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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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:
June 30, 2002 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. 20006-3910
(Address of principal executive offices)
Registrant's telephone number, including area code: 202-789-2130
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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
----- -----
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Number of shares of Common Stock outstanding as of August 14, 2002: 20,000
shares.
Pursuant to Section 15(d) of the Securities and Exchange Act of 1934, the
Company's duty to file is automatically suspended, but the Company agreed under
the terms of certain long-term debt to continue these filings.
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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 REGULATIONS; DECREASES IN THE DEMAND FOR ADVERTISING DUE TO WEAKNESS
IN THE ECONOMY; AND THE VARIABILITY OF THE COMPANY'S QUARTERLY RESULTS AND THE
COMPANY'S SEASONALITY.
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.
ALLBRITTON COMMUNICATIONS COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Operations and Retained Earnings
for the Three and Nine Months Ended June 30, 2001 and 2002.... 1
Consolidated Balance Sheets as of September 30, 2001 and June
30, 2002...................................................... 2
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 2001 and 2002.................................. 3
Notes to Interim Consolidated Financial Statements............ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 6
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
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 Nine Months Ended
June 30, June 30,
------------------ -----------------
2001 2002 2001 2002
---- ---- ---- ----
Operating revenues, net ................ $ 49,747 $ 48,495 $ 150,453 $ 139,489
-------- -------- --------- ---------
Television operating expenses, excluding
depreciation and amortization ...... 27,507 28,839 85,595 86,310
Depreciation and amortization .......... 3,631 3,075 10,527 9,578
Corporate expenses ..................... 1,402 1,552 4,230 4,370
-------- -------- --------- ---------
32,540 33,466 100,352 100,258
-------- -------- --------- ---------
Operating income ....................... 17,207 15,029 50,101 39,231
-------- -------- --------- ---------
Nonoperating income (expense)
Interest income
Related party .................. 582 568 1,894 1,794
Other .......................... 46 21 268 74
Interest expense ................... (10,515) (10,442) (31,118) (31,405)
Other, net ......................... (283) (326) (954) (254)
-------- -------- --------- ---------
(10,170) (10,179) (29,910) (29,791)
-------- -------- --------- ---------
Income before income taxes ............. 7,037 4,850 20,191 9,440
Provision for income taxes ............. 2,697 2,414 7,984 4,486
-------- -------- --------- ---------
Net income ............................. 4,340 2,436 12,207 4,954
Retained earnings, beginning of period.. 79,105 84,400 71,238 81,882
-------- -------- --------- ---------
Retained earnings, end of period ....... $ 83,445 $ 86,836 $ 83,445 $ 86,836
======== ======== ========= =========
See accompanying notes to interim consolidated financial statements.
1
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30,
September 30, 2002
2001 (unaudited)
------------- -----------
Assets
Current assets
Cash and cash equivalents ..................... $ 7,640 $ 10,884
Accounts receivable, net ...................... 34,743 39,197
Program rights ................................ 20,145 4,548
Deferred income taxes ......................... 727 727
Interest receivable from related party ........ 492 1,045
Other ......................................... 2,333 3,212
--------- ---------
Total current assets ..................... 66,080 59,613
Property, plant and equipment, net ................. 38,622 47,168
Intangible assets, net ............................. 132,408 129,215
Deferred financing costs and other ................. 8,304 7,614
Cash surrender value of life insurance ............. 9,198 10,112
Program rights ..................................... 1,335 643
--------- ---------
$ 255,947 $ 254,365
========= =========
Liabilities and Stockholder's Investment
Current liabilities
Current portion of long-term debt ............. $ 1,479 $ 617
Accounts payable .............................. 2,300 2,679
Accrued interest payable ...................... 11,161 7,795
Program rights payable ........................ 23,667 8,508
Accrued employee benefit expenses ............. 4,213 3,654
Other accrued expenses ........................ 5,003 7,946
--------- ---------
Total current liabilities ................ 47,823 31,199
Long-term debt ..................................... 425,381 432,776
Program rights payable ............................. 2,038 1,291
Deferred rent and other ............................ 1,761 4,281
Accrued employee benefit expenses .................. 1,815 1,898
Deferred income taxes .............................. 9,961 14,182
--------- ---------
Total liabilities ........................ 488,779 485,627
--------- ---------
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 ............................. 81,882 86,836
Distributions to owners, net .................. (321,670) (325,054)
--------- ---------
Total stockholder's investment ............. (232,832) (231,262)
--------- ---------
$ 255,947 $ 254,365
========= =========
See accompanying notes to interim consolidated financial statements.
2
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
Nine Months Ended
June 30,
------------------
2001 2002
---- ----
Cash flows from operating activities:
Net income .................................................... $ 12,207 $ 4,954
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .............................. 10,527 9,578
Other noncash charges ...................................... 968 1,777
Provision for doubtful accounts ............................ 376 346
Loss on disposal of assets ................................. 26 7
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable .................................... (3,949) (4,800)
Program rights ......................................... 16,232 16,289
Interest receivable from related party ................. (553) (553)
Other current assets ................................... (753) (879)
Other noncurrent assets ................................ (1,197) (1,101)
Increase (decrease) in liabilities:
Accounts payable ....................................... (267) 379
Accrued interest payable ............................... (3,361) (3,366)
Program rights payable ................................. (17,788) (15,906)
Accrued employee benefit expenses ...................... (793) (476)
Other accrued expenses ................................. (47) 2,193
Deferred rent and other liabilities .................... (425) 2,520
Deferred income taxes .................................. 2,576 4,221
--------- ---------
1,572 10,229
--------- ---------
Net cash provided by operating activities ........... 13,779 15,183
--------- ---------
Cash flows from investing activities:
Capital expenditures .......................................... (4,386) (14,951)
Proceeds from disposal of assets .............................. 17 37
--------- ---------
Net cash used in investing activities ............... (4,369) (14,914)
--------- ---------
Cash flows from financing activities:
Draws under lines of credit, net .............................. -- 7,664
Principal payments on capital lease obligations ............... (1,304) (1,242)
Deferred financing costs ...................................... (800) (63)
Distributions to owners, net of certain charges ............... (118,276) (313,899)
Repayments of distributions to owners ......................... 106,300 310,515
--------- ---------
Net cash (used in) provided by financing activities.. (14,080) 2,975
--------- ---------
Net (decrease) increase in cash and cash equivalents .......... (4,670) 3,244
Cash and cash equivalents, beginning of period ................ 11,913 7,640
--------- ---------
Cash and cash equivalents, end of period ...................... $ 7,243 $ 10,884
========= =========
Non-cash investing and financing activities:
Equipment acquired under capital leases ....................... $ 750 $ 24
========= =========
See accompanying notes to interim consolidated financial statements.
3
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 nine months ended June 30, 2002 are not necessarily indicative of the
results that can be expected for the entire fiscal year ending September 30,
2002. 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, 2001 which are contained in the Company's Form
10-K.
NOTE 2 - On March 6, 2002, the Company announced that it has agreed to acquire
certain of the assets of ALLNEWSCO, Inc. (Allnewsco) in exchange for $20,000 in
cash and the cancellation of a $20,000 note receivable from Allnewsco.
Allnewsco, incorporated in 1989, provides 24-hour per day basic cable television
programming consisting of news and information programming with the primary
focus on regional and local news for the Washington, D.C. metropolitan area.
Allnewsco has been controlled since its inception by Perpetual Corporation which
also controls the Company. Consummation of this transaction will coincide with
the integration of Allnewsco's operations with those of WJLA, the Company's ABC
affiliate in the Washington, D.C. market, in a new studio and office facility.
The Company anticipates that this transaction will be consummated during the
fourth quarter of Fiscal 2002.
NOTE 3 - For the nine months ended June 30, 2001 and 2002, distributions to
owners were as follows:
2001 2002
---- ----
Distributions to owners, beginning of period ....... $ 298,090 $ 321,670
Cash advances ................................... 123,433 314,043
Repayment of cash advances ...................... (106,300) (310,515)
Charge for Federal and state income taxes ....... (5,157) (144)
--------- ---------
Distributions to owners, end of period ............. $ 310,066 $ 325,054
========= =========
Weighted average amount of non-interest bearing
advances outstanding during the period .......... $ 298,131 $ 328,587
========= =========
4
NOTE 4 - Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," was issued in July 2001 and is effective for all business
combinations with acquisition dates after June 30, 2001. The pronouncement
eliminates the pooling-of-interest method of accounting for business
combinations and addresses the accounting for intangible assets acquired as part
of a business combination. Adoption of SFAS No. 141 has had no impact on the
Company's financial position or results of operations as the Company has not
consummated any business combinations since June 30, 2001.
SFAS No. 142, "Goodwill and Other Intangible Assets," was issued in June 2001.
SFAS No. 142 addresses the financial accounting and reporting for acquired
goodwill and other intangible assets. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests. Other intangible assets will
continue to be amortized over their useful lives. SFAS No. 142 becomes effective
for the Company's fiscal year ending September 30, 2003. The Company estimates
that the application of the non-amortization provisions of SFAS No. 142 will
decrease amortization expense by approximately $4,000 per year. Upon adoption,
the Company will perform the first of the required impairment tests on its
indefinite lived intangible assets. The Company is in the process of determining
what the effect, if any, of these tests will be on its financial position or
results of operations.
SFAS No. 143, "Accounting for Asset Retirement Obligations," was issued in June
2001 to address diversity in practice for recognizing obligations associated
with the retirement of tangible long-lived assets. SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," was issued in August 2001 to
establish a single accounting model for long-lived assets to be disposed of by
sale and to address issues surrounding the impairment of long-lived assets.
These standards are effective for the Company's fiscal year ending September 30,
2003 and will not have a material impact on the Company's financial position or
results of operations.
5
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 ABC network-affiliated television stations serving seven
diverse geographic markets: WJLA-TV in Washington, D.C.; WCFT-TV in Tuscaloosa,
Alabama, WJSU-TV in Anniston, Alabama and WBMA-LP, a low power television
station licensed to Birmingham, Alabama (the Company operates WCFT-TV and
WJSU-TV in tandem with WBMA-LP serving the viewers of the Birmingham, Tuscaloosa
and Anniston market); WHTM-TV in Harrisburg, Pennsylvania; KATV in Little Rock,
Arkansas; KTUL in Tulsa, Oklahoma; WSET-TV in Lynchburg, Virginia; and WCIV in
Charleston, South Carolina.
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 and fourth
fiscal quarters.
Results of Operations
Set forth below are selected consolidated financial data for the three and nine
months ended June 30, 2001 and 2002 and the percentage change between the
periods:
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
Percent Percent
2001 2002 Change 2001 2002 Change
---- ---- ------- ---- ---- -------
Operating revenues, net .... $ 49,747 $ 48,495 -2.5% $ 150,453 $ 139,489 -7.3%
Total operating expenses ... 32,540 33,466 2.8% 100,352 100,258 -0.1%
-------- -------- --------- ---------
Operating income ........... 17,207 15,029 -12.7% 50,101 39,231 -21.7%
Nonoperating expenses, net.. 10,170 10,179 0.1% 29,910 29,791 -0.4%
Income tax provision ....... 2,697 2,414 -10.5% 7,984 4,486 -43.8%
-------- -------- --------- ---------
Net income ................. $ 4,340 $ 2,436 -43.9% $ 12,207 $ 4,954 -59.4%
======== ======== ========= =========
6
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 nine months
ended June 30, 2001 and 2002, and the percentage contribution of each to the
total broadcast revenues earned by the Company, before fees:
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
2001 2002 2001 2002
---- ---- ---- ----
Dollars Percent Dollars Percent Dollars Percent Dollars Percent
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands)
Local and national... $ 47,684 93.0 $ 45,275 90.9 $ 136,080 87.7 $ 128,616 89.4
Political............ 330 0.6 1,356 2.7 7,181 4.6 3,579 2.5
Network compensation.. 841 1.6 900 1.8 2,313 1.5 2,580 1.8
Trade and barter..... 1,951 3.8 1,837 3.7 5,951 3.8 5,476 3.8
Other revenue........ 502 1.0 469 0.9 3,733 2.4 3,541 2.5
-------- ----- -------- ----- --------- ----- --------- -----
Broadcast revenues ........ 51,308 100.0 49,837 100.0 155,258 100.0 143,792 100.0
===== ===== ===== =====
Fees................. (1,561) (1,342) (4,805) (4,303)
-------- -------- --------- ---------
Operating revenues, net ... $ 49,747 $ 48,495 $ 150,453 $ 139,489
======== ======== ========= =========
Represents sale of advertising time to local and national advertisers,
either directly or through agencies representing such advertisers, net of
agency commission.
Represents sale of advertising time to political advertisers.
Represents payment by networks for broadcasting or promoting network
programming.
Represents value of commercial time exchanged for goods and services
(trade) or syndicated programs (barter).
Represents miscellaneous revenue, principally from the sales of University
of Arkansas sports programming to advertisers and radio stations as well as
receipts from tower rental and production of commercials.
Represents fees paid to national sales representatives and fees paid for
music licenses.
Net operating revenues for the three months ended June 30, 2002 totaled $48,495,
a decrease of $1,252, or 2.5%, when compared to net operating revenues of
$49,747 for the three months ended June 30, 2001. Net operating revenues
decreased $10,964, or 7.3%, to $139,489 for the nine months ended June 30, 2002
as compared to $150,453 for the same period in the prior fiscal year.
Local and national advertising revenues decreased $2,409, or 5.1%, and $7,464,
or 5.5%, during the three and nine months ended June 30, 2002, respectively,
versus the comparable periods in Fiscal 2001. The decrease for the three months
ended June 30, 2002 was due in large part to declining audience ratings for ABC
network prime-time programming across all of the Company's markets, with local
and national advertising revenues particularly impacted in the Company's
Washington, D.C. market. Local and national advertising revenues declined in
most of the Company's markets for the nine months ended June 30, 2002 due to the
impact of ABC network prime-time programming ratings as well as the continuation
of the general weakness in television advertising which began during Fiscal
2001.
Political advertising revenues increased $1,026 to $1,356 for the three months
ended June 30, 2002 versus $330 for the three months ended June 30, 2001. This
increase was primarily due to advertising related to high-profile local
political primaries in the Birmingham, Harrisburg and Little Rock markets during
the three months ended June 30, 2002 with less comparable advertising in the
third quarter of Fiscal 2001. Political advertising revenues decreased $3,602,
or 50.2%,
7
during the nine months ended June 30, 2002 as compared to the same period in
Fiscal 2001. This decrease was due primarily to the national presidential
election and high-profile local political races in November 2000, partially
offset by advertising leading up to a November 2001 local political election
affecting the Washington, D.C. and Lynchburg markets as well as the advertising
related to high-profile local political races during the third quarter of Fiscal
2002 referred to above.
No individual advertiser accounted for more than 5% of the Company's broadcast
revenues during the three or nine months ended June 30, 2001 or 2002.
Total Operating Expenses
Total operating expenses for the three months ended June 30, 2002 totaled
$33,466, an increase of $926, or 2.8%, compared to total operating expenses of
$32,540 for the three-month period ended June 30, 2001. This net increase
consisted of an increase in television operating expenses, excluding
depreciation and amortization, of $1,332, a decrease in depreciation and
amortization of $556 and an increase in corporate expenses of $150.
Total operating expenses for the nine-month period ended June 30, 2002 totaled
$100,258, a decrease of $94, or 0.1%, compared to $100,352 for the nine months
ended June 30, 2001. This net decrease consisted of an increase in television
operating expenses, excluding depreciation and amortization, of $715, a decrease
in depreciation and amortization of $949 and an increase in corporate expenses
of $140.
Television operating expenses, excluding depreciation and amortization,
increased $1,332, or 4.8%, and $715, or 0.8%, during the three and nine months
ended June 30, 2002, respectively, as compared to the same periods in Fiscal
2001. These increases were due primarily to a charge for one-time lease-related
costs associated with the pending relocation of WJLA to new studio and office
space. Excluding this charge, television operating expenses increased $582, or
2.1%, during the three months ended June 30, 2002 and decreased $35 during the
nine months ended June 30, 2002 as compared to the respective periods in the
prior fiscal year.
Depreciation and amortization expense decreased $556 and $949, or 15.3% and
9.0%, for the three and nine months ended June 30, 2002, respectively, as
compared to the same periods in Fiscal 2001. The decreases were principally the
result of decreased depreciation on assets acquired in Birmingham during Fiscal
1996.
Operating Income
For the three months ended June 30, 2002, operating income of $15,029 decreased
$2,178, or 12.7%, when compared to operating income of $17,207 for the three
months ended June 30, 2001. For the three months ended June 30, 2002, the
operating margin decreased to 31.0% from 34.6% for the comparable period in
Fiscal 2001. Operating income of $39,231 for the nine months ended June 30, 2002
decreased $10,870, or 21.7%, when compared to operating income of $50,101 for
the same period in the prior fiscal year. For the nine months ended June 30,
2002, the operating margin decreased to 28.1% from 33.3% for the comparable
period in the prior fiscal year. These decreases in operating income and margin
were primarily the result of decreased net operating revenues during the three
and nine months ended June 30, 2002. The decrease in operating income and margin
during the three months ended June 30, 2002 also reflected the one-time charge
discussed above.
8
Operating Cash Flow
Operating cash flow of $18,104 and $48,809 for the three and nine months ended
June 30, 2002, respectively, decreased $2,734 and $11,819, or 13.1% and 19.5%,
as compared to $20,838 and $60,628 for the three and nine-month periods ended
June 30, 2001, respectively. These decreases were primarily the result of
decreased net operating revenues during the three and nine months ended June 30,
2002. The decrease in operating cash flow during the three months ended June 30,
2002 also reflected the one-time charge discussed above.
The Company believes that operating cash flow, defined as operating income plus
depreciation and amortization, is important in measuring the Company's financial
results and its ability to pay principal and interest on its debt because of the
Company's level of non-cash expenses attributable to depreciation and
amortization of intangible assets. 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 Company's
consolidated financial statements, is not a measure of financial performance
under generally accepted accounting principles, should not be considered in
isolation or as a substitute for net income or cash flows from operating
activities and may not be comparable to similar measures reported by other
companies.
Nonoperating Expenses, Net
Interest expense of $10,442 for three months ended June 30, 2002 decreased $73,
or 0.7%, as compared to $10,515 for the three-month period ended June 30, 2001.
The average balance of debt outstanding, including capital lease obligations,
was $445,635 and $446,602 for the three months ended June 30, 2001 and 2002,
respectively, and the weighted average interest rate on debt was 9.3% for each
of the three-month periods ended June 30, 2001 and 2002.
Interest expense for the nine months ended June 30, 2002 was $31,405, an
increase of $287, or 0.9%, as compared to $31,118 for the nine-month period
ended June 30, 2001. This increase was principally due to an increased average
balance of debt outstanding during the nine-month period ended June 30, 2002,
partially offset by a decreased weighted average interest rate on debt. The
average balance of debt outstanding, including capital lease obligations, was
$437,751 and $452,512 for the nine months ended June 30, 2001 and 2002,
respectively, and the weighted average interest rate on debt was 9.4% and 9.2%
for the nine-month periods ended June 30, 2001 and 2002, respectively.
Income Taxes
The provision for income taxes for the three months ended June 30, 2002 totaled
$2,414, a decrease of $283, or 10.5%, when compared to the provision for income
taxes of $2,697 for the three months ended June 30, 2001. The decrease was
directly related to the $2,187, or 31.1%, decrease in the Company's income
before income taxes, partially offset by an increase in the Company's overall
effective income tax rate in Fiscal 2002.
The provision for income taxes for the nine months ended June 30, 2002 totaled
$4,486, a decrease of $3,498, or 43.8%, when compared to the provision for
income taxes of $7,984 for the nine months ended June 30, 2001. The decrease was
directly related to the $10,751, or 53.2%, decrease in the Company's income
before income taxes, partially offset by the one-time recognition of a tax
benefit of approximately $950 during the second quarter of Fiscal 2001.
9
Net Income
For the three and nine months ended June 30, 2002, the Company recorded net
income of $2,436 and $4,954, respectively, as compared to net income of $4,340
and $12,207 for the three and nine months ended June 30, 2001, respectively. The
decreases of $1,904 and $7,253 during the three and nine months ended June 30,
2002 were due to the factors discussed above.
Balance Sheet
Significant balance sheet fluctuations from September 30, 2001 to June 30, 2002
consisted primarily of decreases in program rights and program rights payable as
well as an increase in net property, plant and equipment. The decreases in
program rights and program rights payable reflect the annual cycle of the
underlying program contracts which generally begins in September of each year,
and the increase in net property, plant and equipment is primarily due to the
buildout of studio and office space and acquisition of technical equipment for
WJLA.
Liquidity and Capital Resources
As of June 30, 2002, the Company's cash and cash equivalents aggregated $10,884,
and the Company had an excess of current assets over current liabilities of
$28,414.
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 discussed above, the Company's operating results are cyclical in nature
primarily as a result of seasonal fluctuations in advertising revenues, which
are generally highest in the first and third quarters of each fiscal year. The
Company's cash flow from operations is also impacted on a quarterly basis by the
timing of cash collections and interest payments on debt. Cash receipts are
usually much greater during the second and fourth fiscal quarters as the
collection of advertising revenue typically lags the period in which such
revenue is recorded. Scheduled semi-annual interest payments on the Company's
long-term debt are higher during the first and third fiscal quarters. As a
result, the Company's cash flows from operating activities as reflected in the
Company's consolidated financial statements are generally significantly higher
during the Company's second and fourth fiscal quarters, and such quarters
comprise a substantial majority of the Company's cash flows from operating
activities for the full fiscal year.
As reported in the consolidated statements of cash flows, the Company's net cash
provided by operating activities was $13,779 and $15,183 for the nine months
ended June 30, 2001 and 2002, respectively.
Transactions with Owners. The Company periodically makes advances in the form of
distributions to Perpetual Corporation (Perpetual). During the nine months ended
June 30, 2001 and 2002, the Company made cash advances net of repayments to
Perpetual of $11,276 and $1,895, respectively. The advances to Perpetual are
non-interest bearing and, as such, do not reflect market rates of
interest-bearing loans to unaffiliated third parties. In addition, during the
nine months ended June 30, 2001 and 2002, the Company made interest-bearing
advances of tax payments to Perpetual in accordance with the terms of the tax
sharing agreement between the Company and Perpetual of $5,857 and $1,633,
respectively. The Company was charged by Perpetual for federal and state income
taxes totaling $5,157 and $144 during the nine months ended June 30, 2001 and
2002, respectively.
10
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 $231,262 at June 30, 2002, a decrease of
$1,570, or 0.7%, from the September 30, 2001 deficit of $232,832. The decrease
was due to net income for the period of $4,954, substantially offset by a net
increase in distributions to owners of $3,384.
Indebtedness. The Company's total debt, including the current portion of
long-term debt, increased from $426,860 at September 30, 2001 to $433,393 at
June 30, 2002. This debt, net of applicable discounts, consisted of $274,370 of
9.75% Debentures, $150,000 of 8.875% Notes, $7,664 of draws under the revolving
credit facility and $1,359 of capital lease obligations at June 30, 2002. The
increase of $6,533 in total debt from September 30, 2001 to June 30, 2002 was
primarily due to net draws under the revolving credit facility, partially offset
by payments under capital lease obligations. As of September 30, 2001, there
were no amounts outstanding under the Company's revolving credit facility.
Effective May 15, 2002, the revolving credit facility was increased from $50,000
to $70,000 for the purpose of financing capital expenditures. The revolving
credit facility is secured by the pledge of stock of the Company and its
subsidiaries and matures March 27, 2006. As of June 30, 2002, $7,664 was
outstanding under the revolving credit facility.
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, under the revolving credit facility,
the Company must maintain compliance with certain financial covenants.
Compliance with the financial covenants is measured at the end of each quarter,
and as of June 30, 2002, the Company was in compliance with those financial
covenants. The Company is also required to pay a commitment fee ranging from .5%
to .75% per annum based on the amount of any unused portion of the revolving
credit facility.
The indentures for the Company's long-term debt provide that, whether or not
required by the rules and regulations of the Commission, so long as any Senior
Notes or Debentures are outstanding, the Company, 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 the Company 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 the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company was required
to file such reports. In addition, they also provide that, whether or not
required by the rules and regulations of the Commission, the Company 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. As the Company's duty to file such reports with the Commission is
automatically suspended pursuant to Section 15(d) of the Securities Exchange Act
of 1934, the Company has filed this Form 10-Q with the Commission only as
contemplated by the terms of its long-term debt.
11
Allnewsco Transaction. On March 6, 2002, the Company announced that it has
agreed to acquire certain of the assets of ALLNEWSCO, Inc. (Allnewsco) in
exchange for $20,000 in cash and the cancellation of a $20,000 note receivable
from Allnewsco. Allnewsco, incorporated in 1989, provides 24-hour per day basic
cable television programming consisting of news and information programming with
the primary focus on regional and local news for the Washington, D.C.
metropolitan area. Allnewsco has been controlled since its inception by
Perpetual Corporation which also controls the Company.
Consummation of this transaction will coincide with the integration of
Allnewsco's operations with those of WJLA, the Company's ABC affiliate in the
Washington, D.C. market, in a new studio and office facility. The combination of
these two operations will allow for certain operational efficiencies, primarily
in the areas of newsgathering, administration, finance, operations, promotions
and human resources. The creation of the first newsgathering duopoly in the
Nation's Capital is expected to be immediately accretive to the Company's
operating cash flow (defined as operating income plus depreciation and
amortization).
The Company anticipates that this transaction will be consummated during the
fourth quarter of Fiscal 2002. This acquisition is permitted under the Company's
various debt agreements.
Other Uses of Cash. The Company anticipates that capital expenditures for Fiscal
2002 will approximate $22,000. Fiscal 2002 capital expenditures will be
primarily for the buildout of studio and office space and acquisition of
technical equipment for WJLA, the implementation of DTV service at the Company's
Little Rock station and the acquisition of technical equipment and vehicles to
support ongoing operations across the Company's stations. The source of funds
for these anticipated capital expenditures will be cash provided by operations
and borrowings under the revolving credit facility. Capital expenditures during
the nine months ended June 30, 2002 totaled $14,975, of which $24 was financed
through capital lease transactions.
Based upon the Company's current level of operations, management believes that
available cash together with cash flows generated by operating activities and
amounts available under the revolving credit facility will be adequate to meet
the Company's anticipated future requirements for working capital, capital
expenditures, scheduled payments of interest on its debt and the acquisition of
Allnewsco.
New Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," was issued in July 2001 and is effective for all business
combinations with acquisition dates after June 30, 2001. The pronouncement
eliminates the pooling-of-interest method of accounting for business
combinations and addresses the accounting for intangible assets acquired as part
of a business combination. Adoption of SFAS No. 141 has had no impact on the
Company's financial position or results of operations as the Company has not
consummated any business combinations since June 30, 2001.
SFAS No. 142, "Goodwill and Other Intangible Assets," was issued in June 2001.
SFAS No. 142 addresses the financial accounting and reporting for acquired
goodwill and other intangible assets. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests. Other intangible assets will
continue to be amortized over their useful lives. SFAS No. 142 becomes effective
for the Company's fiscal year ending September 30, 2003. The Company estimates
that the application of the non-amortization provisions of SFAS No. 142 will
decrease amortization expense by
12
approximately $4,000 per year. Upon adoption, the Company will perform the first
of the required impairment tests on its indefinite lived intangible assets. The
Company is in the process of determining what the effect, if any, of these tests
will be on its financial position or results of operations.
SFAS No. 143, "Accounting for Asset Retirement Obligations," was issued in June
2001 to address diversity in practice for recognizing obligations associated
with the retirement of tangible long-lived assets. SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," was issued in August 2001 to
establish a single accounting model for long-lived assets to be disposed of by
sale and to address issues surrounding the impairment of long-lived assets.
These standards are effective for the Company's fiscal year ending September 30,
2003 and will not have a material impact on the Company's financial position or
results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At June 30, 2002, the Company had other financial instruments consisting
primarily of long-term fixed interest rate debt. Such debt, with future
principal payments of $425,000, matures during the year ending September 30,
2008. At June 30, 2002, the carrying value of such debt was $424,370, the fair
value was $445,875 and the weighted average interest rate was 9.4%. The fair
market value of long-term fixed interest rate debt is subject to interest rate
risk. Generally, the fair market value of fixed interest rate debt will increase
as interest rates fall and decrease as interest rates rise. The Company
estimates the fair value of its long-term debt using either quoted market prices
or by discounting the required future cash flows under its debt using borrowing
rates currently available to the Company, as applicable. The Company actively
monitors the capital markets in analyzing its capital raising decisions.
13
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, 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.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
See Exhibit Index on pages 16-19.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
14
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)
August 14, 2002 /s/ Robert L. Allbritton
- ----------------------------- ----------------------------------
Date Name: Robert L. Allbritton
Title: Chairman and Chief
Executive Officer
August 14, 2002 /s/ Stephen P. Gibson
- ----------------------------- ----------------------------------
Date Name: Stephen P. Gibson
Title: Senior Vice President
and Chief Financial Officer
15
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
2.1 Asset Purchase Agreement between ALLNEWSCO, Inc. and *
Allbritton Communications Company, dated as of March 5,
2002. (Incorporated by reference to Exhibit 2.1 of the
Company's Report on Form 8-K, No. 333-02302, dated March 5,
2002)
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 Amended and Restated Revolving Credit Agreement dated as of *
March 27, 2001 by and among Allbritton Communications
Company, certain financial institutions, and Fleet National
Bank, as Agent, and Deutsche Banc Alex. Brown Inc., as
Documentation Agent. (Incorporated by reference to Exhibit
4.4 of the Company's Quarterly Report on Form 10-Q, No.
333-02302, dated May 10, 2001)
4.5 First Amendment dated as of December 19, 2001 to the Amended *
and Restated Revolving Credit Agreement. (Incorporated by
reference to Exhibit 4.5 of the Company's Form 10-K, No.
333-02302, dated December 27, 2001)
4.6 Second Amendment dated as of May 15, 2002 to the Amended and
Restated Revolving Credit Agreement.
16
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
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 Side Letter Amendment to Network Affiliation Agreement *
(Harrisburg Television, Inc.) dated August 10, 1999.
(Incorporated by reference to Exhibit 10.2 of Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated August
16, 1999)
10.3 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)
10.4 Side Letter Amendment to Network Affiliation Agreement (First *
Charleston Corp.) dated August 10, 1999. (Incorporated by
reference to Exhibit 10.4 of Company's Quarterly Report on
Form 10-Q, No. 333-02302, dated August 16, 1999)
10.5 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)
10.6 Side Letter Amendment to Network Affiliation Agreement (WSET, *
Incorporated) dated August 10, 1999. (Incorporated by
reference to Exhibit 10.6 of Company's Quarterly Report on
Form 10-Q, No. 333-02302, dated August 16, 1999)
10.7 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)
10.8 Side Letter Amendment to Network Affiliation Agreement *
(WJLA-TV) dated August 10, 1999. (Incorporated by reference
to Exhibit 10.8 of Company's Quarterly Report on Form 10-Q,
No. 333-02302, dated August 16, 1999)
10.9 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)
10.10 Side Letter Amendment to Network Affiliation Agreement (KATV *
Television, Inc.) dated August 10, 1999. (Incorporated by
reference to Exhibit 10.10 of Company's Quarterly Report on
Form 10-Q, No. 333-02302, dated August 16, 1999)
17
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
10.11 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)
10.12 Side Letter Amendment to Network Affiliation Agreement (KTUL *
Television, Inc.) dated August 10, 1999. (Incorporated by
reference to Exhibit 10.12 of Company's Quarterly Report on
Form 10-Q, No. 333-02302, dated August 16, 1999)
10.13 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)
10.14 Amendment to Network Affiliation Agreement (TV Alabama, Inc.) *
dated January 23, 1997. (Incorporated by reference to Exhibit
10.15 of the Company's Quarterly Report on Form 10-Q, No.
333-02302, dated February 14, 1997)
10.15 Side Letter Amendment to Network Affiliation Agreement (TV *
Alabama, Inc.) dated August 10, 1999. (Incorporated by
reference to Exhibit 10.15 of Company's Quarterly Report on
Form 10-Q, No. 333-02302, dated August 16, 1999)
10.16 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)
10.17 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)
10.18 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)
10.19 Master Equipment Lease Agreement dated as of November 22, *
2000 between Fleet Capital Corporation and ACC. (Incorporated
by reference to Exhibit 10.19 of the Company's Form 10-K, No.
333-02302, dated December 28, 2000)
18
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
10.20 Amended and Restated Pledge Agreement dated as of March 27, *
2001 by and among ACC, Allbritton Group, Inc., Allfinco,
Inc., and Fleet National Bank, as Agent. (Incorporated by
reference to Exhibit 10.20 of the Company's Quarterly Report
on Form 10-Q, No. 333-02302, dated May 10, 2001)
10.21 $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)
- -----------------
*Previously filed
19