Hearst-Argyle Television Announces Results for Third Quarter Ended September 30, 2008
Hearst-Argyle Television Announces Results for Third Quarter Ended September 30, 2008
NEW YORK, Oct. 30 /PRNewswire-FirstCall/ -- Hearst-Argyle Television, Inc. (NYSE:HTV) today announced third quarter 2008 earnings per diluted share of $0.12 compared to $0.10 and $0.18 in third quarter 2007 and 2006, respectively.
Results for the Quarter Ended September 30, 2008
For the quarter ended September 30, 2008, total revenue of $176.2 million was flat compared to the quarter ended September 30, 2007, which primarily reflects:
-- A $16.9 million, or 11.5%, decrease in net ad sales, excluding political, to $129.5 million, attributable to the impact of a weak economy on our largest advertising categories as follows: -- significant softness in automotive advertising, our largest category, as well as decreases in the retail, telecommunications, movie, restaurant, paid programming, furniture and beverages categories, offset in part by -- gains in the media, home improvement, attractions and financial categories -- A $16.7 million increase in net political revenue to $23.7 million -- A 6% decrease in net digital media revenue to $4.9 million; and -- A 22% increase in retransmission consent revenue to $6.8 million.
Commenting on the announcement, David Barrett, President and Chief Executive Officer, stated, "The significant credit market disruption and pervasive economic weakness, so evident domestically and globally, have had an adverse impact on our local television business, limiting growth opportunities that are typical in an election and Olympics year. Nevertheless, our third quarter results do reflect modest growth in net income and earnings per share over prior year, largely as a result of very strong political ad spending in numerous communities where we own and operate leading local news stations. However, like so many others, we have experienced cancellations and reductions in core ad spending in third quarter and for the full year, which are difficult to overcome.
"The ongoing strength and resiliency of our business model remains evident in the still impressive EBITDA margins we've delivered through an extraordinarily difficult period, and in the sizeable free cash flow we've generated during the quarter and for the year-to-date. We are operating with a strong sense of discipline about cost management, implementing appropriate reductions and reorganizations at our stations, and carefully reevaluating all investment spending decisions. And we are aggressively using our cash to reduce debt - with over $150 million in debt reduction accomplished on a trailing 12-month basis. Hearst-Argyle Television's balance sheet remains quite strong, and differentiates us from most others in our space.
"As a company, we are confronting the challenges and realities of our business - and the economy at large - without losing faith in what's possible for our dominant local media assets in better economic times to come."
Broadcast Audience Delivery and Product Quality
Throughout the economic slowdown, we have continued to maintain our product quality and to compete vigorously for audience share.
Local News Leadership -- 70% of all HTV weekday newscasts ranked #1 or #2 in their time periods (A25-54) during the July ratings period. Five stations rank #1 in every weekday newscast. -- HTV's continuing Commitment 2008 campaign coverage included extensive coverage of the Democratic National Convention in Denver and the Republican National Convention in St. Paul during third quarter. -- A team of HTV producers, reporters and journalists turned out more than 1,200 individual Olympic stories, program elements, live and "as live" reports for HTV local newscasts. In online coverage of the Beijing Games, total page views on NBCOlympics.com by local users in Hearst-Argyle markets were nearly 37 million, led by WGAL-TV, Lancaster, KCRA-TV, Sacramento and WBAL-TV, Baltimore. Ratings Highlights: July 2008 Ratings Period -- Seventeen of 18 HTV network affiliates in top 50 markets over-indexed their networks during the July ratings period. -- Six out of seven HTV NBC stations outperformed in Olympics audience and HTV has five of the top 20 performing NBC stations. -- HTV has six of the top 20 performing ABC stations, including the #1 and #2 stations. -- Both HTV CBS affiliates are ranked among the top five CBS stations. Digital Media Performance Metrics (in thousands)
Our commitment to quality extends to our digital media products and contributed to continued growth in our online audience. During third quarter, average monthly page views and video streams increased a healthy 17% and 62%, respectively, and traffic on our early stage mobile websites increased exponentially as follows:
HTV Digital (source, Volume Percentage company data) 3Q08 3Q07 Increase Increase Average Monthly Visits 38,317 35,959 2,358 7% Average Monthly Web Page Views 164,684 140,279 24,405 17% Average Monthly Video Streams 7,442 4,597 2,845 62% Average Monthly WAP Page Views 2,206 515 1,691 328% We attribute this growth to: -- Extensive online Commitment 2008 political coverage enhanced by new features on our websites. For the Democratic and Republican National Conventions we introduced a new Flash-based video player on our national convention pages and supplied delegates with video cameras to document the convention experience on our websites. In addition, we offered new commenting tools to further engage viewers during the presidential debates and received thousands of comments on our sites. -- Growing consumer interest in receiving our local news and weather information on mobile devices. During the quarter, Hurricane Gustav coverage was particularly important to our mobile viewers in New Orleans. We continue to roll out mobile services such as interactive radar feeds and SMS text alerts for weather updates, school closings and other breaking news. -- Digital media revenue tracked down in the quarter largely because of the weak advertising economy. Nevertheless, our roster of advertisers is strong and diverse. This is reflected in the new advertisers added during the quarter, including The Florida Lottery, Medicare, Acura of Boston, Bellevue University, the U.S. Marines, Cincinnati Bell and a number of Wendy's and McDonald's franchises around the country.
Commenting on HTV's performance in the digital arena, Senior Vice President of Digital Media Roger Keating, stated, "While we are not pleased with this quarter's revenue performance, the double-digit traffic results we continue to enjoy on digital platforms validate our efforts to improve the news coverage and functionality of our sites. We're becoming an even bigger part of our viewers' daily media consumption, and this will hasten our revenue recovery as market conditions improve."
Liquidity and Capital Resources
"We finished third quarter with $11.8 million of cash on hand and $205.0 million available under our $500.0 million credit facility," said Harry Hawks, Executive Vice President and Chief Financial Officer. "The combination of cash flow from operations and availability under the credit facility provides significant financial flexibility as we go forward. We remain focused on reducing debt while continuing to prudently invest in our digital future. "
During third quarter we: -- generated $48.7 million of free cash flow, up $24.9 million from free cash flow generated in the third quarter of 2007. In addition, for the nine month period, free cash flow more than doubled to $99.5 million as compared to $44.6 million in the comparable period of 2007. -- repaid $40.0 million of debt. Including the convertible preferred notes, which we redeemed in full during second quarter 2008, we have reduced total debt by $154.0 million since September 30, 2007. -- invested $8.6 million in property, plant and equipment to support the transition to digital, high definition news production in our largest markets and to further the development of digital media. -- paid $6.6 million of dividends to common stockholders. Revised 2008 Expense Outlook ($'s in millions) As of As of 2/28/08 8/1/08 Revised Outlook Outlook Outlook Income Statement Items 2008 2008 2008 ---------------------- ---- ---- ---- Salaries, Benefits and Other Operating Expenses (SB&O) SB&O, excluding digital media and stock-based compensation $403.0 $396.7 $390.3 Digital media expense 23.0 20.1 18.3 Stock-based compensation expense 4.0 4.0 4.1 --- --- --- Total Salaries, Benefits and Other Operating Expenses $430.0 $420.8 $412.7 Amortization of Program Rights 75.0 75.0 76.3 Depreciation & Amortization 55.0 55.5 55.7 Insurance Settlement NA 11.5 11.5 Corporate G&A Corporate G&A, excluding stock-based compensation 34.0 32.1 32.1 Stock-based compensation expense 4.0 4.0 4.0 --- --- --- Total Corporate G&A $38.0 $36.1 $36.1 Interest Expense, net $50.0 $50.3 $51.2 Interest Expense, net - Capital Trust $9.8 $8.6 $8.6 Effective Tax Rate 39.0% 33.0% 29.0% Equity in (Income) loss of Affiliates, net of tax $2.0 $2.7 $6.8 Cash Flow Items --------------- Program Payments $74.0 $74.0 $73.4 Capital Expenditures $44.0 $40.0 $40.0
Salaries, Benefits and Other Operating Expense: For third quarter 2008, SB&O expense was flat at $101.8 million. Continued investment in digital media news and sales, as well as local news coverage in an Olympic and election year was offset by a $3.0 million gain associated with a Nextel equipment exchange in three markets, lower pension expense, lower sales commissions and reduced spending on all discretionary items. For the full year 2008, we have revised our SB&O expense (excluding the insurance settlement) estimate down to $412.7 million from $420.8 million in August, reflecting continued emphasis on expense reductions in a difficult economy.
Amortization of Program Rights: For third quarter 2008, amortization of program rights increased $1.6 million, or 9%, to $20.3 million reflecting a $1.9 million write-down of two off-network syndicated programs. For the full year, we expect amortization of program rights expense to be $76.3 million, up slightly from 2007 and revised upward from prior estimates due to the program impairment.
Depreciation and amortization: For third quarter 2008, depreciation and amortization expense increased 1% to $13.5 million. For the full year, depreciation and amortization is expected to be $55.7 million, substantially unchanged from 2007 and prior estimates.
Corporate, general and administrative expense: For third quarter 2008, corporate, general and administrative expense decreased $3.4 million, or 27%, to $9.2 million reflecting the absence of banking, legal and other expenses associated with the Hearst tender offer in 2007. For the full year, corporate expense is expected to be down 5% to $36.1 million reflecting the absence of banking, legal and other expenses associated with the tender offer in 2007, offset in part by continued investment in the growing digital media operation. The $36.1 million estimate is flat with guidance on August 1, 2008 and down from $38.0 million estimated as of February 22, 2008.
Interest expense: For third quarter 2008, interest expense decreased $3.1 million to $12.8 million, reflecting the repayment of $125.0 million of 7% senior notes and $90.0 million 7.18% private placement notes in December 2007, offset in part by additional amounts outstanding under the revolving credit facility.
Interest expense, net - Capital Trust: For third quarter 2008, interest expense, net - Capital Trust was zero, down from $2.4 million. On June 23, 2008, the Company redeemed in full $134.0 million Series B Debentures. For the full year 2008, Interest expense, net-Capital Trust is $8.6 million.
Income Tax Expense and Effective tax rate: For third quarter 2008, we recorded approximately $5.0 million of income tax expense compared to $2.1 million in 2007, reflecting higher income before income taxes. The third quarter effective tax rate was 26.7% as compared to 17.0% in the third quarter 2007. The lower effective tax rate in third quarter 2007 reflects a benefit resulting from the expiration of statutes of limitations in certain state and local jurisdictions. The estimated effective tax rate for the full year is 29.0%.
Equity in (income) loss of affiliates, net of tax: For third quarter 2008, equity in loss of affiliates, net of tax, was $2.1 million reflecting our share of losses of Internet Broadcasting and Ripe Digital Entertainment. For the full year 2008, we expect equity losses, net of tax, of approximately $6.8 million compared to $2.7 million previously forecast, reflecting revised expectations for Ripe Digital Entertainment.
Program Payments: For third quarter 2008, program payments decreased 4% to $18.0 million. For the full year, we expect program payments to be $73.4 million, substantially unchanged from 2007 and prior estimates.
Capital Expenditures: During third quarter 2008, we invested $8.6 million in station operations, a significant portion of which supports the development of digital media and high definition news production. In 2008, capital expenditures are expected to be $40.0 million, unchanged from the prior guidance.
Non-GAAP Measures
For a reconciliation of non-GAAP financial measurements contained in this news release and the accompanying income statements, please see the Supplemental Disclosures table at the end of this release.
About Hearst-Argyle
Hearst-Argyle Television, Inc. owns 26 television stations, and manages an additional three television and two radio stations owned by Hearst Corporation, in geographically diverse U.S. markets. The Company's television stations reach approximately 21 million households, or about 18% of U.S. television households, making it one of America's largest television station groups. Hearst-Argyle owns 12 and manages one ABC-affiliated station and is the largest ABC affiliate group. Hearst-Argyle owns 10 NBC affiliates, making it the second-largest NBC affiliate owner. Hearst-Argyle owns two CBS affiliates. Also, Hearst-Argyle owns more than 30 Websites and 19 digital multicast channels providing news, weather and entertainment programming. Hearst-Argyle Series A Common Stock trades on the New York Stock Exchange under the symbol "HTV." HTV debt is rated investment grade by Moody's (Baa3), Standard & Poor's (BBB-) and Fitch (BBB-). Hearst Corporation, Hearst-Argyle's majority owner, is an investor in Fitch's parent company. Hearst-Argyle's corporate Web address is www.hearstargyle.com.
As of August 4, 2008, Hearst Corporation owns an 81.8% interest in Hearst-Argyle Television, Inc. Effective as of July 1, 2008, HTV will file federal tax returns and (where permitted) state tax returns on a consolidated basis with Hearst as a result of Hearst's ownership of at least 80% of HTV common stock.
FORWARD-LOOKING STATEMENTS
This news release includes forward-looking statements. We base these forward-looking statements on our current expectations and projections about future events. These forward-looking statements generally can be identified by the use of statements that include phrases such as "anticipate", "will", "may", "likely", "plan", "believe", "expect", "intend", "project", "forecast" or other such similar words and/or phrases. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained in this news release, concerning, among other things, trends and projections involving revenue, income, earnings, cash flow, liquidity, operating expenses, assets, liabilities, capital expenditures, dividends and capital structure, involve risks and uncertainties, and are subject to change based on various important factors. Those factors include the impact on our operations from:
-- Changes in national and regional economies; -- Changes in advertising trends and our advertisers' financial condition; -- Competition in the broadcast television markets we serve; -- Pricing fluctuations in local and national advertising; -- Changes in Federal regulation of broadcasting, including changes in Federal communications laws or regulations; -- Local regulatory actions and conditions in the areas in which our stations operate; -- Our ability to obtain quality programming for our television stations; -- Successful integration of television stations we acquire; -- Our ability to service and refinance our outstanding debt; -- Volatility in programming costs, industry consolidation, technological developments, and major world events; and -- Potential adverse effects if we are required to recognize impairment charges or other accounting-related developments.
These and other matters may cause actual results to differ from those we describe. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Hearst-Argyle Television, Inc. Condensed Consolidated Statements of Income Three Months Ended Nine Months Ended September 30, September 30, ------------- --------------- 2008(1) 2007(1) 2006(1) 2008(1) 2007(1) 2006(1) -------- ------- -------- -------- -------- -------- (In thousands, except per (In thousands, except per share data) share data) Total revenue (2) $176,212 $176,775 $182,993 $523,387 $539,177 $550,974 Station operating expenses: Salaries, benefits and other operating costs 101,841 101,831 99,574 307,915 305,073 294,016 Amortization of program rights 20,280 18,679 17,751 57,598 57,329 49,034 Depreciation and amortization 13,480 13,310 14,634 41,799 42,492 46,103 Insurance Settlement -- -- -- (11,549) -- -- Corporate, general and administrative expenses 9,151 12,534 7,868 27,343 29,201 22,766 ----- ------ ----- ------ ------ ------ Operating income 31,460 30,421 43,166 100,281 105,082 139,055 Interest expense 12,840 15,926 16,427 38,017 47,846 48,942 Interest income (38) (555) (1,736) (66) (1,309) (4,983) Interest expense, net - Capital Trust -- 2,438 2,438 8,585 7,313 7,313 Other expense -- -- -- -- -- 2,501 ----- ----- ----- ----- ----- ----- Income before income taxes 18,658 12,612 26,037 53,745 51,232 85,282 Income tax expense 4,976 2,138 9,531 12,709 18,656 30,807 Equity in loss (income) of affiliates, net of tax (3) 2,124 733 (37) 5,344 1,564 (102) ----- --- --- ----- ----- ---- Net income 11,558 9,741 16,543 35,692 31,012 54,577 ====== ===== ====== ====== ====== ====== Income per common share, basic $0.12 $0.10 $0.18 $0.38 $0.33 $0.59 ===== ===== ===== ===== ===== ===== Number of common shares used in the calculation 93,572 93,643 92,721 93,542 93,459 92,703 ====== ====== ====== ====== ====== ====== Income per common share, diluted $0.12 $0.10 $0.18 $0.38 $0.33 $0.59 ===== ===== ===== ===== ===== ===== Number of common shares used in the calculation (4) 93,753 94,172 93,154 93,705 94,152 93,177 ====== ====== ====== ====== ====== ====== Dividends per common share declared $0.07 $0.07 $0.07 $0.21 $0.21 $0.21 ===== ===== ===== ===== ===== ===== Supplemental Financial Data: ------------ Net local & national ad revenue (excluding political) $129,489 $146,355 $138,643 $411,030 $458,222 $453,448 Net digital media revenue 4,920 5,246 3,677 15,487 14,282 10,227 Net political revenue 23,706 6,960 23,429 41,785 13,363 38,490 Network compensation 1,875 2,144 2,610 6,383 7,258 6,868 Retransmission consent revenue 6,788 5,561 4,722 19,877 16,148 13,351 Other revenue 9,434 10,509 9,912 28,825 29,904 28,590 Supplemental Non-GAAP Data (*) : -------------- Adjusted EBITDA (A) $44,940 $43,731 $57,800 $142,080 $147,574 $185,158 Free cash flow $48,660 $23,776 $27,165 $99,514 $44,629 $115,994 (*) See Supplemental Disclosures Regarding Non-GAAP Financial Information at the end of this news release. See accompanying notes on the following pages. Hearst-Argyle Television, Inc. Condensed Consolidated Balance Sheets September 30, 2008 December 31, 2007 ------------------ ----------------- (In thousands) Assets Current assets: Cash and cash equivalents $11,757 $5,964 Accounts receivable, net 131,267 164,764 Program and barter rights 89,227 65,097 Deferred income tax asset 4,794 4,794 Other 5,067 5,698 ----- ----- Total current assets 242,112 246,317 ------- ------- Property, plant and equipment, net 300,374 305,971 ------- ------- Intangible assets, net 2,508,874 2,513,340 --------- --------- Goodwill 816,728 816,728 ------- ------- Other assets: Deferred financing costs, net 7,344 8,000 Investments 34,433 41,948 Program and barter rights, noncurrent 10,100 8,399 Other assets 13,021 18,273 ------ ------ Total other assets 64,898 76,620 ------ ------ Total assets $3,932,986 $3,958,976 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $90,000 $90,016 Accounts payable 7,090 15,103 Accrued liabilities 45,540 48,376 Program and barter rights payable 90,586 64,687 Payable to Hearst Corporation, net 5,549 5,747 Other 11,114 6,482 ------ ----- Total current liabilities 249,879 230,411 ------- ------- Program and barter rights payable, noncurrent 17,805 15,587 Long-term debt 757,110 703,110 Note payable to Capital Trust -- 134,021 Deferred income tax liability 873,344 856,790 Other liabilities 58,672 66,658 ------ ------ Total noncurrent liabilities 1,706,931 1,776,166 --------- --------- Commitments and contingencies Stockholders' equity: Preferred Stock -- -- Series A common stock 571 573 Series B common stock 413 413 Additional paid-in capital 1,345,683 1,336,786 Retained earnings 759,237 743,264 Accumulated other comprehensive loss, net (12,580) (12,580) Treasury stock, at cost (117,148) (116,057) -------- -------- Total stockholders' equity 1,976,176 1,952,399 --------- --------- Total liabilities and stockholders' equity $3,932,986 $3,958,976 ========== ========== Hearst-Argyle Television, Inc. Condensed Consolidated Statements of Cash Flows Nine months ended September 30, ------------------------------- 2008 2007 2006 ---- ---- ---- (In thousands) Operating Activities Net income $35,692 $31,012 $54,577 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 37,334 37,282 41,505 Amortization of intangible assets 4,465 5,210 4,598 Amortization of deferred financing costs 656 1,345 1,453 Amortization of program rights 57,598 57,329 49,034 Deferred income taxes 17,203 9,653 10,587 Equity in loss (income) of affiliates, net 5,344 1,564 (102) Provision for (benefit from) doubtful accounts 1,348 1,081 (593) Stock-based compensation expense 6,186 6,180 5,764 Insurance settlement (11,549) -- -- Business interruption insurance proceeds 8,659 -- -- Investment write-off -- -- 2,501 Non-cash gain on Nextel Equipment exchange (3,549) -- -- Program payments (54,330) (55,044) (48,816) Changes in operating assets and liabilities: Decrease (increase) in Accounts receivable 32,149 6,718 13,208 Decrease (increase) in Other assets 6,019 5 7,113 (Decrease) increase in Accounts payable and accrued liabilities (12,469) (28,851) 4,090 (Decrease) increase in Other liabilities (4,537) 13,248 9,363 ------ ------ ----- Net cash provided by operating activities $126,219 $86,732 $154,282 -------- ------- -------- Investing Activities Purchases of property, plant and equipment, net (26,705) (42,103) (38,288) Proceeds from redemption of Capital Trust 4,021 -- -- Acquisition of WKCF-TV -- -- (217,385) Cash proceeds from insurance recoveries 2,890 1,000 1,594 Investment in affiliates and other, net (2,500) (1,874) (10,681) ------ ------ ------- Net cash used in investing activities $(22,294) $(42,977) $(264,760) -------- -------- --------- Financing Activities Borrowings on credit facility 300,000 -- 100,000 Repayments on credit facility (246,000) -- -- Redemption of Notes Payable to Capital Trust (134,021) -- -- Dividends paid on common stock (19,713) (19,640) (19,464) Series A Common Stock repurchases (1,091) (2,270) (2,780) Principal payments & repurchase of long term debt (16) (12) (10,035) Proceeds from employee stock purchase plan & stock option exercises 2,709 15,125 3,496 ----- ------ ----- Net cash (used in) provided by financing activities $(98,132) $(6,797) $71,217 -------- ------- ------- Increase (decrease) in cash and cash equivalents 5,793 36,958 (39,261) Cash and cash equivalents at beginning of period 5,964 18,610 120,065 ----- ------ ------- Cash and cash equivalents at end of period $11,757 $55,568 $80,804 ======= ======= ======= Supplemental Cash Flow Information: Cash paid during the period for: Interest $33,491 $37,911 $37,745 ======= ======= ======= Interest on Note payable to Capital Trust $8,586 $4,875 $7,313 ====== ====== ====== Taxes, net of refunds $7,401 $34,963 $26,656 ====== ======= ======= Non-cash investing and financing activities: Accrued property, plant & equipment purchases $1,620 $337 $7,645 ====== ==== ====== Notes to Consolidated Statements of Income
(1) Results of operations for the three and nine months ended September 30, 2008, 2007 and 2006 include (i) the results of our 25 television stations, which were owned for the entire period presented, and the management fees derived by the three television and two radio stations managed by us for the entire period presented; and (ii) the results of operations of WKCF-TV, after our acquisition of the station on August 31, 2006.
(2) Total revenue includes local & national, digital media and political advertising revenue net of agency commission expense, network compensation, retransmission consent revenue and other revenue consisting primarily of trade and barter revenue.
(3) Primarily represents the Company's equity interests in the operating results of Internet Broadcasting, Ripe Digital Entertainment and other investments.
(4) On June 23, 2008, the Company redeemed it's 7.5% Series B Convertible Junior Subordinated Debentures which triggered a simultaneous redemption by its wholly owned unconsolidated subsidiary trust ("the Capital Trust") of its 7.5% Series B Convertible Preferred Securities. For the three and nine month periods ended September 30, 2007 and 2006, diluted shares do not include 5,127,881 common shares underlying the 7.5% Series B Convertible Preferred Securities because to do so would have been antidilutive (80,413 of the Series B Convertible Preferred Shares were held by the Company and were not taken into account for the purposes of computing the conversion into Series A Shares). When the securities related to the Capital Trust were dilutive, the interest, net of tax, related to the Capital Trust was added back to Income applicable to common stockholders for purposes of the diluted EPS calculation.
Hearst-Argyle Television, Inc. Supplemental Disclosures Regarding Non-GAAP Financial Information Adjusted EBITDA
In order to evaluate the operating performance of our business, we use certain financial measures, some of which are calculated in accordance with accounting principles generally accepted in the United States of America ("GAAP"), such as net income, and some of which are not, such as adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA"). In order to calculate the non-GAAP measure adjusted EBITDA, we exclude from net income the financial items that we believe are less integral to the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the limitations on the use of the adjusted EBITDA measure as a result of these exclusions. Adjusted EBITDA is not an alternative to net income, operating income, or net cash provided by operating activities, as calculated and presented in accordance with GAAP. Investors and potential investors in our securities should not rely on adjusted EBITDA as a substitute for any GAAP financial measure. In addition, our calculation of adjusted EBITDA may or may not be consistent with that of other companies. We strongly urge investors and potential investors in our securities to review the reconciliation presented in the table below of adjusted EBITDA to net income, the most directly comparable GAAP financial measure.
We use the adjusted EBITDA measure as a supplemental financial metric to evaluate the performance of our business that, when viewed together with our GAAP results and the accompanying reconciliations, we believe provides a more complete understanding of the factors and trends affecting our business than the GAAP results alone. Adjusted EBITDA is a common alternative measure of financial performance used by investors, financial analysts, and rating agencies. These groups use adjusted EBITDA, along with other measures, to estimate the value of a company, compare the operating performance of a company to others in its industry, and evaluate a company's ability to meet its debt service requirements. In addition, adjusted EBITDA is a key financial measure for the Company's stockholders and financial lenders, since the Company's current debt financing agreements require the measurement of adjusted EBITDA, along with other measures, in connection with the Company's compliance with debt covenants.
We define adjusted EBITDA as net income adjusted to exclude the following line items presented in our consolidated statements of income: interest expense; interest income, interest expense, net - Capital Trust; income taxes; depreciation and amortization; equity in income or loss of affiliates; other income and expense; and non-recurring special charges. Set forth below are descriptions of each of the financial items that have been excluded from net income in order to calculate adjusted EBITDA as well as the material limitations associated with using adjusted EBITDA rather than net income, the most directly comparable GAAP financial measure, when evaluating the operating performance of our core operations.
-- Interest expense, Interest income and Interest expense, net - Capital Trust. By excluding these expenses, we are better able to compare our core operating results with other companies that have different financing arrangements and capital structures. Nevertheless, the amount of interest we are required to pay does reduce the amount of funds otherwise available for use in our core business and therefore may be useful for an investor to consider. -- Income tax expense. By excluding income taxes, we are better able to compare our core operating results with other companies that have different income tax rates. Nevertheless, the amount of income taxes we incur does reduce the amount of funds otherwise available for use in our core business and therefore may be useful for an investor to consider. -- Depreciation and amortization. By excluding these non-cash charges, we are better able to compare our core operating results with other companies that have different histories of acquiring other businesses. Nevertheless, depreciation and amortization are important expenses for investors to consider, even though they are non-cash charges, because they represent generally the wear and tear on our property, plant and equipment and the gradual decline in value over time of our intangible assets with finite lives. Furthermore, depreciation expense is affected by the level of capital expenditures we make to support our core business and therefore may be useful for an investor to consider. -- Impairment Loss. The impairment loss is a non-recurring, non-cash item resulting from the write down of intangibles and goodwill as part of our routine FAS 142 analysis. Excluding the impairment loss provides investors with more comparable information about our Company's operating performance. -- Equity in loss (income) of affiliates, net. This is a non-cash item which represents our proportionate share of income or loss from affiliates in which we hold minority interests. As we do not control these affiliates, we believe it is more appropriate to evaluate the performance of our core business by excluding their results. However, as we make investments in affiliates for purposes which are strategic to the Company, the financial results of such affiliates may be useful for an investor to consider. -- Other expense and special charges. These are non-recurring items which are unrelated to the operations of our core business and, when they do occur, can fluctuate significantly from one period to the next. By excluding these items, we are better able to compare the operating results of our underlying, recurring core business from one reporting period to the next. Nevertheless, the amounts and the nature of these items may be useful for an investor to consider, as they can be material and can sometimes increase or decrease the amount of funds otherwise available for use in our core business.
The following tables provide a reconciliation of net income to adjusted EBITDA in each of the periods presented:
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2008 2007 2006 2008 2007 2006 ---- ---- ---- ---- ---- ---- (In thousands) (In thousands) Net income $11,558 $9,741 $16,543 $35,692 $31,012 $54,577 Add: Income tax expense 4,976 2,138 9,531 12,709 18,656 30,807 Add: Equity in loss (income) of affiliates, net of tax 2,124 733 (37) 5,344 1,564 (102) Add: Interest expense, net - Capital Trust -- 2,438 2,438 8,585 7,313 7,313 Add: Interest expense 12,840 15,926 16,427 38,017 47,846 48,942 Less: Interest income (38) (555) (1,736) (66) (1,309) (4,983) Add: Other expense -- -- -- -- -- 2,501 Operating income 31,460 30,421 43,166 100,281 105,082 139,055 Add: Depreciation and amortization 13,480 13,310 14,634 41,799 42,492 46,103 ------ ------ ------ ------ ------ ------ Adjusted EBITDA $44,940 $43,731 $57,800 $142,080 $147,574 $185,158 ======= ======= ======= ======== ======== ======== Hearst-Argyle Television, Inc.
Supplemental Disclosures Regarding Non-GAAP Financial Information (continued)
Free Cash Flow
In order to evaluate the operating performance of our business, we use the non-GAAP measure free cash flow. Free cash flow reflects our net cash flow from operating activities less capital expenditures. Free cash flow is a primary measure used not only internally by our management, but externally by our investors, analysts and peers in our industry, to value our operating performance and compare our performance to other companies in our peer group. Our management believes that free cash flow provides investors with useful information concerning cash available to allow us to make strategic acquisitions and investments, service debt, pay dividends, meet tax obligations, and fund ongoing operations and working capital needs. Free cash flow is also an important measure because it allows investors to assess our performance in the same manner that our management assesses our performance.
However, free cash flow is not an alternative to net cash flow provided by operating activities, as calculated and presented in accordance with GAAP, and should not be relied upon as such. Specifically, because free cash flow deducts capital expenditures from net cash flow provided by operating activities, investors and potential investors should consider the types of events and transactions which are not reflected in free cash flow. In addition, our calculation of free cash flow may or may not be consistent with that of other companies. We strongly urge investors and potential investors in our securities to review the reconciliation presented in the table below of free cash flow to net cash flow provided by operating activities, the most directly comparable GAAP financial measure.
The following table provides a reconciliation of net cash flow provided by operating activities to free cash flow in each of the periods presented:
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2008 2007 2006 2008 2007 2006 ---- ---- ---- ---- ---- ---- (In thousands) (In thousands) Net cash provided by operating activities $57,239 $37,115 $65,453 $126,219 $86,732 $154,282 Less capital expenditures 8,579 13,339 38,288 26,705 42,103 38,288 ----- ------ ------ ------ ------ ------ Free cash flow $48,660 $23,776 $27,165 $99,514 $44,629 $115,994 ======= ======= ======= ======= ======= ======== www.hearstargyle.com
First Call Analyst:
FCMN Contact: tcampo@hearst.com
Source: Hearst-Argyle Television, Inc.
CONTACT: Harry Hawks, Executive Vice President & CFO, +1-212-887-6823,
hhawks@hearst.com, or Ellen McClain, Vice President, Finance, +1-212-887-6825,
emcclain@hearst.com, both of Hearst-Argyle Television, Inc.; Tom Campo, Campo
Communications, LLC, +1-212-590-2464, tom@campocomm.com
Web Site: http://www.hearstargyle.com/
Profile: International Entertainment
posted by EntertainmentNews @ 4:54 AM
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