debentures. As of the
date hereof, $275,000,000 aggregate principal
amount of Debentures is outstanding. ACC will
issue the Exchange Debentures 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 Debentures issued pursuant to the
Exchange Offer in exchange for Debentures 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 Debentures 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
Debentures.
Each broker-dealer that receives Exchange
Debentures 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 Debentures. 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
10
<PAGE>
amended or supplemented from time to time,
may be used by a broker-dealer in connection
with resales of Exchange Debentures received
in exchange for Debentures where such
Debentures 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 Debentures 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 June 5,
1996, 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
DEBENTURES AND THE
DEBENTURES................. The Exchange Debentures will bear interest
from February 6, 1996, the date of issuance
of the Debentures that are tendered in
exchange for the Exchange Debentures (or the
most recent Interest Payment Date (as
defined) to which interest on such Debentures
has been paid). Accordingly, holders of
Debentures that are accepted for exchange
will not receive interest on the Debentures
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 Debentures
being tendered.
PROCEDURES FOR TENDERING
DEBENTURES................. Each holder of Debentures 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 Debentures 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 person
receiving such Exchange Debentures, whether
or not such person is the holder, is
acquiring
11
<PAGE>
the Exchange Debentures 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 Debentures. In lieu of physical
delivery of the certificates representing
Debentures, tendering holders may transfer
Debentures 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 Debentures 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 Debentures,
either make appropriate arrangements to
register ownership of the Debentures 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 Debentures who wish to tender
their Debentures and whose Debentures are not
immediately available or who cannot deliver
their Debentures, 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 Debentures 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 DEBENTURES
AND DELIVERY OF EXCHANGE
DEBENTURES................. 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 Debentures 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 Debentures 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 Federal
Income Tax Consequences."
12
<PAGE>
EFFECT ON HOLDERS OF
DEBENTURES................. 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 Debentures who do
not tender their Debentures 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 Debentures 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
Debentures will continue to be subject to
certain restrictions on transfer.
Accordingly, if any Debentures are tendered
and accepted in the Exchange Offer, the
trading market for the untendered Debentures
could be adversely affected.
EXCHANGE AGENT.............. State Street Bank and Trust Company.
SUMMARY OF TERMS OF THE EXCHANGE DEBENTURES
The form and terms of the Exchange Debentures are the same as the form and
terms of the Debentures (which they replace) except that (i) the Exchange
Debentures have been registered under the Securities Act and, therefore, will
not bear legends restricting the transfer thereof, and (ii) the holders of
Exchange Debentures will not be entitled to certain rights under the
Registration Rights Agreement, which rights will terminate when the Exchange
Offer is consummated. The Exchange Debentures will evidence the same debt as
the Debentures and will be entitled to the benefits of the Indenture. See
"Description of Exchange Debentures."
SECURITIES OFFERED.......... $275,000,000 principal amount of 9 3/4%
Series B Senior Subordinated Debentures due
November 30, 2007.
MATURITY DATE............... November 30, 2007.
INTEREST PAYMENT DATES...... May 31 and November 30 of each year,
commencing May 31, 1996.
OPTIONAL REDEMPTION......... The Exchange Debentures will be redeemable at
the option of ACC, in whole or in part, at
any time on or after November 30, 2002 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
November 30, 1998, ACC will have the option
to redeem up to 35% of the aggregate
principal amount of the Exchange Debentures
originally issued in the Exchange Offer at a
redemption price equal to 109.75% 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 Debentures originally issued in the
Exchange Offer remains outstanding
immediately after the occurrence of such
redemption.
13
<PAGE>
Furthermore, at any time prior to November
30, 2002, upon a Change of Control, ACC will
have the option to redeem the Exchange
Debentures, 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 Debentures--Optional Redemption."
CHANGE OF CONTROL........... In the event of a Change of Control, each
holder of Exchange Debentures may require ACC
to repurchase all of the Exchange Debentures
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. The Company's ability to
repurchase the Exchange Debentures following
a Change in Control is dependent upon the
Company having sufficient cash, and may be
limited by the terms of the Company's Senior
Debt or the subordination provisions of the
Indenture. The term Change in Control is
limited to certain specified transactions
and, depending upon the circumstances, may
not include other events, such as highly
leveraged transactions, reorganizations,
restructurings, mergers or similar
transactions, that might adversely affect the
financial condition of the Company or result
in a downgrade in the credit rating of the
Exchange Debentures. See "Description of the
Exchange Debentures--Change of Control."
RANKING..................... The Exchange Debentures will be general
senior subordinated obligations of ACC and
will be subordinated in right of payment to
all existing and future Senior Debt (as
hereinafter defined) of ACC (including
borrowings of up to $40.0 million under the
New Senior Credit Agreement and borrowings of
up to $3.0 million under the Capital Lease
Facility) and will rank pari passu in right
of payment with the 11 1/2% Debentures. As of
December 31, 1995, after giving pro forma
effect to the sale of the Debentures (and the
application of the net proceeds thereof),
Senior Debt of ACC would have been
approximately $1.1 million. The Exchange
Debentures will also be effectively
subordinated to all existing and future
liabilities (including trade payables) of
ACC's subsidiaries. As of December 31, 1995,
after giving effect to the sale of the
Debentures (and the application of the net
proceeds thereof), ACC's subsidiaries would
have had approximately $12.6 million of total
liabilities. See "Description of the Exchange
Debentures--Subordination."
CERTAIN COVENANTS........... The Indenture contains certain covenants
that, among other things, limit the ability
of ACC to: (i) incur Debt (as defined
therein) and issue preferred stock; (ii) make
Restricted Payments (as defined therein);
(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
therein); and (viii) engage in any merger,
consolidation or sale of substantially all
assets. See "Description of the Exchange
Debentures--Certain Covenants."
14
<PAGE>
EVENTS OF DEFAULT........... The Indenture provides for certain Events of
Default. See "Description of the Exchange
Debentures--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 DEBENTURES..... The Exchange Debentures will be new
securities for which there currently is no
market. Although Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Salomon Brothers Inc
(collectively, the "Initial Purchasers") have
informed ACC that they currently intend to
make a market in the Exchange Debentures,
they are not obligated to do so and any such
market making may be discontinued at any time
without notice. Accordingly, there can be no
assurance as to the development or liquidity
of any market for the Exchange Debentures.
ACC does not intend to apply for listing of
the Exchange Debentures, 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 Debentures
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 Debentures--
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 Debentures--Rights Upon Default."
RISK FACTORS
Prospective investors should consider all of the information contained in
this Prospectus before making an investment in the Exchange Debentures. In
particular, prospective investors should carefully consider the factors set
forth under "Risk Factors."
15
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial information presented below should be read
in conjunction with the consolidated financial statements and notes thereto,
"Selected Consolidated Historical Financial Data," "Selected Unaudited Pro
Forma Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FISCAL YEAR THREE MONTHS ENDED THREE MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31, ENDED
--------------------------------------------------- SEPTEMBER 30, ------------------------- DECEMBER 31,
1991 1992 1993 1994 1995 1995(1) 1994 1995 1995(1)
------- --------- --------- --------- --------- ------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA(2):
Operating
revenues, net.. $96,779 $ 98,562 $ 109,867 $ 125,830 $ 138,151 $162,300 $39,770 $38,382 $ 44,851
Television
operating
expenses,
excluding
depreciation
and
amortization... 65,111 62,223 65,533 67,745 75,199 87,843 18,704 21,193 25,074
Depreciation and
amortization... 7,394 6,631 5,771 5,122 4,752 11,222 1,319 1,274 2,951
Corporate
expenses....... 2,177 2,268 3,231 4,250 3,753 4,844 794 829 979
Operating
income......... 22,097 27,440 35,332 48,713 54,447 58,391 18,953 15,086 15,847
Interest
expense........ 21,997 22,138 22,336 22,303 22,708 41,447 5,039 5,667 10,326
Interest
income(3)...... 2,227 2,514 2,408 2,292 2,338 2,338 586 585 585
Income (loss)
before
extraordinary
items and
cumulative
effect of
changes in
accounting..... (639) 3,684 7,586 17,360 19,909 10,502 8,380 6,100 3,434
Extraordinary
items(4)....... -- (19,625) 1,485 -- -- -- -- -- --
Cumulative
effect of
changes in
accounting(5).. -- -- (523) 3,150 -- -- -- -- --
Net income
(loss)......... $ (639) $ (15,941) $ 8,548 $ 20,510 $ 19,909 $ 10,502 $ 8,380 $ 6,100 $ 3,434
<CAPTION>
PRO FORMA AS
AS OF SEPTEMBER 30, AS OF OF
--------------------------------------------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1994 1995 1995 1995(1)
--------- --------- --------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA(2):
Total assets.... $ 97,530 $ 97,461 $ 91,218 $ 94,079 $ 99,605 $ 113,203 $286,016
Total debt(6)... 174,754 199,336 197,154 199,473 198,919 210,464 399,397
Redeemable
preferred
stock.......... 168 168 168 168 168 168 168
Stockholder's
investment..... (133,544) (129,266) (138,288) (136,961) (133,879) (132,845) (151,284)
<CAPTION>
PRO FORMA THREE MONTHS PRO FORMA
FISCAL YEAR ENDED THREE MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31, ENDED
--------------------------------------------------- SEPTEMBER 30, ------------------------- DECEMBER 31,
1991 1992 1993 1994 1995 1995(1) 1994 1995 1995(1)
------- --------- --------- --------- --------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW DA-
TA(2)(12):
Cash flows from
operating
activities..... $ 6,762 $(12,284) $ 12,531 $ 18,267 $ 22,145 $ 18,571 $ 6,200 $ 3,181 $ 2,058
Cash flows from
investing
activities..... (2,645) (2,732) (1,933) (1,420) (2,543) (157,821) (726) (10,850) (11,120)
Cash flows from
financing
activities..... (3,737) 24,719 (19,793) (16,905) (18,549) 166,245 (4,415) 6,471 6,281
<CAPTION>
PRO FORMA PRO FORMA
FISCAL YEAR THREE MONTHS ENDED THREE MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31, ENDED
--------------------------------------------------- SEPTEMBER 30, ------------------------- DECEMBER 31,
1991 1992 1993 1994 1995 1995(1) 1994 1995 1995(1)
------- --------- --------- --------- --------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL RATIOS
AND OTHER
DATA(2):
Operating Cash
Flow(7)........ $29,491 $ 34,071 $ 41,103 $ 53,835 $ 59,199 $ 69,613 $20,272 $ 16,360 $ 18,798
Operating Cash
Flow
Margin(8)...... 30.5% 34.6% 37.4% 42.8% 42.9% 42.9% 51.0% 42.6% 41.9%
Capital
expenditures... 3,734 1,797 1,972 3,264 2,777 3,802 774 875 1,151
Interest
expense,
net(9)......... 19,770 19,624 19,928 20,011 20,370 39,109 4,453 5,082 9,741
Ratio of total
debt to
Operating Cash
Flow(10)....... 5.93x 5.85x 4.80x 3.71x 3.36x 5.74x 2.47x 3.22x 5.31x
Ratio of
Operating Cash
Flow to
interest
expense, net... 1.49x 1.74x 2.06x 2.69x 2.91x 1.78x 4.55x 3.22x 1.93x
Ratio of
Operating Cash
Flow less
capital
expenditures to
interest
expense, net... 1.30x 1.65x 1.96x 2.53x 2.77x 1.68x 4.38x 3.05x 1.81x
Ratio of
earnings to
fixed
charges(11).... 1.10x 1.32x 1.63x 2.27x 2.41x 1.43x 3.69x 2.66x 1.54x
</TABLE>
(footnotes on following page)
16
<PAGE>
FOOTNOTES
(1) The unaudited pro forma consolidated balance sheet data as of December 31,
1995 give effect to the Exchange Offer and the application of the net
proceeds from the sale of the Debentures, including the New Station
Transactions, as if each had occurred on such date. The unaudited pro forma
consolidated statement of operations data and financial ratios and other
data for Fiscal 1995 and for the three months ended December 31, 1995 give
effect to the Exchange Offer and the application of the net proceeds from
the sale of the Debentures, including the New Station Transactions, as if
each had occurred on October 1, 1994. The costs expected to be incurred in
connection with the early repayment of the Senior Secured Promissory Notes
are not included in the unaudited pro forma consolidated statement of
operations data, cash flow data and financial ratios and other data for
Fiscal 1995 or for the three months ended December 31, 1995, but will be
reflected in the Company's consolidated results of operations and cash
flows when incurred. The unaudited pro forma consolidated retained earnings
as of December 31, 1995 give effect to the costs incurred in connection
with the early repayment of the Senior Secured Promissory Notes and the
dividend from WSET to Westfield. See "Selected Unaudited Pro Forma
Consolidated Financial Data."
(2) The statement of operations data, balance sheet data, cash flow data and
financial ratios and other data as presented include the amounts for WSET
and WCIV, which became wholly owned subsidiaries of ACC on March 1, 1996.
The common stock of WSET and WCIV which was formerly held by Westfield,
which is 100% owned by Mr. Joe L. Allbritton, was contributed to the
Company on March 1, 1996. 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
owned indirectly by Mr. Joe L. Allbritton for all periods in which
financial data are presented, the Company has retroactively restated its
historical financial data to reflect the Contribution. See Note 1 of Notes
to Consolidated Financial Statements.
(3) Interest income primarily represents interest earned on investments and,
since April 1991, interest earned on a $20,000,000 note receivable from
Allnewsco. See Note 6 of Notes to Consolidated Financial Statements.
(4) The extraordinary loss during Fiscal 1992 resulted from a $20,089,000 loss
on early repayment of long-term debt, offset by a $464,000 gain on
utilization of net operating loss carryforwards for state income tax
reporting purposes. The extraordinary gain during Fiscal 1993 resulted from
the use of net operating loss carryforwards and carrybacks for state income
tax reporting purposes. The costs incurred in connection with the early
repayment of the Senior Secured Promissory Notes, primarily a prepayment
penalty of $12,934,000, are not included in the unaudited pro forma
consolidated statement of operations data, cash flow data and financial
ratios and other data for Fiscal 1995 or for the three months ended
December 31, 1995, but will be reflected, net of the related income tax
benefit, as an extraordinary loss in the Company's consolidated results of
operations for the period including February 6, 1996, the date the debt was
repaid. The unaudited pro forma consolidated retained earnings as of
December 31, 1995 give effect to the costs incurred in connection with the
early repayment of the Senior Secured Promissory Note (extraordinary loss
of $7,739,000) and the dividend from WSET to Westfield.
(5) 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. See Notes 1, 5 and 8 of Notes to Consolidated Financial
Statements.
(6) Total debt is defined as long-term debt (including the current portion
thereof, and net of discount), short-term debt and capital lease
obligations.
(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 are used by investors to measure a company's
ability to fund its operations and service debt. Operating Cash Flow does
not purport to represent cash flows from operating activities determined in
accordance with generally accepted accounting principles as reflected in
the Consolidated Financial Statements, is not a measure of financial
performance under generally accepted accounting principles and should not
be considered in isolation or as a substitute for net income or cash flows
from operating activities.
(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, 1994 and 1995, 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 (loss) before extraordinary items and income
taxes and cumulative effects of changes in accounting 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 rental expense which is a reasonable approximation of the
interest).
(12) Cash flows from operating, investing and financing activities were
determined in accordance with generally accepted accounting principles.
See also Consolidated Statements of Cash Flows.
17
<PAGE>
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 Debentures.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
As of December 31, 1995, after giving pro forma effect to the sale of the
Debentures (and the application of the net proceeds thereof), ACC's total
amount of debt outstanding would have been $399,397,000 and ACC would have had
a stockholder's deficit of $151,284,000. In addition, after giving pro forma
effect to the sale of the Debentures (and the application of the net proceeds
thereof), ACC's ratio of earnings to fixed charges and interest expense would
have been 1.43 to 1 and $41,447,000, respectively, for Fiscal 1995, and 1.54
to 1 and $10,326,000, respectively, for the three months ended December 31,
1995. The Indenture permits 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 Historical Financial Data" and "Description of the Exchange
Debentures--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 Debentures and the Exchange Debentures, 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, 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 Debentures--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 Debentures and the Exchange
Debentures) 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, as well as the success of the
New Station Transactions and the integration of such stations acquired or
operated in connection therewith into ACC's operations. Based upon the
Company's current level of operations, management believes that available
cash, together with the net proceeds from the sale of the Debentures and
available borrowings under the New Senior Credit Agreement, 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
Debentures and the Exchange Debentures). The Company anticipates that it may
be required to refinance a portion of the principal amount of the 11 1/2%
Debentures prior to their maturity (including a mandatory sinking fund payment
with respect thereto.) 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 Debentures and the Exchange
Debentures) 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 Debentures will be, and the Debentures are, general senior
subordinated obligations of ACC and will be subordinated in right of payment
to all existing and future Senior Debt of ACC (including borrowings of up to
$40.0 million under the New Senior Credit Agreement and borrowings of up to
$3.0 million under the
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Capital Lease Facility) and will rank pari passu in right of payment with the
11 1/2% Debentures. As of December 31, 1995, after giving pro forma effect to
the sale of the Debentures (and the application of the net proceeds thereof),
Senior Debt (as defined in the Indenture) of ACC would have been approximately
$1,072,000. 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 would be available to pay Obligations (as defined in the
Indenture) on the Debentures and the Exchange Debentures only after holders of
Senior Debt have been paid in full. Also, under certain circumstances,
payments to holders of the Debentures and the Exchange Debentures may be
subject to blockage by the holders of Senior Debt and redemption of the
Debentures and the Exchange Debentures upon a Change of Control are prohibited
without the consent of the lenders under the New Senior Credit Agreement. In
addition, under the New Senior Credit Agreement, ACC is required to apply all
of the net proceeds of certain asset sales and public and private equity
issuances of securities to debt outstanding thereunder. See "Description of
the Exchange Debentures--Subordination," "--Change of Control" and "--Certain
Covenants--Limitations on Asset Sales."
HOLDING COMPANY STRUCTURE; DEPENDENCE ON SUBSIDIARIES FOR REPAYMENT OF THE
EXCHANGE DEBENTURES
ACC conducts a portion of its business through its subsidiaries. The
Exchange Debentures will be, and the Debentures are, effectively subordinated
to all existing and future liabilities (including trade payables) of ACC's
subsidiaries. As of December 31, 1995, after giving pro forma effect to the
sale of the Debentures (and the application of the net proceeds thereof),
ACC's subsidiaries would have had approximately $12.6 million of total
liabilities. Four of ACC's Owned and Operated Stations, KATV, KTUL, WSET and
WCIV are wholly owned subsidiaries of ACC; WHTM is owned by Harrisburg TV, an
80%-owned indirect subsidiary of ACC; and WJSU is operated and WCFT is owned
by TV Alabama, an 80%-owned subsidiary 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
Debentures and the Exchange Debentures, 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 Debentures and the Exchange
Debentures. To the extent assets of ACC are or will be held by its
subsidiaries, the claims of holders of the Debentures and the Exchange
Debentures will, in effect, be subordinated to the claims of creditors,
including trade creditors, of such subsidiaries. As of December 31, 1995, 44%
of the assets of ACC were held by operating subsidiaries and, for Fiscal 1995
and for the three months ended December 31, 1995, less than 50% of ACC's net
operating revenues were derived from the operations of ACC's subsidiaries. In
analyzing the Selected Unaudited Pro Forma Consolidated Financial Data and
other information contained in this Prospectus, prospective purchasers of the
Exchange Debentures should consider in this regard that the performance of
WHTM and WCFT under the Company's management and WJSU under the Anniston LMA
could differ, possibly to a material degree, from the presentation
contemplated by the Selected Unaudited Pro Forma Consolidated Financial Data.
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 Debentures--Certain Covenants."
NETWORK AFFILIATION
ACC's Owned and Operated Stations are affiliated with one of three national
programming networks: WJLA, WHTM, KATV, KTUL and WSET are affiliates of the
ABC network, WCIV is affiliated with the NBC network but has agreed to become
affiliated with ABC beginning in August 1996. WCFT is affiliated with the CBS
network but has agreed to become affiliated with ABC beginning in September
1996, subject to FCC approval by August 1, 1996 of a transmitter tower move.
The Company's television viewership levels are materially dependent upon
programming provided by such networks and there can be no assurance that
such programming will achieve and maintain satisfactory viewership levels in
the future. Each of the Owned and Operated Stations has entered into long-
term, 10-year agreements with the ABC network expiring in 2005 or 2006.
Although ABC has 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 ABC affiliation agreements, no assurance can be
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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.
The ABC affiliation agreement with WCFT and WJSU, which are currently CBS
affiliates, is conditioned on FCC approval by August 1, 1996 of an application
to relocate either WCFT's or WJSU's transmitting tower site to a site from
which the station delivers a level of signal over Birmingham that is
reasonably satisfactory to ABC. TV Alabama has filed an application with the
FCC to relocate the WCFT transmitter site and a similar application to
relocate WJSU's transmitter site has also been filed with the FCC. WJSU's
transmitter move application as currently proposed is mutually exclusive with
another licensee's application to relocate its tower. A grant of WJSU's
application is contingent upon the dismissal of the other application or
location of an alternate site for WJSU's new tower, which has been identified.
There can be no assurance that the FCC will grant approval of WCFT's or WJSU's
application to relocate such transmitter sites. TV Alabama's obligations under
the Anniston LMA are not subject to continued CBS affiliation or future ABC
affiliation. CBS has been notified that WCFT and WJSU anticipate termination
of the CBS affiliation agreement at both stations no later than September 30,
1996. There are no penalties associated with early termination of the CBS
network affiliation agreements with WCFT or WJSU. In the event affiliation
with the ABC Network is not obtained, affiliation with other "major" networks
is unlikely. Fox, Inc. owns WBRC in Birmingham and has indicated it will carry
FOX programming commencing September 1, 1996. NBC programming is carried on
WVTM under an existing affiliation agreement. Upon termination of its
agreements with WCFT and WJSU, CBS has indicated that it will enhance the
affiliation of Birmingham station WBMG by giving it the affiliation for
Tuscaloosa and Anniston. Failure to meet the condition of the ABC network
affiliation would result in ownership by TV Alabama of WCFT and/or operation
by TV Alabama of WJSU as independent stations with the potential to affiliate
with another network, such as UPN or WB. If either or both such stations were
operated as independent stations, the Company would not expect the stations'
financial performance to equal that of a major network affiliate. See
"Proposed Acquisitions--Birmingham." In light of the foregoing, there can be
no assurance that the Company's Birmingham business strategy will be
effectuated at all or in accordance with the Company's expectations.
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 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 increase the Company's programming costs or impair the Company's
ability to acquire programming.
The FCC has proposed the adoption of rules for implementing advanced
(including high-definition) television ("ATV") service in the United States.
Implementation of ATV is expected to improve the technical quality of
television. Under certain circumstances, however, conversion to ATV operations
may reduce a station's geographical coverage area. Implementation of ATV is
expected to impose additional costs on television stations providing the new
service, due to increased equipment costs and possible spectrum-related fees.
At the same time, there is potential for increased revenues derived through
the use of high-definition television. While the Company believes the FCC will
eventually authorize ATV in the United States, the Company cannot predict when
such authorization might occur, the implementation costs of authorization or
the effect such authorization might have on the Company's business. See
"Business--Legislation and Regulation--Advanced 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
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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.
Pursuant to the Telecommunications Act of 1996, license terms were extended
from five to 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. ACC's Owned and Operated Stations
are presently operating under regular licenses that expire on the following
dates: October 1, 1996 (WJLA and WSET); August 1, 1999 (WHTM); December 1,
1996 (WCIV); June 1, 1997 (KATV); June 1, 1998 (KTUL); and on April 1, 1997
(WCFT). In addition, WJSU's license (which the Company operates pursuant to
the Anniston LMA) expires on April 1, 1997. The FCC is conducting a rulemaking
proceeding to determine the procedure by which current five-year licenses will
be extended to eight-year licenses. 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,
directly or indirectly, could materially adversely affect the operation and
ownership of ACC's broadcast properties. It is impossible to predict the
outcome of federal legislation currently under consideration or the potential
effect thereof on the Company's business. See "Business--Legislation and
Regulation."
The Telecommunications Act of 1996 directs the FCC to reevaluate its local
ownership rules to consider potential modifications. A biannual FCC review
thereafter is also required. One of the local ownership rules is the so-called
"Duopoly" rule which generally prohibits ownership of attributable interests
in a single entity in two or more broadcast television stations which serve
the same geographic market.
As currently written, the Duopoly rule prohibits common ownership by TV
Alabama of WCFT and WJSU. The TV Alabama Birmingham strategy, however, is
effectuated by ownership of WCFT and operation of WJSU under the Anniston LMA.
WJSU continues to be owned and licensed to RKZ, Inc. As a result, the Duopoly
rule is not operative in these circumstances.
Should the FCC revise the Duopoly rule to permit common ownership of more
than one station in a market, TV Alabama intends to exercise its option to
acquire WJSU and terminate the Anniston LMA. Should the FCC revise the rule to
make LMAs attributable to station operators for purposes of the proscription
against common ownership, the Conference Report to the Telecommunications Act
of 1996 confirms that LMAs in existence on the date of adoption are to be
grandfathered. Since the Anniston LMA predates the adoption of the Act, it is
therefore expected to be grandfathered. Failure to be grandfathered or obtain
a waiver from the FCC in these circumstances could require divestiture of WCFT
or termination of the Anniston LMA. There can be no assurance that the FCC
will abide by the direction of Congress in the Conference Report language.
POTENTIAL FCC REGULATION OF LOCAL MARKETING AGREEMENTS
The Telecommunications Act of 1996 requires the FCC to review its local
ownership rules including those determining which interests are to be
attributable. In addition, the FCC currently is reviewing its "cross-interest
policy," which essentially prevents individuals from having meaningful "cross-
interests" not otherwise specifically prohibited by the application of the
multiple ownership rules. See "Business--Legislation and Regulation--Ownership
Matters." In connection with such review, the FCC released a Further Notice of
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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. In connection with the implementation of the Telecommunications
Act of 1996, the FCC is directed to review its local ownership rules. The FCC
has indicated that it will further consider LMA issues within that proceeding
which has not yet commenced. 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. Report language in the
Telecommunications Act of 1996 directs the FCC, however, to "grandfather"
existing LMA arrangements as lawfully acceptable. Failure by the FCC to
grandfather LMAs as contemplated by the Telecommunications Act of 1996
combined with a failure to modify the Duopoly rule permitting operation of
both WCFT and WJSU on a combined basis (or a grant of a rule waiver) would
result in the Company having to divest WCFT or terminate the Anniston LMA and
would result in breach of a covenant in the ABC affiliation agreement to
maintain the LMA and potential loss of the affiliation in the Birmingham
market. If divestiture of WCFT or termination of the Anniston LMA is required,
TV Alabama would operate the remaining station as an independent station or as
an affiliate of a minor programming network. The divestiture of WCFT,
termination of the Anniston LMA or the loss of the ABC affiliation in the
Birmingham market would likely have an adverse impact on the Company's
strategy for the Birmingham market; however, it is not possible to determine
the financial impact of any such development.
STOCKHOLDER'S INVESTMENT
ACC has previously 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, 1993, 1994 and 1995
and December 31, 1995 was approximately $138.3 million, $137.0 million, $133.9
million and $132.8 million, respectively. As of December 31, 1995, after
giving pro forma effect to the sale of the Debentures (and the application of
the net proceeds thereof), the stockholder's deficit would have been
approximately $151.3 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 are subject to certain restrictions. See "Description of
the Exchange Debentures--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 Debentures and the Exchange
Debentures, 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 1995
and for the three months ended December 31, 1995, WJLA accounted for more than
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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations" and
"Business--Owned and Operated Stations."
CONTROL BY SOLE STOCKHOLDER; AFFILIATE TRANSACTIONS
Joe L. Allbritton, ACC's Chairman, indirectly owns in the aggregate 100% of
ACC's Common 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 Debentures and the
Exchange Debentures. In addition, affiliates of ACC may engage in the
television broadcast business in the future. Perpetual, through non-ACC
related subsidiaries, has agreed to acquire WBSG-TV, Brunswick, Georgia, which
will serve as the
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ABC affiliate for the Jacksonville, Florida market commencing January 1, 1997,
subject to certain conditions. There can be no assurance that any 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."
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 Debentures, (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 Debentures or, in the alternative,
fashion other equitable relief such as subordinating the Exchange Debentures
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 Debentures 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 Debentures
and the application of the net proceeds from the sale of the Debentures, 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 Debentures currently are owned by a relatively small number of
beneficial owners. The Debentures 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 Debentures. The Exchange
Debentures will constitute a new issue of securities with no established
trading market. Although the Exchange Debentures 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
Debentures on any national securities exchange or to seek the admission
thereof to trading in the National Association of Securities Dealers Automated
Quotation System. If the Debentures or, if issued, the Exchange Debentures,
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 Debentures, 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
Debentures or as to the liquidity of or the trading market for the Exchange
Debentures. Pursuant to the Registration Rights Agreement, ACC is required to
consummate the Exchange Offer for the Debentures or file the Shelf
Registration Statement covering resales of the Debentures within 120 days
following the Issuance Date. Until ACC performs its obligations under the
Registration Rights Agreement, the Debentures 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.
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EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Debentures in exchange for Debentures pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Debentures, a properly completed and duly executed Letter of Transmittal
and all other required documents. Therefore, holders of the Debentures
desiring to tender such Debentures in exchange for Exchange Debentures 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 Debentures for exchange. Debentures 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 Debentures who tenders in the Exchange Offer
for the purpose of participating in a distribution of the Exchange Debentures
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 Debentures for its own account in exchange for
Debentures, where such Debentures 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 Debentures. See "Plan of Distribution." To the extent that
Debentures are tendered and accepted in the Exchange Offer, the trading market
for untendered and tendered but unaccepted Debentures could be adversely
affected. See "--Consequences of the Exchange Offer on Non-Tendering Holders
of the Debentures."
CONSEQUENCES OF THE EXCHANGE OFFER ON NON-TENDERING HOLDERS OF THE DEBENTURES
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 Debentures.
Consequently, following completion of the Exchange Offer, holders of
Debentures 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 Debentures.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Debentures were sold by ACC on February 6, 1996 to the Initial
Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently placed the Debentures with qualified institutional buyers in
reliance on Rule 144A under the Securities Act. As a condition to the purchase
of the Debentures 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 Debentures 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 debentures of ACC
identical in all material respects to the Debentures, (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 Debentures the opportunity to exchange
their Debentures for a like principal amount of Exchange Debentures, 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 Debentures 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 Debentures are held of record by
The Depository Trust Company who desires to deliver such Debentures 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 Debentures issued pursuant to the Exchange Offer in exchange for the
Debentures 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 Debentures issued pursuant to the Exchange
Offer in exchange for Debentures may be offered for resale, resold and
otherwise transferred by any Holder of such Exchange Debentures (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
Debentures 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 Debentures. Any Holder who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Debentures 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 Debentures for its own account in
exchange for Debentures, where such Debentures 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 Debentures. See "Plan of Distribution."
By tendering in the Exchange Offer, each Holder of Debentures will represent
to the Company that, among other things, (i) the Exchange Debentures acquired
pursuant to the Exchange Offer are being obtained in the ordinary course of
business of the person receiving such Exchange Debentures, whether or not such
person is such Holder, (ii) neither the Holder of Debentures nor any such
other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Debentures and (iii) if the
Holder is not a broker-dealer, or is a broker-dealer but will not receive
Exchange Debentures for its own account in exchange for Debentures, neither
the Holder nor any such other person is engaged in or intends to participate
in the distribution of such Exchange Debentures. If the tendering Holder is a
broker-dealer that will receive Exchange Debentures for its own account in
exchange for Debentures that were acquired as a result of market-
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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 Debentures.
Following the consummation of the Exchange Offer, Holders of the Debentures
who did not tender their Debentures will not, except under very limited
circumstances, have any further registration rights under the Registration
Rights Agreement, and such Debentures will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market for such
Debentures 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 Debentures
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
Debentures in exchange for $1,000 principal amount of outstanding Debentures
accepted in the Exchange Offer. Holders may tender some or all of their
Debentures pursuant to the Exchange Offer. However, Debentures may be tendered
only in integral multiples of $1,000.
The form and terms of the Exchange Debentures are the same as the form and
terms of the Debentures except that (i) the Exchange Debentures have been
registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (ii) the holders of the Exchange
Debentures will not be entitled to certain rights under the Registration
Rights Agreement, which rights will terminate upon consummation of the
Exchange Offer. The Exchange Debentures will evidence the same debt as the
Debentures and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $275,000,000 aggregate principal amount
of the Debentures 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 April 25, 1996, 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 Debentures 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 Debentures 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 Debentures from ACC.
If any tendered Debentures 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 Debentures will be
returned, without expense, to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Debentures 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
Debentures 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 June
5, 1996, 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.
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ACC reserves the right, in its sole discretion, (i) to delay accepting any
Debentures, 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 DEBENTURES
The Exchange Debentures will bear interest from February 6, 1996, the date
of issuance of the Debentures that are tendered in exchange for the Exchange
Debentures (or the most recent Interest Payment Date (as defined) to which
interest on such Debentures has been paid). Accordingly, Holders of Debentures
that are accepted for exchange will not receive interest that is accrued but
unpaid on such Debentures at the time of tender.
Interest on the Exchange Debentures will be payable semi-annually on each
May 31 and November 30, commencing on the first such date following their date
of issuance.
PROCEDURES FOR TENDERING
Only a Holder of Debentures may tender such Debentures 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
Debentures 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 Debentures, 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 Debentures 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 Debentures."
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 DEBENTURES 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 DEBENTURES 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.
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<PAGE>
Any beneficial owner whose Debentures 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 Debentures 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 Debentures listed therein, such Debentures 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 Debentures with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Debentures 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
Debentures 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 Debentures by causing such Book-Entry
Transfer Facility to transfer such Debentures into the Exchange Agent's
account with respect to the Debentures in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of the
Debentures 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 Debentures and withdrawal of tendered
Debentures 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 Debentures not properly tendered or any Debentures 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 Debentures. 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 Debentures 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 Debentures,
neither ACC, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Debentures will not be
deemed to have been made until such defects or irregularities have been cured
or waived. Any Debentures 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
other provided in the Letter of Transmittal, as soon as practicable following
the Expiration Date.
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GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Debentures and (i) whose Debentures are not
immediately available, (ii) who cannot deliver their Debentures, 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 Debentures and the principal amount of Debentures 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 Debentures (or a confirmation of book-entry transfer of
such Debentures 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
Debentures in proper form for transfer (or a confirmation of book-entry
transfer of such Debentures 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 Debentures according to the
guaranteed delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Debentures may be withdrawn
at any time prior to5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Debentures 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 Debentures to be withdrawn (the
"Depositor"), (ii) identify the Debentures to be withdrawn (including the
certificate number(s) and principal amount of such Debentures, or, in the case
of Debentures 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 Debentures were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Debentures register the transfer of such
Debentures into the name of the person withdrawing the tender and (iv) specify
the name in which any such Debentures 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 Debentures so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer, and no Exchange Debentures will be issued with respect thereto
unless the Debentures so withdrawn are validly retendered. Any Debentures 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 Debentures may be retendered by following one of the
procedures described above under "--Procedures for Tendering" at any time
prior to the Expiration Date.
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CONDITIONS
Notwithstanding any other term of the Exchange Offer, ACC shall not be
required to accept for exchange, or to exchange Exchange Debentures for, any
Debentures, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Debentures, 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 Debentures issued pursuant to
the Exchange Offer in exchange for Debentures 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 Debentures 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 Debentures; 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 Debentures and return all tendered
Debentures to the tendering Holders, (ii) extend the Exchange Offer and retain
all Debentures tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of Holders to withdraw such Debentures (see
"--Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Debentures 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: Nancy Bowker
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<PAGE>
By Overnight Mail or Hand:
State Street Bank and Trust Company
Corporate Trust Department
Two International Place--Fourth Floor
Boston, MA 02110
Attention: Nancy Bowker
By Facsimile:
(617) 664-5784
Confirm: (617) 664-5539
Attention: Nancy Bowker
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
Debentures pursuant to the Exchange Offer. If, however, certificates
representing the Exchange Debentures or the Debentures 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
Debentures tendered, or if tendered Debentures 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
Debentures 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 Debentures will be recorded at the same carrying value as the
Debentures 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
Debentures (which are expected to total approximately $6,500,000) will be
amortized over the term of the Exchange Debentures.
RESALE OF EXCHANGE DEBENTURES
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third parties, ACC believes that Exchange Debentures
issued pursuant to the Exchange Offer in exchange for Debentures may be
offered for resale, resold and otherwise transferred by any holder of such
Exchange Debentures (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
Debentures 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 Debentures. 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 Debentures may not rely on the position of the
staff of the Commission enunciated in Exxon Capital
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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 Debentures for its own account in exchange for Debentures, where such
Debentures 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 Debentures. See
"Plan of Distribution."
By tendering in the Exchange Offer, each Holder will represent to ACC that,
among other things, (i) the Exchange Debentures acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Debentures, 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 Debentures and (iii) the Holder and such other person acknowledge
that if they participate in the Exchange Offer for the purpose of distributing
the Exchange Debentures (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 Debentures
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 Debentures 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 Debentures 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
Debentures who do not tender their Debentures will not, except under very
limited circumstances, have any further registration rights under the
Registration Rights Agreement or otherwise. Accordingly, any Holder of
Debentures that does not exchange that Holder's Debentures for Exchange
Debentures will continue to hold the untendered Debentures 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 Debentures that are not exchanged for Exchange Debentures pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such
Debentures 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 Debentures 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, (v) to an institutional accredited investor that, prior to such
transfer, furnishes to the trustee under the Indenture a signed letter
containing certain representations and agreements relating to the restrictions
on transfer of the Debentures evidenced thereby (the form of which letter can
be obtained from such trustee) or (vi) 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 Debentures are tendered and accepted in the Exchange
Offer, the trading market for the untendered Debentures could be adversely
affected. See "Risk Factors--Consequences of the Exchange Offer on Non-
Tendering Holders of the Debentures" and "--Termination of Certain Rights."
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TERMINATION OF CERTAIN RIGHTS
Holders of the Debentures 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 Debentures 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 Debentures 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 Debentures 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 Debentures 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 Debentures in open market
or privately negotiated transactions, through subsequent exchange offers or
otherwise. ACC has no present plans to acquire any Debentures that are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any untendered Debentures.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "Service") will not take a contrary
view, and no ruling
from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders of the Debentures (including
insurance companies, tax exempt organizations, financial institutions, broker-
dealers, foreign corporations and persons who are not citizens or residents of
the United States) may be subject to special rules not discussed below. EACH
HOLDER OF A NOTE SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING SUCH HOLDER'S DEBENTURES FOR
EXCHANGE DEBENTURES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN TAX LAWS.
The issuance of the Exchange Debentures to Holders of the Debentures
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 Debentures upon receipt of the
Exchange Debentures. For
33
<PAGE>
purposes of determining gain or loss upon the subsequent sale or exchange of
the Exchange Debentures, a Holder's basis in the Exchange Debentures should be
the same as such Holder's basis in the Debentures exchanged therefor. Holders
should be considered to have held the Exchange Debentures from the time of
their original acquisition of the Debentures.
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 Debentures
offered hereby. In consideration for issuing the Exchange Debentures
contemplated in this Prospectus, ACC will receive Debentures in like principal
amount, the form and terms of which are the same as the form and terms of the
Exchange Debentures (which they replace), except as otherwise described
herein. The Debentures surrendered in exchange for Exchange Debentures will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Debentures 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 unaudited pro forma consolidated financial data or
capitalization tables.
The net proceeds from the sale of the Debentures were approximately $267.1
million (net of discounts and commissions paid to the Initial Purchasers and
estimated fees and expenses incurred in connection therewith). ACC has used
such net proceeds to (i) repay in full the Senior Secured Promissory Notes in
the amount of $63.5 million (which bore interest a rate of 11.0% per annum and
were to mature on May 31, 2003), plus the associated prepayment premium of
$12.9 million, (ii) repay in full the Existing Credit Facility in the amount
of $8 million (which bore interest at the prime rate plus 1.5% (10.0% at
December 31, 1995) and expired on March 31, 1996), (iii) make an equity
contribution to Harrisburg TV of $113 million to fund the purchase price of
WHTM, (iv) repay in full the Anniston Note in the amount of $10 million, (v)
make an equity contribution to TV Alabama, Inc. of $20.0 million to fund the
purchase of WCFT, (vi) in connection with the Contribution, make an
intercompany loan of $6.6 million to WSET for the repayment in full of certain
indebtedness incurred in February of 1996, (vii) repay in full certain
indebtedness of WCIV in the amount of $3.2 million and (viii) fund working
capital and general corporate purposes in the amount of $29.9 million. See
"Description of Certain Indebtedness."
34
<PAGE>
THE COMPANY
ACC owns and operates five ABC network-affiliated television stations, one
NBC network-affiliated television station and one CBS network-affiliated
television station: WJLA (ABC) in Washington, D.C.; WHTM (ABC) in Harrisburg,
Pennsylvania; KATV (ABC) in Little Rock, Arkansas; KTUL (ABC) in Tulsa,
Oklahoma; WSET (ABC) in Lynchburg, Virginia; WCIV (NBC) in Charleston, South
Carolina and WCFT (CBS) in Tuscaloosa, Alabama. The Company's Owned and
Operated Stations broadcast to the 7th, 44th, 58th, 59th, 67th, 108th and
187th largest national media markets in the United States, respectively, as
defined by Nielsen. WJLA is owned and operated by ACC, while the Company's
remaining Owned and Operated Stations are owned by Harrisburg Television, Inc.
(WHTM), KATV Television, Inc. (KATV), KTUL Television, Inc. (KTUL), WSET,
Incorporated (WSET), First Charleston Corp. (WCIV) and TV Alabama, Inc.
(WCFT), each of which is a wholly owned subsidiary of ACC, except Harrisburg
TV and TV Alabama, each of which is an indirect 80%-owned subsidiary of ACC.
The Company also began operating a television station in Anniston, Alabama,
east of Birmingham under an LMA effective December 29, 1995. The Company also
engages in other activities relating to the production and distribution of
television programming through ATP, a wholly owned subsidiary of 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 wholly owned by Joe L.
Allbritton, ACC's Chairman. ACC and each of its subsidiaries are Delaware
corporations, except for First Charleston Corp., which is a South Carolina
corporation. 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.
CONTRIBUTION OF WSET AND WCIV TO ACC
On March 1, 1996, WSET and WCIV became wholly owned subsidiaries of ACC.
Westfield, an affiliate of ACC that is wholly owned by Joe L. Allbritton,
Chairman of ACC, contributed the capital stock of WSET and WCIV to AGI, a
newly formed subsidiary of Perpetual, in exchange for all of the preferred
stock of AGI. Perpetual contributed all of the ACC Common Stock to AGI in
exchange for all of the common stock of AGI. Simultaneously therewith, AGI
contributed the capital stock of WSET and WCIV to ACC (the "Contribution");
therefore, Perpetual owns all of the common stock of AGI, AGI owns all of the
common stock of ACC and WSET and WCIV are wholly owned subsidiaries of ACC.
Subsequent to December 31, 1995 and prior to the Contribution, WSET borrowed
$6,600,000 from Perpetual (the "WSET Loan"). The proceeds of the WSET Loan
were used by WSET to pay a dividend to Westfield to enable Westfield to repay
certain indebtedness for which the assets and common stock of WSET were
previously pledged. ACC used a portion of the net proceeds from the sale of
the Debentures to make an intercompany loan of $6,600,000 to WSET to repay the
WSET Loan. See "Use of Proceeds."
HARRISBURG ACQUISITION (WHTM)
On March 1, 1996, ACC, through its indirect 80%-owned subsidiary, Harrisburg
TV, acquired substantially all of the assets, including the FCC licenses of
WHTM Channel 27, licensed to Harrisburg, Pennsylvania, for an aggregate
purchase price of $113,000,000. Allfinco, a wholly owned subsidiary of ACC,
contributed $4,000,800 and Robert L. Allbritton contributed $1,000,200 toward
the purchase of voting common stock of Harrisburg TV, making it 80% owned by
Allfinco and 20% owned by Robert L. Allbritton. The RLA Revocable Trust
subsequently purchased the 20% interest of Robert L. Allbritton. Allfinco
purchased 19,000 shares of non-voting common stock of Harrisburg TV for
$109,000,000 in connection with the acquisition and has agreed to exchange
promissory notes for such stock, subject to the limitations set forth in the
indenture relating to the 11 1/2% Debentures.
BIRMINGHAM STATIONS
Effective December 29, 1995, TV Alabama began operating WJSU in Anniston,
Alabama (east of Birmingham) under the Anniston LMA. On March 15, 1995, TV
Alabama acquired substantially all of the assets of WCFT in Tuscaloosa,
Alabama (west of Birmingham).
Assuming relocation of either WCFT's or WJSU's transmitting towers to
provide a level of signal over Birmingham reasonably satisfactory to ABC, TV
Alabama proposes to operate both WCFT and WJSU in tandem as the ABC network
affiliates serving the viewers of Birmingham, Tuscaloosa and Anniston. By
relocating the
35
<PAGE>
antennas of both WCFT and WJSU closer to Birmingham, a superior "city grade"
signal from each station would overlap in Birmingham providing city grade
coverage of virtually the entire Birmingham DMA as well as Tuscaloosa and
Anniston. To operate the combined facilities, TV Alabama would construct new
studio facilities in Birmingham for the operation of both stations and would
plan to expand news and programming services to levels consistent with the
Company's operation of the Owned and Operated Stations. TV Alabama intends to
use the existing facilities of WCFT and WJSU to operate news and sales bureaus
in the Tuscaloosa and Anniston markets. As a result of casting an enhanced
signal over Birmingham, TV Alabama believes it would be able to increase
revenues by attracting new advertisers and increasing its share of existing
customers' advertising budgets through attractive sales packages combining
both stations. The Company also believes it may ultimately realize economies
of scale in marketing, programming, and overhead. There can be no assurance,
however, as to the foregoing results.
Operation of WCFT and WJSU jointly to serve as the
Birmingham/Tuscaloosa/Anniston ABC network affiliate requires the transfer of
ABC network affiliation to both stations. ABC has conditioned its network
affiliation transfer on FCC approval by August 1, 1996 of an application to
relocate either WCFT's or WJSU's transmitter site to a site from which the
station can deliver a level of signal over Birmingham that is reasonably
satisfactory to ABC. Assuming satisfaction of this condition, the transfer of
the ABC affiliation would be expected to occur by September 1, 1996 and run
for a period of ten years. There can be no assurance that the transfer of the
ABC affiliation will occur or that it will occur on a timely basis in order to
commence operations on September 1, 1996. Operations under the Anniston LMA
are not subject to obtaining ABC affiliation.
CBS has been notified that WCFT and WJSU anticipate termination of
affiliation agreements with CBS no later than September 30, 1996. Failure by
WCFT and WJSU to obtain ABC affiliation would result in TV Alabama operating
WCFT and WJSU as independent stations with the potential to affiliate with
another network such as the UPN or WB. If either of these events were to
occur, the Company would not expect either station's financial performance to
equal that of a major network affiliate. See "Risk Factors--Network
Affiliation" and "Business--Television Industry Background." In light of the
foregoing, there can be no assurance that the Company's Birmingham strategy
will be effectuated at all or in accordance with its plans. See "Risk
Factors--Network Affiliation."
THE ANNISTON LMA (WJSU). In December 1995, ACC entered into a LMA with RKZ
to operate, for a period of ten years, WJSU, Channel 40, licensed to Anniston,
Alabama, currently a CBS affiliate, but has agreed to become affiliated with
ABC beginning in September 1996. ACC has also entered into an option to
purchase all of the assets of WJSU, subject to certain conditions. See
"Proposed Acquisitions." The broadcast signal of WJSU covers a large portion
of the eastern part of the Birmingham DMA. The terms of the LMA provide for TV
Alabama to supply program services to the station owner, operate the station
and retain all revenues from advertising sales in exchange for payment by TV
Alabama of $15,000 per month in addition to station operating expenses to the
station owner, or $30,000 per month plus expenses upon receipt of regulatory
approvals for a transmitter tower move as described below. Such monthly
payment will increase by $3,000 after four years if the acquisition as
described below has not been consummated. Allfinco, a wholly owned subsidiary
of ACC, created TV Alabama, a Delaware corporation that operates WJSU under
the Anniston LMA. Allfinco contributed $800 and the RLA Trust contributed
$200, to purchase voting common stock of TV Alabama, making it 80% owned by
Allfinco and 20% owned by the RLA Trust. The RLA Revocable Trust subsequently
purchased the RLA Trust's 20% interest. TV Alabama's obligations under the LMA
are not subject to continued CBS affiliation or future ABC affiliation.
Obtaining the ABC affiliation is contingent on FCC approval of the relocation
of either WJSU's or WCFT's transmitting tower closer to Birmingham by August
1, 1996. Such a relocation would allow the relocated station antenna to cast
an enhanced signal over portions of the city of Birmingham. By doing so, the
Company believes it would be able to increase revenues by attracting new
advertisers. An application to approve the relocation is presently pending at
the FCC. A similar application to that requesting approval of WJSU's tower
site relocation is also pending at the FCC filed on behalf of WNAL-TV, Channel
44, licensed to Gadsden, Alabama ("WNAL"). Because approval by the FCC of both
tower relocations would violate FCC rules on minimum mileage separation
between the two transmitting antennas, the
36
<PAGE>
two applications are considered mutually exclusive and only one can be
granted. The owner of WNAL has filed a formal objection to the WJSU
application on grounds that WJSU's tower relocation would result in WJSU's
failure to provide the required "city grade" signal over its city of license,
Anniston. If the WNAL application is not dismissed or amended to relocate the
WNAL tower to comply with the minimum mileage separation rules, the Company
and the owner of WJSU have identified an alternate tower site that would
eliminate the mutual exclusivity problem and permit a grant of the WJSU
application. The alternate tower site would deliver approximately 80% of the
coverage to Birmingham as compared to the current proposed WJSU tower
relocation site. Combined with the WCFT tower relocation site, the TV Alabama
coverage plan would remain in effect.
THE TUSCALOOSA ACQUISITION (WCFT). On March 15, 1996, ACC, through its
indirect 80%-owned subsidiary, TV Alabama, acquired substantially all of the
assets, including the FCC licenses of WCFT, Channel 33, licensed to
Tuscaloosa, Alabama for an aggregate purchase price of $20,000,000. Allfinco,
a wholly-owned subsidiary of ACC, contributed an additional $400,000 and the
RLA Revocable Trust contributed an additional $100,000 to the voting common
stock of TV Alabama in connection with the acquisition. Allfinco purchased
19,000 shares of non-voting common stock of TV Alabama for $19,600,000 in
connection with the acquisition and will agree to exchange promissory notes
for such stock, subject to the limitations set forth in the indenture relating
to the 11 1/2% Debentures.
The WCFT broadcast signal covers a large portion of the western part of the
Birmingham DMA. Currently, the station operates as a CBS network affiliate,
but has agreed to become affiliated with ABC beginning September 1996.
Obtaining ABC affiliation is contingent on, among other things, the relocation
of either WCFT's or WJSU's transmitting tower closer to Birmingham by August
1, 1996. Such a relocation would allow the relocated station antenna to cast
an improved signal over portions of the city of Birmingham. By doing so, the
Company believes it would be able to increase revenues by attracting new
advertisers. An application to accomplish the relocation of WCFT's tower is
presently pending at the FCC. Failure to obtain ABC affiliation would result
in TV Alabama operating WCFT as an independent station with the potential to
affiliate with another network such as the UPN or WB. If either of these
events were to occur, the Company would not expect the station's financial
performance to equal that of a major network affiliate. See "Risk Factors--
Network Affiliation" and "Business--Television Industry Background."
37
<PAGE>
The organizational structure of the Company and its stockholders, operating
subsidiaries and certain affiliates reflecting ownership of all common, voting
stock is as follows:
[ORGANIZATIONAL STRUCTURE CHART APPEARS HERE]
- --------
(1) Issuer of the Exchange Debentures, the Debentures and the 11 1/2%
Debentures. See "Risk Factors--Control by Sole Stockholder; Affiliate
Transactions."
38
<PAGE>
PROPOSED ACQUISITIONS
ACC has also entered into an option to purchase the assets of WJSU (the
"Anniston Option"). ACC paid $10.0 million for the Anniston Option, which is
exercisable for an additional $2.0 million upon a change in FCC rules or a
waiver permitting common ownership of both WCFT and WJSU. See "Business--
Legislation and Regulation--Ownership Matters." Exercise of the Anniston
Option is subject to certain conditions, including FCC approval. The Anniston
Option also provides for up to an additional $7.0 million in consideration
from ACC if the WJSU transmitting tower site is relocated closer to Birmingham
within the next four years, consisting of $5.0 million payable upon receipt of
all regulatory approvals to relocate the tower site and an additional $2.0
million in connection with such relocation payable upon exercise of the
purchase option. If the tower is relocated to a site that does not provide
essentially comparable coverage over Birmingham to that proposed in WJSU's
presently pending application, such additional payments will be
proportionately reduced.
The Company financed the purchase price of the Anniston Option with a $10.0
million unsecured demand note (the "Anniston Note") issued by a third party
financial institution. The Anniston Note bore interest at the prime rate of
the lender (8.5% as of January 15, 1996) and was payable on demand. ACC
contributed the Anniston Option to Allfinco, which, in turn, contributed the
Anniston Option to TV Alabama in exchange for 19,000 shares of non-voting
common stock and allocation of $800,000 as an additional capital contribution
to the voting common stock of TV Alabama then held by Allfinco. At the same
time, the RLA Trust contributed an additional $200,000 cash to TV Alabama as
to the voting common stock of TV Alabama then held by the RLA Trust. ACC used
a portion of the net proceeds from the sale of the Debentures to repay the
$10,000,000 borrowing. See "Use of Proceeds." In connection with the purchase
of such non-voting common stock, TV Alabama has agreed to exchange promissory
notes for such non-voting common stock, subject to the limitations set forth
in the indenture relating to the 11 1/2% Debentures.
39
<PAGE>
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, 1995 and as adjusted to give effect to the sale of the Debentures (and the
application of the net proceeds thereof), including the New Station
Transactions, as if each had occurred on December 31, 1995. See "Use of
Proceeds." The issuance of the Exchange Debentures in exchange for the
Debentures will have no effect on the capitalization of the Company.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current installments of debt(1)..................... $ 22,171 $ 199
=========== ===========
Debt (net of current installments):
Capital lease obligations......................... $ 873 $ 873
Term Mortgage Loan................................ 2,771 --
Senior Secured Promissory Notes (less unamortized
discount of $51,000)............................. 59,949 --
11 1/2% Senior Subordinated Debentures due 2004
(less unamortized discount of $300,000).......... 124,700 124,700
9 3/4% Senior Subordinated Debentures due 2007
(less unamortized discount of $1,375,000)........ -- 273,625
----------- -----------
Total debt (net of current installments)........ 188,293 399,198
----------- -----------
Series A redeemable preferred stock, at redemption
value(2)........................................... 168 168
----------- -----------
Stockholder's investment:
Common stock...................................... 1 1
Capital in excess of par value.................... 6,955 6,955
Retained earnings(3).............................. 69,040 54,701
Distributions to owners, net(4)................... (208,841) (212,941)
----------- -----------
Total Stockholder's investment.................. (132,845) (151,284)
----------- -----------
Total capitalization(5)....................... $ 55,616 $ 248,082
=========== ===========
</TABLE>
- --------
(1) Includes $10,000,000 under the Anniston Note, $8,000,000 under the
Existing Credit Facility, $3,500,000 under the Senior Secured Promissory
Notes, $472,000 under the Term Mortgage Loan and $199,000 of capital lease
obligations. The Company has received a commitment letter for the New
Senior Credit Agreement, which will provide for borrowings of up to
$40,000,000. See "Description of Certain Indebtedness--New Senior Credit
Agreement."
(2) The Series A Preferred Stock is non-voting, has no conversion rights and
provides for an annual cash dividend of $96 per share and a liquidation
preference of $1,600 per share. The total number of shares outstanding of
Series A Preferred Stock is 105. See Note 7 of Notes to the Consolidated
Financial Statements.
(3) The pro forma retained earnings as of December 31, 1995 gives effect to
the costs incurred in connection with the early repayment of the Senior
Secured Promissory Notes and the dividend to Westfield from WSET.
(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 6 of Notes 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.
40
<PAGE>
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data give effect to
the sale of the Debentures and the application of the net proceeds thereof,
including the New Station Transactions. The unaudited pro forma consolidated
balance sheet presents the consolidated financial position of the Company
(including WSET and WCIV), WHTM and WCFT as of December 31, 1995, assuming
that the acquisitions of WHTM and WCFT occurred as of December 31, 1995. Such
pro forma information is based on the historical balance sheets of the
Company, WHTM and WCFT at December 31, 1995. The unaudited pro forma
consolidated statements of operations have been prepared assuming the sale of
the Debentures and the application of the net proceeds thereof occurred as of
October 1, 1994. The unaudited pro forma consolidated statements of operations
reflect the historical results of the Company, WHTM, WCFT and WJSU for the
twelve months ended September 30, 1995 and for the three months ended December
31, 1995.
The unaudited pro forma consolidated financial data give effect to certain
pro forma adjustments that are described in the notes to these statements. The
extraordinary loss which results from the early repayment of the Senior
Secured Promissory Notes is included, net of the related income tax effect, in
the unaudited pro forma consolidated balance sheet as of December 31, 1995,
but is not included in the unaudited pro forma consolidated statements of
operations for the year ended September 30, 1995 or for the three months ended
December 31, 1995. The extraordinary loss of $7,739,000 (which includes
nonrecurring costs of $13,139,000, less the applicable income tax benefit of
$5,400,000) will be included in the Company's results of operations for the
period including February 6, 1996, the date the Senior Secured Promissory
Notes and the related prepayment penalty were paid. See Note 2(c) to Notes to
Unaudited Pro Forma Consolidated Financial Data. No other significant
nonrecurring charges resulted from the offering or the New Station
Transactions.
The unaudited pro forma consolidated financial data are presented for
informational purposes only and are not necessarily indicative of the
financial position or results of operations that would have been achieved had
the sale of the Debentures and the application of the net proceeds thereof
been completed as of the respective date or period presented, nor is it
necessarily indicative of the Company's future financial position or results
of operations. The unaudited pro forma consolidated financial data should be
read in conjunction with the historical financial statements of the Company,
WHTM, WCFT and WJSU, including the related notes thereto.
41
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
RELATED TO PRO FORMA
THE NEW ADJUSTMENTS
THE STATION RELATED TO PRO FORMA
COMPANY WHTM WCFT TRANSACTIONS THE OFFERING CONSOLIDATED
-------- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash
equivalents........... $ 2,618 $ 97 $ 28 $(133,000)(a) $267,125 (b) $ 22,942
1,300 (k) (76,383)(c)
(8,000)(d)
(3,243)(e)
(10,000)(f)
(6,600)(g)
(11,000)(l)
Accounts receivable,
net................... 33,481 3,770 787 38,038
Program rights......... 10,065 1,261 93 11,419
Deferred income taxes.. 1,209 1,209
Interest receivable
from related parties.. 1,045 1,045
Other.................. 1,322 455 26 1,803
-------- ------- ------ --------- -------- --------
Total current
assets.............. 49,740 5,583 934 (131,700) 151,899 76,456
Property, plant and
equipment, net........ 21,723 5,440 1,455 3,700 (h) 11,000 (l) 43,318
Intangible assets,
net................... 30,361 60,631 2,293 55,020 (i) 148,305
Deferred financing
costs and other....... 6,238 119 6,500 (b) 12,652
(205)(c)
Deferred income taxes.. 1,178 1,178
Cash surrender value of
life insurance........ 3,156 3,156
Program rights......... 807 144 951
-------- ------- ------ --------- -------- --------
Total assets......... $113,203 $71,917 $4,682 $( 72,980) $169,194 $286,016
======== ======= ====== ========= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
42
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
RELATED TO PRO FORMA
THE NEW ADJUSTMENTS
THE STATION RELATED TO PRO FORMA
COMPANY WHTM WCFT TRANSACTIONS THE OFFERING CONSOLIDATED
--------- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND
STOCKHOLDER'S
INVESTMENT
CURRENT LIABILITIES
Notes payable.......... $ 21,972 $(3,500)(c)
(8,000)(d)
(472)(e)
(10,000)(f)
Accounts payable....... 3,989 $646 $35 $ (681)(j) $ 3,989
Accrued interest
payable............... 6,256 6,256
Program rights
payable............... 13,859 1,400 91 15,350
Other accrued
expenses.............. 6,101 1,380 7 (1,387)(j) (1,300)(c) 4,801
Capital lease
obligations........... 199 199
--------- ------- ------ -------- -------- ---------
Total current
liabilities......... 52,376 3,426 133 (2,068) (23,272) 30,595
OTHER
Long-term debt......... 187,420 273,625 (b) 398,325 (m)
(59,949)(c)
(2,771)(e)
Program rights
payable............... 877 828 1,705
Deferred rent, deferred
taxes and other....... 4,334 39,482 108 (39,590)(j) 4,334
Capital lease
obligations........... 873 873
Minority interest ..... 1,300(k) 1,300
--------- ------- ------ -------- -------- ---------
245,880 43,736 241 (40,358) 187,633 437,132
--------- ------- ------ -------- -------- ---------
Series A redeemable
preferred stock, $1.00
par value............. 168 168
--------- ---------
STOCKHOLDER'S INVESTMENT
Common stock .......... 1 1 (1)(j) 1
Capital in excess of
par value............. 6,955 27,745 9,603 (37,348)(j) 6,955
Retained earnings
(deficit)............. 69,040 435 (435)(j) (7,739)(c) 54,701
(6,600)(g)
Distributions to
owners, net........... (208,841) (5,162) 5,162(j) (4,100)(c) (212,941)
--------- ------- ------ -------- -------- ---------
Total stockholder's
investment.......... (132,845) 28,181 4,441 (32,622) (18,439) (151,284)
--------- ------- ------ -------- -------- ---------
Total liabilities,
redeemable
preferred stock
and stockholder's
investment....... $ 113,203 $71,917 $4,682 $(72,980) $169,194 $ 286,016
========= ======= ====== ======== ======== =========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
43
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
RELATED TO ADJUSTMENTS
THE NEW RELATED TO
THE STATION THE PRO FORMA
COMPANY WHTM WCFT WJSU TRANSACTIONS OFFERING CONSOLIDATED
-------- ------- ------ ------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues,
net.................... $138,151 $16,173 $3,998 $3,978 $162,300
-------- ------- ------ ------ --------
Television operating
expenses, excluding
depreciation and
amortization........... 75,199 7,892 2,529 2,043 $ 180 (n) 87,843
Depreciation and
amortization........... 4,752 2,085 926 359 3,100 (o) 11,222
Corporate expenses...... 3,753 549 542 4,844
-------- ------- ------ ------ ------- --------
83,704 10,526 3,455 2,944 3,280 103,909
-------- ------- ------ ------ ------- --------
Operating income........ 54,447 5,647 543 1,034 (3,280) 58,391
-------- ------- ------ ------ ------- --------
Nonoperating income
(expense)
Interest income
Related party.......... 2,212 2,212
Other.................. 126 126
Interest expense
Related party.......... (2,221) (478) 2,699 (p)
Other.................. (22,708) (2,094) (2) 2,096 (p) $(18,739)(q) (41,447)
Other, net............. (233) (2) 5 6 (549)(r) (773)
-------- ------- ------ ------ ------- -------- --------
(20,603) (4,317) 5 (474) 4,795 (19,288) (39,882)
-------- ------- ------ ------ ------- -------- --------
Income before income
taxes.................. 33,844 1,330 548 560 1,515 (19,288) 18,509
Provision for income
taxes.................. 13,935 260 12 (6,200)(s) 8,007
-------- ------- ------ ------ ------- -------- --------
Net income.............. $ 19,909 $ 1,070 $ 548 $ 548 $ 1,515 $(13,088) $ 10,502
======== ======= ====== ====== ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
44
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
RELATED TO ADJUSTMENTS
THE NEW RELATED TO
THE STATION THE PRO FORMA
COMPANY WHTM WCFT WJSU TRANSACTIONS OFFERING CONSOLIDATED
------- ------ ---- ------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues,
net.................... $38,382 $4,457 $966 $1,046 $44,851
------- ------ ---- ------ -------
Television operating
expenses, excluding
depreciation and
amortization........... 21,193 2,463 681 692 $ 45 (t) 25,074
Depreciation and
amortization........... 1,274 554 265 79 779 (u) 2,951
Corporate expenses...... 829 150 979
------- ------ ---- ------ ------- -------
23,296 3,167 946 771 824 29,004
------- ------ ---- ------ ------- -------
Operating income........ 15,086 1,290 20 275 (824) 15,847
------- ------ ---- ------ ------- -------
Nonoperating income
(expense)
Interest income
Related party.......... 553 553
Other.................. 32 32
Interest expense
Related party.......... (585) (120) 705 (v)
Other.................. (5,667) (517) 517 (v) $(4,659)(x) (10,326)
Other, net............. (90) (2) 8,096 (8,096)(w) (137)(y) (229)
------- ------ ---- ------ ------- ------- -------
(5,172) (1,102) (2) 7,976 (6,874) (4,796) (9,970)
------- ------ ---- ------ ------- ------- -------
Income before income
taxes.................. 9,914 188 18 8,251 (7,698) (4,796) 5,877
Provision for income
taxes.................. 3,814 122 3,007 (4,500)(z) (2,443)
------- ------ ---- ------ ------- ------- -------
Net income.............. $ 6,100 $ 66 $ 18 $5,244 $(7,698) $ (296) $ 3,434
======= ====== ==== ====== ======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
45
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL DATA
1. BASIS OF PRESENTATION
The unaudited pro forma consolidated balance sheet has been prepared to
reflect the sale of the Debentures and the application of the net proceeds
thereof, including the New Station Transactions. See "Use of Proceeds."
The unaudited pro forma consolidated balance sheet presents the financial
position of the Company and WHTM and WCFT as of December 31, 1995 assuming
that the sale of the Debentures and the application of the net proceeds
thereof, including the New Station Transactions, occurred on December 31,
1995. Such pro forma information is based on the historical balance sheets of
the Company, WHTM and WCFT as of December 31, 1995.
The unaudited pro forma consolidated statements of operations assume that
the sale of the Debentures and the application of the net proceeds thereof
occurred as of October 1, 1994. The extraordinary loss which results from the
early repayment of the Senior Secured Promissory Notes is included, net of the
related income tax effect, in the unaudited pro forma consolidated balance
sheet as of December 31, 1995, but is not included in the unaudited pro forma
consolidated statements of operations for the year ended September 30, 1995 or
for the three months ended December 31, 1995, in accordance with rules of the
Securities and Exchange Commission. The extraordinary loss of $7,739,000
(which includes nonrecurring costs of $13,139,000, less the applicable income
tax benefit of $5,400,000) will be included in the Company's results of
operations for the period including February 6, 1996, the date the Senior
Secured Promissory Notes and the related prepayment penalty were paid. See
Note 2(c) to Notes to Unaudited Pro Forma Consolidated Financial Data. No
other significant charges resulted from the sale of the Debentures and the
application of the net proceeds thereof, including the New Station
Transactions. The unaudited pro forma consolidated statements of operations
reflect the historical results of the Company, WHTM, WCFT and WJSU for the
twelve months ended September 30, 1995 and the three months ended December 31,
1995. WHTM, WCFT and WJSU each have fiscal year ends of December 31, while the
Company's fiscal year end is September 30.
No historical balance sheet for WJSU as of December 31, 1995 is presented
since no assets were acquired or liabilities assumed in connection with the
purchase, for $10,000,000, of the Anniston Option. The purchase of the
Anniston Option took place on December 29, 1995. The cost of the Anniston
Option is included in intangible assets and the Anniston Note is included in
the current portion of notes payable in the Company's consolidated balance
sheet at December 31, 1995. The Anniston Option is exercisable for an
additional $2,000,000 upon a change or waiver of currently applicable FCC
rules. The Company may be required to pay an additional purchase amount of up
to $7,000,000 contingent upon the relocation of the WJSU tower site.
The unaudited pro forma consolidated statements of operations include the
historical results of operations of WJSU for the twelve months ended September
30, 1995 and the three months ended December 31, 1995 since they assume that
the Anniston LMA transaction occurred as of October 1, 1994.
The Company believes that the assumptions used in preparing the unaudited
pro forma consolidated financial data provide a reasonable basis for
presenting all of the significant effects of the sale of the Debentures and
the application of the net proceeds thereof and that the pro forma adjustments
give effect to those assumptions in the unaudited pro forma consolidated
financial data.
2. PRO FORMA ADJUSTMENTS
Pro forma adjustments to the unaudited consolidated balance sheet are made
to reflect the following:
(a) To record the purchase price for the acquisitions of WHTM,
$113,000,000 and WCFT, $20,000,000.
(b) To reflect the proceeds of the sale of the Debentures and the
Exchange Offer after deduction of expenses, which are estimated to be
$6,500,000.
46
<PAGE>
(c) To reflect the repayment of indebtedness under the Senior Secured
Promissory Notes, including the related prepayment penalty of $12,934,000
and the write-off of associated deferred financing costs of $205,000. The
early repayment of this debt resulted in an extraordinary loss, net of
related income tax benefit of $5,400,000, of $7,739,000. The Federal income
tax benefit relating to this loss is included as an adjustment to
distributions to owners, net, pursuant to income tax sharing agreements.
The state income tax benefit relating to this loss is included as an
adjustment to other accrued expenses. See Notes 1, 5 and 6 of Notes to
Consolidated Financial Statements for a description of the Company's income
tax sharing arrangements.
(d) To reflect the repayment of indebtedness under the Credit Facility.
No borrowings under the New Credit Facility are assumed to replace the
historical amounts as the proceeds from the sale of the Debentures were
adequate to provide for the repayment of the Credit Facility. The New
Credit Facility provides for borrowings of up to $40.0 million and expires
no later than 2001. See "Description of Certain Indebtedness."
(e) To reflect the repayment of Term Mortgage Loan.
(f) To reflect the repayment of the Anniston Note.
(g) To record dividend to Westfield from WSET for repayment of Westfield
indebtedness for which the assets and the common stock of WSET were
previously pledged.
(h) To record adjustment to property, plant and equipment to reflect
estimated fair value at date of acquisition. Fair value was estimated using
results of external valuation studies.
(i) To record assignment of purchase price for WHTM and WCFT to broadcast
licenses and network affiliations and other intangible assets, net of
amounts for intangible assets previously recorded. The adjustment is based
on the fair values of intangible assets acquired. Fair values were
estimated using results of external valuation studies. The allocation of
the purchase price of WHTM and WCFT resulted in the recording of intangible
assets of $100,242,000 and $17,702,000, respectively. For purposes of the
unaudited pro forma consolidated statement of operations, all broadcast
licenses and network affiliations and other intangible assets of WHTM and
WCFT are being amortized over forty years. The Company assesses the
recoverability of intangible assets on an ongoing basis by comparing
carrying values with projected undiscounted cash flows from operations over
the remaining amortization periods.
(j) To remove liabilities not assumed pursuant to WHTM and WCFT asset
purchase agreements and to remove the stockholders' equity accounts of WHTM
and WCFT.
(k) To reflect the minority interest of Harrisburg TV and TV Alabama. The
minority interest was computed as the sum of the contribution of Robert L.
Allbritton to Harrisburg TV of $1,000,200 plus the contributions of the RLA
Trust and the RLA Revocable Trust to TV Alabama of $300,200.
(l) To record adjustment for estimated capital expenditures relating to
the operation of WCFT and WJSU. No amortization or depreciation expense
related to such capital expenditures has been reflected in the unaudited
pro forma consolidated statement of operations because the capital
expenditures have not yet been incurred and their impact on future
operations cannot be quantified. The amortization and depreciation expense
relating to the estimated capital expenditures would be approximately
$1,000,000 per year, which would reduce operating income by $1,000,000 and
reduce net income by approximately $600,000.
(m) Future maturities of unaudited pro forma long-term debt are as
follows: 2003, $62,500,000; 2004, $62,500,000; and 2007, $275,000,000.
Pro forma adjustments to the unaudited consolidated statement of operations
for the year ended September 30, 1995 are made to reflect the following:
(n) To reflect management fees of $15,000 per month payable under the
Anniston LMA.
(o) To record depreciation expense ($740,000) on the increased basis of
plant, property and equipment and amortization expense ($2,360,000) on the
estimated broadcast licenses and network affiliations and other intangible
assets. The increased basis for plant, property and equipment relates
primarily to broadcast equipment and is depreciated using an estimated life
of five years. The broadcast licenses and network
47
<PAGE>
affiliations and other intangible assets are amortized assuming lives of
forty years for WHTM and WCFT and ten years for the Anniston Option, the
term of Anniston LMA and the Anniston Option.
(p) To remove historical interest expense incurred by WHTM and WJSU.
(q) To record the net change in interest expense resulting from the sale
of the Debentures:
<TABLE>
<S> <C>
Debentures at 9.75%......................................... $26,813,000
Amortization of discount on the Debentures.................. 116,000
Senior Notes................................................ (7,200,000)
Existing Credit Facility.................................... (671,000)
Term Mortgage Loan.......................................... (319,000)
-----------
$18,739,000
===========
</TABLE>
(r) To reflect amortization of deferred financing costs related to the
sale of the Debentures over the term of the Debentures. The amortization of
deferred financing costs related to the Senior Secured Promissory Notes
that were repaid concurrent with the sale of the Debentures is not material
for adjustment in the unaudited pro forma consolidated statement of
operations.
(s) To record the estimated aggregate income tax effect of all pro forma
adjustments.
Pro forma adjustments to the unaudited consolidated statement of operations
for the three months ended December 31, 1995 are made to reflect the
following:
(t) To reflect management fees of $15,000 per month payable under the
Anniston LMA.
(u) To record depreciation expense ($185,000) on the increased basis of
plant, property and equipment and amortization expense ($594,000) on the
estimated broadcast licenses and network affiliations and other intangible
assets. The increased basis for plant, property and equipment relates
primarily to broadcast equipment and is depreciated using an estimated life
of five years. The broadcast licenses and network affiliations and other
intangible assets are amortized assuming lives of forty years for WHTM and
WCFT and ten years for the Anniston Option, the term of the Anniston LMA
and the Anniston Option.
(v) To remove historical interest expense incurred by WHTM and WJSU.
(w) To adjust for WJSU's gain on sale of the Anniston Option.
(x) To record the net change in interest expense resulting from the sale
of the Debentures:
<TABLE>
<S> <C>
Debentures at 9.75%........................................... $6,703,000
Amortization of discount on the Debentures.................... 29,000
Senior Notes.................................................. (1,705,000)
Credit Facility............................................... (294,000)
Term Mortgage Loan............................................ (70,000)
Anniston Note................................................. (4,000)
----------
$4,659,000
==========
</TABLE>
No borrowings under the New Credit Facility are assumed to replace the
historical amounts outstanding under the Credit Facility as the proceeds
from the sale of the Debentures were adequate to provide for the repayment
of the Credit Facility. Accordingly, no interest on the New Credit Facility
is included in the adjustment above.
(y) To reflect amortization of deferred financing costs related to the
sale of the Debentures over the term of the Debentures. The amortization of
deferred financing costs related to the Senior Secured Promissory Notes
that were repaid concurrent with the sale of the Debentures is not material
for adjustment in the unaudited pro forma consolidated statement of
operations.
(z) To record the estimated aggregate income tax effect of all pro forma
adjustments.
48
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The selected consolidated financial data below should be read in conjunction
with the consolidated financial statements and notes thereto included
elsewhere in this Prospectus. The selected consolidated financial data for the
fiscal years ended September 30, 1991, 1992, 1993, 1994 and 1995 are derived
from the Company's audited Consolidated Financial Statements. The selected
consolidated financial data for the three months ended December 31, 1994 and
1995 are derived from the Company's unaudited consolidated financial
statements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------------------- -------------------
1991 1992 1993 1994 1995 1994 1995
------- ------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Operating revenues,
net.................... $96,779 $98,562 $109,867 $125,830 $138,151 $39,770 $38,382
Television operating
expenses, excluding
depreciation and
amortization........... 65,111 62,223 65,533 67,745 75,199 18,704 21,193
Depreciation and
amortization........... 7,394 6,631 5,771 5,122 4,752 1,319 1,274
Corporate expenses...... 2,177 2,268 3,231 4,250 3,753 794 829
Operating income........ 22,097 27,440 35,332 48,713 54,447 18,953 15,086
Interest expense........ 21,997 22,138 22,336 22,303 22,708 5,039 5,667
Interest income(2)...... 2,227 2,514 2,408 2,292 2,338 586 585
Income (loss) before
extraordinary items and
cumulative effect of
changes in accounting.. (639) 3,684 7,586 17,360 19,909 8,380 6,100
Extraordinary items(3).. -- (19,625) 1,485 -- -- -- --
Cumulative effect of
changes in
accounting(4).......... -- -- (523) 3,150 -- -- --
Net income (loss)....... (639) (15,941) 8,548 20,510 19,909 8,380 6,100
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
------------------------------------------------ DECEMBER 31,
1991 1992 1993 1994 1995 1995
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (1):
Total assets............ $97,530 $97,461 $91,218 $94,079 $99,605 $113,203
Total debt(5)........... 174,754 199,336 197,154 199,473 198,919 210,464
Redeemable preferred
stock.................. 168 168 168 168 168 168
Stockholder's
investment............. (133,544) (129,266) (138,288) (136,961) (133,879) (132,845)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------- --------------------
1991 1992 1993 1994 1995 1994 1995
------- -------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW DATA(1)(11):
Cash flows from operat-
ing activities......... $6,762 $(12,284) $12,531 $18,267 $22,145 $6,200 $3,181
Cash flows from invest-
ing activities......... (2,645) (2,732) (1,933) (1,420) (2,543) (726) (10,850)
Cash flows from financ-
ing activities......... (3,737) 24,719 (19,793) (16,905) (18,549) (4,415) 6,471
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------- --------------------
1991 1992 1993 1994 1995 1994 1995
------- -------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND
OTHER DATA(1):
Operating Cash Flow(6).. $29,491 $34,071 $41,103 $53,835 $59,199 $20,272 $16,360
Operating Cash Flow
Margin(7).............. 30.5% 34.6% 37.4% 42.8% 42.9% 51.0% 42.6%
Capital expenditures.... 3,734 1,797 1,972 3,264 2,777 774 875
Interest expense,
net(8)................. 19,770 19,624 19,928 20,011 20,370 4,453 5,082
Ratio of total debt to
Operating Cash
Flow(9)................ 5.93x 5.85x 4.80x 3.71x 3.36x 2.47x 3.22x
Ratio of Operating Cash
Flow to interest
expense, net........... 1.49x 1.74x 2.06x 2.69x 2.91x 4.55x 3.22x
Ratio of Operating Cash
Flow less capital
expenditures to total
interest expense, net.. 1.30x 1.65x 1.96x 2.53x 2.77x 4.38x 3.05x
Ratio of earnings to
fixed charges(10)...... 1.10x 1.32x 1.63x 2.27x 2.41x 3.69x 2.66x
</TABLE>
(footnotes on following page)
49
<PAGE>
FOOTNOTES
(1) The statement of operations data, balance sheet data, cash flow data and
financial ratios and other data as of and for the fiscal years ended
September 30, 1991, 1992, 1993, 1994 and 1995 and as of December 31, 1995
and for the three months ended December 31, 1994 and 1995 as presented
include the amounts for WSET and WCIV, which became wholly owned
subsidiaries of ACC on March 1, 1996. The common stock of WSET and WCIV
which was formerly held by Westfield, which is 100% owned by Mr. Joe L.
Allbritton, was contributed to the Company on March 1, 1996. 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 owned indirectly by Mr. Joe L.
Allbritton for all periods in which financial data are presented, the
Company has retroactively restated its historical financial data to
reflect the Contribution. See Note 1 of Notes to Consolidated Financial
Statements and "The Company--Contribution of WSET and WCIV to ACC."
(2) Interest income primarily represents interest earned on investments and,
since April 1991, interest earned on a $20,000,000 note receivable from
Allnewsco. See Note 6 of Notes to Consolidated Financial Statements.
(3) The extraordinary loss during Fiscal 1992 resulted from a $20,089,000 loss
on early repayment of long-term debt, offset by a $464,000 gain on
utilization of net operating loss carryforwards for state income tax
reporting purposes. The extraordinary gain during Fiscal 1993 resulted
from the use of net operating loss carryforwards and carrybacks for state
income tax reporting purposes.
(4) 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. See Notes 1, 5 and 8 of Notes to Consolidated Financial
Statements.
(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) "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 are used by investors to measure a company's
ability to fund its operations and service debt. Operating Cash Flow does
not purport to represent cash flows from operating activities determined
in accordance with generally accepted accounting principles as reflected
in the Consolidated Financial Statements, is not a measure of financial
performance under generally accepted accounting principles and should not
be considered in isolation or as a substitute for net income or cash flows
from operating activities.
(7) "Operating Cash Flow Margin" is defined as Operating Cash Flow as a
percentage of operating revenues, net.
(8) "Interest expense, net" is defined as interest expense less interest
income.
(9) For the three months ended December 31, 1994 and 1995, the ratio of total
debt to Operating Cash Flow was computed by annualizing the Operating Cash
Flow for the respective period.
(10) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of income (loss) before extraordinary items and income
taxes and cumulative effects of changes in accounting 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 rental expense which is a reasonable approximation of the
interest).
(11) Cash flows from operating, investing and financing activities were
determined in accordance with generally accepted accounting principles.
See also Consolidated Statements of Cash Flows.
50
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company owns and operates five ABC network-affiliated television
stations, one NBC network-affiliated television station and one CBS-affiliated
television station: WJLA (ABC) in Washington, D.C.; WHTM (ABC) in Harrisburg,
Pennsylvania; KATV (ABC) in Little Rock, Arkansas; KTUL (ABC) in Tulsa,
Oklahoma; WSET (ABC) in Lynchburg, Virginia; WCIV (NBC) in Charleston, South
Carolina and WCFT (CBS) in Tuscaloosa, Alabama. The consolidated financial
data included herein consist of the accounts of the television stations listed
above, except WHTM, the assets of which were acquired by the Company on March
1, 1996, and WCFT, the assets of which were acquired on March 15, 1996.
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 markets 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.
Most advertising contracts generally run only for a few weeks. In Fiscal
1995, no one contract or advertiser accounted for as much as 5% of the
Company's revenues. A large portion of the Company's revenues is generated
from local and regional advertising, which is sold primarily by sales
personnel, and the remainder of the advertising revenues represents national
advertising, which is sold by independent national advertising sales
representatives. The Company generally pays commissions to advertising
agencies for local/regional and national advertising, to the national sales
representative for national advertising and to the Company's sales
representatives for local/regional advertising.
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. 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.
IMPACT OF WHTM AND THE BIRMINGHAM STATIONS
GENERAL
ACC acquired the assets of WHTM in a purchase transaction on March 1, 1996
for a purchase price of $113,000,000. ACC also acquired the assets of WCFT, a
CBS affiliate located in Tuscaloosa, Alabama (west of Birmingham) in a
purchase transaction on March 15, 1996 for a purchase price of $20,000,000. On
December 29, 1995, ACC also entered into the Anniston LMA with WJSU, a CBS
affiliate located in Anniston, Alabama (east of Birmingham), and acquired an
option to purchase WJSU for $10,000,000, which option may be exercised for an
additional $2,000,000 upon a change or waiver of currently applicable FCC
rules. Additional payments of up to $7,000,000 could be made in connection
with the Anniston Option upon relocation of the WJSU tower site. See "Proposed
Acquisitions."
51
<PAGE>
ABC has entered into an affiliation agreement with WCFT and WJSU for ten
years conditioned on FCC approval by August 1, 1996 of an application to
relocate either WCFT's or WJSU's transmitting tower site to a site from which
the station delivers a level of signal over Birmingham, Alabama reasonably
satisfactory to ABC. The Company's obligations under the Anniston LMA are not
subject to continued CBS affiliation or future ABC affiliation. The absence of
CBS or ABC affiliation at WCFT or WJSU would result in the Company operating
one or both of these stations as independent stations or as an affiliate of
UPN or WB. See "The Company--Birmingham Stations."
HARRISBURG--WHTM
The Harrisburg Acquisition represents an application of the Company's growth
strategy to target network affiliated television stations located in markets
that include state capitals for acquisition. Management expects to expand
local news at WHTM by two and one half hours per week and to continue to
acquire high quality non-network programming. Management believes that WHTM
currently has adequate cost control procedures and, therefore, does not
anticipate any improvement in Operating Cash Flow to be realized from
operating expense reductions. No unusual capital expenditures at WHTM are
currently anticipated; however, there can be no assurance that unanticipated
capital expenditures at WHTM will not be required in the future or that the
Company will not elect to make additional capital expenditures at WHTM. See
"The Company--Harrisburg Acquisition (WHTM)."
BIRMINGHAM--WCFT (TUSCALOOSA) AND WJSU (ANNISTON)
The Tuscaloosa Acquisition and the Anniston LMA offer ACC the opportunity to
enter a major market DMA at what management believes is a relatively low cost
of entry. Assuming that ACC's proposal to operate WCFT and WJSU in tandem as
ABC affiliates serving Birmingham, Tuscaloosa and Anniston materializes (which
is contingent upon ABC network affiliation), the Company would plan to operate
both stations out of one new facility while maintaining a presence in both
Tuscaloosa and Anniston. Startup of this operation is expected to require
capital expenditures of approximately $8,000,000 to $11,000,000 associated
with the establishment of the television station operation and one or two
tower relocations; however, there can be no assurance that the sum will be
sufficient for the intended purposes and that funds for additional
expenditures will not be required. The amortization and depreciation expense
relating to the estimated capital expenditures would be approximately
$1,000,000 per year, which would reduce operating income by $1,000,000 and
reduce net income by approximately $600,000. The Company would also plan to
expand news and programming services to levels consistent with the Company's
operation of its other ABC network affiliates. Additionally, there will be
other start-up costs, including personnel, non-network programming purchases,
promotion and other concurrent working capital costs associated with the
development of the stations' revenues. By casting an improved signal over
Birmingham, the Company believes it would be able to increase revenues by
attracting new advertisers and increasing its share of existing customers'
advertising budgets through attractive sales packages combining both stations.
The Company also believes it should ultimately realize economies of scale in
marketing, programming and overhead. There can be no assurance, however, that
the Company's proposal will materialize at all or in a timely way to commence
operations as an ABC affiliate. CBS has been notified that WCFT and WJSU
anticipate termination of CBS affiliation agreements at both stations by no
later than September 30, 1996. If either or both stations were operated as
independent stations, the Company would not expect the stations' financial
performance to equal that of a major network affiliate. See "The Company--
Birmingham Stations."
52
<PAGE>
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 the percentage contribution of each to the total broadcast revenues
of the Company, before fees.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------------- ---------------------------------
1993 1994 1995 1994 1995
----------------- ----------------- ----------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Local/regional(1)....... $54,730 48.3% $59,729 46.2% $67,228 47.3% $18,207 44.6% $19,044 48.1%
National(2)............. 47,414 41.8 56,122 43.5 59,930 42.2 15,737 38.5 16,403 41.4
Network
compensation(3)........ 2,652 2.3 2,621 2.0 2,623 1.9 624 1.5 593 1.5
Political(4)............ 2,000 1.8 3,408 2.6 3,320 2.3 3,131 7.7 404 1.1
Trade and barter(5)..... 5,452 4.8 5,519 4.3 5,897 4.2 1,603 3.9 1,619 4.1
Other revenues(6)....... 1,142 1.0 1,745 1.4 3,022 2.1 1,558 3.8 1,502 3.8
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Broadcast revenues.... 113,390 100.0% 129,144 100.0% 142,020 100.0% 40,860 100.0% 39,565 100.0%
===== ===== ===== ===== =====
Fees(7)................. (3,808) (3,976) (4,789) (1,253) (1,317)
-------- -------- -------- ------- -------
Broadcast revenue, net
of fees................ 109,582 125,168 137,231 39,607 38,248
Non-broadcast
revenues(8)............ 285 662 920 163 134
-------- -------- -------- ------- -------
Total operating
revenues, net........ $109,867 $125,830 $138,151 $39,770 $38,382
======== ======== ======== ======= =======
</TABLE>
- --------
(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 ABC and NBC 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 ARSN (primarily in Fiscal
1995).
(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.
Local/regional and national advertising constitute the Company's largest
categories of operating revenues, collectively representing approximately 90%
of the Company's total broadcast revenues in each of the last three fiscal
years and for the three months ended December 31, 1995. 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 10.4%,
9.1% and 12.6% in Fiscal 1993, 1994 and 1995, respectively; and national
advertising revenues increased 11.3%, 18.4% and 6.8% 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.
The Company's largest category of advertiser for Fiscal 1995 was automotive,
accounting for 23.8% of total broadcast revenues. No individual advertiser
accounted for more than 5.0% of the Company's broadcast revenues in Fiscal
1995.
53
<PAGE>
RESULTS OF OPERATIONS
The following table depicts selected consolidated financial data in actual
dollars and as a percentage of net operating revenues.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, THREE MONTHS ENDED DECEMBER 31,
---------------------------------------------- --------------------------------
1993 % 1994 % 1995 % 1994 % 1995 %
-------- ----- -------- ----- -------- ----- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues,
net.................... $109,867 100.0% $125,830 100.0% $138,151 100.0% $ 39,770 100.0% $ 38,382 100.0%
Television operating
expenses, excluding
depreciation and
amortization........... 65,533 59.7 67,745 53.8 75,199 54.5 18,704 47.0% 21,193 54.4
Depreciation and
amortization........... 5,771 5.2 5,122 4.1 4,752 3.4 1,319 3.3 1,274 3.3
Corporate expenses...... 3,231 2.9 4,250 3.4 3,753 2.7 794 2.0 829 3.0
-------- ----- -------- ----- -------- ----- -------- ------ -------- ------
Operating income........ $ 35,332 32.2% $ 48,713 38.7% $ 54,447 39.4% $ 18,953 47.7% $ 15,086 39.3%
======== ===== ======== ===== ======== ===== ======== ====== ======== ======
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1994 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1995
Set forth below are selected consolidated financial data for the three
months ended December 31, 1994 and 1995, respectively, and the percentage
change between the years.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED PRO FORMA
DECEMBER 31, THREE MONTHS
--------------- PERCENTAGE ENDED
1994 1995 CHANGE DECEMBER 31, 1995
------- ------- ---------- -----------------
<S> <C> <C> <C> <C>
Operating revenues, net............ $39,770 $38,382 (3.5)% $44,851
Total operating expenses........... 20,817 23,296 11.9 29,004
Operating income................... 18,953 15,086 (20.4) 15,847
Net income......................... 8,380 6,100 (27.2) 3,434
</TABLE>
Net Operating Revenues. Net operating revenues for the three months ended
December 31, 1995 totaled $38,382,000, a decrease of $1,388,000 or 3.5% when
compared to net operating revenues of $39,770,000 for the three months ended
December 31, 1994. This decrease is attributable to a $2,727,000 decrease in
political advertising revenue, offset by an increase in local/regional and
national advertising revenue of $1,503,000. The political advertising revenue
generated during the three month period occurred primarily at WJLA as this
station covered various high-profile political races in the Washington
metropolitan area in November 1994 with no comparable political elections
occurring in November 1995. Increases in local/regional and national
advertising revenue were generated at most stations and were attributable to
increased emphasis on generating new business and participating in local
events.
Total Operating Expenses. Total operating expenses for the three months
ended December 31, 1995 totalled $23,296,000, an increase of $2,479,000, or
11.9%, compared to total operating expenses of $20,817,000 for the three
months ended December 31, 1994. Television operating expenses (before,
depreciation, amortization and corporate expenses) totalled $21,193,000 for
the three months ended December 31, 1995, an increase of $2,489,000, or 13.3%,
compared to $18,704,000 for the three months ended December 31, 1994. The
increase in television operating expenses was due to general increases in all
categories with the most significant changes occurring in sales, programming
and news expenses. Such expenses increased by approximately $482,000, $534,000
and $414,000, respectively. The increase in sales expense was primarily
associated with the sponsorship of a special event at WJLA. The increase in
program expense relates to an increase in programming costs under long term
program contracts and the increased news expense was due primarily to higher
staff compensation expense. The majority of the increase in television
operating expenses is attributable to operations at WJLA.
Depreciation and Amortization. Depreciation and amortization of $1,274,000
for the three months ended December 31, 1995 decreased $45,000, or 3.4% from
$1,319,000 for the three months ended December 31, 1994 as certain assets
became fully depreciated.
54
<PAGE>
Corporate Expenses. Corporate expenses of $829,000 for the three months
ended December 31, 1995 increased $35,000, or 4.4%, compared to $794,000 for
the three months ended December 31, 1994. The increase was due primarily to
increases in various expenses, including audit, legal, and insurance premiums.
Operating Income. For the three months ended December 31, 1995 operating
income of $15,086,000 decreased $3,867,000, or 20.4%, when compared to
operating income of $18,953,000 for the three months ended December 31, 1994.
The decrease is attributable to decreased net operating revenues and related
increases in total operating expenses as discussed above.
Other Nonoperating Expenses. Interest expense of $5,667,000 for the three
months ended December 31, 1995 increased $628,000, or 12.5%, compared to
$5,039,000 for the three months ended December 31, 1994. The increase is
primarily due to the higher level of debt outstanding under the Existing
Credit Facility during the three months ended December 31, 1995 compared to
the same period in the prior year. The average amount of debt outstanding and
the average interest rates for the three months ended December 31, 1995 and
1994 approximated $202,325,000, 11.1% and $197,502,000, 11.2%, respectively.
Income Taxes. The provision for income taxes for the three months ended
December 31, 1995 totalled $3,814,000, a decrease of $2,209,000, or 36.6%,
compared to $6,023,000 for the three months ended December 31, 1994. The
decrease is primarily attributable to a $4,489,000, or 31.2%, decrease in
income before income taxes and a decrease in permanent differences.
Net Income. Net income for the three months ended December 31, 1995 of
$6,100,000 decreased $2,280,000, or 27.2%, when compared to net income of
$8,380,000 for the three months ended December 31, 1994. The decrease results
primarily from decreased income from operations and increased interest
expense, offset by a decrease in the related provision for income taxes.
Balance Sheet. Significant balance sheet fluctuations from September 30,
1995 to December 31, 1995 consisted of increased accounts receivable,
intangible assets, and notes payable, offset by decreases in program rights
and program rights payable. Accounts receivable increased $6,929,000, or
26.1%, as a result of seasonal fluctuations in local/regional and national
advertising revenue during the first quarter of each fiscal year.
Additionally, the first quarter of Fiscal 1994 included $3,131,000 in
political revenue which is not reflected in accounts receivable because this
category of advertising is paid in advance. The $9,763,000 increase in
intangible assets is primarily attributable to the $10,000,000 cost of the
Anniston Option, offset by amortization of pre-existing intangibles. Notes
payable increased $14,000,000 at December 31, 1995 as compared to September
30, 1995 due to a $3,000,000 draw on the Existing Credit Facility, a
$1,000,000 increase in upcoming installment payments on the Senior Secured
Promissory Notes, and the $10,000,000 Anniston Note. The $3,636,000 decrease
in current and noncurrent program rights and the related $2,805,000 decrease
in current and noncurrent program rights payable is attributable to the normal
amortization expense and payments made under programming contracts.
Pro forma results of operations. Assuming that the offering and the
application of the net proceeds thereof, including the New Station
Transactions, had occurred as of October 1, 1994, total operating revenues for
the three months ended December 31, 1995 would have totaled $44,851,000, an
increase of $6,469,000, or 16.9%, as compared to historical operating revenues
for the same period. This increase is directly attributable to the pro forma
adjustments made to historical operating revenues to reflect the operating
revenues of WHTM ($4,457,000), WCFT ($966,000) and WJSU ($1,046,000) as if
such companies had been owned during the entire three month period. Total
operating expenses for the three months ended December 31, 1995 stated on a
pro forma basis would have totaled $29,004,000, an increase of $5,708,000, or
24.5%, as compared to historical total operating expenses for the same period.
The increase is directly attributable to the pro forma adjustments made to
historical total operating expenses to reflect the total operating expenses of
WHTM ($3,167,000), WCFT ($946,000) and WJSU ($771,000) as well as additional
amortization and depreciation expense ($779,000) resulting from the increased
basis in acquiree assets as if such companies had been owned during the entire
three month period. Operating income for the three months ended December 31,
1995 stated on a pro forma basis
55
<PAGE>
would have totaled $15,847,000, an increase of $761,000, or 5.0%, as compared
to historical operating income for the same period. This increase is
attributable to the factors causing the increases from historical operating
revenues and total operating expenses as previously discussed. Net income for
the three months ended December 31, 1995 stated on a pro forma basis totaled
$3,343,000, a decrease of $2,666,000, or 43.7%, as compared to historical net
income for the same period. The decrease is directly attributable to the
effects of the pro forma adjustments discussed above as well as the pro forma
adjustments for interest expense ($4,659,000) and amortization of deferred
financing costs ($137,000) reflected as if the sale of the Debentures occurred
on October 1, 1994 offset by the aggregate income tax effect of all pro forma
adjustments.
FISCAL 1995 COMPARED TO FISCAL 1994
Set forth below are selected consolidated financial data for Fiscal 1995 and
1994, respectively, and the percentage change between the years.
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR FISCAL YEAR
ENDED SEPTEMBER 30, ENDED
----------------------- PERCENTAGE SEPTEMBER 30,
1994 1995 CHANGE 1995
----------- ----------- ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues, net....... $ 125,830 $ 138,151 9.8% $162,300
Total operating expenses...... 77,117 83,704 8.5 103,909
Operating income.............. 48,713 54,447 11.8 58,391
Net income.................... 20,510 19,909 (2.9) 10,502
</TABLE>
Net Operating Revenues. Net operating revenues for Fiscal 1995 totaled
$138,151,000, an increase of $12,321,000, or 9.8%, as compared to Fiscal 1994.
The increase was due primarily to benefits from attracting new viewers and
advertisers to local news programming and taking advantage of local sports
opportunities.
The Company continued its history of strong local news programming by adding
a weekday noon newscast at WSET, redesigning WJLA's news set, music and
graphics, and focusing on attracting viewers from the stations' surrounding
communities by spotlighting such communities during the local news.
During the past several years, the Company has taken advantage of several
local sports opportunities, primarily by obtaining the rights to broadcast
preseason Washington Redskins games for WJLA and by producing related
programming. Additionally, KATV launched ARSN in the fourth quarter of Fiscal
1994 and has the exclusive rights to deliver University of Arkansas basketball
and football games on television, radio, pay-per-view and home video. As these
broadcasts generally command higher spot rates than the alternative
programming, the Fiscal 1995 increase in the number of such sports broadcasts
contributed to the increase in revenue and net operating revenues.
The Company focused on generating new local business in Fiscal 1995 through
sales incentives as well as community involvement. Several stations offered
incentive trips during the year to customers who increased their spending with
the station by a certain amount. Additionally, several stations participated
in community campaigns and events for which the Company obtained corporate
sponsorships and sold advertising packages.
The increase in local/regional revenue and the increase in other
broadcasting revenue, as discussed above, accounted for the majority of the
total increase in net operating revenues during Fiscal 1995.
Total Operating Expenses. Total operating expenses for Fiscal 1995 were
$83,704,000, an increase of $6,587,000, or 8.5%, when compared to total
operating expenses of $77,117,000 for Fiscal 1994. Television operating
expenses (before depreciation, amortization and corporate expenses) totaled
$75,199,000 for Fiscal 1995, an increase of $7,454,000, or 11.0%, when
compared to television operating expenses of $67,745,000 for Fiscal 1994. The
increase in such expenses is due primarily to increases in sales, programming
and news expenditures. Sales expense increased $2,429,000, principally as a
result of the cost of rights and related expenses associated with the ARSN
which began operations during the fourth quarter of Fiscal 1994, higher
56
<PAGE>
compensation expense and incentive trip promotion expenses at WJLA.
Programming expenses increased by $1,764,000 in Fiscal 1995 over Fiscal 1994,
related primarily to the rights fees for special event programming at WJLA and
increased program amortization expense based on increased costs of programming
contracts. News expenses increased by $2,354,000, which is attributable
primarily to increased staffing costs at all stations.
Depreciation and Amortization. Depreciation and amortization expense of
$4,752,000 in Fiscal 1995 decreased $370,000, or 7.2%, from $5,122,000 in
Fiscal 1994 as certain assets became fully depreciated.
Corporate Expenses. Corporate expenses were $3,753,000 in Fiscal 1995, a
decrease of $497,000, or 11.7%, compared to $4,250,000 in Fiscal 1994. The
decrease is due primarily to decreased corporate employee compensation of
$400,000 and management fees of $200,000 paid to Joe L. Allbritton. Such costs
were higher in Fiscal 1994 due to management bonuses which were tied to
certain operating results achieved during the prior year.
Operating Income. For Fiscal 1995, the Company's operating income of
$54,447,000 increased by $5,734,000, or 11.8%, compared to operating income of
$48,713,000 in Fiscal 1994. This variance is attributable to increased
operating revenues and related increases in television operating expenses,
offset by decreases in depreciation and amortization and corporate expenses.
Other Nonoperating Expenses. Interest expense of $22,708,000 for Fiscal 1995
increased by approximately $405,000, or 1.8%, from $22,303,000 in Fiscal 1994,
due primarily to a higher level of interest rates and the length of time debt
was outstanding under the Company's revolving credit working capital facility
over the prior year. The average amount of debt outstanding and average
interest rate on such debt for Fiscal 1995 and 1994 approximated $200,176,000,
11.2% and $198,998,000, 11.2%, respectively. A $1,464,000 decline in other
nonoperating income in Fiscal 1995 primarily reflects the impact in Fiscal
1994 of a $1,766,000 gain on the excess of insurance proceeds over the
carrying value of assets which were destroyed in an April 1994 fire at KATV.
Income Taxes. The provision for income taxes for Fiscal 1995 totaled
$13,935,000, an increase of $1,363,000, or 10.8%, when compared to the
provision for income taxes of $12,572,000 in Fiscal 1994. The increase is
principally attributable to the $3,911,000, or 13.1%, increase in income
before income taxes, extraordinary items and cumulative effect of changes in
accounting as well as the impact of state operating loss carryforwards in
Fiscal 1994 that did not occur in Fiscal 1995. The effective income tax rate
of 41.2% for Fiscal 1995 was comparable to an effective income tax rate of
42.0% for Fiscal 1994.
Net Income. Net income for Fiscal 1995 of $19,909,000 decreased by $601,000,
or 2.9%, when compared to net income of $20,510,000 in Fiscal 1994. The
decrease was primarily due to the $3,150,000 cumulative effect in Fiscal 1994
of the change in accounting for income taxes in accordance with SFAS No. 109,
offset by a $2,549,000 increase in income before extraordinary items and
cumulative effect of changes in accounting for income taxes during Fiscal
1995.
Balance Sheet. Significant balance sheet fluctuations from September 30,
1994 to September 30, 1995 consisted of increased accounts receivable and
program rights as well as new obligations under capital leases. Accounts
receivable increased $3,811,000, or 16.8%, as a result of increased revenue
from September 30, 1994 to September 30, 1995. Program rights and the related
program rights payable balances increased from September 30, 1994 to September
30, 1995 primarily due to the rising costs of programming as discussed above.
ACC entered into the Capital Lease Facility during Fiscal 1995 and used
$1,127,000 under such facility to acquire certain operating equipment at WJLA
and KATV.
Pro forma results of operations. Assuming that the offering and the
application of the net proceeds thereof, including the New Station
Transactions, had occurred as of October 1, 1994, total operating revenues for
Fiscal 1995 stated on a pro forma basis would have totaled $162,300,000, an
increase of $24,149,000, or 17.5%, as compared to historical operating
revenues for the same period. This increase is directly attributable to
57
<PAGE>
the pro forma adjustments made to the historical operating revenues to reflect
the operating revenues of WHTM ($16,173,000), WCFT ($3,998,000) and WJSU
($3,978,000) as if such companies had been owned during the entire three month
period. Total operating expenses for Fiscal 1995 stated on a pro forma basis
totaled $103,909,000, an increase of $20,205,000, or 24.1%, as compared to the
historical total operating expenses for the same period. This increase is
directly attributable to the pro forma adjustments made to historical total
operating expenses to reflect the total operating expenses of WHTM
($10,526,000), WCFT ($3,455,000) and WJSU ($2,944,000) as well as additional
amortization and depreciation expense ($3,280,000) resulting from the
increased basis in acquiree assets as if such companies had been owned during
the entire year. Operating income for Fiscal 1995 stated on a pro forma basis
totaled $58,391,000, an increase of $3,944,000, or 7.2%, as compared to
historical income for the same period. This increase is attributable to the
factors causing the increases from historical operating revenues and total
operating expenses as previously discussed. Net income for Fiscal 1995 stated
on a pro forma basis totaled $10,502,000, a decrease of $9,407,000, or 47.52%,
as compared to historical net income for the same period. The decrease is
directly attributable to the effects of the pro forma adjustments discussed
above as well as the pro forma adjustments for interest expense ($18,739,000)
and amortization of deferred financing costs ($549,000) reflected as if the
sale of the Debentures occurred on October 1, 1994 offset by the aggregate
income tax effect of all pro forma adjustments.
FISCAL 1994 COMPARED TO FISCAL 1993
Set forth below are selected consolidated financial data for Fiscal 1994 and
Fiscal 1993, respectively, and the percentage change between the fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED SEPTEMBER 30,
----------------------- PERCENTAGE
1993 1994 CHANGE
----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating revenues, net...................... $ 109,867 $ 125,830 14.5%
Total operating expenses..................... 74,535 77,117 3.5
Operating income............................. 35,332 48,713 37.9
Net income................................... 8,548 20,510 139.9
</TABLE>
Net Operating Revenues. Net operating revenues for Fiscal 1994 totaled
$125,830,000, an increase of $15,963,000, or 14.5%, when compared to net
operating revenues of $109,867,000 in Fiscal 1993. The increase was due to
improved economic conditions in many of the Company's markets, a share
increase in each of the Washington, D.C. and Little Rock, Arkansas markets,
and increased emphasis on political and "issue-related" spots.
Improved economic conditions led to increases in advertising dollars spent
in the respective markets, and the share increases at certain stations allowed
the Company to increase spot rates. The number of political spots sold
increased as a result of the local and regional elections held in November
1994. Additionally, issue-related spots were popular during the year due to
heightened national awareness and debate regarding issues such as health care
reform.
Total Operating Expenses. Total operating expenses for Fiscal 1994 were
$77,117,000, an increase of $2,582,000, or 3.5%, compared to total operating
expenses of $74,535,000 for Fiscal 1993. Television operating expenses (before
depreciation, amortization and corporate expenses) totaled $67,745,000 for
Fiscal 1994, an increase of $2,212,000, or 3.4%, compared to television
operating expenses of $65,533,000 in Fiscal 1993. The increase in expenses was
due primarily to increases in sales and news expenditures. An increase in
sales expense of $738,000 is principally related to the initiation of the ARSN
at KATV in the last quarter of Fiscal 1994 and sales related compensation
increases, whereas, a $648,000 increase in news expense was primarily
attributed to WJLA and related to increased news staffing costs.
The increase in television operating expenses was less than the increase in
net operating revenues during Fiscal 1994, primarily as a result of
management's emphasis on controlling costs during the year.
58
<PAGE>
Depreciation and Amortization. Depreciation and amortization expense of
$5,122,000 for Fiscal 1994 declined $649,000, or 11.2%, from $5,771,000 in
Fiscal 1993, as certain assets became fully depreciated or amortized.
Corporate Expenses. Corporate expenses of $4,250,000 in Fiscal 1994
increased $1,019,000 or 31.5%, when compared to corporate expenses of
$3,231,000 in Fiscal 1993. The increase is attributable to approximately
$400,000 in increased corporate salaries as well as $200,000 in increased
management fees paid to Mr. Joe L. Allbritton. Such increases were due to
higher management bonuses which were tied to certain operating results
achieved during the year. Additionally, expenses related to the Company's key
man life insurance policies increased approximately $287,000 as Fiscal 1994
was the first full year in which the Company held such policies.
Operating Income. For Fiscal 1994, operating income of $48,713,000 increased
by $13,381,000, or 37.9%, when compared to operating income of $35,332,000 in
Fiscal 1993. The increase is the result of increased revenues and decreased
depreciation and amortization, offset by slight increases in television
operating and corporate expenses as discussed above.
Other Nonoperating Expenses. Interest expense for Fiscal 1994 remained
relatively constant at $22,303,000, when compared to interest expense of
$22,336,000 in Fiscal 1993. The average amount of debt outstanding and average
interest rate on such debt for Fiscal 1994 and 1993 approximated $198,998,000,
11.2% and $198,505,000, 11.2%, respectively. Other nonoperating income in
Fiscal 1994 included a $1,766,000 gain from insurance proceeds over the
carrying value of the assets destroyed in a fire at KATV during Fiscal 1994.
Income Taxes. The provision for income taxes for Fiscal 1994 totaled
$12,572,000, an increase of $5,311,000, or 73.1%, when compared to a provision
for income taxes of $7,261,000 in Fiscal 1993. The increase is principally
attributable to the $15,084,000, or 101.6%, increase in income before income
taxes, extraordinary items and cumulative effect of changes in accounting.
Also, the difference in the effective income tax rate of 42.0% for Fiscal 1994
compared to an effective income tax rate of 48.9% for Fiscal 1993 is
attributable to the accounting method used by the Company in Fiscal 1993,
which did not provide for deferred income taxes. See Notes 1 and 5 to Notes to
Consolidated Financial Statements.
Net Income. Net income for Fiscal 1994 of $20,510,000 increased $11,962,000,
or 139.9%, when compared to $8,548,000 for Fiscal 1993. The increase was due
to an increase in income before extraordinary items and cumulative effect of
changes in accounting of $9,774,000 and the $3,150,000 cumulative effect of
the change in accounting for income taxes, offset by net extraordinary items
and the cumulative effect of change in accounting of $962,000 in Fiscal 1993.
Balance Sheet. Significant balance sheet fluctuations from September 30,
1993 to September 30, 1994 consisted of increased accounts receivable, notes
payable and deferred income taxes. Accounts receivable increased $2,659,000,
or 13.2%, as a result of increased revenue during Fiscal 1994. Current and
long-term debt increased $2,319,000 as the Company obtained its Existing
Credit Facility and withdrew $4,500,000 during Fiscal 1994, offset by regular
debt payments on the Senior Secured Promissory Notes. The Company's
implementation of SFAS No. 109, as previously discussed, resulted in an
increase in deferred tax assets of $2,170,000. Deferred taxes were not
previously recorded by the Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash Provided by Operations. The Company's primary source of liquidity is
cash provided by operations. Cash and cash equivalents decreased by $1,198,000
from September 30, 1995 to December 31, 1995, principally due to net cash
provided by operations of $3,181,000, net capital expenditures of $850,000,
net distributions to owners of $5,066,000 and a net increase in borrowings of
$11,537,000, from which $10,000,000 was used to pay for the Anniston Option.
The cash provided by operations was primarily a result of net income of
$6,100,000 plus depreciation and amortization of $1,274,000, offset by other
changes in assets and liabilities, primarily an increase in accounts
receivable of $7,040,000 and certain other assets.
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Cash and cash equivalents increased $1,053,000 from September 30, 1994 to
September 30, 1995, principally from net cash provided by operations of
$22,145,000 and a $500,000 increase in borrowings under the Existing Credit
Facility, offset by net capital expenditures of $2,543,000, net distributions
to owners of $16,780,000 and principal payments on long-term debt of
$2,222,000. Cash provided by operations was primarily a result of net income
plus depreciation and amortization, which totaled $24,661,000, offset by other
changes in assets and liabilities, primarily an increase in net accounts
receivable of $3,811,000 and an increase in program rights payable of
$3,718,000. Accounts receivable increased as a result of increased revenues
during Fiscal 1995, and program rights and related program rights payable
increased during Fiscal 1995, primarily due to rising programming costs.
Cash and cash equivalents decreased $58,000 from September 30, 1993 to
September 30, 1994 due to net cash provided by operating activities of
$18,267,000 and $4,500,000 provided by an increase in borrowings under the
Existing Credit Facility, offset by net capital expenditures of $1,420,000,
net distributions to owners of $19,141,000 and principal payments on long-term
debt of $2,222,000. Cash provided by operations was the result of net income
plus depreciation and amortization, which totalled $25,632,000, offset by
other changes in assets and liabilities, primarily an increase in net accounts
receivable of 2,659,000 due to increased net operating revenue in Fiscal 1994
and an increase in deferred income taxes of $2,170,000 related to the
Company's adoption of SFAS No. 109.
Advances and Loans to Related Parties. The Company periodically makes
advances in the form of distributions to related 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 thereto 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 described as
"distributions" in the Company's Consolidated Financial Statements. For Fiscal
1993, 1994 and 1995 and for the three months ended December 31, 1995, the
Company made cash advances net of repayments to these related parties of
$23,275,000, $30,028,000, $29,436,000 and $8,318,000, respectively. In
addition, during Fiscal 1993, 1994, 1995 and during the three months ended
December 31, 1995, ACC was charged for federal income taxes by Perpetual and
Westfield and distributed certain tax benefits to Westfield totalling
$6,533,000, $10,814,000, $11,931,000 and $3,252,000, respectively. In Fiscal
1993, ATP made a loan in the amount of $1,135,000 to Perpetual and received
repayments on the note receivable of $307,000, $73,000 and $725,000 in each of
Fiscal 1993, 1994 and 1995, respectively. As a result, net distributions, tax
charges, tax benefits distributed and other loans made to related parties
during such periods were $17,570,000, $19,141,000, $16,780,000 and $5,066,000,
respectively. The advances to related parties are non-interest bearing and, as
such, do not reflect market rates of interest-bearing loans to unaffiliated
third parties.
Stockholder's deficit amounted to $132,845,000 at December 31, 1995, a
decrease of $1,034,000 from the September 30, 1995 deficit. The decrease is
due to net income of $6,100,000 offset by the net change in distributions to
owners of $5,066,000.
Stockholder's deficit amounted to $133,879,000 at September 30, 1995, a
decrease of $3,082,000 from the September 30, 1994 deficit. The decrease is
due to net income of $19,909,000, offset by the net change in distributions to
owners of $16,780,000 and the tax benefit distributed of $47,000. The total
Stockholder's deficit amounted to $136,961,000 at September 30, 1994, a
decrease of $1,327,000 from Fiscal 1993. The decrease is due to net income of
$20,510,000 offset by the net change in distributions to owners of $19,141,000
and the tax benefit distributed of $42,000.
During Fiscal 1991, ACC made a $20,000,000, 11.06% loan to Allnewsco. This
amount has been reflected in the consolidated financial statements on a
consistent basis with other distributions to owners. The $20,000,000 note
receivable from Allnewsco is payable in annual principal installments of
$2,225,000 commencing January 11, 1997 through January 11, 2004 with a final
payment of $2,200,000 on January 11, 2005. Interest payments on the loan have
been made 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.
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The Company anticipates that such payments will be funded in a similar manner
for the forseeable future. However, there can be no assurance that Allnewsco
will continue to have the ability to make such interest payments in the
future.
Under the terms of the indenture governing the 11 1/2% Debentures and the
Indenture, 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. See "Description of the Debentures."
Sale of the Debentures and New Station Transactions. On February 6, 1996,
the Company completed the sale of its $275,000,000, 9 3/4% Debentures, which
generated cash, net of offering expenses, of approximately $267,100,000. In
addition to the repayment of certain existing indebtedness, the Company
completed the Harrisburg Acquisition and Tuscaloosa Acquisition on March 1,
1996 and March 15, 1996, respectively. The purchase price for WHTM was
$113,000,000 and the purchase price for WCFT was $20,000,000, each of which
was purchased with net proceeds of the offering of Debentures. The Tuscaloosa
Acquisition, together with the Anniston LMA and the associated Anniston
Option, provide the Company with the opportunity to operate the two stations
in tandem and serve a larger market than what would otherwise be served if the
two stations were operated independently. The Company estimates that the
start-up of this operation could require capital expenditures of $8,000,000 to
$11,000,000. Further, additional payments of $7,000,000 would be required in
connection with the Anniston Option under the Company's strategy, $5,000,000
payable upon receipt of all regulatory approvals to relocate the tower site
and an additional $2,000,000 in connection with such relocation payable upon
exercise of the purchase option. Exercise of the option, however, is dependent
upon a change or waiver of currently applicable FCC rules. See "Proposed
Acquisitions."
Existing Indebtedness. As of December 31, 1995, the Company had outstanding
indebtedness of $210,464,000. See "Capitalization." ACC presently has a
$40,000,000 working capital facility (the "New Senior Credit Facility"), which
is secured by the pledge of the stock of ACC, and its subsidiaries and matures
no later than 2001. At December 31, 1995, $8,000,000 was outstanding under the
Credit Facility. This amount was repaid in full with the proceeds of the sale
of the Debentures. See "Description of Certain Indebtedness--New Senior Credit
Agreement."
At December 31, 1995, WCIV had a Term Mortgage Loan with an outstanding
balance of $3,243,000 secured by its furniture, fixtures, equipment, land and
building. Principal and interest were payable monthly through April 2000. ACC
repaid this debt in full with the proceeds of the sale of the Debentures. In
February 1996, WSET borrowed $6,600,000 from an unrelated party under the WSET
Loan. The proceeds of the WSET Loan were used by WSET to pay a dividend of
$6,600,000 to Westfield to enable Westfield to repay certain of its
indebtedness with respect to which the assets and common stock of WSET were
previously pledged. ACC used a portion of the net proceeds of the sale of the
Debentures to make a loan of $6,600,000 to WSET to enable WSET to repay the
WSET Loan.
On December 29, 1995, the Company borrowed $10,000,000 from a financial
institution on a demand unsecured basis for the purpose of acquiring the
Anniston Option. This loan was subsequently repaid in full from the proceeds
of the sale of the Debentures.
A portion of the net proceeds of the sale of the Debentures were used to
repay the remaining $63,500,000 in principal of Senior Secured Promissory
Notes and approximately $12,900,000 in related prepayment premium. The Company
incurred a loss, net of the related income tax effect, of approximately
$7,700,000 on the early extinguishment of this debt. Management believes that
the repayment of the Senior Secured Promissory Notes will increase the
Company's future financial flexibility.
Other Uses of Cash. During Fiscal 1993, 1994, 1995 and the three months
ended December 31, 1995, ACC invested $1,972,000, $3,264,000, $2,777,000 and
$875,000, respectively, in capital expenditures. During Fiscal
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1994, a fire at KATV resulted in the replacement of equipment destroyed. This
replacement equipment is included in the gross capital expenditures of
$3,264,000 in Fiscal 1994. The proceeds from disposal of assets of $1,843,000,
which was principally comprised of the insurance proceeds for the replacement
equipment, resulted in net capital expenditures for Fiscal 1994 of $1,421,000.
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 1996 will approximate
$3,500,000 (excluding the capital expenditures associated with the Birmingham
operation). The source of funds for these anticipated capital expenditures
will be cash from operations and capitalized leases. ACC has a $3,000,000
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 according to the lessor's cost of funds. This
facility expires in July 1996 and is renewable at the option of ACC. ACC
currently intends to renew this facility. At December 31, 1995, $1,072,000 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 1993, 1994, 1995 and for the three months ended December 31, 1995, the
Company made cash payments of approximately $11,089,000, $14,012,000,
$11,035,000 and $2,900,000, respectively, for rights to television programs.
As of September 30, 1995, the Company had commitments to acquire further
program rights through September 30, 2000 totaling $47,034,000 and anticipates
cash payments for program rights to approximate $15,000,000 per year for the
foreseeable future. The Company currently intends to fund these commitments
with cash from operations.
Based upon the Company's current level of operations, and considering pro
forma cash flows from the New Station Transactions, management believes that
available cash, together with the net proceeds from the sale of the Debentures
and available borrowings under the New Senior Credit Agreement, 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 Debentures) for the next twelve months and the foreseeable future. The
Company anticipates that it may be required to refinance a portion of the
principal amount of the 11 1/2% Debentures prior to their maturity (including
a mandatory sinking fund payment with respect thereto). 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 Exchange Debentures) 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
"Risk Factors--Substantial Leverage; Ability to Service Indebtedness."
ACC's cash flow from operations and consequent ability to service its debt,
including the Debentures and the Exchange Debentures, 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 subsidairies to ACC. As of December 31, 1995, 44%
of the assets of ACC were held by operating subsidiaries and for Fiscal 1995
and for the three months ended December 31, 1995, less than 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 Debentures."
INCOME TAXES
The operations of ACC and its subsidiaries were included in a consolidated
federal income tax return filed by Perpetual, while the operations of WSET and
WCIV were included in a consolidated Federal income tax return filed by
Westfield. In accordance with the terms of a tax sharing agreement between ACC
and Perpetual, ACC was required to pay to Perpetual its federal income tax
liability, computed based upon statutory federal income tax rates applied to
ACC's taxable income. Taxes payable to Perpetual were not reduced by losses
generated in prior years by ACC. In addition, the amount payable by ACC and
its subsidiaries as a group to Perpetual under the tax sharing agreement is
not reduced if losses of other members of the Perpetual group were
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utilized to offset taxable income of ACC and its subsidiaries as a group for
purposes of the Perpetual consolidated federal income tax return. In
accordance with the terms of tax sharing agreements between Westfield and WSET
and WCIV, federal income tax liabilities of WSET and WCIV were payable to
Westfield and were computed based upon statutory federal income tax rates
applied to the entity's taxable income. Federal income taxes payable to
Westfield by either WSET or WCIV were not reduced by losses generated in prior
years by either entity, nor were amounts payable reduced if losses of
Westfield or other members of the Westfield consolidated group were utilized
to offset taxable income of WSET or WCIV for purposes of the Westfield
consolidated federal income tax return.
A District of Columbia income tax return is filed by ACC and separate state
income tax returns were filed by the Company's subsidiaries. The Company and
its subsidiaries paid their respective state income tax liabilities to the
applicable state income taxing authorities, except for WSET. The operations of
WSET were included in a combined state income tax return filed by WSET and an
affiliate. WSET's state income tax liability was payable to Westfield; such
amount payable is not reduced if losses of the affiliate were used to offset
the taxable income of WSET for purposes of the combined state income tax
return.
Through September 30, 1993, the Company's policy was to record a provision
for federal and state income taxes based solely on the amounts payable to
Perpetual, Westfield and the state taxing authorities. Accordingly, deferred
income taxes were not recorded for financial statement purposes and no
recognition of benefit was given to taxable losses for federal income tax
purposes. Effective October 1, 1993, the Company adopted 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. As a result of the SFAS No. 109 adoption,
Perpetual and Westfield allocated a portion of their respective consolidated
current and deferred income tax expense to the Company as if the Company was a
separate taxpayer. 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. The cumulative effect of adopting SFAS No. 109 is included
in the consolidated statement of operations for Fiscal 1994. See Notes 1 and 5
of Notes to Consolidated Financial Statements.
Effective with the Contribution, the operations of WSET and WCIV are
expected to be included in the consolidated federal income tax return of
Perpetual pursuant to the terms of an amended tax sharing agreement.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," effective for the Company beginning with
Fiscal 1997, is not expected to have a material impact on the Company's
Consolidated Financial Statements.
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.
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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 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 above 13) 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
and 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 that 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, 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 the broadcast industry in general and the revenues of
individual broadcast television stations.
Television stations in the country are grouped by Nielsen into approximately
210 generally recognized television markets that are ranked in size according
to various formulae based upon actual or potential audience. Each market 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.
Nielsen, which provides audience measuring services, periodically publishes
data on estimated audiences for television stations in the various television
markets throughout the country. These estimates are expressed in terms of the
percentage of the total potential audience in the market viewing a station
(the station's "rating") and of 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
market. The specific geographic markets are called DMAs. Nielsen uses two
methods of determining a station's ratings and share. In larger geographic
markets, ratings are determined by a combination of meters connected directly
to selected television sets and weekly viewer-completed diaries of television
viewing, while in smaller markets ratings are determined by weekly diaries
only. Of the markets in which the Company conducts its business, Washington,
D.C. is a metered market while the remaining markets are weekly diary markets.
Each of the New Station Transactions markets is also a weekly diary market.
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 less 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 10 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
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sources. In acquiring programming to supplement network programming, network
affiliates compete primarily with other affiliates and independent stations in
their markets. 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 may 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.
Currently, UPN and WB provide six and two hours of programming per week to
their affiliates, respectively. As a result of the smaller amount of
programming provided by their network, 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'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 installed 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.
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.
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STATION INFORMATION
The following table sets forth general information for each of the Company's
Owned and/or Operated Stations as of February 1996:
<TABLE>
<CAPTION>
TOTAL
MARKET COMMERCIAL STATION RANK
NETWORK CHANNEL/ RANK OR COMPETITORS AUDIENCE IN ACQUISITION
MARKET AREA STATION AFFILIATION FREQUENCY DMA IN MARKET SHARE MARKET DATE
----------- ------- ----------- --------- ------- ----------- -------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OWNED AND/OR OPERATED STATIONS:
Washington, D.C.(1) WJLA ABC 7/VHF 7 7 24% 3 1/29/76
Harrisburg-Lancaster-
York-Lebanon, PA(1) WHTM ABC 27/UHF 44 5 25% 2 3/1/96
Little Rock, AR(1) KATV ABC 7/VHF 58 5 38% 1 4/6/83
Tulsa, OK(1) KTUL ABC 8/VHF 59 6 30% 2 4/6/83
Lynchburg--Roanoke,
VA(1) WSET ABC 13/VHF 67 4 22% 3 1/29/76(3)
Charleston, SC(1) WCIV NBC(2) 4/VHF 108 5 25% 3 1/29/76(3)
Birmingham, AL(4)(5) WCFT/WJSU ABC -- 51(6) 5 N/A N/A --
Tuscaloosa(1)/ WCFT CBS 33/UHF 187 2 27% 1 3/15/96
Anniston(7) WJSU CBS 40/UHF 199 2 19% 1 --
</TABLE>
- --------
(1) Owned Station.
(2) WCIV has agreed to become affiliated with ABC beginning in August 1996.
(3) 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. See "The Company--Contribution of WSET and WCIV to
ACC."
(4) Subject to ABC network affiliation, TV Alabama, an 80% indirectly owned
subsidiary of ACC, proposes to serve the Birmingham market by
simultaneously broadcasting identical programming over both WCFT serving
Tuscaloosa and WJSU (which TV Alabama operates pursuant to the Anniston
LMA) serving Anniston. The market rank figures reflect the Birmingham,
Tuscaloosa and Anniston markets; Nielsen assigns WCFT to the Tuscaloosa
DMA (rank 187) and WJSU to the Anniston DMA (rank 199). Commercial
competitors include stations in Birmingham, Tuscaloosa and Anniston. ABC
network affiliation is subject to a condition, and there can be no
assurance that such condition will be satisfied. See "Proposed
Acquisitions."
(5) ABC has entered into an affiliation agreement with WCFT and WJSU for ten
years, conditioned on FCC approval by August 1, 1996 of an application to
relocate either WCFT's or WJSU's transmitter tower site to a site from
which the station can deliver a level of signal over Birmingham that is
reasonably satisfactory to ABC. The Company's obligations under the
Anniston LMA are not contingent on continued CBS affiliation or future ABC
affiliation. WCFT currently is a CBS affiliate, but has agreed to
affiliate with ABC in September 1996. The absence of either CBS or ABC
affiliation would result in TV Alabama operating WCFT and WJSU as
independent stations or as affiliates of UPN or WB. CBS has been notified
that WCFT and WJSU anticipate termination of the CBS affiliation agreement
at both stations no later than September 30, 1996. There can be no
assurance that the condition to ABC network affiliation at WCFT and WJSU
will be satisfied. See "Risk Factors--Network Affiliation."
(6) According to BIA, if the Birmingham, Tuscaloosa and Anniston Markets were
combined, the resulting market would rank as the nation's 39th largest on
the basis of televisions household.
(7) Operated Station.
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). The Company's net operating
revenues and net cash provided by operating activities have grown by 43% and
227%, respectively, from Fiscal 1991 to Fiscal 1995. The company's net
operating revenues, operating income and net cash provided by operating
activities, however, reflected a decline in the first quarter of Fiscal 1996
over Fiscal 1995, principally due to decreased political revenues and
increased operating expenses.
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 that include state capitals. Although ACC
continues to review strategic investment and acquisition opportunities, no
agreements or understandings are currently in place regarding any material
investments or acquisitions other than those described in this Prospectus.
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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 ARSN, which provides
University of Arkansas sports programming to a network of 85 radio stations
over five states.
The Company's operating strategy is generally to increase viewership in each
of its stations on a cost effective basis. The following chart illustrates the
audience share as of February 1996 of the ABC, CBS and NBC affiliates in each
of the Company's markets for all news time periods, which represent the time
periods from which network-affiliated stations receive a significant portion
of their revenues. The Harrisburg, Pennsylvania market is excluded from the
following chart since WHTM was not acquired by the Company until March 1,
1996.
The news time periods used for comparative analysis of the stations are as
follows: Morning (6:00 a.m.-9:00 a.m.); Evening (5:00 p.m.-7:00 p.m.,
Washington, DC; 5:00 p.m.-6:30 p.m., Little Rock, AR and Tulsa, OK; and 6:00
p.m.-7:00 p.m., Lynchburg, VA and Charleston, SC); and Night (11:00 p.m.-11:30
p.m., Washington, DC; 10:00 p.m.-10:30 p.m., Little Rock, AR, and Tulsa, OK;
and 11:00 p.m.-11:30 p.m., Lynchburg, VA and Charleston, SC).
COMBINED NEWS TIME PERIOD SHARES
[GRAPH APPEARS HERE]
67
<PAGE>
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 each station's local market news programming franchise as the
foundation to build significant audience share in local markets. In each of
its markets, 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.
The Company's news and community leadership is particularly evidenced by its
commitment to multiple hours of local news programming each week (WJLA--23.5;
KATV--15.5; KTUL--15.5; WSET--14.5; WCIV--14.0). In addition, five of the six
stations currently operate satellite uplink vehicles and the sixth intends to
acquire a satellite truck during Fiscal 1996. Each of the stations provides
closed-captioned newscasts and in tornado prone Little Rock and Tulsa and
hurricane prone Charleston, enhanced weather prediction equipment is provided
for the local newscast. The Company plans to open a Washington, D.C. news
bureau for WHTM using existing capabilities to provide coverage of
congressional representatives from the Harrisburg DMA. Provision of news
bureau services to WHTM in Washington may be made by either WJLA or under
contract with News Channel 8, operated by Allnewsco. Because of its strategic
commitment to news coverage, the Company also intends to expand the news
operation of WHTM. Prior to expansion of its news operation by the Company,
WHTM provided 17 hours of news per week. Subsequent to expansion, WHTM now
provides 19.5 hours per week. The Company also intends to incorporate its
strategic commitment to news in Birmingham/Tuscaloosa/Anniston.
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" would include women aged 18-49 and adults aged 25-54. The
demographic groups are perceived by advertisers as ones with the majority of
buying authority and decision-making in product selection. For several of the
stations, such programming includes "Wheel of Fortune," "Jeopardy" and "The
Oprah Winfrey Show," which are the top three nationally-ranked first-run
syndicated programs, as of November 1995, according to Broadcasting and Cable
magazine. Program purchases for Harrisburg and Birmingham/Tuscaloosa/Anniston
will be based upon the same commitment to acquire top-rated programming.
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 Visions-Woman's Expo, University of
Arkansas football and basketball, Washington Redskins pre-season football
games and related shows) and sponsored community events. These sponsored
events have included health fairs, medical screening, job fairs, parades and
athletic events and have provided advertisers, who are offered participation
in such events, an opportunity to direct a marketing program to targeted
audiences. These additional products have proven successful in attracting
incremental advertising revenues. The stations also seek to maximize their
local sales efforts through the use of extensive research and targeted
demographic studies. The same philosophy of research based sales development
will be pursued in both Harrisburg and Birmingham/Tuscaloosa/Anniston.
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
68
<PAGE>
levels and controlling programming and operating costs, the Company's stations
can achieve increased levels of revenue and Operating Cash Flow. In addition,
the Company, as a group owner, believes that it has the ability to enter into
advantageous group programming purchases such as those with King World
Productions, Inc. (syndicator of "The Oprah Winfrey Show," "Wheel of Fortune"
and "Jeopardy"). As the provider of ABC network programming in five markets,
which will increase to seven upon transfer of the ABC network affiliation to
WCIV and the Birmingham Stations (which is subject to a condition), the
Company believes that its ability to enter into stable affiliation agreements
is enhanced. Further, each station rigorously manages its expenses through
project accounting, a budgetary control process which includes daypart revenue
analysis and industry category expense analysis. Moreover, each of the
stations closely monitors its staffing levels.
OWNED AND OPERATED STATIONS
WJLA: WASHINGTON, D.C.
Market Overview. Washington, D.C. is the seventh largest DMA in the nation,
with approximately 1,883,000 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 generally and on issue-oriented advertising in Washington, D.C. In
1994, the market's metropolitan audience was one of the most affluent in the
United States, with an average household EBI (defined by Sales & Marketing
Management as "combined after-tax or disposable personal income") of over
$62,800, which represented approximately 137% of the national average EBI of
$45,900. With a stable and educated work force, Washington, D.C. is projected
by Sales & Marketing Management to remain one of the wealthiest metropolitan
audiences in the nation through 1999 in terms of EBI. As reported by Sales &
Marketing Management, retail sales growth for the Washington, D.C.
metropolitan area is projected to be 26.3% from 1994 through 1999.
Historically, there has been a close correlation between retail sales and
expenditures on broadcast television advertising in a given market based upon
the competition-based need to advertise products and services. There can be no
assurance, however, that the Washington, D.C. metropolitan audience will
continue to be the most affluent (in terms of EBI) in the United States or
that its economy will continue its strength or growth.
Station Performance and Strategy. WJLA is ranked first in the Washington,
D.C. DMA in the revenue-critical 4:00 p.m. to 8:00 p.m. daypart, a primarily
non-network time period sold by the station from which it realizes a
substantial portion of its revenue. In its intensely competitive market, WJLA
is ranked third with in-market household share (24%) "sign-on to sign-off"
(7:00 a.m. to 1:00 a.m., Eastern Time, Sunday through Saturday). In the highly
competitive local news category, WJLA is tied for second in the 5:00 p.m. news
race and, in the 6:00 p.m. news period, WJLA ranks third by two rating points.
Overall, WJLA ranks third for audience share, sign-on to sign-off, of the
seven commercial broadcast television stations in its DMA. WJLA's inventory of
syndicated programming includes, among other shows, "The Oprah Winfrey Show"
"Wheel of Fortune," "Jeopardy," "Live with Regis and Kathie Lee" and "Ricki
Lake." See "--Programming."
WJLA's journalistic achievements have been recognized by its receipt of
numerous national awards throughout its history. WJLA won 21 Emmy Awards in
1994 and 17 Emmy Awards in 1993. In 1995, the station received the Promax Gold
Medallion for excellence in promotions and two Radio Television News Director
Association awards for overall news excellence. Both the Peabody and Dupont
national awards were given to the station in the past ten years and WJLA also
received the nationally recognized White House Press Photographers award for
an unprecedented five consecutive years (from 1986 to 1990).
WJLA engages in other nontraditional television business activities. WJLA's
affiliated news production company in the Washington, D.C. market, Allnewsco
(NewsChannel 8), supplies news 24 hours per day to cable systems in the
Washington, D.C. DMA. To achieve economies of scale, WJLA and NewsChannel 8
share certain video production capabilities. In addition, the sales,
promotion, marketing and community relations functions for both WJLA and
NewsChannel 8 are provided on a contract basis by another affiliated company,
78 inc. which provides services at cost. WJLA also provides interactive
programming in conjunction with Bell Atlantic's "Stargazer" service, a video
delivery service provided over Bell Atlantic's telephone lines.
69
<PAGE>
<TABLE>
<CAPTION>
MARKET/STATION DATA
---------------------------------------------------------------------
AS OF
1991 1992 1993 1994 1995 FEBRUARY 1996
-------- -------- -------- -------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
WJLA: WASHINGTON, D.C.
Market revenue(1)....... $247,953 $274,692 $291,153 $328,947 $362,505
Market revenue growth
over prior period...... (7.1%) 10.8% 6.0% 13.0% 10.2%
Market rank (DMA)....... 7 7 7 7 7 7
Television homes (in
thousands)............. 1,820 1,851 1,855 1,876 1,884 1,883
Total commercial
competitors in market.. 7 7 7 6 6 7
Station rank in market.. 2 2 2 1 (tie) 2 3
Station audience share.. 24% 26% 25% 25% 25% 24%
Station rank in market
4:00 p.m. to 8:00
p.m.................... 1 1 1 1 1 1
Station audience share
4:00 p.m. to 8:00
p.m.................... 26% 29% 29% 27% 27% 27%
</TABLE>
- --------
(1) For the year ended September 30.
WHTM: HARRISBURG-LANCASTER-YORK-LEBANON, PENNSYLVANIA
Market Overview. Harrisburg, Pennsylvania, which consists of nine contiguous
counties located in Central Pennsylvania, is the 44th largest DMA in the
nation, reaching approximately 578,000 television households. The combined
area of Harrisburg-Lancaster-York-Lebanon recorded an average household EBI of
approximately $47,000 in 1994 and experienced a 4.3% household growth from
1985 to 1994. The Harrisburg market outperformed the national average for
metropolitan retail sales growth from 1985 to 1994 by 1.0%, and the combined
area of Harrisburg-Lancaster-York-Lebanon is projected by Sales & Marketing
Management to experience 14.5% retail sales growth for 1994 to 1999 as
compared with retail sales growth on a national basis of 21.9% over the same
period of time. Harrisburg is the capital of Pennsylvania and the government
represents the area's largest employer; however, the area is also the
corporate headquarters for such companies as Rite Aid, the nation's largest
drug store chain; HERCO, which is responsible for the operations of Hershey
Park and Sports Arena; and AMP, Inc., the leading supplier of electronic
connectors and interconnection systems.
Station Performance and Strategy. As a UHF station competing against one VHF
station and three other UHF stations in the Harrisburg market, WHTM has
maintained a number two ranking, sign-on to sign-off, for the past five years,
according to the Nielsen Station Index. The station has also maintained this
position in the revenue critical 4:00 p.m. to 8:00 p.m. daypart for the same
five years. Each week the WHTM news department produces 19.5 hours of local
news, compared to its main competitor's 20.5 hours; but WHTM produces its
daily news and information with over one third fewer people. Additionally,
WHTM is the television home to the Penn State Nittany Lions and the popular
coach's show featuring Joe Paterno. WHTM has also developed WeatherNet and
SkiNet. Through WeatherNet, WHTM has the capability to access real-time
weather information from automated weather stations and computer displays
placed throughout the area. SkiNet provides eastern ski resorts the
opportunity to purchase data compiled by this extensive remote weather
reporting operation.
The Company plans to open a Washington, D.C. news bureau for WHTM using
existing capabilities to provide coverage of congressional representatives
from the Harrisburg DMA. Provision of news bureau services to WHTM in
Washington may be made by either WJLA or under contract with News Channel 8,
operated by Allnewsco. Because of its strategic commitment to news coverage,
the Company also intends to expand the news operation of WHTM. Further, the
Company intends to implement its strategy of extensive targeted demographic
and psychographic research in its sales development efforts in Harrisburg.
70
<PAGE>
<TABLE>
<CAPTION>
MARKET/STATION DATA
-------------------------------------------------------------
AS OF
1991 1992 1993 1994 1995 FEBRUARY 1996
------- ------- ------- ------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
WHTM: HARRISBURG-LANCASTER-
YORK-LEBANON, PENNSYLVANIA
Market revenue(1)...... $40,341 $44,169 $43,530 $53,422 $73,500(2)
Market revenue growth
over prior period..... 2.1% 9.5% (1.4)% 22.7% NM
Market rank (DMA)...... 44 45 44 44 44 44
Television homes (in
thousands)............ 558 565 570 578 579 578
Total commercial
competitors in
market................ 5 5 5 5 5 5
Station rank in
market................ 2 2 2 2 2 2
Station audience
share................. 29% 27% 25% 28% 25% 25%
Station rank in market
4:00 p.m. to 8:00
p.m................... 1 2 2 2 2 2
Station audience share
4:00 p.m. to
8:00 p.m.............. 40% 33% 23% 24% 20% 23%
</TABLE>
- --------
(1) For the year ended September 30.
(2) Represents calendar year gross market revenue estimates as reported by
BIA.
KATV: LITTLE ROCK, ARKANSAS
Market Overview. The Little Rock, Arkansas market is the 58th largest DMA in
the nation, with approximately 472,000 television households. The Little Rock
market has a diversified economy, serving as the seat of state and local
government, and also has a significant concentration of businesses in the
medical services, transportation and insurance industries. The Little Rock
metropolitan area had an average household EBI of over $43,000 in 1994 and
more than 11.4% growth in metropolitan households from 1985 through 1994.
Retail sales for the Little Rock metropolitan area grew by 77.0% from 1985
through 1994, outpacing national retail sales growth of approximately 60.6%
during the same period. Sales & Marketing Management projects that retail
sales in the Little Rock metropolitan area will grow by 16.6% from 1994 to
1999 as compared with retail sales growth on a national basis of 21.9% over
the same period of time. There can be no assurance, however, that the Little
Rock area economy will continue its strength or growth.
Station Performance and Strategy. Acquired by the Company along with KTUL on
April 6, 1983, KATV has been Little Rock's number one rated television station
sign-on to sign-off for the past six years, outranking its competition by an
average of approximately 10 share points. Nationally, KATV ranks in the top
three among the 100 largest ABC affiliates in terms of news (5:00 p.m. and
6:00 p.m.) audience share in its market. KATV also ranks first for audience
share, sign-on to sign-off, of the five commercial broadcast television
stations in its DMA. An independent survey conducted by Audience Research and
Development, Inc. in October 1994 showed that KATV's local news programs
received an exceptional audience preference rating of over 40%. KATV's local
news success is highlighted by closed-captioned newscasts, the market's first
satellite uplink vehicle (which provides on-site broadcasting capabilities
anywhere in the nation) and what the Company believes is the first and only
Saturday morning newscast in Little Rock. KATV was the first station in Little
Rock to use targeted demographics and psychographic research, tying
advertising sales to industry categories and zip codes. In a region
characterized by rapidly changing weather, KATV also has the top rated weather
personality in Little Rock, as well as the "First Alert" severe weather early
warning system. This news excellence has been recognized by three regional
Emmys in reporting and investigation. The station's inventory of syndicated
programming includes, among other shows, "The Oprah Winfrey Show," "Wheel of
Fortune," "Jeopardy," "Live With Regis and Kathie Lee," and "Home
Improvement." See "--Programming." Management believes KATV's inventory of
programming and local news enables it to capture a market audience share of
52.0% during the revenue-critical 3:00 p.m. to 7:00 p.m. period, which
virtually equals the audience share of all other local stations combined
during such daypart.
Capitalizing on its exclusive rights to the University of Arkansas
basketball and football schedules through the year 2000, KATV launched ARSN in
the fourth quarter of Fiscal 1994 by entering into programming sublicense
agreements with a network of 85 radio stations over five states. Pay-per-view
and home video rights are also controlled by ARSN.
71
<PAGE>
<TABLE>
<CAPTION>
MARKET/STATION DATA
-----------------------------------------------------------
AS OF
1991 1992 1993 1994 1995 FEBRUARY 1996
------- ------- ------- ------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
KATV: LITTLE ROCK, ARKANSAS
Market revenue(1)....... $35,387 $37,122 $41,855 $45,432 $51,883
Market revenue growth
over prior period...... (4.2%) 4.9% 12.7% 8.5% 14.2%
Market rank (DMA)....... 57 57 58 58 58 58
Television homes (in
thousands)............. 453 455 464 472 473 472
Total commercial
competitors in market.. 5 5 5 5 5 5
Station rank in market.. 1 1 1 1 1 1
Station audience share.. 36% 37% 37% 37% 37% 38%
Station rank in market
3:00 p.m. to 7:00
p.m.................... 1 1 1 1 1 1
Station audience share
3:00 p.m. to 7:00 p.m.. 50% 49% 52% 52% 52% 54%
</TABLE>
- --------
(1) For the year ended September 30.
KTUL: TULSA, OKLAHOMA
Market Overview. Tulsa, Oklahoma is the 59th largest DMA in the nation, with
approximately 459,000 television households. The Tulsa metropolitan area had
an average household EBI of approximately $38,000 in 1994 and experienced a
1.7% growth in the number of households from 1985 to 1994. Following the oil-
related recessions of the 1980s, Tulsa diversified its employment base away
from energy-related industries; 77% of its work force is currently employed in
the service-producing sector, including transportation, communications, retail
and wholesale trade and finance. Tulsa is a growing hub for national
telemarketing, customer service centers and airline maintenance. 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. Retail sales for the Tulsa metropolitan
area grew by approximately 59.1% from 1985 to 1994. Retail sales are projected
to grow by 26.3% from 1994 to 1999 according to Sales & Marketing Management,
nearly 4.4% greater than the projected national growth rate for such period.
There can be no assurance, however, that the Tulsa area economy will continue
its strength or growth.
Station Performance and Strategy. KTUL, known as "Oklahoma's Channel 8,"
ranks second for audience share, sign-on to sign-off, of the six commercial
broadcast television stations in its DMA. Since 1988, KTUL's local news at
10:00 p.m. has been the number one rated newscast. KTUL's local news is
distinguished by its closed-captioned newscasts, the market's only satellite
uplink vehicle and an innovative Saturday morning newscast. In addition, KTUL
utilizes the "First Alert" severe weather early warning system, which
management believes provides it with a competitive advantage in the tornado-
prone Tulsa DMA. The station's inventory of syndicated programming includes,
"Wheel of Fortune," "Jeopardy," "Roseanne" and "Inside Edition." See "--
Programming."
<TABLE>
<CAPTION>
MARKET/STATION DATA
----------------------------------------------------------------
AS OF
1991 1992 1993 1994 1995 FEBRUARY 1996
------- ------- ------- ------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
KTUL: TULSA, OKLAHOMA
Market revenue(1)....... $34,444 $40,448 $46,581 $54,773 $63,300(2)
Market revenue growth
over prior period...... (5.9%) 17.4% 15.2% 17.6% NM
Market rank (DMA)....... 56 60 59 59 59 59
Television homes (in
thousands)............. 443 448 456 463 459 459
Total commercial
competitors in market.. 4 5 6 6 6 6
Station rank in market.. 1(tie) 1 2 1 1 2
Station audience share.. 32% 33% 31% 34% 32% 30%
Station rank in market
3:00 p.m. to 7:00
p.m. .................. 2 2 2 1 1 2
Station audience share
3:00 p.m. to 7:00
p.m. .................. 33% 33% 34% 36% 34% 33%
</TABLE>
- --------
(1) For the year ended September 30.
(2) Represents calendar year gross market revenue estimates as reported by
BIA.
72
<PAGE>
WSET: ROANOKE-LYNCHBURG, VIRGINIA
Market Overview. The hyphenated central Virginia market comprised of
Lynchburg, Roanoke and Danville is the 67th largest DMA in the nation, with
approximately 396,000 television households. Lynchburg's economy includes many
high-tech manufacturers, 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 entire DMA is well served by the medical
services and insurance industries. This DMA had an average household EBI of
almost $37,000 in 1994 and experienced a 22.4% growth in the number of
households from 1985 to 1994. Retail sales for the metropolitan area grew by
approximately 115.1% from 1985 to 1994 according to Sales and Marketing
Management and are projected to grow by 30.2% from 1994 to 1999. There can be
no assurance, however, that the Lynchburg area economy will continue its
strength or growth.
Station Performance and Strategy. Over the past five years, WSET, promoted
as "Virginia's 13," has positioned itself as the regional ABC affiliate for
central and southwestern Virginia specifically targeting the entire region for
ABC and syndicated programming while implementing a plan to maintain its
successful news programming in the Lynchburg/Danville metropolitan area. For
the eastern portion of the DMA, including the Lynchburg/Danville metropolitan
area, WSET's news achieves a 58.6% share of the audience compared to its
closest competitor with a 30.6% share. The station's hour-long morning
program, Good Morning Virginia, earned a 57.8% audience share of households,
while its News 13 at 6:00 p.m. earned a 63.0% share and News 13 at 11:00 p.m.
earned a 56.0% share. In November 1995, WSET premiered its News 13 Midday, a
noon news program designed to compete in that time period. WSET's news
programming is highlighted by its strong commitment to community projects,
including closed-captioning for the hearing impaired, Partnership in Education
to help school children advance in the field of broadcasting and Wednesday's
Child, which finds big brothers and big sisters for children in need. WSET's
sales department utilizes careful inventory control and targeted demographic
and psychographic research tailored to the specific market needs of
advertisers to maximize revenues. The station's syndicated programming
includes "The Oprah Winfrey Show," "Entertainment Tonight," "Inside Edition,"
"Sally Jesse Raphael," "Phil Donahue," "Ricki Lake," and in fall of 1996, the
top two syndicated shows in the nation, "Wheel of Fortune" and "Jeopardy." See
"--Programming."
<TABLE>
<CAPTION>
MARKET/STATION DATA
---------------------------------------------------------
AS OF
FEBRUARY
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
WSET: ROANOKE-LYNCHBURG,
VIRGINIA
Market revenue(1)(2).... $35,100 $36,500 $38,300 $40,400 $42,400
Market revenue growth
over prior period...... 5.4% 4.0% 4.9% 5.5% 5.0%
Market rank (DMA)....... 69 66 65 66 67 67
Television homes (in
thousands)............. 377 383 386 390 397 396
Total commercial compet-
itors in market........ 4 4 4 4 4 4
Station rank in market.. 3 2(tie) 3 3 2 3
Station audience share.. 22% 25% 24% 24% 25% 22%
Station rank in market
4:00 p.m. to 8:00
p.m. .................. 3 3 3 2 2 2
Station audience share
4:00 p.m. to 8:00
p.m. .................. 20% 21% 25% 26% 27% 28%
</TABLE>
- --------
(1) For the year ended September 30.
(2) Represents calendar year actual gross market revenues for 1991-1994 and
estimated gross market revenues for 1995.
WCIV: CHARLESTON, SOUTH CAROLINA
Market Overview. Charleston, South Carolina is the 108th largest DMA in the
nation with approximately 225,000 television households. Charleston's
resurgent port economy has undergone significant change during the past four
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 five million visitors annually and 34,000 related
jobs, followed by medical and government. In 1993, the Base Realignment and
Closure Commission ("BRAC") selected the
73
<PAGE>
Charleston Navy Base and the Charleston Naval Shipyard for closure; BRAC also
consolidated a number of separate Naval Electronics Systems commands into two,
including one located in Charleston. In addition, the Navy has relocated its
Orlando submarine school to Charleston. The Charleston metropolitan area had
an average EBI of approximately $41,000 in 1994 and experienced a 11.7% growth
in the number of households from 1985 to 1994. Retail sales for the Charleston
metropolitan area grew by approximately 60.6% from 1985 to 1994 and are
projected by Sales and Marketing Management to grow by 19.6% from 1994 to
1999. There can be no assurance, however, that the Charleston area economy
will continue its strength and growth.
Station Performance and Strategy. Destroyed by Hurricane Hugo in September
1989, WCIV was completely rebuilt in 1990 through the use of insurance
proceeds. WCIV provides the only NBC network programming in the Company's
group of Owned and Operated Stations but will convert to ABC in August 1996.
According to the Nielsen Station Index, WCIV ranks third for audience share,
sign-on to sign-off, of the five commercial broadcast television stations in
its DMA. WCIV's news is ranked third at 6:00 p.m. and second at 11:00 p.m.,
two and four rating points behind the second and first ranked stations,
respectively.
The station's inventory of syndicated programming includes, "Roseanne,"
"Inside Edition," "Ricki Lake" and "Rolanda." See "--Programming."
<TABLE>
<CAPTION>
MARKET/STATION DATA
----------------------------------------------------------
AS OF
1991 1992 1993 1994 1995 FEBRUARY 1996
------- ------- ------- ------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
WCIV: CHARLESTON, SOUTH
CAROLINA
Market revenue(1)....... $21,285 $22,051 $22,856 $25,506 $26,286
Market revenue growth
over prior period...... 3.3% 3.6% 3.6% 11.5% 3.0%
Market rank (DMA)....... 106 106 105 105 108 108
Television homes (in
thousands)............. 222 225 229 233 225 225
Total commercial
competitors in market.. 4 4 5 5 5 5
Station rank in market.. 3 3 3 2 2 3
Station audience share.. 25% 24% 22% 25% 27% 25%
Station rank in market
4:00 p.m. to 8:00
p.m. .................. 3 3 3 3 2 3
Station audience share
4:00 p.m. to 8:00
p.m. .................. 23% 20% 17% 23% 30% 25%
</TABLE>
- --------
(1) For the year ended September 30.
BIRMINGHAM STATION MARKETS
WCFT/WJSU: BIRMINGHAM/TUSCALOOSA/ANNISTON, ALABAMA
Market Overview. Birmingham, Alabama is the 51st largest DMA in the nation
reaching approximately 525,000 television households. If the
Birmingham/Tuscaloosa/Anniston markets are combined, it would rank as the
nation's 39th largest market, reaching approximately 626,000 television
households, according to BIA. The Birmingham metropolitan region is made up of
four counties: Blount, Jefferson, Shelby and St. Clair. Birmingham is
Alabama's most populous city, and according to a March 1994 Wall Street
Journal, Shelby County ranks as the sixth fastest growing, wealthiest and most
educated county in the nation. In 1994, the average Birmingham metropolitan
household EBI was approximately $43,000 and is projected by Sales & Marketing
Management to grow by a total of 19.0% by 1999. From 1985 to 1994, according
to Sales & Marketing Management Birmingham outperformed the national average
for metropolitan retail sales growth by 16.5% Sales & Marketing Management
also projects Birmingham EBI growth to continue to outperform the national
average by approximately 3.5% through 1999.
Over the past four decades, Birmingham area economy has become greatly
diversified. Historically dependent on iron and steel production, Birmingham
area economic base is now comprised of some 20,000 businesses in areas such as
finance, health care, education, manufacturing, research and engineering.
According to the Birmingham Chamber of Commerce, in 1994, nearly ten thousand
jobs were created followed by close to three thousand more in the first half
of 1995. The area's unemployment rate for the first five months of 1995
averaged 3.98%, below its 1994 rate of 4.3%, the 1994 Alabama average of 6.0%
and the national average of
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6.1%. The University of Alabama at Birmingham ("UAB"), a world-renowned leader
in medical research, became the top employer in the four-county area during
the 1980s and is the largest single employer in the state. UAB now employs
more than 15,000 and its payroll pumps more than $411.4 million annually into
the area's economy. There can be no assurance, however, that the Birmingham
area economy will continue its strength and growth.
Station Performance and Strategy. The Birmingham market has five broadcast
television stations: its audience can access NBC, ABC, CBS, FOX programming
and the recently-launched UPN station. Only three of the five network-
affiliated stations, NBC, ABC and CBS, provide local news. According to
Nielsen, over the last five years the ABC affiliate, WBRC also has been the
number one station, sign-on to sign-off. WBRC has been number one in the
revenue critical 3:00 p.m. to 7:00 p.m. daypart. In fact, WBRC commanded 43.0%
of the viewing audience, sign-on to sign-off, in November of 1995. On
September 1, 1996, WBRC will become an affiliate of FOX and it is unknown
whether it will provide local news. As the incumbent ABC affiliate in the
Birmingham market, WBRC has established a strong following associated with
ABC. Replacing WBRC as the ABC affiliate affords WCFT/WJSU the opportunity to
capitalize on that relationship as the stations implement their strategy to
serve the Birmingham market.
Subject to transfer of the ABC Network affiliation, the Company proposes to
serve the Birmingham market by simultaneously transmitting identical
programming over both WCFT serving Tuscaloosa and WJSU serving Anniston. TV
Alabama intends to construct new studio facilities in Birmingham for the
operation of both stations. Similar to its hyphenated market news and sales
strategy in Roanoke-Lynchburg and its proposed operation in Harrisburg-
Lancaster-York-Lebanon, the Company intends to maintain a significant news and
sales presence in both Tuscaloosa and Anniston, while at the same time
establishing a news and sales presence in Birmingham.
PRODUCTION OPERATIONS
To meet the television industry's increasing need for niche programming, ACC
established ATP in 1989. ATP is currently producing and distributing
nationally "Working Woman" and "Field Trip." "Working Woman" is an innovative
sales-oriented vehicle, targeted to the highly-valued 18 to 54 year old female
demographic category. As a result of a cooperative effort between ATP and
Working Woman magazine, advertisers can run commercials in the local
television market as well as through print supplements in regional editions of
Working Woman magazine. "Field Trip" is a critically acclaimed program aimed
at educating elementary school-aged children. It is being distributed
nationally and internationally.
NETWORK AFFILIATION AGREEMENTS AND RELATIONSHIP
WJLA, WHTM, KATV, KTUL and WSET are ABC network affiliates: their current
affiliation agreements expire October 1, 2005; January 1, 2005; July 31, 2005;
July 31, 2005 and July 31, 2005, respectively.
WCIV's current affiliation agreement with NBC expires on October 23, 1996,
but it has agreed to affiliate with ABC beginning in August 1996. WCIV's ABC
affiliation agreement will expire in August 2006. ABC has agreed to affiliate
with WCFT and WSJU, which are currently CBS affiliates, for ten years, subject
to FCC approval by August 1, 1996 of either WCFT's or WSJU's application to
move its transmitter tower to a site from which the station delivers a level
of signal over Birmingham reasonably satisfactory to ABC. See "The Company--
Birmingham Stations."
As one of the largest group owners of ABC network affiliates in the nation,
ACC believes it enjoys excellent relations with the ABC network. The general
managers of WJLA and KATV have all recently served as members of the ABC
Affiliate Board of Governors, a group of over 200 ABC affiliates nationwide
that serves as a focal point in network/affiliation relations. In addition,
Allnewsco, an affiliate of ACC, repeats broadcasts of ABC news programming in
the Washington, D.C. market on its 24-hour cable news channel.
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The current operators of WCFT and WJSU have notified the CBS network that
they intend to terminate the CBS affilation agreements no later than September
30, 1996. Failure to obtain ABC affiliation would result in ownership of WCFT
as an independent station or affiliate of WB or UPN. ACC's performance under
the Anniston LMA is not subject to continued CBS affiliation or future ABC
affiliation. Failure to obtain ABC affiliation would also result in ownership
of WJSU as an independent or UPN/WB station.
Generally, each affiliation agreement provides the Company's stations with
the right to broadcast all programs transmitted by the network. In exchange,
the network has the right to sell a substantial majority of the advertising
time associated with the network programs and retain such revenue. In
addition, for every hour that the station elects to broadcast network
programming, the network pays the station compensation, as specified in each
affiliation agreement, which varies with the time of day. Typically, "prime
time" programming generates the highest hourly rates. 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. See "Risk
Factors--Network Affiliation."
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PROGRAMMING
The Company supplements network programming and station-produced programming
with non-network programming (both first-run and rerun packages) from program
distributors or syndicators including King World, Paramount, Multimedia, Buena
Vista, New World/Genesis, and Columbia. See "Competition--Programming". This
programming includes talk shows, game shows, news/entertainment features and
situation comedies ("sitcoms"). Terms of individual licensing agreements vary
by station and program but fees are paid by the station monthly. Fixed fees
are negotiated on the basis of several factors, including prior rating
performance (if any), station market size, contract term length, time-period
placement, number of runs, amount of retained barter by the syndicator, number
of stations/markets airing the program nationally, number of station
affiliates in group airing program, value/desirability of targeted demographic
audience and market exclusivity for the program. The following table reflects
ACC's principal non-network programming contracts, separated by station.
<TABLE>
<CAPTION>
NATURE OF DATE OF
SYNDICATED PROGRAM PROGRAM EXPIRATION(1)
------------------ ---------------- --------------
<S> <C> <C>
OWNED AND OPERATED STATIONS
WJLA
The Oprah Winfrey Show....................... Talk September 2000
Wheel of Fortune/Weekend Wheel............... Game September 1999
Jeopardy..................................... Game September 1999
Weekend Jeopardy............................. Game September 1999
Extra........................................ News/Information September 1996
Regis & Kathie Lee........................... Talk September 1996
Ricki Lake................................... Talk September 1997
American Journal............................. News/Information August 1997
WHTM
American Journal............................. News/Information September 1998
Extra........................................ News/Information September 1996
Inside Edition/I.E. Weekend.................. News/Information September 1998
Jenny Jones.................................. Talk September 1997
Montel Williams.............................. Talk August 1997
Regis & Kathie Lee........................... Talk September 1997
Roseanne..................................... Sitcom March 1997(1)
Sally Jesse Raphael.......................... Talk August 1997
KATV
The Oprah Winfrey Show....................... Talk September 2000
Wheel of Fortune............................. Game September 1999
Jeopardy/Jeopardy Weekend.................... Game September 1999
Inside Edition............................... News/Information August 1997
American Journal............................. News/Information August 1996
Home Improvement............................. Sitcom March 2000(1)
Regis & Kathie Lee........................... Talk September 1996
KTUL
Wheel of Fortune............................. Game September 1999
Jeopardy..................................... Game September 1999
Geraldo...................................... Talk September 1996
Inside Edition............................... News/Information September 1996
Roseanne..................................... Sitcom March 1997(1)
WSET
Sally Jesse Raphael.......................... Talk August 1996
Donahue...................................... Talk August 1996
Ricki Lake................................... Talk September 1997
The Oprah Winfrey Show....................... Talk September 2000
</TABLE>
(footnotes on following page)
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<TABLE>
<CAPTION>
NATURE OF DATE OF
SYNDICATED PROGRAM PROGRAM EXPIRATION(1)
------------------ --------- -------------
<S> <C> <C>
WSET (cont.)
Entertainment Tonight................... News/Information September 1996
Inside Edition.......................... News/Information September 1996
Wheel of Fortune........................ Game September 1999(2)
Jeopardy................................ Game September 1999(2)
WCIV
Roseanne................................ Sitcom March 1997(1)
Jenny Jones............................. Talk September 1997
Ricki Lake.............................. Talk September 1997
Inside Edition.......................... News/Information September 1996
Rolanda................................. Talk August 1996
BIRMINGHAM STATIONS
WCFT(3)
Inside Edition.......................... News/Information August 1996
Jeopardy................................ Game August 1996
Montel Williams......................... Talk September 1996
The Oprah Winfrey Show.................. Talk August 1996
Sally Jesse Raphael..................... Talk September 1996
Wheel of Fortune........................ Game September 1996
WJSU(3)
The Oprah Winfrey Show.................. Talk September 2000
Sally Jesse Raphael..................... Talk August 1996
Wheel of Fortune........................ Game September 1999
Regis & Kathie Lee...................... Talk September 1996
</TABLE>
- --------
(1) Programming contract may be extended after date of expiration pursuant to
license agreement.
(2) License period begins September 1996.
(3) TV Alabama is in the process of negotiating programming contracts in
anticipation of the ABC network affiliation to effectuate its hyphenated
market programming strategy for central Alabama. See "The Company--
Birmingham Stations."
COMPETITION
Competition in the television industry, including each of the markets 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 in popularity of competing
entertainment and communications media and governmental restrictions or
actions of federal regulatory bodies, including the FCC and the Federal Trade
Commission, 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 the network with which each station is
affiliated. In those periods, the stations are totally dependent upon the
performance of the 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 alternative 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
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television industry. These other transmission methods can increase competition
for a broadcasting station by bringing into its market distant broadcasting
signals not otherwise available to the station's audience and also by 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, 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 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 served by the station,
the availability of alternative advertising media in the market area, the
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 markets. 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 markets.
LEGISLATION AND REGULATION
The ownership, operation and sale of television stations are subject to the
jurisdiction of the FCC under the Communications Act of 1934 (the
"Communications Act"). Matters subject to FCC oversight include, 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
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policies concerning the ownership, operation and employment practices of
television stations. The FCC has the power to impose penalties, including
fines or license revocations, upon a licensee of a television station for
violations of the FCC's rules and regulations.
The following is a brief summary of certain provisions of the Communications
Act and of specific FCC regulations and policies affecting broadcast
television. Reference should be made to the Communications Act, FCC rules and
the public notices and rulings of the FCC for further information concerning
the nature and extent of FCC regulation of broadcast television stations.
License Renewal: Broadcast television licenses generally have been granted
for maximum terms of five years. The Telecommunications Act of 1996 has
extended license terms to eight years. They are subject to renewal for
additional terms upon application to the FCC, but they may be renewed for a
shorter period upon a finding by the FCC that the "public interest,
convenience and necessity" would be served thereby. Under the
Telecommunications Act of 1996, the 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 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-year
terms and are currently in effect. The expiration dates for the Company's
licenses are: WJLA and WSET, October 1, 1996; WHTM, August 1, 1999; WCIV,
December 1, 1996; KATV, June 1, 1997 and KTUL, June 1, 1998. License renewals
for WCFT and WJSU are due to expire on April 1, 1997. The FCC is in the
process of determining how the license term extension will be applied to
existing licenses.
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 continue to be required 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 of a licensee, 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 rules promulgated under the Communications
Act that regulate, among other things, political advertising, sponsorship
identifications, the advertisements of contests and lotteries, programming
directed to children, 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 opportunities 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.
Advanced Television: The FCC has proposed the adoption of rules for
implementing advanced (including high-definition) television service in the
United States. Implementation of ATV is intended to improve the technical
quality of television. Under certain circumstances, however, conversion to ATV
operations may reduce a station's geographical coverage area. The FCC is
considering an implementation proposal that would allot a second broadcast
channel to each full-power commercial television station for ATV operation.
Under the proposal, stations would be required to phase in their ATV
operations on the second channel over an approximately nine-year period
following the adoption of a final table of allotments and to surrender their
non-ATV channel six years later. Recently, there has been consideration by the
FCC of further shortening the transition period. Implementation of advanced
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
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the markets in which the Company operates if competing stations adopt and
implement the new technology before the Company's stations. Legislation is
also being considered that would impose obligations on broadcasters to pay
additional amounts for use of the ATV channel in some form of auction. It is
uncertain if, when and how such payments would be made.
Network/Affiliate Programming Rules: The FCC has issued a notice of proposed
rulemaking which seeks to review and update the following five Commission
rules governing the relationship between broadcast networks and their
affiliates with respect to programming. (1) The "right to reject" rule
provides that affiliation arrangements between a broadcast network and a
broadcast licensee generally must permit the licensee to reject programming
provided by the network. In its notice, the FCC proposes to clarify that the
right to reject rule, does not give stations the right to reject programming
based solely on financial considerations. (2) The "time option" rule prohibits
arrangements whereby a network reserves an option to use specified amounts of
an affiliate's broadcast time without committing to use that time. The notice
proposes to modify the rule by eliminating the outright prohibition on time
optioning but require that networks give affiliates a particular amount of
advance notice if they are going to use an optioned time slot. (3) The
"exclusive affiliation" rule prohibits arrangements that forbid an affiliate
from broadcasting the programming of another network. The notice proposes to
eliminate this rule, at least in large markets. (4) The "dual network" rule
generally prevents a single entity from owning more than one broadcast
television network. The FCC seeks comment on the applicability of this rule in
light of changes in the broadcasting industry but has not proposed a change to
the rule. (5) The "network territorial exclusivity" rule proscribes both
arrangements whereby a network affiliate can prevent other stations in its
community from broadcasting programming the affiliate rejects and arrangements
that inhibit the ability of stations outside the affiliate's community to
broadcast network programming. The FCC proposes to eliminate this rule. Repeal
or modification of these rules may restrict the ability of the Company to
reject programming provided by their affiliated networks, inhibit the ability
of stations to broadcast the programming of non-affiliated networks, reduce
the bargaining power of television licensees vis-a-vis the television networks
and interfere with the planning of programming by the Company.
Children's Programming. The Children's Television Act of 1990 (the
"Children's Act") requires television stations to present programming
specifically directed to the "educational and informational" needs of children
and limits the amount of "commercial matter" in children's programs. The FCC
is conducting an inquiry to consider proposals to increase broadcasters'
obligations under its rules implementing the Children's Act. Among the
proposals offered by the FCC is the establishment of a monitoring system for
stations' compliance with the mandates of the Children's Act and the
establishment of a mandatory weekly amount of children's programming. The
rulemaking also seeks to redefine what constitutes acceptable programs
designed to meet the educational and informational needs of children and would
require licensees to publicize and promote their children's offerings.
Although the Company cannot predict the outcome of this proceeding, adoption
of the rules outlined by the FCC may impose additional costs on stations
through compliance with the programming and promotional requirements outlined
in the FCC notice.
Radiation/Spectrum Allocation: The FCC also is conducting a rulemaking
proceeding to consider the adoption of more restrictive standards for the
exposure of the public and workers to potentially harmful radio frequency
radiation emitted by broadcast station transmitting facilities. Other matters
which could affect the Company's broadcast properties include technological
innovations affecting the mass communications industry and technical
allocation matters, including conversion from analog delivery of broadcast
signals to digital delivery, assignment by the FCC of channels for additional
broadcast stations, low-power television stations and wireless cable systems
and their relationship to and competition with full-power television service.
The ultimate outcome of these pending proceedings cannot be predicted at this
time.
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; ownership by those not having the
requisite "character" qualifications and those persons holding "attributable"
interests in the license.
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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. See
"Risk Factors." The Telecommunications Act of 1996 directs the FCC to
reevaluate its local ownership rules to consider potential modifications
permitting ownership of more than one station in a market.
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 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
and (ii) attributing certain interests such as non-voting stock, debt and
holdings in limited liability companies. 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 not be able
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 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. Although the Company cannot
predict the outcome of this proceeding, if the local multiple ownership rules
are not relaxed, such an attribution provision
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would 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. See "Risk Factors--
Potential FCC Regulation of Local Marketing Agreements." The Conference Report
to the Telecommunications Act of 1996 provides that the FCC, in its
reevaluation of its local ownership rules, should grandfather LMAs in
existence on the date of adoption.
Additional Competition in the Video Services Industry: The
Telecommunications Act of 1996 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 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.
In addition to the changes noted above, the Telecommunications Act of 1996
makes many other changes to the legal structure governing the
telecommunications industry. At this time the Company is unable to predict the
nature or extent to which the new law will impact the Company. This is due to
many factors, including a lack of clarity in the drafting of the legislation
itself, the potential for judicial interpretation and invalidation of specific
provisions of the legislation, and the fact that many of the provisions of the
Act are subject to future interpretation and implementation by the FCC.
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 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, 1995, the Company employed in full-time positions 531
persons, including 150 at WJLA, 105 at KATV, 98 at KTUL, 90 at WSET, 70 at
WCIV, 6 at ATP and 12 in the corporate office. WJSU currently employs 41, WHTM
currently employs 84 and WCFT currently employs 44. Of the employees at WJLA,
102 are represented by three unions: The American Federation of Television and
Radio Artists ("AFTRA"), the Directors Guild of America ("DGA") and the
National Association of Broadcast Employees and Technicians/Communications
Workers of America ("NABET/CWA"). The AFTRA contract expires on May 31, 1996.
The DGA contract expires July 15, 1996. The NABET/CWA contract expired June 1,
1995. Members of this union have been working without a contract since that
time. ACC management is in the process of negotiating new contracts with
NABET/CWA and management anticipates resolving the outstanding issues without
any material adverse impact to WJLA. No employees of the Company's other Owned
and Operated Stations or WHTM, WCFT or WJSU are represented by unions. The
Company believes its relations with its employees are satisfactory.
PROPERTIES
ACC and its non-broadcast station subsidiaries maintain corporate
headquarters in Washington, D.C. ACC now occupies newly renovated corporate
headquarters office space of approximately 8,000 square feet that it leases.
The types of properties required to support each of the Owned and Operated
Stations include offices, studios, transmitter sites and antenna sites. The
stations' studios are co-located with their office space while transmitter
sites and antenna sites are generally located away from the studios in
locations determined to provide maximum market signal coverage.
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<PAGE>
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 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. It is currently soliciting
bids to commence structural modifications to the tower. KATV is also engaged
in discussions with the owner of KETS-TV, which has an antenna on the tower,
about the possible removal of its antenna, which would greatly reduce the
overstress in windy conditions, or the possibility of sharing the costs to
resolve the overstress conditions. KATV has solicited bids and estimates that
it would cost approximately $150,000 to $300,000 to bring the tower within
current guidelines. The owner of KETS-TV has filed an application with the
National Telecommunications and Information Administration in the Department
of Commerce for a matching grant to help offset the costs of tower
modification. There can be no assurance that such funds will become available.
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.
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The following table describes the general characteristics of the Company's
principal real property:
<TABLE>
<CAPTION>
LEASE
APPROXIMATE EXPIRATION
FACILITY MARKET/USE OWNERSHIP SIZE DATE
- -------- ----------------- --------- --------------- ---------------
<S> <C> <C> <C> <C>
WJLA Washington, D.C.
Office/Studio Leased 88,828 sq. ft. 11/31/03
Tower/Transmitter Joint 108,000 sq. ft. N/A
Venture
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
Adjacent Theater Owned 10,000 sq. ft. 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
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(1) Tuscaloosa, AL
Office/Studio Owned 9,475 sq. ft. N/A
Tower/Transmitter Owned 10.5 acres N/A
WJSU(2) Anniston, AL
Office/Studio Leased 7,273 sq. ft. 6 months notice
Tower/Transmitter Owned 1.7 acres N/A
Gadsden Office Leased 1,000 sq. ft. Monthly
</TABLE>
- --------
(1) Assuming ABC network affiliation for the Birmingham Stations, TV Alabama
plans to build a new studio facility to house operations of both WCFT and
WJSU. TV Alabama intends to use the existing facilities of the Birmingham
Stations to operate news and sales business in the Tuscaloosa and Anniston
markets. TV Alabama also plans to lease real estate and construct new
towers for the transmission of the WCFT and WJSU signals. See "The
Company--Birmingham Stations."
(2) Although TV Alabama is currently operating these properties under the
Anniston LMA, RKZ is the owner and lessee.
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.
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<PAGE>
In October 1995, a former employee of WJLA filed a lawsuit against WJLA in
The Superior Court for the District of Columbia alleging discrimination under
the District of Columbia Human Rights Statute and breach of the implied
covenant of good faith and fair dealing under District of Columbia law. Such
lawsuit seeks $10.0 million in actual damages and $2.0 million in punitive
damages from WJLA. This lawsuit is in the very early stages of discovery and,
as yet, no trial date has been set therefor. Management believes it has
meritorious defenses and WJLA is vigorously defending this suit, although
there can be no assurance that WJLA will ultimately prevail. Management
believes the ultimate resolution of this matter will not have a material
adverse effect on the consolidated financial condition, results of operations
or cash flows of the Company.
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. The Company
believes that it is in material compliance with current environmental
standards.
In particular, the Company is subject to liability under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), the
Resource Conservation and Recovery Act ("RCRA") 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 heating oil spilled from an above- ground tank
on the premises of WCIV. With the assistance of environmental consultants,
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 the remaining costs associated with the monitoring wells
and related testing will approximate $30,000. The Company plans to expense
such costs during the remainder of Fiscal 1996 and has recorded no reserves in
the Company's balance sheet based on materiality. However, there can be no
assurance that the South Carolina Department of Health and Environmental
Control 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 solely, or in the aggregate, will have a material adverse effect on
the Company's consolidated financial condition, results of operations or cash
flows.
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<PAGE>
MANAGEMENT
Executive officers and directors of ACC are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- ---- -----
<S> <C> <C>
Joe L. Allbritton....... 71 Chairman and Director
Barbara B. Allbritton... 58 Vice President and Director
Lawrence I. Hebert...... 49 President, Vice Chairman and Director
Robert L. Allbritton.... 27 Executive Vice President, Chief Operating
Officer and Director
Frederick J. Ryan, Jr... 40 Senior Vice President, Vice Chairman and Director
Jerald N. Fritz......... 45 Vice President, Legal and Strategic Affairs, General Counsel
Henry D. Morneault...... 45 Vice President and Chief Financial Officer
Ray P. Grimes II........ 47 Vice President Broadcast Operations,
Deputy Chief Operating Officer
</TABLE>
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 The Riggs National Bank of Washington, D.C. ("Riggs Bank") since
1983 and its Chief Executive Officer since 1982; Director of Riggs AP Bank
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 KATV and KTUL since 1983; Chairman
of the Board of WSET and WCIV since 1974; Chairman of the Board of 78 inc.,
Allfinco, Harrisburg TV and TV Alabama since 1995; Chairman of the Board of
AGI and Florida Television, Inc. since 1996; Chairman of the Board and owner
of University Bancshares, Inc. since 1975; and a Trustee and President of the
Allbritton Foundation since 1971. Mr. Allbritton is the husband of Barbara B.
Allbritton and 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 of University
State Bank (Texas bank) since 1982; a Director and Vice President of WCIV
since 1976; a Director and Vice President of WSET since 1976; a Vice President
and Director of Perpetual since 1978; a Director of Allnewsco since 1990; a
Trustee and Vice President of the Allbritton Foundation since 1971; a Director
of Allfinco, 78 inc., Harrisburg TV and TV Alabama since 1995; a Director of
KATV and KTUL since 1983; and a Director of AGI and Florida Television, Inc.
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 KATV
and KTUL since 1983; 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 WCIV and WSET since
1982; a Director of Allnewsco since 1989; President and a Director of ATP
since 1989; a Vice President and a Director of Allfinco and 78 inc. 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 Florida Television, Inc.
since 1996. In addition, Mr. Hebert has been Vice Chairman of the Board of
Riggs from 1988 to 1993, a Director of Riggs Bank since 1988; Vice President,
University Bancshares, Inc. since 1975; and a Director of Allied Capital II
Corporation (venture capital fund) since 1989.
Robert L. Allbritton has been Executive Vice President and Chief Operating
Officer of ACC since 1994 and a member of the Board of Directors since 1993.
He has been a Director of Allnewsco since 1992; a Director of Riggs Bank and
the Riggs AP Bank since 1994; a Director of University Bancshares, Inc. since
1992; and a
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<PAGE>
Trustee and Vice President of the Allbritton Foundation since 1992. He is a
Director of Perpetual; a Director of 78 inc. since 1995 and President since
1996; President and Director of Allfinco and Harrisburg TV since 1995; Vice
President and a Director of TV Alabama since 1995; and a Vice President and a
Director of AGI and President and a Director of Florida Television, Inc. since
1996. 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.
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 served as Chief Financial Officer of ACC since
September 1994, and prior to this appointment, served as ACC's Vice
President--Finance from the time he joined ACC in 1992. 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 until April 1995 when he
became Vice President of Broadcast Operations and Deputy Chief Operating
Officer. He also served as the Acting General Manager for WJLA from December
1994 until March 1995. 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.
88
<PAGE>
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 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------
OTHER
NAME AND ANNUAL ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION(2) COMPENSATION(3)
------------------ ----------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
Joe L. Allbritton ...... $ 550,000 $104,800(4)
Chairman
Frederick J. Ryan,
Jr.(5) ................ 109,600
Senior Vice President
Jerald N. Fritz(6) ..... 128,600 $50,000 3,800
Vice President, Legal
and Strategic Affairs
Henry D. Morneault(7) .. 126,000 50,000 2,900
Chief Financial Officer
Ray P. Grimes II ....... 162,700 25,000 $27,000 1,900
Deputy Chief Operating
Officer
</TABLE>
- --------
(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 commissions paid.
(3) These amounts reflect annual contributions by ACC to the Company's 401(k)
Plan.
(4) 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 not less than the cash surrender value of the policies, and the
remaining proceeds will be paid to the insured's beneficiary. The imputed
premium cost is calculated on the difference between the face value of the
policy and the cash surrender value.
(5) Frederick J. Ryan receives 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. Accordingly, it is not possible
to quantify the portion of the additional compensation paid by Perpetual
to Mr. Ryan attributable to his services to the Company and there is no
impact on the financial condition of the Company from the payment of such
compensation.
(6) Jerald N. Fritz is paid compensation by ACC for services to the Company
and Perpetual. Perpetual has reimbursed ACC for $12,000 of Mr. Fritz's
compensation.
(7) Henry D. Morneault is paid compensation by ACC for services to the Company
and Perpetual. Perpetual has reimbursed ACC for $33,800 of Mr. Morneault's
compensation.
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.
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<PAGE>
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") and 105 shares of which are
issued and outstanding.
ACC COMMON STOCK
Joe L. Allbritton owns 100% of the outstanding common stock of Perpetual
(the "Perpetual Common Stock"). Perpetual owns 100% of the outstanding common
stock of AGI and AGI owns 100% of the outstanding ACC Common Stock. Perpetual,
AGI and ACC each have outstanding only one class of 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. The declaration and payment of dividends on ACC
Common Stock is subject to the prior payment of dividends on the Series A
Preferred Stock, when and as declared by the Board of Directors of ACC.
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 Perpetual Common Stock held by Joe L. Allbritton 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 Common 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 contain
customary representations, warranties and default provisions, including
restrictions upon his right to sell the Perpetual Common Stock and the right
of Perpetual to sell the ACC Common Stock. Any such sale could constitute a
"Change of Control" under the Exchange Debentures. See "Description of the
Exchange Debentures."
SERIES A PREFERRED STOCK
Each of the 105 issued and outstanding shares of Series A Preferred Stock is
held by the successor trustee under a trust (the "Trust") established by one
of the prior owners of The Washington Star newspaper (the "Settlor"), acquired
along with WJLA in 1976. The shares of the Series A Preferred Stock are
nonvoting and have no conversion rights. They are entitled to receive
cumulative dividends of $96.00 per year, payable quarterly, when and as
declared by ACC's Board of Directors. The shares are entitled to preference
over shares of the ACC Common Stock in the event of, among other things,
payment of dividends and distributions upon liquidation, dissolution or
winding up of the affairs of ACC. The shares of the Series A Preferred Stock
have a liquidation preference of $1,600 per share.
ACC is required to redeem the Series A Preferred Stock at $1,600 per share
(a total of $168,000), plus accrued and unpaid dividends, within 90 days after
the date of death of the last survivor of the issue of the Settlor in being at
the time of the Settlor's death or such earlier time as a court of competent
jurisdiction shall determine that the Trust has terminated. ACC has been
advised that as of December 31, 1995, there are three surviving issue of the
Settlor.
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CERTAIN TRANSACTIONS
ADVANCES AND LOANS
Advances and Loans to Related Parties. The Company periodically makes
advances in the form of distributions to related parties. At present, because
the related parties' primary sources of repayment of net advances is through
the ability of the Company to pay dividends or make other distributions
thereto, these advances have been treated as a reduction of stockholder's
investment and described as "distributions" in the Company's consolidated
financial statements. For Fiscal 1993, 1994, 1995 and the three months ended
December 31, 1995, the Company made cash advances to these related parties of
$34,710,000, $43,247,000, $42,853,000 and $10,618,000, respectively. For
Fiscal 1993, 1994, 1995 and the three months ended December 31, 1995 these
related parties made repayments on these cash advances of $11,435,000,
$13,219,000, $13,417,000 and $2,300,000, respectively. In addition, during
Fiscal 1993, 1994, 1995 and the three months ended December 31, 1995, ACC was
charged for federal income taxes by Perpetual and Westfield and distributed
certain tax benefits to Westfield totalling $6,533,000, $10,814,000,
$11,931,000 and $3,252,000, respectively. In Fiscal 1993, ATP made a loan in
the amount of $1,135,000 to Perpetual and received repayments on the note
receivable of $307,000, $73,000 and $725,000 in each of Fiscal 1993, 1994 and
1995, respectively. As a result, net distributions, tax charges, tax benefits
distributed and other loans made to related parties during such periods were
$17,570,000, $19,141,000, $16,780,000 and $5,066,000, respectively. The
advances to related parties are non-interest bearing and, as such, do not
reflect market rates of interest-bearing loans to unaffiliated third parties.
During Fiscal 1991, ACC made a $20,000,000, 11.06% loan to Allnewsco. This
amount has been reflected in the consolidated financial statements on a
consistent basis with other distributions to owners. The $20,000,000 note
receivable from Allnewsco is payable in annual principal installments of
$2,225,000 commencing January 11, 1997 through January 11, 2004 with a final
payment of $2,200,000 on January 11, 2005. Interest payments on the loan have
been made and the Company expects it will continue to receive such payments on
a current basis. To date, interest payments from Allnewsco to ACC have been
funded by advances from Perpetual to Allnewsco. The Company anticipates that
such payments will be funded in a similar manner for the forseeable future.
However, there can be no assurance that Allnewsco will continue to have the
ability to make such interest payments in the future.
MANAGEMENT FEES
The Company paid executive compensation in the form of management fees to
Joe L. Allbritton for Fiscal 1993, 1994 and 1995 in the amount of $550,000,
$750,000 and $550,000, respectively. Management fees of $138,000 were paid to
Joe L. Allbritton during the three months ended December 31, 1995 and are
expected to continue at a monthly rate of $46,000 through the end of Fiscal
1996. The Company believes that such payments to 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.
OTHER SERVICES
Beginning July 1, 1995, WJLA and Allnewsco engaged 78 inc., an affiliated
company wholly owned by Perpetual, to provide sales, marketing and related
services for a period of one year with automatic annual renewals thereafter.
WJLA was charged approximately $1,700,000 and $2,447,000 during Fiscal 1995
and the three months ended December 31, 1995, respectively, for services
provided by 78 inc., which represents WJLA's share of 78 inc.'s costs relating
to the provision of such services, determined based upon WJLA's use of such
services. See Note 6 to the Consolidated Financial Statements.
FEDERAL INCOME TAXES
The operations of ACC and its subsidiaries were included in a consolidated
federal income tax return filed by Perpetual, while the operations of WSET and
WCIV were included in a consolidated Federal income tax return filed by
Westfield. In accordance with the terms of a tax sharing agreement between ACC
and Perpetual, ACC was required to pay to Perpetual its federal income tax
liability, computed based upon statutory federal
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<PAGE>
income tax rates applied to ACC's taxable income. Taxes payable to Perpetual
were not reduced by losses generated in prior years by ACC. In addition, the
amount payable by ACC and its subsidiaries as a group to Perpetual under the
tax sharing agreement is not reduced if losses of other members of the
Perpetual group were utilized to offset taxable income of ACC and its
subsidiaries as a group for purposes of the Perpetual consolidated federal
income tax return. In accordance with the terms of tax sharing agreements
between Westfield and WSET and WCIV, federal income tax liabilities of WSET
and WCIV were payable to Westfield and were computed based upon statutory
federal income tax rates applied to the entity's taxable income. Federal
income taxes payable to Westfield by either WSET or WCIV were not reduced by
losses generated in prior years by either entity, nor were amounts payable
reduced if losses of Westfield or other members of the Westfield consolidated
group were utilized to offset taxable income of WSET or WCIV for purposes of
the Westfield consolidated federal income tax return. See Notes 1 and 5 to the
Consolidated Financial Statements.
Effective with the Contribution, the operations of WSET and WCIV are
expected to be included in the consolidated Federal income tax return of
Perpetual.
LOCAL ADVERTISING REVENUES
WJLA received for Fiscal 1993, 1994, 1995 and the three months ended
December 31, 1995, local advertising revenues from Riggs Bank of approximately
$281,000, $78,000, $174,000 and $79,000, respectively. Riggs Bank is a wholly
owned subsidiary of Riggs, the common stock of which approximately 30% is
beneficially owned by Riggs' Chairman, Mr. Allbritton. Management believes
that the terms of the transactions are substantially the same or at least as
favorable to ACC as those prevailing for comparable transactions with or
involving nonaffiliated companies. While it is expected that Riggs Bank will
continue to advertise on WJLA in the future, the amount of advertising it may
purchase is unknown.
During Fiscal 1993, 1994 and 1995, WJLA purchased $17,000, $169,000 and
$6,000, respectively, of advertising time from Allnewsco. WJLA purchased no
advertising time from Allnewsco during the three months ended December 31,
1995. During Fiscal 1993, 1994 and 1995, Allnewsco purchased approximately
$19,000, $75,000 and $3,000, respectively, of advertising time from WJLA.
Allnewsco purchased no advertising time from WJLA during the three months
ended December 31, 1995. Management believes the transactions are at least as
favorable to ACC as those prevailing for comparable transactions with or
involving nonaffiliated companies. Additional purchases of advertising time
may or may not be made in the future.
OFFICE SPACE
ACC leases corporate headquarters space from Riggs Bank which owns office
buildings in Washington, D.C. During Fiscal 1993, 1994, 1995 and the three
months ended December 31, 1995, ACC incurred expenses to Riggs Bank of
$163,000, $182,000, $167,000 and $41,000, respectively, for this space.
Management believes the same terms and conditions would have prevailed had
they been negotiated with a nonaffiliated company. During Fiscal 1996, ACC
estimates it will pay Riggs Bank approximately $196,000 as lease payments for
newly renovated office space. See "Business--Properties."
CHARITABLE CONTRIBUTIONS
For Fiscal 1993, 1994, 1995 and the three months ended December 31, 1995,
charitable contributions of $490,000, $347,000, $283,000 and $50,000,
respectively, were paid to the Allbritton Foundation by ACC.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW SENIOR CREDIT AGREEMENT
On April 16, 1996, ACC entered into a New Senior Credit Agreement to replace
a credit facility that had expired on March 31, 1996. Under the New Senior
Credit Agreement, which will expire no later than 2001, ACC may borrow up to
$40,000,000. At the time ACC borrows money under the New Senior Credit
Agreement, it may elect to pay interest at rates equal to either (i) LIBOR
plus a margin of 1% to 2% or (ii) the lower of the base rate announced by the
agent for the lenders or the overnight federal funds rate announced by the
Federal Reserve Bank of New York plus a margin of up to 75 basis points. The
amount of the margin in either case depends upon certain financial operating
tests. ACC's obligations under the New Senior Credit Agreement are secured by
a pledge of all of the common stock of ACC and its subsidiaries, including
stock of Allfinco's subsidiaries held by Allfinco. The Debentures are and the
Exchange Debentures will be subordinated to the prior payment in full in cash
or cash equivalents of all Obligations of ACC under the New Senior Credit
Agreement.
CAPITAL LEASE FACILITY
ACC has a $3,000,000 line of credit available under the Capital Lease
Facility for the purpose of financing equipment purchases, which will
constitute Senior Debt to which the Debentures and the Exchange Debentures
will be subordinated. The Capital Lease Facility expires in July 1996 and, at
December 31, 1995, ACC had $1,074,000 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 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Existing
Indebtedness."
11 1/2% SENIOR SUBORDINATED DEBENTURES DUE 2004
The 11 1/2% Debentures are general unsecured senior subordinated obligations
of ACC, and the Debentures and the Exchange Debentures will rank pari passu in
right of payment with the 11 1/2% Debentures. The 11 1/2% Debentures total
$125,000,000 in aggregate principal amount and mature on August 15, 2004.
The 11 1/2% Debentures are redeemable at the option of ACC at any time on or
after August 15, 1997 at redemption prices declining ratably from 104.75% of
the principal amount thereof for the twelve months beginning August 15, 1997
to 100% of the principal amount thereof on and after August 15, 2000, plus, in
each case, accrued and unpaid interest, if any, to the applicable date of
redemption. Pursuant to a mandatory sinking fund obligation, ACC is required
to retire $62,500,000 in principal amount of the 11 1/2% Debentures on August
15, 2003 at a redemption price of 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to such date of redemption.
The indenture pursuant to which the 11 1/2% 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 Debentures did not and the Exchange Debentures will not
violate the covenant limiting the incurrence of debt.
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DESCRIPTION OF THE EXCHANGE DEBENTURES
The Exchange Debentures will be issued as a separate series of debentures
pursuant to the same Indenture by and between ACC and State Street Bank and
Trust Company, as Trustee, of the Debentures. The terms of the Exchange
Debentures and the Debentures 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 Debentures and the
Debentures, and the Exchange Debentures and the Debentures 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 Debentures include those set forth in the Indenture and those made a
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended and as in effect on the date of the Indenture (the "Trust Indenture
Act"). The following summary of certain terms and provisions of the Indenture
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all of the provisions of the Indenture and the Trust
Indenture Act. The Exchange Debentures are subject to all such terms, and
holders of the Debentures 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. Certain defined
terms used primarily in this section are set forth below under "--Certain
Definitions." The Debentures and the Exchange Debentures are sometimes
referred to herein, collectively, as the "Senior Debentures."
GENERAL
The Exchange Debentures 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 (including borrowings of up to $40.0 million under the New
Senior Credit Agreement and borrowings of up to $3.0 million under the Capital
Lease Facility) and will rank pari passu in right of payment with ACC's
existing 11 1/2% Debentures.
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 current 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 Debentures will be limited, together with the Debentures, in
aggregate principal amount to $275,000,000 and will mature on November 30,
2007. Interest on the Exchange Debentures will accrue at the rate of 9.75% per
annum from the date of issuance of the Debentures that are tendered in
exchange for the Exchange Debentures (or the most recent Interest Payment Date
(as defined) to which interest on such Debentures has been paid), payable
semi-annually on May 31 and November 30 of each year, commencing May 31, 1996,
to the person in whose name the Exchange Debentures is registered at the close
of business on the May 15 or November 15 preceding such interest payment date.
The Exchange Debentures will be issued only in registered form, without
coupons, in denominations of $1,000 and integral multiples thereof. Principal,
premium, if any, and interest are payable, and the Exchange Debentures are
transferable, at the office of the paying agent and registrar. In addition,
cash interest may, at the option of ACC, be paid by check mailed to the
registered holders of the Exchange Debentures. ACC may require the holders of
the Exchange Debentures to pay a sum sufficient to cover any tax or other
governmental charge payable in connection with certain transfers or exchanges
of the Exchange Debentures. Initially, the Trustee will act as paying agent
and registrar under the Indenture.
OPTIONAL REDEMPTION
Except as set forth below, the Exchange Debentures, like the Debentures,
will not be redeemable at ACC's option prior to November 30, 2002. Thereafter,
the Senior Debentures 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
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applicable date of redemption, if redeemed during the twelve-month period
beginning on November 30 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................................................. 103.90%
2003.............................................................. 102.60%
2004.............................................................. 101.30%
2005 and thereafter............................................... 100.00%
</TABLE>
In addition, at any time on or prior to November 30, 1998, ACC will have the
option to redeem up to 35% of the aggregate principal amount of the Senior
Debentures originally issued at a redemption price equal to 109.75% 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 Debentures originally issued in the Exchange
Offer 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 November 30, 2002, upon a Change of
Control (as defined herein), ACC will have the option to redeem the Senior
Debentures, 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 Debenture, the greater
of (i) 1.0% of the then outstanding principal amount of such Senior Debenture
and (ii) (a) the present value of all remaining required interest and
principal payments due on such Senior Debenture and all premium payments
relating thereto assuming a redemption date of November 30, 2002, computed
using a discount rate equal to the Treasury Rate plus 50 basis points minus
(b) the then outstanding principal amount of such Senior Debenture 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)
that 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 November 30, 2002; provided, however, that
if the then remaining term to November 30, 2002 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 November 30, 2002 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
Except as set forth below under "--Offers to Purchase," ACC will not be
required to make mandatory redemption or sinking fund payments with respect to
the Senior Debentures.
SELECTION AND NOTICE OF REDEMPTION
If less than all of the Senior Debentures are to be redeemed at any time,
selection of Senior Debentures 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 Debentures are listed, or, if the Senior
Debentures 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
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Debentures of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each Holder of Senior Debentures to be redeemed
at its registered address. If any Senior Debenture is to be redeemed in part
only, the notice of redemption that relates to such Senior Debenture shall
state the portion of the principal amount thereof to be redeemed. A new Senior
Debenture in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Senior Debenture. On and after the redemption date, interest will cease to
accrue on Senior Debentures or portions of them called for redemption.
OFFERS TO PURCHASE
Upon the occurrence of a Change of Control or certain Asset Sales, the
Indenture requires, under certain circumstances, that ACC make an offer to
purchase Senior Debentures 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 Debentures tendered or, if a lesser
amount of the Senior Debentures has been tendered, all of the tendered Senior
Debentures, upon the terms specified in the Indenture.
CHANGE OF CONTROL
In the event of a Change of Control, ACC is required to make an offer to
purchase, on the last Business Day of the fiscal quarter of ACC next following
the occurrence of such Change of Control, all of the Senior Debentures 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 Debentures. In the event that a Change of
Control occurs and the Holders exercise their right to require ACC to purchase
Senior Debentures, 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
Debentures is subordinated in right of payment, as set forth in the Indenture,
to the prior payment in full of all Senior Debt, whether outstanding on the
date of the Indenture or thereafter incurred.
Upon any distribution to creditors of ACC in a liquidation or dissolution of
ACC or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to ACC or its property, or in an assignment for the
benefit of creditors or any marshalling of ACC's assets and liabilities, the
holders of Senior Debt will be entitled to receive irrevocable payment in full
in cash or Cash Equivalents reasonably satisfactory to such holders of all
Obligations due in respect of such Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Debt, regardless of whether such post-petition interest is allowed in
such proceeding) before the Holders will be entitled to receive any payment
with respect to the Senior Debentures; 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 (i) securities that are
subordinated at least to the same extent as the Senior Debentures to Senior
Debt and any securities issued in exchange for Senior Debt that have a
maturity no earlier than that of the Senior Debentures and (ii) payments of
the Escrow Fund).
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ACC also may not make any payment upon or in respect of the Senior
Debentures (except in such subordinated securities or from the Escrow Fund) 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
Debentures 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 further requires that ACC promptly notify the holders of
Senior Debt if payment of the Senior Debentures 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, 1995, after giving
pro forma effect to the sale of the Debentures (and the application of the net
proceeds thereof), the principal amount of Senior Debt outstanding would have
been approximately $1.1 million. The Indenture limits, subject to certain
financial tests, the amount of additional Debt, including Senior Debt, that
ACC and its Restricted Subsidiaries may incur. See "--Certain Covenants--
Limitations on Incurrence of Debt and Issuance of Preferred Stock."
"Designated Senior Debt" means (i) so long as any Senior Bank Debt is
outstanding, the Senior Bank Debt and (ii) thereafter, any other Senior Debt
permitted under the Indenture, the 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 New
Senior Credit Agreement, 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 Debentures, (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 11 1/2% Debentures, which
shall rank pari passu in right of payment with the Senior Debentures.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants discussed
below.
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LIMITATIONS ON INCURRENCE OF DEBT AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that ACC will not, and will not permit any of its
Restricted Subsidiaries to, (i) directly or indirectly, create, incur, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Debt (including
Acquired Debt) or (ii) issue any shares of preferred stock; provided, however,
that ACC may (a) issue preferred stock that is not Disqualified Stock at any
time and (b) incur Debt (including Acquired Debt) or issue shares of
Disqualified Stock if, in each case, the Debt to Operating Cash Flow Ratio of
ACC and its Restricted Subsidiaries at the time of the incurrence of such Debt
or the issuance of such shares of Disqualified Stock, after giving pro forma
effect thereto, is 7:1 or less; provided further, that any such Debt incurred
by ACC that is not Senior Debt shall have a Weighted Average Life to Maturity
no shorter than the Weighted Average Life to Maturity of the Exchange
Debentures.
The foregoing limitations do not apply to the incurrence of any of the
following (collectively, "Permitted Debt"):
(i) revolving credit Debt of ACC under the New Senior Credit Agreement
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 that
provides that any such Debt of ACC is subordinated to the Senior
Debentures; 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 11 1/2% Debentures;
(iv) Debt represented by the Senior Debentures;
(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;
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(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,
(b) the Debt incurred does not have an average life shorter than the
average life of the Debt being so exchanged, refinanced or refunded and (c)
if applicable, the Debt incurred ranks as subordinated in right of payment
to the Senior Debentures as the Debt being so exchanged, refinanced or
refunded.
The Indenture also provides that ACC will not permit any of its Unrestricted
Subsidiaries to incur Debt that would be recourse to ACC or any Restricted
Subsidiary or any of their respective assets.
LIMITATIONS ON RESTRICTED PAYMENTS
The Indenture provides that ACC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, (i) declare or pay any
dividend on, or make any payment 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
Debentures; 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 do not prohibit:
(w) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(x) any transaction with an officer or director of ACC entered into in
the ordinary course of business (including compensation or employee benefit
arrangements with any officer or director of ACC);
(y) the payment of preferred dividends on, or liquidation preference in
redemption or repurchase of, shares of Series A Preferred Stock outstanding
on the date of the Indenture payable pursuant to the provisions applicable
to such Series A Preferred Stock as in effect on the date of the Indenture;
and
(z) the payment of any dividend by a Majority Owned Subsidiary to holders
of its Capital Stock.
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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.
Not later than the date of making any Restricted Payment, ACC shall deliver to
the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant described above under the caption "--Limitations on Restricted
Payments" were computed, which calculations may be based upon ACC's latest
available financial statements.
LIMITATIONS ON OTHER SUBORDINATED DEBT
The Indenture provides that ACC will not incur or permit to remain
outstanding any Debt that is subordinated or junior in right of payment to any
Senior Debt and senior in any respect in right of payment to the Senior
Debentures.
LIMITATIONS ON LIENS SECURING SUBORDINATED DEBT
The Indenture provides that ACC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien securing Debt that is pari passu with or subordinated
in right of payment to the Senior Debentures (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 Debentures 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 Debentures) the obligation or liability
secured by such Lien.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
The Indenture provides that ACC will not, and will not permit any of its
Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into, amend or make any contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction
is on terms that are no less favorable to ACC or the relevant Restricted
Subsidiary than those that would be obtained in a comparable transaction with
an unrelated Person and (ii) ACC delivers to the Trustee (a) with respect to
any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a resolution of
ACC's Board of Directors set forth in an Officers' Certificate certifying that
such Affiliate Transaction complies with clause (i) above and that such
Affiliate Transaction has been approved by a majority of the members of ACC's
Board of Directors and (b) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess
of $5.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an investment
banking firm of national standing. Notwithstanding the foregoing, each of the
following 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, (6) payments made to 78 inc.
pursuant to the 78 inc. Agreements that constitute the reimbursement at or
less than cost on an annual basis (as determined by a resolution of ACC's
Board of Directors set forth in an Officers'
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Certificate delivered to the Trustee) for services received by ACC or a
Restricted Subsidiary consistent with past practices and (7) Restricted
Payments permitted under the covenant described above under the caption "--
Limitations on Restricted Payments" and any Permitted Investment.
LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that ACC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other
distributions to ACC or any of its Restricted Subsidiaries (1) on its Capital
Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any Debt owed to ACC or any of its
Restricted Subsidiaries, (ii) make loans or advances to ACC or any of its
Restricted Subsidiaries or (iii) transfer any of its properties or assets to
ACC or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (A) Debt existing on 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.
LIMITATIONS ON ASSET SALES
The Indenture provides that ACC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, engage in any Asset Sale
unless (i) ACC (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Capital Stock
issued or sold or otherwise disposed of and (ii) at least 85% of the
consideration therefor received by ACC or such Restricted Subsidiary is in the
form of cash or Cash Equivalents; provided, however, that ACC (or the
Restricted Subsidiary, as the case may be) may receive Permitted Asset Sale
Consideration in lieu of cash or Cash Equivalents if ACC and its Restricted
Subsidiaries could incur, on a 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 11 1/2%
Debentures in accordance with the provisions of the indenture governing the 11
1/2% 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 Debentures 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
Debentures 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
Debentures 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
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Senior Debentures and Pari Passu Debt surrendered exceeds the amount of Excess
Proceeds, the Trustee is required to select the Senior Debentures and Pari
Passu Debt to be purchased on a pro rata basis, based upon the principal
amount (or accreted value, as applicable) thereof surrendered in such Asset
Sale Offer. Upon completion of such offer to purchase, the amount of Excess
Proceeds will be reset at zero.
LIMITATIONS ON MERGER, CONSOLIDATION OR SALE OF SUBSTANTIALLY ALL ASSETS
The Indenture provides that ACC may not consolidate or merge with or into
any other Person (whether or not ACC is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets (determined on a consolidated basis for ACC
and its Restricted Subsidiaries) in one or more related transactions, to
another corporation, Person or entity (other than the merger of a Wholly Owned
Restricted Subsidiary of ACC into another Wholly Owned Restricted Subsidiary
of ACC or into ACC) unless (i) ACC is the surviving corporation or the entity
or the Person formed by or surviving any such consolidation or merger (if
other than ACC) or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia, (ii) the entity or Person formed by or surviving any
such consolidation or merger (if other than ACC) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all of the obligations of ACC under the Exchange
Debentures and the Indenture pursuant to a supplemental indenture and the
Pledge and Escrow Agreement 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
transaction and after giving pro forma effect thereto, be permitted to incur
at least $1.00 of additional Debt (other than Permitted Debt) pursuant to the
covenant described above under the caption "--Limitations on Incurrence of
Debt and Issuance of Preferred Stock."
EVENTS OF DEFAULT
The Indenture provides that each of the following constitutes an Event of
Default: (i) the failure by ACC to pay interest on any of the Senior
Debentures 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 Debentures 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 Debentures then
outstanding; (iv) the failure by ACC to comply with any of its other
agreements or covenants in the Senior Debentures 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 Debentures 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 comply with the provisions of
the Pledge and Escrow Agreement. The Indenture will provide that the Trustee
must, within 90 days after the occurrence of a Default or
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Event of Default, give to the Holders of the Senior Debentures 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 Debenture,
the Trustee may withhold such notice if a committee of its Responsible
Officers in good faith determines that the withholding of such notice is in
the interest of the Holders. The Indenture provides that ACC is required to
furnish annually to the Trustee a certificate as to its compliance with the
terms of the Indenture.
RIGHTS UPON DEFAULT
The Trustee or the Holders of not less than 25% in aggregate principal
amount of Senior Debentures 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 Debentures 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 Debentures 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 Debentures 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
Debenture held by a non-consenting Holder, or a Default or Event of Default
with respect to a provision that cannot be modified or amended without the
consent of the Holder of each outstanding Senior Debenture affected. Subject
to the provisions of the Indenture relating to the duties of the Trustee, the
Trustee may refuse to perform any duty or exercise any right or power unless
it receives indemnity satisfactory to it against any loss, liability or
expense. Subject to all provisions of the Indenture and applicable law, the
Holders of a majority in principal amount of the Senior Debentures then
outstanding have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred on the Trustee.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of 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 Debentures
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 Debentures. If an Event
of Default occurs prior to November 30, 2002 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 Debentures
prior to November 30, 2002, 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 Debentures.
A Holder of a Debenture may pursue a remedy with respect to the Indenture or
the Debentures only if (i) the Holder of a Debenture 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 Debentures make a written
request to the Trustee to pursue the remedy; (iii) such Holder of Debenture or
Holders of Debentures 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 Debentures 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 Debentures 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 Debenture waives and releases
all such liability; such waiver and release are part of the
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consideration for issuance of the Exchange Debentures. 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 Debentures 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 Debenture selected for redemption or any Debenture for a period of
15 Business Days before a selection of such Senior Debenture to be redeemed.
The registered Holder of a Senior Debenture 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 Debentures may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Senior Debentures
then outstanding (including, without limitation, consents obtained in
connection with a purchase of or tender offer or exchange offer for Senior
Debentures), and any existing default or compliance with any provision of the
Indenture or the Senior Debentures may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Senior
Debentures (including, without limitation, consents obtained in connection
with a purchase of or tender offer or exchange offer for Senior Debentures).
The Indenture contains provisions permitting ACC and the Trustee, with the
consent of the Holders of not less than a majority in aggregate principal
amount of the Senior Debentures then outstanding, to amend or supplement the
Indenture or any supplemental indenture or the rights of the Holders of Senior
Debentures; provided that no such modification may, without the consent of
each Holder of such Senior Debentures affected thereby; (i) reduce the
principal amount of Senior Debentures 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 Debenture; (iii) reduce the principal of
or extend the fixed maturity of any Senior Debenture or alter the optional or
mandatory redemption provisions (including the purchase price specified for
any offers to purchase Senior Debentures pursuant to the "Limitations on Asset
Sales" covenant or the "Change of Control" covenant requiring redemption) with
respect thereto; (d) waive a Default in the payment of the principal of,
premium, if any, or interest on any Senior Debenture; (v) make any Senior
Debenture payable in money other than that stated in any Senior Debenture; 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
Debentures, ACC and the Trustee may amend or supplement the Indenture or the
Senior Debentures to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Senior Debentures in addition to or in place of
certificated Senior Debentures, to provide for the assumption of ACC's
obligations to Holders of Senior Debentures 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 Debentures 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 Debentures ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Senior
Debentures to receive payments in respect of the principal of, premium, if
any, and interest on such Senior Debentures when such payments are due from
the trust referred to below, (ii) ACC's obligations with respect to the Senior
Debentures concerning issuing temporary Senior Debentures, registration of
Senior Debentures, mutilated, destroyed, lost or stolen Senior Debentures 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
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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
Debentures. 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 Debentures.
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 Debentures, 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 Debentures on the stated maturity date or on the
applicable redemption date, as the case may be, and ACC must specify whether
the Senior Debentures 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
Debentures 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 Debentures will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the
Indenture) to which ACC or any of its Restricted Subsidiaries is a party or by
which ACC or any of its Restricted Subsidiaries is bound; (vi) ACC must have
delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) ACC must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by ACC
with the intent of preferring the Holders of Senior Debentures 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 Debentures 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
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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
Debentures 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
Debentures 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 Debentures will initially be represented by a single, permanent
global Exchange Debenture, in definitive, fully registered form without
interest coupons (the "Global Exchange Debenture") 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 Debenture will be subject to certain
restrictions on transfer set forth therein and in the Indenture.
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 Debenture, DTC or its custodian
will credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Exchange Debenture
to the accounts of persons who have accounts with DTC. Ownership of beneficial
interests in the Global Exchange Debenture 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
Debenture 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 Debenture, DTC or such nominee, as the case may be, will be
considered the sole record owner or holder of the Exchange Debenture
represented by such Global Exchange Debenture for all purposes under the
Indenture and the Exchange Debentures. Beneficial owners of Exchange
Debentures evidenced by the Global Exchange Debenture
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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 Debenture 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 Debenture 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 Debenture
will be able to transfer that interest except in accordance with DTC's
applicable procedures, in addition to those provided for under the Indenture.
Neither the Company nor the Trustee will be liable for any delay by the
Global Debenture Holder or the Depositary in identifying the beneficial owners
of Exchange Debentures and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the Global
Debenture Holder or the Depositary for all purposes.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Debenture may, upon request to the Trustee, exchange such
beneficial interest for Exchange Debentures in the form of certificated
securities. Upon any such issuance, the Trustee is required to register such
certificated securities in the name of, and cause the same to be delivered to,
such person or persons (or the nominee of any thereof). If (i) the Company
notifies the Trustee in writing that the Depositary is no longer willing or
able to act as a depositary and the Company is unable to locate a qualified
successor within 90 days or (ii) the Company, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Exchange Debentures
in the form of certificated securities, under the Indenture, then, upon
surrender by the Global Debenture Holder of its Global Debenture, Exchange
Debentures in such form will be issued to each person that the Global
Debenture Holder and the Depositary identify as being the beneficial owner of
the related Exchange Debentures.
Payments of the principal of, premium, if any, and interest on the Global
Exchange Debenture 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 Debenture 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 Debenture
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial ownership interests in the principal amount of
such Global Exchange Debenture, 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 Debenture 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 Debentures requires
physical delivery of certificated Exchange Debentures for any reason,
including to sell Exchange Debentures to persons in states that require such
delivery of such Exchange Debentures or to pledge such Exchange Debentures,
such owner must transfer its interest in the Global Exchange Debenture, in
accordance with the normal procedures of DTC and the procedures set forth in
the Indenture.
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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 Debenture may, upon request to the Trustee, exchange such
beneficial interest for Exchange Debentures in certificated form
("Certificated Exchange Debentures"). Upon any such issuance, the Trustee is
required to register such Certificated Exchange Debentures in the name of, and
cause the same to be delivered to, such person or persons (or the nominee of
any thereof). If DTC is at any time unwilling or unable to continue as a
depositary for the Global Exchange Debenture and a successor depositary is not
appointed by ACC within 90 days, ACC will issue Certificated Exchange
Debentures in exchange for the Global Exchange Debenture.
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), 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
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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
National Bank, (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 National Bank Eurodollar Deposits, each
with a stated maturity the duration of which shall not exceed two years, (f)
Riggs National Bank Repurchase Agreements, each with a stated maturity the
duration of which shall not exceed two years, (g) Riggs National Bank Bankers
Acceptances, each with a stated maturity the duration of which shall not
exceed two years, (h) Riggs National Bank 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.
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"Debt" of any Person as of any date means and includes, without duplication,
(a) all indebtedness of such Person, contingent or otherwise, in respect of
borrowed money, including all interest, fees and expenses owed with respect
thereto (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments, or representing the deferred and
unpaid balance of the purchase price of any property or interest therein,
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 that, 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 Debentures or the date on which no Exchange Debentures remain
outstanding.
"11 1/2% Debentures" means the $125.0 million 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.
"Harrisburg Acquisition" means the consummation of the transactions
contemplated by the Asset Purchase Agreement dated as of October 12, 1995
between ACC and WHTM-TV, Inc., as amended; provided, however, that any such
amendment is not materially adverse to the interests of the Holders.
"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.
"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
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percentage of the common equity of such Restricted Subsidiary that is owned,
directly or indirectly, by ACC shall be added to the Consolidated Net Income
of ACC and its Restricted Subsidiaries in determining Operating Cash Flow of
ACC and its Restricted Subsidiaries.
"Pari Passu Debt" means Debt that ranks pari passu in right of payment with
the Exchange Debentures.
"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 Debentures, (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
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claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently conducted;
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor, (i) Liens incidental to
the conduct of the business of ACC or any Restricted Subsidiary that are not
incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of
business) and do not in the aggregate materially detract from the value of the
property or materially impair the use thereof in the operation of business by
ACC or such Restricted Subsidiary, and (j) Liens to secure any extension,
renewal, refinancing or refunding (or successive extensions, renewals,
refinancings or refundings), in whole or in part, of any Debt secured by any
Liens referred to in the foregoing clauses (a) through (i) above, provided
that, in the case of clauses (c), (d), (e) and (g), such Lien is limited to
all or part of the specific property securing the original Lien and the
principal amount of such Debt is not increased except as permitted under the
provisions of the Indenture.
"Perpetual" means Perpetual Corporation, the indirect corporate parent of
ACC.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, 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).
"Pledge and Escrow Agreement" means the Pledge, Escrow and Assignment
Agreement dated as of February 6, 1996 between ACC and the Trustee.
"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 or other voting
equity interests.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of February 6, 1996 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 the Robert Lewis Allbritton 1984 Trust 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.
"Series A Preferred Stock" means the Series A preferred stock of ACC, par
value $1.00 per share.
"78 inc. Agreements" means (a) that certain Representation Agreement dated
as of July 1, 1995 between 78 inc. and WJLA-TV, a division of ACC, and (b)
that certain Sublease Agreement dated as of July 1, 1995 between 78 inc. and
WJLA-TV, a division of ACC, each as in effect on the date of the Indenture.
"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.
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"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, 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).
"Tuscaloosa Acquisition" means the consummation of the transactions
contemplated by the Asset Purchase Agreement dated as of December 19, 1995 by
and among Federal Broadcasting Company, WCFT License Subsidiary, Inc. and ACC,
as amended; provided, however, that any such amendment is not materially
adverse to the interests of the Holders.
"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," 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 and WJSU 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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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Debentures 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 Debentures. 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 Debentures
received in exchange for Debentures where such Debentures 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 August 5, 1996,
all dealers effecting transactions in the Exchange Debentures may be required
to deliver a prospectus.
ACC will not receive any proceeds from any sales of the Exchange Debentures
by broker-dealers. Exchange Debentures 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 Debentures 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 Debentures. Any broker-dealer that resells the Exchange Debentures
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
Debentures may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Debentures 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
Debentures (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 Debentures 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 Debentures.
LEGAL MATTERS
The validity of the Exchange Debentures being offered hereby has been passed
upon for ACC by Fulbright & Jaworski L.L.P., Washington, D.C.
115
<PAGE>
EXPERTS
The consolidated financial statements of Allbritton Communications Company
as of September 30, 1994 and 1995 and for each of the three years in the
period ended September 30, 1995 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.
The financial statements of WHTM-TV, Inc. as of December 31, 1994 and 1995
and for the periods from January 1, 1994 through September 16, 1994 and from
September 17, 1994 through December 31, 1994 and for the year ended December
31, 1995, included in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The consolidated financial statements of Smith Acquisition Corp. for the
year ended December 31, 1993 appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The combined balance sheets of WCFT-TV as of December 31, 1994 and 1995 and
the combined statements of revenues and certain expenses, equity, and cash
flows for the years then ended included in this prospectus have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The financial statements of RKZ Television, Inc. as of December 31, 1994 and
1995 and for the years then ended appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
116
<PAGE>
SCHEDULE II
ALLBRITTON COMMUNICATIONS COMPANY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
BALANCE AT CHARGED BALANCE AT
BEGINNING TO COSTS CHARGED TO END OF
CLASSIFICATION OF PERIOD AND EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD
-------------- ---------- ------------ -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended September 30,
1993:
Allowance for doubtful
accounts............. $ 483,890 $779,000 -- ($568,448)(2) $ 694,442
========== ======== ========== ========= ==========
Year ended September 30,
1994:
Allowance for doubtful
accounts............. $ 694,442 $549,156 -- ($486,448)(2) $ 757,150
========== ======== ========== ========= ==========
Valuation allowance... -- -- $1,534,006(1) ($266,712)(3) $1,267,294
========== ======== ========== ========= ==========
Year ended September 30,
1995:
Allowance for doubtful
accounts............. $ 757,150 $755,300 -- ($444,299)(2) $1,068,151
========== ======== ========== ========= ==========
Valuation allowance... $1,267,294 -- -- ($378,929)(3) $ 888,365
========== ======== ========== ========= ==========
</TABLE>
- --------
(1) Represents valuation allowance established related to state net operating
loss carryforwards of two of the Company's subsidiaries.
(2) Write-off of uncollectible accounts, net of recoveries and collection
fees.
(3) Represents net reduction of valuation allowance relating to state net
operating loss carryforwards of two of the Company's subsidiaries.
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ALLBRITTON COMMUNICATIONS COMPANY
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of September 30, 1994 and 1995 and Decem-
ber 31, 1995 (unaudited)................................................ F-3
Consolidated Statements of Operations and Retained Earnings for the Years
Ended September 30, 1993, 1994 and 1995 and for the Three Months Ended
December 31, 1994 and 1995 (unaudited).................................. F-4
Consolidated Statements of Cash Flows for the Years Ended September 30,
1993, 1994 and 1995
and for the Three Months Ended December 31, 1994 and 1995 (unaudited)... F-5
Notes to Consolidated Financial Statements............................... F-6
WHTM-TV, Inc.
Audited Financial Statements
Report of Independent Public Accountants ................................ F-17
Balance Sheets as of December 31, 1994 and 1995.......................... F-18
Statements of Operations for the Periods From September 17, 1994 to
December 31, 1994
and the Year Ended December 31, 1995.................................... F-19
Statements of Shareholders' Equity for the Periods From September 17,
1994 to December 31, 1994
and for the Year Ended December 31, 1995................................ F-20
Statements of Cash Flows for the Periods From September 17, 1994 to De-
cember 31, 1994
and for the Year Ended December 31, 1995................................ F-21
Notes to Financial Statements............................................ F-22
SMITH ACQUISITION CORP./WHTM-TV, Inc.
Report of Independent Auditors........................................... F-35
Report of Independent Public Accountants................................. F-36
Consolidated Statements of Operations for the Year Ended December 31,
1993
and for the Period from January 1, 1994 to September 16, 1994........... F-37
Consolidated Statements of Shareholders' Equity for the Year Ended
December 31, 1993
and for the Period from January 1, 1994 to September 16, 1994........... F-38
Consolidated Statements of Cash Flows for the Year Ended December 31,
1993
and for the Period from January 1, 1994 to September 16, 1994........... F-39
Notes to Consolidated Financial Statements............................... F-40
WCFT-TV (a division of Federal Broadcasting Company)
Report of Independent Accountants........................................ F-48
Combined Balance Sheets as of December 31, 1994 and 1995................. F-49
Combined Statements of Revenues and Certain Expenses for the Years Ended
December 31,
1994 and 1995........................................................... F-50
Combined Statements of Federal Broadcasting Company's Equity for the
Years Ended December 31, 1994 and 1995 ................................. F-51
Combined Statements of Cash Flows for the Years Ended December 31, 1994
and 1995 ............................................................... F-52
Notes to Combined Financial Statements .................................. F-53
RKZ TELEVISION, INC.
Report of Independent Auditors........................................... F-58
Balance Sheets as of December 31, 1994 and 1995 ......................... F-59
Statements of Income and Retained Earnings (Deficit) for the Years Ended
December 31, 1994
and 1995................................................................ F-60
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995.. F-61
Notes to Financial Statements............................................ F-63
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
Allbritton Communications Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Allbritton
Communications Company (a wholly-owned subsidiary of Perpetual Corporation) at
September 30, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1995, 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.
As discussed in Notes 1, 5 and 8 to the consolidated financial statements,
the Company changed its method of accounting for income taxes on October 1,
1993 and its method of accounting for nonpension postretirement benefits on
October 1, 1992.
Price Waterhouse LLP
Washington, D.C.
November 20, 1995, except as to the Contribution described in Note 1 which is
as of March 1, 1996
F-2
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------- -------------
1994 1995 1995
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........ $ 2,762,840 $ 3,815,952 $ 2,617,817
Accounts receivable, less
allowance for doubtful accounts
of $757,150, $1,068,151 and
$1,150,759...................... 22,741,072 26,551,962 33,480,774
Program rights................... 11,743,545 13,593,681 10,064,902
Deferred income taxes............ 1,055,681 1,221,651 1,208,943
Interest receivable from related
parties......................... 491,556 491,556 1,044,556
Other............................ 2,920,970 1,816,731 1,322,168
------------- ------------- -------------
Total current assets............ 41,715,664 47,491,533 49,739,160
Property, plant and equipment,
net.............................. 21,821,294 21,910,903 21,723,292
Intangible assets, net............ 21,578,976 20,597,792 30,360,762
Deferred financing costs and oth-
er............................... 4,297,191 4,296,476 6,238,846
Deferred income taxes............. 1,114,675 1,061,559 1,178,434
Cash surrender value of life in-
surance.......................... 2,642,681 3,332,772 3,155,732
Program rights.................... 908,201 913,933 806,811
------------- ------------- -------------
$ 94,078,682 $ 99,604,968 $ 113,203,027
============= ============= =============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDER'S INVESTMENT
Current liabilities
Notes payable.................... $ 6,722,380 $ 7,972,380 $ 21,972,380
Accounts payable................. 3,000,815 2,608,185 3,988,907
Accrued interest payable......... 4,416,191 4,474,850 6,255,888
Program rights payable........... 12,870,059 16,565,217 13,858,497
Accrued employee benefit ex-
penses.......................... 2,485,360 2,156,487 2,200,618
Other accrued expenses........... 3,744,834 3,470,961 3,899,805
Capital lease obligations ....... -- 196,039 199,360
------------- ------------- -------------
Total current liabilities....... 33,239,639 37,444,119 52,375,455
Long-term debt.................... 192,750,861 189,819,721 187,419,704
Program rights payable............ 952,383 975,006 877,050
Deferred rent and other........... 2,348,920 2,482,815 2,648,501
Capital lease obligations ........ -- 931,230 872,644
Accrued employee benefit ex-
penses........................... 1,580,115 1,662,793 1,686,440
------------- ------------- -------------
Total liabilities............... 230,871,918 233,315,684 245,879,794
------------- ------------- -------------
Series A redeemable preferred
stock, $1 par value, 200 shares
authorized, 105 shares issued and
outstanding; redemption value
$168,000 ($1,600 per share)...... 168,000 168,000 168,000
------------- ------------- -------------
Stockholder's investment
Preferred stock, $1 par value,
800 shares authorized, none is-
sued............................ -- -- --
Common stock, $.05 par value,
20,000 shares authorized, issued
and outstanding................. 1,000 1,000 1,000
Capital in excess of par value... 6,955,414 6,955,414 6,955,414
Retained earnings................ 43,077,200 62,940,072 69,040,092
Distributions to owners, net
(Note 6)........................ (186,994,850) (203,775,202) (208,841,273)
------------- ------------- -------------
Total stockholder's investment.. (136,961,236) (133,878,716) (132,844,767)
------------- ------------- -------------
Commitments and contingent liabil-
ities (Note 9)...................
------------- ------------- -------------
$ 94,078,682 $ 99,604,968 $ 113,203,027
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------- ------------------------
1993 1994 1995 1994 1995
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenues,
net.................... $109,867,381 $125,830,196 $138,151,244 $39,770,358 $38,382,079
------------ ------------ ------------ ----------- -----------
Television operating
expenses, excluding
depreciation and
amortization........... 65,532,360 67,745,239 75,199,257 18,704,445 21,192,553
Depreciation and amorti-
zation................. 5,771,289 5,122,271 4,752,186 1,318,667 1,274,357
Corporate expenses...... 3,231,307 4,249,418 3,752,556 794,159 828,631
------------ ------------ ------------ ----------- -----------
74,534,956 77,116,928 83,703,999 20,817,271 23,295,541
------------ ------------ ------------ ----------- -----------
Operating income........ 35,332,425 48,713,268 54,447,245 18,953,087 15,086,538
------------ ------------ ------------ ----------- -----------
Nonoperating income (ex-
pense)
Interest income
Related party....... 2,267,332 2,212,000 2,212,000 559,144 552,999
Other............... 140,309 80,134 126,269 26,756 31,956
Interest expense...... (22,336,359) (22,303,079) (22,708,243) (5,038,566) (5,666,882)
Other, net............ (555,729) 1,230,141 (233,503) (97,175) (90,879)
------------ ------------ ------------ ----------- -----------
(20,484,447) (18,780,804) (20,603,477) (4,549,841) (5,172,806)
------------ ------------ ------------ ----------- -----------
Income before income
taxes, extraordinary
items and cumulative
effect of changes in
accounting............. 14,847,978 29,932,464 33,843,768 14,403,246 9,913,732
Provision for income
taxes.................. 7,261,489 12,572,264 13,934,672 6,023,102 3,813,712
------------ ------------ ------------ ----------- -----------
Income before
extraordinary items and
cumulative effect of
changes in accounting.. 7,586,489 17,360,200 19,909,096 8,380,144 6,100,020
Extraordinary gain on
utilization of state
income tax operating
loss carryforwards..... 593,412 -- -- -- --
Extraordinary gain on
utilization of income
tax operating loss
carryback in District
of Columbia, net of
federal tax expense of
$459,046............... 891,088 -- -- -- --
Cumulative effect of
change in accounting
for nonpension
postretirement
benefits............... (523,000) -- -- -- --
Cumulative effect of
change in accounting
for income taxes....... -- 3,149,623 -- -- --
------------ ------------ ------------ ----------- -----------
Net income.............. 8,547,989 20,509,823 19,909,096 8,380,144 6,100,020
Retained earnings,
beginning of period.... 14,061,165 22,609,154 43,077,200 43,077,200 62,940,072
Tax benefit
distributed............ -- (41,777) (46,224) -- --
------------ ------------ ------------ ----------- -----------
Retained earnings, end
of period.............. $ 22,609,154 $ 43,077,200 $ 62,940,072 $51,457,344 $69,040,092
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------- ------------------------
1993 1994 1995 1994 1995
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income............. $ 8,547,989 $ 20,509,823 $ 19,909,096 $ 8,380,144 $ 6,100,020
------------ ------------ ------------ ----------- -----------
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and amor-
tization.............. 5,771,289 5,122,271 4,752,186 1,318,667 1,274,357
Other noncash
charges............... 416,963 476,482 426,764 106,691 103,850
Provision for doubtful
accounts.............. 779,000 549,156 755,300 104,900 110,800
Loss (gain) on dis-
posal of assets....... 69,939 (1,755,826) (190,476) (37,309) 641
Changes in assets and
liabilities:
(Increase) decrease
in assets:
Accounts receivable.. (2,742,282) (3,208,030) (4,566,190) (6,849,122) (7,039,612)
Program rights....... (1,403,515) 263,597 (1,855,868) 3,086,545 3,635,901
State income taxes
receivable.......... (810,375) 982,788 -- -- --
Interest receivable
from related par-
ties................ (546,746) 55,190 -- (559,144) (553,000)
Other current as-
sets................ (341,598) (899,317) 1,104,238 957,289 494,563
Other noncurrent as-
sets................ (2,170,592) (873,093) (1,074,900) (161,025) (1,861,734)
Deferred income tax-
es.................. -- (2,170,356) (112,854) 108,428 (104,167)
Increase (decrease)
in liabilities:
Accounts payable..... 268,154 261,100 (392,630) (137,089) 1,380,722
Accrued interest pay-
able................ 2,259,337 13,207 58,659 1,736,972 1,781,038
Program rights pay-
able................ 2,280,888 (1,822,395) 3,717,781 (2,104,364) (2,804,676)
Accrued employee ben-
efit expenses....... 1,344,908 188,133 (246,195) (771,210) 67,778
Other accrued ex-
penses.............. (1,512,722) 740,301 (273,873) 988,501 428,844
Deferred rent and
other liabilities .. 319,898 (165,741) 133,895 31,522 165,686
------------ ------------ ------------ ----------- -----------
Total adjustments.... 3,982,546 (2,242,533) 2,235,838 (2,179,748) (2,919,009)
------------ ------------ ------------ ----------- -----------
Net cash provided by
operating activities
.................... 12,530,535 18,267,290 22,144,934 6,200,396 3,181,011
------------ ------------ ------------ ----------- -----------
Cash flows from invest-
ing activities:
Capital expenditures... (1,972,069) (3,263,827) (2,776,575) (774,336) (874,775)
Purchase of Anniston
Option................ -- -- -- -- (10,000,000)
Proceeds from disposal
of assets............. 38,793 1,843,468 233,709 48,108 24,428
------------ ------------ ------------ ----------- -----------
Net cash used in in-
vesting activities.. (1,933,276) (1,420,359) (2,542,866) (726,228) (10,850,347)
------------ ------------ ------------ ----------- -----------
Cash flows from financ-
ing activities:
Draws under lines of
credit, net........... -- 4,500,000 500,000 1,500,000 13,000,000
Principal payments on
long-term debt and
capital leases........ (2,222,380) (2,222,380) (2,222,380) (1,032,462) (1,462,728)
Distributions to own-
ers, net of certain
charges............... (28,177,173) (32,432,841) (30,922,131) (4,882,219) (7,366,071)
Repayments of distribu-
tions to owners ...... 11,434,666 13,218,575 13,416,779 -- 2,300,000
Issuance of notes re-
ceivable to related
parties............... (1,135,000) -- -- -- --
Repayments of notes re-
ceivable from related
parties............... 307,250 73,000 725,000 -- --
Tax benefit distribut-
ed.................... -- (41,777) (46,224) -- --
------------ ------------ ------------ ----------- -----------
Net cash used in
(provided by) fi-
nancing activities.. (19,792,637) (16,905,423) (18,548,956) (4,414,681) 6,471,201
------------ ------------ ------------ ----------- -----------
Net (decrease) increase
in cash and cash equiv-
alents................. (9,195,378) (58,492) 1,053,112 1,059,487 (1,198,135)
Cash and cash equiva-
lents, beginning of pe-
riod................... 12,016,710 2,821,332 2,762,840 2,762,840 3,815,952
------------ ------------ ------------ ----------- -----------
Cash and cash equiva-
lents, end of period... $ 2,821,332 $ 2,762,840 $ 3,815,952 $ 3,822,327 $ 2,617,817
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1994 AND 1995
IS UNAUDITED.)
NOTE 1--THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Allbritton Communications Company (the Company) is a wholly-owned subsidiary
of Perpetual Corporation (Perpetual), a Delaware corporation, which is wholly-
owned by Mr. Joe L. Allbritton. The Company owns and operates five network
affiliate television stations which include WJLA-TV in Washington, D.C., KATV
Television, Inc. (KATV) in Little Rock, Arkansas, KTUL Television, Inc. (KTUL)
in Tulsa, Oklahoma, WSET, Incorporated (WSET) in Lynchburg, Virginia and First
Charleston Corp. (WCIV) in Charleston, South Carolina. The Company acquired
WJLA-TV in 1976 and KATV and KTUL in 1983. The common stock of WSET and WCIV,
which was formerly held by Westfield News Advertiser, Inc. (Westfield), which
is 100% owned by Mr. Joe L. Allbritton, 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 owned
indirectly 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. The
Company also engages in various activities relating to the production and
distribution of television programming through its two wholly-owned
subsidiaries, Allbritton Television Productions, Inc. (ATP) and Allbritton
News Bureau.
Subsequent to September 30, 1995, the Company entered into asset purchase
agreements for two television stations. The aggregate purchase price under
such agreements is $133,000,000. On December 29, 1995, the Company began
operating another television station under a license management agreement
(LMA) and paid $10,000,000 for an option (Anniston Option) to purchase the
assets of this television station. See Note 11.
Advertising revenues and trade accounts receivable--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. Revenues applicable to commercial
advertising availabilities "traded" to advertisers in exchange for equipment,
merchandise or services are recorded at the estimated fair market value of the
equipment, merchandise or services received. Such revenues are recognized over
the lives of the contracts as the advertising is broadcast, and the fair
market value of the equipment, merchandise or services is recorded as an asset
when received. The amounts related to trades during the three years ended
September 30, 1995 are not material to the consolidated financial statements.
Cash and cash equivalents--For purposes of the statement of cash flows, the
Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Program rights--The Company and its broadcast subsidiaries have entered into
program rental contracts which generally provide for rentals to be paid in
installments. 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 a twelve month 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.
Property, plant and equipment--Property, plant and equipment are recorded at
cost and depreciated over the estimated useful lives of the assets.
Maintenance and repair expenditures are charged to expense as incurred and
expenditures for modifications and improvements which increase the expected
useful lives of the assets are capitalized. Depreciation expense is computed
using the straight-line method for buildings and straight-line and accelerated
methods for furniture, machinery and equipment and equipment under capital
leases. Leasehold improvements are amortized using the straight-line method
over the lesser of the term of the related lease or the
F-6
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
estimated useful lives of the assets. The useful lives of property, plant and
equipment for purposes of computing depreciation and amortization expense are:
<TABLE>
<S> <C>
Buildings...................................................... 15-45 years
Leasehold improvements......................................... 5-15 years
Furniture, machinery and equipment and equipment under capital
leases........................................................ 3-20 years
</TABLE>
Intangible assets--Intangible assets consist principally of values assigned
to broadcast licenses and network affiliations, favorable terms on contracts
and leases and the Anniston Option. The values assigned to broadcast licenses
and network affiliations are amortized on a straight-line basis over 40 years,
the premiums for the favorable terms on the contracts and leases are amortized
on a straight-line basis over the lives of the related contracts and leases
(19 to 25 years), and the Anniston Option is amortized over 10 years, the term
of the Anniston Option and the associated LMA. The Company assesses the
recoverability of intangible assets on an ongoing basis by comparing carrying
values with projected undiscounted cash flows from operations over the
remaining amortization periods. Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," effective for the Company beginning with
its fiscal year ending September 30, 1997, is not expected to have a material
impact on the Company's consolidated financial statements.
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, 1995 had an overnight repurchase agreement with a financial
institution for $3,658,000. Concentrations of credit risk with respect to
receivables from advertisers are limited due to the Company's advertising base
consisting of large national advertising agencies and strong 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--Prior to the Contribution, the operations of the Company and
its subsidiaries were included in a consolidated federal income tax return
filed by Perpetual, while the operations of WSET and WCIV were included in a
consolidated federal income tax return filed by Westfield. In accordance with
the terms of a tax sharing agreement between ACC and Perpetual, the Company
was 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 were not reduced by
losses generated in prior years by the Company. In addition, the amount
payable by the Company and its subsidiaries as a group to Perpetual under the
tax sharing agreement was not reduced if losses of other members of the
Perpetual group were utilized to offset taxable income of the Company and its
subsidiaries as a group for purposes of the Perpetual consolidated federal
income tax return. In accordance with the terms of tax sharing agreements
between Westfield and WSET and WCIV, federal income tax liabilities of WSET
and of WCIV were payable to Westfield and were computed based upon statutory
federal income tax rates applied to the entity's taxable income. Federal
income taxes payable to Westfield by either WSET or WCIV were not reduced by
losses generated in prior years by either entity, nor were amounts payable
reduced if losses of Westfield or other members of the Westfield consolidated
group were utilized to offset taxable income of WSET or WCIV for purposes of
the Westfield consolidated federal income tax return.
F-7
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A District of Columbia (D.C.) income tax return is filed by the Company and
separate state income tax returns were filed by the Company's subsidiaries.
The Company and its subsidiaries paid their respective state income tax
liabilities to the applicable state income taxing authorities, except for
WSET. The operations of WSET were included in a combined state income tax
return filed by WSET and an affiliate. WSET's state income tax liability was
payable to Westfield; such amount payable was not reduced if losses of the
affiliate were used to offset the taxable income of WSET for purposes of the
combined state income tax return.
Through September 30, 1993, the Company's policy was to record a provision
for federal and state income taxes based solely on the amounts payable to
Perpetual, Westfield and the state taxing authorities. Accordingly, deferred
income taxes were not recorded for financial statement purposes and no
recognition of benefit was given to taxable losses for federal income tax
purposes. Effective October 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes" (see Note 5), 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. As a result of
the SFAS No. 109 adoption, Perpetual and 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.
The cumulative effect of adopting SFAS No. 109 is included in the consolidated
statement of operations for the year ended September 30, 1994.
For future periods, the operations of WSET and WCIV are expected to be
included in the consolidated federal income tax return filed by Perpetual in
accordance with amended tax sharing agreements made pursuant to the
Contribution. The provision for income taxes included in the accompanying
consolidated financial statements would not differ significantly from the
computations expected to be made subsequent to the Contribution.
Nonpension postretirement benefits--The Company provides certain nonpension
postretirement benefits pursuant to a defined benefit postretirement medical
insurance plan. This plan provides for benefits only to certain employees who
retired from the Company prior to January 1, 1994. On October 1, 1992, the
Company adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (see Note 8), which requires accrual accounting
for such benefits rather than the cash method of accounting which was
previously used by the Company. The cumulative effect of adopting SFAS No. 106
is included in the consolidated statement of operations for the year ended
September 30, 1993.
Earnings per share--Earnings per share data is not presented since the
Company is indirectly wholly-owned by Mr. Joe L. Allbritton.
Unaudited interim financial data--The interim financial data is unaudited,
however, in the opinion of management, the interim data includes 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, 1995 are not necessarily
indicative of the results that can be expected for the entire fiscal year
ending September 30, 1996.
F-8
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
Buildings and leasehold improvements............. $ 14,454,877 $ 14,690,178
Furniture, machinery and equipment............... 60,032,936 62,911,584
Equipment under capital leases................... -- 1,127,269
------------ ------------
74,487,813 78,729,031
Less accumulated depreciation.................... (56,791,876) (59,496,908)
------------ ------------
17,695,937 19,232,123
Land............................................. 2,073,290 2,073,290
Construction-in-progress......................... 2,052,067 605,490
------------ ------------
$ 21,821,294 $ 21,910,903
============ ============
</TABLE>
Depreciation and amortization expense was $4,780,436, $4,131,418 and
$3,771,002 for the years ended September 30, 1993, 1994 and 1995,
respectively, which includes amortization of equipment under capital leases.
During the year ended September 30, 1994, a fire destroyed certain assets at
KATV. The excess of insurance proceeds over the carrying value of the assets
destroyed of $1,765,749 was recorded as a gain and is included in other
nonoperating income in the consolidated statement of operations.
NOTE 3--INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
Broadcast licenses and network affiliations..... $ 28,442,863 $ 28,442,863
Other intangibles............................... 5,869,370 5,869,370
------------ ------------
34,312,233 34,312,233
Less accumulated amortization................... (12,733,257) (13,714,441)
------------ ------------
$ 21,578,976 $ 20,597,792
============ ============
</TABLE>
Amortization expense was $990,853 for each of the years ended September 30,
1993 and 1994 and $981,184 for the year ended September 30, 1995. The amounts
assigned to intangible assets were based on the results of external
valuations. The Company does not separately allocate amounts between broadcast
licenses and network affiliations.
F-9
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT
Outstanding debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
Senior Subordinated Debentures, due August 15,
2004 with interest payable semi-annually at
11.5%, mandatory sinking fund payment of
$62,500,000 due August 15, 2003 and 2004, respec-
tively........................................... $125,000,000 $125,000,000
Secured Promissory Notes, secured by the
outstanding common stock of ACC, KATV, KTUL and
an affiliate, ALLNEWSCO, Inc. (ALLNEWSCO),
security shared ratably and equally with the
Revolving Line of Credit; payable beginning
November 30, 1992 in semi-annual installments of
varying amounts through May 31, 2003, with
interest payable semi-annually at 11.0%.......... 66,500,000 64,750,000
Term loan, secured by furniture and fixtures,
equipment, land and building of WCIV, bearing
interest at the prime rate of the lender (8.75%
at September 30, 1995), principal and interest
due monthly through April 2000................... 3,873,630 3,401,250
Revolving Line of Credit, maximum amount of
$10,000,000, expiring February 11, 1999, secured
by the outstanding stock of ACC, KTUL, KATV, and
ALLNEWSCO, security shared ratably and equally
with the Secured Promissory Notes; due December
31, 1995 with interest payable quarterly at prime
plus 1.5% (10.25% at September 30, 1995)......... 4,500,000 5,000,000
------------ ------------
199,873,630 198,151,250
Less unamortized discount......................... (400,389) (359,149)
------------ ------------
199,473,241 197,792,101
Less current maturities........................... (6,722,380) (7,972,380)
------------ ------------
$192,750,861 $189,819,721
============ ============
</TABLE>
In connection with the issuance of its debt, the Company incurred $4,331,185
in loan fees which are being amortized over the respective lives of the debt
agreements using the straight-line method. Unamortized loan fees of $3,733,852
and $3,348,328 at September 30, 1994 and 1995, respectively, are included in
deferred financing costs and other noncurrent assets in the consolidated
balance sheets. Amortization expense for the years ended September 30, 1993,
1994 and 1995 was $375,723, $435,242 and $385,524, 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.
Future principal maturities are as follows for the years ending September
30:
<TABLE>
<S> <C>
1996............................................................ $ 7,972,380
1997............................................................ 4,972,380
1998............................................................ 8,722,380
1999............................................................ 8,722,380
2000............................................................ 9,761,730
2001 and thereafter............................................. 158,000,000
------------
$198,151,250
============
</TABLE>
F-10
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--INCOME TAXES
The Company adopted SFAS No. 109 on October 1, 1993. The cumulative effect
of adopting SFAS No. 109 was to increase income by $3,149,623, representing
the net deferred tax assets allocated to the Company by Perpetual and
Westfield at October 1, 1993. There was no impact on pretax income from
continuing operations from the adoption of SFAS No. 109. Financial statements
for years prior to the year ended September 30, 1994 were not restated.
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Current
Federal................................ $5,961,550 $10,649,700 $11,748,490
State.................................. 1,299,939 943,297 2,299,036
---------- ----------- -----------
7,261,489 11,592,997 14,047,526
---------- ----------- -----------
Deferred
Federal................................ -- 383,243 (142,795)
State.................................. -- 596,024 29,941
---------- ----------- -----------
-- 979,267 (112,854)
---------- ----------- -----------
$7,261,489 $12,572,264 $13,934,672
========== =========== ===========
</TABLE>
Had the provision for income taxes for the year ended September 30, 1993
been computed in accordance with the separate return method, the provision for
income taxes would have been reduced by approximately $1,000,000.
The components of deferred income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred income tax assets:
State operating loss carryforwards.................. $ 2,539,707 $ 2,098,600
Deferred rent....................................... 1,038,246 1,091,818
Accrued employee benefits........................... 1,029,073 1,009,541
Amortization of intangible assets................... 727,119 380,628
Allowance for accounts receivable................... 319,728 453,790
Other............................................... 95,552 4,798
----------- -----------
5,749,425 5,039,175
Less: valuation allowance........................... (1,267,294) (888,365)
----------- -----------
4,482,131 4,150,810
----------- -----------
Deferred income tax liabilities:
Depreciation........................................ (2,311,775) (1,867,600)
----------- -----------
Net deferred income tax assets........................ $ 2,170,356 $ 2,283,210
=========== ===========
</TABLE>
The net change in the valuation allowance of $378,929 for the year ended
September 30, 1995 results from a reduction in the valuation allowance
associated with increased current and projected taxable income of one of the
Company's subsidiaries offset by an increase in the valuation allowance
related to continued taxable losses of another subsidiary. The valuation
allowance established upon the adoption of SFAS No. 109 of $1,534,006,
decreased $266,712 during the year ended September 30, 1994 as the result of
utilization of certain state net operating loss carryforwards which were
reserved for upon adoption.
F-11
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Certain of the Company's subsidiaries have operating loss carryforwards
available for future use for state income tax purposes. Such carryforwards
approximated $33,949,000 as of September 30, 1995, and expire for state income
tax purposes during the years 2001 through 2010.
During the year ended September 30, 1993, the Company elected to carryback
approximately $17,400,000 of operating losses which were generated during the
year ended September 30, 1992 to recover income taxes paid in D.C. for the
years ended September 30, 1989, 1990 and 1991. The Company had not previously
elected to carryback the 1992 loss. The D.C. income taxes recovered totalled
$1,350,134, before applicable federal income tax expense of $459,046, which is
reflected as an extraordinary gain of $891,088 in the consolidated statement
of operations for the year ended September 30, 1993.
The following table reconciles the statutory federal income tax rate to the
Company's effective income tax rate:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate............... 34.0% 35.0% 35.0%
State income taxes, net of federal income tax
benefit........................................ 4.9 5.2 5.2
Non-deductible expenses, principally certain am-
ortization of intangible assets, keyman life
insurance premiums and meals and entertain-
ment........................................... 3.0 2.0 1.8
Timing differences, principally depreciation,
employee benefits and rent..................... 3.7 -- --
Utilization of D.C. net operating loss
carryforwards.................................. -- (2.8) --
Other, net...................................... 3.3 2.6 (0.8)
-------- -------- --------
Effective income tax rate....................... 48.9% 42.0% 41.2%
======== ======== ========
</TABLE>
The Company's effective income tax rate for the year ended September 30,
1993 was higher than the Company's effective income tax rates for the years
ended September 30, 1994 and 1995 principally as a result of the Company's
method of accounting for income taxes as more fully described in Note 1.
NOTE 6--TRANSACTIONS WITH OWNERS AND RELATED PARTIES
In the ordinary course of business, the Company makes cash advances in the
form of distributions to Perpetual and Westfield. In addition, Westfield has
repaid certain of such advances. 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 to Perpetual and Westfield. 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. The following
summarizes these and certain other transactions with related parties:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, THREE MONTHS
---------------------------------------- ENDED
1993 1994 1995 DECEMBER 31, 1995
------------ ------------ ------------ -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Distributions to owners,
beginning of period.... $150,283,327 $167,853,584 $186,994,850 $203,775,202
Cash advances.......... 34,710,059 43,247,192 42,852,798 10,618,079
Repayment of cash ad-
vances................ (11,434,666) (13,218,575) (13,416,779) (2,300,000)
Charge for income tax-
es.................... (6,532,886) (10,772,574) (11,884,443) (3,252,008)
Issuance of notes re-
ceivable.............. 1,135,000 -- -- --
Repayments of notes re-
ceivable.............. (307,250) (73,000) (725,000) --
Tax benefit distribut-
ed.................... -- (41,777) (46,224) --
------------ ------------ ------------ ------------
Distributions to owners,
end of period.......... $167,853,584 $186,994,850 $203,775,202 $208,841,273
============ ============ ============ ============
Weighted average amount
of non-interest bearing
advances outstanding
during the period...... $164,700,000 $172,800,000 $178,761,000 $187,563,000
============ ============ ============ ============
</TABLE>
F-12
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subsequent to December 31, 1995 and through February 29, 1996, the Company
made additional estimated tax payments and distributions to related parties of
approximately $1,705,000 and $12,233,000, respectively.
Under WSET's tax sharing agreement with Westfield, WSET is permitted to
reduce its taxable income for federal income tax purposes by the amount of its
state income tax liability only when the combined group in the state income
tax return has combined taxable income. During the years ended September 30,
1994 and 1995, an affiliate's losses offset WSET's income for state tax
purposes and accordingly, WSET was required to distribute the federal income
tax benefit of its state income tax expense to Westfield.
In October 1992, ATP issued a series of unsecured promissory notes to
Perpetual totalling $1,135,000, payable in October 1993 with interest at 10%.
At September 30, 1995, the principal amount remaining on these notes totalled
$29,750. Such amount is reflected with other net advances to related parties.
During the year ended September 30, 1991, the Company loaned $20,000,000 to
ALLNEWSCO at the direction of Perpetual. This amount has been included in the
consolidated financial statements on a consistent basis with other advances to
related parties. The $20,000,000 note receivable from ALLNEWSCO is payable in
annual principal installments of $2,225,000 commencing January 11, 1997
through January 11, 2004 with a final payment of $2,200,000 on January 11,
2005. The note has a stated interest rate of 11.06% and interest is payable
semi-annually. During each of the years ended September 30, 1993, 1994 and
1995, the Company earned interest income from this note of approximately
$2,200,000. At September 30, 1994 and 1995, interest receivable from ALLNEWSCO
under this note totalled $491,556. The interest receivable at September 30,
1995 and December 31, 1995 has been collected subsequently and ALLNEWSCO is
current on its interest payments.
Management fees of $300,000, $200,000, $180,000 and $45,000 were paid to
Perpetual by the Company for the years ended September 30, 1993, 1994 and 1995
and the three months ended December 31, 1995, respectively. No management fees
were paid to Westfield as services provided to WSET and WCIV by Westfield are
minimal. The Company paid management fees to Mr. Joe L. Allbritton, Chairman
of the Board of the Company, in the amount of $550,000, $750,000 and $550,000
for the years ended September 30, 1993, 1994 and 1995, respectively and
$138,000 for the three months ended December 31, 1995. These 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 $490,000, $347,000, $282,500 and
$50,000 were paid to the Allbritton Foundation by the Company for the years
ended September 30, 1993, 1994 and 1995 and for the three months ended
December 31, 1995, 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 $1,700,000 during the year ended
September 30, 1995 and $2,447,000 during the three months ended December 31,
1995 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 statement of operations.
The Company received during the year ended September 30, 1993, 1994, 1995
and for the three months ended December 31, 1995, local advertising revenues
from The Riggs National Bank of Washington, D.C. (Riggs) of approximately
$281,000, $78,000, $174,000 and $79,000, respectively. Riggs is a wholly-owned
subsidiary of Riggs National Corporation, the common stock of which
approximately 30% is beneficially owned by Mr. Joe L. Allbritton.
F-13
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the years ended September 30, 1993, 1994 and 1995, WJLA purchased
$17,000, $169,000 and $6,000, respectively, of advertising time from
ALLNEWSCO. WJLA purchased no advertising time from ALLNEWSCO during the three
months ended December 31, 1995. During the years ended September 30, 1993,
1994 and 1995, ALLNEWSCO purchased approximately $19,000, $75,000 and $3,000,
respectively, of advertising time from WJLA. ALLNEWSCO purchased no
advertising time from WJLA during the three months ended December 31, 1995.
The assets and common stock of WSET are pledged as security for a $9,000,000
bank borrowing by Westfield, of which $7,125,000 was outstanding at September
30, 1995.
NOTE 7--REDEEMABLE PREFERRED STOCK
The Series A redeemable preferred stock is non-voting, has no conversion
rights and provides for an annual cumulative cash dividend of $96 per share
before any dividends are paid on the common shares. The Series A preferred
stock has preference over the common stock in liquidation to the extent of
$1,600 per share plus an amount equal to any unpaid dividends. The shares are
to be redeemed by the Company at $1,600 per share plus any unpaid dividends
upon the occurrence of certain specified events. As of September 30, 1994 and
1995, cumulative dividends in arrears on the redeemable preferred stock of
$49,920 and $60,000, respectively, are recorded as a liability in the
Company's consolidated balance sheets. For each of the three years ended
September 30, 1995, the Company has recorded a charge to interest expense of
$10,080 representing the annual accretion of such dividends.
NOTE 8--RETIREMENT PLANS
Pension and Savings Plans
Through part of the year ended September 30, 1994, the Company maintained a
defined benefit retirement plan for certain employees of WJLA-TV, WSET and
WCIV. Eligible participants included certain full-time employees who had
completed one year of service and who were not covered by union-sponsored
plans. During the year ended September 30, 1993, the Company's Board of
Directors approved a plan to terminate this defined benefit retirement plan
and benefit accruals were frozen effective September 8, 1993. The expense
recorded by the Company for the year ended September 30, 1993 approximated
$645,000 which included the Company's proportionate share of the normal
pension cost for the year as well as the funding required to satisfy benefit
obligations resulting from the termination. The Company paid such required
funding into the Plan during the year ended September 30, 1994 which enabled
the Plan to settle all vested obligations of the Plan directly to Plan
participants in the form of cash or annuity contracts.
A defined contribution savings plan is maintained for eligible employees of
the Company who have been employed by the Company 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, beginning during the year ended September 30, 1994, 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 totalled approximately $480,000 and $509,000 for
the years ended September 30, 1994 and 1995, 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 totalled approximately $200,000, $239,000 and $182,000 for the
years ended September 30, 1993, 1994 and 1995, respectively.
Nonpension Postretirement Benefit Plan
The Company sponsors a defined benefit postretirement benefit plan that
provides medical insurance for certain employees that retired from the Company
prior to January 1, 1994. During the year ended September 30,
F-14
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1993, the Company implemented SFAS No. 106, which resulted in a charge of
$523,000 relating to the cumulative effect of change in accounting relating to
this plan. This charge consisted principally of the previously unrecognized
accumulated benefit obligation. The amount of the cumulative effect of the
change was actuarially determined by considering the terms of the medical
insurance plan, including the effects of the established maximums on covered
benefits, together with actuarial assumptions. At September 30, 1994 and 1995,
the accumulated postretirement benefit obligation totalled $515,000 and
$502,000, respectively. The significant assumptions used in the actuarial
computations as of October 1, 1994 included a discount rate of 8% and health-
care cost trend rates of 10% for 1994 decreasing to 5% through the year 2013.
The effect of a 1% annual increase in these assumed cost trend rates would
increase the accumulated postretirement benefit obligation by approximately
$37,000. The accumulated postretirement benefit obligation is not funded and
is included as a component of noncurrent accrued employee benefit expenses in
the Company's consolidated balance sheets. Net periodic postretirement benefit
cost for the years ended September 30, 1994 and 1995 consisted principally of
the interest cost which was not material to the Company's consolidated
financial statements.
NOTE 9--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. A
lease for studios and offices contains provisions for renewal and extension.
Future minimum lease payments under operating leases which have remaining
noncancelable lease terms in excess of one year as of September 30, 1995 are
as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING SEPTEMBER 30, LEASES LEASES
------------------------- ----------- ----------
<S> <C> <C>
1996............................................... $ 2,330,951 $ 274,771
1997............................................... 2,502,400 274,771
1998............................................... 2,338,100 274,771
1999............................................... 2,631,460 274,771
2000............................................... 2,718,890 274,771
2001 and thereafter................................ 8,879,695 --
----------- ----------
$21,401,496 1,373,855
===========
Less: amounts representing imputed interest.......... (246,586)
----------
1,127,269
Less: current portion................................ (196,039)
----------
Long-term portion of capital lease obligations....... $ 931,230
==========
</TABLE>
Rental expense under operating leases aggregated approximately $2,800,000
during the year ended September 30, 1993 and $2,600,000 during each of the
years ended September 30, 1994 and 1995. Such expense includes $163,100,
$182,300 and $166,500 for the years ended September 30, 1993, 1994 and 1995,
respectively, paid to Riggs.
The Company has entered into contractual commitments in the ordinary course
of business for the rights to acquire broadcast program material not yet
available for broadcast as of September 30, 1995. Under these agreements, the
Company must make specific minimum payments approximating the following:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
-------------------------
<S> <C>
1996.......................................................... $ 2,136,000
1997.......................................................... 13,864,000
1998.......................................................... 12,694,000
1999.......................................................... 11,603,000
2000.......................................................... 6,737,000
-----------
$47,034,000
===========
</TABLE>
F-15
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has entered into various deferred compensation agreements with
certain employees. Under these agreements, the Company is required to make
payments aggregating approximately $2,400,000 during the years 2000 through
2012. At September 30, 1994 and 1995, the Company has recorded a deferred
compensation liability of approximately $707,000 and $798,000, 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. The Company is not a party to a
lawsuit or proceedings which, in the opinion of management, is likely to have
a material adverse effect on the Company.
NOTE 10--SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest totalled $20,028,597, $22,209,118 and $22,481,111
during the years ended September 30, 1993, 1994 and 1995, respectively. Cash
paid for state income taxes totalled $57,000 and $2,147,520 during the years
ended September 30, 1994 and 1995, respectively. Non-cash investing and
financing activities consist of entering into capital leases totalling
$1,127,269 during the year ended September 30, 1995.
NOTE 11--SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to September 30, 1995, the Company entered into asset purchase
agreements for WHTM-TV, Inc. (WHTM), a television station in Harrisburg,
Pennsylvania, for $113,000,000 and WCFT, a division of Federal Broadcasting
Company which owns and operates a television station in Tuscaloosa, Alabama,
for $20,000,000. The acquisition of the assets of WHTM was completed on March
1, 1996. The acquisition of WCFT is subject to certain conditions of closing.
In addition, on December 29, 1995, the Company entered into an LMA and the
Anniston Option to purchase the assets of RKZ, Inc. (WJSU-TV), which owns
WJSU-TV, a television station licensed in Anniston, Alabama. The Anniston
Option was provided to the Company for $10,000,000; such option would be
exercisable for an additional $2,000,000 upon a change in current regulation
or a waiver permitting common ownership of WCFT and WJSU-TV. The Anniston
Option also provides for additional consideration of up to $7,000,000 in the
event of specified events. The cost of the Anniston Option is included in
intangible assets in the Company's consolidated balance sheet at December 31,
1995. The LMA provides for the Company to supply program services to WJSU-TV,
to operate the station and to retain all revenues from all advertising sales.
In exchange, the Company pays certain fees each year in addition to station
operating expenses. The operating revenues and expenses of WJSU-TV which are
included in the Company's consolidated statement of operations for the three
months ended December 31, 1995 are not material. The Company completed a
$275,000,000 debt offering on February 6, 1996 to finance such transactions,
as well as to repay its indebtedness under the Secured Promissory Notes, the
Revolving Line of Credit and the Term loan. The Company incurred a loss, net
of the related income tax effect, of approximately $7,700,000 on the early
extinguishment of debt. The Company also used approximately $6,600,000 of the
proceeds of the debt offering to pay a dividend to Westfield, to enable
Westfield to repay certain of its indebtedness for which the assets and common
stock of WSET were pledged as security.
F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Price Communications Corporation:
We have audited the accompanying balance sheets of WHTM-TV,
Inc. (a Pennsylvania corporation and a wholly owned subsidiary of Price
Communications Corporation) as of December 31, 1994 and 1995 and the
related statements of operations, shareholders' equity and cash flows for the
period from September 17, 1994 through December 31, 1994 and for the year
ended December 31, 1995. 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 in accordance with generally accepted
auditing standards. Those standards 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. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of WHTM-TV, Inc. as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the period from September 17, 1994 through December 31, 1994
and for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 16, 1996
F-17
<PAGE>
WHTM-TV, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
ASSETS 1994 1995
------------ -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $173,613 $96,960
Accounts receivable, net of
allowance for doubtful accounts
of $259,146 and $223,267 in 1994
and 1995, respectively 2,786,410 3,770,511
Film broadcast rights 1,004,446 1,261,145
Prepaid expenses and other current assets 185,636 454,682
------------ ----------
Total Current Assets 4,150,105 5,583,298
Property and equipment, at cost, less
accumulated depreciation (Note 1,2) 4,867,022 5,439,417
Broadcast licenses and other intangibles,
less accumulated amortization (Note 1) 62,279,619 60,631,046
Film broadcast rights (Note 1) 322,820 144,413
Other assets 495,195 118,852
------------- ---------
Total Assets $72,114,761 $71,917,026
============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses
(Note 3) $421,437 $645,715
Other current liabilities (Note 4) 1,644,082 2,780,018
------------ ----------
Total Current Liabilities 2,065,519 3,425,733
------------ ----------
Due to Parent, net (Note 6) 22,586,908 21,511,126
Deferred tax effect on basis difference
arising on acquisition (Note 1,5) 18,435,308 17,971,028
Other liabilities (Note 4) 1,235,862 827,851
Shareholders' equity:
Common stock, no par value; authorized
1,000 shares; outstanding 10 shares in
1994 and 1995 1,000 1,000
Additional paid-in capital 27,745,477 27,745,477
Retained earnings 44,687 434,811
------------ -----------
Total shareholders' equity 27,791,164 28,181,288
------------ -----------
Total liabilities and shareholders' equity $72,114,761 $71,917,026
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
WHTM-TV, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the period Year ended
-----------------------------------
9/17/94-12/31/94 12/31/95
<S> <C> <C>
Revenue $5,681,339 $19,829,979
Agency and representatives' commissions 1,002,449 3,220,833
---------- -----------
Net revenue 4,678,890 16,609,146
---------- -----------
Operating expenses 2,109,979 8,251,697
Interest expense (Note 7) 732,943 2,078,840
Inter-company interest expense (Note 6) 526,701 2,432,723
Amortization of deferred debt expense 475,000 -
Depreciation and amortization 603,298 2,134,468
Management fee 138,800 600,000
--------- ----------
4,586,721 15,497,728
---------- ----------
Income before income taxes 92,169 1,111,418
Income tax expense (Note 5) 47,482 721,294
---------- ----------
Net income (loss) $44,687 $390,124
========== ==========
Income (loss) per share $4,469 $39,012
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
WHTM-TV, INC
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
AND FOR THE PERIOD SEPTEMBER 17, 1994 TO December 31, 1994
<TABLE>
<CAPTION>
Common Stock
------------ Additional Retained
No. of Paid-in Earnings/
Shares Value Capital (Deficit) Total
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 17, 1994 10 $1,000 $27,745,477 - $27,746,477
Net income for the period
9/17/94-12/31/94 44,687 44,687
----------------------------------------------------------
Balance, December 31, 1994 10 1,000 27,745,477 44,687 27,791,164
Net income for the year
ended December 31, 1995 390,124 390,124
----------------------------------------------------------
Balance, December 31, 1995 10 $1,000 $27,745,477 $434,811 $28,181,288
----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
WHTM-TV, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the period Year ended
----------------------------------
9/17/94-12/31/94 12/31/95
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $44,687 $390,124
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred debt discount 475,000 -
Depreciation and amortization 603,298 2,134,468
Amortization of film broadcast rights 335,678 1,213,399
Loss on disposal of equipment - -
Trade and barter revenues (204,126) (800,885)
Trade and barter expenses 213,380 800,885
Payments for film broadcast rights (354,051) (1,443,315)
Provision for deferred income taxes (332,330) (233,078)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (81,826) (984,101)
(Increase) decrease in prepaid expenses and
other assets (331,100) 107,297
Increase in accounts payable, accrued
expenses and other liabilities 265,294 872,625
----------- -----------
Total adjustments 589,217 1,667,295
----------- -----------
Net cash provided by operating activities 633,904 2,057,419
----------- -----------
CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Capital expenditures (151,185) (1,058,290)
----------- -----------
Net cash used in investing activities (151,185) (1,058,290)
----------- -----------
CASH FLOWS (USED IN) FINANCING ACTIVITIES:
Distributions to parent company (1,562,378) (1,075,782)
------------ -----------
Net cash used in financing activities (1,562,378) (1,075,782)
------------ -----------
Net increase (decrease) in cash and cash
equivalents (1,079,659) (76,653)
Cash and cash equivalents at beginning
of period 1,253,272 173,613
------------ -----------
Cash and cash equivalents at end of period $173,613 $96,960
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
WHTM-TV, INC.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL AND SIGNIFICANT ACCOUNTING POLICIES
WHTM-TV, Inc. (the "Company"), a wholly owned subsidiary of Price
Communications Corporation ("Price"), is currently engaged in operating an ABC
affiliate serving the Harrisburg-York-Lancaster-Lebanon, Pennsylvania television
market. WHTM-TV, Inc. was incorporated in the state of Pennsylvania in 1980.
On September 16, 1994, Price acquired all the outstanding shares of the
corporation which owns all of the assets of WHTM-TV, Inc. for approximately $47
million plus a working capital adjustment of approximately $4 million. This
acquisition was accounted for as a purchase and accordingly the fair market
values of assets and liabilities which, other than intangible assets as
discussed below in "Intangible Assets" approximated their carrying values, have
been recorded as of that date. The purchase values, including debt utilized to
consummate the acquisition, were "pushed down" to the financial statements of
WHTM-TV, Inc. and the deficit at the date of acquisition ($9,745,385) has been
capitalized as a reduction of Additional Paid in Capital.
The following unaudited pro forma financial information has been prepared
based on the assumption that the aforementioned 1994 acquisition had occurred on
January 1, 1994.
<TABLE>
<CAPTION>
For the year ended
December 31, 1994
------------------
<S> <C>
Net Revenue $14,263,748
(Loss) before extraordinary item (1,036,878)
Net (loss) (1,036,878)
(Loss) before extraordinary item per share (103,688)
Net (loss) per share (103,688)
</TABLE>
The pro forma information reflects adjustments for changes in depreciation,
amortization, interest expense and income taxes resulting from the acquisition.
The pro forma financial information is not necessarily indicative either of
results of operations that would have occurred had the acquisition been made at
the beginning of the period, or of future results of operations of WHTM-TV, Inc.
F-22
<PAGE>
WHTM-TV, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ESTIMATES
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 disclosures on
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from these estimates.
FILM BROADCAST RIGHTS
The capitalized cost of film broadcast rights is amortized on a basis of the
estimated number of showings or, if unlimited showings are permitted, over the
term of the broadcast license agreement. Unamortized film broadcast rights are
classified as current and non-current on the basis of their estimated future
usage. Amortization of film broadcast rights is included in operating expenses
and amounted to $335,678 and $1,213,399 for the period September 17, 1994, to
December 31, 1994, and for the year ended December 31, 1995, respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments, including Treasury
Bills, purchased with maturities of three months or less at the time of purchase
to be cash equivalents.
[The remainder of this page was left blank intentionally]
F-23
<PAGE>
WHTM-TV, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets
which are as follows:
Buildings 25 years
Broadcasting equipment- 10 to 12 years
Leasehold improvements The life of the underlying lease
Furniture and fixtures- 3 to 10 years
Transportation equipment- 3 years
Income Taxes
The Company filed a federal tax return, as part of Price Communications
Corporation consolidated federal tax return. The consolidated amount of current
and deferred tax expense is allocated to members of the consolidated group by
applying the provisions of Statement of Financial Accounting Standards No. 109-
"Accounting for Income Taxes" ("Statement 109"), to each member of the
consolidated group as if it were a separate taxpayer.
The Company accounts for taxes in accordance with the provisions of Statement
109, accordingly, deferred tax assets and liabilities are recognized for future
tax consequences attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities at their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
PER SHARE DATA
Income (loss) per common share is based on income (loss) for the period
divided by the weighted average number of shares of common stock and common
stock equivalents outstanding, which was 10 shares for 1994 and for 1995.
REVENUE RECOGNITION
Revenue is recognized when advertisements are broadcast.
F-24
<PAGE>
WHTM-TV, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUES)
INTANGIBLE ASSETS
Intangible assets includes FCC license, station call letters and goodwill,
which represents the excess purchase price over the fair value of net assets
acquired. These assets are integral determinants of a communications property=s
economic value and have long and productive lives. The Company amortizes some
intangible assets over a 40-year period, the maximum allowable under Accounting
Principles Board Opinion No. 17. The Company amortizes intangible assets arising
from the purchase by Price over a 40-year period beginning September 17, 1994.
The acquisition of the Company by Price resulted in intangible assets, primarily
broadcast licenses, of approximately $44,200,000 and goodwill of approximately
$18,600,000. The Company recorded amortization expense on intangible assets of
approximately $460,000 and $1,649,000 for the period September 17, 1994, to
December 31, 1994, and for the year ended December 31, 1995, respectively.
If facts and circumstances indicate that intangible assets may be permanently
impaired, it is the Company=s policy to asses the carrying value and
recoverability based on an analysis of undiscounted future cash flows of the
related assets.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides an allowance for doubtful accounts based on reviews of
its customer=s accounts. Included in operating expenses is bad debt expense of
$121,988 and $60,000 for the period September 17, 1994, to December 31, 1994,
and for the year ended December 31, 1995, respectively.
TRADE AND BARTER TRANCACTIONS
Barter transactions represent the exchange of commercial air time for
programming. Trade transactions represent the exchange of commercial air time
for merchandise or services. Barter transactions are generally recorded at the
fair market value of the commercial air time relinquished. Trade transactions
are generally recorded at the fair market value of the merchandise or service
received. Revenue is recognized on barter and trade transactions when the
commercials are broadcast; expenses are recorded when the programming
merchandise or service received is utilized.
F-25
<PAGE>
WHTM-TV, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT
The acquisition of WHTM-TV, Inc., by Price on September 16, 1994, has been
accounted for using the purchase method of accounting. Accordingly, the
Company's property and equipment has been stepped up to its fair market value on
the date of acquisition.
<TABLE>
<CAPTION>
December 31,
1994 1995
-------------------------
<S> <C> <C>
Land $ 270,000 $ 270,000
Buildings 980,000 980,995
Broadcast equipment 3,408,401 4,426,061
Furniture and fixtures 101,287 138,022
Transportation equipment 250,553 253,453
-------------------------
5,010,241 6,068,531
Less accumulated depreciation (143,219) (629,114)
-------------------------
Net property and equipment $ 4,867,022 $5,439,417
==========================
</TABLE>
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
1994 1995
-------------------------
<S> <C> <C>
Accounts payable supplies $ 63,953 $ 207,389
Accrued payroll and commissions 108,524 255,931
Other 248,960 182,395
-------------------------
$421,437 $ 645,715
=========================
</TABLE>
F-26
<PAGE>
WHTM-TV, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. OTHER LIABILITIES
Other liabilities consist of:
<TABLE>
<CAPTION>
December 31,
1994 1995
-----------------------------
<S> <C> <C>
Liability for film broadcast rights $ 2,380,033 $ 2,227,966
Income taxes payable 152,245 954,372
Other 347,666 425,531
-----------------------------
2,879,944 3,607,869
Less current portion (1,644,082) (2,780,018)
-----------------------------
Total other liabilities $ 1,235,862 $ 827,851
=============================
</TABLE>
[The remainder of this page was left blank intentionally]
F-27
<PAGE>
WHTM-TV, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
Provision for income taxes is as follows:
<TABLE>
<CAPTION>
For the Period
------------------------------
9/17 - 12/31/94 1/1 - 12/31/95
<S> <C> <C>
Current:
Federal $ 190,939 $ 762,925
State 188,873 191,447
-----------------------------
$ 379,812 $ 954,372
-----------------------------
Deferred:
Federal $ (166,097) $(245,949)
State (166,233) 12,871
-----------------------------
(332,330) (233,078)
-----------------------------
Tax Provision $ 47,482 $ 721,294
=============================
</TABLE>
Differences between taxable and book income are principally attributable to the
amortization of the intangible asset which is not deductible for tax purposes.
[The remainder of this page was left blank intentionally]
F-28
<PAGE>
WHTM-TV, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amounts determined by applying
the federal statutory income tax rate to income before provision for income
taxes as follows:
<TABLE>
<CAPTION>
For the Period
--------------------------------
9/17 - 12/31/94 1/1 - 12/31/95
<S> <C> <C>
Statutory tax rate, 34%, $ 31,337 $ 377,882
State taxes, net of
federal benefit (41,577) 126,355
Other, principally amortization
of intangible assets 57,722 217,057
--------------------------------
$ 47,482 $ 721,294
================================
</TABLE>
[The remainder of this page was left blank intentionally]
F-29
<PAGE>
WHTM-TV, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The Company had, as of December 31, 1994 and 1995, deferred tax assets and
deferred tax liabilities of :
<TABLE>
<CAPTION>
December 31,
1994 1995
------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Accounts receivable principally due
to allowance for bad debts $ 139,529 $ 117,678
Deferred debt expense 209,304 170,351
Net operating loss carryforwards 113,905 44,955
------------------------
$ 462,738 $ 332,984
========================
DEFERRED TAX LIABILITY
Property and equipment, principally
due to differences in depreciation $ 160,493 $ 265,878
Other 18,066 14,129
Intangible FCC license 18,435,308 17,971,028
--------------------------
$18,613,867 $18,251,035
==========================
</TABLE>
Net operating loss carryforward totals approximately $450,000 and expires
through 1997.
[The remainder of this page was left blank intentionally]
F-30
<PAGE>
WHTM-TV, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS
Intercompany interest expense represents interest charged by the parent company
for capital employed. Such capital employment bears interest at the rate of
prime plus .75%.
Operating Expenses include certain expenses amounting to $138,800 and $600,000,
for the period September 17, 1994, to December 31, 1994, and for the year ended
December 31, 1995, respectively, which were allocated by the parent company to
WHTM-TV, Inc. These amounts have been allocated to the Company, based on
management's estimate of time spent on certain matters related to the Company
and its estimate of expenses incurred by the parent on behalf of the company.
Management believes that this allocation is reasonable.
WHTM-TV, Inc. paid Price the following amounts in the fiscal 1994 period and in
1995:
<TABLE>
<CAPTION>
For the Period
-------------------------------
9/17- 12/31/94 1/1 -12/31/95
<S> <C> <C>
Charges from Parent:
Operating expenses $ - $ 107,714
Interest expense (Note 7) 732,943 2,078,840
Inter-company interest expense 526,701 2,432,723
Amortization of deferred debt expense 475,000 -
Management fee 138,800 600,000
-------------------------------
Total charges from Parent $ 1,873,444 $ 5,219,277
Total payments to Parent (3,435,822) (6,295,059)
-------------------------------
Net distributions $ (1,562,378) $(1,075,782)
================================
</TABLE>
F-31
<PAGE>
WHTM-TV, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
Lease Commitment- The Company leased a variety of assets used in its operation.
The following is a schedule of operating leases related to real and personal
property for each of the five years subsequent to 1995:
<TABLE>
<CAPTION>
Operating
Year Leases
---- ---------
<S> <C>
1996 $ 24,147
1997 21,997
1998 18,489
1999 13,011
2000 10,843
</TABLE>
Rental expense for operating leases were $3,946 and $14,355 for the period
September 17, 1994, to December 31, 1994, and for the year ended December 31,
1995, respectively.
The Company leases computer equipment under a long-term capital lease and has
the option to purchase the equipment for a nominal cost at the termination of
the lease. As of December 31, 1995, the Company owes $10,323 on this lease that
was recorded on the balance sheet in other liabilities.
Film Broadcast Rights- The Company is committed to the purchase of film
broadcast rights of various syndicated and first run programming aggregating
$2,402,133, $1,932,275, $777,436, and $97,067 for the years 1996, 1997, 1998,
and 1999, respectively.
Co-Borrowing Agreement- On September 16, 1994, the Company and certain
subsidiaries of Price Communications Corporation, entered into a $45 million
line of credit agreement with the Bank of Montreal expiring in the year 2001.
The line of credit bears interest at the prime rate plus up to .75% or the LIBOR
rate plus up to 2% and is secured by the stock of the Company, the Parent
Company and certain subsidiaries of Price. As of December 31, 1994, $22.5
million was outstanding under this line of credit agreement, none of which has
been directly borrowed by the Company. The Company incurred a $475,000 loan
origination fee that has been charged to income in the Company's statement of
operations for the period September 17, 1994, to December 31, 1994. On December
12, 1995, Price entered an agreement amending the line of credit.
F-32
<PAGE>
WHTM-TV, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The amended credit agreement created a line of credit for $28 million. The
amended line of credit borrowings are subject to base interest at The Bank of
Montreal rate, plus a maximum .75% and are secured by the assets of the
subsidiaries.
On February 2, 1996, Price paid $28 million plus interest to The Bank of
Montreal to terminate the amended line of credit agreement. The Company had no
direct borrowings outstanding under this amended line of credit agreement.
8. SUBSEQUENT EVENT
On October 18, 1995, the Company agreed, subject to FCC approval, to sell
substantially all of its assets together with certain liabilities of WHTM-TV,
Inc. for $113 million in cash to Allbritton Communications Corporation. This
transaction should be completed in the first quarter of 1996. Pursuant to the
acquisition agreement, Price will retain all liabilities except those recorded
in connection with the acquisition of film broadcast rights (see Note 4).
[The remainder of this page was left blank intentionally]
F-33
<PAGE>
WHTM-TV, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental disclosure cash flow information:
<TABLE>
<CAPTION>
For the Period
--------------------------------
9/17- 12/31/94 1/1 -12/31/95
<S> <C> <C>
Cash paid for:
Income taxes, net of refunds $ 72,112 $ 153,412
Interest paid 732,943 2,078,840
Non-cash operating activities:
Barter revenue 203,276 657,934
Barter expense 203,276 657,934
Trade revenue 850 142,951
Trade expense 10,104 142,951
</TABLE>
[The remainder of this page was left blank intentionally]
F-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Smith Acquisition Corp.
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows for the year ended December 31, 1993, for
Smith Acquisition Corp. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Since the completion of our audit of the accompanying financial statements and
issuance of our report thereon dated March 18, 1994, which report contained an
explanatory paragraph regarding the Corporation's ability to continue as a going
concern, as discussed more fully in Note 9, Smith Acquisition Corp. has been
acquired by Price Communications Corporation. Therefore, the conditions that
raised substantial doubt (principally the Corporation's inability to repay its
debt) about whether the Corporation will continue as a going concern no longer
exist.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of Smith Acquisition Corp.'s
operations and cash flows for the year ended December 31, 1993, in conformity
with generally accepted accounting principles.
As discussed in Note 5 to the financial statements, the Corporation changed its
method of accounting for income taxes.
/s/ Ernst & Young LLP
March 18, 1994, except for
Note 9 as to which the date is
September 16, 1994
F-35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Price Communications Corporation:
We have audited the accompanying statements of operations, shareholders' equity
and cash flows for the period from January 1, 1994 through September 16, 1994 of
WHTM-TV, Inc. (A Pennsylvania corporation). 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements referred to above are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, WHTM-TV, Inc's results of operations and cash flows for
the period from January 1, 1994 through September 16, 1994, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
December 22, 1995
F-36
<PAGE>
Smith Acquisition Corp. and WHTM-TV, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
SMITH
ACQUISITION WHTM-TV,
CORP. INC.
-------------------------------
PERIOD FROM
YEAR ENDED JANUARY 1 TO
DECEMBER 31 SEPTEMBER 16
1993 1994
-------------------------------
<S> <C> <C>
Revenue $15,117,195 $11,516,509
Agency and representatives' commissions (2,608,252) (1,931,651)
-------------------------------
Net revenue 12,508,943 9,584,858
Operating expenses 6,698,389 5,171,613
Management retention and General Manager
bonuses - 1,045,670
Intercompany interest expense - 1,743,472
Interest expense 2,518,879 2,167
Depreciation and amortization 1,203,348 826,526
Amortization of deferred debt expense - 186,957
Management fee - related party 175,000 131,247
Other (income) and expense, net (24,611) 37,744
-----------------------------
10,571,005 9,145,396
-----------------------------
Income before income taxes and cumulative
effect of a change in accounting principle 1,937,938 439,462
Income tax expense 1,147,837 441,328
----------------------------
Income (loss) before cumulative effect of
a change in accounting principle 790,101 (1,866)
Cumulative effect of a change in accounting
principle 1,088,066 -
----------------------------
Net income (loss) $ 1,878,167 $ (1,866)
==============================
</TABLE>
See accompanying notes.
F-37
<PAGE>
Smith Acquisition Corp. and WHTM-TV, Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
SMITH ACQUISITION CORP.
--------------------------------------------------------
COMMON STOCK ADDITIONAL RETAINED
---------------- PAID-IN EARNINGS
CLASS A CLASS C CAPITAL (DEFICIT) TOTAL
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1992 $500 $100 $7,601,374 $(6,879,609) $ 722,365
Net income - - - 1,878,167 1,878,167
--------------------------------------------------------
Balance at
December 31, 1993 $500 $100 $7,601,374 $(5,001,442) $2,600,532
========================================================
<CAPTION>
WHTM-TV, INC.
-------------------------------------------------------
COMMON STOCK
------------ ADDITIONAL RETAINED
NO. OF PAID-IN EARNINGS
SHARES VALUES CAPITAL (DEFICIT) TOTAL
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 10 $1,000 $37,490,862 $(9,743,519) $27,748,34
Net loss for
the period
January 1 to
September 16, 1994 - - - (1,866) (1,866)
-------------------------------------------------------
Balance at
September 16, 1994 10 $1,000 $37,490,862 $(9,745,385) $27,746,477
=======================================================
</TABLE>
See accompanying notes.
F-38
<PAGE>
Smith Acquisition Corp. and WHTM-TV, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
SMITH
ACQUISITION WHTM-TV,
CORP. INC.
--------------------------
PERIOD FROM
YEAR ENDED JANUARY 1 TO
DECEMBER 31 SEPTEMBER 16
1993 1994
--------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,878,167 $ (1,866)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Cumulative effect of change in accounting
principle (1,088,066) -
Depreciation and amortization 1,203,348 826,526
Amortization of Film Broadcast/Program Rights 1,727,912 676,047
Amortization of deferred debt discount - 186,957
Interest converted to long-term debt 586,500 -
(Gain) loss on sale of equipment (387) 29,508
Trade and barter revenues (431,678) (462,411)
Trade and barter expenses 407,067 469,537
Payments for Film Broadcast/Program Rights (1,585,587) (641,128)
Provision for deferred income taxes 834,970 241,121
Changes in operating assets and liabilities:
Accounts receivable (48,580) 304,765
Prepaid expenses and deposits 162,999 (167,703)
Accounts payable, accrued expenses and other
liabilities (473,715) 682,330
---------------------------
Net cash provided by operating activities 3,172,950 2,143,683
INVESTING ACTIVITIES
Purchase of property and equipment (379,857) (160,546)
Proceeds from sale of equipment 25,250 17,100
Increase in intangible assets (53,863) -
---------------------------
Net cash used in investing activities (408,470) (143,446)
FINANCING ACTIVITIES
Principal payments on long-term debt (2,956,129) (1,541,527)
---------------------------
Net cash used in financing activities (2,956,129) (1,541,527)
---------------------------
(Decrease) increase in cash and cash
equivalents (191,649) 458,710
Cash and cash equivalents at beginning of period 986,211 794,562
----------------------------
Cash and cash equivalents at end of period $ 794,562 $ 1,253,272
===========================
</TABLE>
See accompanying notes.
F-39
<PAGE>
Smith Acquisition Corp. and WHTM-TV, Inc.
Notes to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements have been prepared to present Smith Acquisition Corp.
for the year ended December 31, 1993, and WHTM-TV, Inc. for the period from
January 1, 1994, to September 16, 1994. WHTM-TV, Inc. is a wholly owned
subsidiary of Smith Acquisition Corp. and represents substantially all the
statements of operations and cash flows for the year ended December 31, 1993.
The following table provides a reconciliation of the respective entities equity
accounts as of December 31, 1993:
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------
SMITH ACQUISITION CORP. ADDITIONAL RETAINED
----------------------- PAID IN EARNINGS
CLASS A CLASS C WHTM CAPITAL (DEFICIT) TOTAL
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Smith Acquisition Corp. $500 $100 $ - $ 7,601,374 $(5,001,442) $ 2,600,532
Reconciling items:
Smith acquisition:
Retained earnings - - - - (4,742,077) (4,742,077)
Common stock (500) (100) 1,000 - - 400
Intercompany note - - - 29,889,488 - 29,889,488
---------------------------------------------------------------------------
WHTM, Inc. $ - $ - $1,000 $37,490,862 $(9,743,519) $27,748,343
===========================================================================
</TABLE>
The $4,742,077 reconciling item of the Retained Deficit represents retained
earnings of the Corporation. The $29,889,488 Intercompany Note represents debt
recorded on the Corporation's books not recognized at the subsidiary level.
PRINCIPALS OF CONSOLIDATION
For the year ended December 31, 1993, the consolidated financial statements
include the accounts of Smith Acquisition Corp. (Corporation) and its wholly
owned subsidiary, WHTM-TV, Inc. (WHTM-TV). All significant intercompany
transactions and balances have been eliminated.
On September 16, 1994, Price Communications Corporation (Price) acquired all
the outstanding shares of the Corporation which owns all of the assets of
WHTM-TV, Inc. for approximately $47 million plus a working capital adjustment
of approximately $4 million. This acquisition was accounted for as a purchase
and accordingly the fair market values of assets and liabilities have been
recorded as of that date.
F-40
<PAGE>
Smith Acquisition Corp. and WHTM-TV, Inc.
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPALS OF CONSOLIDATION (CONTINUED)
WHTM-TV, Inc. (the Company), a wholly owned subsidiary of Price, is currently
engaged in operating an ABC affiliate serving the Harrisburg-York-Lancaster
- -Lebanon, Pennsylvania television market. WHTM-TV, Inc. was incorporated in
the state of Pennsylvania in 1980.
FILM BROADCAST/PROGRAM RIGHTS
Film Broadcast/Program Rights represent rights under contract to telecast
certain events or shows. The program rights are amortized using accelerated
rates over the term of the respective contract based on such factors as the
estimated number of showings. Based on management's expectations of program
usefulness, unamortized cost may be written down to net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using the
straight-line method based upon the estimated useful lives of the respective
assets, which are as follows:
Buildings 25 years
Broadcasting equipment 10 to 12 years
Leasehold improvements The life of the underlying lease
Furniture and fixtures 3 to 10 years
Transportation equipment 3 years
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides an allowance for doubtful accounts based on reviews of
its customers' accounts.
F-41
<PAGE>
Smith Acquisition Corp. and WHTM-TV, Inc.
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
The Company amortizes its intangible assets principally over a 40-year period,
the maximum allowable under Accounting Principles Board Opinion No. 17.
If facts and circumstances indicate that intangible assets may be permanently
impaired, it is the Company's policy to assess the carrying value and
recoverability based on an analysis of undiscounted future cash flows of the
related assets.
INCOME TAXES
The Corporation filed a consolidated federal return with WHTM-TV and separate
state tax returns for the year ended December 31, 1993, and the period ended
September 16, 1994. Effective January 1, 1993, the Corporation adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (Statement No. 109), issued by the Financial Accounting Standards Board
(see Note 5). As permitted under Statement No. 109, prior years' financial
statements have not been restated. Under the liability method of Statement
No. 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
PER SHARE DATA
Per share data has not been disclosed in this report because this information
is considered insignificant due to the purchase of Smith Acquisition Corp. and
WHTM-TV, Inc. by Price Communications Corporation (see Note 9).
F-42
<PAGE>
Smith Acquisition Corp. and WHTM-TV, Inc.
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRADE AND BARTER TRANSACTIONS
Barter transactions represent the exchange of commercial air time for
programming. Trade transactions represent the exchange of commercial air time
for merchandise or services. Barter transactions are generally recorded at the
fair market value of the commercial air time relinquished. Trade transactions
are generally recorded at the fair market value of the merchandise or service
received. Revenue is recognized on barter and trade transactions when the
commercials are broadcast; expenses are recorded when the programming
merchandise or service received is utilized.
REVENUE RECOGNITION
Revenue is recognized when advertisements are broadcast.
CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments, including Treasury Bills, purchased with
maturities of three months or less at the time of purchase to be cash
equivalents.
2. CONCENTRATION OF CREDIT RISK
The Corporation sells advertising spots to a broad range of national and local
advertising agencies. No individual customer's balance typically exceeds 10%
of total receivables. The Corporation performs periodic credit evaluations of
its customers' financial condition and generally does not require collateral.
Credit losses are provided for in the financial statements and consistently
have been within management's expectations.
3. CHANGE IN ACCOUNTING ESTIMATES
As of December 31, 1992, the Corporation had recorded an accrual of
approximately $434,000 in connection with disputed licensing fees under two
licensing agreements. During 1993, a settlement was reached on one of the
agreements resulting in a decrease to the accrual of approximately $235,000.
Due to management receiving additional facts related to the second licensing
agreement, the related accrual was reduced by approximately $161,000. The
combined reduction to the litigation accrual of $396,000 was used to offset
operating expenses.
F-43
<PAGE>
Smith Acquisition Corp. and WHTM-TV, Inc.
Notes to Consolidated Financial Statements (continued)
4. COMMITMENTS
Film Broadcast Rights - The Company is committed to the purchase of film
broadcast rights of various syndicated and first-run programming aggregating
$2,070,653; $2,193,161; $1,171,970; and $580,172 for the years 1995, 1996,
1997, and 1998, respectively.
The Company leased a variety of assets used in its operation. The following is
a schedule of operating leases related to real and personal property for each
of the five years subsequent to 1994:
1995 $15,670
1996 23,646
1997 16,018
1998 13,008
1999 13,008
Rental expense for operating leases was $9,584 for the period from January 1
to September 16, 1994.
The Company leases computer equipment under a long-term capital lease and has
the option to purchase the equipment for a nominal cost at the termination of
the lease.
5. INCOME TAXES
Effective January 1, 1993, the Corporation changed its method of accounting
for income taxes from the deferred method to the liability method required by
FASB Statement No. 109, "Accounting for Income Taxes." As permitted under the
new rules, prior years' financial statements have not been restated.
The cumulative effect of adopting Statement 109 as of January 1, 1993, was to
increase net income by $1,088,066. For the year ended December 31, 1993,
application of the new income tax rules decreased pretax income by $9,494
because of increased depreciation expense as a result of Statement 109's
requirement to report assets acquired in prior business combinations at their
pretax amounts.
F-44
<PAGE>
Smith Acquisition Corp. and WHTM-TV, Inc.
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
SMITH
ACQUISITION WHTM-TV,
CORP. INC.
----------------------------
JANUARY 1 TO
DECEMBER 31 SEPTEMBER 16
1993 1994
----------------------------
<S> <C> <C>
Current:
Federal $ 46,212 $ 28,271
State 266,655 171,936
----------------------------
Total current 312,867 200,207
Deferred:
Federal 805,354 409,716
State 29,616 (168,595)
---------------------------
Total deferred 834,970 241,121
---------------------------
Provision for income taxes $1,147,837 $ 441,328
=============================
</TABLE>
A reconciliation of the statutory corporate income tax rate to the
Corporation's effective tax rate is as follows:
<TABLE>
<CAPTION>
SMITH
ACQUISITION WHTM-TV,
CORP. INC.
-------------------------------
JANUARY 1 to
DECEMBER 31 SEPTEMBER 16
1993 1994
--------------------------------
<S> <C> <C>
Corporate income tax at statutory rate $ 658,899 $ 149,417
State taxes, net of federal benefit 195,539 (46,423)
Other, principally amortization 293,399 338,334
--------------------------------
$1,147,837 $ 441,328
================================
</TABLE>
The provision for income taxes is higher than that calculated using the
federal statutory income tax rate due primarily to the effect of goodwill
amortization, state income taxes net of the federal tax benefit, and the
federal alternative minimum tax.
F-45
<PAGE>
Smith Acquisition Corp. and WHTM-TV, Inc.
Notes to Consolidated Financial Statements (continued)
6. RELATED PARTY TRANSACTIONS
Under an agreement with Smith Broadcasting, the Corporation paid to Smith
Broadcasting a management fee of $175,000 for 1993. Management believes that
this fee is reasonable.
Certain operating expenses amounting to $131,247 for the period January 1 to
September 16, 1994, were allocated by the Corporation to WHTM-TV, Inc. These
amounts have been allocated to the Company, based on management's estimate of
time spent on certain matters related to the Company and its estimates of
expenses incurred by the Corporation on behalf of the Company. Management
believes that this allocation is reasonable.
Intercompany interest expense represents interest charged by the Corporation
for capital employed.
7. OTHER (INCOME) EXPENSE - NET
Other (income) expense - net consists of the following:
<TABLE>
<CAPTION>
SMITH
ACQUISITION WHTM-TV,
CORP. INC.
----------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31 SEPTEMBER 16
1993 1994
----------------------------
<S> <C> <C>
Loss on sale of equipment $ - $ 29,508
Interest income - (20,687)
Other, net 24,611 28,923
----------------------------
$ 24,611 $ 37,744
============================
</TABLE>
For the period from January 1 to September 16, 1994, the Company bonuses of
approximately $250,000 to department heads in exchange for their commitment to
remain with WHTM-TV, Inc. through the purchase by Price. The General Manager
received a retention bonus of approximately $739,964 from the Company to
extend his employment contract with WHTM-TV, Inc. through the date of sale to
Price Communications Corporation.
F-46
<PAGE>
Smith Acquisition Corp. and WHTM-TV, Inc.
Notes to Consolidated Financial Statements (continued)
8. SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental disclosure cash flow information:
<TABLE>
<CAPTION>
SMITH
ACQUISITION WHTM-TV,
CORP. INC.
--------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31 SEPTEMBER 16
1993 1994
--------------------------------
<S> <C> <C>
Cash paid for:
Income taxes, net of refunds $ 313,000 $ 256,459
Interest paid 1,918,671 1,743,472
</TABLE>
9. SUBSEQUENT EVENT - 1994
On September 16, 1994 Price Communications Corporation acquired all the
outstanding shares of the Corporation for approximately $47 million plus a
working capital adjustment of approximately $4 million. Approximately $27
million of the $47 million purchase price was used to repay the Corporation's
debt.
10. SUBSEQUENT EVENT - 1995
On October 18, 1995, the Company agreed, subject to FCC approval, to sell
substantially all of its assets together with certain liabilities of WHTM-TV,
Inc. for $113 million in cash to Allbritton Communications Corporation. This
transaction should be completed in the first quarter of 1996.
F-47
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Federal Enterprises, Inc.:
We have audited the accompanying combined balance sheets, as described in note
one to the combined financial statements, of WCFT-TV (a division of Federal
Broadcasting Company) as of December 31, 1995 and 1994, and the related
combined statements of revenues and certain expenses, equity, and cash flows
for the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards 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.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of WCFT-TV (a division
of Federal Broadcasting Company) as of December 31, 1995 and 1994, and the
results of their combined revenues and certain expenses and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Detroit, Michigan
February 27, 1996
F-48
<PAGE>
WCFT-TV
(A division of Federal Broadcasting Company)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
ASSETS 1994 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 33,645 $ 28,280
Accounts receivable 925,342 787,120
Program contract rights 81,440 93,285
Prepaid expenses and other
current assets 12,924 25,851
Deposits, equipment 59,000 -
----------- -----------
Total current assets 1,112,351 934,536
----------- -----------
Property and equipment, net 2,017,317 1,454,750
Excess of costs over net assets acquired,
net of accumulated amortization 2,382,891 2,293,128
----------- -----------
$ 5,512,559 $ 4,682,414
=========== ===========
<CAPTION>
LIABILITIES
Current liabilities:
Program contract rights payable $ 79,901 $ 91,056
Accounts payable 37,644 34,655
Accrued expenses and other current
liabilities 14,431 7,420
----------- -----------
Total current liabilities 131,976 133,131
Deferred tax credit - 108,000
----------- -----------
Total liabilities and
deferred tax credit 131,976 241,131
----------- -----------
DIVISIONAL EQUITY
Federal Broadcasting Company's
equity 9,323,648 9,602,954
Distribution to Federal
Broadcasting Company, net (3,943,065) (5,161,671)
----------- -----------
5,380,583 4,441,283
----------- -----------
$ 5,512,559 $ 4,682,414
=========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-49
<PAGE>
WCFT-TV
(A division of Federal Broadcasting Company)
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1994 1995
----------- ------------
<S> <C> <C>
Net revenues $ 4,308,691 $ 3,743,168
Operating expenses, excluding depreciation
and amortization 2,366,816 2,518,632
Depreciation and amortization 915,494 951,315
----------- ------------
Operating income 1,026,381 273,221
----------- ------------
Other expense (income) 13,251 (6,085)
----------- -----------
Net revenues in excess of certain expenses $ 1,013,130 $ 279,306
=========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-50
<PAGE>
WCFT-TV
(A division of Federal Broadcasting Company)
COMBINED STATEMENTS OF FEDERAL BROADCASTING COMPANY'S EQUITY
<TABLE>
<CAPTION>
DISTRIBUTION
TO FEDERAL
DIVISIONAL BROADCASTING
EQUITY COMPANY TOTAL
---------- ------------ -----------
<S> <C> <C> <C>
Balance, January 1, 1994 $ 8,310,518 $ (2,365,542) $ 5,944,976
1994 net revenues in excess of
certain expenses 1,013,130 1,013,130
Distributions, net (1,577,523) (1,577,523)
----------- ------------ -----------
Balance, December 31, 1994 9,323,648 (3,943,065) 5,380,583
1995 net revenues in excess of
certain expenses 279,306 279,306
Distributions, net (1,218,606) (1,218,606)
----------- ------------ -----------
Balance, December 31, 1995 $ 9,602,954 $ 5,161,671 $ 4,441,283
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-51
<PAGE>
WCFT-TV
(A division of Federal Broadcasting Company)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1994 1995
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net revenues in excess of certain expenses $ 1,013,130 $ 279,306
----------- ----------
Adjustments to reconcile net revenue in
excess of certain expenses to net cash
provided by operating activities:
Depreciation 824,367 861,552
Amortization 91,127 89,763
Gain on sale of fixed assets - (8,085)
Other - 2,000
Changes in operating assets and liabilities:
Accounts receivable (165,855) 138,222
Prepaid expenses and other current assets (57,863) 46,073
Accounts payable, accrued expenses and other
current liabilities 16,688 (10,000)
Program contract rights (274) (690)
----------- ----------
Total adjustments 708,190 1,118,835
----------- ----------
Net cash provided by operating activities 1,721,320 1,398,141
----------- ----------
Cash flows from investing activities:
Proceeds from sale of fixed assets - 15,217
Additions to property and equipment (158,237) (306,117)
----------- ----------
Net cash used for investing activities (158,237) (290,900)
----------- ----------
Cash flows from financing activities,
distributions to Federal Broadcasting Company (1,577,523) (1,112,606)
----------- ----------
Net increase (decrease) in cash and
cash equivalents (14,440) (5,365)
Cash, beginning of year 48,085 33,645
----------- ----------
Cash, end of year $ 33,645 $ 28,280
=========== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-52
<PAGE>
WCFT-TV
(A division of Federal Broadcasting Company)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
WCFT-TV operates a television station in Tuscaloosa, Alabama, and is not a
legal entity, but is a division of Federal Broadcasting Company (a wholly
owned subsidiary of Federal Enterprises, Inc.). On June 29, 1995, WCFT
License Subsidiary, Inc. a wholly owned subsidiary of Federal Broadcasting
Company, was incorporated for the purpose of holding the broadcasting license
of WCFT. As aresult, the broadcasting license was transferred from WCFT-TV to
WCFT License Subsidiary, Inc. at its then net book value of approximately
$1,475,000. In addition, the related deferred tax credit associated with the
difference in the book and tax basis of the broadcast license was transferred
form Federal Broadcasting Company to WCFT License Subsidiary, Inc. (WCFT-TV
and WCFT License Subsidiary, Inc. are herein after referred to as the
"Company"). The Company is licensed by the Federal Communications Commission,
and as such is regulated by this agency. The accompanying combined financial
statements reflect the historical combined financial position, revenues and
certain expenses and cash flows of the Company for the periods presented. All
significant intercompany transactions and balances have been eliminated.
The historical combined financial statements, as presented, do not include an
interest charge on debt held by Federal Broadcasting Company on behalf of the
entire company or an income tax provision.
The accompanying combined balance sheets and combined statements of revenues
and certain expenses have been prepared from the books and records maintained
by the Company. The combined statements of revenues and certain expenses may
not necessarily be indicative of the result of operations that would have
been obtained if the Company had been operated as an independent entity.
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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
effective for the Company with its year ended December 31, 1996, is not
expected to have a material impact on the Company's combined financial
statements.
F-53
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the depreciable assets. The general ranges of lives are as
follows:
Transmitter, broadcasting equipment and buildings 5 to 20 years
Office furniture and fixtures 5 years
Office machinery and equipment 5 years
Automobiles 5 years
Gains or losses on sales of property and equipment are included in the
determination of combined income. Expenditures for repairs and maintenance
of property and equipment are charged to operating expense when incurred.
b. REVENUES: Revenues are generated principally from sales of commercial
advertising and are recorded as the advertisements are broadcast and are
net of agency and national representative commissions.
Revenues applicable to commercial advertising availabilities "traded" to
advertisers in exchange for equipment, merchandise or services are
recorded at the estimated fair market value of the equipment, merchandise
or services received. Revenues are recognized when advertising is
broadcast, and the fair value of the equipment, merchandise or services is
recorded as an asset when received. The amounts related to trades during
the two years ended December 31, 1995 and 1994 are not material to the
combined financial statements.
c. PROGRAM CONTRACTS RIGHTS: Program contract rights represent agreements
with program syndicators for television program material. When the program
contract is signed, the cost of the contract is recorded as an asset and
the corresponding contractual obligation as a liability. The cost is
amortized overthe expected number of telecasts.
d. EXCESS OF COSTS OVER NET ASSETS ACQUIRED: Excess of costs over the fair
value of net assets acquired has been recorded on the basis of the fair
value assigned to the assets on the date WCFT-TV was acquired by Federal
Broadcasting Company and is being amortized on a straight-line basis over
a period of up to 40 years.
F-54
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
e. FEDERAL INCOME TAXES: WCFT-TV, operating as a division of Federal
Broadcasting Company, is not a taxable entity. The revenues and certain
expenses of WCFT-TV are included in the consolidated federal tax return of
Federal Enterprises, Inc. Federal Enterprises, Inc. has not had a net
provision for federal income tax due to significant losses. WCFT License
Subsidiary, Inc. is a taxable entity which is also included in the
consolidated federal tax return of Federal Enterprises, Inc. The nature of
its business gives rise to only a deferred tax expense for the change in
the difference between the book and tax basis for the amortization of the
broadcasting license. No income tax provision has been reflected in the
combined financial statements of the Company as WCFT-TV is not a taxable
entity and the deferred tax expense resulting from the amortization of the
broadcasting license was not material for the year ended December 31,
1995.
3. PROPERTY AND EQUIPMENT, NET:
At December 31, 1994 and 1995, property and equipment, net, consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1994 1995
----------- ------------
<S> <C> <C>
Land $ 163,783 $ 167,653
Transmitter, broadcasting equipment
and buildings 4,609,412 4,766,230
Office furniture and fixtures 80,860 81,514
Office machinery and equipment 113,791 134,871
Automobiles 95,269 189,459
----------- ------------
Total 5,063,115 5,339,727
Less accumulated depreciation 3,045,798 3,884,977
----------- ------------
Total $ 2,017,317 $ 1,454,750
=========== ============
</TABLE>
F-55
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
4. EXCESS OF COSTS OVER NET ASSETS ACQUIRED, NET:
At December 31, 1994 and 1995, excess of costs over net assets acquired, net,
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1994 1995
------------ ------------
<S> <C> <C>
Broadcasting license $ 1,651,266 $ 1,651,266
Network affiliation agreement 618,479 618,479
Other intangible assets 630,865 630,865
------------ ------------
2,900,610 2,900,610
Less accumulated amortization 517,719 607,482
------------ ------------
Total $ 2,382,891 $ 2,293,128
============ ============
</TABLE>
5. RELATED PARTY TRANSACTION:
The Company incurred workers' compensation, property and group liability
insurance charges of approximately $52,000 and $51,000 for the years ended
December 31, 1994 and 1995, respectively. The charges are allocated to the
Company by Federal Broadcasting Company and are generally based on actual
experience ratings and as a ratio of the Company's payroll to Federal
Broadcasting Company's aggregate payroll.
Distributions to Federal Broadcasting Company include cash transfers, as well
as the charges as detailed in the preceding paragraph and the non-cash
transfer of deferred income taxes referred to in Note 1. The following
summarizes the Company's transactions with Federal Broadcasting Company:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
-------- --------
(in thousands)
<S> <C> <C>
Distribution to Federal Broadcasting
Company, net, beginning of period $ 2,365 $ 3,943
Cash distributions to Federal
Broadcasting Company 1,630 1,164
Charges for insurance (52) (51)
Deferred income taxes - 106
-------- --------
Distributions to Federal Broadcasting
Company, net, end of period $ 3,943 $ 5,162
======== ========
Weighted average amount of
noninterest-bearing distributions
outstanding during the period $ 2,829 $ 4,632
======== ========
</TABLE>
F-56
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
5. RELATED PARTY TRANSACTION, CONTINUED:
Certain assets held by the Company serve as collateral on the debt held by
Federal Broadcasting Company.
6. SUBSEQUENT EVENT:
In December 1995, Federal Broadcasting Company and Allbritton Communications
Company agreed in principal to the sale of all the operating assets of the
Company to Allbritton Communications Company. It is anticipated that the
transaction will close in March 1996.
F-57
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Directors
RKZ Television, Inc.
We have audited the accompanying balance sheet of RKZ Television, Inc. as of
December 31, 1994 and December 31, 1995, and the related statements of income
and retained earnings (deficit) and cash flows for the years then ended.
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 in accordance with generally accepted auditing
standards. Those standards 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.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RKZ Television, Inc. at
December 31, 1994 and December 31, 1995, and the results of its operations and
its cash flows for each of the years then ended, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
February 16, 1996
F-58
<PAGE>
RKZ Television, Inc.
(A Wholly-Owned Subsidiary of Osborn Communications Corporation)
<TABLE>
<CAPTION>
Balance Sheets
December 31,
--------------------------
1994 1995
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 40,844 $ 124,282
Accounts receivable, net of allowance for
doubtful accounts of $36,307 in 1994 and
$32,455 in 1995 682,125 620,923
Film broadcast rights 89,612 102,960
Prepaid expenses and other current assets 49,350 40,613
---------- ----------
Total current assets 861,931 888,778
Due from parent - 3,218,350
Property and equipment, at cost, less
accumulated depreciation of $3,161,126
in 1994 and $3,415,260 in 1995 561,377 392,254
Intangible assets, net of accumulated
amortization of $610,536 in 1994 and
$678,692 in 1995 2,137,222 2,069,066
---------- ----------
Total assets $3,560,530 $6,568,448
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 38,119 $ 35,969
Accrued transaction costs - 1,762,406
Accrued wages and sales commissions 112,725 87,524
Current income taxes 12,000 40,000
Film broadcast liabilities 91,205 111,866
Deferred income taxes - 2,975,714
Due to parent 2,817,337 -
Interest payable - parent 4,405,534 -
---------- ----------
Total current liabilities 7,476,920 5,013,479
---------- ----------
Stockholder's equity (deficit):
Common stock of $.01 par value; 1,000
shares authorized, issued and outstanding. 10 10
Additional paid in capital 990 990
Retained earnings (deficit) (3,917,390) 1,553,969
---------- ----------
Total stockholder's equity (deficit) (3,916,390) 1,554,969
---------- ----------
Total liabilities and stockholder's equity
(deficit) $3,560,530 $6,568,448
========== ==========
</TABLE>
See notes to financial statements.
F-59
<PAGE>
RKZ Television, Inc.
(A Wholly-Owned Subsidiary of Osborn Communications Corporation)
Statements of Income and Retained Earnings (Deficit)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Net broadcast revenues $ 4,043,331 $ 3,806,951
Operating expenses:
Selling 916,466 1,063,843
Technical 129,670 130,668
Program 923,482 888,952
General and administrative 580,663 498,850
Depreciation and amortization 454,552 322,290
----------- -----------
Total operating expenses 3,004,833 2,904,603
----------- -----------
Operating income 1,038,498 902,348
Other income 4,585 6,939
Interest expense - other - (2,207)
Interest expense - parent (332,000) (515,000)
Gain on sale of option - 8,094,993
----------- ------------
Income before income taxes 711,083 8,487,073
Charge in lieu of taxes 12,000 3,015,714
----------- ------------
Net income 699,083 5,471,359
Accumulated deficit, beginning of period (4,616,473) (3,917,390)
----------- ------------
Retained earnings (deficit), end of period $(3,917,390) $1,553,969
============ ============
</TABLE>
See notes to financial statements.
F-60
<PAGE>
RKZ Television, Inc.
(A Wholly-Owned Subsidiary of Osborn Communications Corporation)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1994 1995
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 699,083 $5,471,359
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 454,552 322,290
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable (201,291) 61,202
(Increase) decrease in prepaid expenses and
other current assets (29,089) 8,737
Increase in film broadcast rights (5,649) (13,348)
Increase (decrease) in accounts payable and
accrued expenses 4,765 (2,150)
Increase in accrued transaction costs - 1,762,406
Increase in film broadcast liabilities 5,635 20,661
Increase (decrease) in accrued wages and sales
commissions 64,168 (25,201)
Increase in current income taxes 12,000 28,000
Increase in deferred income taxes - 2,975,714
Increase (decrease) in interest payable -
parent 332,000 (4,405,534)
---------- -----------
Net cash provided by operating activities 1,336,174 6,204,136
---------- -----------
INVESTING ACTIVITIES
Capital expenditures (103,169) (85,011)
---------- -----------
Net cash used in investing activities (103,169) (85,011)
</TABLE>
F-61
<PAGE>
RKZ Television, Inc.
(A Wholly-Owned Subsidiary of Osborn Communications Corporation)
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1994 1995
------------ -----------
<S> <C> <C>
FINANCING ACTIVITIES
Repayment of long term debt - parent - (5,500,000)
Cash transfers to parent (1,281,650) ( 535,687)
------------ -----------
Net cash used in financing activities (1,281,650) (6,035,687)
(Decrease) increase in cash (48,645) 83,438
Cash at beginning of period 89,489 40,844
------------ -----------
Cash at end of period $ 40,844 $ 124,282
============ ===========
Supplemental cash flow information:
Cash paid for interest $ - $ 515,000
============ ===========
Cash paid for income taxes $ 11,050 $ 10,050
============ ===========
</TABLE>
See notes to financial statements
F-62
<PAGE>
RKZ Television, Inc.
(A Wholly-Owned Subsidiary of Osborn Communications Corporation)
Notes To Financial Statements
December 31, 1995
1. NATURE OF BUSINESS AND ORGANIZATION
RKZ Television, Inc. (the "Company") is a wholly owned subsidiary of OCC,
Inc., a wholly owned subsidiary of Osborn Communications Corporation
("Osborn"). The Company owns and operates television station WJSU-TV, a CBS
affiliate in Anniston, Alabama.
On December 21, 1995, the Company entered into a ten year Option Agreement
(the "Option"), expiring on December 21, 2005, to sell substantially all of
the assets relating to the operation of the Company to Allbritton
Communications Company ("Allbritton"). The terms of the agreement called for
the Company to receive $10 million for the Option which gives Allbritton the
right to purchase substantially all of the assets relating to the operation of
the Company for $2 million (the "Option Price"). Additionally, the Company
will receive up to $7 million more upon receipt of the necessary approvals to
relocate the broadcast transmitter to maximize broadcast coverage of the
facility. The Company entered into a 10 year Local Marketing Agreement with
Allbritton whereby Allbritton received the right to supply program services
to the Company, operate the Company and retain all revenues from advertising
sales in exchange for payment by Allbritton of $15,000 per month, which
amount is subject to increase in certain circumstances, plus a reimbursement
of station operating expenses to the Company. On December 30, 1995, the
Company received $10 million for the Option. Because the cash proceeds from
the Option are nonrefundable, the Company accounted for the economic
substance of the transaction; accordingly, after accounting for transactions
costs such as severance, bonuses, broker fees, engineering, accounting and
legal expenses, and a reserve to adjust net assets to reflect the Option
Price and associated profit, a gain of approximately $8.1 million was
recorded (see note 5).
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles and reflect the assets and
liabilities at their historical cost to the Company.
F-63
<PAGE>
RKZ Television, Inc.
(A Wholly-Owned Subsidiary of Osborn Communications Corporation)
Notes To Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, as
follows:
Buildings 25 years
Broadcasting equipment 5-10 years
Furniture and fixtures 5 years
Vehicles 3 years
Expenditures for maintenance and repairs are charged to operations as
incurred.
FILM BROADCAST RIGHTS
The capitalized cost of film broadcast rights is amortized on a straight-line
basis over the period of the broadcast license agreements, which approximates
amortization based on the estimated number of showings. Unamortized film
broadcast rights are classified as current or noncurrent based upon their
estimated future usage. Amortization of film contracts included in program
expense was $130,164 and $139,130 for the years ended December 31, 1994 and
1995, respectively.
INTANGIBLE ASSETS
Intangible assets includes $100,000 consisting of the broadcast license to
operate the television station, which is amortized on a straight-line basis
over 40 years, and goodwill of $2,647,758, which represents the excess of
acquisition cost over the fair value of net assets acquired amortized on a
straight line basis over 40 years.
It is the Company's policy to account for the intangible assets at the lower
of amortized cost or fair value. As part of an ongoing review of the
valuation and amortization of the intangible assets, management assesses the
carrying value of the Company's intangible assets if facts and circumstances
suggest that it may be impaired. If this review indicates that the
intangibles will not be recoverable as determined by a undiscounted cash flow
analysis of the Company over the remaining amortization period, the carrying
value of the Company's intangibles would be reduced to its estimated fair
value.
F-64
<PAGE>
RKZ Television, Inc.
(A Wholly-Owned Subsidiary of Osborn Communications Corporation)
Notes To Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of", ("FAS 121") effective
for fiscal years beginning after December 15, 1995. The new rules establish
standards for the recognition and measurement of impairment losses on long-lived
assets and certain intangible assets. The Company expects that the adoption of
FAS 121 will not have a material effect on its financial statements.
BARTER TRANSACTIONS
Revenue from barter transactions (advertising provided in exchange for
programming, goods or services) is recognized when advertisements are
broadcast, and programming, merchandise and services received are charged to
expense (or capitalized as appropriate) when received or used. Barter
revenue recognized was $184,493 and $225,863 for the years ended
December 31, 1994 and 1995, respectively. Barter expense incurred
was $149,949 and $251,584 for the years ended December 31, 1994 and 1995,
respectively.
REVENUE
Broadcast revenue is presented net of advertising commissions and sales
representative fees of $687,517 and $625,920 for the years ended
December 31, 1994 and 1995, respectively.
RISKS AND UNCERTAINTIES
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 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.
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of trade receivables. The Company's
revenue is principally derived from broadcast advertisers within the greater
Anniston area who are impacted by the local economy.
The Company routinely assesses the financial strength of its customers and
does not require collateral or other security to support customer receivables.
F-65
<PAGE>
RKZ Television, Inc.
(A Wholly-Owned Subsidiary of Osborn Communications Corporation)
Notes To Financial Statements
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
<TABLE>
<CAPTION>
December 31,
-------------------------
1994 1995
----------- ----------
<S> <C> <C>
Land $ 23,487 $ 23,487
Buildings 53,227 53,227
Equipment 3,645,789 3,730,800
----------- ----------
3,722,503 3,807,514
Less accumulated depreciation (3,161,126) (3,415,260)
------------ -----------
$ 561,377 $ 392,254
============ ===========
</TABLE>
4. INCOME TAXES
The Company is included in the consolidated federal income tax return of
Osborn. The Osborn consolidated group has consolidated net operating loss
carryovers. Osborn's policy is to allocate consolidated current tax expense
to Osborn subsidiaries with net taxable income.
At December 31, 1994 and 1995, the Company had attributed to it federal net
operating loss carryforwards for income tax purposes of approximately
$2,176,000 that expire in years 2002 through 2009. In addition, at
December 31, 1994 and 1995, the Company also has available approximately
$5,500,000 of state net operating losses. In 1994 for financial reporting
purposes, a valuation allowance of $232,000 had been recognized to offset the
deferred tax assets related to those carryforwards.
The 1994 and 1995 tax provisions were calculated as follows at:
<TABLE>
<CAPTION>
December 31,
-----------------------
1994 1995
---------- ----------
<S> <C> <C>
Current:
Federal $ -- $ --
State 12,000 40,000
---------- ----------
12,000 40,000
Deferred:
Federal -- 2,658,653
State -- 317,061
---------- ----------
-- 2,975,714
---------- ----------
Total $ 12,000 $3,015,714
========== ==========
</TABLE>
F-66
<PAGE>
RKZ Television, Inc.
(A Wholly-Owned Subsidiary of Osborn Communications Corporation)
Notes To Financial Statements
4. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at the U.S. Federal Statutory Rate
to income tax expense is as follows at:
<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Amount computed using statutory rate $ 248,879 $ 2,970,476
State and local taxes, net of federal benefit 7,800 232,050
Benefit of net operating losses (244,679) (232,000)
Miscellaneous - 45,188
--------- -----------
$ 12,000 $ 3,015,714
========= ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows
at:
<TABLE>
<CAPTION>
December 31,
-----------------------
1994 1995
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 870,000 $ 870,000
Bad debt allowance 15,000 12,500
--------- -----------
885,000 882,500
Valuation allowance (232,000) -
--------- -----------
653,000 882,500
Deferred tax liabilities:
Depreciation 115,000 19,954
Amortization 538,000 548,760
Gain on sale of Allbritton option - 3,289,500
--------- -----------
653,000 3,858,214
----------- -----------
Net deferred tax liability $ - $ 2,975,714
=========== ===========
</TABLE>
The net deferred tax liability is considered to be current since it is
anticipated that the liability will become payable within one year of the
balance sheet date of December 31, 1995.
F-67
<PAGE>
RKZ Television, Inc.
(A Wholly-Owned Subsidiary of Osborn Communication Corporation)
Notes To Financial Statements (continued)
5. DUE TO / FROM PARENT
Due to parent consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1994 1995
----------- -----------
<S> <C> <C>
Due from parent $ 2,682,663 $ 3,218,350
Due to parent - long term debt (5,500,000) -
----------- -----------
Net due to / from parent $(2,817,337) $ 3,218,350
=========== ===========
</TABLE>
The Company, through allocations of intercompany debt, had been apportioned
its pro rata share of its original acquisition debt incurred by Osborn in
1987. This Osborn debt aggregated $5.5 million with associated accrued
interest of approximately $4.4 million at December 31, 1994. This debt and
related accrued interest was due on demand. Substantially all of the
Company's assets had been pledged as collateral for this debt. The Company
was charged quarterly interest on the intercompany debt at the rate of 6%
and 9.36% for the years ended December 31, 1994 and 1995, respectively.
Interest expense relating to this debt included in the statement of income
aggregated $332,000 and $515,000 for the years ended December 31, 1994 and
1995, respectively. On December 30, 1995 the Company received $10 million in
conjunction with the sale of an Option to Allbritton. The Company utilized
the proceeds plus cash from operations to repay its intercompany debt and
related intercompany interest payable.
The Company also advances, on an interest free basis, its cash surpluses to
Osborn. Based on the month ending balances, the weighted average balance of
the non-interest bearing advances made from the Company to Osborn approximated
$2,034,000 and $3,223,000 for the years ended December 31, 1994 and 1995,
respectively.
F-68
<PAGE>
RKZ Television, Inc.
(A Wholly-Owned Subsidiary of Osborn Communications Corporation)
Notes To Financial Statements (continued)
6. COMMITMENTS
The rights and obligations for programming that had not been recorded because
the programs were not available for airing aggregated $620,382 at
December 31, 1995.
The Company leases office space, vehicles and office equipment. Rental
expense amounted to $37,106 and $38,962 during the years ended
December 31, 1994 and 1995.
The minimum aggregate annual rentals under noncancellable operating leases
are payable as follows:
Year ending December 31,
1996 $ 61,829
1997 53,650
1998 36,290
1999 25,768
---------
Total $ 177,537
==========
7. EMPLOYEE BENEFIT PLAN
Osborn maintains a 401(k) employee savings plan (the "401(k) plan") that is
offered to substantially all full-time employees of the Company. All eligible
employees may elect to contribute a portion of their wages to the 401(k)
plan, subject to certain limitations.
8. LEGAL MATTERS
The Company is involved in various legal proceedings arising in the normal
course of business. Management, after consulting with counsel, believes that
the final outcome of these proceedings will not have a significant adverse
effect on the Company's financial position or results of operations.
F-69
