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:
December 31, 1998 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 February 10, 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 ANALSIS 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 DECEMBER 31, 1998
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Operations and
Retained Earnings for the Three Months Ended
December 31, 1997 and 1998 1
Consolidated Balance Sheets as of September
30, 1998 and December 31, 1998 2
Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 1997 and 1998 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 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security
Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
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
December 31,
-----------------------
1997 1998
---- ----
Operating revenues, net $ 51,320 $ 52,742
------ ------
Television operating expenses, excluding
depreciation and amortization 27,589 27,954
Depreciation and amortization 4,802 4,240
Corporate expenses 1,062 1,046
------- -------
33,453 33,240
------ ------
Operating income 17,867 19,502
------ ------
Nonoperating income (expense)
Interest income
Related party 553 630
Other 75 84
Interest expense (11,058) (10,337)
Other, net (297) (327)
-------- --------
(10,727) (9,950)
------ -------
Income before income taxes 7,140 9,552
Provision for income taxes 3,117 4,165
------- -------
Net income 4,023 5,387
Retained earnings, beginning of period 44,835 45,426
------ ------
Retained earnings, end of period $ 48,858 $ 50,813
====== ======
See accompanying notes to interim consolidated financial statements.
1
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<TABLE>
<CAPTION>
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
September 30, 1998
Assets 1998 (unaudited)
------------ -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 13,849 $ 15,327
Accounts receivable, net 33,568 40,685
Program rights 17,199 12,829
Deferred income taxes 1,706 1,706
Interest receivable from related party 492 1,045
Other 2,003 2,088
--------- ---------
Total current assets 68,817 73,680
Property, plant and equipment, net 47,559 47,637
Intangible assets, net 144,804 143,386
Deferred financing costs and other 10,856 10,535
Cash surrender value of life insurance 5,648 5,986
Program rights 1,837 1,618
--------- ---------
$ 279,521 $ 282,842
======= =======
Liabilities and Stockholder's Investment
Current liabilities
Current portion of long-term debt $ 1,436 $ 1,551
Accounts payable 2,648 2,823
Accrued interest payable 11,156 7,781
Program rights payable 20,249 16,397
Accrued employee benefit expenses 4,860 3,200
Other accrued expenses 4,257 5,925
--------- ---------
Total current liabilities 44,606 37,677
Long-term debt 428,255 430,943
Program rights payable 1,722 1,558
Deferred rent and other 3,436 3,753
Accrued employee benefit expenses 1,977 2,017
Deferred income taxes 3,301 4,172
--------- ---------
Total liabilities 483,297 480,120
------- -------
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 50,813
Distributions to owners, net (256,158) (255,047)
------- -------
Total stockholder's investment (203,776) (197,278)
------- -------
$ 279,521 $ 282,842
======= =======
</TABLE>
See accompanying notes to interim consolidated financial statements.
2
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<TABLE>
<CAPTION>
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
Three Months Ended
December 31,
------------
1997 1998
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,023 $ 5,387
-------- -------
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 4,802 4,240
Other noncash charges 298 314
Provision for doubtful accounts 147 110
(Gain) loss on disposal of assets (4) 1
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (9,006) (7,227)
Program rights 3,965 4,589
Interest receivable from related party (553) (553)
Other current assets (669) (85)
Other noncurrent assets (34) (302)
Increase (decrease) in liabilities:
Accounts payable 1,069 175
Accrued interest payable (3,059) (3,375)
Program rights payable (3,686) (4,016)
Accrued employee benefit expenses (1,157) (1,620)
Other accrued expenses 2,119 1,668
Deferred rent and other liabilities 43 317
Deferred income taxes 569 871
--------- ---------
(5,156) (4,893)
------- -------
Net cash (used in) provided by operating activities (1,133) 494
------- --------
Cash flows from investing activities:
Capital expenditures (2,561) (2,284)
Proceeds from disposal of assets 18 3
--------- ----------
Net cash used in investing activities (2,543) (2,281)
------- -------
Cash flows from financing activities:
Draws under lines of credit, net 9,300 2,500
Principal payments on long-term debt and capital lease obligations (257) (346)
Distributions to owners, net of certain charges (21,090) (39,269)
Repayments of distributions to owners 13,078 40,380
------ -------
Net cash provided by financing activities 1,031 3,265
------- -------
Net (decrease) increase in cash and cash equivalents (2,645) 1,478
Cash and cash equivalents, beginning of period 7,421 13,849
------- ------
Cash and cash equivalents, end of period $ 4,776 $15,327
====== ======
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
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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 months ended December 31, 1998 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 three months ended December 31, 1997 and 1998, distributions to
owners were as follows:
1997 1998
---- ----
Distributions to owners, beginning of period $237,354 $256,158
Cash advances 23,151 42,650
Repayment of cash advances (13,078) (40,380)
Charge for Federal and state income taxes (2,061) (3,381)
--------- ---------
Distributions to owners, end of period $245,366 $255,047
======= =======
Weighted average amount of non-interest bearing
advances outstanding during the period $226,230 $236,641
======= ========
4
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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 December 31, 1998 principally reflect
an increase in political advertising revenues due to significant elections in
the first quarter of Fiscal 1999, partially offset by a decrease in local and
national advertising revenues in a majority of the Company's markets.
Results of Operations Set forth below are selected consolidated financial data
for the three months ended December 31, 1997 and 1998 and the percentage change
between the periods:
Three Months Ended December 31,
Percent
1997 1998 Change
--------- --------- -------
Operating revenues, net $51,320 $52,742 2.8%
Total operating expenses 33,453 33,240 -0.6%
------ ------
Operating income 17,867 19,502 9.2%
Nonoperating expenses, net 10,727 9,950 -7.2%
Income tax provision 3,117 4,165 33.6%
------- -------
Net income $ 4,023 $ 5,387 33.9%
======= =======
5
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Net Operating Revenues
The following table depicts the principal types of operating revenues, net of
agency commissions, earned by the Company for the three months ended December
31, 1997 and 1998, and the percentage contribution of each to the total
broadcast revenues earned by the Company, before fees:
Three Months Ended December 31,
-------------------------------
1997 1998
---- ----
Dollars Percent Dollars Percent
--------------------------------------
Local/regional (1) $25,586 48.2 $24,793 45.5
National (2) 21,619 40.7 20,379 37.4
Network compensation (3) 1,467 2.8 1,386 2.6
Political (4) 917 1.7 3,910 7.2
Trade and barter (5) 2,144 4.0 2,112 3.9
Other revenue (6) 1,350 2.6 1,876 3.4
------- ------ ------- ------
Broadcast revenues 53,083 100.0 54,456 100.0
===== =====
Fees (7) (1,768) (1,716)
------- -------
Broadcast revenue, net of fees 51,315 52,740
Non-broadcast revenue (8) 5 2
----------- ----------
Total net operating revenues $51,320 $52,742
====== ======
(1) Represents sale of advertising time to local and regional advertisers or
agencies representing such advertisers.
(2) Represents sale of advertising time to agencies representing national
advertisers.
(3) Represents payment by networks for broadcasting or promoting
network programming.
(4) Represents sale of advertising time to political advertisers.
(5) Represents value of commercial time exchanged for goods and services
(trade) or syndicated programs (barter).
(6) Represents miscellaneous revenue, principally receipts from tower rental,
production of commercials and revenue from the sales of University of
Arkansas sports programming to advertisers and radio stations.
(7) Represents fees paid to national sales representatives and fees paid for
music licenses.
(8) Represents revenues from program syndication sales and other miscellaneous
non-broadcast revenues.
Net operating revenues for the three months ended December 31, 1998 totaled
$52,742, an increase of $1,422, or 2.8%, when compared to net operating revenues
of $51,320 for the three months ended December 31, 1997. The increase resulted
principally from increased political advertising demand, partially offset by
decreased local and national advertising revenue in a majority of the Company's
markets. The most significant quarterly revenue increases were generated by the
Birmingham and Little Rock markets. The revenue growth in Birmingham was due to
increased audience share and significant political advertising demand. KATV's
revenue increase was also due to significant political advertising demand as
well as increased revenue from its University of Arkansas sports programming.
The most significant quarterly revenue decrease came from the Washington, D.C.
market due to decline in both national and local/regional advertising demand.
6
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Local/regional advertising revenues decreased 3.1% during the three months ended
December 31, 1998 versus the comparable period in Fiscal 1998. The decrease for
the three months ended December 31, 1998 of $793 from the three months ended
December 31, 1997 was primarily attributable to a weakening in the Washington,
D.C. and Tulsa local/regional advertising markets, partially offset by continued
market share gains and increased local advertising revenue in the Birmingham
market.
National advertising revenues decreased $1,240, or 5.7%, for the three months
ended December 31, 1998 over the comparable period in Fiscal 1998. The decrease
for the three months ended December 31, 1998 was primarily attributable to a
weakening in the Washington, D.C. and Harrisburg national advertising markets,
partially offset by an improvement in the Tulsa market for national advertisers.
Political advertising revenues, which comprised 7.2% of the Company's broadcast
revenues for the three months ended December 31, 1998, increased by $2,993, or
326.4%, 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 three months ended December 31, 1998 with no
comparable political elections occurring during the same period in Fiscal 1998.
No individual advertiser accounted for more than 5% of the Company's broadcast
revenues during the three months ended December 31, 1997 or 1998.
Total Operating Expenses
Total operating expenses for the three months ended December 31, 1998 totaled
$33,240, a decrease of $213, or 0.6%, compared to total operating expenses of
$33,453 for the three-month period ended December 31, 1997. This net decrease
consisted of an increase in television operating expenses, excluding
depreciation and amortization, of $365, a decrease in depreciation and
amortization of $562 and a decrease in corporate expenses of $16.
Television operating expenses, excluding depreciation and amortization,
increased $365, or 1.3%, to $27,954 for the three months ended December 31, 1998
as compared to $27,589 for the three months ended December 31, 1997. The
increase in Fiscal 1999 was primarily attributable to increased programming
expenses across a majority of the Company's stations, partially offset by
reductions in other operating expenses, particularly in Washington, D.C.
Depreciation and amortization expense of $4,240 for the first three months of
Fiscal 1998 decreased $562, or 11.7%, versus the comparable period in Fiscal
1998. The decrease for the three months ended December 31, 1998 was principally
the result of decreased depreciation from the facility construction and
equipment purchases in Birmingham during Fiscal 1996.
Operating Income
For the three months ended December 31, 1998, operating income of $19,502
increased $1,635, or 9.2%, when compared to operating income of $17,867 for the
three months ended December 31, 1997. For the three months ended December 31,
1998, the operating margin increased to 37.0% from 34.8% for the comparable
period in Fiscal 1998. The increases in operating income and margin were the
result of increased operating revenues and decreased operating expenses due to
the factors discussed above.
7
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Nonoperating Expenses, Net
Interest expense of $10,337 for three months ended December 31, 1998 decreased
$721, or 6.5%, as compared to $11,058 for the three-month period ended December
31, 1997. This decrease was due to the reduced average interest rate on debt as
a result of the Company's refinancing on January 22, 1998, partially offset by
an increased average debt balance during the first three months of Fiscal 1999.
The average balance of debt outstanding was $420,525 and $429,875 for the three
months ended December 31, 1997 and 1998, respectively, and the weighted average
interest rate on debt was 10.2% and 9.4% for the three months ended December 31,
1997 and 1998, respectively.
Income Taxes
The provision for income taxes for the three months ended December 31, 1998
totaled $4,165, an increase of $1,048, or 33.6%, when compared to the provision
for income taxes of $3,117 for the three months ended December 31, 1997. The
increase was directly related to the $2,412, or 33.8%, increase in the Company's
income before income taxes due to the factors discussed above.
Net Income
Net income for the three months ended December 31, 1998 was $5,387 as compared
to net income of $4,023 for the three months ended December 31, 1997. The
increase of $1,364, or 33.9% , was due to the factors discussed above.
Balance Sheet
Significant balance sheet fluctuations from September 30, 1998 to December 31,
1998 consisted of increased accounts receivable, offset by decreases in program
rights, accrued interest payable and program rights payable. The increase in
accounts receivable was the result of the seasonality of the Company's revenue
cycle as well as continued revenue growth. The decrease in program rights and
program rights payable reflect the annual cycle of the underlying program
contracts which generally begins in September of each year. The decrease in
accrued interest payable reflects the timing of the Company's interest payments
under its debt obligations.
Liquidity and Capital Resources
As of December 31, 1998, the Company's cash and cash equivalents aggregated
$15,327, and the Company had an excess of current assets over current
liabilities of $36,003.
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
used in operating activities was $1,133 for the three months ended December 31,
1997. For the three months ended December 31, 1998, the Company's net cash
provided by operating activities was $494. The $1,627 improvement in cash flows
from operating activities was primarily due to the $1,364 increase in net income
for the first three months of Fiscal 1999 as compared to the same period in
Fiscal 1998.
Transactions with Owners. For the three months ended December 31, 1997, the
Company made cash advances to owners, net of repayments and certain charges,
totaling $8,012. For the three months ended December 31, 1998, the Company
received net repayments from owners of $1,111. The Company periodically makes
advances in the form of distributions to its parent. At present,
8
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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 $197,278 at December 31, 1998, a decrease of
$6,498, or 3.2%, from the September 30, 1998 deficit of $203,776. The decrease
was due to a net decrease in distributions to owners of $1,111 and net income
for the period of $5,387.
Indebtedness. The Company's total debt, including the current portion of
long-term debt, increased from $429,691 at September 30, 1998 to $432,494 at
December 31, 1998. This debt, net of applicable discounts, consists of $273,964
of 9.75% Debentures, $150,000 of 8.875% Notes, $6,030 of capital lease
obligations and $2,500 under a revolving credit facility. The increase of $2,803
in total debt from September 30, 1998 to December 31, 1998 was primarily due to
a $2,500 increase in amounts outstanding under the revolving credit facility to
fund working capital. The Company's 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 December 31, 1998, the Company was in compliance with those financial
covenants.
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 three months ended December 31, 1998 totaled $2,904, of
which $620 was financed through a capital lease transaction.
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
9
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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.
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.
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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.
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.
11
<PAGE>
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.
12
<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 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the Company held on November 30, 1998,
each of the directors of the Company was re-elected to serve until the next
annual meeting and until his or her successor is elected and qualified.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
See Exhibit Index on pages 15-17.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
13
<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)
February 10, 1999 /s/ Lawrence I. Hebert
----------------- ----------------------
Date Name: Lawrence I. Hebert
Title: Chairman and Chief
Executive Officer
February 10, 1999 /s/ Stephen P. Gibson
----------------- ---------------------
Date Name: Stephen P. Gibson
Title: Chief Financial Officer
14
<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 August 26, 1992 between ACC and the First *
National Bank of Boston, as Trustee, relating to 112% Senior
Subordinated Debentures due 2004. (Incorporated by reference to
Exhibit 4.2 of Company's Registration Statement on Form S-4, No.
333-02302, dated March 12, 1996.)
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.)
15
<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.)
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.)
16
<PAGE>
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
17
<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 three months
ended December 31, 1998 and the Consolidated Balance Sheet as of December 31,
1998 and is qualified in its entirety by reference to such consolidated
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
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<PERIOD-END> DEC-31-1998
<CASH> 15,327
<SECURITIES> 0
<RECEIVABLES> 42,150
<ALLOWANCES> 1,465
<INVENTORY> 0
<CURRENT-ASSETS> 73,680
<PP&E> 139,474
<DEPRECIATION> 91,837
<TOTAL-ASSETS> 282,842
<CURRENT-LIABILITIES> 37,677
<BONDS> 423,964
<COMMON> 1
0
0
<OTHER-SE> (197,279)
<TOTAL-LIABILITY-AND-EQUITY> 282,842
<SALES> 0
<TOTAL-REVENUES> 52,742
<CGS> 0
<TOTAL-COSTS> 33,240
<OTHER-EXPENSES> 327
<LOSS-PROVISION> 147
<INTEREST-EXPENSE> 10,337
<INCOME-PRETAX> 9,552
<INCOME-TAX> 4,165
<INCOME-CONTINUING> 5,387
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<NET-INCOME> 5,387
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