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Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

Quarterly Report pursuant to Section 13 OR 15 (d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2012

 

Commission file number: 001-31311

 

Commission file number: 000-25206

 

 

 

LIN TV Corp.

 

LIN Television
Corporation

(Exact name of registrant as

 

(Exact name of registrant as

specified in its charter)

 

specified in its charter)

 

 

 

Delaware

 

Delaware

(State or other jurisdiction of

 

(State or other jurisdiction of

incorporation or organization)

 

incorporation or organization)

 

 

 

05-0501252

 

13-3581627

(I.R.S. Employer

 

(I.R.S. Employer

Identification No.)

 

Identification No.)

 

One West Exchange Street, Suite 5A, Providence, Rhode Island 02903

(Address of principal executive offices)

 

(401) 454-2880

(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 x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files).   Yes x No o

 

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. (Check one):

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated  filer o

 

Smaller reporting company o

(Do not check if a 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 o No x

 

This combined Form 10-Q is separately filed by (i) LIN TV Corp. and (ii) LIN Television Corporation. LIN Television Corporation meets the conditions set forth in general instruction H (1) (a) and (b) of Form 10-Q and is, therefore, filing this form with the reduced disclosure format permitted by such instruction.

 

LIN TV Corp. Class A common stock, $0.01 par value, outstanding as of May 2, 2012: 32,507,339 shares

LIN TV Corp. Class B common stock, $0.01 par value, outstanding as of May 2, 2012: 23,401,726 shares.

LIN TV Corp. Class C common stock, $0.01 par value, outstanding as of May 2, 2012: 2 shares.

LIN Television Corporation common stock, $0.01 par value, outstanding as of May 2, 2012: 1,000 shares.

 

 

 



Table of Contents

 

Table of Contents

 

Part I. Financial Information

 

 

 

Item 1. Unaudited Consolidated Financial Statements of LIN TV Corp.

 

 

 

 

 

Consolidated Balance Sheets

 

3

Consolidated Statements of Operations

 

4

Consolidated Statements of Comprehensive Income

 

5

Consolidated Statements of Stockholders’ Deficit

 

6

Consolidated Statements of Cash Flows

 

8

Notes to Unaudited Consolidated Financial Statements (See separate index for Financial Statements of LIN Television Corporation)

 

9

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

 

31

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

38

Item 4. Controls and Procedures

 

38

 

 

 

Part II. Other Information

 

 

 

 

 

Item 1. Legal Proceedings

 

38

Item 1A. Risk Factors

 

39

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

39

Item 3. Defaults Upon Senior Securities

 

39

Item 4. Mine Safety Disclosure

 

39

Item 5. Other Information

 

39

Item 6. Exhibits

 

39

Signature Page

 

40

 

2



Table of Contents

 

Part I. Financial Information

Item 1. Unaudited Consolidated Financial Statements

 

LIN TV Corp.

Consolidated Balance Sheets

(unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(in thousands, except share data)

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

12,652

 

$

18,057

 

Restricted cash

 

 

255,159

 

Accounts receivable, less allowance for doubtful accounts (2012 - $2,539; 2011 - $2,310)

 

85,211

 

91,093

 

Deferred income tax assets

 

6,563

 

4,249

 

Assets held for sale

 

1,523

 

3,253

 

Other current assets

 

6,666

 

6,090

 

Total current assets

 

112,615

 

377,901

 

Property and equipment, net

 

144,790

 

145,429

 

Deferred financing costs

 

11,166

 

12,472

 

Goodwill

 

122,312

 

122,069

 

Broadcast licenses and other intangible assets, net

 

399,194

 

400,081

 

Assets held for sale

 

3,735

 

12,505

 

Other assets

 

10,923

 

11,487

 

Total assets (a)

 

$

804,735

 

$

1,081,944

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

4,437

 

$

253,856

 

Accounts payable

 

6,754

 

10,972

 

Accrued expenses

 

42,875

 

38,578

 

Program obligations

 

9,659

 

9,892

 

Liabilities held for sale

 

1,516

 

3,719

 

Total current liabilities

 

65,241

 

317,017

 

Long-term debt, excluding current portion

 

587,692

 

614,861

 

Deferred income tax liabilities

 

171,635

 

167,371

 

Program obligations

 

2,828

 

3,874

 

Liabilities held for sale

 

75

 

1,308

 

Other liabilities

 

52,925

 

58,642

 

Total liabilities (a)

 

880,396

 

1,163,073

 

 

 

 

 

 

 

Commitments and Contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

3,352

 

3,503

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

Class A common stock, $0.01 par value, 100,000,000 shares authorized,
Issued: 34,707,426 and 34,650,169 shares as of March 31, 2012 and December 31, 2011, respectively
Outstanding: 32,913,989 and 33,012,351 shares as of March 31, 2012 and December 31, 2011, respectively

 

309

 

309

 

Class B common stock, $0.01 par value, 50,000,000 shares authorized, 23,401,726 shares as of March 31, 2012 and December 31, 2011, issued and outstanding; convertible into an equal number of shares of class A or class C common stock

 

235

 

235

 

Class C common stock, $0.01 par value, 50,000,000 shares authorized, 2 shares as of March 31, 2012 and December 31, 2011, issued and outstanding; convertible into an equal number of shares of class A common stock

 

 

 

Treasury stock, 1,793,437 and 1,637,818 shares of class A common stock as of March 31, 2012 and December 31, 2011, respectively, at cost

 

(11,227

)

(10,598

)

Additional paid-in capital

 

1,123,310

 

1,121,589

 

Accumulated deficit

 

(1,153,124

)

(1,157,390

)

Accumulated other comprehensive loss

 

(38,516

)

(38,777

)

Total stockholders’ deficit

 

(79,013

)

(84,632

)

Total liabilities, redeemable noncontrolling interest and stockholders’ deficit

 

$

804,735

 

$

1,081,944

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 


(a)          Our consolidated assets as of March 31, 2012 and December 31, 2011 include total assets of $10,375 and $10,688, respectively, of a variable interest entity (“VIE”) that can only be used to settle the obligations of the VIE. These assets include broadcast licenses and other intangible assets of $7,812 and $7,815, respectively, and program rights of $1,398 and $1,574, respectively. Our consolidated liabilities as of March 31, 2012 and December 31, 2011 include total liabilities of $2,454 and $2,721, respectively, of a VIE for which the VIE’s creditors have no recourse to the Company, including $1,584 and $1,884 of program obligations.  See further description in Note 1 — “Basis of Presentation and Summary of Significant Accounting Policies”.

 

3



Table of Contents

 

LIN TV Corp.

Consolidated Statements of Operations

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

Net revenues

 

$

103,200

 

$

89,719

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Direct operating

 

35,157

 

29,933

 

Selling, general and administrative

 

28,383

 

25,534

 

Amortization of program rights

 

5,219

 

5,328

 

Corporate

 

6,746

 

6,483

 

Depreciation

 

6,759

 

6,264

 

Amortization of intangible assets

 

477

 

261

 

(Gain) loss from asset dispositions

 

(1

)

255

 

Operating income

 

20,460

 

15,661

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

Interest expense, net

 

10,370

 

12,932

 

Share of loss in equity investments

 

91

 

613

 

Gain on derivative instruments

 

 

(620

)

Loss on extinguishment of debt

 

2,099

 

142

 

Other (income) expense, net

 

(13

)

1

 

Total other expense, net

 

12,547

 

13,068

 

 

 

 

 

 

 

Income before provision for income taxes

 

7,913

 

2,593

 

Provision for income taxes

 

2,798

 

982

 

Income from continuing operations

 

5,115

 

1,611

 

Discontinued operations:

 

 

 

 

 

Loss from discontinued operations, net of a loss from the sale of discontinued operations of $372 for the three months ended March 31, 2012 and a benefit from income taxes of $659 and $10 for the three months ended March 31, 2012 and 2011, respectively

 

(1,231

)

(25

)

Net income

 

3,884

 

1,586

 

Net loss attributable to noncontrolling interests

 

(382

)

 

Net income attributable to LIN TV Corp.

 

$

4,266

 

$

1,586

 

 

 

 

 

 

 

Basic income per common share attributable to LIN TV Corp.:

 

 

 

 

 

Income from continuing operations attributable to LIN TV Corp.

 

$

0.10

 

$

0.03

 

Loss from discontinued operations, net of tax

 

(0.02

)

 

Net income attributable to LIN TV Corp.

 

$

0.08

 

$

0.03

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding used in calculating basic income per common share

 

56,184

 

54,983

 

 

 

 

 

 

 

Diluted income per common share attributable to LIN TV Corp.:

 

 

 

 

 

Income from continuing operations attributable to LIN TV Corp.

 

$

0.10

 

$

0.03

 

Loss from discontinued operations, net of tax

 

(0.02

)

 

Net income attributable to LIN TV Corp.

 

$

0.08

 

$

0.03

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding used in calculating diluted income per common share

 

57,512

 

56,545

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

4



Table of Contents

 

LIN TV Corp.

Consolidated Statements of Comprehensive Income

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

(in thousands)

 

Net income

 

$

3,884

 

$

1,586

 

Amortization of pension net loss, net of tax of $170 and $78 for the three months ended March 31, 2012 and 2011, respectively

 

261

 

119

 

Comprehensive income

 

4,145

 

1,705

 

Comprehensive loss attributable to noncontrolling interests

 

382

 

 

Comprehensive income attributable to LIN TV Corp.

 

$

4,527

 

$

1,705

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

5



Table of Contents

 

LIN TV Corp.

Consolidated Statements of Stockholders’ Deficit

(unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Common Stock

 

Treasury

 

Additional

 

 

 

Other

 

Total

 

 

 

Class A

 

Class B

 

Class C

 

Stock

 

Paid-In

 

Accumulated

 

Comprehensive

 

Stockholders’

 

 

 

Amount

 

Amount

 

Amount

 

(at cost)

 

Capital

 

Deficit

 

Loss

 

Deficit

 

Balance as of December 31, 2011

 

$

309

 

$

235

 

$

 

$

(10,598

)

$

1,121,589

 

$

(1,157,390

)

$

(38,777

)

$

(84,632

)

Amortization of pension net loss, net of tax of $170

 

 

 

 

 

 

 

261

 

261

 

Stock-based compensation

 

 

 

 

 

1,721

 

 

 

1,721

 

Purchase of LIN TV Corp. class A common stock

 

 

 

 

 

 

 

(629

)

 

 

 

 

 

 

(629

)

Net income

 

 

 

 

 

 

4,266

 

 

4,266

 

Balance as of March 31, 2012

 

$

309

 

$

235

 

$

 

$

(11,227

)

$

1,123,310

 

$

(1,153,124

)

$

(38,516

)

$

(79,013

)

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

6



Table of Contents

 

LIN TV Corp.

Consolidated Statements of Stockholders’ Deficit

(unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Common Stock

 

Treasury

 

Additional

 

 

 

Other

 

Total

 

 

 

Class A

 

Class B

 

Class C

 

Stock

 

Paid-In

 

Accumulated

 

Comprehensive

 

Stockholders’

 

 

 

Amount

 

Amount

 

Amount

 

(at cost)

 

Capital

 

Deficit

 

Loss

 

Deficit

 

Balance as of December 31, 2010

 

$

294

 

$

235

 

$

 

$

(7,869

)

$

1,109,814

 

$

(1,205,967

)

$

(27,939

)

$

(131,432

)

Amortization of pension net loss, net of tax of $78

 

 

 

 

 

 

 

119

 

119

 

Stock-based compensation

 

1

 

 

 

 

1,847

 

 

 

1,848

 

Net income

 

 

 

 

 

 

1,586

 

 

1,586

 

Balance as of March 31, 2011

 

$

295

 

$

235

 

$

 

$

(7,869

)

$

1,111,661

 

$

(1,204,381

)

$

(27,820

)

$

(127,879

)

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

7



Table of Contents

 

LIN TV Corp.

Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

(in thousands)

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

3,884

 

$

1,586

 

Loss from discontinued operations

 

1,231

 

25

 

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

 

 

 

 

 

Depreciation

 

6,759

 

6,264

 

Amortization of intangible assets

 

477

 

261

 

Amortization of financing costs and note discounts

 

561

 

1,029

 

Amortization of program rights

 

5,219

 

5,328

 

Program payments

 

(5,572

)

(6,200

)

Loss on extinguishment of debt

 

871

 

142

 

Gain on derivative instruments

 

 

(620

)

Share of loss in equity investments

 

91

 

613

 

Deferred income taxes, net

 

2,606

 

850

 

Stock-based compensation

 

1,548

 

1,557

 

(Gain) loss from asset dispositions

 

(1

)

255

 

Other, net

 

436

 

198

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

5,882

 

7,362

 

Other assets

 

(1,250

)

(5,029

)

Accounts payable

 

(4,218

)

(201

)

Accrued interest expense

 

1,798

 

11,061

 

Other liabilities and accrued expenses

 

(2,665

)

(2,211

)

Net cash provided by operating activities, continuing operations

 

17,657

 

22,270

 

Net cash used in operating activities, discontinued operations

 

(1,140

)

(176

)

Net cash provided by operating activities

 

16,517

 

22,094

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(5,450

)

(2,607

)

Change in restricted cash

 

255,159

 

 

Proceeds from the sale of assets

 

 

40

 

Payments on derivative instruments

 

 

(644

)

Shortfall loans to joint venture with NBCUniversal

 

(595

)

 

Net cash provided by (used in) investing activities, continuing operations

 

249,114

 

(3,211

)

Net cash provided by investing activities, discontinued operations

 

6,314

 

 

Net cash provided by (used in) investing activities

 

255,428

 

(3,211

)

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Net proceeds on exercises of employee and director stock-based compensation

 

173

 

290

 

Principal payments on long-term debt

 

(276,695

)

(3,978

)

Payment of long-term debt issue costs

 

(199

)

(68

)

Treasury stock purchased

 

(629

)

 

Net cash used in financing activities

 

(277,350

)

(3,756

)

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(5,405

)

15,127

 

Cash and cash equivalents at the beginning of the period

 

18,057

 

11,648

 

Cash and cash equivalents at the end of the period

 

$

12,652

 

$

26,775

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

8



Table of Contents

 

LIN TV Corp.

Notes to Unaudited Consolidated Financial Statements

 

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies

 

Description of Business

 

LIN TV Corp. (“LIN TV”), together with its subsidiaries, including LIN Television Corporation (“LIN Television”), is a local multimedia company operating in the United States. LIN TV and its subsidiaries are affiliates of HM Capital Partners I LP (“HMC”).  In these notes, the terms “Company,” “we,” “us” or “our” mean LIN TV and all subsidiaries included in our consolidated financial statements.

 

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”).

 

In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments necessary to state fairly our financial position, results of operations and cash flows for the periods presented.  Certain changes in classifications have been made to prior period financial statements to conform to the current financial statement presentation.  The interim results of operations are not necessarily indicative of the results to be expected for the full year.

 

Principles of consolidation

 

The accompanying consolidated financial statements include the accounts of our Company, our wholly-owned and majority-owned and controlled subsidiaries, and variable interest entities (“VIEs”) for which we are the primary beneficiary.  We review all local marketing agreements (“LMAs”), shared services agreements (“SSAs”) or joint sales agreements (“JSAs”), to evaluate whether consolidation of such arrangements is required.  All intercompany accounts and transactions have been eliminated.  We conduct our business through our subsidiaries and have no operations or assets other than our investment in our subsidiaries and equity-method investments.  We operate in one reportable segment.

 

Variable Interest Entities

 

In determining whether we are the primary beneficiary of a VIE for financial reporting purposes, we consider whether we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and whether we have the obligation to absorb losses or the right to receive returns that would be significant to the VIE.  We consolidate VIEs when we are the primary beneficiary.

 

We have a JSA and a SSA with WBDT Television, LLC (“WBDT”), a third party, for WBDT-TV in the Dayton, OH market. Under these agreements, we provide sales and administrative services to WBDT, have an obligation to reimburse certain of WBDT’s expenses, and we are compensated through a performance-based fee structure that provides us the benefit of certain returns from the operation of WBDT-TV.

 

We determined that WBDT is a VIE, and as a result of the JSA and SSA we have a variable interest in WBDT. The sole business of WBDT is the ownership and operation of WBDT-TV.  We are the primary beneficiary of that entity because of our obligation to reimburse certain of WBDT’s expenses that could result in losses that are significant to the VIE, the potential for us to participate in returns of WBDT-TV through a performance-based bonus, and our power to direct certain activities related to the operation of WBDT-TV, including its advertising sales, and certain of its programming, which significantly impact the economic performance of WBDT.  Therefore, we consolidate WBDT within our unaudited interim consolidated financial statements.

 

9



Table of Contents

 

The carrying amounts and classifications of the assets and liabilities of WBDT, which have been included in our consolidated balance sheets were as follows (in thousands):

 

 

 

March 31,
2012

 

December 31,
2011

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

43

 

$

90

 

Accounts receivable, net

 

717

 

789

 

Program rights

 

689

 

697

 

Total current assets

 

1,449

 

1,576

 

Property and equipment, net

 

404

 

419

 

Program rights

 

709

 

877

 

Broadcast licenses and other intangible assets, net

 

7,812

 

7,815

 

Other assets

 

1

 

1

 

Total assets

 

$

10,375

 

$

10,688

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

184

 

$

184

 

Accounts payable

 

819

 

739

 

Accrued expenses

 

51

 

98

 

Program obligations

 

802

 

904

 

Total current liabilities

 

1,856

 

1,925

 

Long-term debt, excluding current portion

 

552

 

598

 

Program obligations

 

782

 

980

 

Other liabilities

 

7,185

 

7,185

 

Total liabilities

 

10,375

 

10,688

 

 

The assets of our consolidated VIE can only be used to settle the obligations of the VIE, and may not be sold, or otherwise disposed of, except for assets sold or replaced with others of like kind or value.  Other liabilities of WBDT of $7.2 million, as of March 31, 2012 and December 31, 2011, reduce the carrying value of the entity, to reflect the fact that as of March 31, 2012 and December 31, 2011, LIN Television has an option, exercisable by us if the Federal Communications Commission (“FCC”) attribution rules change, to acquire the assets or membership interests of WBDT for an exercise price, which may be less than the carrying value of the tangible and intangible net assets of WBDT.

 

Redeemable noncontrolling interest

 

The following table presents changes in the redeemable noncontrolling interest related to Nami Media, Inc. (“Nami Media”), which represents a third party’s proportionate share of the interest, as further described in Note 2 — “Acquisitions”, included in our consolidated balance sheets (in thousands):

 

 

 

Redeemable
Noncontrolling
Interest

 

Balance as of December 31, 2011

 

$

3,503

 

Net loss

 

(151

)

Balance as of March 31, 2012

 

$

3,352

 

 

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Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and the notes thereto.  Our actual results could differ from these estimates.  Estimates are used for the allowance for doubtful accounts in receivables, valuation of goodwill and intangible assets, amortization and impairment of program rights and intangible assets, stock-based compensation and other long-term incentive compensation arrangements, pension costs, barter transactions, income taxes, employee medical insurance claims, useful lives of property and equipment, contingencies, including shortfall funding liabilities to our joint venture with NBCUniversal Media, LLC (“NBCUniversal”), litigation and net assets of businesses acquired.

 

Net Earnings per Common Share

 

Basic earnings per share (“EPS”) is computed by dividing income attributable to common stockholders by the number of weighted-average outstanding shares of common stock.  Diluted EPS reflects the effect of the assumed exercise of stock options and vesting of restricted shares only in the periods in which such effect would have been dilutive.

 

The following is a reconciliation of income available to common shareholders from operations and weighted-average common shares outstanding for purposes of calculating basic and diluted income per common share (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Numerator for EPS calculation:

 

 

 

 

 

Income from continuing operations

 

$

5,115

 

$

1,611

 

Net loss attributable to noncontrolling interests included in continuing operations

 

382

 

 

Income from continuing operations attributable to LIN TV Corp.

 

5,497

 

1,611

 

Loss from discontinued operations

 

(1,231

)

(25

)

Net income attributable to LIN TV Corp.

 

$

4,266

 

$

1,586

 

 

 

 

 

 

 

Denominator for EPS calculation:

 

 

 

 

 

Weighted-average common shares, basic

 

56,184

 

54,983

 

Effect of dilutive securities:

 

 

 

 

 

Stock options

 

1,328

 

1,562

 

Weighted-average common shares, diluted

 

57,512

 

56,545

 

 

We apply the treasury stock method to measure the dilutive effect of our outstanding stock option and restricted stock awards and include the respective common share equivalents in the denominator of our diluted income per common share calculation.  Potentially dilutive securities representing 1.1 million shares and 0.4 million shares of common stock for the three months ended March 31, 2012 and March 31, 2011, respectively, were excluded from the computation of diluted income per common share for these periods because their effect would have been anti-dilutive.  The net income per share amounts are the same for our class A, class B and class C common stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.

 

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Recently Issued Accounting Pronouncements

 

In September 2011, there were revisions to the accounting standard for goodwill impairment tests. A company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The revisions are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We adopted this guidance effective January 1, 2012, and it did not have an impact on our financial position or results of operations.

 

In June 2011, there were revisions to the accounting standard for reporting comprehensive income, which require presentation of the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  We elected to present this information in a separate statement included within the primary financial statements following our consolidated statement of operations.  The revisions are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and should be applied retrospectively.  We adopted this guidance effective January 1, 2012, and the adoption did not have an impact on our financial position or results of operations.

 

In May 2011, the fair value accounting standard was amended to change fair value measurement principles and disclosure requirements.  The key changes in measurement principles include limiting the concepts of the highest and best use and valuation premise to nonfinancial assets, providing a framework for considering whether a premium or discount can be applied in a fair value measurement, and aligning the fair value measurement of instruments classified within an entity’s shareholders’ equity with the guidance for liabilities.  Disclosures are required for all transfers between Levels 1 and 2 within the valuation hierarchy, the use of a nonfinancial asset measured at fair value if its use differs from its highest and best use, the level in the valuation hierarchy of assets and liabilities not recorded at fair value but for which fair value is required to be disclosed, and for Level 3 measurements, quantitative information about unobservable inputs used, a description of the valuation processes used, and qualitative discussion about the sensitivity of the measurements.  We adopted this guidance effective January 1, 2012, and the adoption did not have an impact on our financial position or results of operations.

 

Note 2 — Acquisitions

 

On November 22, 2011, we acquired a 57.6% interest (a 50.1% interest calculated on a fully diluted basis) in Nami Media, a digital advertising management and technology company based in Los Angeles, CA.  Nami Media serves the growing marketplace of online traffic quality management for cost per click (“CPC”) advertising.  Our investment in Nami Media fills a niche in our growing suite of digital product offerings and furthers the goal to be advertisers’ preferred choice for multiplatform marketing opportunities.

 

Total cash consideration for this acquisition was $4.8 million.  In connection with the acquisition, we recognized $4.7 million of goodwill, none of which is amortizable for tax purposes.  The goodwill primarily represents the value and synergies between us and Nami Media that we expect to benefit from because we believe RMM’s existing CPC business together with Nami Media’s advertisement exchange capabilities will increase optimization, query volume and bid exchange revenues for CPC advertisements. Nami Media’s platform also facilitates expansion of our existing search engine marketing business.  We also recognized $3.6 million of finite-lived intangible assets related to completed technology with an estimated remaining useful life of 5 years.

 

Under the terms of our agreement with Nami Media, we agreed to purchase the remaining outstanding shares of Nami Media in 2014 if Nami Media achieves a target earnings before interest, taxes, depreciation and amortization (“EBITDA”) in 2013 as outlined in the purchase agreement. The purchase price of these shares is based on multiples of Nami Media’s 2013 net revenues and EBITDA. Our maximum potential obligation under the purchase agreement is $36.5 million. If Nami Media does not meet the target EBIDTA in 2013, we have the option to purchase the remaining outstanding shares using the same purchase price multiple, however we have no obligation to exercise that option. Our obligation to purchase the noncontrolling interest holders’ shares is outside of our control, because it is based on Nami Media’s achievement of the 2013 EBIDTA target. Therefore, the noncontrolling interest related to Nami Media as of March 31, 2012 and December 31, 2011 has been reported as redeemable noncontrolling interest and is classified as temporary equity on our consolidated balance sheets. As of the acquisition date, the fair value of the noncontrolling interest was $3.5 million, and was measured based on the purchase price for our 57.6% ownership interest and the net assets acquired as of the acquisition date.  The redeemable noncontrolling interest will be adjusted to the expected redemption amount if and when the acheivement of the 2013 EBIDTA target becomes probable.

 

In 2014, if we do not purchase the remaining outstanding shares of Nami Media, the noncontrolling interest holders have the right to purchase our interest in Nami Media. The purchase price of these shares is based on the same purchase price multiple described above and is exercisable only if the 2013 EBIDTA target is not met and we do not elect to purchase the remaining interest. The fair value of this option is zero and no amounts related to this option are included in our consolidated financial statements.

 

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The following table summarizes the final allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed in the acquisition (in thousands):

 

Cash

 

$

1,014

 

Current assets

 

1,283

 

Non-current assets

 

535

 

Completed technology

 

3,600

 

Goodwill

 

4,657

 

Current liabilities

 

(1,039

)

Long-term liabilities

 

(1,718

)

Noncontrolling interest

 

(3,530

)

Total

 

$

4,802

 

 

Note 3—Discontinued Operations

 

WWHO-TV

 

On February 16, 2012, we completed the sale of substantially all of the assets of WWHO-TV, our CW affiliate serving Columbus, OH, to Manhan Media, Inc.  As of March 31, 2012, no amounts related to WWHO-TV were classified as assets or liabilities held for sale on our consolidated balance sheet.  During the three months ended March 31, 2012, we recorded a loss on the sale of WWHO-TV of $0.4 million.

 

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WUPW-TV

 

On January 3, 2012, we entered into an agreement for the sale of substantially all of the assets of WUPW-TV to WUPW, LLC.  Accordingly, as of December 31, 2011, we classified certain assets and liabilities associated with this station as held for sale on our consolidated balance sheets, and the operating results as discontinued operations in our consolidated statement of operations. We completed the sale of substantially all of the assets of WUPW-TV on April 21, 2012.

 

The carrying amounts of the assets and liabilities of this station were as follows (in thousands):

 

 

 

March 31, 2012

 

December 31, 2011

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Accounts receivable, net

 

$

1,354

 

$

1,921

 

Program rights

 

160

 

203

 

Other current assets

 

9

 

12

 

Total current assets

 

1,523

 

2,136

 

Property and equipment, net

 

1,614

 

1,614

 

Program rights

 

72

 

108

 

Broadcast licenses and other intangible assets, net

 

2,049

 

2,049

 

Total assets

 

$

5,258

 

$

5,907

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

947

 

$

947

 

Accrued expenses

 

263

 

398

 

Program obligations

 

306

 

330

 

Total current liabilities

 

1,516

 

1,675

 

Program obligations

 

75

 

109

 

Total liabilities

 

$

1,591

 

$

1,784

 

 

The following presents summarized information for the discontinued operations as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

WWHO-
TV

 

WUPW-
TV

 

Total

 

WWHO-
TV

 

WUPW-
TV

 

Total

 

Net revenues

 

$

486

 

$

1,775

 

$

2,261

 

$

1,063

 

$

1,857

 

$

2,920

 

Operating (loss) income

 

$

(409

)

$

(1,109

)

$

(1,518

)

$

(233

)

$

197

 

$

(36

)

Net (loss) income

 

$

(562

)

$

(669

)

$

(1,231

)

$

(151

)

$

126

 

$

(25

)

 

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Note 4 — Equity Investments

 

Joint Venture with NBCUniversal

 

We own an approximate 20% interest in Station Venture Holdings, LLC (“SVH”), a joint venture with NBCUniversal, and account for our interest using the equity method as we do not have a controlling interest. SVH holds a 99.75% interest in Station Venture Operations, LP (“SVO”), which is the operating company that manages KXAS-TV and KNSD-TV, the television stations that comprise the joint venture.

 

The following presents summarized financial information of SVH and SVO (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

SVO:

 

 

 

 

 

Net revenue

 

$

29,475

 

$

26,210

 

Operating expenses

 

(19,604

)

(17,669

)

Net income before taxes

 

9,891

 

8,552

 

Net income after taxes

 

9,861

 

8,522

 

 

 

 

 

 

 

SVH:

 

 

 

 

 

Equity in income from limited partnership interest in SVO

 

$

9,781

 

$

8,501

 

Interest and other expense

 

(17,139

)

(16,891

)

Net loss

 

$

(7,358

)

$

(8,390

)

 

 

 

 

 

 

Cash distributions to SVH from SVO

 

$

13,566

 

$

16,130

 

Shortfall loans from LIN Television to SVH

 

595

 

 

Shortfall loans from General Electric Company (“GE”) to SVH

 

2,325

 

 

 

 

 

March 31,

 

 

 

2012

 

2011

 

Shortfall loans outstanding and accrued interest payable to LIN Television from SVH

 

$

7,894

 

$

4,388

 

Shortfall loans outstanding and accrued interest payable to NBCUniversal and GE from SVH

 

30,842

 

17,144

 

 

In 2008, we recorded an impairment charge that reduced the carrying value of our investment in SVH to $0. At the SVO level, there continues to exist net equity of which we have a proportional share.  Subsequent to the reduction of the SVH carrying value to $0, and as a result of our guarantee of the debt financing provided by General Electric Capital Corporation (“GECC”) of SVH as further described in Note 12 — “Commitments and Contingencies”, we continue to track our share of the income or loss of SVH, but currently are not recording such loss in our financial statements until, or unless, our commitments to fund losses exceeds previously recognized impairment charges.  When SVH generates income, we will begin recording our proportionate share of such income once it exceeds the operating losses not previously recognized in our financial statements.

 

We recognize shortfall funding liabilities when it is probable and estimable that there will be a shortfall at the SVH level requiring funding from us, and only when we have reached or intend to reach a shortfall funding agreement covering the period for which we estimate debt service shortfalls to occur, as further described in Note 12—“Commitments and Contingencies”.  As of December 31, 2011, we had a shortfall liability of $4.1 million recognized for any potential shortfall loans to the joint venture during 2012 and into 2013.  During the three months ended March 31, 2012, pursuant to the shortfall funding agreement with GE as further described in Note 12 — “Commitments and Contingencies”, we funded a shortfall loan in the principal amount of $0.6 million representing our approximate 20% share of first quarter 2012 debt service shortfalls, and GE funded a shortfall loan in the principal amount of $2.3 million in respect of its approximate 80% share of first quarter 2012 debt service shortfalls.  As of March 31, 2012, we have a remaining accrued shortfall liability of $3.5 million for any potential shortfall loans during 2012 and into 2013. We believe that cash shortfalls beyond the amounts currently accrued are not probable. However, our prospective shortfall obligations could vary from our

 

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estimate based upon changes in the performance of the joint venture stations and any changes to the proportionate share of each party’s debt service shortfall obligation.

 

During the three months ended March 31, 2011, we recognized shortfall liabilities of $0.6 million. Because of uncertainty surrounding the joint venture’s ability to repay shortfall loans, we concluded that it was more likely than not that the amount recognized for accrued shortfall loans of $0.6 million would not be recovered within a reasonable period of time.  Accordingly, during the three months ended March 31, 2011, we recognized a charge of $0.6 million, to reflect the impairment of the shortfall loans, which was classified as share of loss in equity investments in our consolidated statement of operations. 

 

All amounts receivable under the shortfall loans, and all accrued interest due from the joint venture, are carried at zero on our consolidated balance sheets.  Should there be sufficient evidence in the future to suggest that collectability of the shortfall loans and accrued interest is reasonably certain, we would reverse the previously recognized impairment charges, reestablish notes receivable for all previously funded and accrued shortfall loans to the joint venture, and establish accrued interest receivable for all previously funded shortfall loans to the joint venture.

 

Note 5 — Intangible Assets

 

The following table summarizes the carrying amounts of intangible assets (in thousands):

 

 

 

March 31, 2012

 

December 31, 2011

 

 

 

Gross Carrying

Amount

 

Accumulated

Amortization

 

Gross Carrying

Amount

 

Accumulated

Amortization

 

Goodwill

 

$

122,312

 

$

 

$

122,069

 

$

 

Broadcast licenses

 

390,826

 

 

390,826

 

 

Intangible assets subject to amortization (1)

 

18,553

 

(10,185

)

18,963

 

(9,708

)

Total

 

$

531,691

 

$

(10,185

)

$

531,858

 

$

(9,708

)

 


(1)

Intangible assets subject to amortization are amortized on a straight line basis and primarily include acquired customer relationships, completed technology, brand names, non-compete agreements, internal-use software, favorable operating leases, retransmission consent agreements and network affiliations.

 

There were no events during the three months ended March 31, 2012 and March 31, 2011 that warranted an interim impairment test of our indefinite-lived intangible assets, including goodwill.

 

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Note 6 — Debt

 

We guarantee all of LIN Television’s debt.  All of the consolidated 100% owned subsidiaries of LIN Television fully and unconditionally guarantee LIN Television’s senior secured credit facility and 83/8% Senior Notes (the “Senior Notes”), on a joint-and-several basis.

 

Debt consisted of the following (in thousands):

 

 

 

March 31,
2012

 

December 31,
2011

 

Senior Secured Credit Facility:

 

 

 

 

 

Revolving credit loans

 

$

10,000

 

$

35,000

 

$125,000 Term loans, net of discount of $582 and $604 as of March 31, 2012 and December 31, 2011, respectively

 

124,418

 

124,396

 

$259,350 and $260,000 Incremental term loans, net of discount of $2,513 and $2,594 as of March 31, 2012 and December 31, 2011, respectively

 

256,837

 

257,406

 

83/8% Senior Notes due 2018

 

200,000

 

200,000

 

6½% Senior Subordinated Notes due 2013

 

 

166,773

 

$85,426 6½% Senior Subordinated Notes due 2013 - Class B, net of discount of $1,228 as of December 31, 2011

 

 

84,198

 

Other debt

 

874

 

944

 

Total debt

 

592,129

 

868,717

 

Less current portion

 

4,437

 

253,856

 

Total long-term debt

 

$

587,692

 

$

614,861

 

 

During the three months ended March 31, 2012 we paid $0.7 million of principal on the incremental term loans related to mandatory quarterly payments under our senior secured credit facility.  On January 20, 2012, we completed the redemption of $251.0 million, net of a discount of $1.2 million, of our 6½% Senior Subordinated Notes and 6½% Senior Subordinated Notes — Class B using the proceeds of an incremental term loan funded in December 2011.  As a result of this redemption, we recorded a loss on extinguishment of debt of $2.1 million associated with a write-down of deferred financing fees and unamortized discount to our consolidated statement of operations during the three months ended March 31, 2012.

 

The fair values of our long-term debt are estimated based on Level 2 inputs of the three-level fair value hierarchy, including quoted market prices for the same issues, or based on the current rates offered to us for our debt.  The carrying amounts and fair values of our long-term debt were as follows (in thousands):

 

 

 

March 31,

2012

 

December 31,

2011

 

Carrying amount

 

$

592,129

 

$

868,717

 

Fair value

 

601,771

 

860,164

 

 

Note 7 — Derivative Financial Instruments

 

We have historically used derivative financial instruments in the management of our interest rate exposure for our long-term debt.  In accordance with our interest rate risk management policy, we do not enter into derivative instruments unless there is an underlying exposure, and we do not enter into derivative financial instruments for speculative trading purposes.

 

During the three months ended March 31, 2011, we recorded a gain on derivative instruments of $0.6 million related to an interest rate hedge we entered into to hedge a notional amount of the declining balances of our term loans under our 2009 senior secured credit facility, which we terminated on October 26, 2011 concurrent with our entry into our new senior secured credit facility.  The interest rate hedge expired on November 4, 2011, and therefore no amounts related to this hedge are included in our consolidated financial statements as of, and during the three months ended, March 31, 2012.

 

As of March 31, 2012, we have a derivative outstanding with a fair value of zero as further described in Note 2 - “Acquisitions”.

 

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Note 8 — Fair Value Measurements

 

We record the fair value of certain financial assets and liabilities on a recurring basis.  The following table summarizes the financial assets and liabilities measured at fair value in the accompanying financial statements using the three-level fair value hierarchy as of March 31, 2012 and December 31, 2011 (in thousands):

 

 

 

Quoted prices
in active

markets

 

Significant
observable

inputs

 

 

 

 

 

(Level 1)

 

(Level 2)

 

Total

 

March 31, 2012:

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Deferred compensation related investments

 

$

594

 

$

1,854

 

$

2,448

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Deferred compensation related liabilities

 

$

2,426

 

$

 

$

2,426

 

 

 

 

 

 

 

 

 

December 31, 2011:

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Deferred compensation related investments

 

$

552

 

$

1,405

 

$

1,957

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Deferred compensation related liabilities

 

$

1,904

 

$

 

$

1,904

 

 

As of the dates presented, we had no financial assets or liabilities recorded at fair value for which the fair value was determined using Level 3 of the fair value hierarchy.  The fair value of our deferred compensation related investments is based on the cash surrender values of life insurance policies underlying our supplemental income deferral plan, as well as the fair value of the investments selected by employees.  The fair value of our deferred compensation related liabilities is determined based on the fair value of the investments selected by employees.

 

Note 9 — Retirement Plans

 

The following table shows the components of the net periodic pension cost (benefit) and the contributions to our 401(k) Plan and the retirement plans (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Net periodic pension cost (benefit):

 

 

 

 

 

Interest cost

 

$

1,364

 

$

1,495

 

Expected return on plan assets

 

(1,549

)

(1,700

)

Amortization of net loss

 

431

 

197

 

Net periodic pension cost (benefit):

 

$

246

 

$

(8

)

Contributions:

 

 

 

 

 

401(k) Plan

 

$

1,078

 

$

914

 

Defined contribution retirement plans

 

137

 

30

 

Defined benefit retirement plans

 

825

 

1,500

 

Total contributions

 

$

2,040

 

$

2,444

 

 

We expect to make contributions of approximately $6.3 million to our defined benefit retirement plans during the remainder of 2012.  See Note 11 — “Retirement Plans” included in Item 15 of our Annual Report on Form 10-K for the year ended December 31, 2011 (“10-K”) for a full description of our retirement plans.

 

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Note 10 — Restructuring

 

During the three months ended March 31, 2012, we recorded a restructuring charge of $1.4 million for severance and related costs for headcount reductions at WWHO-TV and WUPW-TV as a result of the divestitures of these stations as further described in Note 3 — “Discontinued Operations”.  During the three months ended March 31, 2012, we made cash payments of $0.1 million related to these restructuring actions and expect to make cash payments of $1.3 million during the remainder of 2012.

 

During the year ended December 31, 2011, we recorded a restructuring charge of $0.7 million as a result of the consolidation of certain activities at our stations and our corporate headquarters.  As of December 31, 2011, we had a remaining accrual of $0.5 million related to these restructuring actions.  During the three months ended March 31, 2012, we made cash payments of $0.2 million related to these restructuring actions and expect to make cash payments of $0.3 million during the remainder of 2012.

 

The activity for these restructuring charges are as follows (in thousands):

 

 

 

Severance and

Related

 

Balance as of December 31, 2011

 

$

515

 

Charges

 

1,433

 

Payments

 

(337

)

Balance as of March 31, 2012

 

$

1,611

 

 

Note 11 — Income Taxes

 

We recorded a provision for income taxes of $2.8 million and $1.0 million for the three months ended March 31, 2012 and March 31, 2011, respectively.  The increase in the tax provision was primarily a result of the increase in income from operations before taxes as compared to the same period last year. Our effective income tax rate was 35.4% and 38.0% for the three months ended March 31, 2012 and March 31, 2011, respectively.  The decrease in the effective income tax rate was primarily a result of an increase in operating profit before taxes, which decreased the percentage impact of certain permanent book to tax differences and other rate reconciliation items.

 

Note 12 — Commitments and Contingencies

 

Contingencies

 

GECC Note

 

GECC provided debt financing for the joint venture between NBCUniversal and us, in the form of an $815.5 million non-amortizing senior secured note due 2023 bearing interest at an initial rate of 8% per annum until March 2, 2013 and 9% per annum thereafter (the “GECC Note”).  The GECC Note is an obligation of the joint venture.  We have an approximate 20% equity interest in the joint venture and NBCUniversal has the remaining approximate 80% equity interest, in which we and NBCUniversal each have a 50% voting interest.  NBCUniversal operates two television stations, KXAS-TV, an NBC affiliate in Dallas, and KNSD-TV, an NBC affiliate in San Diego, pursuant to a management agreement.  LIN TV has guaranteed the payment of principal and interest on the GECC Note.

 

In January 2011, Comcast Corporation acquired control of the business of NBCUniversal and now owns and controls 51% of NBCUniversal, LLC, while a wholly-owned subsidiary of GE owns the remaining 49%.  GECC remains a wholly-owned subsidiary of GE.

 

In light of the adverse effect of the economic downturn on the joint venture’s operating results, in 2009 we entered into an agreement with NBCUniversal covering the period from March 6, 2009 through April 1, 2010 (the “Original Shortfall Funding Agreement”), and in 2010, an agreement covering the period from April 2, 2010 through April 1, 2011 (“2010 Shortfall Funding Agreement”).  These agreements provided that: (i) we and NBCUniversal waived the requirement that the joint venture maintain debt service reserve cash balances of at least $15 million; (ii) the joint venture would use a portion of its existing debt service reserve cash balances to fund interest payments on the GECC Note in 2009 and 2010; (iii) NBCUniversal agreed to defer its receipt of 2008, 2009 and 2010 management fees; and (iv) we agreed that if the joint venture does not have sufficient cash to fund interest payments on the GECC Note through April 1, 2011, we and NBCUniversal would each provide the joint venture with a shortfall loan on the basis of our percentage of economic interest in the joint venture.

 

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Because of anticipated future cash shortfalls at the joint venture, in 2011 we and GE entered into an agreement (the “2011 Shortfall Funding Agreement”) covering the period from April 2, 2011 through April 1, 2012, and in 2012, an agreement (the “2012 Shortfall Funding Agreement”) covering the period from April 2, 2012 to April 1, 2013.  Under the terms of the 2011 Shortfall Funding Agreement and 2012 Shortfall Funding Agreement, we agreed that if the joint venture does not have sufficient cash to fund interest payments on the GECC Note through April 1, 2013, we and GE would each provide the joint venture with a shortfall loan.  Shortfall loans funded by us under the 2011 Shortfall Funding Agreement and 2012 Shortfall Funding Agreement are calculated on the basis of our percentage of economic interest in the joint venture, and GE’s share of shortfall loans are calculated on the basis of NBCUniversal’s percentage of economic interest in the joint venture.  Solely to enable the joint venture with NBCUniversal to obtain shortfall loans from GE under shortfall funding agreements, in 2011 the joint venture (i) amended its credit agreement with GECC, (ii) amended the LLC Agreement governing the operation of the joint venture, and (iii) received the consent of Comcast Corporation to the terms and conditions on which GE provides its proportionate share of any joint venture debt service shortfall under the 2011 Shortfall Funding Agreement.  GE’s obligation to fund shortfall loans under the 2012 Shortfall Funding Agreement is conditioned upon the receipt of the consent of Comcast Corporation to the terms and conditions on which GE provides its proportionate share of any shortfall; provided that Comcast’s consent may not be unreasonably withheld.  NBCUniversal acknowledged and agreed to the terms of the 2011 Shortfall Funding Agreement and 2012 Shortfall Funding Agreement.

 

Under the terms of the joint venture’s TV Master Service Agreement with NBCUniversal, management fees owed by the joint venture to NBCUniversal will continue to accrue, but are not payable if any existing joint venture shortfall loans remain outstanding.

 

We recognize shortfall funding liabilities to the joint venture on our consolidated balance sheets when those liabilities become both probable and estimable.  These liabilities become probable and estimable when joint venture management provides us with budget or forecast information of operating cash flows and working capital needs indicating that a debt service shortfall is probable to occur, and for periods beyond joint venture management’s forecast, we develop our own internal estimates of debt service shortfalls.  Additionally, we accrue shortfall funding liabilities only when we have reached or intend to reach a shortfall funding agreement covering the period for which we estimate debt service shortfalls to occur.

 

As of December 31, 2011, we had a shortfall liability of $4.1 million recognized for any potential shortfall loans to the joint venture during 2012 and into 2013.  During the three months ended March 31, 2012, pursuant to the 2011 Shortfall Funding Agreement with GE, we funded shortfall loans in the principal amount of $0.6 million representing our approximate 20% share of first quarter 2012 debt service shortfalls, and GE funded shortfall loans in the principal amount of $2.3 million in respect of its approximate 80% share of first quarter 2012 debt service shortfalls.  As of March 31, 2012, we have a remaining accrued shortfall liability of $3.5 million for any potential shortfall loans during 2012 and into 2013.  We believe that cash shortfalls beyond the amounts currently accrued are not probable. However, our prospective shortfall obligations could vary from our estimate based upon changes in the performance of the joint venture stations and any changes to the proportionate share of each party’s debt service shortfall obligation.

 

Our ability to honor our shortfall loan obligations under the 2012 Shortfall Funding Agreement is limited by certain covenants contained in our senior secured credit facility and the indenture governing our Senior Notes.  Based on our 2012 and 2013 estimate of debt service shortfalls at the joint venture, and our forecast of total leverage and consolidated EBITDA during 2012 and into 2013, we expect to have the capacity within these restrictions to provide funding to the joint venture for the $3.5 million accrued shortfall liability.  As of March 31, 2012, we had availability under applicable debt covenants to fund future shortfall loans as follows: (i) $48.3 million of availability under our senior secured credit facility, and (ii) $162.0 million of availability under the indenture governing our Senior Notes.

 

The possibility exists that debt service shortfalls at the joint venture could exceed current expectations, including the possibility that neither GE nor NBCUniversal will continue to fund a share of such debt service shortfall loans after April 1, 2013.  Should circumstances arise in which we desire to make shortfall loans to the joint venture in excess of the limitations imposed by the covenants contained in our senior secured credit facility or the indenture governing our Senior Notes, we could seek an amendment or waiver of such limitations, but there is no assurance that we would be able to obtain such amendment or waiver on a timely basis, or at all, or on terms satisfactory to us.  If we are unable to make shortfall payments, the joint venture may be unable to fund interest obligations under the GECC Note, resulting in an event of default.

 

An event of default under the GECC Note would occur if the joint venture fails to make any scheduled interest payment within 90 days of the date due, or fails to pay the principal amount on the maturity date in 2023.  If an event of default occurs, GECC could accelerate the maturity of the entire amount due under the GECC Note.  Other than upon the acceleration of the principal amount upon an event of default, prepayment of the principal of the note is prohibited unless agreed upon by both NBCUniversal and LIN TV.  Upon an event of default under the GECC Note, GECC’s only recourse would be to the joint venture, our equity interest in the joint venture and, after exhausting all remedies against the assets of the joint venture and the other equity interests in the joint venture, to LIN TV pursuant to its guarantee of the full amount of the GECC Note.

 

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Under the terms of its guarantee of the GECC Note, LIN TV would be required to make a payment for an amount to be determined upon occurrence of the following events: (i) there is an event of default; (ii) the default is not remedied; and (iii) after GECC exhausts all remedies against the assets of the joint venture, the total amount realized upon exercise of those remedies is less than the $815.5 million principal amount of, plus any accrued and unpaid interest due under the GECC Note.  Upon the occurrence of such events, the amount owed by LIN TV to GECC pursuant to the guarantee would be calculated as the difference between (i) the total amount at which the joint venture’s assets were sold and (ii) the principal amount of, plus any accrued and unpaid interest due under the GECC Note.  As of December 31, 2011, we estimated the fair value of the television stations in the joint venture to be approximately $118 million less than the outstanding principal balance of the GECC Note of $815.5 million.

 

Although we believe the probability is remote that there would be an event of default and therefore an acceleration of the principal amount of the GECC Note, there can be no assurances that such an event of default will not occur.  There are no financial or similar covenants in the GECC Note. In addition, since both GE and LIN Television have agreed to fund interest payments through April 1, 2013, if the joint venture is unable to generate sufficient cash to service interest payments on the GECC Note, GE and LIN Television are able to control the occurrence of a default under the GECC Note.  Since 2009, LIN Television and its joint venture partners have prevented the occurrence of a default by entering into shortfall funding agreements and funding shortfall loans to the joint venture as further described above.

 

If an event of default occurs under the GECC Note, LIN TV, which conducts all of its operations through its subsidiaries, could experience material adverse consequences, including:

 

·

GECC, after exhausting all remedies against the joint venture, could enforce its rights under the guarantee, which could cause LIN TV to determine that LIN Television should seek to sell material assets owned by it in order to satisfy LIN TV’s obligations under the guarantee;

 

 

·

GECC’s initiation of proceedings against LIN TV under the guarantee could result in a change of control or other material adverse consequences to LIN Television, which could cause an acceleration of LIN Television’s senior secured credit facility and other outstanding indebtedness; and

 

 

·

if the GECC Note is prepaid because of an acceleration on default or otherwise, or if LIN TV is released from its obligation, LIN TV would realize a substantial tax gain of approximately $815.5 million related to its deferred gain associated with the formation of the joint venture. This amount of gain, exclusive of any potential utilization of net operating loss carryforwards or other unrealized capital losses, would be subject to U.S. Federal and various State tax rates of 35% and approximately 1% (net of Federal benefit), respectively.

 

Litigation

 

We are involved in various legal claims and disputes in the ordinary course of our business.  As such, we accrue for such liabilities when it is both (i) probable that a loss has occurred and (ii) the amount of the loss can be reasonably estimated.  We evaluate, on a quarterly basis, developments affecting various legal claims and disputes that could cause an increase or decrease in the amount of the liability that has been previously accrued.  It is possible that we could incur losses in excess of any amounts accrued.  While management does not anticipate any such loss would have a material adverse impact on our consolidated financial position, it is possible that the final outcome could have a material impact on our results of operations or cash flows in any given period.

 

Note 13 — Related Party

 

We have a non-controlling investment in an interactive service provider that hosts our web sites.  We incurred charges of $0.9 million and $0.7 million for web hosting services and web site development and customization from the provider during the three months ended March 31, 2012 and March 31, 2011, respectively.  Additionally, we made cash payments of $0.5 million and $0.7 million to the provider for web hosting services and web site development and customization during the three months ended March 31, 2012 and March 31, 2011, respectively.

 

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Note 14 — Subsequent Events

 

On April 21, 2012, we completed the sale of substantially all of the assets of WUPW-TV to WUPW, LLC.

 

On May 4, 2012, LIN Television entered into an asset purchase agreement with affiliates and subsidiaries of New Vision Television, LLC (“New Vision”) to acquire the assets of 13 network affiliates in eight markets for $330.4 million and the assumption of $12 million of debt.  LIN Television also agreed to provide certain services to five separately owned network affiliates currently served by New Vision pursuant to sharing arrangements with a third-party licensee upon the closing of the transaction.  Pursuant to the terms of the purchase agreement, we deposited $33.5 million into an escrow account, which will be applied to the payment of the purchase price at closing.  We intend to fund the remaining purchase price due at closing with a combination of a draw against LIN Television’s revolving credit facility and newly incurred debt.  In addition, on May 4, 2012, LIN Television entered into a commitment letter pursuant to which JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC have committed to provide up to $265 million under a senior unsecured bridge loan facility which, if entered into, would be utilized in connection with the acquisition.  The bridge loan facility would be guaranteed by each of LIN Television’s wholly-owned subsidiaries and would initially bear an annual interest rate equal to LIBOR plus 6.50%.  The closing of the acquisition, which is expected to occur in late 2012, is subject to regulatory approvals and other closing conditions, including the approval of the FCC and clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

 

Note 15 — Condensed Consolidating Financial Statements:

 

LIN Television, a 100% owned subsidiary of LIN TV Corp., is the primary obligor of our senior secured credit facility and our Senior Notes, which are further described in Note 6—“Debt”.  LIN TV fully and unconditionally guarantees all of LIN Television’s debt on a joint-and-several basis.  Additionally, all of the consolidated 100% owned subsidiaries of LIN Television fully and unconditionally guarantee LIN Television’s senior secured credit facility and Senior Notes on a joint-and-several basis, subject to customary release provisions.  There are certain contractual restrictions on LIN Television’s ability to obtain funds in the form of dividends or loans from the non-guarantor subsidiaries.

 

The following condensed consolidating financial statements present the consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income and consolidated statements of cash flows of LIN TV, LIN Television, as the issuer, the guarantor subsidiaries, and the non-guarantor subsidiaries of LIN Television and the elimination entries necessary to consolidate or combine the issuer with the guarantor and non-guarantor subsidiaries.  These statements are presented in accordance with the disclosure requirements under SEC Regulation S-X Rule 3-10.

 

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Condensed Consolidating Balance Sheet

As of March 31, 2012

(in thousands)

 

 

 

LIN TV Corp.

 

LIN Television

Corporation

 

Guarantor
Subsidiaries

 

Non-Guarantor

Subsidiaries

 

Eliminations

 

LIN TV Corp.

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

$

11,492

 

$

636

 

$

524

 

$

 

$

12,652

 

Accounts receivable, net

 

 

57,835

 

24,565

 

2,811

 

 

85,211

 

Deferred income tax assets

 

 

2,837

 

3,679

 

47

 

 

6,563

 

Assets held for sale

 

 

 

1,523

 

 

 

1,523

 

Other current assets

 

 

4,918

 

800

 

948

 

 

6,666

 

Total current assets

 

 

77,082

 

31,203

 

4,330

 

 

112,615

 

Property and equipment, net

 

 

102,290

 

41,145

 

1,355

 

 

144,790

 

Deferred financing costs

 

 

11,166

 

 

 

 

11,166

 

Goodwill

 

 

99,137

 

18,518

 

4,657

 

 

122,312

 

Broadcast licenses and other intangible assets, net

 

 

1,473

 

386,522

 

11,199

 

 

399,194

 

Deferred income tax assets

 

 

99,968

 

 

 

(99,968

)

 

Assets held for sale

 

 

 

3,735

 

 

 

3,735

 

Advances to consolidated subsidiaries

 

 

11,227

 

1,375,983

 

 

(1,387,210

)

 

Investment in consolidated subsidiaries

 

 

1,565,799

 

 

 

(1,565,799

)

 

Other assets

 

 

14,769

 

2,643

 

696

 

(7,185

)

10,923

 

Total assets

 

$

 

$

1,982,911

 

$

1,859,749

 

$

22,237

 

$

(3,060,162

)

$

804,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

$

4,162

 

$

 

$

275

 

$

 

$

4,437

 

Accounts payable

 

 

4,708

 

1,582

 

464

 

 

6,754

 

Accrued expenses

 

 

27,984

 

14,593

 

298

 

 

42,875

 

Program obligations

 

 

7,283

 

1,574

 

802

 

 

9,659

 

Liabilities held for sale

 

 

 

1,516

 

 

 

1,516

 

Total current liabilities

 

 

44,137

 

19,265

 

1,839

 

 

65,241

 

Long-term debt, excluding current portion

 

 

587,096

 

 

596

 

 

587,692

 

Deferred income tax liabilities

 

 

 

270,582

 

1,021

 

(99,968

)

171,635

 

Program obligations

 

 

1,863

 

183

 

782

 

 

2,828

 

Liabilities held for sale

 

 

 

75

 

 

 

75

 

Intercompany liabilities

 

 

1,375,983

 

8,503

 

2,724

 

(1,387,210

)

 

Accumulated losses in excess of investment in consolidated subsidiaries

 

79,013

 

 

 

 

(79,013

)

 

Other liabilities

 

 

52,845

 

80

 

7,185

 

(7,185

)

52,925

 

Total liabilities

 

79,013

 

2,061,924

 

298,688

 

14,147

 

(1,573,376

)

880,396

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

 

 

3,352

 

 

3,352

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ (deficit) equity

 

(79,013

)

(79,013

)

1,561,061

 

4,738

 

(1,486,786

)

(79,013

)

Total liabilities, redeemable noncontrolling interest and stockholders’ equity (deficit)

 

$

 

$

1,982,911

 

$

1,859,749

 

$

22,237

 

$

(3,060,162

)

$

804,735

 

 

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Condensed Consolidating Balance Sheet

As of December 31, 2011

(in thousands)

 

 

 

LIN TV Corp.

 

LIN Television
Corporation

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

LIN TV Corp.
Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

$

16,571

 

$

653

 

$

833

 

$

 

$

18,057

 

Restricted cash

 

 

255,159

 

 

 

 

255,159

 

Accounts receivable, net

 

 

62,741

 

25,470

 

2,882

 

 

91,093

 

Deferred income tax assets

 

 

3,008

 

1,160

 

81

 

 

4,249

 

Assets held for sale

 

 

1,117

 

2,136

 

 

 

3,253

 

Other current assets

 

 

5,765

 

285

 

40

 

 

6,090

 

Total current assets

 

 

344,361

 

29,704

 

3,836

 

 

377,901

 

Property and equipment, net

 

 

103,091

 

41,444

 

894

 

 

145,429

 

Deferred financing costs

 

 

12,472

 

 

 

 

12,472

 

Goodwill

 

 

99,137

 

18,518

 

4,414

 

 

122,069

 

Broadcast licenses and other intangible assets, net

 

 

1,532

 

386,756

 

11,793

 

 

400,081

 

Deferred income tax assets

 

 

100,914

 

 

 

(100,914

)

 

Assets held for sale

 

 

8,734

 

3,771

 

 

 

12,505

 

Advances to consolidated subsidiaries

 

 

10,027

 

1,360,824

 

 

(1,370,851

)

 

Investment in consolidated subsidiaries

 

 

1,551,521

 

 

 

(1,551,521

)

 

Other assets

 

 

13,937

 

3,169

 

1,566

 

(7,185

)

11,487

 

Total assets

 

$

 

$

2,245,726

 

$

1,844,186

 

$

22,503

 

$

(3,030,471

)

$

1,081,944

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

$

253,571

 

$

 

$

285

 

$

 

$

253,856

 

Accounts payable

 

 

7,771

 

2,550

 

651

 

 

10,972

 

Accrued expenses

 

 

27,541

 

10,713