SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended Commission file number:
March 31, 1999 333-02302
ALLBRITTON COMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 74-180-3105
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
808 Seventeenth Street, N.W.
Suite 300
Washington, D.C. 20006-3903
(Address of principal executive offices)
Registrant's telephone number, including area code: 202-789-2130
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Number of shares of Common Stock outstanding as of May 11, 1999: 20,000 shares.
<PAGE>
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING ITEM 2 "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THAT ARE NOT HISTORICAL FACTS AND INVOLVE A
NUMBER OF RISKS AND UNCERTAINTIES. THERE ARE A NUMBER OF FACTORS THAT COULD
CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN
SUCH FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, WITHOUT LIMITATION, THE
COMPANY'S OUTSTANDING INDEBTEDNESS AND ITS HIGH DEGREE OF LEVERAGE; THE
RESTRICTIONS IMPOSED ON THE COMPANY BY THE TERMS OF THE COMPANY'S INDEBTEDNESS;
THE HIGH DEGREE OF COMPETITION FROM BOTH OVER-THE-AIR BROADCAST STATIONS AND
PROGRAMMING ALTERNATIVES SUCH AS CABLE TELEVISION, WIRELESS CABLE, IN-HOME
SATELLITE DISTRIBUTION SERVICE AND PAY-PER-VIEW AND HOME VIDEO AND ENTERTAINMENT
SERVICES; THE IMPACT OF NEW TECHNOLOGIES; CHANGES IN FEDERAL COMMUNICATIONS
COMMISSION ("FCC") REGULATIONS; THE VARIABILITY OF THE COMPANY'S QUARTERLY
RESULTS AND THE COMPANY'S SEASONALITY; AND THE UNCERTAINTY ASSOCIATED WITH THE
IMPACT OF YEAR 2000 ISSUES ON THE COMPANY, ITS CUSTOMERS, ITS VENDORS AND OTHERS
WITH WHOM IT DOES BUSINESS.
ALL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY ARE
EXPRESSLY QUALIFIED BY THE FOREGOING CAUTIONARY STATEMENTS.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS WHICH REFLECT MANAGEMENT'S VIEW ONLY AS OF THE DATE HEREOF. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS
TO THESE FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Operations and Retained
Earnings for the Three and Six Months Ended
March 31, 1998 and 1999 1
Consolidated Balance Sheets as of September 30, 1998
and March 31, 1999 2
Consolidated Statements of Cash Flows for the Six
Months Ended March 31, 1998 and 1999 3
Notes to Interim Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Dollars in thousands)
(unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
------------------------ -----------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues, net $ 39,073 $ 41,609 $ 90,393 $ 94,351
------ ------ ------ ------
Television operating expenses, excluding
depreciation and amortization 25,760 26,775 53,349 54,728
Depreciation and amortization 4,304 4,325 9,106 8,566
Corporate expenses 1,035 1,163 2,097 2,209
------ ------ ------ ------
31,099 32,263 64,552 65,503
------ ------ ------ ------
Operating income 7,974 9,346 25,841 28,848
------ ------ ------ ------
Nonoperating income (expense)
Interest income
Related party 553 631 1,106 1,261
Other 867 72 942 156
Interest expense (11,943) (10,508) (23,001) (20,845)
Other, net (274) (296) (571) (623)
------ ------ ------ ------
(10,797) (10,101) (21,524) (20,051)
------ ------ ------ ------
(Loss) income before income taxes and
extraordinary item (2,823) (755) 4,317 8,797
(Benefit from) provision for income taxes (984) (361) 2,133 3,804
------ ------ ------ ------
(Loss) income before extraordinary item (1,839) (394) 2,184 4,993
Extraordinary loss on early repayment of debt,
net of income tax benefit of $3,176 (5,155) - (5,155) -
------ ------ ------ ------
Net (loss) income (6,994) (394) (2,971) 4,993
Retained earnings, beginning of period 48,858 50,813 44,835 45,426
------ ------ ------ ------
Retained earnings, end of period $ 41,864 $ 50,419 $ 41,864 $ 50,419
====== ====== ====== ======
</TABLE>
See accompanying notes to interim consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31,
September 30, 1999
Assets 1998 (unaudited)
------------ ----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 13,849 $ 14,395
Accounts receivable, net 33,568 34,441
Program rights 17,199 8,511
Deferred income taxes 1,706 1,706
Interest receivable from related party 492 492
Other 2,003 2,839
------- -------
Total current assets 68,817 62,384
Property, plant and equipment, net 47,559 48,044
Intangible assets, net 144,804 141,969
Deferred financing costs and other 10,856 10,239
Cash surrender value of life insurance 5,648 6,323
Program rights 1,837 1,346
------- -------
$ 279,521 $ 270,305
======= =======
Liabilities and Stockholder's Investment
Current liabilities
Current portion of long-term debt $ 1,436 $ 1,609
Accounts payable 2,648 3,552
Accrued interest payable 11,156 11,156
Program rights payable 20,249 11,562
Accrued employee benefit expenses 4,860 4,306
Other accrued expenses 4,257 4,937
------- -------
Total current liabilities 44,606 37,122
Long-term debt 428,255 428,861
Program rights payable 1,722 1,547
Deferred rent and other 3,436 3,666
Accrued employee benefit expenses 1,977 2,057
Deferred income taxes 3,301 4,152
------- -------
Total liabilities 483,297 477,405
------- -------
Stockholder's investment
Preferred stock, $1 par value, 800 shares authorized,
none issued - -
Common stock, $.05 par value, 20,000 shares authorized,
issued and outstanding 1 1
Capital in excess of par value 6,955 6,955
Retained earnings 45,426 50,419
Distributions to owners, net (256,158) (264,475)
------- -------
Total stockholder's investment (203,776) (207,100)
------- -------
$ 279,521 $ 270,305
======= =======
See accompanying notes to interim consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited) Six Months Ended
March 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (2,971) $ 4,993
------- ------
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 9,106 8,566
Other noncash charges 637 628
Extraordinary loss on early repayment of debt 5,155 -
Provision for doubtful accounts 288 224
Loss on disposal of assets 3 -
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 1,483 (1,097)
Program rights 8,143 9,179
Other current assets (495) (836)
Other noncurrent assets (228) (628)
Increase (decrease) in liabilities:
Accounts payable (172) 904
Accrued interest payable 391 -
Program rights payable (8,354) (8,862)
Accrued employee benefit expenses (141) (474)
Other accrued expenses 448 680
Deferred rent and other liabilities (25) 230
Deferred income taxes 736 851
------- -------
16,975 9,365
------- -------
Net cash provided by operating activities 14,004 14,358
------- -------
Cash flows from investing activities:
Capital expenditures (4,770) (4,699)
Proceeds from disposal of assets 169 11
------- -------
Net cash used in investing activities (4,601) (4,688)
------- -------
Cash flows from financing activities:
Proceeds from issuance of debt 150,000 -
Deferred financing costs (4,440) -
Call premium on early repayment of debt (5,842) -
Repayments under line of credit, net (12,700) -
Principal payments on long-term debt and capital lease obligations (123,517) (807)
Distributions to owners, net of certain charges (42,055) (97,697)
Repayments of distributions to owners 39,633 89,380
------- -------
Net cash provided by (used in) financing activities 1,079 (9,124)
------- -------
Net increase in cash and cash equivalents 10,482 546
Cash and cash equivalents, beginning of period 7,421 13,849
------- ------
Cash and cash equivalents, end of period $ 17,903 $ 14,395
====== ======
Non-cash investing and financing activities:
Equipment acquired under capital leases $ 341 $ 1,528
======== =======
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE>
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(unaudited)
NOTE 1 - The accompanying unaudited interim consolidated financial statements of
Allbritton Communications Company (an indirectly wholly-owned subsidiary of
Perpetual Corporation) and its subsidiaries (collectively, the "Company") have
been prepared pursuant to instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in conformity with generally
accepted accounting principles have been omitted or condensed where permitted by
regulation. In management's opinion, the accompanying financial statements
reflect all adjustments, which were of a normal recurring nature, and
disclosures necessary for a fair presentation of the consolidated financial
statements for the interim periods presented. The results of operations for the
three and six months ended March 31, 1999 are not necessarily indicative of the
results that can be expected for the entire fiscal year ending September 30,
1999. The interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended September 30, 1998 which are contained in the Company's Form
10-K.
NOTE 2 - For the six months ended March 31, 1998 and 1999, distributions to
owners were as follows:
1998 1999
---- ----
Distributions to owners, beginning of period $237,354 $256,158
Cash advances 43,191 100,785
Repayment of cash advances (39,633) (89,380)
Benefit from (charge for)
Federal and state income taxes 1,525 (3,088)
-------- ---------
Distributions to owners, end of period $242,437 $264,475
======= =======
Weighted average amount of non-interest bearing
advances outstanding during the period $228,096 $240,796
======= =======
4
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Dollars in thousands)
Overview
Allbritton Communications Company and its subsidiaries (on a consolidated basis,
the "Company") own and/or program ABC network-affiliated television stations
serving seven diverse geographic markets: WJLA-TV in Washington, D.C.; WHTM-TV
in Harrisburg, Pennsylvania; KATV in Little Rock, Arkansas; KTUL in Tulsa,
Oklahoma; WSET-TV in Lynchburg, Virginia; WCIV in Charleston, South Carolina;
and WCFT-TV in Tuscaloosa, Alabama (west of Birmingham, Alabama). The Company
also programs the ABC network affiliate WJSU-TV in Anniston, Alabama (east of
Birmingham, Alabama) pursuant to the terms of a local marketing agreement, and
owns a low power television station licensed to Birmingham, Alabama (WBMA-LP).
The Company operates WCFT-TV and programs WJSU-TV in tandem with WBMA-LP serving
the viewers of Birmingham, Tuscaloosa and Anniston.
The Company's advertising revenues are generally highest in the first and third
quarters of each fiscal year, due in part to increases in retail advertising in
the period leading up to and including the holiday season and active advertising
in the spring. The fluctuation in the Company's operating results is generally
related to fluctuations in the revenue cycle. In addition, advertising revenues
are generally higher during election years due to spending by political
candidates, which is typically heaviest during the Company's first fiscal
quarter. Years in which Olympic Games are held also cause cyclical fluctuations
in operating results depending on which television network is carrying Olympic
coverage.
As compared to the same period in the prior fiscal year, the Company's results
of operations for the three months ended March 31, 1999 principally reflect
increased demand by advertisers in the Washington, D.C. and Little Rock markets
as well as increased audience share and advertising revenues in the Birmingham
market. The comparative results are also impacted by the effect of the Company's
$150,000 offering of its 8.875% Senior Subordinated Notes due 2008 (the "8.875%
Notes") during the second quarter of the prior fiscal year. The cash proceeds of
the offering, net of offering expenses, of approximately $146,000 were used to
redeem the Company's 11.5% Senior Subordinated Debentures due 2004 (the "11.5%
Debentures") on March 3, 1998 with the balance used to repay certain amounts
outstanding under the Company's revolving credit facility. The Company incurred
a loss, net of the related income tax effect, of $5,155 on the early
extinguishment of the 11.5% Debentures resulting primarily from the payment of a
call premium and write-off of remaining deferred financing costs.
5
<PAGE>
Results of Operations
Set forth below are selected consolidated financial data for the three and
six months ended March 31, 1998 and 1999 and the percentage change between
the periods:
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
---------------------------- --------------------------
Percent Percent
1998 1999 Change 1998 1999 Change
---- ---- ------ ---- ---- ------ -
<S> <C> <C> <C> <C> <C> <C>
Operating revenues, net $39,073 $41,609 6.5% $90,393 $94,351 4.4%
Total operating expenses 31,099 32,263 3.7% 64,552 65,503 1.5%
------ ------ ------ ------
Operating income 7,974 9,346 17.2% 25,841 28,848 11.6%
Nonoperating expenses, net 10,797 10,101 -6.4% 21,524 20,051 -6.8%
Income tax (benefit) provision (984) (361) -63.3% 2,133 3,804 78.3%
------ ------ ------ ------
(Loss) income before
extraordinary item (1,839) (394) 78.6% 2,184 4,993 128.6%
Extraordinary loss, net of
income tax benefit 5,155 - n/a 5,155 - n/a
------ ------ ------ ------
Net (loss) income $ (6,994) $ (394) 94.4% $ (2,971) $ 4,993 268.1%
======= ====== ======= ======
</TABLE>
Net Operating Revenues
The following table depicts the principal types of operating revenues, net of
agency commissions, earned by the Company for each of the three and six months
ended March 31, 1998 and 1999, and the percentage contribution of each to the
total broadcast revenues earned by the Company, before fees:
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
---------------------------- ---------------------------
1998 1999 1998 1999
---- ---- ---- ----
Dollars Percent Dollars Percent Dollars Percent Dollars Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Local/regional <F1> $20,214 50.0 $21,490 50.0 $45,800 49.0 $46,284 47.5
National <F2> 15,843 39.2 17,113 39.8 37,462 40.0 37,492 38.5
Network compensation <F3> 1,590 3.9 1,503 3.5 3,057 3.3 2,889 3.0
Political <F4> 53 0.1 17 0.1 970 1.0 3,926 4.0
Trade and barter <F5> 1,936 4.8 1,932 4.5 4,080 4.4 4,044 4.1
Other revenue <F6> 810 2.0 924 2.1 2,160 2.3 2,799 2.9
------ ----- ------ ----- ------ ----- ------ -----
Broadcast revenues 40,446 100.0 42,979 100.0 93,529 100.0 97,434 100.0
===== ===== ===== =====
Fees <F7> (1,375) (1,372) (3,143) (3,087)
------ ------ ------ ------
Broadcast revenue, net of fees 39,071 41,607 90,386 94,347
Non-broadcast revenue <F8> 2 2 7 4
------ ------ ------ ------
Total net operating revenues $39,073 $41,609 $90,393 $94,351
====== ====== ====== ======
<FN>
<F1> Represents sale of advertising time to local and regional
advertisers or agencies representing such advertisers.
<F2> Represents sale of advertising time to agencies representing national advertisers.
<F3> Represents payment by networks for broadcasting or promoting network programming.
<F4> Represents sale of advertising time to political advertisers.
<F5> Represents value of commercial time exchanged for goods and services (trade) or syndicated
programs (barter).
<F6> Represents miscellaneous revenue, principally receipts from tower rental, production of
commercials and revenue from the sale of University of Arkansas sports programming to
advertisers and radio stations.
<F7> Represents fees paid to national sales representatives and fees paid for music licenses.
<F8> Represents revenues from program syndication sales and other miscellaneous non-broadcast revenues.
</FN>
</TABLE>
6
<PAGE>
Net operating revenues for the three months ended March 31, 1999 totaled
$41,609, an increase of $2,536, or 6.5%, when compared to net operating revenues
of $39,073 for the three months ended March 31, 1998. This increase resulted
principally from increased local and national advertising revenue in the
Company's Washington, D.C., Birmingham and Little Rock markets. The revenue
growth in Birmingham was achieved through continued audience and market share
gains.
Net operating revenues increased $3,958, or 4.4%, to $94,351 for the six months
ended March 31, 1999 as compared to $90,393 for the same period in the prior
year. This year-to-date increase principally resulted from increased political
advertising demand in a majority of the Company's markets as well as increased
local/regional and national advertising revenue in the Company's Birmingham and
Little Rock markets, partially offset by decreased advertising demand in the
Company's Washington, D.C. market.
Local/regional advertising revenues increased 6.3% and 1.1% during the three and
six months ended March 31, 1999, respectively, versus the comparable periods in
Fiscal 1998. The increase for the three months ended March 31, 1999 of $1,276
over the three months ended March 31, 1998 was primarily attributable to an
improvement in the Washington, D.C., Harrisburg and Little Rock local/regional
advertising markets and continued market share gains and increased
local/regional advertising revenue in the Birmingham market. The $484 increase
in local/regional advertising revenues for the six-month period ended March 31,
1999 over the comparable period in the prior fiscal year was primarily
attributable to market share gains in Birmingham, offset by a weakening in the
Washington, D.C. market for local/regional advertisers during the first fiscal
quarter.
National advertising revenues increased $1,270 and $30, or 8.0% and 0.1%, for
the three and six months ended March 31, 1999, respectively, over the comparable
periods in Fiscal 1998. The increase for the three months ended March 31, 1999
was primarily attributable to an improvement in the Washington, D.C. and Little
Rock national advertising markets combined with market share gains in the
Birmingham market. The increase for the six-month period ended March 31, 1999
was principally attributable to an improvement in the Little Rock national
advertising market and market share gains in Birmingham, offset by a weakening
in the Washington, D.C. market during the first fiscal quarter.
Political advertising revenues, which comprised 4.0% of the Company's total net
operating revenues for the six months ended March 31, 1999, increased by $2,956,
or 304.7%, from the comparable period in Fiscal 1998. The increase was due
primarily to various high-profile local political races in many of the Company's
markets that took place during the first quarter of Fiscal 1999 with no
comparable political elections occurring during the same period in Fiscal 1998.
No individual advertiser accounted for more than 5% of the Company's broadcast
revenues during the three or six months ended March 31, 1998 or 1999.
7
<PAGE>
Total Operating Expenses
Total operating expenses for the three months ended March 31, 1999 totaled
$32,263, an increase of $1,164, or 3.7%, compared to total operating expenses of
$31,099 for the three-month period ended March 31, 1998. This increase was
primarily the result of an increase in television operating expenses, excluding
depreciation and amortization, of $1,015.
Total operating expenses for the six months ended March 31, 1999 totaled
$65,503, an increase of $951, or 1.5%, compared to total operating expenses of
$64,552 for the six-month period ended March 31, 1998. This increase was
primarily the result of an increase in television operating expenses, excluding
depreciation and amortization, of $1,379.
Television operating expenses, excluding depreciation and amortization,
increased $1,015 and $1,379, or 3.9% and 2.6%, for the three and six months
ended March 31, 1999, respectively, as compared to the comparable periods in
Fiscal 1998. These expense increases were the result of increased programming
expenses across a majority of the Company's stations during the first and second
fiscal quarters as well as increased news spending at the Company's Washington,
D.C. station during the second fiscal quarter. These increases were partially
offset by reductions in other operating expenses.
Operating Income
For the three months ended March 31, 1999, operating income of $9,346 increased
$1,372, or 17.2%, when compared to operating income of $7,974 for the three
months ended March 31, 1998. For the three months ended March 31, 1999, the
operating margin increased to 22.5% from 20.4% for the comparable period in
Fiscal 1998. Operating income of $28,848 for the six months ended March 31, 1999
increased $3,007, or 11.6%, when compared to operating income of $25,841 for the
same period in the prior fiscal year. For the six months ended March 31, 1999,
the operating margin increased to 30.6% from 28.6% for the comparable period in
the prior fiscal year. The increases in operating income and margin were the
result of operating revenues increasing at a greater rate than operating
expenses as discussed above.
Nonoperating Expenses, Net
Interest expense of $10,508 and $20,845 for three and six months ended March 31,
1999, respectively, decreased $1,435 and $2,156, or 12.0% and 9.4%, as compared
to $11,943 and $23,001 for the three and six-month periods ended March 31, 1998,
respectively. These decreases were principally due to the incremental interest
expense in the prior fiscal year associated with carrying both the newly-issued
8.875% Notes and the 11.5% Debentures from January 22, 1998 until the redemption
of the 11.5% Debentures on March 3, 1998 after the redemption notice period was
completed. In addition, interest expense for the six months ended March 31, 1999
was further decreased by the reduced weighted average interest rate on debt
during Fiscal 1999 as a result of the Company's refinancing of its 11.5%
Debentures during the second quarter of Fiscal 1998.
8
<PAGE>
The average balance of debt was $462,443 and $432,643 for the six months ended
March 31, 1998 and 1999, respectively, and the weighted average interest rate on
debt was 10.0% and 9.4% for the six months ended March 31, 1998 and 1999,
respectively. The decreased average debt balance during Fiscal 1999 was due to
carrying both the newly-issued 8.875% Notes and the 11.5% Debentures from
January 22, 1998 until the redemption of the 11.5% Debentures on March 3, 1998
after the redemption notice period was completed. Had the Company redeemed the
11.5% Debentures on January 22, 1998, the average balance of debt and the
weighted average interest rate on debt would have been $427,300 and 9.9%,
respectively, for the six months ended March 31, 1998.
Interest income of $703 for the three months ended March 31, 1999 decreased
$717, or 50.5%, as compared to interest income of $1,420 for the three months
ended March 31, 1998. Interest income for the six months ended March 31, 1999
was $1,417, a decrease of $631, or 30.8%, as compared to $2,048 for the
six-month period ended March 31, 1998. The decrease in interest income for both
the three and six-month periods was due to interest earned in the prior fiscal
year from temporarily investing the majority of the proceeds from the issuance
of the 8.875% Notes for the period from January 22, 1998 until March 3, 1998 at
which time the Company redeemed the 11.5% Debentures.
Income Taxes
For the three months ended March 31, 1999, the Company recorded a benefit from
income taxes of $361 as compared to a benefit of $984 for the three months ended
March 31, 1998, a decrease of 63.3%. The decrease was directly related to the
$2,068, or 73.3%, decrease in the Company's loss before income taxes and
extraordinary item due to the factors discussed above.
For the six months ended March 31, 1999, the Company recorded a provision for
income taxes of $3,804 as compared to a provision of $2,133 for the six months
ended March 31, 1998, an increase of 78.3%. The increase was directly related to
the $4,480, or 103.8%, increase in the Company's income before income taxes and
extraordinary item, partially offset by a reduction in the Company's overall
effective income tax rate in Fiscal 1999.
Income Before Extraordinary Item
For the three months ended March 31, 1999, the Company recorded a loss before
extraordinary item of $394, a $1,445, or 78.6%, improvement from the loss before
extraordinary item of $1,839 for the three months ended March 31, 1998. For the
six months ended March 31, 1999, the Company recorded income before
extraordinary item of $4,993 as compared to $2,184 for the comparable period in
Fiscal 1998. The improved results for Fiscal 1999 as compared to Fiscal 1998
reflect the increase in operating income as well as the decrease in interest
expense as discussed above.
Net Income
For the three and six months ended March 31, 1999, the Company recorded a net
loss of $394 and net income of $4,993, respectively, as compared to net losses
of $6,994 and $2,971 for the three and six months ended March 31, 1998,
respectively. The net losses for the three and six-month periods ended March 31,
1998 reflect the $5,155 extraordinary loss on early repayment of debt resulting
primarily from the payment of a call premium and write-off of remaining deferred
financing costs.
9
<PAGE>
Balance Sheet
Significant balance sheet fluctuations from September 30, 1998 to March 31, 1999
consisted of decreases in program rights and program rights payable which
reflect the annual cycle of the underlying program contracts. In addition,
distributions to owners increased as a result of net cash advances made during
the six months ended March 31, 1999.
Liquidity and Capital Resources
As of March 31, 1999, the Company's cash and cash equivalents aggregated
$14,395, and the Company had an excess of current assets over current
liabilities of $25,262.
Cash Provided by Operations. The Company's principal source of working capital
is cash flow from operations and borrowings under its revolving credit facility.
As reported in the consolidated statements of cash flows, the Company's net cash
provided by operating activities was $14,004 and $14,358 for the six months
ended March 31, 1998 and 1999, respectively.
Transactions with Owners. For the six months ended March 31, 1998 and 1999, the
Company made cash advances to owners, net of repayments and certain charges,
totaling $5,083 and $8,317, respectively. The Company periodically makes
advances in the form of distributions to its parent. At present, the primary
source of repayment of the net advances is through the ability of the Company to
pay dividends or make other distributions to its parent, and there is no
immediate intent for the advances 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.
Stockholder's deficit amounted to $207,100 at March 31, 1999, an increase of
$3,324, or 1.6%, from the September 30, 1998 deficit of $203,776. The increase
was due to a net increase in distributions to owners of $8,317, offset by net
income for the period of $4,993.
Indebtedness. The Company's total debt, including the current portion of
long-term debt, increased from $429,691 at September 30, 1998 to $430,470 at
March 31, 1999. This debt, net of applicable discounts, consisted of $273,993 of
9.75% Debentures, $150,000 of 8.875% Notes and $6,477 of capital lease
obligations at March 31, 1999. The increase of $779 in total debt from September
30, 1998 to March 31, 1999 was primarily due to a net increase in capital lease
obligations. As of September 30, 1998 and March 31, 1999, there were no amounts
outstanding under the Company's $40,000 revolving credit facility. The revolving
credit facility is secured by the pledge of stock of the Company and its
subsidiaries and matures April 16, 2001.
Under the existing borrowing agreements, the Company is subject to restrictive
covenants that place limitations upon payments of cash dividends, issuance of
capital stock, investment transactions, incurrence of additional obligations and
transactions with affiliates. In addition, the Company must maintain specified
levels of operating cash flow (as defined in the underlying borrowing
agreements) and working capital and comply with other financial covenants.
Compliance with the financial covenants is measured at the end of each quarter,
and as of March 31, 1999, the Company was in compliance with those financial
covenants.
10
<PAGE>
Other Uses of Cash. The Company anticipates that capital expenditures for Fiscal
1999 will approximate $10,000, which includes approximately $2,000 for
completion of the project to enable WJLA to simultaneously broadcast its
programming over its second channel authorized to transmit a digital television
signal. Other Fiscal 1999 capital expenditures include improvements and an
expansion to the Company's Tulsa office and studio facility and technical
equipment improvements across the Company's television stations. Capital
expenditures during the six months ended March 31, 1999 totaled $6,227, of which
$1,528 was financed through capital lease transactions.
The Company anticipates that its existing cash position, together with cash
flows generated by operating activities and amounts available under its
revolving credit facility will be sufficient to finance the operating cash flow
requirements of its stations, debt service requirements and anticipated capital
expenditures.
Year 2000 Compliance
The Year 2000 issue, common to most companies, results from computer programs,
computer equipment and embedded microprocessors using two digits rather than
four to define the applicable year. Computer applications and equipment that use
date-sensitive software or date-sensitive embedded microprocessors may recognize
a date of "00" as the year 1900 rather than the year 2000. As the Company relies
on various technologies throughout its business operations, the Year 2000 issue
could result in a system failure or miscalculations causing disruption of
operations.
The Company has undertaken various initiatives to ensure that its operational
and financial reporting systems and equipment with embedded technology will
function properly with respect to dates in the Year 2000 and thereafter. The
Company is progressing through a comprehensive plan which includes the following
phases: (i) identification of mission-critical operating systems and
applications; (ii) inventory of all applications and equipment at risk of being
date sensitive to the Year 2000; (iii) assessment and evaluation of Year 2000
issues; (iv) system modification, upgrade or replacement; (v) testing; and (vi)
development of contingency plans in the event that modifications, upgrades and
replacements are not completed timely or do not fully remediate the Year 2000
issues.
To implement the plan, the Company has established Year 2000 teams from each of
its television stations that are responsible for analyzing the Year 2000 impact
on operations and for formulating appropriate strategies to resolve the Year
2000 issues. The Company has generally completed the identification and
inventory phases and is actively managing projects in the assessment and
remediation phases of the Year 2000 plan. The Company's assessment phase of the
plan also includes contacting significant third party vendors and service
providers in an effort to determine the state of their Year 2000 readiness as
all computer software utilized by the Company is purchased or leased from third
party vendors. The Company is undertaking formal communications with its
significant vendors and service providers and is monitoring responses and
implementing additional follow-up measures as necessary.
11
<PAGE>
The Company's plan of remediation includes a combination of installing new
applications and equipment, upgrading existing applications and equipment,
retiring obsolete systems and equipment and confirming significant third party
compliance. A summary of certain of the Company's mission-critical systems
follows:
The Company receives network and first-run syndicated programming via satellite.
The Company's receipt of that programming is dependent upon the ABC television
network and program syndicators resolving their Year 2000 issues. Based upon
communications from the ABC television network, the Company does not currently
anticipate any disruptions in receiving programming from ABC. The Company is in
the process of making inquiries of program syndicators as to their Year 2000
status. In the event of any programming disruptions, the Company has certain
alternative programming options that it would plan to consider.
The Company uses advertising inventory management software to manage, schedule
and bill advertising at each of the Company's television stations. This software
is licensed from a single vendor that has warranted the system for Year 2000
compliance and advised the Company of the satisfactory completion of a Year 2000
test of the software by other users.
The Company utilizes equipment and software to automate the insertion of
advertising into program breaks. This equipment and software at certain of the
Company's television stations must be upgraded in order to be Year 2000
compliant. The Company expects to complete installation of the upgrades by the
end of the third quarter of Fiscal 1999. Failure of this software or equipment
would not materially disrupt the Company's business operations as this process
can also be performed manually.
The Company uses various broadcast and studio equipment to produce and transmit
its broadcast signals. The Company is currently communicating with third party
vendors and testing the equipment with respect to embedded technology. The
results of the procedures thus far have given the Company no reason to believe
that the equipment will not continue to function after 1999. If such procedures
indicate that any of the equipment will be impacted by the Year 2000 issue,
upgrades or replacements will be necessary.
To date, costs toward achieving Year 2000 compliance, including capital
expenditures, have not been material to the Company's results of operations, its
cash flow or its financial position, and such costs are not expected to be
material in Fiscal 1999 or 2000. Based on the status of the Company's assessment
to date, which is incomplete and ongoing, costs of the Company's Year 2000 plan,
including those incurred to date, are currently expected not to exceed $2,000.
Such costs have been, and are expected to be, principally for capital
expenditures for replacement systems. These systems generally provide enhanced
capabilities and functionality as well as Year 2000 compliance. The costs will
be funded with cash provided by operations. This estimate assumes that third
party vendors have accurately assessed the compliance of their products and that
they will successfully correct issues in non-compliant products. The Company
does not separately track internal costs associated with the Year 2000 issue;
however, such costs are not considered to be significant and principally relate
to payroll costs of existing engineering personnel. The Company believes that
none of its other significant information technology projects has been delayed
as a result of the Year 2000 compliance efforts.
12
<PAGE>
Although the Company has not adopted a formal overall contingency plan as of the
present time, it has assessed, and will continue to assess, alternatives and
other specific contingency plans at the individual project level as highlighted
above.
The Company may discover additional Year 2000 issues, including that remediation
or contingency plans are not feasible or that the costs of such plans exceed
current expectations. In many cases, the Company is relying on assurances from
third parties that their systems or that new or upgraded systems acquired by the
Company will be Year 2000 compliant. The failure of systems of the Company or
third parties could cause a material disruption in the Company's business
operations. In addition, disruptions in the general economy as a result of the
Year 2000 issue could lead to a reduction of advertising spending which could
adversely affect the Company. The Company will continue to evaluate the nature
of these risks, but at this time management is unable to determine the
probability that any such risk will occur, or if it does occur, what the nature,
length or other effects, if any, it may have on the Company.
The Company will continue to fulfill the elements of its Year 2000 plan in order
to mitigate the impact that any Year 2000 issues may have on the Company. While
there can be no assurance that the Company's systems or equipment or those of
third parties on which the Company relies will be Year 2000 compliant in a
timely manner or that the Company's or third parties' contingency plans will
mitigate the effects of any noncompliance, management believes that it has an
effective program to resolve the Year 2000 issue in a timely manner and that its
Year 2000 issues will be remediated.
The information set forth above is deemed by the Company to constitute "Year
2000 Statements" and to contain "Year 2000 Readiness Disclosure" within the
meaning of the "Year 2000 Information and Readiness Act. "
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
13
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company currently and from time to time is involved in litigation incidental
to the conduct of its business. 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 materially adverse effect on the
Company's consolidated financial condition, results of operations or cash flows.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
See Exhibit Index on pages 16-18.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLBRITTON COMMUNICATIONS COMPANY
(Registrant)
May 11, 1999 /s/ Lawrence I. Hebert
------------ ----------------------
Date Name: Lawrence I. Hebert
Title: Chairman and Chief Executive
Officer
May 11, 1999 /s/ Stephen P. Gibson
------------ ---------------------
Date Name: Stephen P. Gibson
Title: Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page No.
3.1 Certificate of Incorporation of ACC. (Incorporated by *
reference to Exhibit 3.1 of Company's Registration
Statement on Form S-4, No. 333-02302, dated March 12,
1996.)
3.2 Bylaws of ACC. (Incorporated by reference to Exhibit *
3.2 of Registrant's Registration Statement on Form S-4,
No. 333-02302, dated March 12, 1996.)
4.1 Indenture dated as of February 6, 1996 between ACC and *
State Street Bank and Trust Company, as Trustee,
relating to the Debentures. (Incorporated by reference
to Exhibit 4.1 of Company's Registration Statement on
Form S-4, No. 333-02302, dated March 12, 1996.)
4.2 Indenture dated as of January 22, 1998 between ACC and *
State Street Bank and Trust Company, as Trustee,
relating to the Notes. (Incorporated by reference to
Exhibit 4.1 of Company's Registration Statement on
Form S-4, No.333-45933, dated February 9, 1998.)
4.3 Form of 9.75% Series B Senior Subordinated Debentures *
due 2007. (Incorporated by reference to Exhibit
4.3 of Company's Registration Statement on Form S-4,
No. 333-02302, dated March 12, 1996.)
4.4 Revolving Credit Agreement dated as of April 16, 1996 *
by and among Allbritton Communications Company certain
Banks, and The First National Bank of Boston, as agent.
(Incorporated by reference to Exhibit 4.4 of Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated
August 14, 1996.)
4.5 Modification No. 1 dated as of June 19, 1996 to *
Revolving Credit Agreement. (Incorporated by reference
to Exhibit 4.5 of Company's Quarterly Report on Form
10-Q, No. 333-02302, dated May 15, 1997.)
4.6 Modification No. 2 dated as of December 20, 1996 to *
Revolving Credit Agreement. (Incorporated by reference
to Exhibit 4.6 of Company's Quarterly Report on Form
10-Q, No. 333-02302, dated May 15, 1997.)
4.7 Modification No. 3 dated as of May 14, 1997 to *
Revolving Credit Agreement. (Incorporated by reference
to Exhibit 4.7 of Company's Quarterly Report on Form
10-Q, No. 333-02302, dated May 15, 1997.)
16
<PAGE>
4.8 Modification No. 4 dated as of September 30, 1997 to *
Revolving Credit Agreement. (Incorporated by reference
to Exhibit 4.8 of Company's Form 10-K, No. 333-02302,
dated December 22, 1997.)
10.1 Network Affiliation Agreement (Harrisburg Television, *
Inc.). (Incorporated by reference to Exhibit 10.3 of
Company's Pre-effective Amendment No. 1 to Registration
Statement on Form S-4, dated April 22, 1996.)
10.2 Network Affiliation Agreement (First Charleston Corp.). *
(Incorporated by reference to Exhibit 10.4 of Company's
Pre-effective Amendment No. 1 to Registration Statement
on Form S-4, dated April 22, 1996.)
10.3 Network Affiliation Agreement (WSET, Incorporated). *
(Incorporated by reference to Exhibit 10.5 of Company's
Pre-effective Amendment No. 1 to Registration Statement
on Form S-4, dated April 22, 1996.)
10.4 Network Affiliation Agreement (WJLA-TV). (Incorporated *
by reference to Exhibit 10.6 of Company's Pre-effective
Amendment No. 1 to Registration Statement on Form S-4,
dated April 22, 1996.)
10.5 Network Affiliation Agreement (KATV Television, Inc.). *
(Incorporated by reference to Exhibit 10.7 of Company's
Pre-effective Amendment No. 1 to Registration Statement
on Form S-4, dated April 22, 1996.)
10.6 Network Affiliation Agreement (KTUL Television, Inc.). *
(Incorporated by reference to Exhibit 10.8 of Company's
Pre-effective Amendment No. 1 to Registration Statement
on Form S-4, dated April 22, 1996.)
10.7 Network Affiliation Agreement (TV Alabama, Inc.). *
(Incorporated by reference to Exhibit 10.9 of Company's
Pre-effective Amendment No. 1 to Registration Statement
on Form S-4, dated April 22, 1996.)
10.8 Tax Sharing Agreement effective as of September 30, *
1991 by and among Perpetual Corporation, ACC and
ALLNEWSCO, Inc., amended as of October 29, 1993.
(Incorporated by reference to Exhibit 10.11 of
Company's Registration Statement on Form S-4, No.
333-02302, dated March 12, 1996.)
17
<PAGE>
10.9 Second Amendment to Tax Sharing Agreement effective as *
of October 1, 1995 by and among Perpetual Corporation,
ACC and ALLNEWSCO, Inc. (Incorporated by reference to
Exhibit 10.9 of the Company's Form 10-K, No. 333-02302,
dated December 22, 1998.)
10.10 Time Brokerage Agreement dated as of December 21, 1995 *
by and between RKZ Television, Inc. and ACC.
(Incorporated by reference to Exhibit 10.11 of
Company's Registration Statement on Form S-4, No.
333-02302, dated March 12, 1996.)
10.11 Option Agreement dated December 21, 1995 by and *
between ACC and RKZ Television, Inc. (Incorporated by
reference to Exhibit 10.12 of Company's Registration
Statement on Form S-4, No. 333-02302, dated March 12,
1996.)
10.12 Amendment dated May 2, 1996 by and among TV Alabama, *
Inc., RKZ Television, Inc. and Osborn Communications
Corporation to Option Agreement dated December 21, 1995
by and between ACC and RKZ Television, Inc.
(Incorporated by reference to exhibit 10.13 of
Company's Form 10-K, No. 333-02302, dated December 30,
1996.)
10.13 Master Lease Finance Agreement dated as of August 10, *
1994 between BancBoston Leasing, Inc. and ACC, as
amended. (Incorporated by reference to Exhibit 10.16 of
Company's Registration Statement on Form S-4, No.
333-02302, dated March 12, 1996.)
10.14 Amendment to Network Affiliation Agreement (TV Alabama, *
Inc.) dated January 23, 1997 (Incorporated by reference
to Exhibit 10.15 to the Company's Form 10-Q, No.
333-02302, dated February 14, 1997).
10.15 Pledge of Membership Interests Agreement dated as of *
September 30, 1997 by and among ACC; KTUL, LLC; KATV,
LLC; WCIV, LLC; and BankBoston, N.A. as Agent
(Incorporated by reference to Exhibit 10.16 of
Company's Form 10-K, No. 333-02302, dated December 22,
1997).
10.16 $20,000,000 Promissory Note of ALLNEWSCO, Inc. payable *
to KTUL, LLC. (Incorporated by reference to Exhibit
10.16 of Company's Form 10-K, No. 333-02302, dated
December 22, 1998.)
27. Financial Data Schedule (Electronic Filing Only) *
- ----------------
*Previously filed
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ALLBRITTON COMMUNICATIONS COMPANY
FINANCIAL DATA SCHEDULE
IN ACCORDANCE WITH ITEM 601(C)
OR REGULATIONS S-K AND S-B
(In thousands)
This schedule contains summary financial information extracted from the
Consolidated Statement of Operations and Retained Earnings for the six months
ended March 31, 1999 and the Consolidated Balance Sheet as of March 31, 1999 and
is qualified in its entirety by reference to such consolidated financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
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<PERIOD-END> MAR-31-1999
<CASH> 14,395
<SECURITIES> 0
<RECEIVABLES> 35,945
<ALLOWANCES> 1,504
<INVENTORY> 0
<CURRENT-ASSETS> 62,384
<PP&E> 142,468
<DEPRECIATION> 94,424
<TOTAL-ASSETS> 270,305
<CURRENT-LIABILITIES> 37,122
<BONDS> 423,993
<COMMON> 1
0
0
<OTHER-SE> (207,101)
<TOTAL-LIABILITY-AND-EQUITY> 270,305
<SALES> 0
<TOTAL-REVENUES> 94,351
<CGS> 0
<TOTAL-COSTS> 65,503
<OTHER-EXPENSES> 623
<LOSS-PROVISION> 224
<INTEREST-EXPENSE> 20,845
<INCOME-PRETAX> 8,797
<INCOME-TAX> 3,804
<INCOME-CONTINUING> 4,993
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<NET-INCOME> 4,993
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