NEW YORK -- Hearst-Argyle Television, Inc.
(NYSE: HTV - News) today announced third quarter earnings of $0.13 per diluted share
compared to $0.32 per diluted share in the third quarter of 2004 and $0.24 per
share in third quarter 2003.
The Company recorded $164 million of total revenue, consistent with
Company guidance provided prior to the occurrence of Hurricane Katrina. Third
quarter results primarily reflect the relative absence of political and
Olympics revenue during the period, and the normal business pattern for
Hearst-Argyle stations in odd-numbered years. Hearst-Argyle's group of
25 owned stations, most of which are established news leaders in their
respective local markets, generated $2.4 million in net political revenue in
the third quarter of 2005, compared to $22.1 million in third quarter 2004.
During third quarter 2004, the Company's 10 NBC affiliates benefited from
$19 million of advertising revenue related to the 2004 summer Olympics.
Lost revenue and incremental expense as a consequence of Hurricane Katrina
resulted in an estimated decrease in earnings per share of $0.02 during the
quarter. Hearst-Argyle owns and operates WDSU-TV, the NBC affiliate serving
New Orleans, the nation's 43rd largest television market. The Hurricane
destroyed WDSU-TV's analog and digital transmitters and significantly
disrupted the station's business operations. The Company is insured for both
property damage and business interruption, which is expected to mitigate the
financial impact of Hurricane Katrina in future periods.
Commenting on the quarter, David Barrett, President and Chief Executive
Officer, said, "Given the record political revenue and the strong Olympics
sales from which we benefited last year, largely concentrated in the third and
fourth quarters, we had anticipated that total revenue and net income would
decline on a year-to-year basis. Adding to our challenges is a weakness in
spending from the automotive sector, our largest advertising category, which
declined 10% during the quarter. Through nine months, automotive category
spending on Hearst-Argyle stations is down 3%. Growth categories during the
quarter included retail, furniture/housewares, pharmaceutical, beverages and
attractions.
"Notwithstanding a current softness in ad spending, our stations are quite
well positioned to achieve solid gains in net revenue and net income in 2006,"
Barrett said. "Our local television business model remains quite attractive,
generating substantial cash flow which enables our Company to support our
stations' growth initiatives, make strategic investments in new media
businesses, and further strengthen our balance sheet."
Regarding Hurricane Katrina, Barrett said, "The response of WDSU, and
indeed our entire Company, to the devastating effect of Hurricane Katrina, has
been one of our finest accomplishments. Our commitment to localism has never
been so important to the people of New Orleans. Helped by so many Hearst-
Argyle colleagues from across the country, WDSU has overcome near-impossible
obstacles to maintain local news service in the market, and to serve citizens
who were forced to evacuate to surrounding regions. Utilizing our well-
established Internet capabilities, WDSU.com has served millions of page views
and hundreds of thousands of video streams, and thanks to the cooperation of
Paxson Communications Corporation, which allowed us to broadcast from their
New Orleans channel 49 facilities, WDSU has continued to serve its community
in an extraordinary way. Those efforts continue as the story of recovery and
restoration unfolds in New Orleans.
"The depth, breadth and financial strength of the Hearst-Argyle station
group has enabled us to provide important assistance and support to WDSU and
its employees and to readily absorb the financial and operational impact that
was a consequence of Katrina," Barrett added.
Commenting on the quarter and on the Company's financial resources,
Executive Vice President and Chief Financial Officer Harry Hawks said, "Our
superior political and Olympics revenue performance in 2004 contributed to a
more pronounced variability in the normal, recurring cyclical pattern of our
business, particularly during the last half of the year - and this year is
certainly no exception. As always, we are being proactive in responding to
these challenges, focusing on revenue growth initiatives and cost management
programs at all of our stations.
"The underlying financial position of the Company remains very strong,"
Hawks noted. "For the nine months ended September 30, 2005, we:
- funded $25.0 million of capital expenditures;
- repurchased 374,827 shares of common stock for an aggregate amount of
$9.4 million;
- paid $19.5 million of dividends on common stock;
- paid $7.3 million of dividends on the convertible preferred securities
of our subsidiary Capital Trust;
- redeemed $11.3 million of our preferred stock;
- funded $18.9 million in pension contributions;
- funded $6.4 million of new strategic investments; and, all the while, we
- grew our cash balances by $34.5 million, from $92.2 million to
$126.7 million.
"This balanced use of our cash flow was accomplished with no increase in
debt balance, maintaining for us a low level of leverage and preserving
excellent financial flexibility and liquidity in the Company," Hawks added.
Also during the quarter, The Hearst Corporation purchased 544,068 shares
of Hearst-Argyle Series A Common Stock on the open market for approximately
$13.4 million, bringing their nine-month totals to 1.7 million shares and
$43.6 million. Since May 1998, Hearst has purchased approximately
19.5 million shares. According to its September 28, 2005, amended 13-D filing
with the SEC, the Hearst board of directors approved an increase in its
purchase authorization from 20 million to 25 million shares. Therefore, its
current remaining authorization is approximately 5.5 million shares. As of
September 30, 2005, The Hearst Corporation owned approximately 69.4% of
Hearst-Argyle's total shares outstanding.
Table of Net Political and Olympics Revenue
To provide additional basis for understanding the recurring cyclical
pattern of revenue, the following table reflects quarterly and annual GAAP net
political and Olympics-related revenue earned by the Company during 2002,
2003, 2004 and for the first nine months of 2005, with estimates for fourth
quarter/full-year 2005:
(GAAP net revenue; $ in millions)
Political
2005 2004 2003 2002
1Q $ 0.7 $ 10.1 $ 0.6 $ 4.8
2Q $ 2.3 $ 12.0 $ 2.7 $ 8.1
3Q $ 2.4 $ 22.1 $ 5.5 $ 21.3
4Q $ 3.6 est. $ 42.5 $ 9.3 $ 39.1
Annual $ 9.1 est. $ 86.7 $ 18.1 $ 73.3
(GAAP; $ in millions)
Olympics
2005 2004 * 2003 2002 *
Annual $ 0 $ 19.0 $ 0 $ 15.1
* Olympics advertising in 2004 occurred in the third quarter, and in 2002
in the first quarter.
Results for the quarter ended September 30, 2005 versus September 30, 2004
The Company recorded total revenue of $164.2 million compared to
$194.0 million, a decrease of $29.8 million or 15%. The decrease largely
reflects the normal cyclical absence of political and Olympics revenue and was
aggravated by the current weakness in the auto category. The Company recorded
a $19.7 million decrease in net-political revenue, a $19 million decrease in
Olympic revenue, and a $2.9 million decrease in network compensation as
indicated in prior guidance. Partially offsetting the decreases was an
increase of $2.3 million in retransmission consent revenue due to the
successful completion of negotiations with certain cable and satellite
companies. Also, six of the Company's 10 largest core ad categories increased
ad spending during the quarter.
The Company recorded salaries, benefits and other operating costs of
$94.1 million compared to $89.4 million, an increase of $4.7 million or 5%,
inclusive of approximately $1.7 million of incremental expense resulting from
Hurricane Katrina, such as additional bad debt, overtime, temporary security
personnel, travel and lodging. Excluding incremental hurricane expenses,
salaries, benefits and other operating costs increased 3%. The Company wrote
off the $2.4 million net book value of the destroyed property and recorded a
$2.4 million insurance receivable as of September 30, 2005, which offset the
loss that would otherwise have impacted the income statement.
Results for the nine months ended September 30, 2005 versus September 30,
2004
Nine-month comparisons reflect the acquisition of WMTW-TV, the ABC
affiliate serving Portland, Maine, as of July 1, 2004. During the nine months
ended September 30, 2005, the Company recorded total revenue of $514.9 million
compared to $558.8 million, a decrease of $43.9 million or 8%. The variance
results primarily from a $38.7 million decrease in net-political revenue and a
$19 million decrease in Olympics revenue. In addition, network compensation
declined $7.6 million. Ad spending from five of the 10 largest core
advertising categories increased, partially offsetting decreases in other
categories, including automotive. Retransmission consent revenue increased
$3.8 million.
The Company recorded salaries, benefits and other operating costs of
$273.3 million compared to $261.2 million, an increase of $12.1 million or 5%.
The increase is due mainly to higher payroll, pension and benefits expense, as
well as incremental hurricane expense. Excluding incremental hurricane
expenses, salaries, benefits and other operating costs increased 4%.
Earnings per share for the nine months ended September 30, 2005 increased
to $0.97 from $0.90 primarily as a result of a reduction in income tax
expense. In second quarter 2005, the Company recorded an income tax benefit as
a result of the settlement of certain tax return examinations and a change in
Ohio tax law.
Outlook
"Looking ahead to fourth quarter," Hawks said, "we expect to record net
revenue in the range of $186 million to $190 million and earnings per share in
the range of $0.24 to $0.27. This would result in 2005 full-year revenue in
the range of $701 million to $705 million and earnings per fully diluted share
of $1.20 to $1.23.
"Last year our stations generated $42.5 million of net political revenue
during the fourth quarter and although we are benefiting from political issue
advertising in Sacramento, it is modest in comparison to the biennial
political revenue generated last year.
"The outlook for 2006 is positive," Hawks noted. "During the first
quarter our 13 ABC affiliates will broadcast the Super Bowl and our 10 NBC
affiliates will air the winter Olympics. Also, political revenue is expected
to be strong in 2006, with 15 Senate races and 18 gubernatorial races to be
contested in our markets."
Additional Guidance on Selected Income Statement Items
Salaries, benefits and other operating costs ("SB&O") are expected to
increase approximately 1% to slightly more than $95 million for fourth quarter
2005, and to approximately $369 million for full-year 2005, for a 4% full-year
increase vs. 2004.
Amortization of program rights for the fourth quarter and full-year 2005
is expected to be approximately $15.3 million and $61 million, respectively,
compared to $18.4 million and $63.8 million, respectively, for fourth-quarter
and full-year 2004.
Depreciation and amortization ("D&A") expense is projected to be
approximately $13.1 million for the fourth quarter, flat with last year, and
$52 million for the year, an increase of 3% from full-year 2004, in line with
prior guidance.
Corporate, general and administrative expenses ("G&A") for fourth quarter
and full-year 2005 are estimated to be approximately $6.4 million and
$24 million, respectively, in line with prior guidance.
The effective tax rate is expected to be 39% for the fourth quarter.
Capital expenditures, which were $25.0 million for the nine months, are
expected to be approximately $40 million in 2005. The Company has
substantially completed its DTV conversion in accordance with FCC
requirements.
Interest Expense, net, is projected to be approximately $15.2 million for
the fourth quarter and $63.0 million for the year, in line with prior
guidance, compared to $15.5 million for fourth quarter 2004 and $63.7 million
for full-year 2004.
Interest expense, net -- Capital Trust for the full year is projected to
be approximately $2.4 million for the fourth quarter and $9.8 million for the
year, unchanged from prior guidance, compared to $7.4 million and
$18.7 million, respectively, in fourth quarter and full-year 2004.
Equity in (income) loss of affiliates, net: In the fourth quarter, the
Company expects to report, on a net basis, no income or loss in equity of
affiliates.
Non-GAAP Measures
For a review of non-GAAP financial measurements frequently used in
broadcast industry analysis, and a reconciliation to the GAAP financial
results cited in this news release and accompanying condensed consolidated
statements of income, please see the accompanying Supplemental Disclosures
table. An updated Supplemental Disclosures reconciliation table will also be
posted quarterly to our Web site, in the Corporate Information section under
"GAAP reconciliations."
Third-Quarter Conference Call
Hearst-Argyle will host a conference call at 9:30 a.m., New York City
time, today. Senior management will discuss the financial results and respond
to questions. A live audio webcast of the call will be accessible to the
public on the Company's Web site, http://www.hearstargyle.com. A recording of
the webcast will subsequently be archived on the site. The conference call
number is (800) 857-9600 for domestic calls and (773) 756-4629 for
international calls; the conference can be accessed with the identification
"Hearst-Argyle." A replay of the call will be available through November 3 at
(866) 448-5643 or (203) 369-1188 (international). No pass code is necessary
for the replay.
About Hearst-Argyle
Hearst-Argyle Television, Inc. owns 25 television stations, and manages an
additional three television and two radio stations, in geographically diverse
U.S. markets. The Company's television stations reach approximately 18% of
U.S. TV households, making it one of the largest U.S. television station
groups. The Company owns 10 NBC affiliates, and is the second-largest NBC
affiliate owner. Hearst-Argyle also owns 12 ABC-affiliated stations, and
manages an additional ABC station owned by The Hearst Corporation, and is the
largest ABC affiliate group. The Company also owns two CBS affiliates and a WB
affiliate, and manages a UPN affiliate and an independent station.
Hearst-Argyle's stations are recognized news leaders. The station group
has been honored with three consecutive Walter Cronkite Awards, presented by
the University of Southern California's Annenberg School for Communication,
for excellence in television political journalism, and is the only group to
have received the award since its inception. Hearst-Argyle stations also are
the recipients of many of television's other highest awards for excellence in
journalism, programming and community service, including the Peabody, the du
Pont-Columbia Journalism Award, the Sigma Delta Chi Award, the Gabriel, the Ad
Council Silver Bell, the National Headliner Award, the Edward R. Murrow Award
and the Emmy.
Hearst-Argyle also is a leader in the convergence of local broadcast
television and the Internet through its partnership with Internet Broadcasting
(http://www.ibsys.com ), and in the application of digital broadcast spectrum
for new local informational services through its Weather Plus partnership with
NBC and various NBC affiliate groups.
Hearst-Argyle is majority owned by The Hearst Corporation. 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-), each with a stable outlook. The company's Web
address is http://www.hearstargyle.com .
FORWARD-LOOKING STATEMENTS
This news release includes forward-looking statements. We based 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 phrases such as "anticipate," "will," "likely," "plan,"
"believe," "expect," "intend," "project" 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, operating expenses, 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 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;
- Competition in the broadcast television markets we serve;
- Our ability to obtain quality programming for our television stations;
- Successful integration of television stations we acquire;
- Pricing fluctuations in local and national advertising;
- Changes in national and regional economies;
- Our ability to service and refinance our outstanding debt; and
- Volatility in programming costs, industry consolidation, technological
developments, and major world events.
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.
Consolidated Statements of Income
(Unaudited)
Three Months Ended
September 30
2005 2004 2003
(In thousands, except per share
data)
Total revenue (2) $ 164,173 $ 194,011 $ 167,288
Station operating expenses:
Salaries, benefits and other
operating costs 94,050 89,411 82,226
Amortization of program rights 15,155 15,352 15,713
Depreciation and amortization 12,427 12,464 13,128
Corporate, general and administrative
expenses 6,003 6,048 5,050
Operating income 36,538 70,736 51,171
Interest expense, net 15,413 15,832 17,009
Interest expense, net - Capital Trust 2,438 3,750 3,750
Other expense -- 2,500 --
Equity in income of affiliates, net
(3) (457) (503) (228)
Income before income taxes 19,144 49,157 30,640
Income taxes 7,466 18,729 7,659
Net income 11,678 30,428 22,981
Less preferred stock dividends -- 272 298
Income applicable to common
stockholders $ 11,678 $ 30,156 $ 22,683
Income per common share-basic $ 0.13 $ 0.32 $ 0.24
Number of common shares used in the
calculation 92,867 92,938 92,615
Income per common share-diluted $ 0.13 $ 0.32 $ 0.24
Number of common shares used in the
calculation (4) 93,254 101,263 93,046
Dividends per common share declared $ 0.07 $ 0.06 $ --
Supplemental Financial Data:
Net cash provided by operating
activities $ 42,936 $ 51,941 $ 62,344
Program payments $ 15,721 $ 15,462 $ 15,453
Capital expenditures $ 8,223 $ 9,171 $ 5,246
Cash paid for income taxes, net of
refunds (5) $ 7,830 $ 22,592 $ 26
Cash $ 126,694 $ 126,584 $ 21,854
Debt, net of cash $ 755,534 $ 755,862 $ 860,766
Note payable to Capital Trust $ 134,021 $ 206,186 $ 206,186
Common shares outstanding, net of
treasury shares 92,911 92,733 92,637
Supplemental Non-GAAP Data (*) :
Adjusted EBITDA $ 48,965 $ 83,200 $ 64,299
Free cash flow $ 34,713 $ 42,770 $ 57,098
Nine Months Ended
September 30
2005 (1) 2004 (1) 2003 (1)
(In thousands, except per share
data)
Total revenue (2) $ 514,905 $ 558,833 $ 496,169
Station operating expenses:
Salaries, benefits and other
operating costs 273,333 261,215 243,087
Amortization of program rights 45,648 45,481 47,635
Depreciation and amortization 38,861 37,315 37,224
Corporate, general and administrative
expenses 17,559 17,750 14,808
Operating income 139,504 197,072 153,415
Interest expense, net 46,876 48,253 51,769
Interest expense, net - Capital Trust 7,313 11,250 11,250
Other expense -- 2,500 --
Equity in income of affiliates, net
(3) (1,474) (1,165) (462)
Income before income taxes 86,789 136,234 90,858
Income taxes (3,579) 51,905 30,542
Net income 90,368 84,329 60,316
Less preferred stock dividends 2 816 913
Income applicable to common
stockholders $ 90,366 $ 83,513 $ 59,403
Income per common share-basic $ 0.97 $ 0.90 $ 0.64
Number of common shares used in the
calculation 92,842 92,976 92,536
Income per common share-diluted $ 0.96 $ 0.89 $ 0.64
Number of common shares used in the
calculation (4) 98,388 101,471 92,920
Dividends per common share declared $ 0.21 $ 0.18 $ --
Supplemental Financial Data:
Net cash provided by operating
activities $ 97,806 $ 141,000 $ 125,546
Program payments $ 47,467 $ 45,848 $ 46,614
Capital expenditures $ 25,014 $ 26,138 $ 19,849
Cash paid for income taxes, net of
refunds (5) $ 35,717 $ 41,073 $ 11,997
Cash $ 126,694 $ 126,584 $ 21,854
Debt, net of cash $ 755,534 $ 755,862 $ 860,766
Note payable to Capital Trust $ 134,021 $ 206,186 $ 206,186
Common shares outstanding, net of
treasury shares 92,911 92,733 92,637
Supplemental Non-GAAP Data (*) :
Adjusted EBITDA $ 178,365 $ 234,387 $ 190,639
Free cash flow $ 72,792 $ 114,862 $ 105,697
(*) See Supplemental Disclosures Regarding Non-GAAP Financial Information
at the end of this news release.
See accompanying notes on the following pages.
Notes to Consolidated Statements of Income
(1) Includes (i) the results of the Company's 24 (which excludes WMTW-TV)
television stations which were owned for the entire period presented;
(ii) the results of operations of WMTW-TV, which was acquired on July
1, 2004, for all periods presented that ended after the acquisition
date; and (iii) the management fees derived by the three television
and two radio stations managed by the Company for the entire period
presented.
(2) Total revenue is presented net of agency commission expense. Also,
political revenue which is referenced in the body of the earnings
announcement is shown net of agency commissions.
(3) Represents the Company's equity interests in the operating results of
(i) entities related to Internet Broadcasting Systems, Inc., (ii)
NBC/Hearst-Argyle Syndication, LLC and (iii) Ripe Digital
Entertainment.
(4) For the three months ended September 30, 2005, 5,127,882 shares of
Series A Common Stock to be issued upon the conversion of Series B
Redeemable Convertible Preferred Securities related to our Capital
trust are not included in the number of common shares used in the
calculation of diluted EPS because to do so would have been
antidilutive. For the nine months ended September 30, 2005, diluted
shares include 5,127,882 shares of Series A Common Stock to be issued
upon the conversion of Series B Redeemable Convertible Preferred
Securities. For the three and nine months ended months ended September
30, 2004, 2,807,186 shares of Series A Convertible Preferred
Securities and 5,127,882 common shares of Series B Redeemable
Convertible Preferred Securities were included in the calculation of
Diluted EPS. On December 31, 2004, we redeemed all of our outstanding
Series A Debentures and the Capital Trust concurrently redeemed all
outstanding Series A Redeemable Convertible Preferred Securities.
(5) Cash paid for income taxes is presented net of tax refunds received by
the Company.
Supplemental Disclosures Regarding Non-GAAP Financial Information
Adjusted EBITDAIn 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, net; 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, net, 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 taxes. 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.
- Equity in (income) or loss 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 income and 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
September 30,
2005 2004 2003
(In thousands)
(Unaudited)
Net income $ 11,678 $ 30,428 $ 22,981
Add: Income taxes 7,466 18,729 7,659
Add: Equity in (income) or loss of
affiliates, net (457) (503) (228)
Add: Other expense -- 2,500 --
Add: Interest expense, net - Capital
Trust 2,438 3,750 3,750
Add: Interest expense, net 15,413 15,832 17,009
Operating income 36,538 70,736 51,171
Add: Depreciation and amortization 12,427 12,464 13,128
Adjusted EBITDA $ 48,965 $ 83,200 $ 64,299
Nine Months Ended
September 30,
2005 2004 2003
(In thousands)
(Unaudited)
Net income $ 90,368 $ 84,329 $ 60,316
Add: Income taxes (3,579) 51,905 30,542
Add: Equity in (income) or loss of
affiliates, net (1,474) (1,165) (462)
Add: Other expense -- 2,500 --
Add: Interest expense, net - Capital
Trust 7,313 11,250 11,250
Add: Interest expense, net 46,876 48,253 51,769
Operating income 139,504 197,072 153,415
Add: Depreciation and amortization 38,861 37,315 37,224
Adjusted EBITDA $ 178,365 $ 234,387 $ 190,639
Free Cash FlowIn 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
September 30,
2005 2004 2003
(In thousands)
(Unaudited)
Net cash flow provided by operating
activities $ 42,936 $ 51,941 $ 62,344
Less capital expenditures 8,223 9,171 5,246
Free cash flow $ 34,713 $ 42,770 $ 57,098
Nine Months Ended
September 30,
2005 2004 2003
(In thousands)
(Unaudited)
Net cash flow provided by operating
activities $ 97,806 $ 141,000 $ 125,546
Less capital expenditures 25,014 26,138 19,849
Free cash flow $ 72,792 $ 114,862 $ 105,697
