Attached files
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2009
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 No. 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.)
1000 Wilson Boulevard, Suite 2700
Arlington, VA 22209
(Address of principal executive offices, including zip code)
(703) 647-8700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
YES |_| NO |X|
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
YES |X| NO |_|
Indicate by check mark whether this registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES |_| NO |X| (1)
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate website, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).
YES |_| NO |_|
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
|X|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |X| Smaller reporting company |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES |_| NO |X|
The aggregate market value of the registrant's Common Stock held by
non-affiliates is zero.
As of December 18, 2009, there were 20,000 shares of Common Stock, par value
$.05 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
______________
(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, 2009, but the Company has agreed
under the terms of certain long-term debt to continue these filings in the
future.
As used herein, the terms "Allbritton," "our," "us," "we" or the "Company" refer
to Allbritton Communications Company and its subsidiaries, and "ACC" refers
solely to Allbritton Communications Company. Depending on the context in which
they are used, the following "call letters" refer either to the corporate owner
of the station indicated or to the station itself: "WJLA" and "NewsChannel 8"
together refer to WJLA-TV/NewsChannel 8, a division of ACC (operator of WJLA-TV
and NewsChannel 8, Washington, D.C.); "WHTM" refers to Harrisburg Television,
Inc. (licensee of WHTM-TV, Harrisburg, Pennsylvania); "KATV" refers to KATV, LLC
(licensee of KATV, Little Rock, Arkansas); "KTUL" refers to KTUL, LLC (licensee
of KTUL, Tulsa, Oklahoma); "WCIV" refers to WCIV, Inc. (licensee of WCIV,
Charleston, South Carolina); "WSET" refers to WSET, Incorporated (licensee of
WSET-TV, Lynchburg, Virginia); "WCFT," "WBMA" and "WJSU" refer to TV Alabama,
Inc. (licensee of WCFT-TV, Tuscaloosa, Alabama, WBMA-LP, Birmingham, Alabama and
WJSU-TV, Anniston, Alabama). The term "Politico" refers to Capitol News Company,
LLC. The term "ACCLI" refers to ACC Licensee, Inc. (licensee of WJLA). The term
"ATP" refers to Allbritton Television Productions, Inc. and the term "Perpetual"
refers to Perpetual Corporation, which is controlled by Joe L. Allbritton and
his immediate family or trusts for their benefit ("the Allbritton family"). "AG"
refers to Allbritton Group, LLC, which is controlled by Perpetual and is ACC's
parent. "Allfinco" refers to Allfinco, Inc., a wholly-owned subsidiary of ACC
and parent company of Harrisburg Television, Inc. and TV Alabama, Inc.
TABLE OF CONTENTS
Page
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Part I
Item 1. Business.................................................... 1
Item 1A. Risk Factors................................................ 17
Item 1B. Unresolved Staff Comments................................... 24
Item 2. Properties.................................................. 25
Item 3. Legal Proceedings........................................... 27
Item 4. Submission of Matters to a Vote of Security Holders......... 27
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities......... 27
Item 6. Selected Consolidated Financial Data........................ 28
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.. 53
Item 8. Consolidated Financial Statements and Supplementary Data.... 53
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 53
Item 9A. Controls and Procedures..................................... 54
Item 9B. Other Information........................................... 55
Part III
Item 10. Directors, Executive Officers and Corporate Governance...... 56
Item 11. Executive Compensation...................................... 58
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters................ 62
Item 13. Certain Relationships and Related Transactions, and Director
Independence.............................................. 63
Item 14. Principal Accounting Fees and Services...................... 66
Part IV
Item 15. Exhibits, Financial Statement Schedules .................... 66
THIS ANNUAL REPORT ON FORM 10-K, INCLUDING ITEM 7 "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 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; FCC LICENSE RENEWAL REQUIREMENTS; 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.
PART I
ITEM 1. OUR BUSINESS
The Company
We own and operate ABC network-affiliated television stations serving six
geographic markets: WJLA in Washington, D.C.; WCFT in Tuscaloosa, Alabama, WJSU
in Anniston, Alabama and WBMA-LP, a low power television station licensed to
Birmingham, Alabama (we operate WCFT and WJSU in tandem with WBMA-LP serving the
viewers of the Birmingham, Tuscaloosa and Anniston market as a single
programming source); WHTM in Harrisburg, Pennsylvania; KATV in Little Rock,
Arkansas; KTUL in Tulsa, Oklahoma; and WSET in Lynchburg, Virginia. We owned and
operated WCIV in Charleston, South Carolina from March 1, 1996 until August 1,
2009, at which time the equity interests of WCIV were distributed to Perpetual.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." Our owned and operated stations broadcast to the 9th, 39th, 40th,
56th, 61st and 67th largest national media markets in the United States,
respectively, as defined by The Nielsen Company ("Nielsen"), and reach
approximately 5% of United States television households. We also own NewsChannel
8, which provides 24-hour per day basic cable television programming
1
primarily focused on regional and local news for the Washington, D.C.
metropolitan area. The operations of NewsChannel 8 are integrated with WJLA.
Additionally, in January 2007 we launched Politico, a specialized
newspaper and Internet site (politico.com) that serves Congress, congressional
staffers and those interested in the actions of our national legislature and the
political electoral process. Politico is advertising supported, with free,
targeted distribution of over 30,000 print copies per issue. Publication is
generally five times per week when Congress is in session and once per week when
Congress is in recess. Print and other original content is continuously
available without charge on politico.com. On November 13, 2009, the equity
interests of Politico were distributed to Perpetual. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
We operate in three reportable segments, WJLA/NewsChannel 8, Other
Television Stations and Politico. Financial information about these segments can
be found in Management's Discussion and Analysis of Financial Condition and
Results of Operations and in the Consolidated Financial Statements.
Our stations are owned and operated by ACC (WJLA-TV/NewsChannel 8),
Harrisburg Television, Inc. (WHTM), KATV, LLC (KATV), KTUL, LLC (KTUL), WSET,
Incorporated (WSET), and TV Alabama, Inc. (WCFT, WJSU and WBMA). Each company
other than ACC is either a directly or indirectly wholly-owned subsidiary of
ACC. The Company was founded in 1974 and is a subsidiary of AG, which is
controlled by Perpetual Corporation, which in turn is controlled by the
Allbritton family. ACC and its subsidiaries are Delaware corporations or limited
liability companies. Our corporate headquarters are located at 1000 Wilson
Boulevard, Suite 2700, Arlington, VA 22209, and our telephone number at that
address is (703) 647-8700.
Television Industry Background
General. Commercial television broadcasting began in the United States on
a regular basis in the 1940s. Currently, there are a limited number of channels
available for broadcasting in any one geographic area, and the license to
operate a broadcast television station is granted by the FCC. Based upon
interference criteria developed by the FCC, licenses are allocated in channels
of 6 MHz each in either the VHF band (channels 2-13) or the UHF band (channels
14-69) of the spectrum. All television stations in the country are grouped by
Nielsen into 210 generally recognized television markets that are ranked in size
based upon actual or potential audience. Each of these markets, called
"Designated Market Areas" or "DMAs," is designated as an exclusive geographic
area consisting of all counties whose largest viewing share is given to stations
of that same market area. Nielsen regularly publishes data on estimated
audiences for the television stations in each DMA, which data is a significant
factor in determining our advertising rates. For over 70 years, broadcasters
distributed their programming using an analog technological standard. In June
2009, stations changed the method of transmitting programming on these channels
from analog to digital. Digital technologies provide cleaner video and audio
signals as well as the ability to transmit "high definition television" with
theater screen aspect ratios, higher resolution video and "noise-free" sound.
Digital transmission also permits dividing the transmission frequency into
multiple discrete channels of standard definition television, permitting the
telecast of more than one "channel" of programming.
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Revenue. Television station revenues are primarily derived from local,
regional and national advertisers who pay for commercial advertising and, to a
much lesser extent, from networks and program syndicators for the broadcast of
programming and from other broadcast-related activities, including
retransmission consent fees from multi-channel, video program distributors
("MVPDs") such as cable television operators, direct broadcast satellite ("DBS")
providers and telephone company ("telco") operators.
Advertising rates for television commercials are set based upon a variety
of factors, including:
o the size and demographic makeup of the market served by the station;
o a program's popularity among viewers whom an advertiser wishes to
attract;
o the number of advertisers competing for the available time;
o the availability of alternative advertising media in the market area;
o a station's overall ability to attract viewers in its market area; and
o the station's ability to attract viewers among particular demographic
groups that an advertiser may be targeting.
Advertising rates are also affected by an aggressive and knowledgeable
sales force and the development of projects, features and programs that tie
advertiser messages to programming. Because broadcast television stations rely
on advertising revenues, they are sensitive to cyclical changes in the economy.
The size of advertisers' budgets, which are affected by broad economic trends,
affect both the broadcast industry in general and the revenues of individual
broadcast television stations.
Broadcast television stations compete for local and national advertising
revenues with other television stations in their respective markets as well as
with other advertising media, such as newspapers, radio, magazines, outdoor
advertising, transit advertising, Internet/website, yellow page directories,
direct mail and local cable systems. In addition, our stations compete for
national advertising revenues with broadcast and cable television networks,
program syndicators and Internet websites.
Advertising revenue for television stations is generally seasonal due to,
among other things, increases in retail advertising in the period leading up to
and including the holiday season and active advertising in the spring.
Additionally, advertising revenue is cyclical, benefiting in even-numbered
calendar years from advertising placed by candidates for political offices and
issue-oriented advertising, and demand for advertising time in Olympic
broadcasts. The seasonality and cyclicality inherent in our business can make it
difficult to estimate future operating results based on the previous results of
any specific quarter.
Additional revenues are generated from advertising produced by television
stations' Internet websites. Sponsorships of web pages or sections as well as
general advertising banners account for a relatively small but growing portion
of revenues.
Audience Measurement. Nielsen, which provides audience-measuring services,
periodically publishes data on estimated audiences for television stations in
the various DMAs throughout the country. These estimates are expressed in terms
of both the percentage of the total
3
potential audience in the DMA viewing a station (the station's "rating") and the
percentage of the audience actually watching television (the station's "share").
Nielsen provides such data on the basis of total television households and
selected demographic groupings in the DMA. Nielsen uses three methods of
determining a station's ratings and share. In most larger DMAs, ratings are
determined by a combination of meters connected directly to selected household
television sets and weekly viewer-completed paper diaries of television viewing
(so called "set meter" measurement), while in smaller markets ratings are
determined by paper diaries only. A select number of the largest markets are
measured by people meter technology (so called "local people meter"
measurement). The local people meter records individual viewing behavior in real
time, producing viewer demographic data on a daily basis. Of the market areas in
which we conduct business, Birmingham, Alabama and Tulsa, Oklahoma are set
metered markets while Washington, D.C. is a local people metered market. The
remaining markets are paper diary markets. Nielsen has announced its intention
to convert all set metered markets to local people meter measurement and to
convert all of the top 125 markets still using paper diaries to a new "mailable
meter" form of electronic measurement; however, we do not anticipate any changes
in audience measurement methodologies in our markets during Fiscal 2010.
Programming
Network. Historically, three major commercial broadcast networks--ABC, NBC
and CBS--dominated broadcast television. In the past two decades, FOX has
evolved into the fourth major network, although the hours of network programming
produced by FOX for its affiliates are fewer than those produced by the other
three major networks. In addition, CW, ION and myNetworkTV have been launched as
new broadcast television networks, along with specialized networks Telemundo,
Univision and TV Azteca.
The affiliation by a station with one of the four major networks has a
significant impact on the composition of the station's programming, revenues,
expenses and operations. A typical affiliate station receives approximately 9 to
13 hours of each day's programming from the network. This programming, along
with cash payments ("network compensation") in some instances, is provided to
the affiliate by the network in exchange for a substantial majority of the
advertising time sold during the airing of network programs. The network then
sells this advertising time for its own account. The affiliate retains the
revenues from time sold during breaks in and between network programs and during
programs produced by the affiliate or purchased from non-network sources.
An affiliate of CW, myNetworkTV or ION network receives a smaller portion
of each day's programming from its network compared to an affiliate of ABC, CBS,
NBC or FOX. As a result, affiliates of CW, myNetworkTV or ION network must
purchase or produce a greater amount of their programming, resulting in
generally higher programming costs. These stations, however, retain a larger
portion of the inventory of advertising time and the revenues obtained therefrom
compared to stations affiliated with the major networks, which may partially
offset their higher programming costs.
In contrast to a network affiliated station, an independent station
purchases or produces all of the programming that it broadcasts, generally
resulting in higher programming costs, although
4
the independent station is, in theory, able to retain its entire inventory of
advertising time and all of the revenue obtained from the sale of such time.
Barter and cash-plus-barter arrangements, however, have become increasingly
popular among all stations.
Traditional network programming generally achieves higher audience levels
than syndicated programs aired by independent stations. However, as greater
amounts of advertising time are retained and available for sale by FOX
affiliates, smaller network affiliates and independent stations, those stations
typically achieve a share of the television market advertising revenues greater
than their share of the market area's audience. Consolidation of cable system
ownership in discrete markets (so-called "clustering") has enabled some cable
operators to more efficiently sell time to local advertisers as well as to bid
on local sports programming in competition with traditional broadcasters.
Public broadcasting outlets in many instances have relationships with the
national Public Broadcasting Network and with state-funded regional networks.
These networks are non-profit and "non-commercial," but are permitted to seek
some commercial funding through "enhanced underwriting" rules promulgated by the
FCC. In most communities, these stations compete with commercial broadcasters
for viewers but not directly for advertising dollars.
Non-Network. To supplement programming offered by a network or to program
the station as an independent, a television broadcaster may acquire programming
through cash and/or barter arrangements. A cash license fee is paid to a program
distributor for "first run" syndicated programming (such as "The Oprah Winfrey
Show" or "Jeopardy") sold independent of network affiliation or syndicated
"off-network" programs, commonly referred to as "reruns." Under such license
agreements, stations retain a majority of the commercial availabilities in the
programs. Under barter arrangements, a program distributor can receive
advertising time in exchange for the programming it supplies, with the station
paying no fee or a reduced fee for such programming.
Program Distribution. In addition to over-the-air broadcast distribution,
viewers have several alternatives to receive television programming.
Cable. Through the 1970s, network television broadcasting enjoyed virtual
dominance in viewership and television advertising revenues because
network-affiliated stations only competed with each other in local markets.
Beginning in the 1980s, this level of dominance began to change as the FCC
authorized more local stations and marketplace choices expanded with the growth
of independent stations and cable television services.
Cable television systems were first constructed in significant numbers in
the 1970s and were initially used to retransmit broadcast television programming
to paying subscribers in areas with poor broadcast signal reception. In the
aggregate, cable-originated programming has emerged as a significant competitor
for viewers of broadcast television programming, although no single cable
programming network regularly attains audience levels close to any of the major
broadcast networks. The advertising share of cable networks has steadily
increased since the 1970s as a result of the growth in cable penetration (the
percentage of television households that are connected to a cable system) and
the increase in the number of new cable networks. The
5
ability to store programming for later viewing has also led to an increase in
"video-on-demand" viewing by cable subscribers. Notwithstanding such increases
in cable network viewership and advertising, over-the-air broadcast network
stations remain the predominantly viewed networks used for mass market
television advertising.
Telcos. Cable system operators have traditionally enjoyed near monopoly
status as terrestrial distributors of multi-channel programming. "Overbuilders"
(competing local distributors in the same local franchise area) were rare based
upon the high costs associated with the cable system infrastructure. Recently,
however, some telcos have begun using their fiber optic facilities to begin
offering multi-channel programming in competition with the local franchised
cable systems. These telcos seek program carriage arrangements with local
broadcasters and other national program distributors.
Satellite. In the 1990s, DBS service was introduced as a new competitive
distribution method. Home users purchase or lease satellite dish receiving
equipment and subscribe to a monthly service of programming options. Local
stations, under specified conditions, are carried on satellites which then
retransmit those signals back to the originating market. As DBS providers, such
as DirecTV and DISH Network, continue to expand their facilities, an increasing
number of local stations will be carried as "local-to-local" signals, aided by a
legal requirement that mandates the carriage of all local broadcast signals if
one is retransmitted. All of our stations are currently carried on the two
primary DBS systems.
Internet. Program distribution via the Internet recently has become an
alternative to traditional television set viewing. Some broadcast networks and
their affiliates provide "video players" on their websites allowing viewing of
recently aired programs. This video-on-demand-type service permits viewers to
choose the program or channel from a library of shows. Hulu.com is an example of
a website offering commercial supported streaming video from the NBC, Fox and
ABC broadcast networks. In addition, multiple Internet sites such as YouTube.com
offer alternative video programming. It is uncertain at this time whether and to
what extent those new services will be a measurable competitor to us.
Video Recording. In addition to cable, telco, satellite and Internet
program distribution, there has been substantial growth in video recording
technology and playback systems, television game devices and new
wireless/Internet connected devices permitting "podcasting," wireless video
distribution systems, satellite master antenna television systems and some
low-power services. Video Cassette Recorders ("VCR") and Digital Video Recorders
("DVR") have become standard home equipment or services provided by MVPDs
permitting viewers to "time-shift" their program viewing and no longer rely
solely on broadcast "appointment" television viewing habits.
Digital Subchannels. Local broadcast stations themselves may now use
excess capacity within their digital television channel to "multicast" discrete
program offerings. Television broadcasters are beginning to program these
subchannels with various forms of commercial informational and entertainment
programs. Five of our stations provide a subchannel with the Retro Television
Network programming and five provide weather programming on subchannels.
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Competition
Competition in the television industry, including each of the market areas
in which our stations compete, takes place on several levels: competition for
audience, programming (including news) and advertisers. Additional factors
material to a television station's competitive position include signal coverage
and assigned frequency. The television broadcasting industry is continually
faced with technological change and innovation, the possible rise or fall in
popularity of competing entertainment and communications media and actions of
federal regulatory bodies, including the FCC, any of which could possibly have a
material adverse effect on our operations.
Audience. Stations compete for audience on the basis of program
popularity, which has a direct effect on advertising rates. A substantial
portion of the daily programming at our stations is supplied by the ABC network.
In those periods, the stations are totally dependent upon the performance of the
ABC network programs in attracting viewers. Non-network time periods are
programmed by the station with a combination of self-produced news, public
affairs and entertainment programming, including news and syndicated programs
purchased for cash, cash and barter or barter-only. Minor network stations, the
number of which has increased significantly over the past decade, have also
emerged as viable competitors for television viewership share, particularly as
the result of the availability of first-run major network-quality programming.
The development of methods of television transmission other than
over-the-air broadcasting and, in particular, the growth of MVPDs and video
recording has significantly altered competition for audience share in the
television industry. These alternative transmission methods can increase
competition for a broadcasting station both by bringing into its market area
distant broadcasting signals not otherwise available to the station's audience
and by serving as a distribution system for programming originated on the cable
or DBS systems. Although historically cable operators have not sought to compete
with broadcast stations for a share of the local news audience, cable operators
have made recent inroads to this market as well, particularly in the area of
local sports channels. Increased competition for local audiences could have an
adverse effect on our advertising revenues.
Other sources of competition for audience include home entertainment
systems (including video recording and playback systems, television game devices
and new wireless/Internet connected devices permitting "podcasting"), wireless
video distribution systems, satellite master antenna television systems and some
low-power services. In addition, local broadcast stations themselves using
excess capacity within their digital television channel to "multicast" discrete
program offerings have added to the number of outlets vying for audience.
Programming alternatives, especially news, available on the Internet also
provide non-broadcast alternatives available to the potential broadcast
television audience. Video programming via the Internet is now also emerging as
an option for viewers who wish to see full-length episodes of broadcast shows or
brief clips of alternative fare on computers or other video devices. Each of the
major broadcast networks offer "video player" buttons on their websites or those
of broadcast affiliates. In addition, multiple Internet sites such as
YouTube.com offer alternative video programming.
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Further advances in technology may increase competition for household
audiences and advertisers. Video compression techniques now under development
for use with current cable channels, Internet-relayed video and direct broadcast
satellites are expected to reduce the bandwidth required for television signal
transmission. These compression techniques, as well as other technological
developments, are applicable to all video delivery systems, including
over-the-air broadcasting, and have the potential to provide vastly expanded
programming to highly targeted audiences. Reduction in the cost of creating
additional channel capacity could lower entry barriers for new channels and
encourage the development of increasingly specialized niche programming. This
ability to reach very defined audiences is expected to alter the competitive
dynamics for advertising expenditures. We are unable to predict the effect that
technological changes will have on the broadcast television industry or the
future results of our operations.
Programming. Competition for local programming involves negotiating with
national program distributors or syndicators which sell first-run and rerun
packages of programming. Our stations compete against in-market broadcast
station competitors for off-network reruns (such as "Seinfeld") and first-run
products (such as "The Oprah Winfrey Show") for exclusive access to those
programs. Cable systems generally do not compete with local stations for
programming; however, local cable operators are increasingly consolidating
ownership of systems within various markets, enabling them to bid on local
sports programming in competition with traditional broadcasters. In addition,
various national cable networks from time to time have acquired programs that
would have otherwise been offered to local television stations. Competition for
exclusive news stories and features is also endemic to the television industry.
In addition, national or network programming, once exclusive to broadcast
television, may now appear first or only on national MVPD channels. These
multichannel video program distributors are now better able to bid competitively
for exclusive access to programming in part because they can recover their
programming costs both with advertising revenue and direct or indirect
subscriber fees and in part because they are not subject to regulatory content
restrictions.
Advertising. Advertising rates are set based upon a variety of factors,
including the size and demographic makeup of the market served by the station, a
program's popularity among viewers whom an advertiser wishes to attract, the
number of advertisers competing for the available time, the availability of
alternative advertising media in the market area, a station's overall ability to
attract viewers in its market area and the station's ability to attract viewers
among particular demographic groups that an advertiser may be targeting.
Advertising rates are also affected by an aggressive and knowledgeable sales
force and the development of projects, features and programs that tie advertiser
messages to programming. Our television stations compete for local and national
advertising revenues with other television stations in their respective markets
as well as with other advertising media, such as newspapers, radio, magazines,
outdoor advertising, transit advertising, yellow page directories, direct mail
and local MVPD operators. In addition, our stations compete for national
advertising revenues with broadcast and cable television networks, program
syndicators and Internet websites. Competition for advertising dollars in the
broadcasting industry occurs primarily in individual market areas. Generally, a
broadcast television station in one market does not compete with stations in
other market areas. Our television stations are located in highly competitive
market areas.
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Station Information
The following table sets forth general information for each of our owned
stations as of May 2009, unless otherwise indicated:
Total
Commercial Station
Digital Market Competitors Audience Rank in
Designated Network Channel Rank or in Market Share Market Acquisition
Market Area Station Affiliation Frequency DMA Date
----------- ------- ----------- --------- -------- ----------- -------- ------- -----------
Washington, D.C. WJLA ABC 7/VHF 9 7 23% 2 01/29/76
Birmingham
(Anniston and
Tuscaloosa), AL WBMA/WCFT/WJSU ABC -- 40 6 24% 2 --
Birmingham WBMA ABC 58/UHF -- -- -- -- 08/01/97
Anniston WJSU ABC 9/UHF -- -- -- -- 03/22/00
Tuscaloosa WCFT ABC 33/UHF -- -- -- -- 03/15/96
Harrisburg-Lancaster-
York-Lebanon, PA WHTM ABC 10/UHF 39 4 21% 2 03/01/96
Little Rock, AR KATV ABC 22/VHF 56 5 30% 2 04/06/83
Tulsa, OK KTUL ABC 10/VHF 61 6 28% 2 04/06/83
Roanoke-Lynchburg, VA WSET ABC 13/VHF 67 4 25% 2 01/29/76
Charleston, SC WCIV ABC 34/VHF 97 4 19% 3 01/29/76
__________
Represents market rank based on the U.S. Television Household Estimates
published by Nielsen in September 2009.
Represents the total number of commercial broadcast television stations in
the DMA with an audience share of at least 1% in the 6:00 a.m. to 2:00
a.m., Sunday through Saturday, time period, based on the Nielsen Station
Index for May 2009.
Represents the station's share of total viewing of commercial broadcast
television stations in the DMA for the time period of 6:00 a.m. to 2:00
a.m., Sunday through Saturday, based on the Nielsen Station Index for May
2009.
Represents the station's rank in the DMA based on its share of total
viewing of commercial broadcast television stations in the DMA for the time
period of 6:00 a.m. to 2:00 a.m., Sunday through Saturday, based on the
Nielsen Station Index for May 2009.
TV Alabama serves the Birmingham market by simultaneously broadcasting
identical programming over WBMA, WCFT and WJSU. The stations are listed on
a combined basis by Nielsen as WBMA+, the call sign of the low power
television station.
We began programming WJSU pursuant to a local marketing agreement in
December 1995 and acquired the station in March 2000. See "Owned
Stations--WBMA/WCFT/WJSU: Birmingham (Anniston and Tuscaloosa), Alabama."
WSET and WCIV have been indirectly owned and operated by the Allbritton
family since 1976. On March 1, 1996, WSET and WCIV became wholly-owned
subsidiaries of ACC.
Effective August 1, 2009, the equity interests of WCIV were distributed to
Perpetual.
9
Business and Operating Strategy
Our business strategy is to focus on building net operating revenues and
net cash provided by operating activities. We review selective acquisition or
other expansion opportunities as they arise. Although we continue to review
strategic investment and acquisition opportunities, no agreements or
understandings are currently in place regarding any material investments or
acquisitions.
In addition, we continually seek to enhance net operating revenues at a
marginal incremental cost through our use of existing personnel and programming
capabilities. The broadcast and cable news services of WJLA and NewsChannel 8
are fully integrated along with Politico. This combination represents the first
and only broadcast/cable/print triopoly in the Nation's Capital.
We have also sought to make use of the excess capacity of our digital
broadcast channels. Five of our stations operate local weather channels using
this digital spectrum, and five of our stations are affiliated with the Retro
Television Network ("RTV") which supplies classic, off network programming which
is packaged together in an "oldies" television format.
Our operating strategy focuses on four key elements:
Local News and Community Leadership. Our stations strive to be local news
leaders to exploit the revenue potential associated with local news leadership.
Since the acquisition of each station, we have focused on building that
station's local news programming franchise as the foundation for building
significant audience share. In each of our market areas, we develop additional
information-oriented programming designed to expand the stations' hours of
commercially valuable local news and other programming with relatively small
incremental increases in operating expenses. Local news programming is
commercially valuable because of its high viewership level, the attractiveness
to advertisers of the demographic characteristics of the typical news audience
(allowing stations to charge higher rates for advertising time) and the enhanced
ratings of other programming in time periods adjacent to the news. In addition,
we believe strong local news product has helped differentiate local broadcast
stations from the increasing number of cable programming competitors that
generally do not provide this material. We strive in each of our markets to
generate additional audience and revenue through Internet and mobile
distribution of our news programming.
High Quality Non-Network Programming. Our stations are committed to
attracting viewers through an array of syndicated and locally-produced
programming to fill those periods of the broadcast day not programmed by the
network. This programming is selected by us based on its ability to attract
audiences highly valued in terms of demographic makeup on a cost-effective basis
and reflects a focused strategy to migrate and hold audiences from program to
program throughout dayparts. Audiences highly valued in terms of demographic
makeup include women aged 18-49 and all adults aged 25-54. These demographic
groups are perceived by advertisers as the groups with the majority of buying
authority and decision-making in product selection.
10
Local Sales Development Efforts. We believe that television stations with
a strong local presence and active community relations can realize additional
revenue from advertisers through the development and promotion of special
programming and community events as well as through expanded production of
regularly scheduled local news and information programming. Each of our stations
has developed such additional products, including high quality programming of
local interest and sponsored community events. Such sponsored events have
included health fairs, contests, job fairs, parades and athletic events and have
provided advertisers, who are offered participation in such events, an
opportunity to direct a marketing program to targeted audiences. These
additional local interest programs and sponsored community events have proven
successful in attracting incremental local advertising revenues. The stations
also seek to maximize their local sales efforts through the use of extensive
research and targeted demographic studies.
Cost Control. We believe that controlling costs is an essential factor in
achieving and maintaining the profitability of our stations. We believe that by
delivering highly targeted audience levels and controlling programming and
operating costs, our stations can achieve increased levels of revenue and
operating cash flow. Each station rigorously manages its expenses through a
budgetary control process and project accounting, which include an analysis of
revenue and programming costs by daypart. Moreover, each station closely
monitors its staffing levels.
Network Affiliation Agreements and Relationship
Each of our stations is an ABC affiliate with affiliation agreements that
expire on December 31, 2012. ABC has routinely renewed the affiliation
agreements with our stations; however, we cannot assure you that these
affiliation agreements will be renewed in the future or under the same general
terms. As one of the largest group owners of ABC network affiliates in the
nation, we believe that we enjoy excellent relations with the ABC network.
Generally, each affiliation agreement provides our stations with the right
to broadcast programs transmitted by the network that includes designated
advertising time, the revenue from which the network retains. For every hour or
fraction thereof that the station broadcasts network programming, the network
pays the station compensation, as specified in each affiliation agreement, or as
agreed upon by the network and the stations. Typically, prime-time programming
generates the highest hourly rates.
Regulation
The ownership, operation and sale of television stations are subject to
the jurisdiction of the FCC under the Communications Act of 1934 (the
"Communications Act"). Matters subject to FCC oversight include the assignment
of frequency bands for broadcast television; the approval of a television
station's frequency, location and operating power; the issuance, renewal,
revocation or modification of a television station's FCC license; the approval
of changes in the ownership or control of a television station's licensee; the
regulation of equipment used by television stations; and the adoption and
implementation of regulations and policies concerning the ownership, operation,
programming and employment practices of television stations. The
11
FCC has the power to impose penalties, including fines or license revocations,
upon a licensee of a television station for violations of the FCC's rules and
regulations.
The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies affecting
broadcast television. Reference should be made to the Communications Act, FCC
rules and the public notices and rulings of the FCC for further information
concerning the nature and extent of FCC regulation of broadcast television
stations.
License Renewal. Broadcast television licenses are generally granted for
maximum terms of eight years. The main licenses are supported by various
"auxiliary" licenses for point-to-point microwave, remote location electronic
newsgathering and program distribution between the studio and transmitter
locations. License terms are subject to renewal upon application to the FCC, but
they may be renewed for a shorter period upon a finding by the FCC that the
"public interest, convenience and necessity" would be served thereby. Under the
Telecommunications Act of 1996 (the "Telecommunications Act"), the FCC must
grant a renewal application if it finds that the station has served the public
interest, there have been no serious violations of the Communications Act or FCC
rules, and there have been no other violations of the Communications Act or FCC
rules by the licensee that, taken together, would constitute a pattern of abuse.
If the licensee fails to meet these requirements, the FCC may either deny the
license or grant it on terms and conditions as are appropriate after notice and
opportunity for hearing. In making its determination, the FCC may consider
petitions to deny but cannot consider whether the public interest would be
better served by issuing the license to a person other than the renewal
applicant. In addition, competing applications for the same frequency may be
accepted only after the Commission has denied a license renewal and the action
is no longer subject to judicial review.
In the vast majority of cases, television broadcast licenses are renewed
by the FCC even when petitions to deny or competing applications are filed
against broadcast license renewal applications. However, we cannot assure that
each of our broadcast licenses will be renewed in the future. License renewal
applications are currently pending for KATV and WHTM. These stations continue to
operate under their expired licenses until the FCC takes action on the renewal
applications. The licenses for our remaining stations are currently effective
with expiration dates ranging from October 1, 2012 to June 1, 2014.
Programming and Operation. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually has relaxed
or eliminated many of the more formalized procedures it had developed to promote
the broadcast of certain types of programming responsive to the needs of a
station's community of license. However, broadcast station licensees must
continue to present programming that is responsive to local community problems,
needs and interests and to maintain certain records demonstrating such
responsiveness. Complaints from viewers concerning a station's programming often
will be considered by the FCC when it evaluates license renewal applications,
although such complaints may be filed at any time and generally may be
considered by the FCC at any time. Stations also must follow various FCC rules
that regulate, among other things, political advertising, sponsorship
identifications, the advertisements of contests and lotteries, obscene and
indecent broadcasts and technical operations, including limits on radio
frequency radiation. The FCC also has adopted
12
rules that place additional obligations on television station operators for
closed-captioning of programming for the hearing impaired, equal employment
opportunity obligations, maximum amounts of advertising and minimum amounts of
programming specifically targeted for children and special obligations relating
to political candidate advertising, as well as additional public information and
reporting requirements.
Digital Television. Prior to June 12, 2009, all U.S. television stations
broadcast signals using an analog transmission system first developed in the
1940s. In 1997, the FCC approved a new digital television, or DTV, technical
standard to be used by television broadcasters, television set manufacturers,
the computer industry and the motion picture industry. This DTV standard allows
the simultaneous transmission of higher quality and/or multiple streams of video
programming and data on the bandwidth formerly used by a single analog channel.
On the multiple channels allowed by DTV, it is possible to broadcast one high
definition channel, with visual and sound quality substantially superior to
present-day television; to transmit several standard definition channels, with
digital sound and pictures of a quality varying from equivalent to somewhat
better than present television; to provide interactive data services, including
visual or audio transmission; or to provide some combination of these
possibilities. Pursuant to a transition plan, television broadcasters were
assigned new digital channels that were predicted to replicate their analog
facilities. Analog transmission was terminated on June 12, 2009. The new digital
channels have the ability to distribute high definition signals along with
secondary programming channels and non-broadcast data. Broadcasters must also
pay certain fees for non-broadcast uses of their digital channels. In addition,
the FCC recently determined that broadcasters who transmit multiple programs on
their digital channels are required to carry additional children's educational
programming and is evaluating whether to impose further public interest
programming requirements on digital broadcasters. The FCC also recently held
that the must-carry requirements applicable to cable and satellite carriage of
analog broadcast signals will encompass only the primary digital program
channel, and then only upon the cessation of analog signals.
Ownership Matters. The Communications Act, in conjunction with various
antitrust statutes, contains restrictions on the ownership and control of
broadcast licenses. Together with the FCC's rules, those laws place limitations
on alien ownership, common ownership of television, radio and newspaper
properties, and ownership by those persons not having the requisite "character"
qualifications and those persons holding "attributable" interests in the
license. The FCC's currently effective ownership rules that are material to our
operations are summarized below:
o Local Television Ownership. Under the FCC's current local television
ownership (or "duopoly") rule, a party may own multiple television stations
without regard to signal contour overlap provided they are located in separate
Nielsen DMAs. In addition, the rules permit parties to own up to two TV stations
in the same DMA so long as (1) at least one of the two stations is not among the
top four-ranked stations in the market based on audience share at the time an
application for approval of the acquisition is filed with the FCC, and (2) at
least eight independently owned and operating full-power commercial and
non-commercial television stations would remain in the market after the
acquisition. In addition, without regard to the number of remaining or
independently owned television stations, the FCC will permit television
13
duopolies within the same DMA so long as the Grade B signal contours of the
stations involved do not overlap. Stations designated by the FCC as "satellite"
stations, which are full-power stations that typically rebroadcast the
programming of a "parent" station, are exempt from the local television
ownership rule. Also, the FCC may grant a waiver of the local television
ownership rule if one of the two television stations is a "failed" or "failing"
station or if the proposed transaction would result in the construction of a new
television station. We are currently in compliance with the local television
ownership rule.
o National Television Ownership Cap. The Communications Act, as amended in
2004, limits the number of television stations one entity may own nationally.
Under the rule, no entity may have an attributable interest in television
stations that reach, in the aggregate, more than 39% of all U.S. television
households. Currently, our stations reach, in aggregate, approximately 5% of all
U.S. television households. The FCC currently discounts the audience reach of a
UHF station by 50% when computing the national television ownership cap.
Further, for entities that have attributable interests in two stations in the
same market, the FCC counts the audience reach of the stations in that market
only once in computing the national ownership cap. The FCC is currently
considering whether to retain the UHF discount. The propriety of the UHF
discount will be the subject of further administrative proceedings, but the
discount currently remains in effect.
o Dual Network Rule. The dual network rule prohibits a merger between or
among any of the four major broadcast television networks--ABC, CBS, FOX and
NBC.
o Media Cross-Ownership. The FCC revised its newspaper/broadcast
cross-ownership rule in December 2007; however, the revised rule is not yet
effective. The FCC historically has prohibited the licensee of a radio or TV
station from directly or indirectly owning, operating, or controlling a daily
newspaper if the station's specified service contour encompasses the entire
community where the newspaper is published. Under the revised rule,
newspaper/broadcast cross-ownership would nonetheless be permissible if (i) the
market at issue is one of the 20 largest DMAs; (ii) the transaction involves the
combination of only one major daily newspaper and only one television or radio
station; (iii) where the transaction involves a television station, at least
eight independently owned and operating major media voices (major newspapers and
full-power television stations) would remain in the DMA following the
transaction and (iv) where the transaction involves a television station, that
station is not among the top four-ranked stations in the DMA. For all other
proposed newspaper/broadcast transactions, the FCC's historic prohibition
generally would remain in place. However, various parties have sought court
review, and a stay of the effectiveness of the FCC's revised cross-ownership
rule has been granted. The cross-ownership rules also permit cross ownership of
radio and television stations under a graduated test based on the number of
independently owned media voices in the local market. In large markets (markets
with at least 20 independently owned media voices), a single entity can own up
to one television station and seven radio stations or, if permissible under the
local television ownership rule (if eight full-power television stations would
remain in the market post transaction), two television stations and six radio
stations. The rule proscribing common ownership of television stations and
newspapers is not applicable to WJLA and Politico since, as a specialty
newspaper, Politico does not meet the definition of a "daily" newspaper of
"general circulation" under FCC Rules.
14
Carriage of Local Television Signals
o Cable. Pursuant to the Cable Television Consumer Protection and
Competition Act of 1992 ("1992 Cable Act") and the FCC's "must carry"
regulations, cable operators are generally required to devote up to one-third of
their activated channel capacity to the carriage of the analog signals of local
commercial television stations. The 1992 Cable Act also prohibits cable
operators and other MVPDs from retransmitting a broadcast signal without
obtaining the station's consent. On a cable system-by-cable system basis, a
local television broadcast station must make a choice once every three years
whether to proceed under the "must carry" rules or to waive the right to
mandatory, but uncompensated, carriage and, instead, to negotiate a grant of
retransmission consent to permit the cable system to carry the station's signal,
in most cases in exchange for some form of consideration from the cable
operator. These contracts may, however, extend longer than the three-year must
carry notification period. During 2009, we renegotiated carriage agreements with
those systems whose agreements expired on December 31, 2008.
o Satellite. The Satellite Home Viewer Improvement Act of 1999 ("SHVIA")
established a compulsory copyright licensing system for the distribution of
local television station signals by direct broadcast satellite systems to
viewers in each DMA. Under SHVIA's "carry-one, carry-all" provision, a direct
broadcast satellite system generally is required to retransmit the analog signal
of all local television stations in a DMA if the system chooses to retransmit
the analog signal of any local television station in that DMA. Television
stations located in markets in which satellite carriage of local stations is
offered may elect mandatory carriage or retransmission consent once every three
years. In 2005, we made satellite carriage elections and opted to negotiate
retransmission consent for all satellite systems that carry our stations. Those
agreements remain effective until 2010 and 2011. SHIVIA, by its terms, will
expire and requires Congressional reauthorization by the end of 2009.
Legislation has been introduced in the Congress but it is uncertain what
changes, if any, will be reflected in any final reauthorization. Absent passage,
satellite carriers will not have the ability legally to retransmit broadcast
signals to subscribers outside a particular station's DMA.
Indecency Regulation. Federal law and the FCC's rules prohibit the
broadcast of obscene material at any time, and the broadcast of indecent or
profane material during the period from 6 a.m. through 10 p.m. In recent years,
the FCC and its indecency prohibition have received much attention. In 2006,
legislation was enacted that raised the maximum monetary penalty for the
broadcast of obscene, indecent, or profane language to $325,000 for each
"violation," with a cap of $3 million for any "single act." On February 19,
2008, the FCC fined certain ABC stations, including two of our ABC-affiliated
stations, each in the amount of $27,500 for the broadcast of allegedly indecent
material during a 2003 episode of NYPD Blue. Pursuant to the affiliation
agreement with ABC, the Network has assumed obligations for payment of the fine,
but together the Network and its affiliates, including our affected stations,
have appealed the FCC's decision.
Additional Competition in the Video Services Industry. The
Telecommunications Act also eliminates the overall ban on telephone companies
offering video services and permits the ownership of cable television companies
by telephone companies in their service areas (or vice versa) in certain
circumstances. Telephone companies providing such video services will be
regulated according to the transmission technology they use. The
Telecommunications Act also permits telephone companies to hold an ownership
interest in the programming carried over such
15
systems. Video programming via the Internet is now emerging as an option for
viewers who wish to see full-length episodes of broadcast shows or brief clips
of alternative fare on computers or other video devices. Each of the major
broadcast networks offer "video player" buttons on their websites or those of
broadcast affiliates. In addition, multiple Internet sites such as YouTube.com
offer alternative video programming. Although we cannot predict the effect of
the removal of these barriers to telephone company participation in the video
services industry, it may have the effect of increasing competition in the
television broadcast industry in which we operate.
Other Legislation. The foregoing does not purport to be a complete summary
of all the provisions of the Telecommunications Act, the Communications Act or
of the regulations and policies of the FCC thereunder. Congress and the FCC have
under consideration, and in the future may consider and adopt, (i) other changes
to existing laws, regulations and policies or (ii) new laws, regulations and
policies regarding a wide variety of matters that could affect, directly or
indirectly, the operation, ownership and profitability of our broadcast
stations. Also, certain of the foregoing matters are now, or may become, the
subject of litigation, and we cannot predict the outcome of any such litigation
or the impact on our business.
Employees
As of September 30, 2009, we employed in full and part-time positions 892
persons, including 261 at WJLA/NewsChannel 8, 510 at our other television
stations, 105 at Politico and 16 in our corporate office. Of the employees at
WJLA/NewsChannel 8, 124 are represented by one of three unions: the American
Federation of Television and Radio Artists ("AFTRA"), the Directors Guild of
America ("DGA") or the National Association of Broadcast Employees and
Technicians/Communications Workers of America ("NABET/CWA"). The NABET/CWA
collective bargaining agreement expires on December 31, 2010. The AFTRA
collective bargaining agreement has been extended while the parties are in
negotiations for a successor agreement and currently is set to expire on
December 31, 2009. The DGA collective bargaining agreement expires on February
28, 2011. No employees of our other owned stations are represented by unions. We
believe our relations with our employees are satisfactory.
16
ITEM 1A. RISK FACTORS
(dollars in thousands)
The risks described below, together with the other information included in
this Form 10-K, should be carefully considered. We cannot identify nor can we
control all circumstances that could occur in the future that may adversely
affect our business and results of operations. If any of the following risks
actually occurs, our business, financial condition, operating results and
prospects could be materially affected.
A Continued Downturn in the Economy May Adversely Affect Us
The current downturn in the economy, and a continued economic slowdown in
future periods, could adversely affect our business. During times of economic
slowdown, our customers may significantly reduce their advertising budgets. In
addition, the economic downturn may adversely affect the demand for consumer
products, which could in turn adversely affect our advertising revenues. To the
extent these factors adversely affect other television companies, there could be
an oversupply of unfilled airtime and downward pressure on pricing for
advertising services, which could adversely affect us. Additionally,
bankruptcies or financial difficulties of our customers could reduce our cash
flows and adversely impact our liquidity and profitability. Collectively, these
events could adversely affect our cash flow and adversely affect our ability to
comply with the financial covenants of our senior credit facility.
Our substantial debt could adversely affect our financial condition and
operational flexibility.
We have a substantial amount of debt. As of September 30, 2009, our total
debt, net of applicable discounts, consisted of $453,740 of 7 3/4% senior
subordinated notes due December 15, 2012 and $21,500 outstanding under our
$67,500 senior credit facility which expires August 23, 2011. Subject to the
limitations of our debt instruments, we could also incur additional debt in
certain circumstances.
The degree to which we are leveraged could adversely affect us. For
example, it could:
o make it more difficult for us to satisfy our obligations with
respect to our existing debt;
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, which will reduce amounts
available for working capital, capital expenditures and other general
corporate purposes;
o result in the sale of one or more of our stations to reduce our debt
service obligations;
o limit our flexibility in planning for, or reacting to, changes in
our business and the industry in which we operate;
o increase our vulnerability to general adverse economic and industry
conditions;
o place us at a competitive disadvantage compared to our competitors
with less debt; and
o limit our ability to borrow additional funds.
In addition, debt incurred under our senior credit facility bears interest
at variable rates. An increase in the interest rates on our debt will reduce the
funds available to repay our debt and for operations and future business
opportunities and will make us more vulnerable to the consequences of our
leveraged capital structure. The agreements governing our debt contain certain
restrictive financial and operating covenants. These covenants, among other
things,
17
restrict our ability to incur additional debt and issue preferred stock, pay
dividends and make distributions, issue stock of subsidiaries, make certain
investments, repurchase stock or debt, create liens, enter into transactions
with affiliates, transfer and sell assets, and merge or consolidate. Any failure
to comply with these covenants could result in an event of default under the
applicable instrument, which could permit acceleration of the debt under such
instrument and in some cases acceleration of debt under other instruments that
contain cross-default or cross-acceleration provisions. If our indebtedness were
to be accelerated, we cannot assure you that we would be able to repay it.
Further, current credit market conditions could adversely affect our ability to
renegotiate or restructure the terms of our senior credit facility.
To service our debt, we will require a significant amount of cash, which depends
on many factors beyond our control.
Our ability to make payments on and to refinance our debt will depend on
our ability to generate cash in the future. This, to an extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. We cannot assure you that our business will
generate sufficient cash flow or that future borrowings will be available to us
in an amount sufficient to enable us to pay our debt or to fund our other
liquidity needs. If our future cash flow from operations and existing sources of
funds are insufficient to pay our obligations as they mature or to fund our
liquidity needs, we may be forced to reduce or delay our business activities and
capital expenditures, sell assets, obtain additional equity capital or
restructure or refinance all or a portion of our debt on or before maturity. We
cannot assure you that we will be able to refinance any of our debt on a timely
basis or on satisfactory terms, if at all. In addition, the terms of our
existing debt and other future debt may limit our ability to pursue any of these
alternatives. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
We operate in a very competitive business environment that could adversely
affect our operations.
The television industry is highly competitive. Stations compete for
audience on the basis of program popularity, which has a direct effect on
advertising rates. Broadcast television stations compete for local and national
advertising revenues with other television stations in their respective markets
as well as with other advertising media, such as newspapers, radio, magazines,
outdoor advertising, transit advertising, Internet websites, yellow page
directories, direct mail and local MVPD operators. In addition, our stations
compete for national advertising revenues with broadcast and cable television
networks, program syndicators and Internet websites. Some of our competitors are
subsidiaries of large national or regional companies that have greater
resources, including financial resources, than we do. Our television stations
are located in highly competitive markets. Accordingly, our results of
operations will be dependent upon the ability of each station to compete
successfully in its market, and there can be no assurance that any one of our
stations will be able to maintain or increase its current audience share or
revenue share. To the extent that certain of our competitors have or may, in the
future, obtain greater resources, our ability to compete successfully in our
broadcasting markets may be impeded.
18
We depend on advertising revenue, which can vary substantially from period to
period based on many factors beyond our control, including general economic
conditions.
The broadcast television industry is cyclical in nature, being affected by
prevailing economic conditions. Because we rely on sales of advertising time for
substantially all of our revenues, our operating results are sensitive to
general economic conditions and regional conditions in each of the local markets
in which our stations operate. For Fiscal 2007, 2008 and 2009, the Washington,
D.C. advertising market accounted for approximately one-half of our total
revenues. As a result, our results of operations are highly dependent on
WJLA/NewsChannel 8 and, in turn, the Washington, D.C. economy and, to a lesser
extent, on each of the other local economies in which our stations operate.
We particularly depend on automotive-related advertising, which may be affected
by the current turmoil in that industry.
Approximately 23%, 20% and 14% of our total broadcast revenues for the
fiscal years ended September 30, 2007, 2008 and 2009, respectively, consisted of
automotive-related advertising. Automotive-related advertising declined by 12%,
14% and 41% for the years ended September 30, 2007, 2008 and 2009, respectively,
as a result of decreased demand for advertising by the automotive industry.
Continued or further significant decreases in such advertising would adversely
affect our operating results.
Federal regulation of the broadcasting industry limits our operating
flexibility.
The ownership, operation and sale of television stations are subject to
the jurisdiction of the FCC under the Communications Act. Matters subject to FCC
oversight include the assignment of frequency bands for broadcast television;
the approval of a television station's frequency, location and operating power;
the issuance, renewal, revocation or modification of a television station's FCC
license; the approval of changes in the ownership or control of a television
station's licensee; the regulation of equipment used by television stations; and
the adoption and implementation of regulations and policies concerning the
ownership, operation, programming and employment practices of television
stations. The FCC has the power to impose penalties, including fines or license
revocations, upon a licensee of a television station for violations of the FCC's
rules and regulations. The FCC's regulation of other media and spectrum users
also has an indirect effect on the operations of our stations.
License Renewal. Our business is dependent upon our continuing to hold
broadcasting licenses from the FCC that are issued for terms of eight years.
While in the vast majority of cases such licenses are renewed by the FCC even
when petitions to deny or competing applications are filed against broadcast
license renewal applications, we cannot assure you that our licenses will be
renewed upon their expiration dates. License renewal applications are currently
pending for KATV and WHTM, which are currently operating under expired licenses.
These stations will continue to operate under their expired licenses until the
FCC takes action on the renewal applications. The licenses for all other of our
stations are currently in effect with expiration dates ranging from October 1,
2012 to June 1, 2014. If we fail to renew any of our licenses, or renew them
with substantial conditions or modifications, it could prevent us from operating
the affected stations and generating revenues. See "Our Business--Legislation
and Regulation--License Renewal."
19
Ownership Matters. The Communications Act, in conjunction with various
antitrust statutes, contains restrictions on the ownership and control of
broadcast licenses. Together with the FCC's rules, those laws place limitations
on alien ownership, common ownership of television, radio and newspaper
properties, and ownership by those persons not having the requisite "character"
qualifications and those persons holding "attributable" interests in the
license. We must comply with current FCC regulations and policies in the
ownership of our stations, and any future actions by Congress or the FCC with
respect to the ownership rules may adversely impact our business.
Frequency Allocation. The FCC reviews and reallocates non-governmental
frequency spectrum on an ad hoc basis pursuant to its rulemaking authority. The
Commission has announced a potential reassessment process in connection with
expanded needs for high speed, broadband, wireless, data networks. Reallocation
of portions of the broadcast frequency band for broadband uses could diminish
the frequency allocation to our stations and could have an adverse impact on our
operations.
Programming and Operation. Broadcast station licensees must present
programming that is responsive to local community problems, needs and interests
and to maintain certain records demonstrating such responsiveness. Stations also
must follow various FCC rules that regulate, among other things, political
advertising, sponsorship identifications, the advertisements of contests and
lotteries, obscene and indecent broadcasts and technical operations, including
limits on radio frequency radiation. The FCC also has adopted rules that place
additional obligations on television station operators for closed-captioning of
programming for the hearing impaired, equal employment opportunity obligations,
maximum amounts of advertising and minimum amounts of programming specifically
targeted for children and special obligations relating to political candidate
advertising, as well as additional public information and reporting
requirements. In recent years, the FCC has also vigorously enforced a number of
rules, typically in connection with license renewals. Violations of these rules
could lead to fines and penalties which may adversely affect our business and
results of operations.
Congress and the FCC may in the future adopt new laws, regulations or
policies regarding a wide variety of matters that could, directly or indirectly,
adversely affect the operation and ownership of our television stations. It is
impossible to predict the outcome of federal legislation or the potential effect
thereof on our business. See "Our Business--Legislation and Regulation."
We are dependent on our affiliation with the ABC television network.
All of our television stations are affiliated with the ABC network. These
affiliations are valuable to us because programs provided by broadcast networks
are typically the most popular with audiences, which increases our ability to
attract viewers to our programs, including our local newscasts. Because networks
increasingly distribute their programming on other platforms, such as the
Internet or portable devices, they may become less reliant upon their affiliates
to distribute their programming, which could put us at a disadvantage in future
contract negotiations. Our television viewership levels, and ultimately
advertising revenues, are in large part dependent upon programming provided by
ABC, and there can be no assurance that such programming will achieve and
maintain satisfactory viewership levels in the future. Each of our television
stations has entered into a long-term affiliation agreement with the ABC
network, which expires on December 31, 2012. Although ABC has continually
renewed its affiliation
20
with our television stations for as long as we have owned them and we expect to
continue to be able to renew such affiliation agreements, we cannot assure you
that such renewals will be obtained or that they will reflect the same general
terms. The non-renewal or termination of one or more of our network affiliation
agreements or alteration of terms could have an adverse effect on our results of
operations.
We Depend Upon Quality Syndicated Programming
We purchase syndicated programming to supplement the shows supplied to us
by ABC. Generally, however, before we purchase syndicated programming for our
stations, this programming must first be cleared in the largest television
markets--New York, Los Angeles and Chicago. Network owned and operated stations
in those markets typically determine which syndicated shows will be brought to
market, and therefore dictate our options for syndicated programs. If those
stations do not launch new shows for the national marketplace, or if the shows
that they launch, and which in turn we acquire, fail to generate satisfactory
ratings, our viewership levels may decrease and our revenues may be adversely
affected.
Increased Programming Costs Could Adversely Affect Our Business and Operating
Results
Television programming is a significant component of television
operating expenses. We may be exposed in the future to increased programming
costs. Should such an increase in our programming expenses occur, it could have
a material adverse effect on our operating results. In addition, television
networks have been seeking arrangements with their affiliates to share the
networks' programming costs and to change the structure of network compensation,
including eliminating compensation to affiliates and seeking reverse
compensation, or payment from affiliates in consideration for the network's
programming. If we become party to an arrangement whereby we share our networks'
programming costs, our programming expenses would increase further. In addition,
we usually acquire syndicated programming rights two or three years in advance
and acquiring those rights may require multi-year commitments, making it
difficult to predict accurately how a program will perform. In some instances,
we must replace programs before their costs have been fully amortized, resulting
in write-offs that increase station operating costs. An increase in the cost of
news programming and content or in the costs for on-air and creative talent may
also increase our expenses, particularly during events requiring extended news
coverage, and therefore adversely affect our business and operating results.
Finally, cable distributors are increasingly competing with us or the networks
with which we are affiliated for the rights to carry popular sports programming,
which could increase our costs, or if we were to lose the rights to broadcast
such sports programming, could adversely affect our audience share and operating
results.
Increased Competition Due to Technological Innovation May Adversely Impact Our
Business
Technological innovation, and the resulting proliferation of programming
alternatives such as cable, satellite television, video provided by telephone
company fiber lines, satellite radio, video-on-demand, pay-per-view, the
Internet, home video and entertainment systems, portable entertainment systems,
and the availability of television programs on the Internet and portable digital
devices have fragmented television viewing audiences and subjected television
broadcast stations to new types of competition. Over the past decade, the
aggregate viewership of non-
21
network programming distributed via MVPDs such as cable television and satellite
systems has increased, while the aggregate viewership of the major television
networks has declined. Technologies that enable users to view content of their
own choosing, in their own time, and to fast-forward or skip advertisements,
such as DVRs, portable digital devices, and the Internet, may cause changes in
consumer behavior or could hinder Nielsen's ability to accurately measure our
audience, both of which could affect the attractiveness of our offerings to
advertisers. If these things were to occur, our operating results could be
adversely affected.
Other advances in technology, such as increasing use of local-cable
advertising "interconnects," which allow for easier insertion of advertising on
local cable systems, have also increased competition for advertisers. In
addition, video compression technologies permit greater numbers of channels to
be carried within existing bandwidth on cable, satellite and other television
distribution systems. These compression technologies, as well as other
technological developments, are applicable to all video delivery systems,
including digital over-the-air broadcasting, and have the potential to provide
vastly expanded programming to highly targeted audiences. Reduction in the cost
of creating additional channel capacity could lower entry barriers for new
channels and encourage the development of increasingly specialized niche
programming on cable, satellite and other television distribution systems. We
expect this ability to reach very narrowly defined audiences to increase
competition both for audience and for advertising revenue. In addition, the
expansion of competition due to technological innovation has increased, and may
continue to increase, competitive demand for programming. Such increased demand,
together with rising production costs, may in the future increase our
programming costs or impair our ability to acquire programming, which will in
turn impair our ability to generate revenue from the advertisers with which we
seek to do business. Conversely, in the current recession, the expansion of
available inventory may reduce rate realization for units of inventory sold.
Our Inability to Secure Carriage of Our Stations By Multi-Channel Video
Programming Distributors May Adversely Affect Our Business
Cable operators and direct broadcast satellite systems are generally
required to carry the primary signal of local commercial television stations
pursuant to the FCC's "must carry" or "carry-one, carry-all" rules. However,
these MVPDs are prohibited from carrying a broadcast signal without obtaining
the station's consent. For each distributor, a local television broadcaster must
make a choice once every three years whether to proceed under the "must carry"
or "carry-one, carry-all" rules or to waive the right to mandatory but
uncompensated carriage and negotiate a grant of retransmission consent to permit
the system to carry the station's signal, in most cases in exchange for some
form of consideration from the system operator. In 2008, we elected
retransmission consent for most of our stations for the three-year period
commencing on January 1, 2009 and successfully negotiated carriage agreements
for the period January 1, 2009, to at least December 31, 2011. If our
retransmission consent agreements are terminated or not renewed, or if our
broadcast signal is distributed on less favorable terms, our ability to
distribute our programming could be adversely affected.
22
The Loss of Key Personnel Could Disrupt Our Management or Operations and
Adversely Affect Our Business
Our business depends upon the continued efforts, abilities and expertise
of our chief executive officer and other key employees. We believe that the rare
combination of skills and years of media experience possessed by our executive
officers would be difficult to replace, and that the loss of our executive
officers could have a material adverse effect on our business. Additionally, our
stations employ several on-air personnel, including anchors and reporters, with
significant loyal audiences. Our failure to retain these personnel could
adversely affect our operating results.
NewsChannel 8 is dependent on cable operators for carriage of its programming.
NewsChannel 8 is party to affiliation agreements with cable operators and
other terrestrial MVPDs for the carriage of its programming to subscribers. Each
of the cable operator affiliation agreements has an expiration date of December
31, 2011. The news service operated by NewsChannel 8 is entirely dependent upon
carriage by the MVPDs. Although these agreements have been renewed by the MVPDs
in the past, there can be no assurance that these agreements will be renewed
upon expiration or whether the same general terms and conditions can be
retained. The non-renewal or termination of one or more of these affiliation
agreements or alteration of terms could adversely affect our results of
operations.
Possible strategic initiatives may impact our business.
We are evaluating, and will continue to evaluate, the nature and scope of
our operations and various short-term and long-term strategic considerations.
There are uncertainties and risks relating to strategic initiatives. For
example, acquisition opportunities may become more limited as a consequence of
the consolidation of ownership occurring in the television broadcast industry.
Also, prospective competitors may have greater financial resources than we do.
Future acquisitions may not be available on attractive terms, or at all. Also,
if we do make acquisitions, we may not be able to successfully integrate the
acquired stations or businesses. With respect to divestitures, we may experience
varying success in making such divestitures on favorable terms, if at all, or in
reducing fixed costs or transferring liabilities previously associated with the
divested television stations or businesses. Finally, any such acquisitions or
divestitures will be subject to FCC approval and FCC rules and regulations. Any
of these efforts would require varying levels of management resources, which may
divert our attention from other business operations. If we do not realize the
expected benefits or synergies of such transactions, there may be an adverse
effect on our financial condition and operating results.
Our stockholder may have interests that conflict with holders of our debt.
The Allbritton family controls our Company. Accordingly, the family is
able to control our operations and policies, and the vote on all matters
submitted to a vote of our stockholder, including, but not limited to, electing
directors, adopting amendments to ACC's certificate of incorporation and
approving mergers or sales of substantially all of ACC's assets. Circumstances
may occur in which the interests of the family could be in conflict with the
interests of the holders of our debt. In addition, the family could pursue
acquisitions, divestitures or other transactions that, in their judgment, could
enhance their equity investment, even though such transactions might involve
risks to the holders of the notes. See "Ownership of Capital Stock-- ACC Common
Stock" and "Certain Relationships and Related Transactions."
23
We have paid dividends and made advances to related parties, and we expect to
continue to do so in the future.
ACC has made advances to certain related parties. Because, at present,
such related parties' primary sources of repayment of the advances is through
our ability to pay dividends or to make other distributions, these advances have
been treated as reductions to stockholder's investment in our consolidated
balance sheets. The stockholder's deficit at September 30, 2008 and 2009 was
$383,524 and $398,809, respectively. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Certain Relationships and Related Transactions." Under our debt
instruments, future advances, loans, dividends and distributions by us are
subject to certain restrictions. We anticipate that, subject to such
restrictions, applicable law and payment obligations with respect to our debt,
ACC will make advances, distributions or dividends to related parties in the
future.
Our business may be negatively affected by work stoppages, slowdowns or strikes
by our employees.
Currently, there are three bargaining agreements with unions representing
124 of our full and part-time employees at WJLA/NewsChannel 8. We cannot assure
you about the results of negotiation of future collective bargaining agreements,
whether future collective bargaining agreements will be negotiated without
interruptions in our business, or the possible effect of future collective
bargaining agreements on our financial condition or results of operations. We
also cannot assure you that strikes will not occur in the future in connection
with labor negotiations or otherwise. Any prolonged strike or work stoppage
could have an adverse effect on our financial condition and results of
operations. See "Our Business - Employees."
Changes in accounting standards can significantly impact reported operating
results.
Generally accepted accounting principles and accompanying pronouncements
and implementation guidelines for many aspects of our business, including those
related to intangible assets and income taxes, are complex and involve
significant judgments. Changes in these rules or their interpretation could
significantly change our reported operating results. See "Management's
Discussions and Analysis of Financial Condition and Results of Operations -
Critical Accounting Policies and Estimates."
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
24
ITEM 2. PROPERTIES
We maintain our corporate headquarters in Arlington, Virginia, occupying
leased office space of approximately 14,200 square feet.
The types of properties required to support each of the stations include
offices, studios, transmitter sites and antenna sites. The stations' studios are
co-located with their office space while transmitter sites and antenna sites are
generally located away from the studios in locations determined to provide
maximum market signal coverage.
The following table describes the general characteristics of our principal
real property:
25
Lease
Expiration
Facility Market/Use Ownership Approximate Size Date
------------------------ -------------------- -------------- --------------------- -------------
WJLA/NewsChannel 8
/Politico Rosslyn, VA
Office/Studio Leased 84,381 sq. ft. 6/30/17
Prince George's, MD
Tower - Weather Leased 1 acre 3/31/11
Bethesda, MD
Downlink Receive Leased 5,300 sq. ft. 9/30/14
Washington, D.C.
Tower/Transmitter Joint Venture 108,000 sq. ft. N/A
Office/Studio Leased 1,500 sq. ft. 2/28/12
WHTM Harrisburg, PA
Office/Studio Owned 14,000 sq. ft. N/A
Adjacent Land Owned 59,337 sq. ft. N/A
Tower/Transmitter Owned 2,801 sq. ft. N/A
Office Leased 3,168 sq. ft. 10/31/11
KATV Little Rock, AR
Office/Studio Owned 20,500 sq. ft. N/A
Office/Studio Leased 1,500 sq. ft. 1/31/12
Tower/Transmitter Owned 188 acres N/A
Tower/Transmitter Leased 3.49 acres 5/31/23
Annex/Garage Owned 67,400 sq. ft. N/A
KTUL Tulsa, OK
Office/Studio Owned 13,520 sq. ft. N/A
Tower/Transmitter Owned 160 acres N/A
WSET Lynchburg, VA
Office/Studio Owned 15,500 sq. ft. N/A
Tower/Transmitter Owned 2,700 sq. ft. N/A
Danville, VA
Office/Studio Leased 2,150 sq. ft. Monthly
Roanoke, VA
Office/Studio Leased 2,688 sq. ft. 11/30/11
WBMA/WCFT/WJSU Birmingham, AL
Office/Studio/Dish Farm Leased 26,357 sq. ft./0.5 acre 9/30/21
Tower/Relay-Pelham Leased .08 acres 10/31/11
Tower/Relay-Red Mtn. Owned .21 acres N/A
Tuscaloosa, AL
Office/Studio Owned 9,475 sq. ft. N/A
Tower-Tuscaloosa Owned 10.5 acres N/A
Tower-AmSouth Leased 134.3 acres 4/30/11
Anniston, AL
Office/Studio Leased 700 sq. ft. 10/31/10
Tower-Blue Mtn. Owned 1.7 acres N/A
Tower-Bald Rock Leased 1 acre 8/29/16
26
ITEM 3. 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, could reasonably be expected 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
On July 10, 2009, by written consent in lieu of a special meeting, the
sole stockholder of the Company approved a plan of reorganization of the
Company, pursuant to which the equity interests of WCIV, a wholly-owned
subsidiary of the Company, were distributed to Perpetual effective August 1,
2009.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Not Applicable.
27
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands)
The selected consolidated financial data for the fiscal years ended
September 30, 2005, 2006, 2007, 2008 and 2009 are derived from our consolidated
financial statements. The information in this table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
notes thereto included elsewhere herein. Please note that the statement of
operations data below have been adjusted to reflect WCIV as discontinued
operations for all periods presented. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Fiscal Year Ended September 30,
-----------------------------------------------------------------
2005 2006 2007 2008 2009
--------- --------- --------- --------- ---------
Statement of Operations Data:
Operating revenues, net..................................... $ 194,137 $ 216,227 $ 218,571 $ 216,384 $ 200,396
Television operating expenses, excluding depreciation,
amortization and impairment.............................. 118,590 118,898 132,159 143,130 128,945
Depreciation and amortization .............................. 8,732 8,138 8,161 8,924 9,087
Impairment of intangible assets............................. -- -- -- -- 30,700
Corporate expenses.......................................... 5,950 5,000 6,106 6,459 5,579
Operating income............................................ 60,865 84,191 72,145 57,871 26,085
Interest expense............................................ 36,694 36,228 37,213 37,631 37,180
Interest income............................................. 71 147 208 96 30
Interest income-related party............................... 297 232 430 200 112
Other nonoperating income (expense), net.................... (1,684) 843 262 (260) 5,222
Income (loss) from continuing operations before income
taxes and cumulative effect of change in accounting
principle................................................ 22,855 49,185 35,832 20,276 (5,731)
Provision for (benefit from) income taxes................... 9,357 18,166 13,634 7,835 (373)
Income (loss) from continuing operations before
cumulative effect of change in accounting principle...... 13,498 31,019 22,198 12,441 (5,358)
Income (loss) from discontinued operations, net of tax.. 144 490 416 432 (214)
Cumulative effect of change in accounting principle, net
of tax............................................... -- 48,728 -- -- --
Net income (loss)........................................... 13,642 (17,219) 22,614 12,873 (5,572)
As of September 30,
-----------------------------------------------------------------
2005 2006 2007 2008 2009
--------- --------- --------- --------- ---------
Balance Sheet Data:
Total assets................................................ $ 241,744 $ 176,021 $ 169,049 $ 159,455 $ 127,110
Total debt.............................................. 460,755 452,846 484,100 483,408 475,240
Stockholder's investment.................................... (287,414) (327,770) (366,527) (383,524) (398,809)
Fiscal Year Ended September 30,
-----------------------------------------------------------------
2005 2006 2007 2008 2009
--------- --------- --------- --------- ---------
Cash Flow Data:
Cash flow from operating activities......................... $ 27,266 $ 41,374 $ 31,092 $ 34,027 $ 21,407
Cash flow from investing activities......................... (4,593) (6,670) (5,889) (5,977) (4,780)
Cash flow from financing activities......................... (25,725) (31,309) (30,401) (28,880) (16,035)
Financial Ratios and Other Data:
Operating income margin..................................... 31.4% 38.9% 33.0% 26.7% 13.0%
Capital expenditures.................................... 4,660 8,836 6,052 5,986 4,853
(Footnotes on following page)
28
Footnotes
(dollars in thousands)
Effective August 1, 2009, the equity interests of WCIV, our wholly-owned
subsidiary, were distributed to Perpetual. As the operations of WCIV
constitute a component of the Company, the operating results of WCIV
through July 31, 2009 have been presented as discontinued operations for
all periods presented. See "Consolidated Financial Statements--Notes to
Consolidated Financial Statements--Note 7."
In September 2004, the Securities 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" is required to
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. Application of this new guidance became effective at
the beginning of our year ended September 30, 2006. As a result of
implementing this guidance, we recorded a non-cash, pre-tax impairment
charge related to the carrying value of certain of our FCC licenses of
$80,000. This charge was recorded, net of the related tax benefit of
$31,272, as a cumulative effect of a change in accounting principle during
the quarter ended December 31, 2005.
Total debt is defined as long-term debt (including the current portion
thereof, and net of discount) and capital lease obligations.
Cash flows from operating, investing and financing activities were
determined in accordance with GAAP. See "Consolidated Financial
Statements--Consolidated Statements of Cash Flows."
Capital expenditures for the years ended September 30, 2008 and 2009 are
exclusive of $2,924 and $4,376 of expenditures associated with the
replacement of our broadcast tower and related equipment in Little Rock,
Arkansas. See "Consolidated Financial Statements--Notes to Consolidated
Financial Statements--Note 11."
29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands)
General Factors Affecting Our Business
The Company
We own ABC network-affiliated television stations serving six geographic
markets: WJLA in Washington, D.C.; WCFT in Tuscaloosa, Alabama, WJSU in
Anniston, Alabama and WBMA-LP, a low power television station licensed to
Birmingham, Alabama (we operate WCFT and WJSU in tandem with WBMA-LP serving the
viewers of the Birmingham, Tuscaloosa and Anniston market as a single
programming source); WHTM in Harrisburg, Pennsylvania; KATV in Little Rock,
Arkansas; KTUL in Tulsa, Oklahoma; and WSET in Lynchburg, Virginia. 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.
We also owned and operated WCIV in Charleston, South Carolina from March
1, 1996 until August 1, 2009, at which time the equity interests of WCIV were
distributed to Perpetual. The operations of WCIV through July 31, 2009 are
classified as discontinued operations for all periods presented.
In January 2007, we launched Politico, a specialized newspaper and
Internet site (politico.com) that serves Congress, congressional staffers and
those interested in the actions of our national legislature and political
electoral process. On November 13, 2009, the equity interests of Politico were
distributed to Perpetual. As this distribution took place subsequent to
September 30, 2009 and represents a transaction between parties under common
control, the operations of Politico must be reflected in continuing operations
until the period in which the distribution has been consummated. Accordingly,
the operating results of Politico are classified as continuing operations for
all periods presented. In the Company's future financial statements, the
operating results of Politico after November 13, 2009 will be excluded, and the
operating results through November 13, 2009 will be presented as discontinued
operations for all periods presented.
We operate in three reportable segments: WJLA/NewsChannel 8, Other
Television Stations, which represents the aggregation of five of our ABC
network-affiliated television stations, and Politico. Each of these reportable
segments is in the business of gathering and distributing news and entertainment
content across multiple platforms, and revenue for each operation is
substantially dependent upon advertising.
Business
Our operating revenues are derived from local and national advertisers
and, to a much lesser extent, the ABC network and program syndicators for the
broadcast of programming and from
30
other broadcast-related activities, including retransmission consent fees from
cable and telephone company operators as well as DBS providers. The primary
operating expenses involved in owning and operating television stations are
employee compensation, programming, newsgathering, production, promotion and the
solicitation of advertising.
Television stations receive revenues for advertising sold for placement
within and adjoining locally originated and network programming. Advertising
rates are set based upon a variety of factors, including the size and
demographic makeup of the market served by the station, a program's popularity
among viewers whom an advertiser wishes to attract, the number of advertisers
competing for the available time, the availability of alternative advertising
media in the market area, a station's overall ability to attract viewers in its
market area and the station's ability to attract viewers among particular
demographic groups that an advertiser may be targeting. Advertising rates are
also affected by an aggressive and knowledgeable sales force and the development
of projects, features and programs that tie advertiser messages to programming.
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. During
years in which Olympic Games are held, there is additional demand for
advertising time and, as a result, increased advertising revenue associated with
Olympic broadcasts. The 2008 Summer Olympic Games were broadcast by NBC in
August 2008 in connection with NBC's United States television rights to the
Olympic Games, which extend through 2012.
Our cash flow from operations is also affected on a quarterly basis by the
timing of cash collections and interest payments on our 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 flow from operating activities for the full fiscal year.
The broadcast television industry is cyclical in nature, being affected by
prevailing economic conditions. Because we rely on sales of advertising time for
substantially all of our revenues, our operating results are sensitive to
general economic conditions and regional conditions in each of the local market
areas in which our stations operate. For Fiscal 2007, 2008 and 2009, the
Washington, D.C. advertising market accounted for approximately one-half of our
total revenues. As a result, our results of operations are highly dependent on
WJLA/NewsChannel 8 and, in turn, the Washington, D.C. economy and, to a lesser
extent, on each of the other local economies in which our stations operate.
31
We are also dependent on automotive-related advertising. Approximately
23%, 20% and 14% of our total broadcast revenues for the years ended September
30, 2007, 2008 and 2009, respectively, consisted of automotive-related
advertising. Automotive-related advertising declined by 12%, 14% and 41% for the
years ended September 30, 2007, 2008 and 2009, respectively, as a result of
decreased demand for advertising by the automotive industry. Continued or
further significant decreases in such advertising in the future would adversely
affect our operating results.
Operating Revenues
The following table depicts the principal types of operating revenues from
continuing operations, net of agency commissions, earned by us during each of
the last three fiscal years and the percentage contribution of each to our total
operating revenues, before fees.
Fiscal Year Ended September 30,
----------------------------------------------------------------------
2007 2008 2009
------------------- -------------------- -------------------
Dollars Percent Dollars Percent Dollars Percent
------- ------- ------- ------- ------- -------
Local and national................ $ 187,830 84.2% $ 181,740 82.6% $ 154,036 75.6%
Political......................... 9,599 4.3% 6,590 3.0% 10,104 5.0%
Subscriber fees................... 10,285 4.6% 11,797 5.4% 15,723 7.7%
Internet.......................... 1,022 0.5% 5,531 2.5% 9,994 4.9%
Network compensation.............. 3,561 1.6% 3,282 1.5% 2,589 1.3%
Trade and barter.................. 5,861 2.6% 6,051 2.7% 5,520 2.7%
Other revenues........................ 4,981 2.2% 5,163 2.3% 5,726 2.8%
--------- ------ --------- ------ --------- ------
Operating revenues.................... 223,139 100.0% 220,154 100.0% 203,692 100.0%
====== ====== ======
Fees.............................. (4,568) (3,770) (3,296)
--------- --------- ---------
Operating revenues, net............... $ 218,571 $ 216,384 $ 200,396
========= ========= =========
___________
Represents sale of advertising to local and national advertisers, either
directly or through agencies representing such advertisers, net of agency
commission.
Represents sale of advertising to political advertisers.
Represents subscriber fees earned from cable and telco operators as well
as DBS providers.
Represents sale of advertising on our Internet websites.
Represents payment by network for broadcasting or promoting network
programming.
Represents value of commercial time exchanged for goods and services
(trade) or syndicated programs (barter).
Represents fees paid to national sales representatives and fees paid for
music licenses.
32
Local and national advertising constitutes our largest category of
operating revenues, representing 75% to 85% of our total operating revenues in
each of the last three fiscal years. Local and national advertising revenues
decreased 1.5%, 3.2% and 15.2% in Fiscal 2007, 2008 and 2009, respectively.
Results of Operations--Fiscal 2009 Compared to Fiscal 2008
Set forth below are selected consolidated financial data for Fiscal 2008
and 2009, respectively, and the percentage change between the years.
Fiscal Year Ended Percentage
September 30, Change
------------------------ ----------
2008 2009
--------- ---------
Operating revenues, net..................................... $ 216,384 $ 200,396 (7.4)%
Impairment of intangible assets............................. -- 30,700 --
All other operating expenses................................ 158,513 143,611 (9.4)%
--------- ---------
Operating income............................................ 57,871 26,085 (54.9)%
Nonoperating expenses, net.................................. 37,595 31,816 (15.4)%
Income tax provision (benefit).............................. 7,835 (373) --
--------- ---------
Income (loss) from continuing operations.................... 12,441 (5,358) --
Income (loss) from discontinued operations, net of tax...... 432 (214) --
--------- ---------
Net income (loss)........................................... $ 12,873 $ (5,572) --
========= =========
Net Operating Revenues
Net operating revenues for Fiscal 2009 totaled $200,396, a decrease of
$15,988, or 7.4%, as compared to Fiscal 2008. Net operating revenues by
reportable segment consisted of the following:
Fiscal Year Ended Percentage
September 30, Change
------------------------ ----------
2008 2009
--------- ---------
WJLA/NewsChannel 8.......................................... $ 107,475 $ 95,027 (11.6)%
Other Television Stations................................... 96,367 85,601 (11.2)%
Politico.................................................... 11,364 18,598 63.7%
Unallocated Corporate....................................... 1,178 1,170 (0.7)%
--------- ---------
Consolidated operating revenues, net........................ $ 216,384 $ 200,396 (7.4)%
========= =========
Net operating revenues for our television operations, including
NewsChannel 8, represented 94.2% and 90.1% of our consolidated net operating
revenues during Fiscal 2008 and 2009, respectively, while Politico represented
5.3% and 9.3% of our consolidated net operating
33
revenues during Fiscal 2008 and 2009, respectively. Our television operations
were negatively impacted as a result of the general economic downturn
experienced during Fiscal 2009. This decrease was partially offset by increases
in subscriber fees, Internet revenues and political advertising as discussed
below. While Politico was also affected by the economic downturn, net operating
revenues increased at Politico, primarily due an to increase in both
issue-oriented advertising demand as well as the number of print publications
produced.
Consolidated local and national advertising revenues decreased $27,704, or
15.2%, from Fiscal 2008. This decline reflected decreased demand primarily due
to an overall weak advertising environment, particularly in the automotive
category which was down 41% during Fiscal 2009. This decrease was partially
offset by increased local and national advertising revenue at Politico as
discussed above.
Political advertising revenues increased $3,514, or 53.3%, in Fiscal 2009
as compared to Fiscal 2008. Political advertising revenue increased in all but
one of our markets with substantial increases in our Virginia and Pennsylvania
markets related to spending by the Presidential candidates leading up to the
November 2008 general election, which generated substantial revenue in the first
quarter of Fiscal 2009. While political advertising revenue increased for the
year ended September 30, 2009, it decreased during the final quarter of the
fiscal year. This decrease was due to political advertising during the fourth
quarter of Fiscal 2008 leading up to the November 2008 elections, partially
offset by spending during the fourth quarter of Fiscal 2009 related to the
Virginia Governor's election.
Subscriber fees increased $3,926, or 33.3%, during Fiscal 2009 as compared
to the prior fiscal year. This increase was due to new retransmission consent
agreements entered into with certain cable companies during the quarters ended
March 31, 2009 and June 30, 2009 as well as contractual increases in per
subscriber rates and increases in the overall number of subscribers related to
existing agreements.
Internet revenues increased $4,463, or 80.7%, during Fiscal 2009. This
increase was primarily due to an increase in issue-oriented advertising demand
on politico.com, which represented 63.7% and 73.5% of consolidated Internet
revenue during Fiscal 2008 and 2009, respectively. Internet revenues also
increased at our television stations as a result of continued specific content
and sales initiatives related to our station websites.
Other revenue increased $563, or 10.9%, during Fiscal 2009 as compared to
the same period in the prior year. During the fourth quarter of Fiscal 2009, the
insurance claim related to the January 2008 collapse of our broadcast tower in
Little Rock, Arkansas was finalized. As a result, we recorded a gain on the
business interruption portion of the claim of $2,811 in other revenue. See
"Liquidity and Capital Resources--Other Uses of Cash." This increase in other
revenue was substantially offset by a change in the nature of our relationship
with the University of Arkansas. In conjunction with a long-term renewal and
broadening of the Arkansas Razorback Sports Network franchise, we are now
working with a third-party, multimedia sports rightsholder. As a result, we now
receive certain fees from this company rather than directly selling the radio
and television advertising. Such fees are less than the advertising revenue
previously generated. This decrease in revenue has a corresponding decrease in
expense as we
34
also no longer incur the programming rights fee to the University of Arkansas.
These decreases in revenue and expense primarily affected the first two quarters
of Fiscal 2009 due to the timing of the college football and basketball seasons.
No individual advertiser accounted for more than 5% of our operating
revenues during Fiscal 2009 or 2008.
Total Operating Expenses
Total operating expenses in Fiscal 2009 were $174,311, an increase of
$15,798, or 10.0%, compared to total operating expenses of $158,513 in Fiscal
2008. This net increase consisted of a decrease in television operating
expenses, excluding depreciation, amortization and impairment, of $14,185, an
increase in depreciation and amortization of $163, an intangible asset
impairment charge of $30,700 and a decrease in corporate expenses of $880.
Television operating expenses, excluding depreciation, amortization and
impairment, totaled $128,945 in Fiscal 2009, a decrease of $14,185, or 9.9%,
when compared to television operating expenses of $143,130 in Fiscal 2008.
Television operating expenses, excluding depreciation, amortization and
impairment by reportable segment consisted of the following:
Fiscal Year Ended Percentage
September 30, Change
------------------------ ----------
2008 2009
--------- ---------
WJLA/NewsChannel 8.......................................... $ 61,286 $ 55,544 (9.4)%
Other Television Stations................................... 67,061 55,486 (17.3)%
Politico.................................................... 14,189 17,697 24.7%
Unallocated Corporate....................................... 594 218 (63.3)%
--------- ---------
Consolidated television operating expenses, excluding
depreciation, amortization and impairment................ $ 143,130 $ 128,945 (9.9)%
========= =========
Television operating expenses, excluding depreciation, amortization and
impairment for our television operations, including NewsChannel 8, represented
89.7% and 86.1% of our consolidated television operating expenses, excluding
depreciation, amortization and impairment during Fiscal 2008 and 2009,
respectively, while Politico represented 9.9% and 13.7% of our consolidated
television operating expenses, excluding depreciation, amortization and
impairment during Fiscal 2008 and 2009, respectively.
The consolidated decrease of $14,185, or 9.9%, was due primarily to
expense reduction initiatives implemented during the quarter ended March 31,
2009 as well as the change in the nature of our relationship with the University
of Arkansas as discussed above. During the quarter ended March 31, 2009, we
responded to the overall weak advertising environment with a number of expense
reduction initiatives. These included the elimination of management and staff
positions, reductions in incentive and base compensation across the Company, the
suspension of the Company match to our 401(k) plan and other cost-saving
measures, including
35
significant decreases in discretionary spending, such as travel, meals and
entertainment. These decreases were partially offset by increases in expenses at
Politico, primarily due to increased sales and distribution costs related to the
higher advertising revenues and increased number of print publications produced.
Consolidated corporate expenses decreased $880, or 13.6%, for the fiscal
year ended September 30, 2009 as compared to the prior fiscal year primarily due
to decreased executive bonus and incentive compensation.
During the quarter ended March 31, 2009, events occurred which indicated
that an impairment of certain broadcast licenses may exist. The events included
the decline in the overall economy, forecasts for negative industry-wide
advertising growth in 2009, and reduced revenue projections and related cost
reduction measures within the Company. Thus, such broadcast licenses were tested
for impairment as of March 31, 2009. The tests indicated that four broadcast
licenses in the Other Television Stations reportable segment were impaired. As a
result, we recorded a non-cash impairment charge of $27,700 during the quarter
ended March 31, 2009. Our annual impairment tests were performed as of September
30, 2009. These tests indicated that a further impairment had occurred with
respect to these four broadcast licenses, resulting in a non-cash impairment
charge of $3,000 during the quarter ended September 30, 2009. There were no
related charges recorded during the prior year. Notwithstanding the factors
cited above, the recording of these impairment charges will not have any direct
effect on our liquidity or future operating results. See "Critical Accounting
Policies and Estimates."
Operating Income
Operating income of $26,085 in Fiscal 2009 decreased $31,786, or 54.9%,
compared to operating income of $57,871 in Fiscal 2008. The operating income
margin in Fiscal 2009 decreased to 13.0% from 26.7% for the prior fiscal year.
The decreases in operating income and margin during Fiscal 2009 were primarily
the result of the non-cash intangible asset impairment charge of $30,700
recorded during Fiscal 2009 as discussed above.
Nonoperating Expenses, Net
Interest Expense. Interest expense decreased by $451, or 1.2%, from
$37,631 in Fiscal 2008 to $37,180 in Fiscal 2009. The decrease in interest
expense was primarily due to the decrease in the average balance of debt
outstanding during Fiscal 2009 as compared to the prior fiscal year as well as a
decrease in the weighted average interest rate on debt. The average balance of
debt outstanding for Fiscal 2008 and 2009 was $491,788 and $488,199,
respectively, and the weighted average interest rate on debt was 7.6% and 7.5%
during the years ended September 30, 2008 and 2009, respectively.
Other, Net. Other net nonoperating income was $5,222 during Fiscal 2009 as
compared to other net nonoperating expense of $260 during Fiscal 2008. During
the fourth quarter of Fiscal 2009, the insurance claim related to the January
2008 collapse of our broadcast tower in Little Rock, Arkansas was finalized. As
a result, we recorded a gain on the replacement cost property portion of the
claim of $6,015, reflecting the excess of replacement cost insurance proceeds
over the carrying value of the destroyed assets. See "Liquidity and Capital
Resources--Other Uses of
36
Cash." This increase in other net nonoperating income was partially offset by a
decrease in the non-cash gain recorded related to the exchange of equipment by
Nextel of $363 as discussed below.
The FCC has granted to Sprint Nextel Corporation ("Nextel") the right to
reclaim a portion of the spectrum in the 2 GHz band from broadcasters across the
country. In order to claim this spectrum, Nextel must replace all of the
broadcasters' electronic newsgathering equipment currently using this spectrum
with digital equipment capable of operating in the reformatted portion of the 2
GHz band retained by the broadcasters. This exchange of equipment will be
completed on a market by market basis. As the equipment is exchanged and placed
into service in each of our markets, a gain will be recorded to the extent that
the fair market value of the equipment received exceeds the book value of the
analog equipment exchanged. During the years ended September 30, 2008 and 2009,
equipment was exchanged and placed into service with an excess of fair market
value as compared to book value of $978 and $615, respectively, and was recorded
as a non-cash gain in other, net nonoperating income.
Income Taxes
The benefit from income taxes in Fiscal 2009 totaled $373, a decrease of
$8,208 when compared to the provision for income taxes of $7,835 in Fiscal 2008.
This decrease in income tax expense was primarily due to the $26,007 decrease in
pre-tax income.
Income (Loss) from Continuing Operations
Loss from continuing operations during Fiscal 2009 was $5,358, a decrease
of $17,799 when compared to income from continuing operations of $12,441 during
Fiscal 2008. This decrease was primarily due to non-cash intangible asset
impairment charges of $30,700, partially offset by the related tax benefit of
$9,235 as well as gains, net of tax, associated with finalizing the insurance
claim related to the collapse of our broadcast tower in Little Rock, Arkansas.
Income (Loss) from Discontinued Operations, Net of Tax
Effective August 1, 2009, we distributed the equity interests of WCIV to
Perpetual. The operations of WCIV through July 31, 2009 are classified as
discontinued operations for all periods presented. Loss from discontinued
operations of WCIV through July 31, 2009 was $214, net of the related tax
benefit of $184, during Fiscal 2009. This decreased $646 when compared to income
from discontinued operations of WCIV for the full fiscal year of $432, net of
the related tax provision of $231, during Fiscal 2008. The $646 decrease
reflected the shorter period of ownership during Fiscal 2009 as well as the
general economic downturn experienced during Fiscal 2009.
Net Income (Loss)
For Fiscal 2009, the Company recorded a net loss of $5,572 as compared to
net income of $12,873 for Fiscal 2008. The decrease in net income during Fiscal
2009 of $18,445 was primarily due to decreased income from continuing
operations, as discussed above.
37
Results of Operations--Fiscal 2008 Compared to Fiscal 2007
Set forth below are selected consolidated financial data for Fiscal 2007
and 2008, respectively, and the percentage change between the years.
Fiscal Year Ended Percentage
September 30, Change
------------------------ ----------
2007 2008
--------- ---------
Operating revenues, net..................................... $ 218,571 $ 216,384 (1.0)%
Total operating expenses.................................... 146,426 158,513 8.3%
--------- ---------
Operating income............................................ 72,145 57,871 (19.8)%
Nonoperating expenses, net.................................. 36,313 37,595 3.5%
Income tax provision........................................ 13,634 7,835 (42.5)%
--------- ---------
Income from continuing operations........................... 22,198 12,441 (44.0)%
Income from discontinued operations, net of tax............. 416 432 3.8%
--------- ---------
Net income.................................................. $ 22,614 $ 12,873 (43.1)%
========= =========
Net Operating Revenues
Net operating revenues for Fiscal 2008 totaled $216,384, a decrease of
$2,187, or 1.0%, as compared to Fiscal 2007. Net operating revenues by
reportable segment consisted of the following:
Fiscal Year Ended Percentage
September 30, Change
------------------------ ----------
2007 2008
--------- ---------
WJLA/NewsChannel 8.......................................... $ 117,267 $ 107,475 (8.4)%
Other Television Stations................................... 96,041 96,367 0.3%
Politico.................................................... 4,063 11,364 179.7%
Unallocated Corporate....................................... 1,200 1,178 (1.8)%
--------- ---------
Consolidated operating revenues, net........................ $ 218,571 $ 216,384 (1.0)%
========= =========
Net operating revenues for our television operations, including
NewsChannel 8, represented 97.6% and 94.2% of our consolidated net operating
revenues during Fiscal 2007 and 2008, respectively, while Politico represented
1.9% and 5.3% of our consolidated net operating revenues during Fiscal 2007 and
2008, respectively. Our television operations were negatively impacted due to a
decrease in demand for local and national advertising revenue, particularly in
our Washington, D.C. market, as well as decreased political advertising
revenues, partially offset by increased Internet advertising revenues. As
Politico launched in January 2007, Fiscal 2008
38
represented the first full year of operations. Accordingly, net operating
revenues increased at Politico during Fiscal 2008.
Local and national advertising revenues decreased $6,090, or 3.2%, from
Fiscal 2007. The decrease in local and national advertising revenues was due to
a general decrease in demand for local and national advertising in all of our
markets during the final three quarters of Fiscal 2008, with a particular
decrease in demand by local and national advertisers in our Washington, D.C.
market. This overall decrease was partially offset by increased local and
national advertising revenue in the first quarter of Fiscal 2008, primarily
reflecting the prior year displacement of local and national advertisers during
the peak political advertising period leading up to the November 2006 elections.
Additionally, increased local and national advertising revenue generated by
Politico, which launched in January 2007, also served to partially offset the
overall local and national advertising revenue decrease during Fiscal 2008.
Political advertising revenues decreased by $3,009, or 31.3%, in Fiscal
2008 from Fiscal 2007. Political advertising revenues decreased due to various
high-profile state-wide political elections in November 2006, which generated
substantial revenue in the first quarter of Fiscal 2007 with no comparable
activity in Fiscal 2008, partially offset by spending by the Presidential
candidates during Fiscal 2008 for the primaries and principally for the period
leading up to the November 2008 general election in our Virginia and
Pennsylvania markets.
Subscriber fee revenue increased $1,512, or 14.7%, during Fiscal 2008 as
compared to the prior fiscal year. This increase was due to an increase in the
overall number of subscribers as well as various contractual increases in the
monthly per subscriber rates.
Internet revenues increased $4,509 to $5,531 during Fiscal 2008. This
increase was the result of increased advertising revenue generated by
politico.com, which launched in January 2007, as well as Internet-based
advertising revenue across our station group. Internet revenues generated by
politico.com represented 42.0% and 63.7% of consolidated Internet revenues
during Fiscal 2007 and 2008, respectively.
No individual advertiser accounted for more than 5% of our operating
revenues during Fiscal 2008 or 2007.
Total Operating Expenses
Total operating expenses in Fiscal 2008 were $158,513, an increase of
$12,087, or 8.3%, compared to total operating expenses of $146,426 in Fiscal
2007. This net increase consisted of an increase in television operating
expenses, excluding depreciation, amortization and impairment, of $10,971, an
increase in depreciation and amortization of $763 and an increase in corporate
expenses of $353.
Television operating expenses, excluding depreciation, amortization and
impairment, totaled $143,130 in Fiscal 2008, an increase of $10,971, or 8.3%,
when compared to television operating expenses of $132,159 in Fiscal 2007.
39
Television operating expenses, excluding depreciation, amortization and
impairment by reportable segment consisted of the following:
Fiscal Year Ended Percentage
September 30, Change
------------------------ ----------
2007 2008
--------- ---------
WJLA/NewsChannel 8.......................................... $ 58,041 $ 61,286 5.6%
Other Television Stations................................... 64,998 67,061 3.2%
Politico.................................................... 9,120 14,189 55.6%
Unallocated Corporate....................................... -- 594 --
--------- ---------
Consolidated television operating expenses, excluding
depreciation, amortization and impairment................ $ 132,159 $ 143,130 8.3%
========= =========
Television operating expenses, excluding depreciation, amortization and
impairment for our television operations, including NewsChannel 8, represented
93.1% and 89.7% of our consolidated television operating expenses, excluding
depreciation, amortization and impairment during Fiscal 2007 and 2008,
respectively, while Politico represented 6.9% and 9.9% of our consolidated
television operating expenses, excluding depreciation, amortization and
impairment during Fiscal 2007 and 2008, respectively.
The consolidated increase was primarily due to an overall increase in our
employee compensation and benefits as well as operating expenses associated with
producing and distributing Politico, which launched in January 2007. Employee
compensation and benefits increased 9.1% for the year ended September 30, 2008
as compared to the prior fiscal year principally due to the hiring of additional
personnel leading up to and associated with the January 2007 launch of Politico.
Operating Income
Operating income of $57,871 in Fiscal 2008 decreased $14,274, or 19.8%,
compared to operating income of $72,145 in Fiscal 2007. The operating income
margin in Fiscal 2008 decreased to 26.7% from 33.0% for the prior fiscal year.
The decreases in operating income and margin during Fiscal 2008 were primarily
the result of increased total operating expenses as discussed above.
Nonoperating Expenses, Net
Interest Expense. Interest expense increased by $418, or 1.1%, from
$37,213 in Fiscal 2007 to $37,631 in Fiscal 2008. The increase in interest
expense was primarily due to the increase in the average balance of debt
outstanding during Fiscal 2008 as compared to the prior fiscal year, partially
offset by a decrease in the weighted average interest rate on debt. The average
balance of debt outstanding for Fiscal 2007 and 2008 was $475,871 and $491,788,
respectively, and the weighted average interest rate on debt was 7.7% and 7.6%
during the years ended September 30, 2007 and 2008, respectively.
40
Other, Net. The FCC has granted to Sprint Nextel Corporation ("Nextel")
the right to reclaim a portion of the spectrum in the 2 GHz band from
broadcasters across the country. In order to claim this spectrum, Nextel must
replace all of the broadcasters' electronic newsgathering equipment currently
using this spectrum with digital equipment capable of operating in the
reformatted portion of the 2 GHz band retained by the broadcasters. This
exchange of equipment will be completed on a market by market basis. As the
equipment is exchanged and placed into service in each of our markets, a gain
will be recorded to the extent that the fair market value of the equipment
received exceeds the book value of the analog equipment exchanged. During the
years ended September 30, 2007 and 2008, equipment was exchanged and placed into
service with an excess of fair market value as compared to book value of $1,256
and $978, respectively, and was recorded as a non-cash gain in other, net
nonoperating income.
Income Taxes
The provision for income taxes in Fiscal 2008 totaled $7,835, a decrease
of $5,799, or 42.5%, when compared to the provision for income taxes of $13,634
in Fiscal 2007. The decrease in the provision for income taxes was primarily due
to the $15,556, or 43.4%, decrease in pre-tax income from continuing operations.
In June 2006, the Financial Accounting Standards Board ("FASB") issued new
guidance related to accounting for uncertainty in income taxes. This guidance
clarifies the accounting for uncertainty in income taxes by prescribing a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of tax provisions taken or expected to be taken in a
tax return. The new guidance was adopted on October 1, 2007. The cumulative
effect of adoption resulted in a net decrease of $1,295 to the opening balance
of retained earnings.
Our operations are included in a consolidated federal income tax return
and a combined Virginia state income tax return filed by Perpetual. We calculate
and record income tax expense in accordance with the accounting rules for income
taxes as if we were a separate taxpayer from Perpetual. We make payments to
Perpetual in accordance with the terms of a tax sharing agreement between
Perpetual and us. During the year ended September 30, 2008, income tax payments
due to Perpetual in accordance with the tax sharing agreement exceeded the
income tax payments that would be due as calculated in accordance with the
accounting rules for income taxes by $695. This difference was recorded as a
charge against retained earnings.
Income from Continuing Operations
Income from continuing operations during Fiscal 2008 was $12,441, a
decrease of $9,757, or 44.0%, when compared to income from continuing operations
of $22,198 during Fiscal 2007. This decrease was primarily due to the $14,274
decrease in operating income as discussed above.
41
Income from Discontinued Operations, Net of Tax
Effective August 1, 2009, we distributed the equity interests of WCIV to
Perpetual. The operations of WCIV through July 31, 2009 are classified as
discontinued operations for all periods presented. Income from discontinued
operations of WCIV was $432, net of the related tax provision of $231, during
Fiscal 2008. This increased $16 when compared to income from discontinued
operations of WCIV of $416, net of the related tax provision of $183, during
Fiscal 2007.
Net Income
For Fiscal 2008, the Company recorded net income of $12,873 as compared to
$22,614 for Fiscal 2007. The decrease in net income during Fiscal 2008 of
$9,741, or 43.1%, was primarily due to decreased operating income, as discussed
above.
Liquidity and Capital Resources
Cash Provided by Operations
Our principal sources of working capital are 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 affected on
a quarterly basis by the timing of cash collections and interest payments on our
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 our consolidated statements of cash flows, our net cash
provided by operating activities was $31,092, $34,027 and $21,407 for Fiscal
2007, 2008 and 2009, respectively. The increase in cash provided by operating
activities from Fiscal 2007 to Fiscal 2008 was primarily the result of greater
cash collection activity as well as various other differences in the timing of
cash receipts and payments in the ordinary course of operations, largely offset
by decreased net income during Fiscal 2008. The decrease in cash provided by
operating activities from Fiscal 2008 to Fiscal 2009 was primarily the result of
various differences in the timing of cash receipts and payments in the ordinary
course of operations. These differences reflected reduced revenue levels during
Fiscal 2009 as well as decreased liability balances at September 30, 2009 due to
the expense reduction initiatives put into place during the year.
42
Distributions to Related Parties
Effective August 1, 2009, the equity interests of WCIV were distributed to
Perpetual. See "General Factors Affecting Our Business."
We have periodically made advances in the form of distributions to
Perpetual. For Fiscal 2007, 2008 and 2009, we made cash advances net of
repayments to Perpetual of $61,371, $27,880 and $7,125, respectively. No cash
advances were made during the nine months ended September 30, 2009. Such
advances are currently restricted pursuant to the terms of our senior credit
facility. See "Indebtedness." 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 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. Subsequent to
September 30, 2009 and through December 18, 2009, we made no net cash
distributions to owners. On November 13, 2009, the equity interests of Politico
were distributed to Perpetual. See "General Factors Affecting Our Business."
During Fiscal 2007, 2008 and 2009, we were charged by Perpetual under a
tax sharing agreement with Perpetual for federal and state income taxes totaling
$9,734, $5,350 and $4,887, respectively, and we made payments to Perpetual for
these taxes of $9,734, $5,350 and $2,842, respectively.
Stockholder's deficit amounted to $398,809 at September 30, 2009, an
increase of $15,285, or 4.0%, from the September 30, 2008 deficit of $383,524.
The increase was due to a net loss for Fiscal 2009 of $5,572, a net increase in
distributions to owners of $5,080 and the distribution of the equity interests
of WCIV to Perpetual of $4,633.
Indebtedness
Our total debt decreased from $483,408 at September 30, 2008 to $475,240
at September 30, 2009. This debt, net of applicable discounts, consists of
$453,740 of 7 3/4% senior subordinated notes due December 15, 2012 and $21,500
outstanding under our senior credit facility. The decrease of $8,168 in total
debt from September 30, 2008 to September 30, 2009 was primarily due to net
repayments under the senior credit facility of $8,500.
On February 5, 2009, we executed an amendment with an effective date as of
December 31, 2008 to our senior credit facility. The amendment served, among
other things, to adjust certain of the financial covenants. In addition, the
total commitment under the credit facility was
43
reduced from $70,000 to $67,500 effective February 5, 2009 and to $65,000
effective December 31, 2009. On November 13, 2009, the senior credit facility
was further amended to permit the distribution of the equity interests of
Politico to Perpetual.
Our senior credit facility is secured by the pledge of stock of ACC and
its subsidiaries and matures August 23, 2011. Interest is payable quarterly at
various rates from prime plus 1.50% or from LIBOR plus 2.75% depending on
certain financial operating tests.
Under the existing borrowing agreements, we are subject to restrictive
covenants that place limitations upon payments of cash distributions, dividends,
issuance of capital stock, investment transactions, incurrence of additional
obligations and transactions with affiliates. Our senior credit facility
currently contains the most restrictive covenants and limitations of this
nature. 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 September 30, 2009,
we were in compliance with those financial covenants. We are also required to
pay a commitment fee ranging from 0.375% to 0.500% per annum based on the amount
of any unused portion of the senior credit facility.
Our senior credit facility, under which $21,500 was outstanding at
September 30, 2009, has four financial maintenance covenants which are
calculated based on the most recent twelve months of activity as of the end of
each quarter. These financial maintenance covenants include a minimum interest
coverage ratio, maximum total and senior leverage ratios and a minimum fixed
charge coverage ratio. The maximum total leverage ratio covenant is currently
the most restrictive of the four financial maintenance covenants. The total
leverage ratio also serves to limit cash advances to Perpetual. Under our senior
credit facility, the total leverage ratio must not exceed 6.75 in order for such
advances to be made. The calculation for this ratio and the financial covenant
requirement for this ratio as of September 30, 2009 and September 30, 2008 are
provided below.
Calculation Calculation
as of Covenant as of Covenant
September Requirement as of September Requirement as of
30, 2009 September 30, 2009 30, 2008 September 30, 2008
------------ ------------------ ----------- ------------------
Total Leverage Ratio
--------------------
Total debt, plus unamortized debt discount..... $ 476,500 $ 485,000
Consolidated EBITDA, as defined below.......... $ 67,248 $ 69,254
Total debt, plus unamortized debt discount, Must not exceed Must not exceed
divided by Consolidated EBITDA.............. 7.09 8.00 7.00 7.25
44
Consolidated EBITDA is a defined term in our senior credit facility and is
calculated as required by the terms of our senior credit facility as follows:
Calculation for Calculation for
the twelve the twelve
months ended months ended
September 30, September 30,
2009 2008
--------------- ---------------
Net (Loss) Income....................................... $ (5,572) $ 12,873
Loss from discontinued operations, net of tax........... 214 --
(Benefit from) provision for income taxes............... (373) 8,066
Interest expense........................................ 37,180 37,631
Gain on disposal of assets.............................. (6,459) (1,243)
Depreciation and amortization........................... 9,087 9,511
Provision for doubtful accounts......................... 991 1,068
Other noncash charges................................... 32,180 1,348
-------- --------
Consolidated EBITDA..................................... $ 67,248 $ 69,254
======== ========
The calculation for the twelve months ended September 30, 2009 excludes
amounts related to WCIV as required by the senior credit facility. Consolidated
EBITDA is a non-GAAP measure which is only presented for purposes of assisting
the reader in understanding our compliance with our financial covenants. We have
calculated Consolidated EBITDA in accordance with the specific requirements of
our senior credit facility, and this calculation may not be consistent with
similarly titled measures used by other companies. This measure should not be
considered in isolation or as a substitute for measures of performance prepared
in accordance with GAAP.
As noted above, the significant general economic decline during 2009
adversely impacted advertising revenues, and we initiated actions to reduce
costs in response thereto. In light of the adverse impact of the economic
conditions, we obtained an amendment to our senior credit facility that, among
other things, increased the permitted maximum total leverage ratio covenant as
calculated above. The permitted maximum total leverage ratio steps back down
during Fiscal 2010. We believe that based on anticipated results for Fiscal
2010, including the cost reductions we initiated during Fiscal 2009, we will be
able to continue to comply with the financial covenants of our senior credit
facility. However, an unexpected further decline in advertising revenues could
adversely affect our ability to continue to comply with these covenants.
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
45
prospective investors upon request. Although our duty to file such reports with
the SEC was automatically suspended pursuant to Section 15(d) of the Securities
Exchange Act of 1934, effective October 1, 2003, we will continue to file such
reports in accordance with the indenture.
Other Uses of Cash
During Fiscal 2007, 2008 and 2009, we made $6,052, $5,986 and $4,853,
respectively, of capital expenditures. Capital expenditures of $5,986 and $4,853
during the years ended September 30, 2008 and 2009, respectively, are exclusive
of $2,924 and $4,376, respectively, of expenditures related to the replacement
of our broadcast tower and related equipment in Little Rock, Arkansas, as
discussed below. At this time, we estimate that capital expenditures for Fiscal
2010 will be in the approximate range of $5,000 to $6,000, and will primarily be
for the acquisition of technical equipment and vehicles to support ongoing
operations across our stations, including completion of the transition to our
final digital channels. 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.
On January 11, 2008, our broadcast tower in Little Rock, Arkansas
collapsed and fell, causing an interruption in the distribution of the
over-the-air broadcast signals for our station in the Little Rock market. The
tower, the broadcast equipment installed on the tower and certain equipment
located near the tower were destroyed. The distribution of the station's primary
signal via cable and satellite services was restored beginning within hours of
the collapse. A limited over-the-air signal was restored ten days later, on
January 21, 2008. Transmitter power was increased as of March 16, 2008, which
served to enhance the reach and quality of the interim over-the-air signal. We
maintain replacement cost property insurance as well as business interruption
insurance on the tower and equipment affected by the collapse. We have completed
construction of the permanent replacement tower and installation of related
equipment and began broadcasting a full power digital signal from the
replacement tower on February 20, 2009.
During July 2009, the related insurance claim negotiation was finalized.
As a result, the Company recorded a gain on the replacement cost property
portion of the claim of $6,015, reflecting the excess of replacement cost
insurance proceeds over the carrying value of the destroyed assets. This gain is
reflected in other nonoperating income in the accompanying consolidated
statement of operations and retained earnings. In addition, a gain on the
business interruption portion of the claim of $2,811, reflecting the lost
revenue associated with the tower collapse, was also recorded during the quarter
ended September 30, 2009. This gain is reflected in net operating revenues in
the accompanying consolidated statement of operations and retained earnings.
Proceeds received from the insurance company are reflected within investing
activities in the accompanying consolidated statements of cash flows to the
extent of claim-related capital expenditures during that period. Proceeds in
excess of claim-related capital expenditures are reflected within operating
activities.
We regularly enter into program contracts for the right to broadcast
television programs produced by others and program commitments for the right to
broadcast programs in the future. Such programming commitments are generally
made to replace expiring or cancelled program rights. During Fiscal 2007, 2008
and 2009, we made cash payments of approximately $10,800,
46
$10,800 and $11,300, respectively, for rights to television programs. We
anticipate cash payments for program rights will be in the approximate range of
$11,000 to $12,000 per year for Fiscal 2010 through 2014. We currently intend to
fund these commitments with cash provided by operations.
The following table presents the long-term debt maturities, required
payments under contractual agreements for broadcast rights, future minimum lease
payments under noncancellable leases and guaranteed payments under employment
contracts and deferred compensation agreements as of September 30, 2009:
Fiscal Year Ending September 30,
----------------------------------------------------------
2010 2011 2012 2013 2014 Thereafter Total
-------- -------- -------- --------- ------- ---------- ---------
Long-term debt.................... $ -- $ 21,500 $ -- $ 455,000 $ -- $ -- $ 476,500
Interest payments on senior
subordinated notes............. 35,263 35,263 35,263 17,631 -- -- 123,420
Programming contracts -- currently
available...................... 12,618 552 403 324 -- -- 13,897
Programming contracts -- future
commitments.................... 942 10,063 4,749 346 -- -- 16,100
Operating leases.................. 4,745 4,700 4,554 4,632 4,764 16,705 40,100
Employment contracts.............. 10,117 4,086 331 77 -- -- 14,611
Deferred compensation............. 587 369 169 96 -- -- 1,221
-------- -------- -------- --------- ------- -------- ---------
Total....................... $ 64,272 $ 76,533 $ 45,469 $ 478,106 $ 4,764 $ 16,705 $ 685,849
======== ======== ======== ========= ======= ======== =========
Interest payments under our senior credit facility have not been included
in the above table as such payments fluctuate depending on the market rates of
interest and the amount outstanding under the senior credit facility.
We also have certain obligations and commitments under various executory
agreements to make future payments for goods and services. These agreements
secure the future rights to certain goods and services to be used in the normal
course of operations.
Based upon our current level of operations, we believe that available
cash, together with cash flows generated by operating activities as well as
amounts available both under the senior credit facility and from repayments of
distributions to owners, will be adequate to meet our anticipated future
requirements for working capital, capital expenditures and scheduled payments of
interest on our debt for the next twelve months.
ACC's cash flow from operations and consequent ability to service its debt
is, in part, dependent upon the earnings of its subsidiaries and the
distribution (through dividends or otherwise) of those earnings to ACC, or upon
loans, advances or other payments of funds by those subsidiaries to ACC. As of
September 30, 2009, 52% of the assets of ACC were held by operating subsidiaries
and for Fiscal 2009, approximately 52% of ACC's net operating revenues were
derived from the operations of ACC's subsidiaries.
47
Income Taxes
Our operations are included in a consolidated federal income tax return
filed by Perpetual. In accordance with the terms of a tax sharing agreement
between ACC and Perpetual, we are required to pay to Perpetual our federal
income tax liability, computed based upon statutory federal income tax rates
applied to our consolidated taxable income. We file separate state income tax
returns with the exception of Virginia, which is included in a combined state
income tax return filed by Perpetual. In accordance with the terms of the tax
sharing agreement, we are required to pay to Perpetual our combined Virginia
income tax liability, computed based upon statutory Virginia income tax rates
applied to our combined Virginia net taxable income. Taxes payable to Perpetual
are not reduced by losses generated in prior years by us. In addition, the
amounts payable by us to Perpetual under the tax sharing agreement are not
reduced if losses of other members of the Perpetual group are utilized to offset
our taxable income for purposes of the Perpetual consolidated federal or
Virginia state income tax returns.
The provision for income taxes is determined in accordance with the
accounting rules for income taxes, which require that the consolidated amount of
current and deferred income tax expense for a group that files a consolidated
income tax return be allocated among members of the group when those members
issue separate financial statements. Perpetual allocates a portion of its
consolidated current and deferred income tax expense to us as if we and our
subsidiaries were separate taxpayers. We record deferred tax assets, to the
extent it is considered more likely than not that such assets will be realized
in future periods, and deferred tax liabilities for the tax effects of the
differences between the bases of our assets and liabilities for tax and
financial reporting purposes.
We record income tax expense in accordance with the accounting rules for
income taxes and make payments to Perpetual in accordance with the terms of the
tax sharing agreement between us and Perpetual. To the extent that there is a
difference between tax payments that would be due as calculated in accordance
with the accounting rules and tax payments due under the tax sharing agreement,
such difference is recorded to retained earnings.
Inflation
The impact of inflation on our consolidated financial condition and
consolidated results of operations for each of the periods presented was not
material.
Subsequent Event
On November 13, 2009, the equity interests of Politico, our wholly-owned
subsidiary, were distributed to Perpetual. As this distribution represents a
transaction between parties under common control, the operations of Politico
must be reflected in continuing operations until the period in which the
distribution has been consummated. In our future financial statements, the
operating results of Politico after November 13, 2009 will be excluded, and the
operating results through November 13, 2009 will be presented as discontinued
operations for all periods presented. The November 13, 2009 distribution of the
equity interests of Politico will be reflected as a distribution to owners at
historical cost.
48
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires us to make judgments
and estimates that affect the amounts reported in our consolidated financial
statements and accompanying notes. We base our estimates on historical
experience and assumptions we consider reasonable at the time of making those
estimates. We evaluate our estimates on an on-going basis. Actual results may
differ from these estimates under different circumstances or using different
assumptions. We consider the following accounting policies to be critical to our
business operations and the understanding of our financial condition and results
of operations.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. As is
customary in the broadcasting industry, we do not require collateral for our
credit sales, which are typically due within thirty days. If the economy and/or
the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make their payments, additional allowances may be
required.
Intangible Assets
Intangible assets consist of values assigned to broadcast licenses as well
as favorable terms on contracts and leases. The amounts originally assigned to
intangible assets were based on the results of independent valuations. The
carrying value of our indefinite lived intangible assets, consisting of
broadcast licenses, was $42,290 and $11,590 at September 30, 2008 and 2009,
respectively. Other intangible assets, consisting of favorable terms on
contracts and leases, were amortized over the terms of the respective contracts
and leases, and these assets became fully amortized during the first quarter of
Fiscal 2008.
In accordance with the accounting rules for intangible assets, such assets
deemed to have indefinite lives are not amortized but are subject to tests for
impairment at least annually, or whenever events indicate that impairment may
exist. Other intangible assets continue to be amortized over their useful lives.
Our indefinite lived intangible assets, consisting of broadcast licenses,
are subject to impairment tests annually on September 30 as well as on an
interim basis whenever events indicate that an impairment may exist. During the
quarter ended March 31, 2009, events occurred which indicated that an impairment
of certain broadcast licenses may exist. The events included the decline in the
overall economy, forecasts for negative industry-wide advertising growth in
2009, and reduced revenue projections and related cost reduction measures within
the Company. Thus, such broadcast licenses were tested for impairment as of
March 31, 2009. The tests indicated that four broadcast licenses in our Other
Television Stations reportable segment were impaired. As a result, we recorded a
non-cash impairment charge of $27,700 during the quarter ended March 31, 2009.
The annual impairment test as of September 30, 2009 indicated
49
that a further impairment had occurred with respect to these four broadcast
licenses, resulting in a non-cash impairment charge of $3,000 during the quarter
ended September 30, 2009.
We use an income approach to determine the fair value of our broadcast
licenses on a station-by-station basis. Any excess of carrying value over fair
value represents the amount of impairment. The income approach assumes an
initial hypothetical start-up operation, maturing into an average performing
independent or non-affiliated station in a specific television market and giving
consideration to other relevant factors such as the number of competing stations
within that market. The net cash flows of this hypothetical average market
participant are projected from the first year start-up to perpetuity and then
discounted back to net present value. The calculated valuation is compared to
market transactions in order to confirm the results of the income approach.
The following key valuation assumptions were made for an average market
participant in our specific markets as of March 31, 2009: (a) a pre-tax discount
rate of 13.5%; (b) compound annual market revenue growth rates ranging from 1.1%
- 2.5%; and (c) operating profit margins, excluding depreciation and
amortization, after the hypothetical start-up period ranging from 24.7% - 26.3%.
These assumptions as of September 30, 2009 were: (a) a pre-tax discount rate of
14.3%; (b) compound annual market revenue growth rates ranging from 1.0% - 2.5%;
and (c) operating profit margins, excluding depreciation and amortization, after
the hypothetical start-up period ranging from 24.8% - 26.5%. The discount rate
represents the current weighted average cost of capital that would be expected
in our industry for an average market participant, taking into account the
typical split between debt and equity financing within our industry, the rate of
return required by investors for an investment with similar risk as well as
market risk premiums. The compound annual market revenue growth rates are based
on our historical experience within the respective market as well as
market-specific and industry-wide future projections. The operating profit
margins, excluding depreciation and amortization, are determined based on
margins achieved by average market participants in similar markets with similar
competitive environments.
The valuation declines at March 31, 2009 and resulting impairment were
primarily due to an approximate 20% reduction in base year television market
revenues as well as lower compound annual market revenue growth rates,
particularly in the first few years of the projection, to 1.1%-2.5% as compared
to prior estimates of 3.5%. While we did project future revenue growth, no true
recovery from the 2009 revenue decline has been reflected in these market growth
rate projections. Additionally, the discount rate has increased from 11.2% to
13.5%, reflecting the current difficulties in the credit markets. These changes
are all due to the current economic downturn and credit crisis, which has
adversely affected advertising revenues and station valuations, particularly for
independent or non-affiliated stations.
The further valuation declines at September 30, 2009 were primarily due
to: (1) additional reductions in market revenues for the base year as compared
to projections as of March 31, 2009, (2) an increase in the discount rate from
13.5% to 14.3%, reflecting the continuing challenges in the credit markets,
particularly for start-up companies, and (3) reduced revenue share for
independent or non-affiliated television stations. These changes are all due to
the current
50
economic downturn and credit crisis, which has continued to adversely affect
advertising revenues and station valuations, particularly for independent or
non-affiliated stations.
The performance of impairment tests requires significant management
judgment. Future events affecting cash flows, general economic or market
conditions or accounting standards could result in further impairment losses.
Income Taxes
We account for income taxes in accordance with the accounting rules for
income taxes. We recognize deferred tax assets and liabilities based on the
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities. We regularly review our deferred tax assets for
recoverability and establish a valuation allowance if it is more likely than not
that the deferred tax assets will not be realized. This assessment is based on
historical taxable income, projected future taxable income and the expected
timing of the reversals of existing temporary differences. If we are unable to
generate sufficient taxable income, or if there is a material change in the
actual effective tax rates or time period within which the underlying temporary
differences become taxable or deductible, we could be required to establish a
valuation allowance against all or a significant portion of our deferred tax
assets resulting in a substantial increase in our effective tax rate and an
adverse impact on our operating results.
Our operations are included in a consolidated federal income tax return
filed by Perpetual. In accordance with the terms of a tax sharing agreement
between us and Perpetual, we are required to pay to Perpetual our federal income
tax liability, computed based upon statutory federal income tax rates applied to
our consolidated taxable income. We file separate state income tax returns with
the exception of Virginia, which is included in a combined state income tax
return filed by Perpetual. In accordance with the terms of the tax sharing
agreement, we are required to pay to Perpetual our combined Virginia income tax
liability, computed based upon statutory Virginia income tax rates applied to
our combined Virginia net taxable income. Taxes payable to Perpetual are not
reduced by losses generated in prior years by us. In addition, the amounts
payable to Perpetual under the tax sharing agreement are not reduced if losses
of other members of the Perpetual group are utilized to offset our taxable
income for purposes of the Perpetual consolidated federal or Virginia income tax
returns.
The accounting rules for income taxes require that the consolidated amount
of current and deferred income tax expense for a group that files a consolidated
income tax return be allocated among members of the group when those members
issue separate financial statements. Perpetual allocates a portion of its
consolidated current and deferred income tax expense to us as if we and our
subsidiaries were separate taxpayers. We record deferred tax assets, to the
extent it is more likely than not that such assets will be realized in future
periods, and deferred tax liabilities for the tax effects of the differences
between the bases of our assets and liabilities for tax and financial reporting
purposes.
We record income tax expense in accordance with the accounting rules for
income taxes and make payments to Perpetual in accordance with the terms of the
tax sharing agreement between us and Perpetual. To the extent that there is a
difference between tax payments that
51
would be due as calculated in accordance with the accounting rules for income
taxes and tax payments due under the tax sharing agreement, such difference is
recorded to retained earnings.
In June 2006, the FASB issued new guidance related to accounting for
uncertainty in income taxes. This guidance clarifies the accounting for
uncertainty in income taxes by prescribing a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. The new guidance
was adopted on October 1, 2007. We classify interest and penalties related to
its uncertain tax positions as a component of income tax expense.
Our provision for income taxes and related deferred tax assets and
liabilities reflect our estimates of actual future taxes to be paid. Such
estimates are based on items reflected in the consolidated financial statements,
considering timing as well as the sustainability of our tax filing positions.
Actual income taxes paid could vary from our estimates as a result of future
changes in income tax law or reviews by federal or various state and local tax
authorities.
New Accounting Standards
In September 2006, the FASB issued new guidance on fair value
measurements. This new guidance defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. The
guidance does not expand or require any new fair value measures but is
applicable whenever another accounting pronouncement requires or permits assets
and liabilities to be measured at fair value. In February 2008, the FASB delayed
the effective date of this guidance for non-financial assets and liabilities,
except for those that are recognized or disclosed at fair value in the financial
statements on a recurring basis, until our year ending September 30, 2010. We
adopted the guidance for financial assets and liabilities as of October 1, 2008.
The adoption had no impact on our financial position or results of operations.
We are currently evaluating the impact, if any, that the adoption related to
non-financial assets and liabilities which are not recognized or disclosed on a
recurring basis may have on our financial position or results of operations.
In February 2007, the FASB issued new guidance which permits entities to
choose to measure many financial instruments and certain other items at fair
value. We adopted this guidance as of October 1, 2008. The adoption had no
impact on our financial position or results of operations.
In April 2009, the FASB issued new guidance requiring disclosures about
fair value of financial instruments, which were previously required only on an
annual basis, for interim reporting periods. This guidance was effective for our
quarter ended June 30, 2009. The adoption had no impact on our financial
position or results of operations.
In May 2009, the FASB issued new guidance to establish general standards
of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
This guidance was effective for our quarter ended June 30, 2009. The adoption
had no impact on our financial position or results of operations.
52
In June 2009, the FASB issued new guidance to establish the FASB
Accounting Standards Codification (the "Codification") as the single source of
authoritative nongovernmental U.S. generally accepted accounting principles
("GAAP"). This guidance is effective beginning with our financial statements
issued for the year ended September 30, 2009. As the Codification does not
change GAAP, the adoption had no impact on our financial position or results of
operations.
In October 2009, the FASB issued new guidance on revenue arrangements with
multiple deliverables. The guidance revises the criteria for separating,
measuring and allocating arrangement consideration to each deliverable in a
multiple element arrangement. This guidance is effective for our year ending
September 30, 2011. We are currently evaluating the impact, if any, that this
guidance may have on our financial position or results of operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as defined by Item 303 of
Regulation S-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
(dollars in thousands)
At September 30, 2009, 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 September 30,
2009, the carrying value of such debt was $453,740, the fair value was
approximately $428,000 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 fixed interest rate debt by using quoted market prices.
We actively monitor the capital markets in analyzing our capital raising
decisions.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
See Index on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
53
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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 September 30, 2009.
Based on this evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that the disclosure controls and procedures are
effective.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). To evaluate the effectiveness of the Company's internal
control over financial reporting, the Company uses the framework in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Using the framework in Internal
Control - Integrated Framework, management, including the CEO and CFO, evaluated
the Company's internal control over financial reporting and concluded that the
Company's internal control over financial reporting was effective as of
September 30, 2009. This annual report does not include an attestation report of
the Company's registered public accounting firm regarding internal control over
financial reporting pursuant to temporary rules of the SEC that permit the
Company to provide only management's report in this annual report.
Changes in Internal Control over Financial Reporting
In response to a comment raised by the staff of the Securities and
Exchange Commission ("SEC") concerning the Company's segment disclosures,
management and the Board of Directors of the Company, upon recommendation from
the Audit Committee, concluded that the previous segment disclosures should be
restated. This restatement has been presented in this Annual Report on Form
10-K. The Company has concluded that its restated segment disclosures consist of
three reportable segments, WJLA/NewsChannel 8, Other Television Stations and
Politico, in accordance with the accounting rules for segment reporting.
Management and the Board of Directors concluded that the Company's previous
application of these rules was not correct and represented a material weakness
in the application of segment disclosure requirements in its financial
reporting. This was remediated by making certain modifications to the monthly
financial reporting package provided to the Company's chief operating decision
maker and enhancing the process of compiling and reviewing the reporting package
in connection with segment reporting requirements. As a result, the information
provided to the chief operating decision maker is now consistent with the
Company's forward-looking conclusion that it has one operating segment and thus
one reportable segment. These changes have been made to ensure that the
technical aspects of accounting rules for segment reporting are properly
considered and applied.
Other than the changes described above, there have been no other changes
in internal control over financial reporting during the most recently completed
fiscal quarter that have
54
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
In connection with the Company's preparation of the financial statements
for the year ended September 30, 2009, the Company performed annual impairment
tests of its indefinite lived intangible assets. The tests indicated that four
broadcast licenses in the Other Television Stations reportable segment were
impaired. As a result, the Company recorded a non-cash impairment charge of
$3,000 during the quarter ended September 30, 2009. It is not expected that this
impairment charge will result in future cash expenditures. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Critical Accounting Policies and Estimates." The disclosure set forth in this
Item 9B is included in this Annual Report on Form 10-K in accordance with the
instructions to Item 2.06 of Form 8-K.
55
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officers and Directors
Executive officers and directors of ACC are as follows:
Name Age Title
------------------------- --- -------------------------------------------------
Barbara B. Allbritton 72 Executive Vice President and Director
Robert L. Allbritton 40 Chairman, Chief Executive Officer and Director
Frederick J. Ryan, Jr. 54 Vice Chairman, President, Chief Operating Officer
and Director
Jerald N. Fritz 58 Senior Vice President, Legal and Strategic Affairs,
General Counsel
Stephen P. Gibson 44 Senior Vice President and Chief Financial Officer
James C. Killen, Jr. 47 Vice President, Sales
__________
BARBARA B. ALLBRITTON has been a Director of ACC since its inception, Vice
President of ACC from 1980 to 2001 and Executive Vice President since 2001. She
currently serves as an officer and/or director of each of ACC's television
subsidiaries, as well as Perpetual, The Allbritton Foundation and the Allbritton
Art Institute. She currently serves as a trustee of Baylor College of Medicine
and a director of Blair House Restoration Fund. She was formerly a director of
Riggs Bank N.A. and The Foundation for the National Archives. Mrs. Allbritton is
the wife of Joe L. Allbritton and the mother of Robert L. Allbritton. See
"Certain Relationships and Related Transactions."
ROBERT L. ALLBRITTON has been Chairman of the Board of Directors and Chief
Executive Officer of ACC since February 2001 and a Director of ACC since 1993.
Mr. Allbritton was Executive Vice President and Chief Operating Officer of ACC
from 1994 to 1998 and President of ACC from 1998 to 2001. He is also an officer
and/or director of Perpetual, each of ACC's subsidiaries, The Allbritton
Foundation and the Allbritton Art Institute. He has been involved in management
of the television properties at both the corporate and daily operational levels,
including financial, technical, strategic, programming, sales, news and
promotion. He is also founder and Publisher of Politico, which launched in
January 2007. In addition to his positions with ACC, Mr. Allbritton was the
Chairman of the Board of Directors and Chief Executive Officer of Riggs National
Corporation ("Riggs") from 2001 until 2005 and a Director of Riggs from 1994
until 2005. Mr. Allbritton has served on the Board of Directors of the Lyndon B.
Johnson Foundation since 2002, and on the Board of Trustees of Wesleyan
University since 2003. He served on the Board of Directors of Juniper Content
Corporation from January to
56
November 2007. He is the son of Joe L. and Barbara B. Allbritton. See "Certain
Relationships and Related Transactions."
FREDERICK J. RYAN, JR. has been President of ACC since February 2001,
Chief Operating Officer since 1998 and a Director and its Vice Chairman since
1995. He has served as Senior Vice President and Executive Vice President of ACC
and is an officer of each of its television subsidiaries. He is also President,
Chief Executive Officer and a Manager of Politico. He previously served as Chief
of Staff to former President Ronald Reagan (1989-1995) and Assistant to the
President in the White House (1982-1989). Prior to his government service, Mr.
Ryan was an attorney with the Los Angeles firm of Hill, Farrer and Burrill. Mr.
Ryan presently serves as Chairman of the Ronald Reagan Presidential Library
Foundation, Vice Chairman of the White House Historical Association, a trustee
of Ford's Theatre, a trustee of the National Museum of American History, and a
member of the Board of Councilors of the Annenberg School of Communications at
the University of Southern California.
JERALD N. FRITZ has been part of ACC's management since 1987, currently
serving as a Senior Vice President. He serves as its General Counsel and also
oversees strategic planning and governmental affairs. From 1981 to 1987, Mr.
Fritz held several positions with the FCC, including Chief of Staff and Legal
Counsel to the Chairman. Mr. Fritz was in private practice from 1978 to 1981,
specializing in communications law, and from 1980 to 1983 was on the adjunct
faculty of George Mason University Law School teaching communications law and
policy. Mr. Fritz began his career in broadcasting in 1973 with WGN-TV, Chicago.
He is a former director of the National Association of Broadcasters ("NAB"). Mr.
Fritz currently serves on the NAB's Copyright Committee and is a former division
chair of the Communications Forum of the American Bar Association as well as the
past Co-Chair of the Pre-Publication Committee of the Media Law Resource Center.
STEPHEN P. GIBSON has been a Senior Vice President of ACC since February
2001 and a Vice President since 1997. He has served as Chief Financial Officer
since 1998 and Controller from 1997, when he joined the Company, to 1998. He is
also Assistant Treasurer of The Allbritton Foundation and Vice President of
Perpetual and each of ACC's subsidiaries. Prior to joining ACC, Mr. Gibson
served as Controller for COMSAT RSI Plexsys Wireless Systems, a provider of
wireless telecommunications equipment and services, from 1994 to 1997. From 1987
to 1994, Mr. Gibson held various positions with the accounting firm of Price
Waterhouse LLP, the latest as Audit Manager. He served as an elected director of
the Broadcast Cable Financial Management Association from 2002 until 2005.
JAMES C. KILLEN, JR. joined ACC as Vice President, Sales in November 2004
to oversee, coordinate and support all aspects of advertising sales for the
Company. Prior to joining ACC, Mr. Killen held various sales positions with NBC
from 1992 until 2004, most recently Local Sales Manager and New York National
Sales Manager of NBC4 in Washington, D.C. His network experience included
several years as an NBC Account Manager selling the NBC owned and operated
stations.
57
Code of Ethics for Senior Financial Officers
Our Board of Directors has adopted a Code of Ethics for Senior Financial
Officers. A copy of the Code of Ethics is incorporated by reference as an
exhibit to this Annual Report on Form 10-K.
Audit Committee Financial Expert
The members of our Audit Committee are Robert L. Allbritton and Frederick
J. Ryan, Jr. The Board of Directors has determined that it does not currently
have an "audit committee financial expert" as defined by Item 401(h) of
Regulation S-K. As the Company is privately held, the Board of Directors is not
currently considering expanding its members in order to include an "audit
committee financial expert" as defined.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview and Objectives
Our executive compensation program is designed to attract, retain and
reward qualified executives and encourage decisions and actions that have a
positive impact on Company performance. It is our objective to set total
executive compensation at a level that attracts and retains strong, competent
leadership for the Company. A further objective of the compensation program is
to provide incentives and rewards to each executive for their contribution to
the Company.
The Company's compensation program, primarily consisting of salary and
bonus payments to the Company's executive officers, who are named in the Summary
Compensation Table appearing elsewhere in this Item and are referred to as the
"named executive officers," is a cash program. At this time, there are no stock
options, stock awards or any other equity-based programs as part of the
Company's compensation program.
The Company's executives do not have employment agreements that might
include provisions for change in control, severance arrangements, equity or
security ownership, or other such matters.
Compensation Process
We do not have a compensation committee of our Board of Directors, and our
Board generally does not seek input from outside compensation consultants with
respect to annual compensation decisions.
58
Our Chairman and Chief Executive Officer, with input from our President
and Chief Operating Officer, annually reviews the performance of each of the
named executive officers and determines their compensation levels. Compensation
levels for our Chairman and Chief Executive Officer and President and Chief
Operating Officer are established in the same manner as our other executive
officers in consultation with the third member of our Board of Directors.
Elements of Compensation
The principal elements of the Company's executive compensation consist of
the following:
o Base Salary;
o Annual Cash Bonuses;
o Perquisites and Other Compensation; and
o Health Benefits.
Base Salary. The base salary component of the Company's executive
compensation program provides each named executive officer with a fixed minimum
amount of cash compensation throughout the year. Salaries are determined by
position, which takes into consideration the responsibilities and job
performance of each named executive officer and competitive market compensation
paid by other companies for similar positions. Base salary amounts are
determined in the first quarter of the fiscal year.
Annual Cash Bonuses. The Company does not utilize defined formulas for
bonuses paid to its executive officers, including its named executive officers.
The payment of cash bonuses is made on a discretionary basis and is determined
based on an evaluation of each executive's individual performance. The annual
cash bonuses are intended to reward individuals based on their contributions to
the overall success of the Company. Bonuses are generally paid in the first
quarter following the end of the fiscal year for which performance is being
rewarded.
Perquisites and Other Compensation. We also provide our named executive
officers with other benefits that we believe are reasonable and consistent with
the stated objectives of the Company's executive compensation program. Such
benefits include the following:
o Company contributions to our defined contribution 401(k) savings
plan;
o Use of a Company-provided automobile or payment of an automobile
allowance;
o Company-paid parking; and
o Reimbursement for membership in certain clubs.
The Company provides all eligible employees a 50% matching contribution on
up to 6% of compensation deferred through an IRS qualified 401(k) savings plan.
Under the 401(k) plan, employees may contribute a portion of their compensation
subject to IRS limitations. Effective February 1, 2009, the Company indefinitely
suspended its matching contributions. The Company does not have a defined
benefit pension plan.
Health Benefits. All full-time employees, including our named executive
officers, may participate in our group health benefit program, including
medical, dental and vision care coverage, disability insurance and life
insurance. In addition, our named executive officers are also covered under a
supplemental executive long-term disability insurance program.
59
Determination of Fiscal 2009 Compensation
Our goals for Fiscal 2009 were to provide an executive compensation
program that was equitable in a competitive marketplace and recognized and
rewarded individual achievements. To achieve such goals, we relied primarily on
base salaries, cash bonuses and other compensation for each of our named
executive officers. Compensation levels for each named executive officer were
determined based on the position and responsibility of such executive, his
impact on the operation and financial performance of the Company and the
knowledge and experience of such executive. These factors were considered as a
group, without particular weight given to any single factor, and were
necessarily subjective in nature.
60
Summary Compensation Table
The following table sets forth certain compensation information for our
Chief Executive Officer, Chief Financial Officer and each of our three other
most highly compensated executive officers for the fiscal years ended September
30, 2007, 2008 and 2009:
Fiscal All Other
Name and Principal Position Year Salary Bonus Compensation Total
-------------------------------- ------ --------- --------- ---------------- ---------
Robert L. Allbritton 2009 $ 750,000 $ -- $ -- $ 750,000
Chairman and 2008 600,000 212,500 -- 812,500
Chief Executive Officer 2007 550,000 250,000 -- 800,000
Frederick J. Ryan, Jr. 2009 585,000 100,000 38,662 723,662
President and Chief 2008 550,000 212,500 44,169 806,669
Operating Officer 2007 500,000 250,000 40,554 790,554
Stephen P. Gibson 2009 340,000 75,000 29,949 444,949
Senior Vice President and 2008 325,000 106,250 35,684 466,934
Chief Financial Officer 2007 300,000 125,000 36,073 461,073
James C. Killen, Jr. 2009 340,000 75,000 37,643 452,643
Vice President, Sales 2008 325,000 93,500 40,365 458,865
2007 300,000 110,000 38,956 448,956
Jerald N. Fritz 2009 300,000 45,000 30,011 375,011
Senior Vice President, Legal 2008 290,000 85,000 35,492 410,492
and Strategic Affairs 2007 275,000 100,000 35,847 410,847
___________
Robert L. Allbritton is paid cash compensation by Perpetual for services to
Perpetual and other interests of Joe L. Allbritton, including ACC. The
portion of such compensation related to ACC is allocated to ACC and also
included as compensation above.
Frederick J. Ryan, Jr. is paid cash compensation by ACC for services to
ACC, which is included as compensation above. In addition, Mr. Ryan is also
separately paid cash compensation by Perpetual for services to Perpetual
and other interests of Joe L. Allbritton.
Stephen P. Gibson is paid cash compensation by ACC for services to ACC,
which is included as compensation above. In addition, Mr. Gibson is also
separately paid cash compensation by Perpetual for services to Perpetual
and other interests of Joe L. Allbritton.
Jerald N. Fritz is paid cash compensation by ACC for services to ACC and
Perpetual. Of the compensation shown in the table for Mr. Fritz, $11,000,
$14,500 and $21,000 represent the portion of such compensation related to
Perpetual, and has been allocated to Perpetual in Fiscal 2007, 2008 and
2009, respectively.
Amounts in this column consist of dollar values of perquisites and other
benefits including amounts contributed by the Company on behalf of our
named executive officers to our defined contribution 401(k) savings plan,
use of a Company-provided automobile or an automobile allowance, premiums
for group health and term life insurance and executive disability plans,
parking and club membership reimbursements.
Compensation of Directors
Our directors are not separately compensated for membership on the
Board of Directors.
61
Compensation Committee
We do not have a compensation committee of our Board of Directors. Our
Chairman and Chief Executive Officer, with input from our President and Chief
Operating Officer, annually reviews the performance of each of the named
executive officers and determines their compensation levels. Compensation levels
for our Chairman and Chief Executive Officer and President and Chief Operating
Officer are established in the same manner as our other executive officers in
consultation with the third member of our Board of Directors, who is also an
Executive Officer of the Company.
Compensation Committee Report
Our Board of Directors has reviewed and discussed with management the
Compensation Discussion and Analysis contained in this Form 10-K. Based on this
review and discussion, our Board of Directors recommends that the Compensation
Discussion and Analysis be included in this Form 10-K for the fiscal year ended
September 30, 2009.
Barbara B. Allbritton
Robert L. Allbritton
Frederick J. Ryan, Jr.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The authorized capital stock of ACC consists of 20,000 shares of common
stock, par value $0.05 per share (the "ACC Common Stock"), all of which is
outstanding, and 1,000 shares of preferred stock, 200 shares of which have been
designated for issue as Series A Redeemable Preferred Stock, par value $1.00 per
share (the "Series A Preferred Stock"), no shares of which are issued and
outstanding.
ACC Common Stock
The Allbritton family controls Perpetual. Perpetual owns 100% of the
outstanding common stock of AG, and AG owns 100% of the outstanding ACC Common
Stock. Perpetual's address is 1000 Wilson Boulevard, Suite 2700, Arlington,
Virginia 22209. There is no established public trading market for ACC Common
Stock.
Each share of ACC Common Stock has an equal and ratable right to receive
dividends when and as declared by the Board of Directors of ACC out of assets
legally available therefor.
In the event of a liquidation, dissolution or winding up of ACC, holders
of ACC Common Stock are entitled to share ratably in assets available for
distribution after payments to creditors and to holders of any preferred stock
of ACC that may at the time be outstanding. The holders of ACC Common Stock have
no preemptive rights to subscribe to additional shares of capital stock
62
of ACC. Each share of ACC Common Stock is entitled to one vote in elections of
directors and all other matters submitted to a vote of ACC's stockholder.
Equity Compensation Plans
ACC does not have any compensation plans or individual compensation
arrangements under which ACC Common Stock or Series A Preferred Stock are
authorized for issuance.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
(dollars in thousands)
Distributions to Related Parties
Effective August 1, 2009, the equity interests of WCIV, a wholly-owned
subsidiary of the Company, were distributed to Perpetual. As the operations of
WCIV constitute a component of the Company, the operating results of WCIV
through July 31, 2009 have been presented as discontinued operations for all
periods presented. The August 1, 2009 distribution of the equity interests of
WCIV is reflected as a distribution to owners at historical cost, or $4,633, in
the accompanying statement of operations and retained earnings.
ACC has periodically made advances in the form of distributions to
Perpetual. For Fiscal 2009, ACC made cash advances to Perpetual of $9,050 and
Perpetual made repayments on these cash advances of $1,925. The advances to
Perpetual are non-interest bearing and, as such, do not reflect market rates of
interest-bearing loans to unaffiliated third parties. In addition, ACC was
charged by Perpetual for federal and state income taxes of $4,887 and made
payments to Perpetual for federal and state income taxes in the amount of
$2,842, resulting in taxes due to Perpetual of $2,045 at September 30, 2009. As
a result of making advances of tax payments in accordance with the terms of the
tax sharing agreement between ACC and Perpetual, we earned interest income from
Perpetual in the amount of $112. See "Income Taxes" below.
At present, the primary source of repayment of 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 governing 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 the notes and our other debt, ACC will
make advances, distributions or dividends to related parties in the future.
Subsequent to September 30, 2009 and through December 18, 2009, we made no cash
distributions to owners. On November 13, 2009, the equity interests of Politico,
our wholly-owned subsidiary, were distributed to Perpetual.
63
Management Fees
We paid management fees of $750 to Perpetual for Fiscal 2009, and we
expect that management fees to be paid to Perpetual during Fiscal 2010 will
approximate the amount paid for Fiscal 2009. These management fees reflect the
compensation allocations referenced in the Executive Compensation Table as well
as the net allocation of other shared costs. We believe that payments to
Perpetual will continue in the future and that the amount of the management fees
is at least as favorable to us as those prevailing for comparable transactions
with or involving unaffiliated parties.
Income Taxes
Our operations are included in a consolidated federal income tax return
filed by Perpetual. In accordance with the terms of a tax sharing agreement
between ACC and Perpetual, ACC is required to pay to Perpetual its federal
income tax liability, computed based upon statutory federal income tax rates
applied to our consolidated taxable income. We file separate state income tax
returns with the exception of Virginia which is included in a combined state
income tax return filed by Perpetual. In accordance with the terms of the tax
sharing agreement, we are required to pay to Perpetual our combined Virginia
income tax liability, computed based upon statutory Virginia income tax rates
applied to our combined Virginia net taxable income. Taxes payable to Perpetual
are not reduced by losses generated in prior years by us. In addition, the
amounts payable by us to Perpetual under the tax sharing agreement are not
reduced if losses of other members of the Perpetual group are utilized to offset
our taxable income for purposes of the Perpetual consolidated federal or
Virginia state income tax returns.
The provision for income taxes is determined in accordance with the
accounting rules for income taxes, which require that the consolidated amount of
current and deferred income tax expense for a group that files a consolidated
income tax return be allocated among members of the group when those members
issue separate financial statements. Perpetual allocates a portion of its
consolidated current and deferred income tax expense to us as if we and our
subsidiaries were separate taxpayers. We record deferred tax assets, to the
extent it is considered more likely than not that such assets will be realized
in future periods, and deferred tax liabilities for the tax effects of the
differences between the bases of its assets and liabilities for tax and
financial reporting purposes.
We record income tax expense in accordance with the accounting rules for
income taxes and make payments to Perpetual in accordance with the terms of the
tax sharing agreement between us and Perpetual. To the extent that there is a
difference between tax payments that would be due as calculated in accordance
with the accounting rules for income taxes and tax payments due under the tax
sharing agreement, such difference is recorded to retained earnings.
Office Space
We lease certain office space to Irides, LLC ("Irides"). Irides is a
wholly-owned subsidiary of Allbritton New Media, Inc. ("ANMI") which in turn is
an 80%-owned subsidiary of Perpetual. The remaining 20% of ANMI is owned by Mr.
Robert L. Allbritton who has options to acquire
64
up to a total of 80% ownership of ANMI. Charges for this space totaled $149 for
Fiscal 2009, and we expect to receive $154 during Fiscal 2010. We believe that
the terms of the lease are substantially the same or at least as favorable to
ACC as those prevailing for comparable leases involving nonaffiliated companies.
Internet Services
We have entered into various agreements with Irides to provide our
stations with website design, hosting and maintenance services. We incurred fees
of $475 to Irides during Fiscal 2009, and we expect to pay fees to Irides during
Fiscal 2010 for services performed of approximately $325. We believe that the
terms and conditions of the agreements are substantially the same or at least as
favorable to us as those prevailing for comparable transactions with or
involving nonaffiliated companies.
Director Independence
There are no independent members of our Board of Directors as each member
of our Board is also an executive officer of the Company. As the Company is
privately held, the Board of Directors is not currently considering expanding
its members in order to include independent directors.
Review and Approval of Transactions with Related Parties
The Company is subject to various restrictive covenants covering
transactions with related parties under its existing debt agreements. Our
directors and executive officers are made aware of the Company's obligations to
identify, process and disclose such transactions in order to comply with these
covenants. Our directors and executive officers are also expected to promptly
disclose to the Chairman and Chief Executive Officer or the President and Chief
Operating Officer, for review and approval, the material facts of any
transaction that could be considered a related party transaction that is
otherwise permissible under the terms of the Company's debt covenants.
On an annual basis, each director and executive officer of the Company
must complete and certify to a Director and Officer Questionnaire that requires
disclosure of any transaction, arrangement or relationship with the Company
during the last fiscal year in which the director or executive officer, or any
member of his or her immediate family, had a direct or indirect material
interest. Any transaction, arrangement, or relationship disclosed in the
Director and Officer Questionnaire is reviewed and considered by our General
Counsel with respect to any conflicts of interest.
65
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
(dollars in thousands)
PricewaterhouseCoopers LLP audited our consolidated financial statements
for the year ended September 30, 2009 and our Board of Directors has appointed
PricewaterhouseCoopers LLP as our independent registered public accounting firm
to audit our consolidated financial statements for the year ending September 30,
2010.
The fees billed by PricewaterhouseCoopers LLP for 2008 and 2009 were as
follows:
2008 2009
----- -----
Audit fees................... $ 320 $ 393
Audit-related fees........... -- --
Tax fees..................... -- --
All other fees............... 6 7
----- -----
Total........................ $ 326 $ 400
===== =====
Fees for audit services included fees associated with the annual audit and
the reviews of our quarterly reports on Form 10-Q as well as any other documents
filed with the SEC. All other fees consisted of fees associated with the
compilation of advertising revenue information for the Washington, D.C. market
as well as the license of accounting research software.
Our Board of Directors pre-approves all audit and permitted non-audit
services, including the fees and terms thereof.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements
See Index on p. F-1 hereof.
(2) Financial Statement Schedule II--Valuation and Qualifying
Accounts and Reserves
See Index on p. F-1 hereof.
(3) Exhibits
See Index on p. A-1 hereof.
66
ALLBRITTON COMMUNICATIONS COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm................... F-2
Consolidated Balance Sheets as of September 30, 2008 and 2009............. F-3
Consolidated Statements of Operations and Retained Earnings for Each of
the Years Ended September 30, 2007, 2008 and 2009...................... F-4
Consolidated Statements of Cash Flows for Each of the Years Ended
September 30, 2007, 2008 and 2009...................................... F-5
Notes to Consolidated Financial Statements................................ F-6
Financial Statement Schedule for the Years Ended September 30, 2007, 2008
and 2009
II--Valuation and Qualifying Accounts and Reserves..................... F-27
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or the notes
thereto.
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholder
of Allbritton Communications Company
In our opinion, the consolidated financial statements listed in the index on
page F-1 present fairly, in all material respects, the financial position of
Allbritton Communications Company (an indirectly wholly-owned subsidiary of
Perpetual Corporation) and its subsidiaries at September 30, 2009 and 2008, and
the results of their operations and their cash flows for each of the three years
in the period ended September 30, 2009 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index on page F-1 presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 10 to the consolidated financial statements, the Company
restated its fiscal 2008 and 2007 consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
McLean, VA
December 18, 2009
F-2
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share information)
September 30,
-----------------------
2008 2009
--------- ---------
ASSETS
Current assets
Cash and cash equivalents........................................................ $ 1,572 $ 2,164
Accounts receivable, less allowance for doubtful accounts of $1,563 and $1,569... 37,824 36,092
Program rights................................................................... 10,848 10,261
Deferred income taxes............................................................ 1,447 1,348
Other............................................................................ 2,677 2,569
--------- ---------
Total current assets....................................................... 54,368 52,434
Property, plant and equipment, net..................................................... 43,314 39,570
Intangible assets, net................................................................. 42,290 11,590
Cash surrender value of life insurance................................................. 13,092 13,430
Program rights......................................................................... 978 827
Deferred income taxes.................................................................. 745 5,362
Deferred financing costs and other..................................................... 4,668 3,897
--------- ---------
$ 159,455 $ 127,110
========= =========
LIABILITIES AND STOCKHOLDER'S INVESTMENT
Current liabilities
Accounts payable................................................................. $ 4,111 $ 2,382
Accrued interest payable......................................................... 10,541 10,512
Program rights payable........................................................... 13,041 12,618
Accrued employee benefit expenses................................................ 7,168 5,948
Other accrued expenses........................................................... 7,907 5,481
--------- ---------
Total current liabilities.................................................. 42,768 36,941
Long-term debt......................................................................... 483,408 475,240
Program rights payable................................................................. 1,492 1,279
Accrued employee benefit expenses...................................................... 1,207 849
Deferred rent and other................................................................ 14,104 11,610
--------- ---------
Total liabilities.......................................................... 542,979 525,919
--------- ---------
Commitments and contingent liabilities (Note 12)
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................................................................ 38,537 28,332
Distributions to owners, net (Note 8)............................................ (471,693) (476,773)
--------- ---------
Total stockholder's investment............................................. (383,524) (398,809)
--------- ---------
$ 159,455 $ 127,110
========= =========
See accompanying notes to consolidated financial statements.
F-3
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Dollars in thousands)
Year Ended September 30,
---------------------------------------
2007 2008 2009
--------- --------- ---------
Operating revenues, net........................................................ $ 218,571 $ 216,384 $ 200,396
--------- --------- ---------
Television operating expenses, excluding depreciation, amortization and
impairment.................................................................. 132,159 143,130 128,945
Depreciation and amortization.................................................. 8,161 8,924 9,087
Impairment of intangible assets (Note 4)....................................... -- -- 30,700
Corporate expenses............................................................. 6,106 6,459 5,579
--------- --------- ---------
146,426 158,513 174,311
--------- --------- ---------
Operating income............................................................... 72,145 57,871 26,085
Nonoperating income (expense)
Interest income
Related party...................................................... 430 200 112
Other.............................................................. 208 96 30
Interest expense......................................................... (37,213) (37,631) (37,180)
Other, net............................................................... 262 (260) 5,222
--------- --------- ---------
Income (loss) from continuing operations before income taxes .................. 35,832 20,276 (5,731)
Provision for (benefit from) income taxes...................................... 13,634 7,835 (373)
--------- --------- ---------
Income (loss) from continuing operations....................................... 22,198 12,441 (5,358)
Income (loss) from discontinued operations, net of income taxes (see Note 7)... 416 432 (214)
--------- --------- ---------
Net income (loss).............................................................. 22,614 12,873 (5,572)
Retained earnings, beginning of year........................................... 5,040 27,654 38,537
Cumulative effect of adopting new income tax guidance effective
October 1, 2007 (Note 6)............................................... -- (1,295) --
Charge under tax sharing agreement (Note 6).................................... -- (695) --
Distribution of WCIV (Note 7).................................................. -- -- (4,633)
--------- --------- ---------
Retained earnings, end of year................................................. $ 27,654 $ 38,537 $ 28,332
========= ========= =========
See accompanying notes to consolidated financial statements.
F-4
ALLBRITTON COMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended September 30,
-----------------------------------
2007 2008 2009
-------- -------- --------
Cash flows from operating activities:
Net income (loss)............................................................. $ 22,614 $ 12,873 $ (5,572)
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization............................................ 8,712 9,511 9,629
Impairment of intangible assets.......................................... -- -- 30,700
Other noncash charges.................................................... 1,326 1,349 1,480
Provision for doubtful accounts.......................................... 1,265 1,068 1,041
Gain on disposal of assets............................................... (1,382) (1,243) (6,611)
Charge under tax sharing agreement....................................... -- (695) --
Taxes due under tax sharing agreement.................................... -- -- 2,045
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable............................................ (4,020) 5,156 (469)
Program rights................................................. (290) 46 712
Other current assets........................................... (538) (537) 7
Deferred income taxes.......................................... 3,160 3,616 (4,246)
Other noncurrent assets........................................ (286) (488) (383)
Increase (decrease) in liabilities:
Accounts payable............................................... 288 783 (1,661)
Accrued interest payable....................................... 212 (54) (29)
Program rights payable......................................... 825 429 (588)
Accrued employee benefit expenses.............................. 493 488 (1,531)
Other accrued expenses......................................... (2,748) 1,380 (623)
Deferred rent and other liabilities............................ 1,461 345 (2,494)
-------- -------- --------
Total adjustments........................................ 8,478 21,154 26,979
-------- -------- --------
Net cash provided by operating activities................ 31,092 34,027 21,407
-------- -------- --------
Cash flows from investing activities:
Capital expenditures.......................................................... (6,052) (8,910) (9,229)
Proceeds from property insurance claim........................................ -- 2,924 4,376
Proceeds from disposal of assets.............................................. 163 9 73
-------- -------- --------
Net cash used in investing activities.................... (5,889) (5,977) (4,780)
-------- -------- --------
Cash flows from financing activities:
Principal payments on long-term debt and capital leases....................... (30) -- --
Draws (repayments) under line of credit, net.................................. 31,000 (1,000) (8,500)
Deferred financing costs...................................................... -- -- (332)
Other......................................................................... -- -- (78)
Distributions to owners and dividends, net of certain charges................. (73,181) (37,845) (9,050)
Repayments of distributions to owners......................................... 11,810 9,965 1,925
-------- -------- --------
Net cash used in financing activities.................... (30,401) (28,880) (16,035)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents................................ (5,198) (830) 592
Cash and cash equivalents, beginning of year........................................ 7,600 2,402 1,572
-------- -------- --------
Cash and cash equivalents, end of year.............................................. $ 2,402 $ 1,572 $ 2,164
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest................................................... $ 36,620 $ 37,327 $ 36,813
======== ======== ========
Cash paid for state income taxes......................................... $ 217 $ 97 $ 3
======== ======== ========
See accompanying notes to consolidated financial statements.
F-5
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share information)
NOTE 1--THE COMPANY
Allbritton Communications Company (ACC or the Company) is an indirectly
wholly-owned subsidiary of Perpetual Corporation (Perpetual), a Delaware
corporation, which is controlled by the Allbritton family. The Company owns ABC
network-affiliated television stations serving six geographic markets:
Station Market
----------------- ------------------------------------------------
WJLA Washington, D.C.
WBMA/WCFT/WJSU Birmingham (Anniston and Tuscaloosa), Alabama
WHTM Harrisburg-Lancaster-York-Lebanon, Pennsylvania
KATV Little Rock, Arkansas
KTUL Tulsa, Oklahoma
WSET Roanoke-Lynchburg, Virginia
The Company previously owned an ABC network-affiliated television station
serving Charleston, South Carolina (WCIV) until August 1, 2009 when the equity
interests of WCIV were distributed to Perpetual (see Note 7). The Company also
provides 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 (WJLA/NewsChannel 8).
Additionally, in January 2007 the Company launched Politico, a specialized
newspaper and Internet site (politico.com) that serves Congress, congressional
staffers and those interested in the actions of the national legislature and
political electoral process. On November 13, 2009, the equity interests of
Politico were distributed to Perpetual (see Note 13--Subsequent Event).
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Consolidation--The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries after elimination of all
significant intercompany accounts and transactions.
Use of estimates and assumptions--The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates and assumptions.
Revenue recognition--Revenues are generated principally from sales of
commercial advertising and are recorded as the advertisements are broadcast net
of agency and national
F-6
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
representative commissions and music license fees. For certain program contracts
which provide for the exchange of advertising time in lieu of cash payments for
the rights to such programming, revenue is recorded as advertisements are
broadcast at the estimated fair value of the advertising time given in exchange
for the program rights. Such barter revenue was $5,579, $5,940 and $5,300 for
the years ended September 30, 2007, 2008 and 2009, respectively. Subscriber fee
revenues are recognized in the period during which programming is provided,
pursuant to affiliation agreements with cable television systems, direct
broadcast satellite service providers and telephone company operators.
Cash and cash equivalents--The Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.
Program rights--The Company has entered into contracts for the rights to
television programming. Payments related to such contracts are generally made in
installments over the contract period. Program rights which are currently
available and the liability for future payments under such contracts are
reflected in the consolidated balance sheets. The vast majority of the Company's
program rights represent one-year contracts for first-run syndicated
programming. As each broadcast over the term of the contract generally provides
the same advertising value, such program rights are amortized on a straight-line
basis over the term. A limited number of multi-year program contracts
representing off-network syndicated programming are amortized on an accelerated
basis due to the generally higher advertising value of the early broadcasts.
Program rights expected to be amortized in the succeeding year and amounts
payable within one year are classified as current assets and liabilities,
respectively. The program rights are reflected in the consolidated balance
sheets at the lower of unamortized cost or estimated net realizable value based
on management's expectation of the net future cash flows to be generated by the
programming.
Property, plant and equipment--Property, plant and equipment are recorded
at cost and depreciated over the estimated useful lives of the assets.
Maintenance and repair expenditures are charged to expense as incurred and
expenditures for modifications and improvements which increase the expected
useful lives of the assets are capitalized. Depreciation expense is computed
using the straight-line method for buildings and straight-line and accelerated
methods for furniture, machinery and equipment. Leasehold improvements are
amortized using the straight-line method over the lesser of the term of the
related lease or the estimated useful lives of the assets.
The useful lives of property, plant and equipment for purposes of
computing depreciation and amortization expense are:
Buildings................................ 15-40 years
Leasehold improvements................... 5-16 years
Furniture, machinery and equipment....... 3-20 years
F-7
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
Intangible assets--Intangible assets consist of values assigned to
broadcast licenses as well as favorable terms on contracts and leases. The
amounts originally assigned to intangible assets were based on the results of
independent valuations. Intangible assets deemed to have indefinite lives,
consisting of broadcast licenses, are not amortized but are subject to tests for
impairment at least annually each September 30, or whenever events indicate that
impairment may exist. Other intangible assets, consisting of favorable terms on
contracts and leases, are amortized over their useful lives.
Deferred financing costs--Costs incurred in connection with the issuance
of long-term debt are deferred and amortized to other nonoperating expense on a
straight-line basis over the term of the underlying financing agreement.
Deferred rent--Rent concessions and scheduled rent increases in connection
with operating leases are recognized as adjustments to rental expense on a
straight-line basis over the associated lease term.
Concentration of credit risk--Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
certain cash and cash equivalents and receivables from advertisers. The Company
invests its excess cash with high-credit quality financial institutions and at
September 30, 2009 had an overnight repurchase agreement for $741.
Concentrations of credit risk with respect to receivables from advertisers are
limited as the Company's advertising base consists of large national advertising
agencies and high-credit quality local advertisers. As is customary in the
broadcasting industry, the Company does not require collateral for its credit
sales, which are typically due within thirty days.
Income taxes--The operations of the Company are included in a consolidated
federal income tax return filed by Perpetual. In accordance with the terms of a
tax sharing agreement between the Company and Perpetual, the Company is required
to pay to Perpetual its federal income tax liability, computed based upon
statutory federal income tax rates applied to the Company's consolidated taxable
income. The Company files separate state income tax returns with the exception
of Virginia, which is included in a combined state income tax return filed by
Perpetual. In accordance with the terms of the tax sharing agreement, the
Company is required to pay to Perpetual its combined Virginia income tax
liability, computed based upon statutory Virginia income tax rates applied to
the Company's combined Virginia net taxable income. Taxes payable to Perpetual
are not reduced by losses generated in prior years by the Company. In addition,
the amounts payable by the Company to Perpetual under the tax sharing agreement
are not reduced if losses of other members of the Perpetual group are utilized
to offset taxable income of the Company for purposes of the Perpetual
consolidated federal or Virginia income tax returns.
The accounting rules for income taxes require that the consolidated amount
of current and deferred income tax expense for a group that files a consolidated
income tax return be allocated among members of the group when those members
issue separate financial statements. Perpetual allocates a portion of its
consolidated current and deferred income tax expense to the Company
F-8
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
as if the Company and its subsidiaries were separate taxpayers. The Company
records deferred tax assets, to the extent it is more likely than not that such
assets will be realized in future periods, and deferred tax liabilities for the
tax effects of the differences between the bases of its assets and liabilities
for tax and financial reporting purposes.
The Company records income tax expense in accordance with the accounting
rules for income taxes, and makes payments to Perpetual in accordance with the
terms of the tax sharing agreement between the Company and Perpetual. To the
extent that there is a difference between tax payments that would be due as
calculated in accordance with the accounting rules and tax payments due under
the tax sharing agreement, such difference is recorded to retained earnings.
In June 2006, the Financial Accounting Standards Board ("FASB") issued new
guidance related to accounting for uncertainty in income taxes. This guidance
clarifies the accounting for uncertainty in income taxes by prescribing a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of tax positions taken or expected to be taken in a
tax return. The new guidance was adopted on October 1, 2007 (see Note 6). The
Company classifies interest and penalties related to its uncertain tax positions
as a component of income tax expense.
Discontinued operations--The consolidated statements of operations and
retained earnings separately present discontinued operations and the results of
continuing operations (see Note 7). Prior year amounts have been reclassified to
conform to the current year presentation. Discontinued operations have not been
segregated in the consolidated statements of cash flows and, therefore, amounts
for certain captions will not agree directly with the accompanying consolidated
statements of operations and retained earnings. Footnote disclosures include
both continuing and discontinued operations unless noted otherwise.
Fair value of financial instruments--The carrying amount of the Company's
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and program rights payable approximate fair value due to the short
maturity of those instruments. The Company estimates the fair value of its
long-term debt using either quoted market prices or by discounting the required
future cash flows under its debt using borrowing rates currently available to
the Company, as applicable.
Earnings per share--Earnings per share data are not presented since the
Company has only one shareholder.
Subsequent Events--The Company evaluated subsequent events for recognition
or disclosure through December 18, 2009, the date of filing this Annual Report
on Form 10-K with the Securities and Exchange Commission.
New Accounting Standards-- In September 2006, the FASB issued new guidance
on fair value measurements. This new guidance defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. The guidance
F-9
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
does not expand or require any new fair value measures but is applicable
whenever another accounting pronouncement requires or permits assets and
liabilities to be measured at fair value. In February 2008, the FASB delayed the
effective date of this guidance for non-financial assets and liabilities, except
for those that are recognized or disclosed at fair value in the financial
statements on a recurring basis, until the Company's year ending September 30,
2010. The Company adopted the guidance for financial assets and liabilities as
of October 1, 2008. The adoption had no impact on the Company's financial
position or results of operations. The Company is currently evaluating the
impact, if any, that the adoption related to non-financial assets and
liabilities which are not recognized or disclosed on a recurring basis may have
on its financial position or results of operations.
In February 2007, the FASB issued new guidance which permits entities to
choose to measure many financial instruments and certain other items at fair
value. The Company adopted this guidance as of October 1, 2008. The adoption had
no impact on the Company's financial position or results of operations.
In April 2009, the FASB issued new guidance requiring disclosures about
fair value of financial instruments, which were previously required only on an
annual basis, for interim reporting periods. This guidance was effective for the
Company's quarter ended June 30, 2009. The adoption had no impact on the
Company's financial position or results of operations.
In May 2009, the FASB issued new guidance to establish general standards
of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
This guidance was effective for the Company's quarter ended June 30, 2009. The
adoption had no impact on the Company's financial position or results of
operations.
In June 2009, the FASB issued new guidance to establish the FASB
Accounting Standards Codification (the "Codification") as the single source of
authoritative nongovernmental U.S. generally accepted accounting principles
("GAAP"). This guidance is effective beginning with the Company's financial
statements issued for the year ended September 30, 2009. As the Codification
does not change GAAP, the adoption had no impact on the Company's financial
position or results of operations.
In October 2009, the FASB issued new guidance on revenue arrangements with
multiple deliverables. The guidance revises the criteria for separating,
measuring and allocating arrangement consideration to each deliverable in a
multiple element arrangement. This guidance is effective for the Company's year
ending September 30, 2011. The Company is currently evaluating the impact, if
any, that this guidance may have on its financial position or results of
operations.
F-10
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
September 30,
----------------------
2008 2009
--------- ---------
Buildings and leasehold improvements......... $ 33,253 $ 31,355
Furniture, machinery and equipment........... 131,881 120,417
--------- ---------
165,134 151,772
Less accumulated depreciation................ (128,397) (116,093)
--------- ---------
36,737 35,679
Land......................................... 2,902 2,147
Construction-in-progress..................... 3,675 1,744
--------- ---------
$ 43,314 $ 39,570
========= =========
Depreciation and amortization expense was $8,553, $9,474 and $9,629 for
the years ended September 30, 2007, 2008 and 2009, respectively.
The FCC has granted to Sprint Nextel Corporation ("Nextel") the right to
reclaim a portion of the spectrum in the 2 GHz band from broadcasters across the
country. In order to claim this spectrum, Nextel must replace all of the
broadcasters' electronic newsgathering equipment currently using this spectrum
with digital equipment capable of operating in the reformatted portion of the 2
GHz band retained by the broadcasters. This exchange of equipment will be
completed on a market by market basis. As the equipment is exchanged and placed
into service in each of the Company's markets, a gain will be recorded to the
extent that the fair market value of the equipment received exceeds the book
value of the analog equipment exchanged.
During the years ended September 30, 2007, 2008 and 2009, the fair market
value of the equipment received and placed into service was $1,263, $1,370 and
$779, respectively. These amounts have been recorded as additions to property,
plant and equipment, but they are not included in capital expenditures in the
accompanying consolidated statement of cash flows as no cash was involved in the
exchange. The excess of fair market value as compared to the book value of
equipment exchanged and placed into service of $1,256, $1,367 and $767 for the
years ended September 30, 2007, 2008 and 2009, respectively, was recorded as a
non-cash gain in other, net nonoperating income in the accompanying consolidated
financial statements.
F-11
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
NOTE 4--INTANGIBLE ASSETS
The carrying value of the Company's indefinite lived intangible assets,
consisting of its broadcast licenses, at September 30, 2008 and 2009 was $42,290
and $11,590, respectively.
The Company tests its indefinite lived intangible assets for impairment
annually on September 30 as well as on an interim basis whenever events indicate
that an impairment may exist. During the quarter ended March 31, 2009, events
occurred which indicated that an impairment of certain broadcast licenses may
exist. The events included the decline in the overall economy, forecasts for
negative industry-wide advertising growth in 2009, and reduced revenue
projections and related cost reduction measures within the Company. Thus, such
broadcast licenses were tested for impairment as of March 31, 2009. The tests
indicated that four broadcast licenses in the Other Television Stations
reportable segment were impaired. As a result, the Company recorded a non-cash
impairment charge of $27,700 during the quarter ended March 31, 2009. The annual
impairment test as of September 30, 2009 indicated that a further impairment had
occurred with respect to these four broadcast licenses, resulting in a non-cash
impairment charge of $3,000 during the quarter ended September 30, 2009.
The Company uses an income approach to determine the fair value of its
broadcast licenses on a station-by-station basis. Any excess of carrying value
over fair value represents the amount of impairment. The income approach assumes
an initial hypothetical start-up operation, maturing into an average performing
independent or non-affiliated station in a specific television market and giving
consideration to other relevant factors such as the number of competing stations
within that market. The net cash flows of this hypothetical average market
participant are projected from the first year start-up to perpetuity and then
discounted back to net present value. The calculated valuation is compared to
market transactions in order to confirm the results of the income approach.
The Company's other intangible assets, consisting of favorable terms on
contracts and leases, had a gross carrying amount of $6,174 and no net carrying
value at September 30, 2008 or 2009 as these intangible assets became fully
amortized during the quarter ended December 31, 2007. Amortization expense was
$159 and $37 for the years ended September 30, 2007 and 2008, respectively.
F-12
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
NOTE 5--LONG-TERM DEBT
Outstanding debt consists of the following:
September 30,
----------------------
2008 2009
--------- ---------
Senior Subordinated Notes, due December 15, 2012 with interest payable
semi-annually at 7 3/4%.............................................. $ 455,000 $ 455,000
Credit Agreement, maximum amount of $67,500, expiring August 23, 2011,
secured by the outstanding stock of the Company and its
subsidiaries, interest payable quarterly at various rates either
from prime plus 1.50% to prime plus 2.25% or from LIBOR plus
2.75% to LIBOR plus 3.50% depending on certain financial
operating tests (3.91% at September 30, 2009)........................ 30,000 21,500
--------- ---------
485,000 476,500
Less unamortized discount................................................. (1,592) (1,260)
--------- ---------
483,408 475,240
Less current maturities................................................... -- --
--------- ---------
$ 483,408 $ 475,240
========= =========
Unamortized deferred financing costs of $4,272 and $3,456 at September 30,
2008 and 2009, respectively, are included in deferred financing costs and other
noncurrent assets in the accompanying consolidated balance sheets. Amortization
of the deferred financing costs for the years ended September 30, 2007, 2008 and
2009 was $1,042, $1,041 and $1,148 respectively, which is included in other
nonoperating expenses.
On February 5, 2009, the Company executed an amendment with an effective
date as of December 31, 2008 to its Credit Agreement. The amendment served,
among other things, to adjust certain of the financial covenants. In addition,
the total commitment under the Credit Agreement was reduced from $70,000 to
$67,500 effective February 5, 2009 and to $65,000 effective December 31, 2009.
On November 13, 2009, the Credit Agreement was further amended to permit the
distribution of the equity interests of Politico to Perpetual.
Under the existing financing agreements, the Company is subject to
restrictive covenants, which place limitations upon payments of cash
distributions, dividends, issuance of capital stock, investment transactions,
incurrence of additional obligations and transactions with affiliates. In
addition, under the Credit Agreement, the Company must maintain compliance with
certain financial covenants as measured at the end of each quarter. As of
September 30, 2009, the Company was in compliance with such covenants. The
Company is also required to pay a
F-13
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
commitment fee ranging from 0.375% to 0.500% per annum based on the
amount of any unused portion of the Credit Agreement.
The Company estimates the fair value of its Senior Subordinated Notes to
be approximately $389,000 and $428,000 at September 30, 2008 and 2009,
respectively. The carrying value of the Company's Credit Agreement approximates
fair value as borrowings bear interest at market rates.
NOTE 6--INCOME TAXES
In June 2006, the FASB issued new guidance related to accounting for
uncertainty in income taxes. This guidance clarifies the accounting for
uncertainty in income taxes by prescribing a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. The new guidance
was adopted on October 1, 2007. The cumulative effect of adoption resulted in a
net decrease of $1,295 to the opening balance of retained earnings.
Additionally, as required, certain net operating loss carryforwards and the
corresponding valuation allowances related to uncertain tax positions were
offset, thus removing them from the accompanying consolidated balance sheet
effective October 1, 2007.
The provision for (benefit from) income taxes consists of the following:
Years Ended September 30,
-------------------------------
2007 2008 2009
-------- ------- -------
Continuing operations.............. $ 13,634 $ 7,835 $ (373)
Discontinued operations............ 183 231 (184)
-------- ------- -------
$ 13,817 $ 8,066 $ (557)
======== ======= =======
F-14
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
Years Ended September 30,
-------------------------------
2007 2008 2009
-------- ------- -------
Current
Federal......................... $ 9,734 $ 4,155 $ 4,226
State........................... 923 295 (537)
-------- ------- -------
10,657 4,450 3,689
-------- ------- -------
Deferred
Federal......................... 2,966 3,229 (3,943)
State........................... 194 387 (303)
-------- ------- -------
3,160 3,616 (4,246)
-------- ------- -------
$ 13,817 $ 8,066 $ (557)
======== ======= =======
The components of deferred income tax assets (liabilities) are as
follows:
September 30,
----------------------
2008 2009
--------- --------
Deferred income tax assets:
State and local net operating loss carryforwards............. $ 3,317 $ 3,223
Intangible assets............................................ -- 3,722
Accrued employee benefits.................................... 1,160 897
Deferred rent................................................ 2,098 2,085
Deferred revenue............................................. 1,053 584
Allowance for accounts receivable............................ 617 619
Other........................................................ 2,234 2,625
--------- --------
10,479 13,755
Less valuation allowance..................................... (2,770) (2,972)
--------- --------
7,709 10,783
--------- --------
Deferred income tax liabilities:
Property, plant and equipment................................ (3,375) (4,073)
Intangible assets............................................ (2,142) --
--------- --------
Net deferred income tax assets..................................... $ 2,192 $ 6,710
========= ========
The deferred tax asset related to state and local net operating loss
carryforwards of $3,223 at September 30, 2009 represents approximately $66,000
in state and local net operating loss
F-15
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
carryforwards in certain jurisdictions which are available for future use for
state and local income tax purposes and expire in various years from 2010
through 2029.
The change in the valuation allowance for deferred tax assets of ($331)
(excluding the effect of adopting new guidance related to uncertainty in income
taxes) and $202 during the years ended September 30, 2008 and 2009,
respectively, principally resulted from management's evaluation of the
recoverability of the loss carryforwards.
The following table reconciles the statutory federal income tax rate to
the Company's effective income tax rate for income before cumulative effect of
change in accounting principle:
Years Ended September 30,
-------------------------------
2007 2008 2009
-------- ------- -------
Statutory federal income tax rate........................ 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit.... 3.1 4.7 18.3
Permanent items, principally insurance premiums and meals
and entertainment..................................... 0.2 0.9 (2.7)
Nondeductible portion of FCC license impairment.......... -- -- (37.1)
Change in valuation allowance............................ (0.3) (1.6) (5.9)
Other, net............................................... (0.1) (0.5) 1.5
----- ----- -----
Effective income tax rate................................ 37.9% 38.5% 9.1%
===== ===== =====
A reconciliation of the beginning and ending balances of the total amounts
of gross unrecognized tax benefits is as follows:
Gross unrecognized tax benefits at October 1, 2007............. $ 7,074
Reductions related to prior years tax positions................ (1,431)
Increases related to current year tax positions................ 391
Reductions related to expiration of statutes of limitations.... (673)
--------
Gross unrecognized tax benefits at September 30, 2008.......... 5,361
Increases related to current year tax positions................ 352
Reductions related to expiration of statutes of limitations.... (1,144)
--------
Gross unrecognized tax benefits at September 30, 2009.......... $ 4,569
========
As of September 30, 2008 and 2009, the Company had unrecognized tax
benefits of $5,361 and $4,569, respectively. If all such benefits were
recognized, $3,485 and $2,970, respectively, would have a favorable impact on
the effective tax rate. Of the total gross unrecognized tax benefits of
F-16
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
$5,361 at September 30, 2008, $4,712 are recorded in deferred rent and other
noncurrent liabilities on the accompanying consolidated balance sheets, and the
remaining $649 represents net operating losses which have not been recorded in
accordance with the rules surrounding uncertain tax positions. Of the total
gross unrecognized tax benefits of $4,569 at September 30, 2009, $3,703 are
recorded in deferred rent and other noncurrent liabilities on the accompanying
consolidated balance sheets, and the remaining $866 represents net operating
losses which have not been recorded in accordance with the rules surrounding
uncertain tax positions.
The Company expects that it is reasonably possible that the amount of
unrecognized tax benefits will decrease during the next twelve months in the
approximate range of $1,500 to $2,000, primarily due to the expected expiration
of certain statutes of limitations.
The Company classifies interest and penalties related to its uncertain tax
positions as a component of income tax expense. Accrued interest and penalties
were $1,503 and $1,204 at September 30, 2008 and 2009, respectively, and expense
(benefit) for interest and penalties of $226 and ($299) was recognized during
the year ended September 30, 2008 and 2009, respectively.
The Company is no longer subject to Federal or state income tax
examinations for years prior to the Company's fiscal year ended September 30,
2005 or September 30, 2006, respectively, although certain of the Company's net
operating loss carryforwards generated prior to September 30, 2005 remain
subject to examination.
The Company's operations are included in a consolidated federal income
tax return and a combined Virginia state income tax return filed by Perpetual.
Income tax expense is calculated and recorded in accordance with the accounting
rules for income taxes as if the Company was a separate taxpayer from Perpetual.
The Company makes payments to Perpetual in accordance with the terms of a tax
sharing agreement between Perpetual and the Company. During the year ended
September 30, 2008, income tax payments due to Perpetual in accordance with the
tax sharing agreement exceeded the income tax payments that would be due as
calculated in accordance with the accounting rules for income taxes by $695.
This difference was recorded as a charge against retained earnings.
NOTE 7--DISCONTINUED OPERATIONS
Effective August 1, 2009, the equity interests of WCIV, a wholly-owned
subsidiary of the Company, were distributed to Perpetual. As the operations of
WCIV constitute a component of the Company, the operating results of WCIV
through July 31, 2009 have been presented as discontinued operations for all
periods presented. The August 1, 2009 distribution of the equity interests of
WCIV is reflected as a distribution to owners at historical cost, or $4,633, in
the accompanying statement of operations and retained earnings. The $4,633 of
equity interests of WCIV distributed effective August 1, 2009 consisted of
current assets of $1,380, net property, plant and equipment of $3,802, current
liabilities of $262 and non-current liabilities of $287.
F-17
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
Following is a summary of WCIV's operating results for all periods
presented:
Years ended September 30,
-----------------------------
2007 2008 2009
------- ------- -------
Operating revenues, net......................... $ 7,575 $ 7,724 $ 5,300
Total expenses.................................. 6,976 7,061 5,698
------- ------- -------
Income (loss) before taxes...................... 599 663 (398)
Provision for (benefit from) income taxes....... 183 231 (184)
------- ------- -------
Net income (loss) from discontinued operations.. $ 416 $ 432 $ (214)
======= ======= =======
NOTE 8--TRANSACTIONS WITH OWNERS AND RELATED PARTIES
Distributions to Owners, Net
In the ordinary course of business, the Company makes cash advances in the
form of distributions to Perpetual. At present, the primary source of repayment
of the net advances from the Company is through the ability of the Company to
pay dividends or make other distributions. There is no immediate intent for
these amounts to be repaid. Accordingly, such amounts have been treated as a
reduction of stockholder's investment and described as "distributions" in the
accompanying consolidated balance sheets. The weighted average amount of
non-interest bearing advances outstanding was $409,190, $454,031, and $472,408
during Fiscal 2007, 2008 and 2009, respectively.
Effective August 1, 2009, the equity interests of WCIV were distributed to
Perpetual (see Note 7).
The operations of the Company are included in a consolidated federal
income tax return and a combined Virginia state income tax return filed by
Perpetual. The Company is charged by Perpetual and makes payments to Perpetual
for federal and Virginia state income taxes, which are computed in accordance
with the terms of a tax sharing agreement between the Company and Perpetual.
F-18
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
The components of distributions to owners and the related activity during
Fiscal 2007, 2008 and 2009 consist of the following:
Federal and
Virginia State
Distributions Income Tax Net
to Owners and Receivable Distributions
Dividends (Payable) to Owners
------------- -------------- -------------
Balance as of September 30, 2006............... $ 382,442 $ -- $ 382,442
Cash advances to Perpetual..................... 73,181 73,181
Repayment of cash advances from Perpetual...... (11,810) (11,810)
Charge for federal and state income taxes...... (9,734) (9,734)
Payment of income taxes........................ 9,734 9,734
--------- -------- ---------
Balance as of September 30, 2007............... 443,813 -- 443,813
Cash advances to Perpetual..................... 37,845 37,845
Repayment of cash advances from Perpetual...... (9,965) (9,965)
Charge for federal and state income taxes...... (5,350) (5,350)
Payment of income taxes........................ 5,350 5,350
--------- -------- ---------
Balance as of September 30, 2008............... 471,693 -- 471,693
Cash advances to Perpetual..................... 9,050 9,050
Repayment of cash advances from Perpetual...... (1,925) (1,925)
Charge for federal and state income taxes...... (4,887) (4,887)
Payment of income taxes........................ 2,842 2,842
--------- -------- ---------
Balance as of September 30, 2009............... $ 478,818 $ (2,045) $ 476,773
========= ======== =========
Subsequent to September 30, 2009 and through December 18, 2009 the Company
made no net cash distributions to owners. See Note 13 related to the
distribution of the equity interests of Politico on November 13, 2009.
Other Transactions with Related Parties
During the years ended September 30, 2007, 2008 and 2009, the Company
earned interest income from Perpetual of $430, $200 and $112 respectively, as a
result of making advances of tax payments in accordance with the terms of the
tax sharing agreement between the Company and Perpetual.
Management fees of $750 were paid to Perpetual by the Company for each of
the years ended September 30, 2007, 2008 and 2009.
F-19
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
During the second quarter of the year ended September 30, 2007, Perpetual
acquired from the Robert Lewis Allbritton Revocable Trust its 20% ownership
interests in TV Alabama, Inc. and Harrisburg Television, Inc., the Company's
subsidiaries which operate its television stations in the Birmingham and
Harrisburg markets, respectively. The 20% ownership interests were then
contributed into the Company. As a result, the Company now owns 100% of these
and all other of its subsidiaries. As the entities involved in these
transactions are considered to be under common control, the Company was required
to account for this contribution at its book value. Since the book value of the
20% ownership interests acquired by Perpetual and then contributed to the
Company was zero, no amount has been recorded in the accompanying consolidated
financial statements related to the contribution.
The Company has entered into various agreements with Irides, LLC (Irides)
to provide the Company's stations with certain website design, hosting and
maintenance services. Irides is an indirect subsidiary of Perpetual. The Company
paid fees of $416, $525 and $475 to Irides during the years ended September 30,
2007, 2008 and 2009, respectively. These fees are included in television
operating expenses in the consolidated statements of operations. Irides also
leases certain office space from the Company. Charges for this space totaled
$141, $145 and $149 for the years ended September 30, 2007, 2008 and 2009,
respectively, and such amounts are included as an offset to television operating
expenses in the consolidated statements of operations.
NOTE 9--RETIREMENT PLANS
A defined contribution savings plan is maintained for eligible employees
of the Company and certain of its affiliates. Under the plan, employees may
contribute a portion of their compensation subject to Internal Revenue Service
limitations and the Company contributes an amount equal to 50% of the
contribution of the employee not to exceed 6% of the compensation of the
employee. Effective February 1, 2009, the Company indefinitely suspended its
matching contributions. The amounts contributed to the plan by the Company on
behalf of its employees totaled approximately $970, $1,245 and $356 for the
years ended September 30, 2007, 2008 and 2009, respectively.
The Company also contributes to certain other multi-employer union pension
plans on behalf of certain of its union employees. The amounts contributed to
such plans totaled approximately $618, $644 and $614 for the years ended
September 30, 2007, 2008 and 2009, respectively.
F-20
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
NOTE 10--SEGMENTS (Restated)
The Company's business consists of WJLA/NewsChannel 8, five ABC
network-affiliated television stations outside of the Washington, D.C.
metropolitan area, and Politico. In previously issued financial statements, the
Company aggregated each of these business units and reported its financial
results in one reportable segment. Prior to filing this Annual Report on Form
10-K for the year ended September 30, 2009, management and the Board of
Directors of the Company, upon recommendation of the Audit Committee, concluded
that the Company's previous application of accounting rules for segment
reporting was not correct and that the previous segment disclosures should be
restated. As a result, the segment disclosures in the Company's financial
statements for the fiscal years ended September 30, 2008 and 2007 and for each
of the quarterly periods during the fiscal years ended September 30, 2008 and
2009 have been restated below.
The Company's three reportable segments consist of WJLA/NewsChannel 8,
Other Television Stations, which represents the aggregation of five of the
Company's ABC network-affiliated television stations, and Politico. Each of the
reportable segments is in the business of gathering and distributing news and
entertainment content across multiple platforms, and revenue for each operation
is substantially dependent upon advertising.
Operating profit, the principal measure reported to the Company's chief
operating decision maker, is net operating revenues less television operating
expenses, excluding depreciation, amortization and impairment. Operating profit
is a non-GAAP measure which is presented because it is the internal measure of
profit and loss which is provided to the chief operating decision maker. This
measure should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP.
The following tables summarize operating results from continuing
operations by reportable segment:
Years Ended September 30,
-----------------------------------
2007 2008 2009
--------- --------- ---------
(Restated) (Restated)
Operating revenues, net
WJLA/NewsChannel 8.......................... $ 117,267 $ 107,475 $ 95,027
Other Television Stations................... 96,041 96,367 85,601
Politico.................................... 4,063 11,364 18,598
Unallocated Corporate....................... 1,200 1,178 1,170
--------- --------- ---------
Consolidated operating revenues, net.......... $ 218,571 $ 216,384 $ 200,396
========= ========= =========
F-21
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
Years Ended September 30,
-----------------------------------
2007 2008 2009
--------- --------- ---------
(Restated) (Restated)
Operating profit
WJLA/NewsChannel 8......................... $ 59,226 $ 46,189 $ 39,483
Other Television Stations.................. 31,043 29,306 30,115
Politico................................... (5,057) (2,825) 901
Unallocated Corporate...................... 1,200 584 952
--------- --------- ---------
Consolidated operating profit................. $ 86,412 $ 73,254 $ 71,451
--------- --------- ---------
Reconciliation:
Depreciation and amortization.............. (8,161) (8,924) (9,087)
Impairment of intangible assets............ -- -- (30,700)
Corporate expenses......................... (6,106) (6,459) (5,579)
Nonoperating income (expense).............. (36,313) (37,595) (31,816)
--------- --------- ---------
Consolidated income (loss) from continuing
operations before income taxes.............. $ 35,832 $ 20,276 $ (5,731)
========= ========= =========
Quarterly Period Ended,
------------------------------------
December 31, March 31, June 30,
2008 2009 2009
------------ ---------- ---------
(Restated) (Restated) (Restated)
(Unaudited) (Unaudited) (Unaudited)
Operating revenues, net
WJLA/NewsChannel 8......................... $ 28,381 $ 21,368 $ 23,390
Other Television Stations.................. 24,994 17,927 20,212
Politico................................... 2,645 4,283 5,973
Unallocated Corporate...................... 292 292 292
--------- --------- ---------
Consolidated operating revenues, net.......... $ 56,312 $ 43,870 $ 49,867
========= ========= =========
Operating profit
WJLA/NewsChannel 8......................... $ 12,918 $ 7,080 $ 10,003
Other Television Stations.................. 9,133 3,955 6,905
Politico................................... (885) 325 1,639
Unallocated Corporate...................... 181 174 48
--------- --------- ---------
Consolidated operating profit................ $ 21,347 $ 11,534 $ 18,595
--------- --------- ---------
Reconciliation:
Depreciation and amortization.............. (2,149) (2,241) (2,219)
Impairment of intangible assets............ -- (27,700) --
Corporate expenses......................... (1,138) (1,321) (1,268)
Nonoperating income (expense).............. (9,509) (9,519) (9,542)
--------- --------- ---------
Consolidated income (loss) from continuing
operations before income taxes............. $ 8,551 $ (29,247) $ 5,566
========= ========= =========
F-22
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
Quarterly Period Ended,
------------------------------------
December 31, March 31, June 30,
2007 2008 2008
------------ ---------- ---------
(Restated) (Restated) (Restated)
(Unaudited) (Unaudited) (Unaudited)
Operating revenues, net
WJLA/NewsChannel 8......................... $ 30,551 $ 25,038 $ 28,235
Other Television Stations.................. 28,742 22,034 23,507
Politico................................... 2,054 1,816 3,397
Unallocated Corporate...................... 300 292 292
--------- --------- ---------
Consolidated operating revenues, net.......... $ 61,647 $ 49,180 $ 55,431
========= ========= =========
Operating profit
WJLA/NewsChannel 8......................... $ 15,188 $ 9,570 $ 12,917
Other Television Stations.................. 11,164 5,309 7,305
Politico................................... (1,001) (1,441) (26)
Unallocated Corporate...................... 263 180 55
--------- --------- ---------
Consolidated operating profit................ $ 25,614 $ 13,618 $ 20,251
--------- --------- ---------
Reconciliation:
Depreciation and amortization.............. (2,003) (2,041) (2,168)
Impairment of intangible assets............ -- -- --
Corporate expenses......................... (1,540) (1,552) (1,526)
Nonoperating income (expense).............. (9,716) (9,635) (9,380)
--------- --------- ---------
Consolidated income (loss) from continuing
operations before income taxes............. $ 12,355 $ 390 $ 7,177
========= ========= =========
The following tables summarize total assets by reportable segment:
September 30,
----------------------
2008 2009
--------- ---------
(Restated)
Total Assets
WJLA/NewsChannel 8......................... $ 40,593 $ 37,671
Other Television Stations.................. 88,873 58,665
Politico................................... 3,058 4,594
Corporate.................................. 26,931 26,180
--------- ---------
Consolidated total assets..................... $ 159,455 $ 127,110
========= =========
F-23
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
December 31, March 31, June 30,
2008 2009 2009
------------ ---------- ---------
(Restated) (Restated) (Restated)
(Unaudited) (Unaudited) (Unaudited)
Total Assets
WJLA/NewsChannel 8......................... $ 39,137 $ 35,289 $ 33,592
Other Television Stations.................. 91,409 66,821 66,440
Politico................................... 2,537 3,123 4,823
Corporate.................................. 24,280 26,861 25,314
--------- --------- ---------
Consolidated total assets..................... $ 157,363 $ 132,094 $ 130,169
========= ========= =========
In connection with the Company's evaluation of its segment reporting in
previously issued financial statements, management made certain modifications to
the monthly financial reporting package provided to the Company's chief
operating decision maker. As a result of this change, the Company has concluded
that it will report one operating segment beginning with the Quarterly Report on
Form 10-Q for the three months ending December 31, 2009.
NOTE 11--COLLAPSE OF BROADCAST TOWER
On January 11, 2008, the Company's broadcast tower in Little Rock,
Arkansas collapsed and fell, causing an interruption in the distribution of the
over-the-air broadcast signals for the Company's station in the Little Rock
market. The tower, the broadcast equipment installed on the tower and certain
equipment located near the tower were destroyed. The distribution of the
station's primary signal via cable and satellite services was restored beginning
within hours of the collapse. A limited over-the-air signal was restored ten
days later, on January 21, 2008. Transmitter power was increased as of March 16,
2008, which served to enhance the reach and quality of the interim over-the-air
signal. The Company maintains replacement cost property insurance as well as
business interruption insurance on the tower and equipment affected by the
collapse. The Company has completed construction of the permanent replacement of
its tower and installation of related equipment and began broadcasting a full
power digital signal from the replacement tower on February 20, 2009.
During July 2009, the related insurance claim negotiation was finalized.
As a result, the Company recorded a gain on the replacement cost property
portion of the claim of $6,015, reflecting the excess of replacement cost
insurance proceeds over the carrying value of the destroyed assets. This gain is
reflected in other nonoperating income in the accompanying consolidated
statement of operations and retained earnings. In addition, a gain on the
business interruption portion of the claim of $2,811, reflecting the lost
revenue associated with the tower collapse, was also recorded during the quarter
ended September 30, 2009. This gain is reflected in net operating revenues in
the accompanying consolidated statement of operations and retained earnings.
Proceeds received from the insurance company are reflected within investing
activities in the accompanying consolidated statement of cash flows to the
extent of claim-related capital
F-24
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
expenditures during that period. Proceeds in excess of claim-related capital
expenditures are reflected within operating activities.
NOTE 12--COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases office and studio facilities and machinery and
equipment under operating leases expiring in various years through 2023. Certain
leases contain provisions for renewal and extension.
Future minimum lease payments under operating leases, which have remaining
noncancellable lease terms in excess of one year as of September 30, 2009, are
as follows:
Year ending September 30,
2010....................................... $ 4,745
2011....................................... 4,700
2012....................................... 4,554
2013....................................... 4,632
2014....................................... 4,764
2015 and thereafter........................ 16,705
---------
$ 40,100
=========
Rental expense under operating leases aggregated approximately $4,500,
$4,500 and $4,600 for the years ended September 30, 2007, 2008 and 2009,
respectively.
The Company has entered into contractual commitments in the ordinary
course of business for the rights to television programming which is not yet
available for broadcast as of September 30, 2009. Under these agreements, the
Company must make specific minimum payments approximating the following:
Year ending September 30,
2010....................................... $ 942
2011....................................... 10,063
2012....................................... 4,749
2013....................................... 346
---------
$ 16,100
=========
F-25
ALLBRITTON COMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except share information)
The Company has entered into various employment contracts. Future
guaranteed payments under such contracts as of September 30, 2009 approximate
the following:
Year ending September 30,
2010....................................... $ 10,117
2011....................................... 4,086
2012....................................... 331
2013....................................... 77
---------
$ 14,611
=========
The Company has entered into various deferred compensation agreements with
certain employees. Under these agreements, the Company is required to make
payments aggregating $1,221 during the years 2010 through 2013. At September 30,
2008 and 2009, the Company has recorded a deferred compensation liability of
approximately $1,436 and $1,132, respectively, which is included as a component
of accrued employee benefit expenses in the accompanying consolidated balance
sheets.
The Company also has certain obligations and commitments under various
executory agreements to make future payments for goods and services. These
agreements secure the future rights to certain goods and services to be used in
the normal course of operations.
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business, including suits based on defamation
and employment activity. The Company is not currently a party to any lawsuit or
proceeding which, in the opinion of management, could reasonably be expected to
have a material adverse effect on the Company's consolidated financial
condition, results of operations or cash flows.
NOTE 13--SUBSEQUENT EVENT
On November 13, 2009, the equity interests of Politico, a wholly-owned
subsidiary of the Company, were distributed to Perpetual. As this distribution
represents a transaction between parties under common control, the operations of
Politico must be reflected in continuing operations until the period in which
the distribution has been consummated. Accordingly, the operating results of
Politico are included in these financial statements through September 30, 2009.
In the Company's future financial statements, the operating results of Politico
after November 13, 2009 will be excluded, and the operating results through
November 13, 2009 will be presented as discontinued operations for all periods
presented. The November 13, 2009 distribution of the equity interests of
Politico will be reflected as a distribution to owners at historical cost.
F-26
SCHEDULE II
ALLBRITTON COMMUNICATIONS COMPANY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in thousands)
Balance at Charged Charged to
beginning of to costs other Balance at
Classification year and expenses accounts Deductions end of year
---------------------------------- ------------ ------------ ---------- ---------- -----------
Year ended September 30, 2007:
Allowance for doubtful
accounts $ 1,240 $ 1,265 -- $ (958) $ 1,547
======= ======= ======== ======= ========
Valuation allowance for
deferred income tax assets $ 4,429 $ 372 -- $ (469) $ 4,332
======= ======= ======== ======= ========
Year ended September 30, 2008:
Allowance for doubtful
accounts $ 1,547 $ 1,068 -- $(1,052) $ 1,563
======= ======= ======== ======= ========
Valuation allowance for
deferred income tax assets $ 4,332 $ 164 $ (1,231) $ (495) $ 2,770
======= ======= ======== ======= ========
Year ended September 30, 2009:
Allowance for doubtful
accounts $ 1,563 $ 1,041 $ (23) $(1,012) $ 1,569
======= ======= ======== ======= ========
Valuation allowance for
deferred income tax assets $ 2,770 $ 371 $ (161) $ (8) $ 2,972
======= ======= ======== ======= ========
__________
Represents valuation allowance established related to certain net operating
loss carryforwards and other deferred tax assets for state income tax
purposes.
Write-off of uncollectible accounts, net of recoveries and collection fees.
Represents reduction of valuation allowance relating to certain net
operating loss carryforwards.
Represents adjustment related to the adoption of new guidance related to
accounting for uncertainty in income taxes.
Represents the distribution of the equity interests of WCIV effective
August 1, 2009.
F-27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALLBRITTON COMMUNICATIONS COMPANY
By: /s/ ROBERT L. ALLBRITTON
-------------------------------
Robert L. Allbritton
Chairman and Chief Executive
Officer
Date: December 18, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ BARBARA B. ALLBRITTON Executive Vice President December 18, 2009
------------------------------- and Director
Barbara B. Allbritton
/s/ ROBERT L. ALLBRITTON Chairman, Chief Executive December 18, 2009
------------------------------- Officer and Director
Robert L. Allbritton (principal executive
officer)
/s/ FREDERICK J. RYAN, JR. Vice Chairman, President, December 18, 2009
------------------------------- Chief Operating Officer
Frederick J. Ryan, Jr. and Director
/s/ STEPHEN P. GIBSON Senior Vice President and December 18, 2009
------------------------------- Chief Financial Officer
Stephen P. Gibson (principal financial
officer)
/s/ ELIZABETH A. HALEY Vice President and December 18, 2009
------------------------------- Controller (principal
Elizabeth A. Haley accounting officer)
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 Credit Agreement dated as of August 23, 2005 by and among *
ACC, certain financial institutions, and Bank of America,
N.A., as the Administrative Agent, and Deutsche Bank
Securities Inc., as the Syndication Agent. (Incorporated
by reference to Exhibit 4.1 of the Company's Report on
Form 8-K, No. 333-02302, dated August 23, 2005)
A-1
Exhibit No. Description of Exhibit Page No.
----------- ---------------------- --------
4.5 Amendment No. 1 to Loan Documents, dated February 5, 2009 *
by and among ACC, certain of its subsidiaries, certain
financial institutions, and Bank of America, N.A., as the
Administrative Agent, and Deutsche Bank Securities Inc.,
as the Syndication Agent. (Incorporated by reference to
Exhibit 4.1 of the Company's Report on Form 8-K, No.
333-02302, dated February 5, 2009)
4.6 Amendment No. 2 to Credit Agreement, dated November 13,
2009 by and among ACC, certain of its subsidiaries,
certain financial institutions, and Bank of America,
N.A., as the Administrative Agent, and Deutsche Bank
Securities Inc., as the Syndication Agent.
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)
10.6 Pledge Agreement dated as of August 23, 2005 by and among *
ACC, Allbritton Group, Inc., Allfinco, Inc., and Bank of
America, N.A., as Agent. (Incorporated by reference to
Exhibit 10.1 of the Company's Report on Form 8-K, No.
333-02302, dated August 23, 2005)
A-2
Exhibit No. Description of Exhibit Page No.
----------- ---------------------- --------
10.7 Unlimited Guaranty dated as of August 23, 2005 by each of *
the subsidiaries of ACC in favor of Bank of America,
N.A., as Administrative Agent. (Incorporated by reference
to Exhibit 10.2 of the Company's Report on Form 8-K, No.
333-02302, dated August 23, 2005)
10.8 Collateral Assignment of Proceeds and Security Agreement *
dated as of August 23, 2005 by and among certain
subsidiaries of ACC and Bank of America, N.A., as Agent.
(Incorporated by reference to Exhibit 10.3 of the
Company's Report on Form 8-K, No. 333-02302, dated August
23, 2005)
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)
21. Subsidiaries of Registrant.
24. Powers of Attorney.
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 a request for confidential treatment
A-
