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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2012

or

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from             to            

Commission file number: 333-02302

 

 

ALLBRITTON COMMUNICATIONS COMPANY

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   74-1803105

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

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)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x (1)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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  x    No  ¨

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  (Do not check if a smaller reporting company)    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

 

 

Number of shares of Common Stock outstanding as of May 10, 2012: 20,000 shares.

 

(1) Although the Company has not been subject to such filing requirements for the past 90 days, it has filed all reports required to be filed by Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months. Pursuant to Section 15(d) of the Securities Exchange Act of 1934, the Company’s duty to file reports is automatically suspended as a result of having fewer than 300 holders of record of each class of its debt securities outstanding as of October 1, 2011, but the Company has agreed under the terms of certain long-term debt to continue these filings in the future.

 

 

 


Table of Contents

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING ITEM 2 “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT ARE NOT HISTORICAL FACTS AND INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. THERE ARE A NUMBER OF FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN SUCH FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, WITHOUT LIMITATION, OUR OUTSTANDING INDEBTEDNESS AND OUR HIGH DEGREE OF LEVERAGE; THE RESTRICTIONS IMPOSED ON US BY THE TERMS OF OUR INDEBTEDNESS; THE HIGH DEGREE OF COMPETITION FROM BOTH OVER-THE-AIR BROADCAST STATIONS AND PROGRAMMING ALTERNATIVES SUCH AS CABLE TELEVISION, WIRELESS CABLE, IN-HOME SATELLITE DISTRIBUTION SERVICE, PAY-PER-VIEW SERVICES, INTERNET VIDEO 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. ALSO REFER TO THE RISKS DISCUSSED UNDER THE HEADING “RISK FACTORS” AND OTHER CAUTIONARY LANGUAGE IN OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2011. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS WHICH REFLECT MANAGEMENT’S VIEW ONLY AS OF THE DATE HEREOF.


Table of Contents

ALLBRITTON COMMUNICATIONS COMPANY

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2012

TABLE OF CONTENTS

 

          PAGE  

PART I

   FINANCIAL INFORMATION   

Item 1.

  

Financial Statements:

  
  

Consolidated Statements of Operations and Retained Earnings for the Three and Six Months Ended March 31, 2011 and 2012

     1   
  

Consolidated Balance Sheets as of September 30, 2011 and March 31, 2012

     2   
  

Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2011 and 2012

     3   
  

Notes to Interim Consolidated Financial Statements

     4   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     6   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     13   

Item 4.

  

Controls and Procedures

     13   

PART II

   OTHER INFORMATION   

Item 1.

  

Legal Proceedings

     14   

Item 6.

  

Exhibits

     14   

Signatures

     15   

Exhibit Index

     16   


Table of Contents

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements

ALLBRITTON COMMUNICATIONS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

(Dollars in thousands)

(unaudited)

 

     Three Months Ended     Six Months Ended  
     March 31,     March 31,  
     2011     2012     2011     2012  

Operating revenues, net

   $ 44,701      $ 47,470      $ 102,445      $ 100,085   
  

 

 

   

 

 

   

 

 

   

 

 

 

Television operating expenses, excluding depreciation and amortization

     28,477        28,007        57,916        56,033   

Depreciation and amortization

     2,239        2,269        4,386        5,223   

Corporate expenses

     1,739        1,632        3,503        3,285   
  

 

 

   

 

 

   

 

 

   

 

 

 
     32,455        31,908        65,805        64,541   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     12,246        15,562        36,640        35,544   
  

 

 

   

 

 

   

 

 

   

 

 

 

Nonoperating income (expense)

        

Interest income related party

     —          8        —          8   

Interest expense

     (9,297     (9,269     (18,617     (18,504

Other, net

     (489     (400     (900     (799
  

 

 

   

 

 

   

 

 

   

 

 

 
     (9,786     (9,661     (19,517     (19,295
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     2,460        5,901        17,123        16,249   

Provision for income taxes

     959        2,211        6,581        6,066   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     1,501        3,690        10,542        10,183   

Retained earnings, beginning of period

     55,416        70,327        46,375        63,834   
  

 

 

   

 

 

   

 

 

   

 

 

 

Retained earnings, end of period

   $ 56,917      $ 74,017      $ 56,917      $ 74,017   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to interim consolidated financial statements.

 

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Table of Contents

ALLBRITTON COMMUNICATIONS COMPANY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except share information)

 

           March 31,  
     September 30,     2012  
     2011     (unaudited)  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 2,402      $ 2,115   

Accounts receivable, less allowance for doubtful accounts of $1,551 and $1,408

     36,845        36,975   

Program rights

     6,215        3,069   

Deferred income taxes

     1,415        1,415   

Other

     2,429        3,042   
  

 

 

   

 

 

 

Total current assets

     49,306        46,616   

Property, plant and equipment, net

     38,234        34,208   

Intangible assets, net

     11,590        11,590   

Cash surrender value of life insurance

     13,866        13,972   

Program rights

     242        123   

Deferred financing costs and other

     9,195        8,446   
  

 

 

   

 

 

 
   $ 122,433      $ 114,955   
  

 

 

   

 

 

 

Liabilities and Stockholder’s Investment

    

Current liabilities

    

Accounts payable

   $ 2,525      $ 1,729   

Accrued interest payable

     13,854        13,843   

Program rights payable

     8,484        4,536   

Accrued employee benefit expenses

     4,757        3,822   

Other accrued expenses

     3,492        3,333   
  

 

 

   

 

 

 

Total current liabilities

     33,112        27,263   

Long-term debt

     460,000        455,000   

Program rights payable

     464        208   

Accrued employee benefit expenses

     353        365   

Deferred income taxes

     1,348        1,227   

Deferred rent and other

     6,723        7,722   
  

 

 

   

 

 

 

Total liabilities

     502,000        491,785   
  

 

 

   

 

 

 

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

     63,834        74,017   

Distributions to owners, net (Note 4)

     (493,033     (500,479
  

 

 

   

 

 

 

Total stockholder’s investment

     (379,567     (376,830
  

 

 

   

 

 

 
   $ 122,433      $ 114,955   
  

 

 

   

 

 

 

See accompanying notes to interim consolidated financial statements.

 

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ALLBRITTON COMMUNICATIONS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)

 

     Six Months Ended  
     March 31,  
     2011     2012  

Cash flows from operating activities:

    

Net income

   $ 10,542      $ 10,183   
  

 

 

   

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     4,386        4,536   

Other noncash charges

     743        743   

Provision for doubtful accounts

     332        256   

Loss on disposal of assets

     104        687   

Change in taxes due under tax sharing agreement

     556        54   

Changes in assets and liabilities:

    

(Increase) decrease in assets:

    

Accounts receivable

     500        (386

Program rights

     5,495        3,265   

Other current assets

     (791     (613

Deferred income taxes

     2,328        —     

Other noncurrent assets

     (126     (100

Increase (decrease) in liabilities:

    

Accounts payable

     (251     (796

Accrued interest payable

     (1,544     (11

Program rights payable

     (5,569     (4,204

Accrued employee benefit expenses

     (743     (923

Other accrued expenses

     (1,962     (159

Deferred income taxes

     —          (121

Deferred rent and other liabilities

     1,399        999   
  

 

 

   

 

 

 
     4,857        3,227   
  

 

 

   

 

 

 

Net cash provided by operating activities

     15,399        13,410   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Capital expenditures

     (5,506     (1,524

Proceeds from disposal of assets

     46        327   
  

 

 

   

 

 

 

Net cash used in investing activities

     (5,460     (1,197
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Borrowings under line of credit

     29,500        32,500   

Repayments under line of credit

     (35,000     (37,500

Distributions to owners

     (5,000     (7,500
  

 

 

   

 

 

 

Net cash used in financing activities

     (10,500     (12,500
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (561     (287

Cash and cash equivalents, beginning of period

     2,879        2,402   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 2,318      $ 2,115   
  

 

 

   

 

 

 

See accompanying notes to interim consolidated financial statements.

 

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Table of Contents

ALLBRITTON COMMUNICATIONS COMPANY

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

(unaudited)

NOTE 1 – The accompanying unaudited interim consolidated financial statements of Allbritton Communications Company (an indirectly wholly-owned subsidiary of Perpetual Corporation (“Perpetual”)) and its subsidiaries (collectively, the “Company”) have been prepared pursuant to instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in conformity with generally accepted accounting principles have been omitted or condensed where permitted by regulation. In management’s opinion, the accompanying financial statements reflect all adjustments, which were of a normal recurring nature, and disclosures necessary for a fair presentation of the consolidated financial statements for the interim periods presented. The results of operations for the three and six months ended March 31, 2012 are not necessarily indicative of the results that can be expected for the entire fiscal year ending September 30, 2012. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended September 30, 2011, which are contained in the Company’s Form 10-K. Certain amounts in previously issued financial statements have been reclassified to conform to the current year presentation.

NOTE 2 – 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 on a recurring basis. The Company estimated the fair value of its Senior Notes to be approximately $428,000 and $486,000 at September 30, 2011 and March 31, 2012, respectively. This fair value estimate was determined based on quoted market prices provided by investment banking firms who regularly make a market in the Company’s Senior Notes, which is considered to be a Level 2 input. The carrying value of the Company’s senior credit facility approximated fair value at September 30, 2011. This estimate was determined using a discounted cash flow analysis, which is considered to be a Level 3 input. The Company’s senior credit facility had no outstanding balance at March 31, 2012.

NOTE 3 – The carrying value of the Company’s indefinite lived intangible assets, consisting of its broadcast licenses, at September 30, 2011 and March 31, 2012 was $11,590. 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, 2011 or March 31, 2012 as these intangible assets are fully amortized.

 

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Table of Contents

NOTE 4 – For the six months ended March 31, 2011 and 2012, distributions to owners and related activity consisted of the following:

 

     Distributions
to Owners
and Dividends
     Federal and
Virginia State
Income Tax
Receivable
(Payable)
    Net
Distributions
to Owners
 

Balance as of September 30, 2010

   $ 484,723       $ —        $ 484,723   

Cash advances to Perpetual

     5,000           5,000   

Repayment of cash advances from Perpetual

     —             —     

Charge for federal and state income taxes

        (3,993     (3,993

Payment of income taxes

        3,437        3,437   
  

 

 

    

 

 

   

 

 

 

Balance as of March 31, 2011

   $ 489,723       $ (556   $ 489,167   
  

 

 

    

 

 

   

 

 

 

Balance as of September 30, 2011

   $ 493,033       $ —        $ 493,033   

Cash advances to Perpetual

     7,500           7,500   

Repayment of cash advances from Perpetual

     —             —     

Charge for federal and state income taxes

        (5,698     (5,698

Payment of income taxes

        5,644        5,644   
  

 

 

    

 

 

   

 

 

 

Balance as of March 31, 2012

   $ 500,533       $ (54   $ 500,479   
  

 

 

    

 

 

   

 

 

 

The average amount of non-interest bearing advances outstanding was $481,014 and $490,732 during the six months ended March 31, 2011 and 2012, respectively.

NOTE 5Effective April 30, 2012, the maturity date of the Company’s senior credit facility was extended from April 29, 2013 to April 30, 2015 with no change in terms.

NOTE 6In May 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance which changes certain fair value measurement principles and enhances the related disclosure requirements. The Company adopted the guidance as of January 1, 2012. The adoption had no effect on the Company’s financial position or results of operations.

 

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Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in thousands)

Overview

As used herein, the terms the “Company,” “our,” “us,” or “we” refer to Allbritton Communications Company and its subsidiaries and “ACC” refers solely to Allbritton Communications Company.

We own ABC network-affiliated television stations serving six geographic markets: WJLA-TV in Washington, D.C.; WCFT-TV in Tuscaloosa, Alabama, WJSU-TV in Anniston, Alabama and WBMA-LD, a low power television station licensed to Birmingham, Alabama (we operate WCFT-TV and WJSU-TV in tandem with WBMA-LD serving the viewers of the Birmingham, Tuscaloosa and Anniston market as a single programming source); WHTM-TV in Harrisburg, Pennsylvania; KATV in Little Rock, Arkansas; KTUL in Tulsa, Oklahoma; and WSET-TV 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.

Our advertising revenues are generally highest in the first and third quarters of each fiscal year, due in part to increases in retail advertising in the period leading up to and including the holiday season and active advertising in the spring. The fluctuation in our operating results is generally related to fluctuations in the revenue cycle. In addition, advertising revenues are generally higher during election years due to spending by political candidates, which is typically heaviest during our first and fourth fiscal quarters.

Results of Operations

Set forth below are selected consolidated financial data for the three and six months ended March 31, 2011 and 2012 and the percentage change between the periods:

 

     Three Months Ended
March 31,
     Percent
Change
    Six Months Ended
March 31,
     Percent
Change
 
     2011      2012        2011      2012     

Operating revenues, net

   $ 44,701       $ 47,470         6.2   $ 102,445       $ 100,085         -2.3

Total operating expenses

     32,455         31,908         -1.7     65,805         64,541         -1.9
  

 

 

    

 

 

      

 

 

    

 

 

    

Operating income

     12,246         15,562         27.1     36,640         35,544         -3.0

Nonoperating expenses, net

     9,786         9,661         -1.3     19,517         19,295         -1.1

Income tax provision

     959         2,211         130.6     6,581         6,066         -7.8
  

 

 

    

 

 

      

 

 

    

 

 

    

Net income

   $ 1,501       $ 3,690         145.8   $ 10,542       $ 10,183         -3.4
  

 

 

    

 

 

      

 

 

    

 

 

    

 

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Table of Contents

Net Operating Revenues

The following table depicts the principal types of operating revenues, net of agency commissions, earned by us for each of the three and six-month periods ended March 31, 2011 and 2012, and the percentage contribution of each to our total operating revenues, before fees:

 

     Three Months Ended March 31,     Six Months Ended March 31,  
     2011     2012     2011     2012  
     Dollars     Percent     Dollars     Percent     Dollars     Percent     Dollars     Percent  

Local and national (1)

   $ 36,927        81.1   $ 35,861        74.4   $ 79,612        76.1   $ 79,189        77.8

Political (2)

     —          0.0     603        1.3     7,642        7.3     1,399        1.4

Subscriber fees (3)

     5,239        11.5     8,540        17.7     10,200        9.8     14,373        14.1

Internet (4)

     904        2.0     1,140        2.4     1,882        1.8     2,394        2.4

Network compensation (5)

     379        0.8     239        0.5     964        0.9     595        0.6

Trade and barter (6)

     1,268        2.8     1,124        2.3     2,596        2.5     2,243        2.2

Other revenue

     811        1.8     707        1.4     1,648        1.6     1,629        1.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating revenues

     45,528        100.0     48,214        100.0     104,544        100.0     101,822        100.0
    

 

 

     

 

 

     

 

 

     

 

 

 

Fees (7)

     (827       (744       (2,099       (1,737  
  

 

 

     

 

 

     

 

 

     

 

 

   

Operating revenues, net

   $ 44,701        $ 47,470        $ 102,445        $ 100,085     
  

 

 

     

 

 

     

 

 

     

 

 

   

 

(1) Represents sale of advertising to local and national advertisers, either directly or through agencies representing such advertisers, net of agency commission.
(2) Represents sale of advertising to political advertisers.
(3) Represents subscriber fees earned from cable and telco operators as well as direct broadcast satellite providers under retransmission consent and cable affiliation agreements.
(4) Represents sale of advertising on our Internet websites.
(5) Represents payment by network for broadcasting or promoting network programming.
(6) Represents value of commercial time exchanged for goods and services (trade) or syndicated programs (barter).
(7) Represents fees paid to national sales representatives and fees paid for music licenses.

Net operating revenues for the three months ended March 31, 2012 totaled $47,470, an increase of $2,769, or 6.2%, when compared to net operating revenues of $44,701 for the three months ended March 31, 2011. This increase primarily reflects increased subscriber fees and political advertising revenues partially offset by decreased local and national advertising revenues. Net operating revenues decreased $2,360, or 2.3%, to $100,085 for the six months ended March 31, 2012 as compared to $102,445 for the same period in the prior year. This decrease primarily reflects decreased political advertising revenues partially offset by increased subscriber fees.

Local and national advertising revenues decreased $1,066, or 2.9% and $423, or 0.5%, during the three and six months ended March 31, 2012, respectively, versus the comparable periods in the prior year. These decreases were primarily due to softening demand from larger, more nationally-focused advertisers. Notwithstanding these overall decreases, automotive related advertising increased 7% and 12% during the three and six months ended March 31, 2012, respectively, as compared to the same periods in the prior year.

 

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Political advertising revenues were $603 for the three months ended March 31, 2012 with no comparable activity for the three months ended March 31, 2011. Political advertising revenues decreased by $6,243 to $1,399 for the six months ended March 31, 2012 as compared to the six months ended March 31, 2011. Substantially all of the political advertising revenue in Fiscal 2011 occurred during the first quarter of the year and consisted of spending related to the November 2010 interim elections. There was no comparable activity in the first quarter of Fiscal 2012 with the exception of limited local elections. In the second quarter of Fiscal 2012, political advertising revenues consisted of spending related to presidential primary, congressional primary and local election activity.

Subscriber fees increased $3,301, or 63.0%, and $4,173, or 40.9%, during the three and six months ended March 31, 2012, respectively, as compared to the same periods in the prior year. These increases were primarily due to the fact that a significant number of retransmission consent agreements, representing approximately one-half of our subscriber base, were subject to renewal effective January 1, 2012 and were renewed at increased per subscriber rates. In addition, these increases were also due to increases in per subscriber rates in accordance with existing underlying agreements.

Total Operating Expenses

Total operating expenses for the three months ended March 31, 2012 totaled $31,908, a decrease of $547, or 1.7%, compared to total operating expenses of $32,455 for the three-month period ended March 31, 2011. This decrease consisted of a decrease in television operating expenses, excluding depreciation and amortization, of $470, an increase in depreciation and amortization of $30 and a decrease in corporate expenses of $107.

Total operating expenses for the six months ended March 31, 2012 totaled $64,541, a decrease of $1,264, or 1.9%, compared to total operating expenses of $65,805 for the six-month period ended March 31, 2011. This decrease consisted of a decrease in television operating expenses, excluding depreciation and amortization, of $1,883, an increase in depreciation and amortization of $837 and a decrease in corporate expenses of $218.

Television operating expenses, excluding depreciation and amortization, decreased $470, or 1.7%, and $1,883, or 3.3%, for the three and six months ended March 31, 2012, respectively, as compared to the same periods in Fiscal 2011. These decreases were due primarily to decreased programming costs related to the end of The Oprah Winfrey Show in September of 2011 and the significantly lower cost of replacement programming. Television operating expenses, excluding depreciation and amortization, were $28,026 and $28,007 for the three months ended December 31, 2011 and March 31, 2012, respectively. These costs are expected to remain in the same approximate range for the remaining two quarters of the fiscal year.

Operating Income

For the three months ended March 31, 2012, operating income of $15,562 represented an increase of $3,316, or 27.1%, when compared to operating income of $12,246 for the three months ended March 31, 2011. For the three months ended March 31, 2012, the operating margin increased to 32.8% from 27.4% for the comparable period in Fiscal 2011. The increases in operating income and margin during the three months ended March 31, 2011 were primarily the result of increased net revenues and decreased total operating expenses, as discussed above.

 

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Operating income of $35,544 for the six months ended March 31, 2012 decreased $1,096, or 3.0%, when compared to operating income of $36,640 for the same period in the prior fiscal year. For the six months ended March 31, 2012, the operating margin decreased to 35.5% from 35.8% for the comparable period in the prior fiscal year. The decreases in operating income and margin were primarily the result of decreased net revenues partially offset by decreased total operating expenses, as discussed above.

Nonoperating Expenses, Net

Interest Expense. Interest expense of $9,269 for the three months ended March 31, 2012 decreased $28, or 0.3%, as compared to $9,297 for the three-month period ended March 31, 2011. The average balance of debt outstanding for the three months ended March 31, 2011 and 2012 was $470,833 and $461,110, respectively, and the weighted average interest rate on debt was 7.9% and 8.0% for the three-month periods ended March 31, 2011 and 2012, respectively.

Interest expense of $18,504 for the six months ended March 31, 2012 decreased $113, or 0.6%, as compared to $18,617 for the comparable period of Fiscal 2011. The average balance of debt outstanding for the six months ended March 31, 2011 and 2012 was $470,723 and $462,499, respectively, and the weighted average interest rate on debt was 7.9% for each of the six-month periods ended March 31, 2011 and 2012.

Income Taxes

The provision for income taxes for the three months ended March 31, 2012 totaled $2,211, an increase of $1,252, or 130.6%, as compared to the provision for income taxes of $959 for the three months ended March 31, 2011. This increase was primarily due to the $3,441, or 139.9%, increase in income before income taxes.

The provision for income taxes for the six months ended March 31, 2012 totaled $6,066, a decrease of $515, or 7.8%, as compared to the provision for income taxes of $6,581 for the six months ended March 31, 2011. This decrease was primarily due to the $874, or 5.1%, decrease in income before income taxes.

Net Income

For the three months ended March 31, 2012, the Company recorded net income of $3,690 as compared to net income of $1,501 for the three months ended March 31, 2011. The increase of $2,189, or 145.8%, during the three months ended March 31, 2012 was primarily due to increased operating income as discussed above.

For the six months ended March 31, 2012, the Company recorded net income of $10,183 as compared to net income of $10,542 for the six months ended March 31, 2011. This decrease in net income of $359, or 3.4%, during the six months ended March 31, 2012 was primarily due to decreased operating income as discussed above.

Balance Sheet

Significant balance sheet fluctuations from September 30, 2011 to March 31, 2012 consisted primarily of decreases in program rights and program rights payable. The decreases in program rights and program rights payable reflect the annual cycle of the underlying program contracts which generally begins in September of each year. See also “Liquidity and Capital Resources.”

 

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Liquidity and Capital Resources

As of March 31, 2012, our cash and cash equivalents aggregated $2,115, and we had an excess of current assets over current liabilities of $19,353.

Cash Provided by Operations. Our principal source of working capital is cash flow from operations and borrowings under our senior credit facility. As discussed above, our operating results are cyclical in nature primarily as a result of seasonal fluctuations in advertising revenues, which are generally highest in the first and third quarters of each fiscal year. Our cash flow from operations is also impacted on a quarterly basis by the timing of cash collections and interest payments on debt. Cash receipts are usually greater during the second and fourth fiscal quarters as the collection of advertising revenue typically lags the period in which such revenue is recorded. Scheduled semi-annual interest payments on our long-term fixed interest rate debt occur during the first and third fiscal quarters. As a result, our cash flows from operating activities as reflected in our consolidated financial statements are generally significantly higher during our second and fourth fiscal quarters, and such quarters comprise a substantial majority of our cash flows from operating activities for the full fiscal year.

As reported in the consolidated statements of cash flows, our net cash from operating activities was $15,399 and $13,410 for the six months ended March 31, 2011 and 2012, respectively. The $1,989 decrease in cash flows from operating activities was the result of various differences in the timing of cash receipts and payments in the ordinary course of operations as compared to the same period in the prior fiscal year.

Transactions with Owners. We have periodically made advances in the form of distributions to Perpetual. During the six months ended March 31, 2011 and 2012, we made cash advances to Perpetual of $5,000 and $7,500, respectively. The advances to Perpetual are non-interest bearing and, as such, do not reflect market rates of interest-bearing loans to unaffiliated third parties.

At present, the primary source of repayment of the net advances is through our ability to pay dividends or make other distributions, and there is no immediate intent for the amounts to be repaid. Accordingly, these advances have been treated as a reduction of stockholder’s investment and are described as “distributions” in our consolidated financial statements.

Under the terms of the agreements relating to our indebtedness, future advances, distributions and dividends to related parties are subject to certain restrictions. We anticipate that, subject to such restrictions, applicable law and payment obligations with respect to our indebtedness, we will make advances, distributions or dividends to related parties in the future.

During the six months ended March 31, 2011 and 2012, we made tax payments to Perpetual in accordance with the terms of the tax sharing agreement between Perpetual and us of $3,437 and $5,644, respectively. We were charged by Perpetual for federal and state income taxes totaling $3,993 and $5,698 during the six months ended March 31, 2011 and 2012, respectively.

Stockholder’s deficit amounted to $376,830 at March 31, 2012, a decrease of $2,737, or 0.7%, from the September 30, 2011 deficit of $379,567. The decrease was due to net income for the period of $10,183 offset by a net increase in distributions to owners of $7,446 which was the result of cash advances and tax payments, partially offset by tax charges.

 

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Indebtedness. Our total debt decreased from $460,000 at September 30, 2011 to $455,000 at March 31, 2012. This debt consisted of $455,000 of 8% senior notes due May 15, 2018. The decrease of $5,000 in total debt from September 30, 2011 to March 31, 2012 was due to net repayments under the senior credit facility, which had no outstanding balance at March 31, 2012.

Our $60,000 senior credit facility is secured by the assets and stock of ACC and its subsidiaries. Interest is payable quarterly at various rates from prime plus 1.50% or from LIBOR plus 2.75% depending on certain financial operating tests. Effective April 30, 2012, the maturity date of our senior credit facility was extended from April 29, 2013 to April 30, 2015 with no change in terms.

Under the existing borrowing agreements for each of our senior notes and senior credit facility, we are subject to restrictive covenants that place limitations upon payments of cash distributions, dividends, issuance of capital stock, investment transactions, incurrence of additional debt or obligations and transactions with affiliates. Our senior credit facility 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. There are no such financial maintenance covenants under the terms of our senior notes. Compliance with the financial maintenance covenants under our senior credit facility is measured at the end of each quarter, and as of March 31, 2012, 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 no balance was outstanding at March 31, 2012, 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 total leverage ratio covenant is currently the most restrictive of the four financial maintenance covenants, and it also serves to limit cash advances to Perpetual. As of March 31, 2012, our borrowing capacity under the senior credit facility was limited by the total leverage ratio covenant to $50,697. The calculation and the requirements for this ratio as of September 30, 2011 and March 31, 2012 are provided below.

 

     As of
September 30,
2011
     As of
March 31,
2012
 

Total Leverage Ratio

     

Calculation:

     

Total debt

   $ 460,000       $ 455,000   

Consolidated EBITDA, as defined below

   $ 75,248       $ 74,918   

Total debt divided by Consolidated EBITDA

     6.11         6.07   
  

 

 

    

 

 

 

Requirements (calculation must not exceed):

     

Financial covenant

     6.75         6.75   
  

 

 

    

 

 

 

Cash advances to Perpetual

     6.75         6.75   
  

 

 

    

 

 

 

 

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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 the
twelve months ended
September 30, 2011
     Calculation for the
twelve months ended
March 31, 2012
 

Net income

   $ 17,459       $ 17,100   

Provision for income taxes

     8,759         8,244   

Interest expense

     37,201         37,088   

Loss on disposal of assets

     231         814   

Depreciation and amortization

     9,500         9,650   

Provision for doubtful accounts

     612         536   

Other noncash charges

     1,486         1,486   
  

 

 

    

 

 

 

Consolidated EBITDA

   $ 75,248       $ 74,918   
  

 

 

    

 

 

 

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.

We believe that based on anticipated results for Fiscal 2012, we will be able to continue to comply with the financial covenants of our senior credit facility and that our borrowing capacity will be fully restored.

The indenture for our long-term debt provides that, whether or not required by the rules and regulations of the SEC, so long as any senior notes are outstanding, we, at our expense, will furnish to each holder (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K, if we were required to file such forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual financial information only, a report thereon by our certified independent accountants and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file such reports. In addition, the indenture also provides that, whether or not required by the rules and regulations of the SEC, we will file a copy of all such information and reports with the SEC for public availability (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. Although our duty to file such reports with the SEC has been automatically suspended pursuant to Section 15(d) of the Securities Exchange Act of 1934 effective October 1, 2010, we will continue to file such reports in accordance with the terms of the indenture.

Other Uses of Cash. We anticipate that capital expenditures for Fiscal 2012 will be in the approximate range of $4,000 to $5,000, and will primarily be for the acquisition of technical equipment and vehicles to support ongoing operations across our stations. We expect that the source of funds for these anticipated capital expenditures will be cash provided by operations and borrowings under the senior credit facility. Capital expenditures during the six months ended March 31, 2012 totaled $1,524.

 

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Based upon our current level of operations, we believe that available cash, together with cash flows generated by operating activities and 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.

New Accounting Standards

In May 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance which changes certain fair value measurement principles and enhances the related disclosure requirements. The Company adopted the guidance as of January 1, 2012. The adoption had no effect on the Company’s financial position or results of operations.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

At March 31, 2012, we had other financial instruments consisting primarily of long-term fixed interest rate debt. Such debt, with future principal payments of $455,000, matures May 15, 2018. At March 31, 2012, the carrying value of such debt was $455,000, the fair value was approximately $486,000 and the interest rate was 8%. 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 4. Controls and Procedures

The Company has performed an evaluation of its disclosure controls and procedures (as defined by Exchange Act rule 15d-15(e)) as of March 31, 2012. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures are effective.

There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

We currently and from time to time are involved in litigation incidental to the conduct of our business, including suits based on defamation and employment activity. We are not currently a party to any lawsuit or proceeding which, in our opinion, could reasonably be expected to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

 

Item 6. Exhibits

 

a. Exhibits

See Exhibit Index on pages 16-18.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

ALLBRITTON COMMUNICATIONS COMPANY

 

(Registrant)

May 10, 2012

     

/s/ Robert L. Allbritton

Date       Name: Robert L. Allbritton
      Title: Chairman and Chief Executive Officer

May 10, 2012

     

/s/ Stephen P. Gibson

Date       Name: Stephen P. Gibson
      Title: Senior Vice President and Chief Financial Officer

 

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EXHIBIT INDEX

 

Exhibit
No.

  

Description of Exhibit

  

Page No.

 
    3.1    Certificate of Incorporation of ACC. (Incorporated by reference to Exhibit 3.1 of Company’s Registration Statement on Form S-4, No. 333-02302, dated March 12, 1996)      *   
    3.2    Bylaws of ACC. (Incorporated by reference to Exhibit 3.2 of Registrant’s Registration Statement on Form S-4, No. 333-02302, dated March 12, 1996)      *   
    4.1    Indenture dated as of April 30, 2010 between ACC and U.S. Bank National Association, as trustee, relating to the 8% Senior Notes due 2018. (Incorporated by reference to Exhibit 4.1 of the Company’s Report on Form 8-K, No. 333-02302, dated May 3, 2010)      *   
    4.2    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)      *   
    4.3    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)      *   
    4.4    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. (Incorporated by reference to Exhibit 4.6 of the Company’s Report on Form 10-K, No. 333-02302, dated December 18, 2009)      *   
    4.5    Amendment No. 3 to Credit Agreement and Amendment No. 2 to Collateral Assignment dated as of April 29, 2010 among ACC, its subsidiaries, the banks, financial institutions and other institutional lenders, Bank of America, N.A., as Administrative Agent, and Deutsche Bank Securities Inc., as Syndication Agent. (Incorporated by reference to Exhibit 4.1 of the Company’s Report on Form 8-K, No. 333-02302, dated May 3, 2010)      *   

 

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Exhibit
No.

  

Description of Exhibit

  

Page No.

 
    4.6    Amendment No. 4 to Credit Agreement and Confirmation of Guarantee Agreement and Security Documents dated as of April 30, 2012 among ACC, its subsidiaries, the banks, financial institutions and other institutional lenders, Bank of America, N.A., as Administrative Agent, and Deutsche Bank Securities Inc., as Syndication Agent. (Incorporated by reference to Exhibit 4.1 of the Company’s Report on Form 8-K, No. 333-02302, dated May 3, 2012)      *   
    4.7    Security Agreement dated as of April 29, 2010 made by ACC and its subsidiaries to Bank of America, N.A., as Agent. (Incorporated by reference to Exhibit 4.2 of the Company’s Report on Form 8-K, No. 333-02302, dated May 3, 2010)      *   
    4.8    Intellectual Property Security Agreement dated April 29, 2010 made by ACC and its subsidiaries to Bank of America, N.A., as Agent. (Incorporated by reference to Exhibit 4.3 of the Company’s Report on Form 8-K, No. 333-02302, dated May 3, 2010)      *   
  10.1    Purchase Agreement dated April 22, 2010 by and among ACC, Deutsche Bank Securities Inc. and Banc of America Securities LLC as representatives for the initial purchasers. (Incorporated by reference to Exhibit 10.1 of the Company’s Report on Form 8-K, No. 333-02302, dated April 27, 2010)      *   
  10.2    Registration Rights Agreement dated as of April 30, 2010 among ACC, Deutsche Bank Securities Inc. and Banc of America Securities LLC. (Incorporated by reference to Exhibit 10.1 of the Company’s Report on Form 8-K, No. 333-02302, dated May 3, 2010)      *   
  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)      *   

 

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Exhibit
No.

  

Description of Exhibit

  

Page No.

 
  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)      *   
  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)      *   
  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.   
101.1    Interactive Data File   

 

* Previously filed
** Portions have been omitted pursuant to confidential treatment

 

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