________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
---------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 2004
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to ___________________
Commission file number: 333-02302
ALLBRITTON COMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 74-1803105
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
808 Seventeenth Street, N.W.
Suite 300
Washington, D.C. 20006-3910
(Address of principal executive offices)
Registrant's telephone number, including area code: 202-789-2130
---------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X (1)
-------- -------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
-------- -------
---------
Number of shares of Common Stock outstanding as of February 10, 2005:
20,000 shares.
(1) Although the Company has not been subject to such filing requirements for
the past 90 days, it has filed all reports required to be filed by Section
15(d) of the Securities Exchange Act of 1934 during the preceding 12
months. Pursuant to Section 15(d) of the Securities Exchange Act of 1934,
the Company's duty to file reports is automatically suspended as a result
of having fewer than 300 holders of record of each class of its debt
securities outstanding as of October 1, 2004, but the Company has agreed
under the terms of certain long-term debt to continue these filings in the
future.
________________________________________________________________________________
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING ITEM 2 "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THAT ARE NOT HISTORICAL FACTS AND INVOLVE A
NUMBER OF RISKS AND UNCERTAINTIES. THERE ARE A NUMBER OF FACTORS THAT COULD
CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN SUCH
FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, WITHOUT LIMITATION, OUR
OUTSTANDING INDEBTEDNESS AND OUR HIGH DEGREE OF LEVERAGE; THE RESTRICTIONS
IMPOSED ON US BY THE TERMS OF OUR INDEBTEDNESS; THE HIGH DEGREE OF COMPETITION
FROM BOTH OVER-THE-AIR BROADCAST STATIONS AND PROGRAMMING ALTERNATIVES SUCH AS
CABLE TELEVISION, WIRELESS CABLE, IN-HOME SATELLITE DISTRIBUTION SERVICE,
PAY-PER-VIEW SERVICES AND HOME VIDEO AND ENTERTAINMENT SERVICES; THE IMPACT OF
NEW TECHNOLOGIES; CHANGES IN FEDERAL COMMUNICATIONS COMMISSION ("FCC")
REGULATIONS; DECREASES IN THE DEMAND FOR ADVERTISING DUE TO WEAKNESS IN THE
ECONOMY; AND THE VARIABILITY OF OUR QUARTERLY RESULTS AND OUR SEASONALITY.
ALL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY ARE
EXPRESSLY QUALIFIED BY THE FOREGOING CAUTIONARY STATEMENTS. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS WHICH
REFLECT MANAGEMENT'S VIEW ONLY AS OF THE DATE HEREOF.
ALLBRITTON COMMUNICATIONS COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2004
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations and Retained Earnings
for the Three Months Ended December 31, 2003 and 2004......... 1
Consolidated Balance Sheets as of September 30, 2004 and
December 31, 2004............................................. 2
Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 2003 and 2004.............................. 3
Notes to Interim Consolidated Financial Statements............ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 12
Item 4. Controls and Procedures....................................... 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................. 13
Item 4. Submission of Matters to a Vote of Security Holders........... 13
Item 6. Exhibits...................................................... 13
Signatures.............................................................. 14
Exhibit Index........................................................... 15
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Dollars in thousands)
(unaudited)
Three Months Ended
December 31,
-------------------
2003 2004
---- ----
Operating revenues, net........................... $ 54,796 $ 54,049
------- -------
Television operating expenses, excluding
depreciation and amortization................ 33,786 32,268
Depreciation and amortization..................... 2,332 2,204
Corporate expenses................................ 1,275 1,409
------- -------
37,393 35,881
Operating income.................................. 17,403 18,168
------- -------
Nonoperating income (expense)
Interest income
Related party............................ 19 91
Other.................................... 5 12
Interest expense............................. (9,177) (9,140)
Other, net................................... (352) (343)
------- -------
(9,505) (9,380)
Income before income taxes........................ 7,898 8,788
Provision for income taxes........................ 2,901 3,582
------- -------
Net income........................................ 4,997 5,206
Retained earnings, beginning of period............ (4,964) 8,617
------- -------
Retained earnings, end of period.................. $ 33 $ 13,823
======= =======
See accompanying notes to interim consolidated financial statements.
1
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
September 30, 2004
2004 (unaudited)
------------- ------------
Assets
Current assets
Cash and cash equivalents........................... $ 7,257 $ 4,553
Accounts receivable, net............................ 36,181 40,105
Program rights...................................... 14,320 10,541
Deferred income taxes............................... 897 897
Other............................................... 1,842 2,228
-------- --------
Total current assets........................... 60,497 58,324
Property, plant and equipment, net........................ 49,560 47,988
Intangible assets, net.................................... 122,815 122,774
Deferred financing costs and other........................ 9,035 8,662
Cash surrender value of life insurance.................... 11,435 11,556
Program rights............................................ 636 492
-------- --------
$ 253,978 $ 249,796
======== ========
Liabilities and Stockholder's Investment
Current liabilities
Current portion of long-term debt................... $ 162 $ 163
Accounts payable.................................... 1,974 3,438
Accrued interest payable............................ 10,401 1,741
Program rights payable.............................. 17,592 14,721
Accrued employee benefit expenses................... 4,264 4,002
Other accrued expenses.............................. 7,216 7,579
-------- --------
Total current liabilities...................... 41,609 31,644
Long-term debt............................................ 465,513 461,530
Program rights payable.................................... 1,169 845
Deferred rent and other................................... 3,372 4,960
Accrued employee benefit expenses......................... 1,834 1,885
Deferred income taxes..................................... 21,657 22,535
-------- --------
Total liabilities.............................. 535,154 523,399
-------- --------
Stockholder's investment
Preferred stock, $1 par value, 1,000 shares
authorized, none issued.......................... -- --
Common stock, $.05 par value, 20,000 shares
authorized, issued and outstanding............... 1 1
Capital in excess of par value...................... 49,631 49,631
Retained earnings................................... 8,617 13,823
Distributions to owners, net........................ (339,425) (337,058)
-------- --------
Total stockholder's investment................... (281,176) (273,603)
-------- --------
$ 253,978 $ 249,796
======== ========
See accompanying notes to interim consolidated financial statements.
2
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
Three Months Ended
December 31,
--------------------
2003 2004
---- ----
Cash flows from operating activities:
Net income....................................................... $ 4,997 $ 5,206
------- -------
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization................................. 2,332 2,204
Other noncash charges......................................... 374 384
Provision for doubtful accounts............................... 139 126
Gain on disposal of assets.................................... (3) --
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable..................................... (5,022) (4,050)
Program rights.......................................... 5,089 3,923
Other current assets.................................... 303 (386)
Other noncurrent assets................................. (249) (74)
Increase (decrease) in liabilities:
Accounts payable........................................ 1,118 1,464
Accrued interest payable................................ (8,790) (8,660)
Program rights payable.................................. (4,812) (3,195)
Accrued employee benefit expenses....................... (425) (211)
Other accrued expenses.................................. 910 363
Deferred rent and other liabilities..................... (187) 1,588
Deferred income taxes................................... 907 878
------- -------
(8,316) (5,646)
------- -------
Net cash used in operating activities................... (3,319) (440)
------- -------
Cash flows from investing activities:
Capital expenditures............................................. (1,434) (591)
Proceeds from disposal of assets................................. 3 --
------- -------
Net cash used in investing activities................... (1,431) (591)
------- -------
Cash flows from financing activities:
Principal payments on capital lease obligations.................. (123) (40)
Draws (repayments) under line of credit, net..................... 11,500 (4,000)
Deferred financing costs......................................... (73) --
Distributions to owners, net of certain charges.................. (6,350) (9,754)
Repayments of distributions to owners............................ -- 12,121
------- -------
Net cash provided by (used in) financing activities..... 4,954 (1,673)
------- -------
Net increase (decrease) in cash and cash equivalents................... 204 (2,704)
Cash and cash equivalents, beginning of period......................... 3,278 7,257
------- -------
Cash and cash equivalents, end of period............................... $ 3,482 $ 4,553
======= =======
See accompanying notes to interim consolidated financial statements.
3
ALLBRITTON COMMUNICATIONS COMPANY
(an indirectly wholly-owned subsidiary of Perpetual Corporation)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share information)
(unaudited)
NOTE 1 - The accompanying unaudited interim consolidated financial statements of
Allbritton Communications Company (an indirectly wholly-owned subsidiary of
Perpetual Corporation) and its subsidiaries (collectively, the "Company") have
been prepared pursuant to instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in conformity with generally
accepted accounting principles have been omitted or condensed where permitted by
regulation. In management's opinion, the accompanying financial statements
reflect all adjustments, which were of a normal recurring nature, and
disclosures necessary for a fair presentation of the consolidated financial
statements for the interim periods presented. The results of operations for the
three months ended December 31, 2004 are not necessarily indicative of the
results that can be expected for the entire fiscal year ending September 30,
2005. The interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended September 30, 2004 which are contained in the Company's Form
10-K.
NOTE 2 - The carrying value of the Company's indefinite lived intangible assets,
consisting of its broadcast licenses, at September 30, 2004 and December 31,
2004 was $122,290. In September 2004, the Securities and Exchange Commission
("SEC") announced that the "residual method" should no longer be used to value
intangible assets other than goodwill. Rather, a "direct value method" should be
used to determine the fair value of all intangible assets for purposes of
impairment testing, including those assets previously valued using the residual
method. Any impairment resulting from application of a direct value method
should be reported as a cumulative effect of a change in accounting principle.
This announcement will be effective no later than the beginning of the Company's
fiscal year ending September 30, 2006. The Company's indefinite lived intangible
assets are valued using a residual method, and the Company is currently
evaluating the impact, if any, that a direct value method valuation may have on
its financial position or results of operations.
The carrying value of the Company's other intangible assets, consisting of
favorable terms on contracts and leases, was as follows:
September 30, December 31,
2004 2004
------------- ------------
Gross carrying amount................... $ 6,174 $ 6,174
Less accumulated amortization........... (5,649) (5,690)
------ ------
Net carrying amount..................... $ 525 $ 484
====== ======
Amortization expense was $42 and $41 for the three-months ended December 31,
2003 and 2004, respectively.
4
NOTE 3 - For the three months ended December 31, 2003 and 2004, distributions to
owners and related activity consisted of the following:
Federal and
Distributions Virginia state Net
to Owners Income Tax Distributions
and Dividends Receivable to Owners
------------- -------------- -------------
Balance as of September 30, 2003.............. $ 320,468 $ -- $ 320,468
Cash advances to Perpetual.................... 4,270 4,270
Charge for federal and state income taxes..... (1,860) (1,860)
Payment of income taxes....................... 3,940 3,940
-------- ------ --------
Balance as of December 31, 2003............... $ 324,738 $ 2,080 $ 326,818
======== ====== ========
Balance as of September 30, 2004.............. $ 339,425 $ -- $ 339,425
Cash advances to Perpetual.................... 7,185 7,185
Repayment of cash advances to Perpetual....... (12,121) (12,121)
Charge for federal and state income taxes..... (2,343) (2,343)
Payment of income taxes....................... 4,912 4,912
-------- ------ --------
Balance as of December 31, 2004............... $ 334,489 $ 2,569 $ 337,058
======== ====== ========
The average amount of non-interest bearing advances outstanding was $317,319 and
$333,035 during the three months ended December 31, 2003 and 2004, respectively.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(dollars in thousands except share information)
Overview
As used herein, the terms the "Company," "our," "us," or "we" refer to
Allbritton Communications Company and its subsidiaries and "ACC" refers solely
to Allbritton Communications Company.
We own ABC network-affiliated television stations serving seven geographic
markets: WJLA-TV in Washington, D.C.; WCFT-TV in Tuscaloosa, Alabama, WJSU-TV in
Anniston, Alabama and WBMA-LP, a low power television station licensed to
Birmingham, Alabama (we operate WCFT-TV and WJSU-TV in tandem with WBMA-LP
serving the viewers of the Birmingham, Tuscaloosa and Anniston market as a
single programming source); WHTM-TV in Harrisburg, Pennsylvania; KATV in Little
Rock, Arkansas; KTUL in Tulsa, Oklahoma; WSET-TV in Lynchburg, Virginia; and
WCIV in Charleston, South Carolina. We also provide 24-hour per day basic cable
television programming to the Washington, D.C. market, through NewsChannel 8,
primarily focused on regional and local news for the Washington, D.C.
metropolitan area. The operations of NewsChannel 8 are integrated with WJLA.
Our advertising revenues are generally highest in the first and third quarters
of each fiscal year, due in part to increases in retail advertising in the
period leading up to and including the holiday season and active advertising in
the spring. The fluctuation in our operating results is generally related to
fluctuations in the revenue cycle. In addition, advertising revenues are
generally higher during election years due to spending by political candidates,
which is typically heaviest during our first and fourth fiscal quarters.
Results of Operations
Set forth below are selected consolidated financial data for the three months
ended December 31, 2003 and 2004 and the percentage change between the periods:
Three Months Ended
December 31,
------------------- Percent
2003 2004 Change
---- ---- -------
Operating revenues, net .............. $ 54,796 $ 54,049 -1.4%
Total operating expenses.............. 37,393 35,881 -4.0%
------- -------
Operating income...................... 17,403 18,168 4.4%
Nonoperating expenses, net............ 9,505 9,380 -1.3%
Income tax provision.................. 2,901 3,582 23.5%
------- -------
Net income............................ $ 4,997 $ 5,206 4.2%
======= =======
Operating cash flow............... $ 19,735 $ 20,372 3.2%
======= =======
- -------
Operating cash flow is not a measure of performance calculated in
accordance with GAAP. For a definition of operating cash flow and a
reconciliation of operating cash flow to operating income, please refer to
"Operating Cash Flow".
6
Net Operating Revenues
The following table depicts the principal types of operating revenues, net of
agency commissions, earned by us for the three months ended December 31, 2003
and 2004, and the percentage contribution of each to our total broadcast
revenues, before fees:
Three Months Ended December 31,
2003 2004
------------------ ------------------
Dollars Percent Dollars Percent
------- ------- ------- -------
Local and national.................. $ 49,070 87.6 $ 45,535 82.4
Political........................... 493 0.9 3,422 6.2
Network compensation................ 1,318 2.3 896 1.6
Trade and barter.................... 1,666 3.0 1,548 2.8
Other revenue....................... 3,493 6.2 3,863 7.0
------- ----- ------- -----
Broadcast revenues...................... 56,040 100.0 55,264 100.0
===== =====
Fees................................ (1,244) (1,215)
------- -------
Operating revenues, net ................ $ 54,796 $ 54,049
======= =======
- ----------
Represents sale of advertising time to local and national advertisers,
either directly or through agencies representing such advertisers, net of
agency commission.
Represents sale of advertising time to political advertisers.
Represents payment by networks for broadcasting or promoting network
programming.
Represents value of commercial time exchanged for goods and services
(trade) or syndicated programs (barter).
Represents other revenue, principally from cable and direct broadcast
satellite subscriber fees, the sales of University of Arkansas sports
programming to advertisers and radio stations as well as receipts from
tower rental and production of commercials.
Represents fees paid to national sales representatives and fees paid for
music licenses.
Net operating revenues for the three months ended December 31, 2004 totaled
$54,049, a decrease of $747, or 1.4%, when compared to net operating revenues of
$54,796 for the three months ended December 31, 2003.
Local and national advertising revenues decreased $3,535, or 7.2%, during the
three months ended December 31, 2004 versus the comparable period in the prior
year. The decrease for the three months ended December 31, 2004 primarily
reflected displacement of local and national advertisers during the peak
political advertising month of October 2004 as well as a decline in the
Washington, D.C. local and national advertising market.
Political advertising revenues increased by $2,929 to $3,422 for the three
months ended December 31, 2004 as compared to the three months ended December
31, 2003. Political advertising revenue increased in all of our markets due to
several high-profile local political races as well as the national presidential
election in November 2004, which generated substantial revenue in the first
quarter of Fiscal 2005 with no comparable races or elections taking place during
the first quarter of Fiscal 2004.
Network compensation revenue decreased $422, or 32.0%, during the three months
ended December 31, 2004 as compared to the same period in the prior year. The
decrease reflects reduced network compensation for the first quarter of Fiscal
2005 related to our nearly-completed negotiations for participation in ABC's
current National Football League (NFL) programming rights arrangement with its
affiliates. Similar to previous such arrangements, the current arrangement
principally involves the
7
exchange of additional primetime inventory for reduced network compensation.
This arrangement is expected to result in similar reductions in network
compensation for the remaining quarters of Fiscal 2005 as compared to the same
periods in the prior year.
No individual advertiser accounted for more than 5% of our broadcast revenues
during the three months ended December 31, 2003 or 2004.
Total Operating Expenses
Total operating expenses for the three months ended December 31, 2004 totaled
$35,881, a decrease of $1,512, or 4.0%, compared to total operating expenses of
$37,393 for the three-month period ended December 31, 2003. This net decrease
consisted of a decrease in television operating expenses, excluding depreciation
and amortization, of $1,518, a decrease in depreciation and amortization of $128
and an increase in corporate expenses of $134.
Television operating expenses, excluding depreciation and amortization,
decreased $1,518, or 4.5%, for the three months ended December 31, 2004 as
compared to the comparable period in Fiscal 2004. This decrease was due
primarily to reduced syndicated programming costs resulting from renewals of
several of our existing programs. Similar reductions in syndicated programming
expenses are expected for the remaining quarters of Fiscal 2005 as compared to
the same periods in the prior year.
Operating Income
For the three months ended December 31, 2004, operating income of $18,168
increased $765, or 4.4%, when compared to operating income of $17,403 for the
three months ended December 31, 2003. For the three months ended December 31,
2004, the operating margin increased to 33.6% from 31.8% for the comparable
period in Fiscal 2004. The increases in operating income and margin during the
three months ended December 31, 2004 were primarily the result of decreased
total operating expenses, partially offset by decreased net operating revenues
as discussed above.
Operating Cash Flow
Operating cash flow of $20,372 for the three months ended December 31, 2004
increased $637, or 3.2%, as compared to $19,735 for the three-month period ended
December 31, 2003. The increase during the three months ended December 31, 2004
was primarily the result of decreased television operating expenses, excluding
depreciation and amortization, partially offset by decreased net operating
revenues as discussed above.
We define operating cash flow as operating income plus depreciation and
amortization. Although operating cash flow is not a measure of performance
calculated in accordance with generally accepted accounting principles ("GAAP"),
we believe it is useful for investors in our debt securities and users of our
financial statements in understanding our results of operations. Management
believes that operating cash flow is useful because it is widely used in the
broadcasting industry as a measure of operating performance and is used by
investors and by analysts who report on the performance of broadcast companies.
Operating cash flow also is generally recognized as a tool in applying valuation
methodologies for companies in the media industry. In addition, management
closely monitors operating cash flow in determining our ability to maintain
compliance with certain financial covenants of our indebtedness. Nevertheless,
you should not consider operating cash flow in isolation from or as a substitute
for operating income, net income, cash flow from operating activities and other
operations or cash flow statement data prepared in accordance with GAAP, or as a
measure of performance or
8
liquidity prepared in accordance with GAAP. Moreover, because operating cash
flow is not a measure calculated in accordance with GAAP, this performance
measure is not necessarily comparable to similarly titled measures employed by
other companies.
The following table provides a reconciliation of operating cash flow (a non-GAAP
financial measure) to operating income (as presented in our statements of
operations):
Three Months Ended December 31,
-------------------------------
2003 2004
---- ----
Operating income......................... $ 17,403 $ 18,168
Add:
Depreciation and amortization............ 2,332 2,204
------- -------
Operating cash flow...................... $ 19,735 $ 20,372
======= =======
Nonoperating Expenses, Net
Interest Expense. Interest expense of $9,140 for the three months ended December
31, 2004 decreased $37, or 0.4%, as compared to $9,177 for the three-month
period ended December 31, 2003. The average balance of debt outstanding,
including capital lease obligations, for the three months ended December 31,
2003 and 2004 was $470,285 and $463,223, respectively, and the weighted average
interest rate on debt was 7.64% and 7.70% for the three months ended December
31, 2003 and 2004, respectively.
Income Taxes
The provision for income taxes for the three months ended December 31, 2004
totaled $3,582, an increase of $681, or 23.5%, as compared to the provision for
income taxes of $2,901 for the three months ended December 31, 2003. The
increase in the provision for income taxes during the three months ended
December 31, 2004 was primarily due to the $890, or 11.3%, increase in pre-tax
income as well as an increase in our overall effective income tax rate.
Net Income
For the three months ended December 31, 2004, the Company recorded net income of
$5,206 as compared to net income of $4,997 for the three months ended December
31, 2003. The increase of $209 during the three months ended December 31, 2004
was due to the factors discussed above.
Balance Sheet
Significant balance sheet fluctuations from September 30, 2004 to December 31,
2004 consisted primarily of an increase in accounts receivable and decreases in
program rights, accrued interest payable and program rights payable. The
increase in accounts receivable was the result of the seasonality of our revenue
cycle. The decrease in program rights and program rights payable reflects the
annual cycle of the underlying program contracts which generally begins in
September of each year. Accrued interest payable decreased due to making the
scheduled semi-annual interest payment on our long-term fixed interest rate debt
on December 15, 2004.
Liquidity and Capital Resources
As of December 31, 2004, our cash and cash equivalents aggregated $4,553, and we
had an excess of current assets over current liabilities of $26,680.
9
Cash Provided by Operations. Our principal source of working capital is cash
flow from operations and borrowings under our senior credit facility. As
discussed above, our operating results are cyclical in nature primarily as a
result of seasonal fluctuations in advertising revenues, which are generally
highest in the first and third quarters of each fiscal year. Our cash flow from
operations is also impacted on a quarterly basis by the timing of cash
collections and interest payments on debt. Cash receipts are usually greater
during the second and fourth fiscal quarters as the collection of advertising
revenue typically lags the period in which such revenue is recorded. Scheduled
semi-annual interest payments on our long-term fixed interest rate debt occur
during the first and third fiscal quarters. As a result, our cash flows from
operating activities as reflected in our consolidated financial statements are
generally significantly higher during our second and fourth fiscal quarters, and
such quarters comprise a substantial majority of our cash flows from operating
activities for the full fiscal year.
As reported in the consolidated statements of cash flows, our net cash used in
operating activities was $3,319 and $440 for the three months ended December 31,
2003 and 2004, respectively. The $2,879 increase in cash flows from operating
activities was the result of various differences in the timing of cash receipts
and payments in the ordinary course of operations.
Transactions with Owners. We have periodically made advances in the form of
distributions to Perpetual Corporation ("Perpetual"). During the three months
ended December 31, 2003, we made cash advances, net of repayments, to Perpetual
of $4,270. During the three months ended December 31, 2004, we received
repayments, net of cash advances, from Perpetual of $4,936. The advances to
Perpetual 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 the net advances is through our
ability 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 our consolidated financial statements.
Under the terms of the agreements relating to our indebtedness, future advances,
distributions and dividends to related parties are subject to certain
restrictions. We anticipate that, subject to such restrictions, applicable law
and payment obligations with respect to our indebtedness, we will make advances,
distributions or dividends to related parties in the future.
During the three months ended December 31, 2003 and 2004, we made
interest-bearing advances of tax payments to Perpetual in accordance with the
terms of the tax sharing agreement between Perpetual and us of $3,940 and
$4,912, respectively. We were charged by Perpetual for federal and state income
taxes totaling $1,860 and $2,343 during the three months ended December 31, 2003
and 2004, respectively.
Stockholder's deficit amounted to $273,603 at December 31, 2004, a decrease of
$7,573, or 2.7%, from the September 30, 2004 deficit of $281,176. The decrease
was due to net income for the period of $5,206 as well as a net decrease in
distributions to owners of $2,367.
Indebtedness. Our total debt, including the current portion of long-term debt,
decreased from $465,675 at September 30, 2004 to $461,693 at December 31, 2004.
This debt, net of applicable discounts, consisted of $452,369 of 7 3/4% senior
subordinated notes due December 15, 2012, $9,000 of draws under our senior
credit facility and $324 of capital lease obligations at December 31, 2004. The
10
decrease of $3,982 in total debt from September 30, 2004 to December 31, 2004
was primarily due to $4,000 in net repayments under the senior credit facility.
Our $70,000 senior credit facility is secured by the pledge of stock of ACC and
its subsidiaries and matures March 27, 2006. Interest is payable quarterly at
various rates from prime plus 0.25% or LIBOR plus 1.50% depending on certain
financial operating tests.
Under the existing borrowing agreements, we are subject to restrictive covenants
that place limitations upon payments of cash dividends, issuance of capital
stock, investment transactions, incurrence of additional obligations and
transactions with affiliates. In addition, under the senior credit facility, we
must maintain compliance with certain financial covenants. Compliance with the
financial covenants is measured at the end of each quarter, and as of December
31, 2004, we were in compliance with those financial covenants. We are also
required to pay a commitment fee ranging from 0.5% to 0.75% per annum based on
the amount of any unused portion of the senior credit facility.
The indenture for our long-term debt provides that, whether or not required by
the rules and regulations of the SEC, so long as any senior notes are
outstanding, we, at our expense, will furnish to each holder (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the SEC on Forms 10-Q and 10-K, if we were required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual financial information
only, a report thereon by our certified independent accountants and (ii) all
current reports that would be required to be filed with the SEC on Form 8-K if
we were required to file such reports. In addition, the indenture also provides
that, whether or not required by the rules and regulations of the SEC, we will
file a copy of all such information and reports with the SEC for public
availability (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. Although our duty to file such reports with the SEC has been
automatically suspended pursuant to Section 15(d) of the Securities Exchange Act
of 1934 since October 1, 2003, we will continue to file such reports in
accordance with the indenture.
Other Uses of Cash. We anticipate that capital expenditures for Fiscal 2005 will
be in the approximate range of $6,000 to $8,000 and will be primarily for the
acquisition of technical equipment and vehicles to support ongoing operations
across our stations as well as for the implementation of full power DTV service
in several of our markets. We expect that the source of funds for these
anticipated capital expenditures will be cash provided by operations and
borrowings under the senior credit facility. Capital expenditures during the
three months ended December 31, 2004 totaled $591.
Based upon our current level of operations, we believe that available cash,
together with cash flows generated by operating activities and amounts available
under the senior credit facility, will be adequate to meet our anticipated
future requirements for working capital, capital expenditures and scheduled
payments of interest on our debt.
11
New Accounting Standards
In September 2004, the SEC announced that the "residual method" should no longer
be used to value intangible assets other than goodwill. Rather, a "direct value
method" should be used to determine the fair value of all intangible assets for
purposes of impairment testing, including those assets previously valued using
the residual method. Any impairment resulting from application of a direct value
method should be reported as a cumulative effect of a change in accounting
principle. This announcement will be effective no later than the beginning of
our Fiscal 2006. Our indefinite lived intangible assets are valued using a
residual method, and we are currently evaluating the impact, if any, that a
direct value method valuation may have on our financial position or results of
operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At December 31, 2004, we had other financial instruments consisting primarily of
long-term fixed interest rate debt. Such debt, with future principal payments of
$455,000, matures December 15, 2012. At December 31, 2004, the carrying value of
such debt was $452,369, the fair value was approximately $471,000 and the
interest rate was 7 3/4%. The fair market value of long-term fixed interest rate
debt is subject to interest rate risk. Generally, the fair market value of fixed
interest rate debt will increase as interest rates fall and decrease as interest
rates rise. We estimate the fair value of our long-term debt by using quoted
market prices, as available, or by discounting the required future cash flows
under our debt using borrowing rates currently available to us. We actively
monitor the capital markets in analyzing our capital raising decisions.
Item 4. Controls and Procedures
The Company has performed an evaluation of its disclosure controls and
procedures (as defined by Exchange Act rule 15d-15(e)) as of December 31, 2004.
Based on this evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that the disclosure controls and procedures are
effective in providing reasonable assurances that material information required
to be in this Form 10-Q is made known to them by others on a timely basis.
There were no changes in the Company's internal control over financial reporting
during the quarter ended December 31, 2004 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We currently and from time to time are involved in litigation incidental to the
conduct of our business, including suits based on defamation and employment
activity. We are not currently a party to any lawsuit or proceeding which, in
our opinion, if decided adverse to us, would be likely to have a material
adverse effect on our consolidated financial condition, results of operations or
cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the Company held on November 30, 2004,
each of the incumbent directors of the Company was re-elected to serve until the
next annual meeting and until his or her successor is elected and qualified.
Item 6. Exhibits
a. Exhibits
See Exhibit Index on pages 15-17.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLBRITTON COMMUNICATIONS COMPANY
(Registrant)
February 10, 2005 /s/ Robert L. Allbritton
- ------------------------- ---------------------------------------
Date Name: Robert L. Allbritton
Title: Chairman and Chief
Executive Officer
February 10, 2005 /s/ Stephen P. Gibson
- ------------------------- ---------------------------------------
Date Name: Stephen P. Gibson
Title: Senior Vice President
and Chief Financial Officer
14
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
1.1 Purchase Agreement dated December 6, 2002 by and among ACC, *
Deutsche Bank Securities Inc. and Fleet Securities, Inc.
(Incorporated by reference to Exhibit 1 of the Company's Form
10-K, No. 333-02302, dated December 17, 2002)
1.2 Purchase Agreement dated January 28, 2003 by and among ACC, *
Deutsche Bank Securities Inc. and Fleet Securities, Inc.
(Incorporated by reference to Exhibit 1.2 of the Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated February
3, 2003)
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 December 20, 2002 between ACC and State *
Street Bank and Trust Company, as Trustee, relating to the
7 3/4% Senior Subordinated Notes due 2012. (Incorporated by
reference to Exhibit 4.1 of the Company's Report on Form 8-K,
No. 333-02302, dated December 23, 2002)
4.2 Supplemental Indenture dated as of February 6, 2003 between *
ACC and U.S. Bank National Association (successor-in-interest
to State Street Bank and Trust Company), as Trustee, to the
Indenture dated as of December 20, 2002 between ACC and State
Street Bank and Trust Company, as Trustee, relating to the
7 3/4% Senior Subordinated Notes due 2012. (Incorporated by
reference to Exhibit 4.1 of the Company's Report on Form 8-K,
No. 333-02302, dated February 6, 2003)
4.3 Form of 7 3/4% Series B Senior Subordinated Notes due 2012. *
(Incorporated by reference to Exhibit 4.7 of the Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated February
3, 2003)
4.4 Amended and Restated Revolving Credit Agreement dated as of *
March 27, 2001 by and among Allbritton Communications Company,
certain financial institutions, and Fleet National Bank, as
Agent, and Deutsche Banc Alex. Brown Inc., as Documentation
Agent. (Incorporated by reference to Exhibit 4.4 of the
Company's Quarterly Report on Form 10-Q, No. 333-02302, dated
May 10, 2001)
15
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
4.5 First Amendment dated as of December 19, 2001 to the Amended *
and Restated Revolving Credit Agreement. (Incorporated by
reference to Exhibit 4.5 of the Company's Form 10-K, No.
333-02302, dated December 27, 2001)
4.6 Second Amendment dated as of May 15, 2002 to the Amended and *
Restated Revolving Credit Agreement. (Incorporated by
reference to Exhibit 4.6 of the Company's Quarterly Report on
Form 10-Q, No. 333-02302, dated August 14, 2002)
4.7 Third Amendment dated as of December 6, 2002 to the Amended *
and Restated Revolving Credit Agreement. (Incorporated by
reference to Exhibit 4.6 of the Company's Form 10-K, No.
333-02302, dated December 17, 2002)
4.8 Fourth Amendment dated as of December 10, 2003 to the Amended *
and Restated Revolving Credit Agreement. (Incorporated by
reference to Exhibit 4.8 of the Company's Form 10-K, No.
333-02302, dated December 12, 2003)
10.1 Registration Rights Agreement by and among ACC, Deutsche Bank *
Securities Inc. and Fleet Securities Inc. dated December 20,
2002. (Incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q, No. 333-02302, dated
February 3, 2003)
10.2 Registration Rights Agreement by and among ACC, Deutsche Bank *
Securities Inc. and Fleet Securities Inc. dated February 6,
2003. (Incorporated by reference to Exhibit 10.2 of the
Company's Registration Statement on Form S-4, No. 333-02302,
dated April 11, 2003)
10.3 Primary Television Affiliation Agreement (WSET, Incorporated) *
(with a schedule attached for other stations' substantially
identical affiliation agreements). (Incorporated by reference
to Exhibit 10.3 of the Company's Quarterly Report on Form
10-Q, No. 333-02302, dated May 13, 2004)**
10.4 Tax Sharing Agreement effective as of September 30, 1991 by *
and among Perpetual Corporation, ACC and ALLNEWSCO, Inc.,
amended as of October 29, 1993. (Incorporated by reference to
Exhibit 10.11 of Company's Registration Statement on Form S-4,
No. 333-02302, dated March 12, 1996)
10.5 Second Amendment to Tax Sharing Agreement effective as of *
October 1, 1995 by and among Perpetual Corporation, ACC and
ALLNEWSCO, Inc. (Incorporated by reference to Exhibit 10.9 of
the Company's Form 10-K, No. 333-02302, dated December 22,
1998)
16
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
10.6 Master Equipment Lease Agreement dated as of November 22, 2000 *
between Fleet Capital Corporation and ACC. (Incorporated by
reference to Exhibit 10.19 of the Company's Form 10-K, No.
333-02302, dated December 28, 2000)
10.7 Amended and Restated Pledge Agreement dated as of March 27, *
2001 by and among ACC, Allbritton Group, Inc., Allfinco, Inc.,
and Fleet National Bank, as Agent. (Incorporated by reference
to Exhibit 10.20 of the Company's Quarterly Report on Form
10-Q, No. 333-02302, dated May 10, 2001)
10.8 Supplement No. 1 dated as of December 13, 2002 to the Amended *
and Restated Pledge Agreement dated as of March 27, 2001 by
and among ACC, Allbritton Group, Inc., Allfinco, Inc. and
Fleet National Bank, as Agent. (Incorporated by reference to
Exhibit 10.15 of the Company's Quarterly Report on Form 10-Q,
No. 333-02302, dated February 3, 2003)
10.9 Joinder Agreement dated as of December 13, 2002 by ACC *
Licensee, Inc. to the Amended and Restated Pledge Agreement
dated as of March 27, 2001 by and among ACC, Allbritton Group,
Inc., Allfinco, Inc. and Fleet National Bank, as Agent.
(Incorporated by reference to Exhibit 10.16 of the Company's
Quarterly Report on Form 10-Q, No. 333-02302, dated February
3, 2003)
14. Code of Ethics for Senior Financial Officers. (Incorporated by *
reference to Exhibit 14 of the Company's Form 10-K, No.
333-02302, dated December 12, 2003)
31.1 Certification of Chairman and Chief Executive Officer pursuant
to Rule 15d-14(a) of the Securities Exchange Act of 1934, as
amended.
31.2 Certification of Senior Vice President and Chief Financial
Officer pursuant to Rule 15d-14(a) of the Securities Exchange
Act of 1934, as amended.
- -----------------
*Previously filed
**Portions have been omitted pursuant to confidential treatment
17