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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the fiscal year ended September 30, 1997
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 333-02302
ALLBRITTON COMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 78-1803105
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
808 Seventeenth Street, N.W., Suite 300
Washington, DC 20006-3903
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 789-2130
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark if the disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge,in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X]
Indicate by check mark whether this 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 [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates is zero.
As of December 22, 1997, there were 20,000 shares of Common Stock, par value
$.05 per share outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
As used herein, unless the context otherwise requires, the term "ACC" or the
"Company" refers to Allbritton Communications Company. Depending on the
context in which they are used, the following "call letters" refer either to
the corporate owner of the station indicated or to the station
itself: "WJLA" refers to WJLA-TV, a division of ACC (operator of WJLA-TV,
Washington, D.C.); "WHTM" refers to Harrisburg Television, Inc. (licensee of
WHTM-TV, Harrisburg, Pennsylvania); "KATV" refers to KATV, LLC (licensee of
KATV, Little Rock, Arkansas); "KTUL" refers to KTUL, LLC (licensee of KTUL,
Tulsa, Oklahoma); "WCIV" refers to WCIV, LLC (licensee of WCIV, Charleston,
South Carolina); "WSET" refers to WSET, Incorporated (licensee of WSET-TV,
Lynchburg, Virginia); "WCFT" refers to TV Alabama, Inc. (licensee of WCFT-TV,
Tuscaloosa, Alabama and WBMA-LP, Birmingham, Alabama); and "WJSU" refers to
Flagship Broadcasting, Inc. (licensee of WJSU-TV, Anniston, Alabama). The
term "ATP" refers to Allbritton Television Productions, Inc., the term "ANB"
refers to Allbritton News Bureau, Inc. and the term "Perpetual" refers to
Perpetual Corporation, which is controlled by Joe L. Allbritton, Chairman of
ACC. "AGI" refers to Allbritton Group, Inc., which is a wholly-owned
subsidiary of Perpetual and ACC's parent. "Westfield" refers to Westfield
News Advertiser,Inc., an affiliate of ACC that is wholly-owned by Joe L.
Allbritton. "Allfinco" refers to Allfinco, Inc., a wholly-owned
subsidiary of ACC. "Harrisburg TV" refers to Harrisburg Television, Inc., an
80%-owned subsidiary of Allfinco. "TV Alabama" refers to TV Alabama, Inc., an
80%-owned subsidiary of Allfinco that operates WJSU and owns WCFT and WBMA-LP.
"Allnewsco" refers to ALLNEWSCO, Inc., an affiliate of ACC that is an
80%-owned subsidiary of Perpetual. "RLA Trust" refers to the Robert Lewis
Allbritton 1984 Trust for the benefit of Robert L. Allbritton, Chief
Operating Officer and a Director of ACC, that owns 20% of Allnewsco. "RLA
Revocable Trust" refers to the trust of the same name that owns 20% of each of
Harrisburg TV and TV Alabama.
TABLE OF CONTENTS
PAGE
Part I
Item 1. Business 1
Item 2. Properties 17
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 19
Item 6. Selected Consolidated Financial Data 20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
Item 7A. Quantitative and Qualitative Disclosures 37
Item 8. Consolidated Financial Statements and Supplementary Data 37
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 37
Part III
Item 10. Directors and Executive Officers of the Registrant 38
Item 11. Executive Compensation 41
Item 12. Security Ownership of Certain Beneficial Owners and
Management 42
Item 13. Certain Relationships and Related Transactions 43
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 46
PART I
This Annual Report on Form 10-K, including Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contains forward-
looking statements within the meaning of Section 27A of the Securities Act of
1993, as amended, and Section 21E of the Securities Exchange Act of 1994, as
amended, that are not historical facts and involve a number of risks and
uncertainties. When used in this Annual Report on Form 10-K, the words
"believes," "anticipates" and similar expressions are intended to identify
forward-looking statements. There are a number of factors that could cause the
Company's actual results to differ materially from those forecast or projected
in such forward-looking statements. These factors include, without
limitation, the Company's outstanding indebtedness and leverage, the
restrictions imposed by the terms of the Company's indebtedness, the impact of
significant 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 and changes in Federal
Communications Commission ("FCC") regulations.
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.
ITEM 1. BUSINESS
(Dollars in thousands)
The Company
Allbritton Communications Company ("ACC" or the "Company") itself and through
subsidiaries owns and operates seven ABC network-affiliated television
stations: WJLA in Washington, D.C.; WHTM in Harrisburg, Pennsylvania; KATV in
Little Rock, Arkansas; KTUL in Tulsa, Oklahoma; WSET in Lynchburg, Virginia;
WCIV in Charleston, South Carolina and WCFT in Tuscaloosa, Alabama. The
Company's owned and operated stations broadcast to the 7th, 45th, 56th, 58th,
68th, 117th and 187th largest national media markets in the United States,
respectively, as defined by the A.C. Nielsen Co. ("Nielsen"). The Company
also owns a low power television station (WBMA-LP) licensed to Birmingham,
Alabama, the 51st largest national media market.
WJLA is owned and operated by ACC, while the Company's remaining owned and
operated stations are owned by Harrisburg Television, Inc. (WHTM), KATV, LLC
(KATV), KTUL, LLC (KTUL), WSET, Incorporated (WSET), WCIV, LLC (WCIV) and TV
Alabama, Inc. (WCFT and WBMA-LP). Each of these is a wholly-owned subsidiary
of ACC, except Harrisburg TV and TV Alabama, each of which is an indirect
80%-owned subsidiary of ACC. TV Alabama began operating a television station
in Anniston, Alabama, east of Birmingham, under a Local Marketing Agreement
("LMA") effective December 29, 1995. Pursuant to merger agreements effective
September 30, 1997, KATV Television, Inc. became KATV, LLC; KTUL Television,
Inc. became
1
KTUL, LLC and First Charleston Corp. became WCIV, LLC. Each of
these new entities is a Delaware limited liability company, wholly-owned by
ACC. The Company also engages in other activities relating to the production
and distribution of television programming through Allbritton Television
Productions, Inc., ("ATP"), a wholly-owned subsidiary of ACC. ACC was founded
in 1974 and is a subsidiary of Allbritton Group, Inc. ("AGI"), which is
wholly-owned by Perpetual Corporation, which in turn is controlled by Joe L.
Allbritton, ACC's Chairman. ACC and its subsidiaries are Delaware corporations
or limited liability companies. ACC's corporate headquarters is located at 808
Seventeenth Street, N.W., Suite 300, Washington, D.C. 20006-3903, and its
telephone number at that address is (202) 789-2130.
Television Industry Background
Commercial television broadcasting began in the United States on a regular
basis in the 1940s. Currently, there are a limited number of channels
available for broadcasting in any one geographic area, and the license to
operate a broadcast television station is granted by the FCC. Television
stations that broadcast over the VHF band (channels 2-13) of the spectrum
generally have some competitive advantage over television stations that
broadcast over the UHF band (channels 14-69) of the spectrum because VHF
channels usually have better signal coverage and operate at a lower
transmission cost. However, the improvement of UHF transmitters and receivers,
the complete elimination from the marketplace of VHF-only receivers and the
expansion of cable television systems have reduced the competitive advantage
of television stations broadcasting over the VHF band.
Television station revenues are primarily derived from local, regional and
national advertising and, to a much lesser extent, from network compensation,
revenues from studio rental and commercial production activities. Advertising
rates are set based upon a variety of factors, including a program's
popularity among viewers whom an advertiser wishes to attract, the number of
advertisers competing for the available time, the size and demographic makeup
of the market served by the station and the availability of alternative
advertising media in the market area. Advertising rates are also determined by
a station's overall ability to attract viewers in its market area, as well as
the station's ability to attract viewers among particular demographic groups
that an advertiser may be targeting. Because broadcast television stations
rely on advertising revenues, they are sensitive to cyclical changes in the
economy. The size of advertisers' budgets, which are affected by broad
economic trends, affect both the broadcast industry in general and the
revenues of individual broadcast television stations.
United States television stations are grouped by Nielsen into 211 generally
recognized television market areas that are ranked in size according to
various formulae based upon actual or potential audience. Each market area is
designated as an exclusive geographic area consisting of all counties in which
the home-market commercial stations receive the greatest percentage of total
viewing hours. The specific geographic markets are called Designated Market
Areas or DMAs.
Nielsen, which provides audience-measuring services, periodically publishes
data on estimated audiences for television stations in the various DMAs
throughout the country. These estimates are expressed in terms of both the
percentage of the total potential audience in the DMA viewing a
2
station (the station's "rating") and the percentage of the audience actually
watching television (the station's "share"). Nielsen provides such data on the
basis of total television households and selected demographic groupings in the
DMA. Nielsen uses two methods of determining a station's ratings and share. In
larger DMAs, ratings are determined by a combination of meters connected
directly to selected household television sets and weekly viewer-completed
diaries of television viewing, while in smaller markets ratings are determined
by weekly diaries only. Of the market areas in which the Company conducts
business, Washington, D.C. is a metered market while the remaining markets are
weekly diary markets. Nielsen has indicated, however, that the Birmingham
market will become metered in the Fall of 1998.
Historically, three major broadcast networks--ABC, NBC and CBS--dominated
broadcast television. In recent years, FOX has effectively evolved into the
fourth major network, although the hours of network programming produced by
FOX for its affiliates are fewer than those produced by the other three major
networks. In addition, UPN and WB recently have been launched as new
television networks.
The affiliation by a station with one of the four major networks has a
significant impact on the composition of the station's programming, revenues,
expenses and operations. A typical affiliate station receives approximately 9
to 13 hours of each day's programming from the network. This programming,
along with cash payments ("network compensation"), is provided to the
affiliate by the network in exchange for a substantial majority of the
advertising time sold during the airing of network programs. The network then
sells this advertising time for its own account. The affiliate retains the
revenues from time sold during breaks in and between network programs and
during programs produced by the affiliate or purchased from non-network
sources. In acquiring programming to supplement network programming, network
affiliates compete primarily with affiliates of other networks and independent
stations in their market areas. Cable systems generally do not compete with
local stations for programming, although various national cable networks from
time to time have acquired programs that would have otherwise been offered to
local television stations. In addition, a television station may acquire
programming through barter arrangements. Under barter arrangements, which are
becoming increasingly popular with both network affiliates and independents, a
national program distributor can receive advertising time in exchange for the
programming it supplies, with the station paying no fee or a reduced fee for
such programming.
An affiliate of UPN or WB receives a smaller portion of each day's programming
from its network compared to an affiliate of ABC, CBS, NBC or FOX. As a
result, affiliates of UPN or WB must purchase or produce a greater amount of
their programming, resulting in generally higher programming costs. These
stations, however, retain a larger portion of the inventory of advertising
time and the revenues obtained therefrom compared to stations affiliated with
the major networks, which may partially offset their higher programming costs.
In contrast to a network affiliated station, an independent station purchases
or produces all of the programming that it broadcasts, generally resulting in
higher programming costs, although the independent station is, in theory, able
to retain its entire inventory of advertising time and all of the revenue
obtained from the sale of such time. Barter and cash-plus-barter arrangements,
however, have become increasingly popular among all stations.
3
Public broadcasting outlets in most communities compete with commercial
broadcasters for viewers but not for advertising dollars.
Broadcast television stations compete for advertising revenues primarily with
other broadcast television stations and, to a lesser extent, with radio
stations, cable system operators and programmers and newspapers serving the
same market. Traditional network programming, and recently FOX programming,
generally achieves higher audience levels than syndicated programs aired by
independent stations. However, as greater amounts of advertising time become
available for sale by independent stations and FOX affiliates in syndicated
programs, those stations typically achieve a share of the television market
advertising revenues greater than their share of the market area's audience.
Through the 1970s, network television broadcasting enjoyed virtual dominance
in viewership and television advertising revenues because network-affiliated
stations only competed with each other in local markets. Beginning in the
1980s, this level of dominance began to change as the FCC authorized more
local stations and marketplace choices expanded with the growth of independent
stations and cable television services.
Cable television systems were first constructed in significant numbers in the
1970s and were initially used to retransmit broadcast television programming
to paying subscribers in areas with poor broadcast signal reception. In the
aggregate, cable-originated programming has emerged as a significant
competitor for viewers of broadcast television programming, although no single
cable programming network regularly attains audience levels amounting to more
than a small fraction of any of the major broadcast networks. The advertising
share of cable networks increased during the 1970s and 1980s as a result of
the growth in cable penetration (the percentage of television households that
are connected to a cable system). Notwithstanding such increases in cable
viewership and advertising, over-the-air broadcasting remains the dominant
distribution system for mass market television advertising.
Direct Broadcast Satellite ("DBS") service has recently been introduced as a
new competitive distribution method. Home users purchase or lease satellite
dish receiving equipment and subscribe to a monthly service of programming
options. At present, the nature of DBS service permits only national
programming and does not offer locally originated programs or advertising.
The Company believes that the market shares of television stations affiliated
with ABC, NBC and CBS declined during the 1980s primarily because of the
emergence of FOX and certain strong independent stations and secondarily
because of increased cable penetration. Independent stations have emerged as
viable competitors for television viewership share, particularly as a result
of the availability of first-run network-quality programming. In addition,
there has been substantial growth in the number of home satellite dish
receivers and video cassette recorders, which has further expanded the number
of programming alternatives available to household audiences.
Terrestrially-distributed television broadcast stations use analog
transmission technology. Recent advances in digital transmission technology
formats will enable broadcasters to migrate from
4
analog to digital broadcasting. Digital technologies provide cleaner video
and audio signals as well as the ability to transmit "high definition
television" with theatre screen aspect ratios, higher resolution video and
"noise-free" sound. Digital transmission also permits dividing the
transmission frequency into multiple discrete channels of standard definition
television. The FCC recently authorized a transition plan to convert existing
analog stations to digital by temporarily authoring a second channel to
transmit programming digitally with the return of the analog channel after the
transition period.
Station Information
The following table sets forth general information for each of the Company's
owned and/or operated stations as of November 1997 :
Total
Market Commercial Station Rank
Designated Network Channel Rank or Competitors Audience in Acquisition
Market Area Station Affiliation Frequency DMA in Market Share Market Date
Washington, D.C. WJLA ABC 7/VHF 7 6 24% 1 01/29/76
Harrisburg-Lancaster-York-Lebanon,
PA WHTM ABC 27/UHF 45 5 26% 2 03/01/96
Little Rock, AR KATV ABC 7/VHF 56 5 37% 1 04/06/83
Tulsa, OK KTUL ABC 8/VHF 58 6 30% 2 04/06/83
Lynchburg-Roanoke,VA WSET ABC 13/VHF 68 4 25% 2 01/29/76
Charleston, SC WCIV ABC 4/VHF 117 5 20% 3 01/29/76
Birmingham, AL WCFT/WJSU/WBMA-LP ABC - 51 6 19% 3 -
Birmingham WBMA-LP ABC 58/UHF 51 6 - - 08/01/97
Tuscaloosa WCFT ABC 33/UHF 187 2 23% 2 03/15/96
Anniston WJSU ABC 40/UHF 201 2 30% 1 -
Represents market rank based on the Nielsen Station Index for November
1997.
Represents the total number of commercial broadcast television stations
in the DMA with an audience rating of at least 1% in the 7:00 a.m. to
1:00 a.m., Sunday through Saturday, time period.
Represents the station's share of total viewing of commercial broadcast
television stations in the DMA for the time periods referenced or, if no
time period is indicated, 7:00 a.m. to 1:00 a.m., Sunday through Saturday.
Represents the station's rank in the DMA based on its share of total
viewing of commercial broadcast television stations in the DMA for the
time periods referenced or, if no time period is indicated, 7:00 a.m. to
1:00 a.m., Sunday through Saturday.
Owned Station.
WSET and WCIV have been indirectly owned and operated by Joe L.
Allbritton since 1976. On March 1, 1996, WSET and WCIV became wholly-
owned subsidiaries of ACC.
WCIV became affiliated with ABC in August 1996.
TV Alabama serves the Birmingham market by simultaneously broadcasting
identical programming over WBMA-LP, WCFT and WJSU (which TV Alabama
operates pursuant to an LMA). The market rank figures reflect the
combined Birmingham, Tuscaloosa and Anniston markets; Nielsen assigns
WCFT to the Tuscaloosa DMA and WJSU to the Anniston DMA. The stations
are listed on a combined basis by Nielsen as "WBMA," the call sign of a
low power television station owned by TV Alabama and licensed to
Birmingham.
Operated Station.
5
Business and Operating Strategy
The Company's business strategy is to focus on building net operating revenues
and net cash provided by operating activities. During Fiscal 1996, the
Company and its subsidiaries consummated several transactions that expanded
their broadcast holdings. The Company acquired an 80% interest in the assets
and certain liabilities of WHTM and WCFT (the "Acquisitions"). The Company,
through an 80%-owned subsidiary, also entered into a LMA to operate, for a
period of ten years, WJSU, licensed to Anniston, Alabama (the "Anniston LMA").
In addition, WSET and WCIV became wholly-owned subsidiaries of ACC through a
contribution of capital stock (the "Contribution") from an affiliate wholly-
owned by Joe L. Allbritton.
The Company intends to pursue selective acquisition opportunities as they
arise. The Company's acquisition strategy is to target network-affiliated
television stations where it believes it can successfully apply its operating
strategy and where such stations can be acquired on attractive terms. Targets
include midsized growth markets with what the Company believes to be
advantageous business climates. Although the Company continues to review
strategic investment and acquisition opportunities, no agreements or
understandings are currently in place regarding any material investments or
acquisitions.
In addition, the Company constantly seeks to enhance net operating revenues at
a marginal incremental cost through its use of existing personnel and
programming capabilities. For example, KATV operates the Arkansas Razorback
Sports Network ("ARSN"), which provides University of Arkansas sports
programming to a network of 66 radio stations in four states.
The Company's operating strategy focuses on four key elements:
Local News and Community Leadership. The Company's stations are local news
leaders and exploit the revenue potential associated with local news
leadership. Since the acquisition of each station, the Company has focused on
building that station's local news programming franchise as the foundation for
building significant audience share. In each of its market areas, the Company
develops additional information-oriented programming designed to expand the
stations' hours of commercially valuable local news and other programming with
relatively small incremental increases in operating expenses. Local news
programming is commercially valuable because of its high viewership level, the
attractiveness to advertisers of the demographic characteristics of the
typical news audience (allowing stations to charge higher rates for
advertising time) and the enhanced ratings of other programming in time
periods adjacent to the news. In addition, management believes strong local
news product has helped differentiate local broadcast stations from the
increasing number of cable programming competitors that generally do not
provide this material.
High Quality Non-Network Programming. The Company's stations are committed
to attracting viewers through an array of syndicated and locally-produced
programming to fill those periods of the broadcast day not programmed by the
network. This programming is selected by the Company on its ability to
attract audiences highly valued in terms of demographic makeup on a
cost-effective basis and reflects a focused strategy to migrate and hold
audiences from program to program
6
throughout dayparts. Audiences highly valued in terms of demographic
makeup include women aged 18-49 and all adults aged 25-54. These
demographic groups are perceived by advertisers as the groups
with the majority of buying authority and decision-making in product
selection.
Local Sales Development Efforts. The Company believes that television
stations with a strong local presence and active community relations can
realize additional revenue from advertisers through the development and
promotion of special programming and marketing events. Each of the Company's
stations has developed such additional products, including high quality
programming of local interest (such as University of Arkansas football and
basketball games, Washington Redskins pre-season football games and related
shows) and sponsored community events. These sponsored events have included
health fairs, contests, job fairs, parades and athletic events and have
provided advertisers, who are offered participation in such events, an
opportunity to direct a marketing program to targeted audiences. These
additional products have proven successful in attracting incremental
advertising revenues. The stations also seek to maximize their local sales
efforts through the use of extensive research and targeted demographic
studies.
Cost Control. Management believes that controlling costs is an essential
factor in achieving and maintaining the profitability of its stations. The
Company believes that by delivering highly targeted audience levels and
controlling programming and operating costs, the Company's stations can
achieve increased levels of revenue and operating cash flow. As the provider
of ABC network programming in each of its market areas, the Company has
entered into long-term stable affiliation agreements. Further, each station
rigorously manages its expenses through project accounting, a budgetary
control process which includes daypart revenue analysis and expense analysis.
Moreover, each of the stations closely monitors its staffing levels. As part
of the planned development of the Birmingham station during Fiscal 1996 and
1997, the Company has made a continuing investment in the start-up operations,
including staffing, programming, marketing and promotional activities.
Owned and/or Operated Stations
WJLA: Washington, D.C.
Acquired by the Company in 1976, WJLA is an ABC network affiliate pursuant to
an affiliation agreement that expires on October 1, 2005. The Station's FCC
license expires on October 1, 2004. Washington, D.C. is the seventh largest
DMA, with approximately 1,928,000 television households. The Company believes
that this position historically permitted stations in this market to earn
higher advertising rates than its other owned and operated stations because
many national advertising campaigns concentrate their spending in the top ten
media markets and on issue-oriented advertising in Washington, D.C. The
Washington market is served by six commercial television stations.
Approximately 46% of WJLA's 24-hours of daily broadcasting time consists of
programming that is either locally produced or purchased from non-network
sources.
7
WHTM: Harrisburg-Lancaster-York-Lebanon, Pennsylvania
Acquired by the Company in 1996, WHTM is an ABC network affiliate pursuant to
an affiliation agreement that expires on January 1, 2005. The Station's FCC
License expires August 1, 1999. Harrisburg, Pennsylvania, which consists of
nine contiguous counties located in central Pennsylvania, is the 45th largest
DMA, reaching approximately 584,000 television households. Harrisburg is the
capital of Pennsylvania, and the government represents the area's largest
employer. The Harrisburg market is served by five commercial television
stations, one of which is a VHF station. Approximately 42% of WHTM's 24-hours
of daily broadcasting time consists of programming that is either locally
produced or purchased from non-network sources.
KATV: Little Rock, Arkansas
Acquired by the Company in 1983, KATV is an ABC network affiliate pursuant to
an affiliation agreement that expires on July 31, 2005. The Station's FCC
license expires on June 1, 2005. The Little Rock market is the 56th largest
DMA, with approximately 481,000 television households. The Little Rock market
has a diversified economy, both serving as the seat of state and local
government and housing a significant concentration of businesses in the
medical services, transportation and insurance industries. The Little Rock
market is served by five commercial television stations. Approximately 40% of
KATV's 24-hours of daily broadcasting time consists of programming that is
either locally produced or purchased from non-network sources.
Capitalizing on its exclusive rights to the University of Arkansas basketball
and football schedules through the year 2000, KATV launched ARSN in Fiscal
1994 by entering into programming sublicense agreements with a network of 66
radio stations in four states. Pay-per-view and home video rights are also
controlled by ARSN.
KTUL: Tulsa, Oklahoma
Acquired by the Company in 1983, KTUL is an ABC network affiliate pursuant to
an affiliation agreement that expires on July 31, 2005. The Station's FCC
license expires on June 1, 1998. The application for renewal of the FCC
license will be submitted by February 1, 1998. Tulsa, Oklahoma is the 58th
largest DMA, with approximately 461,000 television households. Because of the
demographic characteristics of the Tulsa DMA, the Company believes many
advertisers consider it an excellent national test market. Consequently, it
believes KTUL derives incremental advertising revenues from advertisers
seeking to test-market new products. The Tulsa market is served by six
commercial television stations. Approximately 50% of KTUL's 24-hours of daily
broadcasting time consists of programming that is either locally produced or
purchased from non-network sources.
WSET: Roanoke-Lynchburg, Virginia
Acquired by the Company in 1996 through the Contribution, WSET is an ABC
network affiliate pursuant to an affiliation agreement that expires on July
31, 2005. The Station's FCC license expires on October 1, 2004. The
hyphenated central Virginia market comprised of Lynchburg,
8
Roanoke and Danville is the 68th largest DMA, with approximately 402,000
television households. Lynchburg's economy includes high-tech manufacturing,
cellular communications, nuclear energy and machinery. Danville's chief
industries include textiles, tobacco processing, wood products and tire
manufacturing. Roanoke is one of Virginia's largest metropolitan regions
and a hub of transportation, finance and industry for the southwestern part
of the state. The Lynchburg DMA is served by four commercial television
stations. Approximately 52% of WSET's 24 hours of daily broadcasting time
consists of programming that is either locally produced or purchased from
non-network sources.
WCIV: Charleston, South Carolina
Acquired by the Company in 1996 through the Contribution, WCIV is an ABC
affiliate pursuant to an affiliation agreement that expires on August 20,
2006. The Station's FCC license expires on December 1, 2004. Charleston,
South Carolina is the 117th largest DMA, with approximately 215,000 television
households. Charleston's resurgent port economy has undergone significant
change during the past five years, achieving economic diversification.
Spending by the Department of Defense, however, is expected to continue to
represent a significant portion of the local economy. Tourism has stabilized
as the largest nonmilitary related industry, with about 7.5 million visitors
annually and 40,000 related jobs, followed by medical services and government.
The Charleston DMA is served by five commercial television stations.
Approximately 56% of WCIV's 24 hours of daily broadcasting time consists of
programming that is either locally produced or purchased from non-network
sources.
WBMA-LP/WCFT/WJSU: Birmingham/Tuscaloosa/Anniston, Alabama
The Company acquired WCFT in March 1996 and commenced operation of WJSU
pursuant to the Anniston LMA in December 1995. The Anniston LMA expires on
December 29, 2005. Both stations are ABC affiliates pursuant to an affiliation
agreement that expires on September 1, 2006. The FCC licenses for both
stations expire on April 1, 2005. The Company also owns a low power
television station licensed to Birmingham, Alabama (WBMA-LP). Birmingham,
Alabama is the 51st largest DMA, reaching approximately 526,000 television
households. Nielsen has given preliminary indications that it will collapse
the Tuscaloosa DMA (187th largest with approximately 58,000 television
households) and the Anniston DMA (201st largest with approximately 43,000
television households) into the Birmingham DMA in the Fall of 1998. The
resulting DMA would be the 39th largest with approximately 627,000 television
households. The combined markets of Birmingham, Tuscaloosa and Anniston are
served by eight commercial television stations.
In connection with the Anniston LMA, the Company entered into an option to
purchase the assets of WJSU (the "Anniston Option"). The cost of the Anniston
Option was $15,348, and it is exercisable for additional consideration of
$3,337. Exercise of the Anniston Option is subject to certain conditions,
including a change in FCC rules or a waiver permitting common ownership of
WCFT and WJSU (see Legislation and Regulation).
The Company serves the combined Birmingham/Tuscaloosa/Anniston market by
simultaneously transmitting identical programming from its studio in
Birmingham over both WCFT and WJSU.
9
The stations are listed on a combined basis by Nielsen as WBMA. TV Alabama
has constructed new studio facilities in Birmingham for the operation of
both stations. The Company has retained a news and sales presence in both
Tuscaloosa and Anniston, while at the same time maintaining its primary news
and sales presence in Birmingham. Approximately 35% of TV Alabama's 24 hours
of daily broadcasting time consists of programming that is either locally
produced or purchased from non-network sources.
Competition
Competition in the television industry, including each of the market areas in
which the Company's stations compete, takes place on several levels:
competition for audience, competition for programming (including news) and
competition for advertisers. Additional factors material to a television
station's competitive position include signal coverage and assigned frequency.
The television broadcasting industry is continually faced with technological
change and innovation, the possible rise or fall in popularity of competing
entertainment and communications media and actions of federal regulatory
bodies, including the FCC, any of which could possibly have a material adverse
effect on the Company's operations.
Audience: Stations compete for audience on the basis of program popularity,
which has a direct effect on advertising rates. A majority of the Company's
daily programming is supplied by ABC. In those periods, the stations are
totally dependent upon the performance of the ABC network programs in
attracting viewers. Non-network time periods are programmed by the station
with a combination of self-produced news, public affairs and other
entertainment programming, including news and syndicated programs purchased
for cash, cash and barter or barter-only. Independent stations, the number of
which has increased significantly over the past decade, have also emerged as
viable competitors for television viewership share, particularly as the result
of the availability of first-run network-quality programming from FOX.
The development of methods of television transmission other than over-the-air
broadcasting and, in particular, the growth of cable television has
significantly altered competition for audience share in the television
industry. These alternative transmission methods can increase competition for
a broadcasting station both by bringing into its market area distant
broadcasting signals not otherwise available to the station's audience and by
serving as a distribution system for programming originated on the cable
system. Historically, cable operators have not sought to compete with
broadcast stations for a share of the local news audience. To the extent cable
operators elect to do so, their increased competition for local news audiences
could have an adverse effect on the Company's advertising revenues.
Other sources of competition include home entertainment systems (including
video cassette recorder and playback systems, videodiscs and television game
devices), multipoint distribution systems, multichannel multipoint
distribution systems, wireless cable, satellite master antenna television
systems and some low-power and in-home satellite services. The Company's
television stations also face competition from high-powered direct broadcast
satellite services, such as DIRECT-TV, which transmit programming directly to
homes equipped with special receiving
10
antennas or to cable television systems for transmission to their subscribers.
Further advances in technology may increase competition for household
audiences and advertisers. Video compression techniques, now under development
for use with current cable channels, or direct broadcast satellites are
expected to reduce the bandwidth required for television signal transmission.
These compression techniques, as well as other technological developments, are
applicable to all video delivery systems, including over-the-air broadcasting,
and have the potential to provide vastly expanded programming to highly
targeted audiences. Reduction in the cost of creating additional channel
capacity could lower entry barriers for new channels and encourage the
development of increasingly specialized niche programming. This ability to
reach very defined audiences is expected to alter the competitive dynamics for
advertising expenditures. The Company is unable to predict the effect that
technological changes will have on the broadcast television industry or the
future results of the Company's operations.
Programming: Competition for programming involves negotiating with national
program distributors or syndicators which sell first-run and rerun packages of
programming. The Company's stations compete against in-market broadcast
station competitors for off-network reruns (such as "Home Improvement") and
first-run product (such as "The Oprah Winfrey Show") for exclusive access to
those programs. Cable systems generally do not compete with local stations for
programming, although various national cable networks from time to time have
acquired programs that would have otherwise been offered to local television
stations. Competition for exclusive news stories and features is also endemic
to the television industry.
Advertising: Advertising rates are based upon the size of the market area in
which a station operates, the program's popularity among the viewers an
advertiser wishes to attract, the number of advertisers competing for the
available time, the demographic makeup of the market area served by the
station, the availability of alternative advertising media in the market area,
an aggressive and knowledgeable sales forces and the development of projects,
features and programs that tie advertiser messages to programming. The
Company's television stations compete for advertising revenues with other
television stations in their respective markets as well as with other
advertising media, such as newspapers, radio, magazines, outdoor advertising,
transit advertising, yellow page directories, direct mail and local cable
systems. Competition for advertising dollars in the broadcasting industry
occurs primarily in individual market areas. Generally, a television
broadcasting station in the market does not compete with stations in other
market areas. The Company's television stations are located in highly
competitive market areas.
Legislation and Regulation
The ownership, operation and sale of television stations are subject to the
jurisdiction of the FCC under the Communications Act of 1934 (the
"Communications Act"). Matters subject to FCC oversight include, but are not
limited to, the assignment of frequency bands for broadcast television; the
approval of a television station's frequency, location and operating power;
the issuance, renewal, revocation or modification of a television station's
FCC license; the approval of changes in the ownership or control of a
television station's licensee; the regulation of equipment used by television
stations and the adoption and implementation of regulations and policies
11
concerning the ownership, operation, programming and employment practices of
television stations. The FCC has the power to impose penalties, including
fines or license revocations, upon a licensee of a television station for
violations of the FCC's rules and regulations.
The following is a brief summary of certain provisions of the Communications
Act and of specific FCC regulations and policies affecting broadcast
television. Reference should be made to the Communications Act, FCC rules and
the public notices and rulings of the FCC for further information concerning
the nature and extent of FCC regulation of broadcast television stations.
License Renewal: Broadcast television licenses generally had been granted for
maximum terms of five years until the Telecommunications Act of 1996 (the
"Telecommunications Act") extended license terms to eight years. License
terms are subject to renewal upon application to the FCC, but they may be
renewed for a shorter period upon a finding by the FCC that the "public
interest, convenience and necessity" would be served thereby. Under the
Telecommunications Act, the FCC must grant a renewal application if it finds
that the station has served the public interest, there have been no serious
violations of the Communications Act or FCC rules, and there have been no
other violations of the Communications Act or FCC rules by the licensee that,
taken together, would constitute a pattern of abuse. If the licensee fails to
meet these requirements, the FCC may either deny the license or grant it on
terms and conditions as are appropriate after notice and opportunity for
hearing.
In the vast majority of cases, television broadcast licenses are renewed by
the FCC even when petitions to deny or competing applications are filed
against broadcast license renewal applications. However, there can be no
assurance that each of the Company's broadcast licenses will be renewed in the
future. All of the stations' existing licenses were renewed for full five or
eight-year terms and are currently in effect.
Programming and Operation: The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually has
relaxed or eliminated many of the more formalized procedures it had developed
to promote the broadcast of certain types of programming responsive to the
needs of a station's community of license. However, broadcast station
licensees must continue to present programming that is responsive to local
community problems, needs and interests and to maintain certain records
demonstrating such responsiveness. Complaints from viewers concerning a
station's programming often will be considered by the FCC when it evaluates
license renewal applications, although such complaints may be filed at any
time and generally may be considered by the FCC at any time. Stations also
must follow various FCC rules that regulate, among other things, political
advertising, sponsorship identifications, the advertisements of contests and
lotteries, obscene and indecent broadcasts and technical operations, including
limits on radio frequency radiation. In addition, most broadcast licensees,
including the Company's licensees, must develop and implement equal employment
opportunity programs and must submit reports to the FCC with respect to these
matters on an annual basis and in connection with a license renewal
application. The FCC also has adopted rules that place additional obligations
on television station operators for maximum amounts of advertising and minimum
amounts of programming specifically targeted for children as well as
additional public information and reporting requirements.
12
Digital Television: The FCC has adopted rules for implementing digital
(including high-definition) television ("DTV") service in the United States.
Implementation of DTV is intended to improve the technical quality of
television. Under certain circumstances, however, conversion to DTV operations
may reduce a station's geographical coverage area. The FCC has allotted a
second broadcast channel to each full-power commercial television station for
DTV operation. Under the proposal, stations will be required to phase in their
DTV operations on the second channel over a transition period and to surrender
their non-DTV channel later. Implementation of advanced television service may
impose additional costs on television stations providing the new service, due
to increased equipment costs, and may affect the competitive nature of the
market areas in which the Company operates if competing stations adopt and
implement the new technology before the Company's stations. The FCC has
adopted standards for the transmission of advanced television signals. These
standards will serve as the basis for the phased conversion to digital
transmission.
Ownership Matters: The Communications Act contains a number of restrictions on
the ownership and control of broadcast licenses. Together with the FCC's
rules, it places limitations on alien ownership; common ownership of
broadcast, cable and newspaper properties; and ownership by those persons not
having the requisite "character" qualifications and those persons holding
"attributable" interests in the license.
The FCC's television national multiple ownership rules limit the audience
reach of television stations in which any entity may hold an attributable
interest to 35 percent of total United States audience reach. The FCC's
television multiple ownership local contour overlap rule, the "Duopoly" rule,
generally prohibits ownership of attributable interests by a single entity in
two or more television stations which serve the same geographic market area.
The Telecommunications Act directs the FCC to reevaluate its local ownership
rules to consider potential modifications permitting ownership of more than
one station in a market area. The FCC has proposed to redefine the market
area for purposes of the Duopoly rule from a station's "Grade B" contour to
its DMA so long as there is no "Grade A" overlap in signals of the two
stations. The FCC also seeks comment on whether ownership of two UHF stations
or a UHF/VHF combination should be permissible.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. When
applying its multiple ownership or cross-ownership rules, the FCC generally
attributes the interests of corporate licensees to the holders of corporate
interests as follows: (i) any voting interest amounting to five percent or
more of the outstanding voting power of the corporate broadcast licensee
generally will be attributable; (ii) in general, no minority voting stock
interests will be attributable if there is a single holder of more than fifty
percent of the outstanding voting power of a corporate broadcast licensee and
(iii) in general, certain investment companies, insurance companies and banks
holding stock through their trust departments in trust accounts will be
considered to have an attributable interest only if they hold ten percent or
more of the outstanding voting power of a corporate broadcast licensee.
Furthermore, corporate officers and directors and general partners and
uninsulated limited partners of partnerships are personally attributed with
the media interests of the corporations or partnerships of which they are
officers, directors or partners. In the case of corporations controlling
broadcast licenses through one or more intermediate entities, similar
attribution standards generally apply to
13
stockholders, officers and directors of such corporations.
The FCC is conducting rulemaking proceedings to determine whether it should
relax its rules to facilitate greater minority and female ownership of
broadcasting facilities and whether it should modify its rules by (i)
restricting the availability of the single majority shareholder exemption,
(ii) attributing certain interests such as non-voting stock, debt and holdings
in limited liability companies and (iii) changing the attribution benchmarks.
The Company cannot predict the outcome of these proceedings or how they will
affect the Company's business. In light of the FCC's multiple ownership and
cross-ownership rules, an individual or entity that acquires an attributable
interest in the Company may violate the FCC's rules if that acquirer also has
an attributable interest in other television or radio stations, or in cable
television systems or daily newspapers, depending on the number and location
of those radio or television stations, cable television systems or daily
newspapers. Such an acquirer also may be restricted in the companies in which
it may invest, to the extent that those investments give rise to an
attributable interest. If an individual or entity with an attributable
interest in the Company violates any of these ownership rules, the Company may
be unable to obtain from the FCC the authorizations needed to conduct its
television station business, may be unable to obtain FCC consents for certain
future acquisitions, may be unable to obtain renewals of its licenses and may
be subject to other material adverse consequences.
Under its "cross-interest policy," the FCC considers certain "meaningful"
relationships among competing media outlets in the same market, even if the
FCC's ownership rules do not specifically prohibit these relationships. Under
this policy, the FCC may consider significant equity interests combined with
an attributable interest in a media outlet in the same market, joint ventures
and common key employees among competitors. The cross-interest policy does not
necessarily prohibit all of these interests but requires that the FCC consider
whether, in a particular market, the "meaningful" relationships among
competitors could have a significant adverse effect upon economic competition
or program diversity. Neither the Company nor, to the best of the Company's
knowledge, any officer, director or shareholder of the Company holds an
interest in another radio or television station, cable television system or
daily newspaper that is inconsistent with the FCC's ownership rules and
policies.
Related to the Duopoly rule, the FCC has proposed the adoption of rules that
would modify the current treatment of the control and ownership attribution
with respect to LMAs entered into by television stations. The FCC proposes
that time brokerage of any other television station in the same market for
more than fifteen percent of the brokered station's weekly broadcast hours
would result in counting the brokered station toward the brokering licensee's
national and local multiple ownership limits. The FCC has proposed that LMAs
in existence prior to November 6, 1996 be grandfathered for the length of
their terms so as not to place owners of stations in violation of the rules if
such owners also operate another station pursuant to such LMAs. Although the
Company cannot predict the outcome of this proceeding, if the local multiple
ownership rules are not relaxed as proposed, attribution could preclude
television LMAs in any market where the time broker owns or has an
attributable interest in another television station. Changes by the FCC in its
current policy regarding LMAs for television stations could potentially have a
material adverse effect on the Anniston LMA.
14
Additional Competition in the Video Services Industry: The Telecommunications
Act also eliminates the overall ban on telephone companies offering video
services and permits the ownership of cable television companies by telephone
companies in their service areas (or vice versa) in certain circumstances.
Telephone companies providing such video services will be regulated according
to the transmission technology they use. The Telecommunications Act also
permits telephone companies to hold an ownership interest in the programming
carried over such systems. Although the Company cannot predict the effect of
the removal of these barriers to telephone company participation in the video
services industry, it may have the effect of increasing competition in the
television broadcast industry in which the Company operates.
Other Legislation: Finally, Congress and the FCC have under consideration, and
in the future may consider and adopt, (i) other changes to existing laws,
regulations and policies or (ii) new laws, regulations and policies regarding
a wide variety of matters that could affect, directly or indirectly, the
operation, ownership and profitability of the Company's broadcast stations,
result in the loss or gain of audience share and advertising revenues for the
Company's stations and/or affect the ability of the Company to acquire or
finance additional broadcast stations.
Employees
As of September 30, 1997, the Company employed in full-time positions 814
persons, including 197 at WJLA, 109 at KATV, 106 at KTUL, 101 at WHTM, 123 at
WCFT/WJSU/WBMA, 93 at WSET, 72 at WCIV and 13 in its corporate office. Of the
employees at WJLA, 94 are represented by three unions: the American Federation
of Television and Radio Artists ("AFTRA"), the Directors Guild of America
("DGA") or the National Association of Broadcast Employees and
Technicians/Communications Workers of America ("NABET/CWA"). The AFTRA
contract was renegotiated effective June 1, 1996 through September 30, 1999.
The DGA contract was renegotiated effective July 16, 1996 through January 16,
2000. The NABET/CWA contract expired June 1, 1995. Members of this union have
been working without a contract since that time. WJLA management is in the
process of negotiating a new contract and anticipates resolving the outstanding
issues without any material adverse impact to the station. No employees of the
Company's other owned and/or operated stations are represented by unions. The
Company believes its relations with its employees are satisfactory.
Environmental Matters
The Company is subject to changing federal, state and local environmental
standards, including those governing the handling and disposal of solid and
hazardous wastes, discharges to the air and water and the remediation of
contamination associated with releases of hazardous substances.
In particular, the Company is subject to liability under the Comprehensive
Environmental Response, Compensation and Liability Act, the Resource
Conservation and Recovery Act and analogous state laws for the investigation
and remediation of environmental contamination at properties owned and/or
operated by it and at off-site locations where it has arranged for the
disposal of hazardous substances. Courts have determined that liability under
these laws is, in most cases, joint and several, meaning that any responsible
party could be held liable for all costs
15
necessary for investigating and remediating a release or threatened
release of hazardous substances.
WCIV is currently involved in remediating contamination associated with
releases of hazardous substances at its transmitter site. In September 1994,
approximately 2,000 gallons of electric generator fuel spilled from an
above-ground tank on the premises of WCIV. With the assistance of
environmental consultants and under supervision of the South Carolina
Department of Health and Environmental Control ("SCDHEC"), WCIV has undertaken
remediation of the contamination by installing wells for recovery of free
product and monitoring wells. Based upon the scope of the remediation required
as determined by the environmental consultants, the Company has estimated that
any remaining costs associated with the monitoring wells and related testing
are nominal. However, there can be no assurance that SCDHEC will not require
further remedial activities.
In October 1994, the Pennsylvania Department of Environmental Resources (the
"Pennsylvania Department") notified WHTM that it should remediate soils and
groundwater believed to be adversely affected by contamination associated with
an underground tank. The station's environmental consultant has advised the
Pennsylvania Department that it appears that contamination remaining on WHTM's
property did not emanate from its underground tank, which has been removed,
but is from an offsite source and that there is no threat to human health or
the environment which requires remediation. The matter remains unresolved.
In August 1995, concentrations of certain metals including arsenic, barium,
chromium and lead in the soil of a septic leach field were discovered on the
property of WCFT. The Company has been advised that these concentrations are
in the range of background concentrations for the area. The State of Alabama
is in the process of developing cleanup standards relating to such
concentrations of metal, and it is therefore uncertain what, if any,
remediation will be necessary.
Although there can be no assurance of the final resolution of these matters,
the Company does not believe that the amount of its liability at these
properties individually, or in the aggregate, will have a material adverse
effect on the Company's consolidated financial condition, results of
operations or cash flows.
16
ITEM 2. PROPERTIES
(Dollars in thousands)
The Company maintains its corporate headquarters in Washington, D.C.,
occupying leased office space of approximately 9,300 square feet.
The types of properties required to support each of the stations include
offices, studios, transmitter sites and antenna sites. The stations' studios
are co-located with their office space while transmitter sites and antenna
sites are generally located away from the studios in locations determined to
provide maximum market signal coverage.
KATV's broadcast tower, which met non-governmental wind-loading standards when
built, does not meet the current guidelines for wind-loading on broadcast
towers adopted in 1992. Because standards were modified subsequent to the
tower construction, KATV's tower is "grandfathered" under the prior
guidelines. Engineering studies, however, indicate that the tower may be
significantly overstressed under the revised guidelines, particularly at
sustained winds of 70 miles per hour and at risk of failing in such sustained
winds. KATV has taken steps to limit access to the area around the tower and
to avoid work on the tower during windy conditions. KATV is in the process of
making structural modifications to the tower and estimates that it will cost
approximately $450 to bring the tower within current guidelines. The owner of
KETS-TV, which has an antenna on the tower, has received a grant from the
National Telecommunications and Information Administration in the Department
of Commerce for matching funds to help offset the costs of tower modification.
In the event the tower failed prior to completion of structural modifications,
KATV would seek to continue transmission by direct fiber feeds to cable
television systems and temporary leased space on another neighboring broadcast
tower, although there can be no assurance that such an alternative would be
available at such time.
The following table describes the general characteristics of the Company's
principal real property:
17
Approximate Lease Expiration
Facility Market/Use Ownership Size Date
WJLA Washington, D.C.
Office/Studio Leased 88,828 sq. ft. 11/31/03
Tower/Transmitter Joint Venture 108,000 sq. ft. N/A
WHTM Harrisburg, PA
Office/Studio Owned 14,000 sq. ft. N/A
Tower/Transmitter Owned 2,801 sq. ft. N/A
Adjacent Land Leased 6,808 sq. ft. 10/31/00
KATV Little Rock, AR
Office/Studio Owned 20,500 sq. ft. N/A
Tower/Transmitter Owned 188 Acres N/A
Annex/Garage Owned 67,400 sq. ft. N/A
KTUL Tulsa, OK
Office/Studio Owned 13,520 sq. ft. N/A
Tower/Transmitter Owned 160 acres N/A
Tower Leased 1 acre 5/30/05
WSET Lynchburg, VA
Office/Studio Owned 15,500 sq. ft. N/A
Tower/Transmitter Owned 2,700 sq. ft. N/A
WCIV Mt. Pleasant, SC
Office/Studio Owned 21,700 sq. ft. N/A
Tower/Transmitter Leased 2,000 sq. ft. 8/31/06
WCFT/WJSU Birmingham, AL
Office/Studio Leased 26,357 sq.ft 9/30/06
Satellite Dish Farm Leased 0.5 acres 9/30/06
Tower/Relay-Pelham Leased .08 acres 10/31/01
Tower/Relay-Red Mtn. Owned .21 acres N/A
Tuscaloosa, AL
Office/Studio Owned 9,475 sq. ft. N/A
Tower-Tuscaloosa Owned 10.5 acres N/A
Tower-AmSouth Leased 134.3 acres 4/30/06
Anniston, AL
Office/Studio Leased 7,273 sq. ft. 6 months notice
Tower-Blue Mtn. Owned 1.7 acres N/A
Gadsden Office Leased 1,000 sq. ft. Monthly
Tower-Bald Rock Leased 1 acre 8/29/16
TV Alabama uses the pre-existing facilities of WCFT and WJSU to operate
news and sales bureaus in the Tuscaloosa and Anniston market areas.
Although TV Alabama is currently operating these properties under the
Anniston LMA, Flagship is the owner and lessee.
18
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Not Applicable.
19
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands)
The selected consolidated financial data below should be read in conjunction
with the Company's Consolidated Financial Statements and notes thereto
included elsewhere in this Report. The selected consolidated financial data for the
fiscal years ended September 30, 1993, 1994, 1995, 1996 and 1997 are derived
from the Company's audited Consolidated Financial Statements.
Fiscal Year Ended September 30,
-------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Statement of Operations Data :
Operating revenues, net $109,867 $125,830 $138,151 $155,573 $172,828
Television operating expenses,
excluding depreciation and
amortization 65,533 67,745 75,199 92,320 105,630
Depreciation and amortization 5,771 5,122 4,752 10,257 19,652
Corporate expenses 3,231 4,250 3,753 5,112 4,382
Operating income 35,332 48,713 54,447 47,884 43,164
Interest expense 22,336 22,303 22,708 35,222 42,870
Interest income 2,408 2,292 2,338 3,244 2,433
Income before extraordinary
items and cumulative
effect of changes in
accounting principles 7,586 17,360 19,909 8,293 424
Extraordinary items 1,485 -- -- (7,750) --
Cumulative effect of changes in
Accounting principles (523) 3,150 -- -- --
Net income 8,548 20,510 19,909 543 424
As of September 30,
-------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Balance Sheet Data :
Total assets $91,218 $94,079 $99,605 $281,778 $280,977
Total debt 197,154 199,473 198,919 402,993 415,722
Redeemable preferred stock 168 168 168 -- --
Stockholder's investment (138,288) (136,961) (133,879) (172,392) (185,563)
Fiscal Year Ended September 30,
-------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Financial Ratios and Other Data :
Operating Cash Flow $41,103 $53,835 $59,199 $58,141 $62,816
Operating Cash Flow Margin 37.4% 42.8% 42.9% 37.4% 36.3%
Capital expenditures 1,972 3,264 2,777 20,838 12,140
20
The consolidated statement of operations data, balance sheet data and
financial ratios and other data as of and for the year ended September
30, 1996 include the effects of significant transactions consummated by
the Company during the year that impact the comparability of Fiscal 1996
data to previous years. Such transactions include the effects of a
$275,000 offering of 9.75% Senior Subordinated Debentures due 2007, the
acquisitions of 80% of the net assets of WHTM and WCFT, the Anniston LMA
and Anniston Option, the early repayment of approximately $74,704 in
debt, and payment of a prepayment penalty on such debt of $12,934. These
transactions are discussed in Management's Discussion and Analysis of
Financial Condition and Results of Operations as well as Notes 3 and 6 of
Notes to Consolidated Financial Statements. In addition, the
comparability of Fiscal 1997 and Fiscal 1996 data is impacted by the fact
that that the results of operations of WHTM, WCFT and WJSU are included
for the full year in Fiscal 1997 as compared to the period from the date
of acquisition and the effective date of the Anniston LMA in Fiscal 1996.
The extraordinary gain during Fiscal 1993 resulted from the use of net
operating loss carryforwards and carrybacks for state income tax
reporting purposes. The extraordinary loss during Fiscal 1996 resulted
from a $7,750 loss, net of tax, on the early repayment of long-term debt
(see Note 6 of Notes to Consolidated Financial Statements).
As required by generally accepted accounting principles, the Company
changed its method of accounting for nonpension postretirement benefits
during Fiscal 1993 and its method of accounting for income taxes during
Fiscal 1994.
Total debt is defined as long-term debt (including the current portion
thereof, and net of discount), short-term debt and capital lease
obligations.
In September 1996, the Company purchased for cash the Series A
redeemable preferred stock at its redemption value of $168.
"Operating Cash Flow" is defined as operating income plus depreciation
and amortization. Programming expenses are included in television
operating expenses. The Company has included Operating Cash Flow data
because it understands that such data is used by investors to measure a
company's ability to fund its operations and service debt. Operating
Cash Flow does not purport to represent cash flows from operating
activities determined in accordance with generally accepted accounting
principles as reflected in the Consolidated Financial Statements, is not
a measure of financial performance under generally accepted accounting
principles, 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.
"Operating Cash Flow Margin" is defined as Operating Cash Flow as a
percentage of operating revenues, net.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)
General Factors Affecting the Company's Business
The Company owns and operates seven ABC network-affiliated television
stations: WJLA in Washington, D.C.; WHTM in Harrisburg, Pennsylvania; KATV in
Little Rock, Arkansas; KTUL in Tulsa, Oklahoma; WSET in Lynchburg, Virginia;
WCIV in Charleston, South Carolina; and WCFT in Tuscaloosa, Alabama (west of
Birmingham, Alabama). The Company also operates the ABC network affiliate WJSU
in Anniston, Alabama (east of Birmingham, Alabama) under the Anniston LMA, and
owns a low power television station licensed to Birmingham, Alabama (WBMA-LP).
The Company operates WCFT and WJSU in tandem with WBMA-LP serving the viewers
of Birmingham, Tuscaloosa and Anniston.
The operating revenues of the Company are derived from local and national
advertisers and, to a much lesser extent, from the networks and program
syndicators for the broadcast of programming and from commercial production
and tower rental activities. The primary operating expenses involved in owning
and operating television stations are employee compensation, programming, news
gathering, production, promotion and the solicitation of advertising.
Television stations receive revenues for advertising sold for placement within
and adjoining locally originated programming and adjoining their network
programming. Advertising is sold in time increments and is priced primarily on
the basis of a program's popularity among the specific audience an advertiser
desires to reach, as measured principally by quarterly audience surveys. In
addition, advertising rates are affected by the number of advertisers
competing for the available time, the size and demographic makeup of the
market areas served and the availability of alternative advertising media in
the market areas. Rates are highest during the most desirable viewing hours
(generally during local news programming and prime time), with corresponding
reductions during other hours.
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 Company's operating expenses are spread
evenly throughout the year so that the fluctuation in operating results is
generally related to the fluctuation 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 fluctuation in operating results depending on which television
network is carrying Olympic coverage.
The broadcast television industry is cyclical in nature, being affected by
prevailing economic conditions. Because the Company relies on sales of
advertising time for substantially all of its revenues, its operating results
are sensitive to general economic conditions
22
and regional conditions in each of the local market areas in which the
Company's stations operate. For Fiscal 1996 and 1997, WJLA accounted for
approximately one-half of the Company's total revenues. As a result, the
Company's results of operations are highly dependent on WJLA and, in turn,
the Washington, D.C. economy and, to a lesser extent, on each of the other
local economies in which the Company's stations operate. The Company is
also dependent on automotive-related advertising. Approximately 24%, 25% and
26% of the Company's total broadcast revenues for the years ended September
30, 1995, 1996 and 1997, respectively, consisted of automotive-related
advertising. A significant decrease in such advertising could materially
and adversely affect the Company's operating results.
Factors Affecting Fiscal 1996
There were significant factors which affected the results of operations for
the year ended September 30, 1996. In March 1996, the Company, through its
80%-owned subsidiaries, acquired the assets and certain liabilities of WHTM
and WCFT for $115,475 and $20,181, respectively (the "Acquisitions"). The
results of operations of WHTM and WCFT are included for the period subsequent
to the acquisitions. Additionally, in December 1995, the Company, through an
80%-owned subsidiary, entered into the ten-year Anniston LMA with the owners
of WJSU, a television station operating in Anniston, Alabama. The operating
revenues and expenses of WJSU are therefore included in the Company's
consolidated financial statements since December 1995. The RLA Revocable
Trust, created for the benefit of Robert Allbritton, owns the remaining 20%
interest in these subsidiaries. Robert Allbritton is a Director and officer
of the Company and is the son of Joe L. Allbritton.
References to the "New Stations" in Management's Discussion and Analysis of
Financial Condition and Results of Operations are to WHTM, WCFT and WJSU as
operated under the Anniston LMA.
In February 1996, the Company completed the offering of its $275,000 9.75%
Senior Subordinated Debentures due 2007 (the "9.75% Debentures"). The
proceeds from the offering of the 9.75% Debentures were used to finance the
acquisitions of WHTM and WCFT for $135,656, acquire the Anniston Option for
$10,000, repay approximately $74,704 of debt which was outstanding under
senior secured promissory notes and other credit agreements and pay a related
prepayment penalty of $12,934. The remaining net proceeds were retained by the
Company for the construction of studio and transmission facilities in
Birmingham, Alabama and general corporate purposes.
Operating Revenues
The following table depicts the principal types of operating revenues, net of
agency commissions, earned by the Company for each of the last three fiscal
years and the percentage contribution of each to the total broadcast revenues
of the Company, before fees.
23
Fiscal Year Ended September 30,
-------------------------------
1995 1996 1997
---- ---- ----
Dollars Percent Dollars Percent Dollars Percent
------- ------- ------- ------- ------- -------
Local/regional $ 67,228 47.3% $ 77,248 48.0% $ 85,954 48.1%
National 59,930 42.2% 64,277 40.0% 71,324 40.0%
Network compensation 2,623 1.9% 5,443 3.4% 6,223 3.5%
Political 3,320 2.3% 3,160 2.0% 4,273 2.4%
Trade and barter 5,897 4.2% 7,119 4.4% 7,868 4.4%
Other revenues 3,022 2.1% 3,489 2.2% 3,002 1.6%
-------- ----- -------- ----- -------- -----
Broadcast revenues 142,020 100.0% 160,736 100.0% 178,644 100.0%
====== ====== ======
Fees (4,789) (5,541) (6,068)
------- ------- -------
Broadcast revenue,
net of fees 137,231 155,195 172,576
Non-broadcast revenue 920 378 252
------- ------- -------
Total net operating revenues $138,151 $155,573 $172,828
======= ======= =======
Represents sale of advertising time to local and regional advertisers or
agencies representing such advertisers.
Represents sale of advertising time to agencies representing national
advertisers.
Represents payment by networks for broadcasting or promoting network
programming.
Represents sale of advertising time to political advertisers.
Represents value of commercial time exchanged for goods and services
(trade) or syndicated programs (barter).
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.
Represents fees paid to national sales representatives and fees paid for
music licenses.
Represents revenues from program syndication sales and other
miscellaneous non-broadcast revenues.
Local/regional and national advertising constitute the Company's largest
categories of operating revenues, collectively representing almost 90% of the
Company's total broadcast revenues in each of the last three fiscal years.
Although the total percentage contribution of local/regional and national
advertising has been relatively constant over such period, the growth rate of
local/regional and national advertising revenues varies annually based upon
the demand and rates for local/regional advertising time versus national
advertising time in each of the Company's markets. Local/regional advertising
revenues increased 12.6%, 14.9% and 11.3% in Fiscal 1995, 1996 and 1997,
respectively; and national advertising revenues increased 6.8%, 7.3% and 11.0%
during the same respective periods. Each other individual category of revenues
represented less than 5.0% of the Company's total revenues for each of the
last three fiscal years.
24
Results of Operations - Fiscal 1997 Compared to Fiscal 1996
As compared to Fiscal 1996, the Company's results of operations for Fiscal
1997 principally reflect the effect of the New Stations as their results are
included for the entire year in Fiscal 1997 as compared to the period from the
date of acquisition in Fiscal 1996. Additional significant factors include
increased demand by advertisers in the Washington, D.C. market, offset by
continued spending in Birmingham. As part of the planned development of the
Birmingham operation, the Company has continued to make enhancements in its
local news and has increased its marketing activities to promote WCFT and WJSU
as the new ABC affiliates for the Birmingham market. These activities have
resulted in increased audience share, and management believes that expansion
in audience share will continue resulting in increasingly higher advertising
revenues.
Set forth below are selected consolidated financial data for Fiscal 1996 and
1997, respectively, and the percentage change between the years.
Fiscal Year Ended September 30,
-------------------------------
Percentage
1996 1997 Change
---- ---- ----------
Operating revenues, net $155,573 $172,828 11.1%
Total operating expenses 107,689 129,664 20.4%
-------- --------
Operating income 47,884 43,164 (9.9)%
Nonoperating expenses, net 33,079 41,630 25.9%
Income tax provision 7,812 1,110 (85.8)%
Income before minority interest -------- --------
and extraordinary item 6,993 424 (93.9)%
Minority interest in net losses of
consolidated subsidiaries 1,300 -- --
Extraordinary item, net of income
tax benefit 7,750 -- --
------- --------
Net income $ 543 $ 424 (21.9)%
======= ========
Operating cash flow $ 58,141 $ 62,816 8.0%
======= ========
Net Operating Revenues
Net operating revenues for Fiscal 1997 totaled $172,828, an increase of
$17,255 or 11.1%, as compared to Fiscal 1996. The New Stations accounted for
$11,282, or 65.4% of the increase in net operating revenues. The majority of
this significant contribution by the New Stations is due to the fact that
results of the New Stations are included for the full year in Fiscal 1997 as
compared to the period from the date of acquisition in Fiscal 1996. The
balance of the increase results principally from increased local/regional and
national advertising in the Washington, D.C. and Little Rock markets offset by
a decline in the Charleston market.
Local/regional advertising revenues increased $8,706 or 11.3% over Fiscal
1996. The increase is largely attributable to a $6,127 increase in
local/regional revenues by the New Stations and
25
revenue increases generated by the Company's stations located in the
Washington, D.C. and Little Rock markets, offset by weakening in the
Tulsa and Charleston markets for local/regional advertisers.
National advertising revenues increased $7,047, or 11.0%, in Fiscal 1997 over
the prior fiscal year. The increase is principally attributable to $4,003
generated by the New Stations and improvements in the Washington, D.C., Little
Rock and Tulsa markets offset by a weakening in the Charleston market for
national advertising.
No individual advertiser accounted for more than 5% of the Company's broadcast
revenues during Fiscal 1997 or 1996.
Increased network compensation revenue of $780, or 14.3%, over the Fiscal 1996
level is principally attributable to the incremental network compensation of
the New Stations during Fiscal 1997.
Total Operating Expenses
Total operating expenses in Fiscal 1997 were $129,664, an increase of $21,975,
or 20.4%, compared to total operating expenses of $107,689 in Fiscal 1996.
Television operating expenses (before depreciation, amortization and corporate
expenses) totaled $105,630 in Fiscal 1997, an increase of $13,310, or 14.4%
when compared to television operating expenses of $92,320 in Fiscal 1996.
Television operating expenses of the New Stations accounted for 79.5% of the
increase. The New Stations accounted for a greater proportionate increase in
television operating expenses than in net operating revenues principally due
to the impact of Birmingham as discussed further below. The remaining
increase in television operating expenses is largely attributable to
approximately $2,000 of non-recurring program expense resulting from the
Company's early termination of a program contract. Excluding the New Stations
and the non-recurring program expense, Fiscal 1997 television operating
expenses increased approximately $727, or 0.9%, over the Fiscal 1996 level.
This expense increase over the prior year was concentrated in the news area,
which is consistent with the Company's operating strategy that emphasizes
local news leadership in each of its markets.
Depreciation and amortization expense of $19,652 in Fiscal 1997 increased
$9,395 from $10,257 in Fiscal 1996. The New Stations accounted for $8,843, or
88.8%, of the increase. This is due to the increased level of depreciable and
intangible assets which resulted principally from the acquisition of WHTM and
WCFT, the Anniston Option and capital equipment and leasehold improvements
associated with the new studio in Birmingham and transmission facilities in
Tuscaloosa and Anniston.
Corporate expenses in Fiscal 1997 decreased $730 from Fiscal 1996. The
decrease is principally due to a decrease in charitable contributions.
26
Operating Income
The operating results of the New Stations impacted the Company's consolidated
performance trends for Fiscal 1997 as compared to Fiscal 1996 primarily due to
the fact that they are included for the entire period in Fiscal 1997 as
compared to the period from the date of acquisition in the prior year. In
addition, the operating results of the Birmingham operation had a continuing
impact on the Company's consolidated performance trends in Fiscal 1997 as
compared to Fiscal 1996. The operating margins generated by the Company in
the aggregate were adversely impacted primarily due to the Company's
continuing investment in the start-up operations in Birmingham, (e.g.,
programming and staffing changes, marketing and promotional activities) as
well as due to the impact of the intangible amortization expense arising from
the Acquisitions and increased depreciation expense from capital improvements
made to the New Stations.
Operating income of $43,164 in Fiscal 1997 decreased $4,720 or 9.9%, compared
to operating income of $47,884 in Fiscal 1996. The operating profit margin in
Fiscal 1997 decreased to 25.0% from 30.8% for the comparable period in the
prior year. The decrease in operating profit and margin was due primarily to
operating expenses increasing at a greater rate than operating revenue as
discussed above.
Operating Cash Flow
Operating cash flow increased to $62,816 in Fiscal 1997 from $58,141 in Fiscal
1996, an increase of $4,675, or 8.0%. This increase is a result of the growth
in net operating revenues as discussed above together with smaller
proportional television operating expenses and corporate expenses. 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 $42,870 for Fiscal 1997 increased by $7,648, or 21.7%,
from $35,222 in Fiscal 1996. The increase is attributable to increased
interest expense from the issuance of the Company's 9.75% Debentures, together
with higher average working capital debt balances during Fiscal 1997 compared
to the prior year. The average amount of debt outstanding and the weighted
average interest rate on such debt for Fiscal 1997 and 1996 approximated
$413,723 and 10.2%, and $324,824 and 10.5%, respectively.
27
Interest income of $2,433 in Fiscal 1997 decreased $811, or 25.0%, as compared
to interest income of $3,244 in Fiscal 1996. The decrease was primarily due
to interest earned from temporarily investing certain proceeds from the sale
of the 9.75% Debentures during Fiscal 1996.
Income Taxes
The provision for income taxes in Fiscal 1997 of $1,110 decreased by $6,702,
or 85.8%, when compared to the provision for income taxes of $7,812 in Fiscal
1996. The decrease is directly related to the $13,271, or 89.6%, decrease in
income before income taxes, minority interest and extraordinary item (as
previously discussed).
Income Before Minority Interest and Extraordinary Item
Income before minority interest and extraordinary item in Fiscal 1997
decreased by $6,569, or 93.9%, from Fiscal 1996. As discussed previously, the
start-up nature of the Birmingham operation, the increased interest expense
and depreciation and amortization associated with the Acquisitions and the
non-recurring program expense adversely impacted the Fiscal 1997 results.
Net Income
Net income for Fiscal 1997 of $424 decreased $119, or 21.9%, when compared to
net income of $543 in Fiscal 1996. The decrease in net income is attributed
to the factors discussed above. Additionally, net income for Fiscal 1996
reflects the $7,750 extraordinary loss on early repayment of debt.
Balance Sheet
Significant balance sheet fluctuations from September 30, 1996 to September
30, 1997 consist of increased accounts receivable and long-term debt, offset
by decreases in cash and cash equivalents and accounts payable. In addition,
distributions to owners increased as a result of cash advances made during
Fiscal 1997. The increase in accounts receivable reflects the Company's
continued revenue growth while the offsetting decreases in cash and cash
equivalents and accounts payable are primarily attributable to the timing of
cash payments. The increase in long-term debt is related to additional draws
under its revolving credit facility and new capital leases to fund capital
expenditures, primarily in Birmingham, Alabama and Washington, D.C.
28
Results of Operations - Fiscal 1996 Compared to Fiscal 1995
Set forth below are selected consolidated financial data for Fiscal 1995 and
1996, respectively, and the percentage change between the years.
Fiscal Year Ended September 30,
-------------------------------
Percentage
1995 1996 Change
---- ---- ----------
Operating revenues, net $138,151 $155,573 12.6%
Total operating expenses 83,704 107,689 28.7%
-------- --------
Operating income 54,447 47,884 (12.1)%
Nonoperating expenses, net 20,603 33,079 60.6%
Income tax provision 13,935 7,812 (43.9)%
-------- --------
Income before minority interest
and extraordinary item 19,909 6,993 (64.9)%
Minority interest in net losses of
consolidated subsidiaries -- 1,300 --
Extraordinary item, net of income
tax benefit -- 7,750 --
------- -------
Net income $ 19,909 $ 543 (97.3)%
======= =======
Net Operating Revenues
Net operating revenues for Fiscal 1996 totaled $155,573, an increase of
$17,422, or 12.6%, as compared to Fiscal 1995. The New Stations accounted for
$14,916, or 85.6%, of the increase. The increase was primarily due to a
$14,367 or 11.3% increase in local/regional and national advertising and a
$2,820, or 107.5%, increase in network compensation compared to Fiscal 1995.
The increase in local/regional advertising revenue of $10,020, or 14.9%, over
the Fiscal 1995 level was largely attributable to $8,035 of local/regional
advertising revenue generated by the New Stations, coupled with increased
local/regional advertising revenue principally in the Little Rock, Tulsa and
Charleston markets which management attributes to an increase in total market
revenues and to certain changes in the competitive environment including, in
Charleston, advertising revenue increases from strong NBC prime time ratings
and the summer Olympics.
The increase in national advertising revenue of $4,347, or 7.3%, over the
Fiscal 1995 level was largely attributable to $5,525 of national advertising
generated by the New Stations, offset principally by a weakening of the
Washington, D.C. market for national advertisers.
Increased network compensation revenue of $2,820, or 107.5%, over the Fiscal
1995 level was primarily attributable to a new ten-year affiliation agreement
with ABC effective April 1996, with certain increases retroactive to August
1995. The new network compensation agreement increased annual network
compensation by approximately $2,200 from the Fiscal 1995 level. This new
compensation agreement, and to a lesser extent the incremental network
compensation attributable to the New Stations, accounted for the increase in
the Fiscal 1996 network compensation.
29
Total Operating Expenses
Total operating expenses in Fiscal 1996 were $107,689, an increase of $23,985,
or 28.7%, when compared to total operating expenses of $83,704 in Fiscal 1995.
Operating expenses, excluding the New Stations, increased 9.0% from Fiscal
1995. Television operating expenses (before depreciation, amortization and
corporate expenses) totaled $92,320 in Fiscal 1996, an increase of $17,121, or
22.8%, when compared to television operating expenses of $75,199 in Fiscal
1995. Television operating expenses of the New Stations accounted for
approximately 63.4% of the increase. The remaining increase in television
operating expenses was due to increases in programming and news expenses. The
increase in programming expense relates primarily to an increase in
programming costs from the renewal of certain long-term program contracts
primarily at WJLA, KATV and WSET. The increase in news expense was primarily
due to increased staffing and other news related expenses such as research and
set design. WJLA accounted for a majority of the programming and news expense
increase. The Fiscal 1996 programming and local news expense trends are
consistent with the Company's operating strategy which emphasizes local news
leadership in each of its markets and the airing of high-quality non-network
programming to fill those periods of the broadcast day not programmed by the
network. The operating strategy as implemented in 1996 was reflected in the
establishment of a news bureau in York, Pennsylvania to expand the WHTM news
coverage and the hiring of well-known news personalities in the Birmingham
market.
Depreciation and amortization expense of $10,257 in Fiscal 1996 increased
$5,505, or 115.8%, from $4,752 in Fiscal 1995 primarily as a result of the
increased level of depreciable assets and intangible assets resulting
principally from the acquisitions of WHTM and WCFT, the Anniston Option and
capital equipment and leasehold improvements associated with the new studio in
Birmingham and transmission facilities in Tuscaloosa.
Corporate expenses were $5,112 in Fiscal 1996, an increase of $1,359, or
36.2%, compared to $3,753 in Fiscal 1995. The increase was due to increases
in various expenses, including compensation, consulting, audit and charitable
contributions.
Operating Income
For Fiscal 1996, operating income of $47,884 decreased by $6,563, or 12.1%,
compared to operating income of $54,447 in Fiscal 1995. The decrease was due
to increased revenue from the existing stations and the New Stations, offset
by increased operating, depreciation, amortization and Corporate expenses, as
discussed above.
Nonoperating Expenses, Net
Interest expense of $35,222 for Fiscal 1996 increased by $12,514, or 55.1%
from $22,708 in Fiscal 1995. The increase is attributable to increased
interest expense from the issuance of $275,000 of the 9.75% Debentures,
together with higher average working capital debt balances and interest rates
during the first two quarters of Fiscal 1996 compared to the same periods in
the prior year. The
30
average amount of debt outstanding and the average
interest rate on such debt for Fiscal 1996 and 1995 approximated $324,824 and
10.5%, and $200,176 and 11.2%, respectively.
Interest income of $3,244 in Fiscal 1996 increased $906, or 38.8%, as compared
to interest income of $2,338 in Fiscal 1995. The increase was primarily due
to investment interest earned from investing excess proceeds from the sale of
the 9.75% Debentures.
Income Taxes
Income taxes in Fiscal 1996 of $7,812 decreased by $6,123, or 43.9%, when
compared to income taxes of $13,935 in Fiscal 1995. The decrease in income
taxes is principally attributable to a decrease in income before taxes of
$19,039.
Extraordinary Loss on Early Repayment of Debt
During Fiscal 1996, the Company incurred an extraordinary loss of $7,750, net
of income tax benefit, due to a prepayment penalty of $12,934 in conjunction
with the early repayment of $63,500 of debt.
Net Income
Net income for Fiscal 1996 of $543 decreased by $19,366, or 97.3%, when
compared to net income of $19,909 in Fiscal 1995. The decrease in net income
was attributable primarily to a decrease in income from operations of $6,563,
an increase in interest expense of $12,514, an increase in interest income of
$906, a decrease in income taxes of $6,123, and the extraordinary charge for
early repayment of debt, net of tax benefit, of $7,750. Income before
extraordinary loss in Fiscal 1996 was $8,293, a decrease of $11,616, or 58.3%,
as compared to Fiscal 1995.
Unaudited Pro Forma Results of Operations
The following reflects the unaudited pro forma consolidated results of
operations as if the offering of the $275,000 9.75% Debentures and the
application of net proceeds (including the Acquisitions and Anniston LMA) had
occurred at the beginning of the respective periods.
Fiscal Year Ended September 30,
-------------------------------
Percentage
1995 1996 Change
---- ---- ----------
Operating revenues, net $162,300 $164,933 1.6%
Total operating expense 105,818 116,774 10.4%
Operating income 56,482 48,159 (14.7)%
Income taxes 8,146 5,717 (29.8)%
Income before extraordinary item 9,679 4,204 (56.6)%
Net income 1,929 (3,546) (283.8)%
31
Assuming that the offering of the 9.75% Debentures and the application of net
proceeds thereof occurred at the beginning of Fiscal 1995, net operating
revenues for Fiscal 1996 stated on an unaudited pro forma basis would have
totaled $164,933, an increase of $2,633, or 1.6%, as compared to Fiscal 1995
on an unaudited pro forma basis. This increase is attributable to a $2,506,
or 1.8%, increase in net operating revenue excluding the New Stations and a
$126, or .5% increase in operating revenue from the New Stations. Total
operating expenses for Fiscal 1996 stated on an unaudited pro forma basis
totaled $116,774, an increase of $10,956, or 10.4%, over the unaudited pro
forma Fiscal 1995 level. This increase was directly attributable to the
increased operating expenses of $7,557, or 9.0%, excluding the New Stations,
and $3,399, or 15.4%, for the New Stations. The increase in operating
expenses was principally due to increases in programming costs, salaries and
wages, news research costs, set design costs, consulting and charitable
contributions at existing stations as well as costs associated with
implementing the Company's operating strategy related to the Anniston LMA and
the Acquisitions. Increases in operating expenses at the New Stations
related primarily to salaries and wages of new employees hired and other costs
associated with establishing and operating the new Birmingham facility.
Operating income for Fiscal 1996, stated on an unaudited pro forma basis,
totaled $48,159, a decrease of $8,323, or 14.7%, compared to Fiscal 1995
stated on an unaudited pro forma basis. The decrease in operating income is
attributable to the factors causing the increase in unaudited pro forma
operating revenues and expenses as previously discussed. The net loss for
Fiscal 1996 stated on an unaudited pro forma basis was $3,546, a decrease of
$5,475, or 283.8%, as compared to Fiscal 1995 stated on an unaudited pro forma
basis. The decrease was principally attributable to the factors discussed
above.
Balance Sheet
Significant balance sheet fluctuations from September 30, 1995 to September
30, 1996 consist of increased cash and cash equivalents, accounts receivable,
program rights, program rights payable, property, plant and equipment,
intangible assets, deferred financing costs, accounts payable, accrued
expenses, accrued interest payable and long-term debt, offset by decreases in
current notes payable. The increases in program rights and program rights
payable are the result of new program rights and program contracts assumed in
the Acquisitions. Distributions to owners increased due primarily to cash
advances made during Fiscal 1996 offset by an $18,371 non-cash dividend
declared by WSET and WCIV. The other changes are primarily the result of the
Acquisitions, the $275,000 offering of the 9.75% Debentures, and new capital
leases to fund capital expenditures, primarily in Birmingham, Alabama.
Liquidity and Capital Resources
Cash Provided by Operations
Cash and cash equivalents decreased $4,687 from September 30, 1996 to
September 30, 1997, principally resulting from net cash provided by operations
of $15,551 and a $10,600 increase in borrowings under a revolving line of
credit, offset by net capital expenditures of $12,140, the
32
additional payment
under the Anniston Option of $5,348 and net distributions to owners of
$12,904. Cash provided by operations was primarily a result of net income plus
depreciation and amortization of $19,652, offset by other changes in assets
and liabilities, primarily an increase in accounts receivable, program rights,
deferred income taxes and accounts payable.
Cash and cash equivalents increased $8,292 from September 30, 1995 to
September 30, 1996, principally from net cash provided by operations of
$28,370, proceeds from the issuance of debt of $285,725, offset by net capital
expenditures of $20,838, the amounts paid for the Acquisitions and the
Anniston Option of $145,656, deferred financing costs of $7,605, a prepayment
penalty on early repayment of debt of $12,934, repayment of debt of $85,365
and net distributions to owners of $34,612. Cash provided by operations was
primarily a result of net income plus depreciation and amortization of
$10,257, an extraordinary loss on early repayment of debt (net of tax benefit)
of $7,750 and by other changes in assets and liabilities, primarily an
increase in accounts payable, accrued interest payable and program rights
payable. Depreciation and amortization, program rights payable, and accounts
payable increased predominantly due to the Acquisitions. The increase in
accrued interest payable is principally due to the higher debt balance
resulting from the issuance of the $275,000 9.75% Debentures during Fiscal
1996.
Distributions to Related Parties
The Company periodically makes advances in the form of distributions to
Perpetual. Prior to the Contribution, WSET and WCIV made cash advances to
Westfield. For Fiscal 1995, 1996 and 1997, the Company made cash advances net
of repayments to these related parties of $28,711, $39,882 and $12,904,
respectively. In addition, during Fiscal 1995 and 1996, the Company was
charged for federal income taxes by Perpetual and Westfield and distributed
certain tax benefits to Westfield totaling $11,930 and $836, respectively.
During Fiscal 1997, the Company generated a benefit from federal income taxes
of $691. This benefit was effectively distributed to Perpetual as such
benefit will not be recognized in future years pursuant to the terms of the
tax sharing agreement between the companies. In conjunction with the
Contribution, WSET and WCIV declared non-cash dividends in Fiscal 1996 to
Westfield totaling $18,371 which represented the cumulative net advances made
to Westfield by WSET and WCIV prior to the Contribution. As a result, the net
change in distributions to related parties during such periods were $16,781,
$20,675 and $12,904, respectively. The advances to these related parties are
non-interest bearing and, as such, do not reflect market rates of
interest-bearing loans to unaffiliated third parties.
At present, the primary sources of repayment of net advances is through the
ability of the Company to pay dividends or make other distributions, and there
is no immediate intent for the amounts to be repaid. Accordingly, these
advances have been treated as a reduction of stockholder's investment and are
described as "distributions" in the Company's Consolidated Financial
Statements.
During Fiscal 1991, the Company made a $20,000 11.06% loan to Allnewsco. This
amount has been reflected in the Company's Consolidated Financial Statements
on a consistent basis with other distributions to owners. The loan has stated
repayment terms consisting of annual principal installments of approximately
$2,200 commencing January 1997 through January 2005 and payments of interest
semi-annually. During Fiscal 1997, the Company deferred the first annual
33
principal installment payment. The Company is currently renegotiating the
note to extend the maturity date to January 2008 and defer all principal
installments until maturity, with the principal balance also due upon demand.
Interest payments on the loan have been made in accordance with the terms of
the note, and the Company expects it will continue to receive such payments on
a current basis. To date, interest payments from Allnewsco have been funded by
advances from Perpetual to Allnewsco. The Company anticipates that such
payments will be funded in a similar manner for the foreseeable future.
However, there can be no assurance that Allnewsco will have the ability to
make such interest payments in the future.
Under the terms of the Company's borrowing agreements, future advances,
distributions and dividends to related parties are subject to certain
restrictions. The Company anticipates that, subject to such restrictions, the
Company will make distributions and loans to related parties in the future.
Indebtedness
The Company's total debt, including the current portion of long-term debt,
increased from $402,993 at September 30, 1996 to $415,722 at September 30,
1997. This debt, net of applicable discounts, consists of $122,759 of the
11.5% Debentures, $273,819 of the 9.75% Debentures, $6,444 of capital lease
obligations, and $12,700 under a revolving credit agreement. On May 7, 1996,
the Company purchased $2,000 of the 11.5% Debentures at a price of $2,078.
The acquisition of such debentures has been reflected in the Company's
Consolidated Financial Statements as a reduction of long-term debt. The
increase of $12,729 in total debt from September 30, 1996 to September 30,
1997 is primarily due to a $10,600 increase in amounts outstanding under the
revolving credit facility to fund working capital. The Company's $40,000
revolving credit facility is secured by the pledge of the stock of the Company
and its subsidiaries and matures April 16, 2001.
Under the existing borrowing agreements, the Company agrees to abide by
restrictive covenants that place limitations upon payments of cash dividends,
issuance of capital stock, investment transactions, incurrence of additional
obligations and transactions with Perpetual and other related parties. In
addition, the Company must maintain specified levels of operating cash flow
(as defined in the underlying borrowing agreements) and/or working capital and
comply with other financial covenants.
Other Uses of Cash
During Fiscal 1995, 1996 and 1997, the Company made $2,777, $20,838 and
$12,140, respectively, of capital expenditures. The increase in capital
expenditures in Fiscal 1996 and 1997 was principally attributable to facility
construction and equipment purchases in Alabama associated with the
consolidation of the operations of WCFT and WJSU and the purchase of a
corporate aircraft in Fiscal 1997. Capital expenditures in the normal course
of business are financed from cash flow from operations or with capitalized
leases and are primarily for the acquisition of technical equipment and
vehicles to support operations. The Company anticipates that capital
expenditures for Fiscal 1998 will approximate $12,000, including approximately
$3,000 to enable WJLA to simultaneously broadcast its programming over its
second channel authorized to transmit a digital television signal. The amount
may increase or decrease depending upon changes in
34
channel allocation or changes to the digital television implementation
strategy. Management expects that the source of funds for these anticipated
capital expenditures will be cash provided by operations and capitalized
leases. The Company has a $10,000 annually renewable lease credit facility
for the purpose of financing capital expenditures under capitalized leases.
The equipment under lease is at interest rates which vary according to the
lessor's cost of funds. This facility expires on March 1, 1998 and is
renewable annually on mutually satisfactory terms. The Company currently
intends to renew this facility. At September 30, 1997, $6,444 was outstanding
under this lease credit facility.
The Company regularly enters into program contracts for the right to broadcast
television programs produced by others and program commitments for the right
to broadcast programs in the future. Such programming commitments are
generally made to replace expiring or canceled program rights. During Fiscal
1995, 1996 and 1997, the Company made cash payments of approximately $14,000,
$15,700 and $19,500, respectively, for rights to television programs. The
Fiscal 1997 amount includes the approximate $2,000 non-recurring program
expense resulting from the Company's early termination of a program contract.
As of September 30, 1997, the Company had commitments to acquire further
program rights through September 30, 2002 totaling $44,099 and anticipates
cash payments for program rights will approximate $16,000 per year for the
foreseeable future. The Company currently intends to fund these commitments
with cash provided by operations.
The Company has begun an evaluation to ensure that its critical information
systems and technology are "Year 2000 compliant." "Year 2000 compliant" refers
to information systems and technology that accurately process date/time data
(including calculating, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries and, in particular, the years 1999 and
2000. The Company has and will continue to make certain investments in its
software systems and applications as a result of this evaluation. While no
current estimate is available, the total cost of ensuring "Year 2000
compliant" systems is not anticipated to have a material effect on the
Company's consolidated financial condition or results of operations.
Based upon the Company's current level of operations, management believes that
available cash, together with available borrowings under the revolving credit
agreement and lease credit facility, will be adequate to meet the Company's
anticipated future requirements for working capital, capital expenditures and
scheduled payments of interest on its debt for the next twelve months. The
Company anticipates that it may be required to refinance a portion of the
principal amount of the 11.5% Debentures prior to a mandatory sinking fund
payment due in 2003.
Income Taxes
The operations of the Company are included in a consolidated federal income
tax return filed by Perpetual. In accordance with the terms of a tax sharing
agreement between the Company and Perpetual, the Company is required to pay to
Perpetual its federal income tax liability, computed based upon statutory
federal income tax rates applied to the Company's consolidated taxable income.
Taxes payable to Perpetual are not reduced by losses generated in prior years
by the Company. In addition, the amount payable by the Company to Perpetual
under the tax sharing
35
agreement is not reduced if losses of other members of
the Perpetual group are utilized to offset taxable income of the Company for
purposes of the Perpetual consolidated federal income tax return.
A District of Columbia income tax return is filed by the Company and separate
state income tax returns are filed by the Company's subsidiaries, except for
WSET. The operations of WSET are included in a combined state income tax
return filed with other affiliates. WSET's state income tax liability is not
reduced if losses of the affiliates are used to offset the taxable income of
WSET for purposes of the combined state income tax return.
The provision for income taxes is determined in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which requires that the consolidated amount of current and deferred income tax
expense for a group that files a consolidated income tax return be allocated
among members of the group when those members issue separate financial
statements. Perpetual and, prior to the Contribution, Westfield, allocated a
portion of their respective consolidated current and deferred income tax
expense to the Company as if the Company and its subsidiaries were separate
taxpayers. The Company records deferred tax assets, to the extent it is
considered more likely than not that such assets will be realized in future
periods, and deferred tax liabilities for the tax effects of the differences
between the bases of its assets and liabilities for tax and financial
reporting purposes. To the extent a deferred tax asset would be recorded due
to the incurrence of losses for federal income tax purposes, any such benefit
recognized is effectively distributed to Perpetual as such benefit will not be
recognized in future years pursuant to the tax sharing agreement.
Inflation
The impact of inflation on the Company's consolidated financial condition and
consolidated results of operations for each of the periods presented was not
material.
New Accounting Standards
Statements of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" were issued during the year ended
September 30, 1997. These statements, which become effective during the
Company's Fiscal 1999, address presentation and disclosure matters and will
have no impact on the Company's financial position or results of operations.
36
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
Not Applicable.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
See Index on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
Executive officers and directors of ACC are as follows:
Name Age Title
Joe L. Allbritton 72 Chairman and Director
Barbara B. Allbritton 60 Vice President and Director
Lawrence I. Hebert 51 President, Vice Chairman and Director
Robert L. Allbritton 28 Executive Vice President, Chief Operating
Officer and Director
Frederick J. Ryan, Jr. 42 Senior Vice President, Vice Chairman and
Director
Jerald N. Fritz 46 Vice President, Legal and Strategic
Affairs, General Counsel
Henry D. Morneault 47 Vice President and Chief Financial Officer
Ray P. Grimes II 48 Vice President, Broadcast Operations, Deputy
Chief Operating Officer
JOE L. ALLBRITTON is the founder of ACC and has been Chairman of the Board of
Directors since its inception. In addition to his position with ACC, Mr.
Allbritton has served as Chairman of the Board of Riggs National Corporation
("Riggs") (owner of banking operations in Washington, D.C., Maryland,
Virginia, Florida and internationally) from 1981 to the present; Chairman of
the Board of Riggs Bank N.A. ("Riggs Bank") since 1983 and its Chief Executive
Officer since 1982; Director of Riggs Bank Europe Ltd. since 1984 and its
Chairman of the Board since 1992; Chairman of the Board and owner since 1958
of Perpetual (owner of ACC and 80% owner through Allnewsco of NewsChannel 8, a
Virginia-based cable programming service); Chairman of Allnewsco since its
inception in 1990; Chairman of the Board and owner since 1988 of Westfield;
Chairman of the Board of Houston Financial Services Ltd. Since 1977; Chairman
of the Board of WSET since 1974; a Manager of KATV, KTUL and WCIV since 1997;
Chairman of the Board of Allfinco, Harrisburg TV and TV Alabama since 1995;
Chairman of the Board of AGI and Allbritton Jacksonville, Inc. ("AJI") since
1996; and a Trustee and President of The Allbritton Foundation since 1971.
Mr. Allbritton is the husband of Barbara B. Allbritton and the father of
Robert L. Allbritton.
BARBARA B. ALLBRITTON has been a Director of ACC since its inception and one
of its Vice Presidents since 1980. In addition to her position with ACC, Mrs.
Allbritton has been a Director of Riggs since 1991; a Director and Vice
President of WSET since 1976; a Vice President and Director of Perpetual
since 1978; a Director of Houston Financial Services since 1977; a Director
of Allnewsco since 1990; a Trustee and Vice President of The Allbritton
Foundation since 1971; a Director of Allfinco, Harrisburg TV and TV Alabama
since 1995; a Manager of KATV, KTUL and WCIV since 1997; and a Director of AGI
and AJI since 1996. Mrs. Allbritton is the wife of Joe L. Allbritton and the
mother of Robert L. Allbritton.
38
LAWRENCE I. HEBERT has been Vice Chairman of the Board of ACC since 1983, its
President since 1984 and a Director of ACC since 1981; a Director of Perpetual
since 1980 and its President since 1981; President of Westfield since 1988;
President and a Director of Westfield News Publishing, Inc. since 1991; a
Manager of KATV, KTUL and WCIV and WSET since 1982; Vice Chairman of the Board
of Houston Financial Services since 1977; a Director of Allnewsco since 1989;
President and a Director of ATP since 1989; a Vice President and a Director of
Allfinco since 1995; and a Director of Harrisburg TV and TV Alabama since 1995.
He has been President and a Director of AGI and a Director of AJI since 1996. In
addition, Mr. Hebert was Vice Chairman of the Board of Riggs from 1988 to 1993,
and has been a Director of Riggs since 1988; a Director of Riggs Bank Europe
Ltd. since 1987; a Director of Riggs Bank from 1981 to 1988; a Director of
Allied Capital II Corporation (venture capital fund) since 1989; and a
Trustee of The Allbritton Foundation since 1997.
ROBERT L. ALLBRITTON has been Executive Vice President and Chief Operating
Officer of ACC since 1994 and a Director of ACC since 1993. He has been a
Director of Allnewsco since 1992; a Director of Riggs Bank from 1994 to 1997
and Riggs Bank Europe Ltd. since 1994; a Director of Riggs since 1994; and a
Trustee and Vice President of The Allbritton Foundation since 1992. He has
been a Director of Perpetual since 1993; President and Director of Allfinco
and Harrisburg TV since 1995; Vice President and a Director of TV Alabama
since 1995; Vice President and a Director of AGI since 1996; Vice President
and a Director of AJI since 1996 and President of KTUL since 1997. He has been
a Manager of KATV, KTUL and WCIV since 1997. He is the son of Joe L. and
Barbara B. Allbritton.
FREDERICK J. RYAN, JR. has been Vice Chairman, Senior Vice President and a
Director of ACC since January 1995. He also serves as Chairman of the ACC
Acquisitions Committee. He has been Vice President of Perpetual and Florida
Television, Inc. since 1996. He previously served as Chief of Staff to former
President Ronald Reagan (1989-95) and Assistant to the President in the White
House (1982-89). Prior to his government service, Mr. Ryan was an attorney
with the Los Angeles firm of Hill, Farrer and Burrill. Mr. Ryan presently
serves as a Director of Ford's Theatre, Vice Chairman of the Ronald Reagan
Presidential Library Foundation and Trustee of Ronald Reagan Institute of
Emergency Medicine at George Washington University. Mr. Ryan is a member of
the Board of Consultants for Riggs Bank and a Director of Riggs Bank Europe
Ltd. in London since 1996.
JERALD N. FRITZ has been a Vice President of ACC since 1987, serving as its
General Counsel and overseeing strategic planning and governmental affairs. He
also has served as a Vice President of Westfield and ATP since 1988, a Vice
President of Allnewsco since 1989 and a Vice President of 78 Inc. and Allfinco
since 1995. He has been a Vice President of AGI since 1996. From 1981 to 1987,
Mr. Fritz held several positions with the FCC, including Chief of Staff,
Legal Counsel to the Chairman and Chief of the Common Carrier Bureau's Tariff
Division. Mr. Fritz practiced law with the Washington, D.C. firm of Pierson,
Ball & Dowd, specializing in communications law from 1978 to 1981 and from
1980 to 1983 was on the adjunct faculty of George Mason University Law School
teaching communications law and policy. Mr. Fritz began his legal career with
the FCC in 1976 and began his career in broadcasting in 1973 with WGN-TV,
Chicago.
39
HENRY D. MORNEAULT has been a Vice President of ACC since 1992 when he joined
the Company. He served as Vice President, Finance and was named Chief
Financial Officer in 1994. He is also Vice President of AJI. Prior to joining
ACC, Mr. Morneault was a Vice President with Chemical Bank specializing in
media corporate finance. Mr. Morneault had been associated with Chemical Bank
since 1979 and founded and managed its Broadcast and Cable Industries Group.
RAY P. GRIMES II has been with ACC since September 1993. He was Director of
Cable Enterprises/New Business Development for ACC from April 1994 until April
1995 when he became Vice President of Broadcast Operations and Deputy Chief
Operating Officer. He has also served as the Acting General Manager for WJLA
from December 1994 until March 1995 and the Acting General Manager for WHTM
from November 1996 until February 1997. Since 1995 he has been a Vice
President of Harrisburg TV and TV Alabama. Prior to joining ACC, Mr. Grimes
was associated with United Cable/United Artist/TCI Cable from 1988 through
1993.
40
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth compensation paid to the Company's Chief
Executive Officer and the four most highly compensated Company executive
officers for Fiscal 1997, 1996 and 1995:
Summary Compensation Table
Name and Fiscal Other Annual All Other
Princiapal Position Year Salary Bonus Compensation Compensation
Joe L. Allbritton 1997 $550,000 $115,500
Chairman 1996 550,000 115,500
1995 550,000 104,800
Frederick J. Ryan, Jr. 1997 150,000 4,000
Senior Vice President 1996 150,000 3,500
1995 109,600
Jerald N. Fritz 1997 150,000 $50,000 4,800
Vice President, Legal 1996 140,000 50,000 5,300
and Strategic Affairs 1995 128,600 50,000 3,800
Henry D. Morneault 1997 150,000 55,000 4,900
Chief Financial Officer 1996 136,000 50,000 5,400
1995 126,000 50,000 2,900
Ray P. Grimes II 1997 185,000 30,000 $30,200 4,700
Deputy Chief Operating 1996 185,000 30,000 38,400 3,800
Officer 1995 162,700 25,000 45,000 1,900
Lawrence I. Hebert, President of ACC, and Robert L. Allbritton,Executive
Vice President and Chief Operating Officer of ACC, are paid cash
compensation by Perpetual for services to Perpetual and other interests
of Joe L. Allbritton, including ACC. The allocated portion of such
compensation to ACC in each case is less than $100,000, and their
compensation is, therefore, not included herein.
Represents the imputed premium cost related to certain split dollar life
insurance policies on the life of Mr. Allbritton. The annual premiums on
such policies are paid by ACC. Upon the death of the insured, ACC will
receive the cash value of the policies up to the amount of its
investments, and the remaining proceeds will be paid to the insured's
beneficiary. The imputed premium cost is calculated on the difference
between the face value of the policy and the cash surrender value.
Frederick J. Ryan, Jr. and Jerald N. Fritz receive additional
compensation from Perpetual for services to Perpetual and other interests
of Joe L. Allbritton, including the Company. This additional compensation
is not allocated among these interests, and the Company does not
reimburse Perpetual for any portion of this additional compensation to
Mr. Ryan and Mr. Fritz. The portion of the additional compensation paid
by Perpetual to Mr. Ryan and Mr. Fritz that may be attributable to their
services to the Company has not been quantified. Such portion is not
material to the consolidated financial condition or results of operations
of the Company.
These amounts reflect annual contributions by ACC to the Company's
401(k) Plan.
Prior to Fiscal 1997, Jerald N. Fritz was paid compensation by ACC for
services to the Company and Perpetual. Perpetual reimbursed ACC for
$12,000 of Mr. Fritz's compensation in both Fiscal 1995 and 1996.
Henry D. Morneault is paid compensation by ACC for services to the
Company and Perpetual. Perpetual has reimbursed ACC for $33,800, $33,800
and $37,500 of Mr. Morneault's compensation in Fiscal 1995, 1996 and
1997, respectively.
Represents in Fiscal 1997 the compensation related to country club fees
($18,100) and other miscellaneous items; in Fiscal 1996, the compensation
related to a company provided automobile ($10,200), incentive trip
($11,600) and country club fees ($16,600).; and in Fiscal 1995,
commissions paid ($27,000) and other miscellaneous items.
41
The Company does not have a Compensation Committee of its Board of Directors.
Compensation of executive officers is determined by Joe L. Allbritton,
Lawrence I. Hebert and Robert L. Allbritton. Directors of the Company are not
separately compensated for membership on the Board of Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The authorized capital stock of ACC consists of 20,000 shares of common stock,
par value $0.05 per share (the "ACC Common Stock"), all of which is
outstanding, and 1,000 shares of preferred stock, 200 shares of which have
been designated for issue as Series A Redeemable Preferred Stock, par value
$1.00 per share (the "Series A Preferred Stock"), no shares of which are
issued and outstanding.
ACC Common Stock
Joe L. Allbritton controls Perpetual. Perpetual owns 100% of the outstanding
common stock of AGI, and AGI owns 100% of the outstanding ACC Common Stock.
There is no established public trading market for ACC Common Stock.
Each share of ACC Common Stock has an equal and ratable right to receive
dividends when and as declared by the Board of Directors of ACC out of assets
legally available therefor.
In the event of a liquidation, dissolution or winding up of ACC, holders of
ACC Common Stock are entitled to share ratably in assets available for
distribution after payments to creditors and to holders of any preferred stock
of ACC that may at the time be outstanding. The holders of ACC Common Stock
have no preemptive rights to subscribe to additional shares of capital stock
of ACC. Each share of ACC Common Stock is entitled to one vote in elections
for directors and all other matters submitted to a vote of ACC's stockholder.
The capital stock of Perpetual held by Joe L. Allbritton (the "Perpetual
Capital Stock") has been pledged to secure indebtedness owed by him under a
loan agreement with a commercial bank. Under the terms of such pledge the bank
may, among other things, upon the occurrence of an event of default, sell the
Perpetual Capital Stock at a public or private sale and may exercise all
voting or consensual rights, subject to any required approval of the FCC. This
agreement with the bank contains customary representations, warranties and
default provisions, including restrictions upon his right to sell the
Perpetual Capital Stock and the right of Perpetual to sell the ACC Common
Stock through its ownership in AGI. Any such sale could constitute a "Change
of Control" under the Company's outstanding debentures.
42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(Dollars in thousands)
Distributions to Related Parties
The Company periodically makes advances in the form of distributions to
Perpetual. Prior to the Contribution, WSET and WCIV made cash advances to
Westfield. For Fiscal 1997, the Company made cash advances net of repayments
to Perpetual of $12,904. In Fiscal 1997, the Company generated a benefit from
federal income taxes of $691. This benefit was effectively distributed to
Perpetual as such benefit will not be recognized in future years pursuant to
the terms of the tax sharing agreement between the companies. The advances to
these related parties are non-interest bearing and, as such, do not reflect
market rates of interest-bearing loans to unaffiliated third parties.
At present, the primary source of repayment of net advances is through the
ability of the Company to pay dividends or make other distributions, and there
is no immediate intent for the amounts to be repaid. Accordingly, these
advances have been treated as a reduction of stockholder's investment and are
described as "distributions" in the Company's Consolidated Financial
Statements.
During Fiscal 1991, the Company made a $20,000 11.06% loan to Allnewsco. This
amount has been reflected in the Company's Consolidated Financial Statements
on a consistent basis with other distributions to owners. The loan has stated
repayment terms consisting of annual principal installments of approximately
$2,200 commencing January 1997 through January 2005 and payments of interest
semi-annually. During Fiscal 1997, the Company deferred the first annual
principal installment payment. The Company is currently renegotiating the
note to extend the maturity date to January 2008 and defer all principal
installments until maturity, with the principal balance also due upon demand.
Interest payments on the loan have been made in accordance with the terms of
the note, and the Company expects it will continue to receive such payments on
a current basis. To date, interest payments from Allnewsco have been funded by
advances from Perpetual to Allnewsco. The Company anticipates that such
payments will be funded in a similar manner for the foreseeable future.
However, there can be no assurance that Allnewsco will have the ability to
make such interest payments in the future.
Under the terms of the Company's borrowing agreements, future advances,
distributions and dividends to related parties are subject to certain
restrictions. The Company anticipates that, subject to such restrictions, ACC
will make distributions and loans to related parties in the future.
Subsequent to September 30, 1997 and through November 25, 1997, the Company
made additional net distributions to owners of approximately $16,700.
Management Fees
Management fees of $343 were paid to Perpetual by the Company for Fiscal 1997.
The Company also paid executive compensation in the form of management fees
to Joe L. Allbritton for Fiscal 1997 in the amount of $550. The Company
believes that payments to Perpetual and Mr. Allbritton
43
will continue in the
future. See "Management-Executive Compensation." Management believes that the
amount of the management fees is at least as favorable to the Company as those
prevailing for comparable transactions with or involving unaffiliated parties.
Other Services
On July 1, 1995, 78, Inc., a wholly-owned subsidiary of Perpetual, was formed
to provide sales, marketing and related services to both the Company and
Allnewsco. Certain employees of the Company became employees of 78, Inc. The
Company was charged approximately $7,163 during the year ended September 30,
1996 for services provided by 78, Inc., which represents the Company's share
of 78, Inc.'s costs relating to the provision of such services, determined
based on the Company's usage of such services. These costs are included in
television operating expenses in the consolidated statements of operations.
Effective October 1, 1996, the Company ceased utilizing 78, Inc. for the
provision of these services and re-established these functions internally. At
September 30, 1996, the Company recorded a $1,578 receivable from 78, Inc.
representing expenses paid on behalf of 78, Inc. by the Company during the
year. On December 20, 1996, this receivable was fully repaid by 78, Inc.
Income Taxes
The operations of the Company are included in a consolidated federal income
tax return filed by Perpetual. In accordance with the terms of a tax sharing
agreement between the Company and Perpetual, the Company is required to pay to
Perpetual its federal income tax liability, computed based upon statutory
federal income tax rates applied to the Company's consolidated taxable income.
Taxes payable to Perpetual are not reduced by losses generated in prior years
by the Company. In addition, the amount payable by the Company to Perpetual
under the tax sharing agreement is not reduced if losses of other members of
the Perpetual group are utilized to offset taxable income of the Company for
purposes of the consolidated federal income tax return.
A District of Columbia income tax return is filed by the Company, and separate
state income tax returns are filed by the Company's subsidiaries, except for
WSET. The operations of WSET are included in a combined state income tax
return filed with other affiliates. WSET's state income tax liability is not
reduced if losses of the affiliates are used to offset the taxable income of
WSET for purposes of the combined state income tax return.
The provision for income taxes is determined in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which requires that the consolidated amount of current and deferred income tax
expense for a group that files a consolidated income tax return be allocated
among members of the group when those members issue separate financial
statements. Perpetual, and prior to the Contribution, Westfield, allocated a
portion of their respective consolidated current and deferred income tax
expense to the Company as if the Company and its subsidiaries were separate
taxpayers. The Company records deferred tax assets, to the extent it is
considered more likely than not that such assets will be realized in future
periods, and deferred tax liabilities for the tax effects of the differences
between the bases of its assets and liabilities for tax and financial
reporting purposes. To the extent a deferred tax asset
44
would be recorded due
to the incurrence of losses for federal income tax purposes, any such benefit
recognized is effectively distributed to Perpetual as such benefit will not be
recognized in future years pursuant to the tax sharing agreement.
Office Space
ACC leases corporate headquarters space from Riggs Bank which owns office
buildings in Washington, D.C. Riggs Bank is a wholly-owned subsidiary of
Riggs, approximately 36.9% of the common stock of which is deemed to be
beneficially owned by Riggs' Chairman, Joe L. Allbritton. During Fiscal 1997,
ACC incurred expenses to Riggs Bank of $220 for this space. ACC expects to
pay approximately $260 for such space during Fiscal 1998. Management believes
the same terms and conditions would have prevailed had they been negotiated
with a nonaffiliated company.
Local Advertising Revenues
Although WJLA did not receive any local advertising revenues from Riggs Bank
during Fiscal 1997, it is anticipated that Riggs Bank may advertise on WJLA in
the future. The amount of advertising it may purchase is unknown. Management
believes that the terms of the transactions would be substantially the same or
at least as favorable to ACC as those prevailing for comparable transactions
with or involving nonaffiliated companies.
45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements
See Index on p. F-1 hereof.
(2) Financial Statement Schedule II - Valuation and Qualifying
Accounts and Reserves
See Index on p. F-1 hereof.
(3) Exhibits
See Index on p. A-1 hereof.
(b) No reports on Form 8-K were filed during the fourth quarter of Fiscal
1997.
46
ALLBRITTON COMMUNICATIONS COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants F-2
Consolidated Balance Sheets as of September 30, 1996 and 1997 F-3
Consolidated Statements of Operations and Retained Earnings
for the Years Ended September 30, 1995, 1996 and 1997 F-4
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1995, 1996 and 1997 F-5
Notes to Consolidated Financial Statements F-6
Financial Statement Schedule for the Years Ended
September 30, 1995, 1996 and 1997
II- Valuation and Qualifying Accounts and Reserves F-20
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
Allbritton Communications Company
In our opinion, the consolidated financial statements, including the financial
statement schedule, listed in the index on page F-1 present fairly, in all
material respects, the financial position of Allbritton Communications Company
(an indirectly wholly-owned subsidiary of Perpetual Corporation) and its
subsidiaries at September 30, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Washington, D.C.
November 25, 1997
F-2
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share information)
September 30,
-----------------
1996 1997
---- ----
ASSETS
Current assets
Cash and cash equivalents $ 12,108 $ 7,421
Accounts receivable, less allowance for doubtful
accounts of $1,385 and $1,618 29,219 34,569
Program rights 16,298 15,244
Deferred income taxes 1,473 2,617
Receivable from related party 1,578 --
Interest receivable from related party 492 492
Other 1,795 2,405
------- --------
Total current assets 62,963 62,748
Property, plant and equipment, net 52,333 51,921
Intangible assets, net 150,187 150,493
Deferred financing costs and other 11,780 10,477
Deferred income taxes 76 --
Cash surrender value of life insurance 3,787 4,674
Program rights 652 664
-------- --------
$281,778 $280,977
======== ========
LIABILITIES AND STOCKHOLDER'S INVESTMENT
Current liabilities
Current portion of long-term debt $ 806 $ 1,320
Accounts payable 6,091 3,620
Accrued interest payable 10,724 10,765
Program rights payable 20,199 19,718
Accrued employee benefit expenses 3,043 3,728
Other accrued expenses 4,822 5,079
------- -------
Total current liabilities 45,685 44,230
Long-term debt 402,187 414,402
Program rights payable 1,391 966
Deferred rent and other 3,201 3,067
Accrued employee benefit expenses 1,706 1,836
Deferred income taxes -- 2,039
------- -------
Total liabilities 454,170 466,540
------- -------
Commitments and contingent liabilities (Note 10)
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 45,102 44,835
Distributions to owners, net (Note 8) (224,450) (237,354)
--------- ---------
Total stockholder's investment (172,392) (185,563)
--------- ---------
$281,778 $280,977
========= ========
See accompanying notes to consolidated financial statements.
F-3
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Dollars in thousands)
Years Ended September 30,
-------------------------
1995 1996 1997
---- ---- ----
Operating revenues, net $138,151 $155,573 $172,828
-------- -------- --------
Television operating expenses, excluding
depreciation and amortization 75,199 92,320 105,630
Depreciation and amortization 4,752 10,257 19,652
Corporate expenses 3,753 5,112 4,382
------- -------- --------
83,704 107,689 129,664
------- -------- --------
Operating income 54,447 47,884 43,164
Nonoperating income (expense)
Interest income
Related party 2,212 2,212 2,212
Other 126 1,032 221
Interest expense (22,708) (35,222) (42,870)
Other, net (233) (1,101) (1,193)
------- ------- -------
Income before income taxes, minority interest and
extraordinary item 33,844 14,805 1,534
Provision for income taxes 13,935 7,812 1,110
------- ------- -------
Income before minority interest and extraordinary
item 19,909 6,993 424
Minority interest in net losses of consolidated
subsidiaries -- 1,300 --
Extraordinary loss on early repayment of debt,
net of income tax benefit of $5,387 -- 7,750 --
------ ----- ------
Net income 19,909 543 424
Retained earnings, beginning of year 43,077 62,940 45,102
Dividend from WSET and WCIV to
Westfield (Note 8) -- (18,371) --
Tax benefit distributed (46) (10) (691)
------- ------- -------
Retained earnings, end of year $ 62,940 $ 45,102 $ 44,835
======== ======== ========
See accompanying notes to consolidated financial statements.
F-4
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years Ended September 30,
-------------------------
1995 1996 1997
---- ---- ----
Cash flows from operating activities:
Net income $ 19,909 $ 543 $ 424
-------- -------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,752 10,257 19,652
Minority interest in net losses of
consolidated subsidiaries -- (1,300) --
Other noncash charges 427 997 1,182
Noncash tax benefit distributed -- -- (691)
Extraordinary loss on early repayment of debt -- 7,750 --
Provision for doubtful accounts 755 752 576
(Gain) loss on disposal of assets (190) 90 28
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (4,566) (1,130) (5,926)
Program rights (1,856) (1,240) 1,042
Receivable from related party -- (1,578) 1,578
Other current assets 1,104 21 (342)
Other noncurrent assets (1,075) (1,370) (545)
Deferred income taxes (113) 1,686 971
Increase (decrease) in liabilities:
Accounts payable (393) 3,483 (2,471)
Accrued interest payable 59 6,249 41
Program rights payable 3,718 1,589 (906)
Accrued employee benefit expenses (246) 547 815
Other accrued expenses (274) 887 257
Deferred rent and other liabilities 134 137 (134)
------- ------ -------
Total adjustments 2,236 27,827 15,127
------- ------ -------
Net cash provided by operating activities 22,145 28,370 15,551
------- ------ -------
Cash flows from investing activities:
Capital expenditures (2,777) (20,838) (12,140)
Purchase of option to acquire assets of WJSU -- (10,000) (5,348)
Proceeds from disposal of assets 234 85 125
Acquisitions, net of cash acquired -- (135,656) --
Minority interest investment in
consolidated subsidiaries -- 1,300
------ ------- ------
Net cash used in investing activities (2,543) (165,109) (17,363)
------ ------- ------
Cash flows from financing activities:
Proceeds from issuance of debt -- 285,725 --
Deferred financing costs -- (7,605) --
Prepayment penalty on early repayment
of debt -- (12,934) --
Draws (repayments) under lines of credit, net 500 (5,000) 10,600
Principal payments on long-term debt and
capital leases (2,222) (80,365) (571)
Distributions to owners, net of certain charges (30,923) (47,397) (52,597)
Repayments of distributions to owners 14,142 12,785 39,693
Other (46) (178) --
------ ------- -------
Net cash (used in) provided by financing activities (18,549) 145,031 (2,875)
------ ------- -------
Net increase (decrease) in cash and cash equivalents 1,053 8,292 (4,687)
Cash and cash equivalents, beginning of year 2,763 3,816 12,108
----- ------ ------
Cash and cash equivalents, end of year $ 3,816 $ 12,108 $ 7,421
===== ====== ======
See accompanying notes to consolidated financial statements.
F-5
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Allbritton Communications Company (the Company) is an indirectly wholly-owned
subsidiary of Perpetual Corporation (Perpetual), a Delaware corporation, which
is controlled by Mr. Joe L. Allbritton. The Company owns and operates seven
ABC network affiliate television stations which include:
Station Market
WJLA Washington, D.C.
WHTM Harrisburg/York/Lancaster, Pennsylvania
WBMA/WCFT Birmingham/Tuscaloosa, Alabama
KATV Little Rock, Arkansas
KTUL Tulsa, Oklahoma
WSET Lynchburg, Virginia
WCIV Charleston, South Carolina
The Company also operates WJSU in Anniston, Alabama under a local
marketing agreement (LMA) and engages in various activities relating
to the production and distribution of television programming.
Consolidation-The consolidated financial statements include the
accounts of the Company and its wholly and majority-owned subsidiaries
after elimination of all significant intercompany accounts and transactions.
Minority interest represents a minority owner's 20% share of the net losses
of two of the Company's subsidiaries, to the extent of the minority interest
investment.
Use of estimates and assumptions-The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates
and assumptions.
Revenue recognition-Revenues are generated principally from sales of commercial
advertising and are recorded as the advertisements are broadcast net of agency
and national representative commissions and music license fees. For certain
program contracts which provide for the exchange of advertising time in lieu of
cash payments for the rights to such programming, revenue is recorded as
advertisements are broadcast at the estimated fair value of the advertising
time given in exchange for the program rights.
F-6
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
Cash and cash equivalents-The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
Program rights-The Company has entered into contracts for the rights to
television programming. Payments related to such contracts are generally made
in installments over the contract period. Program rights which are currently
available and the liability for future payments under such contracts are
reflected in the consolidated balance sheets. Program rights are amortized
primarily using the straight-line method over the twelve month rental period.
Certain program rights with lives greater than one year are amortized using
accelerated methods. Program rights expected to be amortized in the succeeding
year and amounts payable within one year are classified as current assets and
liabilities, respectively. The program rights are reflected in the
consolidated balance sheets at the lower of unamortized cost or estimated net
realizable value based on management's expectation of the net future cash flows
to be generated by the programming.
Property, plant and equipment-Property, plant and equipment are recorded at
cost and depreciated over the estimated useful lives of the assets. Maintenance
and repair expenditures are charged to expense as incurred and expenditures for
modifications and improvements which increase the expected useful lives of the
assets are capitalized. Depreciation expense is computed using the
straight-line method for buildings and straight-line and accelerated methods
for furniture, machinery and equipment. Leasehold improvements are amortized
using the straight-line method over the lesser of the term of the related lease
or the estimated useful lives of the assets. The useful lives of property,
plant and equipment for purposes of computing depreciation and amortization
expense are:
Buildings 15-40 years
Leasehold improvements 5-32 years
Furniture, machinery and equipment
and equipment under capital leases 3-20 years
Intangible assets-Intangible assets consist of values assigned to broadcast
licenses and network affiliations, favorable terms on contracts and leases and
the option to acquire the assets of WJSU (the Option) (see Note 3). The
amounts assigned to intangible assets were based on the results of
independent valuations and are amortized on a straight-line basis over their
estimated useful lives. Broadcast licenses and network affiliations are
amortized over 40 years, the premiums for favorable terms on contracts and
leases are amortized over the terms of the related contracts and leases (19 to
25 years), and the Option is amortized over the term of the Option and the
associated LMA (10 years). The Company assesses the recoverability of
intangible assets on an ongoing basis by evaluating whether amounts can be
recovered through undiscounted cash flows over the remaining
amortization period.
F-7
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
Deferred financing costs-Costs incurred in connection with the issuance of
long-term debt are deferred and amortized to other nonoperating expense on a
straight-line basis over the term of the underlying financing agreement. This
method does not differ significantly from the effective interest rate method.
Deferred rent-Rent concessions and scheduled rent increases in connection with
operating leases are recognized as adjustments to rental expense on a straight-
line basis over the associated lease term.
Concentration of credit risk-Financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of certain cash
and cash equivalents and receivables from advertisers. The Company invests its
excess cash with high-credit quality financial institutions and at September
30, 1997 had an overnight repurchase agreement with a financial institution for
$6,560. Concentrations of credit risk with respect to receivables from
advertisers are limited as the Company's advertising base consists of large
national advertising agencies and high-credit quality local advertisers. As is
customary in the broadcasting industry, the Company does not require
collateral for its credit sales which are typically due within thirty days.
Income taxes-The operations of the Company are included in a consolidated
federal income tax return filed by Perpetual. In accordance with the terms of
a tax sharing agreement between the Company and Perpetual, the Company is
required to pay to Perpetual its federal income tax liability, computed based
upon statutory federal income tax rates applied to the Company's
consolidated taxable income. Taxes payable to Perpetual are not reduced by
losses generated in prior years by the Company. In addition, the amount
payable by the Company to Perpetual under the tax sharing agreement is not
reduced if losses of other members of the Perpetual group are utilized to
offset taxable income of the Company for purposes of the Perpetual consolidated
federal income tax return.
Prior to the Contribution (see Note 2), the operations of WSET and WCIV were
included in a consolidated federal income tax return filed by Westfield News
Advertiser, Inc. (Westfield), an affiliate of the Company which is 100% owned
by Mr. Joe L. Allbritton. In accordance with the terms of tax sharing
agreements between Westfield and WSET and WCIV, federal income tax
liabilities of WSET and WCIV were paid to Westfield and were computed based
upon statutory federal income tax rates applied to each entity's taxable
income. For periods subsequent to the Contribution, the operations of WSET and
WCIV are included in the consolidated federal income tax return filed by
Perpetual in accordance with the tax sharing agreement between the Company
and Perpetual.
A District of Columbia income tax return is filed by the Company, and separate
state income tax returns are filed by the Company's subsidiaries, except for
WSET. The operations of WSET are
F-8
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
included in a combined state income tax return filed with other affiliates.
WSET's state income tax liability is not reduced if losses of the affiliates
are used to offset the taxable income of WSET for purposes of the combined
state income tax return.
The provision for income taxes is determined in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which requires that the consolidated amount of current and deferred income tax
expense for a group that files a consolidated income tax return be allocated
among members of the group when those members issue separate financial
statements. Perpetual, and prior to the Contribution, Westfield, allocate a
portion of their respective consolidated current and deferred income tax
expense to the Company as if the Company and its subsidiaries were separate
taxpayers. The Company records deferred tax assets, to the extent it is more
likely than not that such assets will be realized in future periods, and
deferred tax liabilities for the tax effects of the differences between the
bases of its assets and liabilities for tax and financial reporting purposes.
To the extent a deferred tax asset would be recorded due to the incurrence of
losses for federal income tax purposes, any such benefit recognized is
effectively distributed to Perpetual as such benefit will not be
recognized in future years pursuant to the tax sharing agreement.
Fair value of financial instruments-The carrying amount of the Company's cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses
and program rights payable approximate fair value due to the short maturity of
those instruments. 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.
Earnings per share-Earnings per share data are not presented since the Company
has only one shareholder.
New pronouncements-Statements of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" were issued during the year ended
September 30, 1997. These statements, which become effective during the
Company's fiscal year 1999, address presentation and disclosure matters and
will have no impact on the Company's financial position or results of
operations.
NOTE 2 - CONTRIBUTION OF WSET AND WCIV
The common stock of WSET and WCIV, which was formerly held by Westfield, was
contributed to the Company on March 1, 1996 (the Contribution). Since the
Contribution represents a transfer of assets between entities under common
control, the amounts transferred were recorded at historical cost. Further, as
the Company, WSET and WCIV were indirectly owned by Mr. Joe L.
F-9
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
Allbritton for all periods in which the consolidated financial statements are
presented, the Company's consolidated financial statements have been
retroactively restated to reflect the Contribution (See Note 8).
NOTE 3 - ACQUISITIONS, LOCAL MARKETING AGREEMENT AND ASSOCIATED
OPTION
In March 1996, the Company acquired an 80% interest in the assets and certain
liabilities of WHTM and WCFT for approximately $135,656. The acquisitions were
accounted for as purchases and accordingly, the cost of the acquired entities
was assigned to the identifiable tangible and intangible assets acquired and
liabilities assumed based on their fair values at the respective dates of
the purchases. The results of operations of WHTM and WCFT are included in the
Company's consolidated financial statements for the period subsequent to the
acquisitions.
In December 1995, the Company, through an 80%-owned subsidiary, entered into a
ten-year LMA with the owner of WJSU, a television station operating in
Anniston, Alabama. The LMA provides for the Company to supply program services
to WJSU, to operate the station and to retain all revenues from advertising
sales. In exchange, the Company pays all station operating expenses and
certain management fees to the station's owner. The operating revenues and
expenses of WJSU are therefore included in the Company's consolidated financial
statements since December 1995. In connection with the LMA, the Company
entered into the Option to acquire the assets of WJSU. The cost of the Option
totaled $15,348, of which $10,000 was paid in December 1995 and $5,348
was paid in January 1997. The Option is exercisable, subject to certain
conditions, for additional consideration of $3,337.
The following pro forma summary presents the unaudited consolidated results of
operations of the Company for the years ended September 30, 1995 and 1996 as if
the offering of the Debentures (see Note 6) and the application of the net
proceeds thereof (including the above acquisitions and LMA) had occurred at the
beginning of fiscal year 1995. The results presented in the pro forma
summary do not necessarily reflect the results that would have actually been
obtained if the offering, acquisitions and LMA had occurred at the beginning of
each year.
(Unaudited)
Years Ended September 30,
-------------------------
1995 1996
---- ----
Operating revenues, net $162,300 $164,933
Income before extraordinary item 9,679 4,204
Net income (loss) 1,929 (3,546)
F-10
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
September 30,
-------------
1996 1997
---- ----
Buildings and leasehold improvements $ 19,538 $ 20,391
Furniture, machinery and equipment 89,503 97,685
Equipment under capital leases 4,727 7,277
-------- ---------
113,768 125,353
Less accumulated depreciation (64,868) (78,353)
-------- ---------
48,900 47,000
Land 2,517 2,508
Construction-in-progress 916 2,413
-------- ---------
$ 52,333 $ 51,921
======== =========
Depreciation and amortization expense was $3,771, $6,723 and $14,155 for the
years ended September 30, 1995, 1996 and 1997, respectively, which includes
amortization of equipment under capital leases.
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of the following:
September 30,
-------------
1996 1997
---- ----
Broadcast licenses and network affiliations $149,788 $150,243
Option to purchase the assets of WJSU 10,000 15,348
Other intangibles 7,648 7,648
-------- --------
167,436 173,239
Less accumulated amortization (17,249) (22,746)
-------- --------
$150,187 $150,493
======== ========
Amortization expense was $981, $3,534 and $5,497 for the years ended September
30, 1995, 1996 and 1997, respectively. The Company does not separately
allocate amounts between broadcast licenses and network affiliations.
F-11
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
NOTE 6 - LONG-TERM DEBT
Outstanding debt consists of the following:
September 30,
1996 1997
Senior Subordinated Debentures, due November 30, 2007
with interest payable semi-annually at 9.75% $275,000 $275,000
Senior Subordinated Debentures, due August 15, 2004
with interest payable semi-annually at 11.5%, mandatory
sinking fund payment of $60,500 and $62,500 due
August 15, 2003 and 2004, respectively 123,000 123,000
Revolving Credit Agreement, maximum amount of $40,000,
expiring April 16, 2001, secured by the outstanding stock of
the Company and its subsidiaries, interest payable quarterly at
various rates from prime or LIBOR plus 1% to 2%, depending
on certain financial operating tests ($10,000 at 8.22%
and $2,700 at 9.75% at September 30, 1997) 2,100 12,700
Master Lease Finance Agreement, maximum amount of
$10,000, secured by the assets acquired, interest payable
monthly at variable rates as determined on the acquisition
date for each asset purchased (8.41%-8.93% at
September 30, 1997) (See Note 10) 4,466 6,444
-------- --------
404,566 417,144
Less unamortized discount (1,573) (1,422)
-------- -------
402,993 415,722
Less current maturities (806) (1,320)
-------- --------
$402,187 $414,402
======== =========
On February 6, 1996, the Company completed a $275,000 offering of its 9.75%
Senior Subordinated Debentures due 2007 (the Debentures) at a discount of
$1,375. A portion of the proceeds of the offering were used to finance the
acquisitions of WHTM, WCFT and the Option and to repay amounts outstanding
under certain previously existing financing facilities. A prepayment penalty on
the early repayment of one of the facilities and the accelerated amortization
of the related unamortized deferred financing costs totaled approximately
$13,137 before applicable income tax benefit of approximately $5,387. This
loss was reflected as an extraordinary loss of $7,750 in the consolidated
statements of operations for the year ended September 30, 1996.
F-12
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
Unamortized deferred financing costs of $9,916 and $8,935 at September 30, 1996
and 1997, respectively, are included in deferred financing costs and other
noncurrent assets in the consolidated balance sheets. Amortization of the
deferred financing costs for the years ended September 30, 1995, 1996 and 1997
was $385, $835 and $1,031, respectively, which is included in other
nonoperating expenses.
Under the existing financing agreements, the Company agrees to abide by
restrictive covenants which place limitations upon payments of cash dividends,
issuance of capital stock, investment transactions, incurrence of additional
obligations and transactions with Perpetual and other related parties. In
addition, the Company must maintain specified levels of operating cash flow
and/or working capital and comply with other financial covenants. The Company
is also required to pay a commitment fee of .375% per annum based on any unused
portion of the Revolving Credit Agreement.
Future principal maturities, excluding payments under the Master Lease Finance
Agreement, during the next five years include $12,700 due in 2001.
The Company estimates the fair value of its Senior Subordinated Debentures and
amounts outstanding under its Revolving Credit Agreement to be approximately
$397,900 and $416,800 at September 30, 1996 and 1997, respectively.
NOTE 7 - INCOME TAXES
The provision (benefit) for income taxes consists of the following:
Years ended September 30,
-------------------------
1995 1996 1997
---- ---- ----
Current
Federal $11,749 $5,297 $ (691)
State 2,299 812 830
------- ------ --------
14,048 6,109 139
------- ------ --------
Deferred
Federal (143) 215 1,443
State 30 1,488 (472)
------- ------ --------
(113) 1,703 971
------- ------ --------
$13,935 $7,812 $1,110
======= ====== ========
F-13
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
A prepayment penalty on the early repayment of a financing facility during the
year ended September 30, 1996 resulted in an extraordinary loss (see Note 6).
This extraordinary loss of $7,750 is presented net of the applicable income tax
benefit in the accompanying statement of operations. The $5,387 benefit for
income taxes arising from the extraordinary loss consisted of a $4,598 benefit
for federal income tax purposes at the statutory rate of 35% and a $789 benefit
for local income tax purposes, net of the federal effect.
The components of deferred income tax assets (liabilities) are as follows:
September 30,
-------------
1996 1997
---- ----
Deferred income tax assets:
State and local operating loss carryforwards $2,637 $2,924
Deferred rent 1,063 1,118
Accrued employee benefits 1,015 1,134
Allowance for accounts receivable 549 653
Other 415 657
------- ------
5,679 6,486
Less: valuation allowance (1,908) (1,675)
------- -------
3,771 4,811
------- -------
Deferred income tax liabilities:
Depreciation and amortization (2,222) (4,233)
------- -------
Net deferred income tax assets $1,549 $ 578
======= =======
The Company has approximately $55,482 in state and local operating loss
carryforwards in certain jurisdictions available for future use for state and
local income tax purposes. Of these operating loss carryforwards, $2,761
expire between 1999 and 2000, $11,943 expire between 2004 and 2007, and
$40,778 expire between 2009 and 2012. The change in the valuation allowance
for deferred tax assets of $(379), $1,020 and $(233) during the years ended
September 30, 1995, 1996 and 1997, respectively, principally resulted from
management's evaluation of the recoverability of the loss carryforwards.
F-14
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
The following table reconciles the statutory federal income tax rate to the
Company's effective income tax rate for income before extraordinary loss:
Years ended September 30,
-------------------------
1995 1996 1997
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 34.0%
State income taxes, net of federal income tax benefit 5.2 4.8 20.2
Non-deductible expenses, principally amortization of
certain intangible assets, insurance premiums and
meals and entertainment 1.8 4.5 33.2
Change in valuation allowance (1.1) 6.9 (15.2)
Other, net 0.3 1.6 0.2
----- ----- -----
Effective income tax rate 41.2% 52.8% 72.4%
===== ===== =====
NOTE 8 - TRANSACTIONS WITH OWNERS AND RELATED PARTIES
In the ordinary course of business, the Company makes cash advances in the form
of distributions to Perpetual. Prior to the Contribution, WSET and WCIV made
cash advances to Westfield. At present, the primary source of repayment of the
net advances from the Company is through the ability of the Company to pay
dividends or make other distributions. There is no immediate intent
for these amounts to be repaid. Accordingly, such amounts have been treated as
a reduction of stockholder's investment and described as "distributions" in the
Company's consolidated balance sheets.
F-15
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
The following summarizes these and certain other transactions with related
parties:
Years ended September 30,
-------------------------
1995 1996 1997
---- ---- ----
Distributions to owners, beginning of
year $186,994 $203,775 $224,450
Cash advances 42,853 52,667 52,597
Repayment of cash advances (14,142) (12,785) (39,693)
(Charge) benefit for federal income taxes (11,884) (826) 691
Dividends declared by WSET
and WCIV -- (18,371) --
Tax benefit distributed (46) (10) (691)
--------- --------- ---------
Distributions to owners, end of year $203,775 $224,450 $237,354
========= ========= =========
Weighted average amount of non-interest
bearing advances outstanding during
the year $178,761 $197,205 $218,026
========= ======== =========
Subsequent to September 30, 1997 and through November 25, 1997, the Company
made additional net distributions to owners of approximately $16,700.
In connection with the transactions by which the Contribution was consummated,
WSET and WCIV declared non-cash dividends to Westfield in the amount of $18,371
which represented the cumulative net advances made from WSET and WCIV to
Westfield as of the date of the Contribution. The dividend has therefore been
reflected as a reduction to retained earnings and distributions to owners
during the year ended September 30, 1996.
Included in distributions to owners is a $20,000 loan made in 1991 by the
Company to ALLNEWSCO, Inc. (Allnewsco), an affiliate of the Company which is
owned by Mr. Joe L. Allbritton. This amount has been included in the
consolidated financial statements on a consistent basis with other cash
advances to related parties. The $20,000 note receivable from Allnewsco has
stated repayment terms consisting of annual principal installments approximating
$2,220 commencing January 1997 through January 2005. During the year ended
September 30, 1997, the Company deferred the first annual principal installment
payment. The Company is currently renegotiating the note to extend the
maturity to January 2008 and defer all principal installments until maturity,
with the principal balance also due upon demand. The note has a stated
interest rate of 11.06% and interest is payable semi-annually. During each of
the years ended September 30, 1995, 1996 and 1997, the Company earned interest
income from this note of approximately $2,200. At September 30, 1996 and 1997,
interest receivable from Allnewsco under this note totaled $492. Allnewsco is
current on its interest payments.
F-16
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
Management fees of $180, $180 and $343 were paid to Perpetual by the Company
for the years ended September 30, 1995, 1996 and 1997, respectively. The
Company also paid management fees to Mr. Joe L. Allbritton in the amount of
$550 for each of the years ended September 30, 1995, 1996 and 1997. Management
fees are included in corporate expenses in the consolidated statements of
operations and management believes such charges to be reasonable.
Charitable contributions of approximately $283 and $685 were paid to the
Allbritton Foundation by the Company for the years ended September 30, 1995 and
1996, respectively.
The Company maintains banking relationships with and leases certain office
space from Riggs Bank N.A. (Riggs). Riggs is a wholly-owned subsidiary of
Riggs National Corporation, of which Mr. Joe L. Allbritton is the Chairman
of the Board of Directors and a significant stockholder. The majority of the
Company's cash and cash equivalents was on deposit with Riggs at September 30,
1996 and 1997. Additionally, the Company incurred $167, $192 and $220 in rental
expense related to office space leased from Riggs for the years ended September
30, 1995, 1996 and 1997, respectively.
On July 1, 1995, 78, Inc., also a wholly-owned subsidiary of Perpetual, was
formed to provide sales, marketing and related services to both the Company and
Allnewsco. Certain employees of the Company became employees of 78, Inc. The
Company was charged approximately $7,163 during the year ended September 30,
1996 for services provided by 78, Inc., which represents the Company's share of
78, Inc.'s costs relating to the provision of such services, determined based
on the Company's usage of such services. These costs are included in television
operating expenses in the consolidated statements of operations. Effective
October 1, 1996, the Company ceased utilizing 78, Inc. for the provision of
these services and re-established these functions internally. At September 30,
1996, the Company recorded a $1,578 receivable from 78, Inc. representing
expenses paid on behalf of 78, Inc. by the Company. This receivable was fully
repaid by 78, Inc. during the year ended September 30, 1997.
NOTE 9 - RETIREMENT PLANS
A defined contribution savings plan is maintained for eligible employees of the
Company and certain of its affiliates who have been employed for at least one
year and have completed 1,000 hours of service. Under the plan, employees may
contribute a portion of their compensation subject to Internal Revenue Service
limitations and the Company contributes an amount equal to 50% of the
contribution of the employee not to exceed 6% of the compensation of the
employee. The amounts contributed to the plan by the Company on behalf of its
employees totaled approximately $509, $602 and $691 for the years ended
September 30, 1995, 1996 and 1997, respectively.
F-17
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
The Company also contributes to certain other multi-employer union pension
plans on behalf of certain of its union employees. The amounts contributed to
such plans totaled approximately $182, $308 and $316 for the years ended
September 30, 1995, 1996 and 1997, respectively.
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases office and studio facilities and machinery and equipment
under operating and capital leases expiring in various years through 2004.
Certain leases contain provisions for renewal and extension. Future minimum
lease payments under operating and capital leases which have remaining
noncancelable lease terms in excess of one year as of September 30, 1997 are as
follows:
Operating Capital
Year ending September 30, Leases Leases
-------- ----------
1998 $ 3,084 $ 1,791
1999 3,408 1,779
2000 3,439 1,764
2001 3,232 1,478
2002 3,090 659
2003 and thereafter 5,015
------- -------
$21,268 7,471
=======
Less: amounts representing imputed interest (1,027)
-------
6,444
Less: current portion (1,320)
-------
Long-term portion of capital lease obligations $ 5,124
=======
Rental expense under operating leases aggregated approximately $2,600, $2,700
and $2,900 for the years ended September 30, 1995, 1996 and 1997, respectively.
F-18
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
The Company has entered into contractual commitments in the ordinary course of
business for the rights to television programming which is not yet available
for broadcast as of September 30, 1997. Under these agreements, the Company
must make specific minimum payments approximating the following:
Year ending September 30,
1998 $ 1,453
1999 15,888
2000 14,590
2001 7,139
2002 5,029
------
$44,099
=======
The Company has entered into various employment contracts. Future payments
under such contracts as of September 30, 1997 approximate $3,596, $1,791, $667,
and $267 for the years ending September 30, 1998, 1999, 2000, and 2001,
respectively.
The Company has entered into various deferred compensation agreements with
certain employees. Under these agreements, the Company is required to make
payments aggregating approximately $2,456 during the years 2000 through 2012.
At September 30, 1996 and 1997, the Company has recorded a deferred
compensation liability of approximately $912 and $1,035, respectively, which
is included as a component of noncurrent accrued employee benefit expenses in
the consolidated balance sheets.
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business, 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.
NOTE 11 - SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest totaled $22,481, $28,973 and $42,829 during the years
ended September 30, 1995, 1996 and 1997, respectively. Cash paid for state
income taxes totaled $2,148, $679 and $792 during the years ended September 30,
1995, 1996 and 1997, respectively. Non-cash investing and financing activities
consist of entering into capital leases totaling $1,127, $3,554 and $2,549
during the years ended September 30, 1995, 1996 and 1997, respectively, and
declaring a non-cash dividend from WSET and WCIV to Westfield of $18,371 during
the year ended September 30, 1996.
F-19
SCHEDULE II
ALLBRITTON COMMUNICATIONS COMPANY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in thousands)
Balance at Charged Balance at
beginning to costs Charged to end of
Classification of year and expenses other accounts Deductions year
Year ended September 30, 1995:
Allowance for doubtful
accounts $ 757 $ 755 -- $(444) $1,068
====== ======= ==== ====== ======
Valuation allowance
for deferred income
tax assets $1,267 -- -- $(379) $ 888
====== ======= ==== ====== ======
Year ended September 30, 1996:
Allowance for doubtful
accounts $1,068 $ 752 -- $(435) $1,385
====== ======= ==== ====== ======
Valuation allowance
for deferred income
tax assets $ 888 $1,750 -- $(730) $1,908
======= ======= ==== ====== ======
Year ended September 30,1997:
Allowance for doubtful
accounts $1,385 $ 576 -- $(343) $1,618
====== ======= ==== ====== ======
Valuation allowance
for deferred income
tax assets $1,908 $ 574 -- $(807) $1,675
====== ======= ==== ====== ======
Represents valuation allowance established related to certain net operating
loss carryforwards and other deferred tax assets for state income tax purposes.
Write-off of uncollectible accounts, net of recoveries and collection fees.
Represents net reduction of valuation allowance relating to certain net operating
loss carryforwards.
F-21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Lawrence I. Hebert
-----------------------
Lawrence I. Hebert
President
Date: December 22, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Joe L. Allbritton Chairman, Principal December 22, 1997
- --------------------------
Joe L. Allbritton * Executive Officer and
Director
/s/ Barbara B. Allbritton Vice President and December 22, 1997
- --------------------------
Barbara B. Allbritton * Director
/s/ Robert L. Allbritton Executive Vice President, December 22, 1997
- --------------------------
Robert L. Allbritton * Chief Operating Officer
and Director
/s/ Lawrence I. Hebert Vice Chairman, President December 22, 1997
- --------------------------
Lawrence I. Hebert and Director
/s/ Frederick J. Ryan, Jr. Vice Chairman, Senior December 22, 1997
- --------------------------
Frederick J. Ryan, Jr. * Vice President and
Director
/s/ Henry D. Morneault Vice President and December 22, 1997
- --------------------------
Henry D. Morneault Chief Financial Officer
/s/ Stephen P. Gibson Vice President and December 22, 1997
- --------------------------
Stephen P. Gibson Controller
*By Attorney-in-Fact
/s/ Jerald N. Fritz
- -------------------
Jerald N. Fritz
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
4.6 Modification No. 2 dated as of December 20, 1996 *
to Revolving Credit Agreement
4.7 Modification No. 3 dated as of May 14, 1997 to *
Revolving Credit Agreement
4.8 Modification No. 4 dated as of September 30, 1997
to Revolving Credit Agreement
10.2 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.)
10.3 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 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.)
10.5 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.)
10.6 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.)
10.7 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.)
10.8 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.)
10.9 Tax Sharing Agreement effective as of September *
30, 1991 by and among Perpetual Corporation,
Inc., ACC and Allnewsco, Inc., as amended.
(Incorporated by reference to Exhibit 10.11 of
Company's Registration Statement on Form S-4,
No. 333-02302, dated March 12, 1996.)
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.)
10.15 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).
10.16 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
21. Subsidiaries of the Registrant
24. Powers of Attorney
27. Financial Data Schedule (Electronic Filing Only)
*Previously filed