ALLBRITTON COMMUNICATIONS COMPANY
1000 Wilson Boulevard, Suite 2700
Arlington, VA 22209
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY ALLBRITTON
COMMUNICATIONS COMPANY FOR PORTIONS OF THIS LETTER
IN ACCORDANCE WITH 17 C.F.R. ss. 200.83
April 3, 2009
Mr. Larry Spirgel
Assistant Director
Division of Corporation Finance
United States Securities and Exchange Commission
Re: Allbritton Communications Company
Form 10-K for Fiscal Year Ended September 30, 2008
Form 10-Q for the Quarter Ended December 31, 2008
File No. 333-02302
Dear Mr. Spirgel:
This letter sets forth the responses of Allbritton Communications
Company (the "Company") to the comments made in your letter to Stephen P.
Gibson, dated March 20, 2009. Each of the Company's responses are set forth
below, organized in the same manner, order and format as your letter, with your
comments repeated and our response immediately following. Pursuant to 17 C.F.R.
ss. 200.83, we are requesting confidential treatment for a portion of our
response to Comment 4.
Form 10-K for the Year Ended September 30, 2008
Liquidity and Capital Resources, page 39
1. Please disclose here or elsewhere in the filing the specific terms of
any material debt covenants in your debt agreements. The requirements
limiting cash dividends and issuance of capital stock appear to be in
addition to other financial covenants. For any material debt covenants,
please disclose the required financial ratios as well as the actual
ratios as of each reporting date. This will allow readers to understand
how much cushion there is between the required ratios and the actual
ratios. Please show the specific computations used to arrive at the
actual ratios with corresponding reconciliations to US GAAP amounts, if
necessary. See Sections I.D 9 and IV.C of the SEC Interpretive Release
No. 33-8350 and Question 10 of our FAQ Regarding the use of Non-GAAP
Financial Measures dated June 13, 2003.
As we disclosed in our most recent Quarterly Report on Form 10-Q for
the quarter ended December 31, 2008, we were in compliance with our
financial covenants as of December
Mr. Larry Spirgel
United States Securities and Exchange Commission
April 3, 2009
Page 2
31, 2008, and we anticipate that we will be in compliance for the
remainder of our fiscal year ending September 30, 2009. We believe
that the combination of the amendment to our senior credit facility,
effective December 31, 2008, which adjusted certain of our financial
covenants, and the expense reductions put into place during the second
quarter of the year ending September 30, 2009 should provide us with
the necessary flexibility to remain in compliance.
Please note that only the amounts outstanding under our senior credit
facility are subject to financial maintenance covenants, which
represent a relatively small portion of our overall indebtedness. As of
December 31, 2008, the aggregate amount outstanding under our senior
credit facility equaled $40,000,000, which represented less than 10% of
our total debt balance. While we believe that our disclosures were
appropriate, we will provide additional qualitative and quantitative
information surrounding our financial covenants in future filings with
the Securities and Exchange Commission (the "SEC") beginning with our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.
Below is a model of our proposed additional disclosure, including
information as of December 31, 2008 and September 30, 2008. The
December 31, 2008 data will be replaced by the March 31, 2009 data in
our filing for the quarter ended March 31, 2009.
Our senior credit facility, under which $40,000,000 was outstanding at
December 31, 2008, 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 calculation for this ratio and the
financial covenant requirement for this ratio as of December 31, 2008
and September 30, 2008 are provided below.
(dollars in thousands)
Calculation as Covenant Calculation as Covenant
of December Requirement as of of September Requirement as of
31, 2008 December 31, 2008 30, 3008 September 30, 2008
-------------- ----------------- -------------- ------------------
Total Leverage Ratio
--------------------
Total debt, plus unamortized debt discount..... $ 495,000 $ 485,000
Consolidated EBITDA, as defined below.......... $ 64,860 $ 69,254
Total debt, plus unamortized debt discount, Must not exceed Must not exceed
divided by Consolidated EBITDA.............. 7.63 8.00 7.00 7.25
-------------- --------------
Mr. Larry Spirgel
United States Securities and Exchange Commission
April 3, 2009
Page 3
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:
(dollars in thousands)
Calculation for Calculation for
the twelve the twelve months
months ended ended September
December 31, 2008 30, 2008
----------------- -----------------
Net Income............................. $ 10,303 $ 12,873
Provision for income taxes............. 6,405 8,066
Interest expense....................... 37,359 37,631
Loss (Gain) on disposal of assets...... (1,345) (1,243)
Depreciation and amortization.......... 9,700 9,511
Provision for doubtful accounts........ 1,084 1,068
Other noncash charges.................. 1,354 1,348
----------------- -----------------
Consolidated EBITDA.................... $ 64,860 $ 69,254
================= =================
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.
Note 4 - Intangible Assets, page F-12
2. We note that broadcast licenses accounted for 27% of total assets as of
9/30/08. We also note that revenues, operating income and operating
cash flow have declined in recent quarters due to the negative impact
of the current economic environment. We note that you perform periodic
impairment tests on the company's indefinite lived intangible assets.
Please tell us and disclose whether you perform the impairment test
annually as required, when the impairment test was completed for the
fiscal year ended September 30, 2008, and what the result of the test
was.
As background information to our response, please note that we have not
completed any acquisitions that generated significant intangible assets
since 1996. Upon implementation of EITF D-108, effective October 1,
2005, we recorded an $80 million impairment charge, substantially
reducing the recorded value of the FCC licenses acquired in 1996. Our
remaining FCC license intangible assets were acquired in the
Mr. Larry Spirgel
United States Securities and Exchange Commission
April 3, 2009
Page 4
1970s and 1980s and were substantially amortized prior to the
implementation of SFAS 142 which required us to cease amortization of
indefinite-lived intangible assets.
We perform impairment tests on our indefinite-lived intangible assets
annually as required by SFAS 142. We performed our annual impairment
test for the fiscal year ended September 30, 2008 as of September 30,
2008. Based on the information available to us at that time, including
actual operating results and market data for the year ended September
30, 2008, our expected operating results and assessments of market
revenues for the following year, our long-term outlook in the
underlying markets and the current economic environment at that time,
our tests indicated that the fair value of our FCC licenses exceeded
the recorded value.
We will clarify our disclosure in future filings with the SEC beginning
with our Quarterly Report on Form 10-Q for the quarter ended March 31,
2009 regarding our policy related to annual tests for impairment and,
as appropriate, the results of such testing.
3. Disclose and tell us whether you tested your broadcast licenses for
impairment in the interim period subsequent to year-end. If you did
not, tell us why, addressing the factors in paragraph 8 of SFAS 144.
Also, disclose under Critical Accounting Policies and Estimates the
factors that you considered when determining that an interim impairment
test, pursuant to paragraph 17 of SFAS 142, was or was not required.
Our policy is to perform interim tests for impairment if and when
events or changes in circumstances indicate that the carrying value of
our FCC licenses may be impaired in accordance with paragraph 17 of
SFAS 142. We did not determine that an interim impairment test was
required during the three months ended December 31, 2008 based on our
analysis of our FCC licenses as well as the factors outlined in
paragraph 8 of SFAS 144. Specifically related to paragraph 8:
o There were no significant market transactions that indicated
to us that the carrying value of our FCC licenses had been
impaired.
o There was no change in our use of FCC licenses.
o There were no adverse changes in the legal or regulatory
environment in which we operate.
o There was no accumulation of costs significantly in excess
of the amount originally expected for the acquisition or
construction of FCC licenses.
o There were no operating cash flow losses which would
indicate a potential impairment of our FCC licenses.
o There was no change in our plan to continue to hold and use
our FCC licenses.
Mr. Larry Spirgel
United States Securities and Exchange Commission
April 3, 2009
Page 5
While we did not determine that an interim impairment test was required
during the three months ended December 31, 2008, certain events and
changes in circumstances have occurred during the three months ended
March 31, 2009 which indicated to us that an interim impairment test
should be performed. These "triggering events" included the receipt of
significantly reduced revenue projections from our operating segments,
the resulting implementation of cost reduction measures across the
Company, an abrupt decline in the general economy and forecasts for
negative industry-wide advertising growth in 2009. We are in the
process of performing an interim impairment test of certain FCC
licenses which we have determined may be impaired.
We will clarify our disclosure in future filings with the SEC beginning
with our Quarterly Report on Form 10-Q for the quarter ended March 31,
2009 regarding our policy related to interim tests for impairment as
described above. Additionally, we will specifically disclose that an
interim impairment test was performed and what the results were.
Other
4. We note that you own and operate television stations in disparate
geographic markets within the United States. Using the guidance in
paragraph 10 of SFAS 131, tell us how you determine your operating
segments and how the company's Chief Operating Decision Maker reviews
this information. Specifically discuss the measure of profit and loss
reviewed by the chief operating decision maker. As it appears you have
aggregated several operating segments into one reportable segment, tell
us how you determined that you met the criteria for aggregation in
paragraph 17 of SFAS 131, including the requirement that the segments
have similar economic characteristics.
Our operating segments are determined in accordance with paragraph 10
of SFAS 131 and consist of the following: WJLA/NewsChannel 8, WHTM,
WBMA, KATV, KTUL, WSET, WCIV and Politico. Our President and Chief
Operating Officer performs the chief operating decision maker ("CODM")
function for the Company as described in paragraph 12 of SFAS 131. Our
CODM receives our standard monthly reporting package which includes
consolidated financial reports as well as combining financial reports.
The combining financial reports present net revenues, total operating
expenses exclusive of depreciation and amortization, and operating
profit before depreciation and amortization across all of our operating
segments and in total. The CODM makes decisions involving the
allocation of resources and assessment of performance on a
Mr. Larry Spirgel
United States Securities and Exchange Commission
April 3, 2009
Page 6
consolidated basis due to the similarities of our operating segments
and the organizational structure of our Company as discussed further
below.
In accordance with paragraph 17 of SFAS 131, we have aggregated each of
these operating segments into one reportable segment. Paragraph 17
permits aggregation of operating segments if:
1. aggregation is consistent with the objective and basic
principles of SFAS 131;
2. the operating segments have similar economic
characteristics; and,
3. the operating segments are similar in each of the following
areas:
o the nature and type of products and services;
o the nature of production processes;
o the type or class of customer for their products and
services;
o the methods used to distribute their products or provide
their services; and,
o the nature of the regulatory environment, if applicable.
Aggregation is consistent with the objective and basic principles of
SFAS 131. The CODM makes decisions involving the allocation of
resources and assessment of performance on a consolidated basis due to
the similarities of our operating segments and the organizational
structure of our Company. Certain officers who report to the CODM are
responsible for functional areas across all of the operating segments,
including sales, finance, engineering and human resources (the
"functional officers"). While the CODM makes decisions regarding the
allocation of resources on a consolidated basis, these officers
allocate resources and assess performance at the operating segment
level of operations. For example, most of the Company's significant
contracts for capital expenditures, programming and services are
negotiated by the CODM and/or the functional officers on a group-wide
basis. The functional officers are responsible for determining the
financial impact on each operating unit. Because the overall cost is
generally less than what each operating segment could have negotiated
on its own, and because the cost allocations are determined at our
discretion, such allocations do not necessarily reflect the costs at
each operating segment as if the contracts had been negotiated on an
individual operating segment basis. With respect to capital
expenditures, when new assets are acquired and allocated to an
individual operating segment, the assets being replaced are often
relocated to another operating segment in order to maximize their
useful lives. This determination of which operating segments will
receive new fixed assets and which operating segments will best
benefit from the assets being replaced is performed by the functional
officers. We manage the Company on a consolidated basis and work to
generate and maximize synergies available due to the similarity of our
operating segments. Thus, we believe that we are better able to
maximize the profitability and the return on our investments for the
group as a whole. Aggregation of our operating segments into a single
reportable segment is the financial
Mr. Larry Spirgel
United States Securities and Exchange Commission
April 3, 2009
Page 7
presentation which most accurately reflects how we operate the Company
and is the most relevant basis for assessments related to the
Company's future performance.
Our operating segments share similar economic characteristics. The
long-term average growth rate for both our net operating revenues and
our total operating expenses, excluding depreciation and amortization,
have been consistent across our operating segments, and they are
expected to remain consistent in the future. In addition, each of our
operating segments is subject to the same competitive, operating and
financial risks. Each is dependent on advertising revenue, which in
turn is dependent upon the economy, the size of the audience receiving
our content, the quality and popularity of our content, the alternative
news and entertainment content available, and our ability to
differentiate our brand of content to both viewers and advertisers.
Each operating segment utilizes the same systems and has the same
organizational structure. Many sales initiatives as well as the overall
sales function are managed on a consolidated basis due to the
similarity of the sales process, the product and the customers.
[Pursuant to 17 C.F.R. ss. 200.83, confidential information denoted by
brackets and asterisks in this paragraph has been omitted and has been
furnished separately to the SEC.] As discussed above, we operate our
business on a consolidated basis. Our CODM makes performance
assessments and decisions based on our consolidated net revenues,
consolidated operating expenses (exclusive of depreciation and
amortization) and consolidated operating income (exclusive of
depreciation and amortization) as well as the growth trends exhibited
by each of these metrics over time. The profitability of our individual
operating segments varies for a number of reasons, including the size
of the audience reached by each segment, the number and quality of
competitors for the same audience, the local economy, whether an
operating segment leases or owns its primary facilities and the
performance of the management and sales teams in place. Additionally,
because expenses are relatively fixed within each operating segment,
they do not fluctuate on a pro-rata basis with changes in revenues. As
a result, operating income and operating income margin vary
disproportionately to changes in revenue. During our fiscal year ended
September 30, 2008, the operating income margin (exclusive of
depreciation and amortization) for our segments which have been in
operation for at least five years ranged from [***]% to [***]%.
However, these differences do not reflect the economic similarity of
how each business operates, the long-term future expectations for each
operating segment, or how the Company is managed.
While revenue trends may fluctuate between operating segments over the
short-term for a variety of reasons as discussed above, the long-term
revenue trends are consistent across the operating segments. The
ten-year compound annual growth rate in net revenues ranged from 0-3%
for all segments which have been in operation for ten years. Within
this group, all operating segments except one were in the 0-2% range,
with the remaining segment exhibiting higher growth due to a one-time
change in its market. Similarly,
Mr. Larry Spirgel
United States Securities and Exchange Commission
April 3, 2009
Page 8
operating expense trends may fluctuate between operating segments over
the short-term but are relatively consistent over the long-term. The
ten-year compound annual growth rate in operating expenses exclusive
of depreciation and amortization ranged from 1-3% for all segments
which have been in operation for ten years. We believe that these
consistent growth trends and similar long-term outlook, combined with
the similarities in our operations, represent similar economic
characteristics.
Each of our operating segments is similar with respect to
products/services, nature of production processes, type or class of
customer, methods of distribution and regulatory environment. Each
operation 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. The customers
for each operating segment consist of media advertisers, many of whom
purchase advertising across our operating segments. Distribution of
content occurs across multiple platforms including audio/video, print
and internet within each operating segment. Oversight of media industry
operations and ownership is controlled by the Federal Communications
Commission.
In connection with our responses, the Company hereby acknowledges:
o The Company is responsible for the adequacy and accuracy of the disclosure
in the filings;
o Staff comments or changes to disclosure in response to staff comments do
not foreclose the Commission from taking any action with respect to the
filings; and
o The Company may not assert staff comments as a defense in any proceeding
initiated by the Commission under the federal securities laws of the United
States.
If you have any questions regarding this letter, please contact me directly at
(703) 647-8700.
Sincerely,
/s/ Stephen P. Gibson
Stephen P. Gibson
Senior Vice President and Chief Financial Officer
cc: Mr. Robert Littlepage, United States Securities and Exchange Commission
Mr. Joe Cascarano, United States Securities and Exchange Commission