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 September 30, 2012
Commission file number: 001-31311 |
| Commission file number: 000-25206 |
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LIN TV Corp. |
| LIN Television Corporation |
(Exact name of registrant as specified in its charter) |
| (Exact name of registrant as specified in its charter) |
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Delaware |
| Delaware |
(State or other jurisdiction of incorporation or organization) |
| (State or other jurisdiction of incorporation or organization) |
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05-0501252 |
| 13-3581627 |
(I.R.S. Employer Identification No.) |
| (I.R.S. Employer 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 Data 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 |
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Non-accelerated filer o |
| Smaller reporting company o |
(Do not check if a smaller reporting company) |
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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 November 2, 2012: 29,894,110 shares.
LIN TV Corp. Class B common stock, $0.01 par value, outstanding as of November 2, 2012: 23,401,726 shares.
LIN TV Corp. Class C common stock, $0.01 par value, outstanding as of November 2, 2012: 2 shares.
LIN Television Corporation common stock, $0.01 par value, outstanding as of November 2, 2012: 1,000 shares.
Item 1. Unaudited Consolidated Financial Statements
LIN TV Corp.
(unaudited)
|
| September 30, |
| December 31, |
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| (in thousands, except share data) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 32,806 |
| $ | 18,057 |
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Restricted cash |
| — |
| 255,159 |
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Accounts receivable, less allowance for doubtful accounts (2012 - $2,879; 2011 - $2,310) |
| 97,464 |
| 91,093 |
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Deferred income tax assets |
| 7,375 |
| 4,249 |
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Assets held for sale |
| — |
| 3,253 |
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Other current assets |
| 6,604 |
| 6,090 |
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Total current assets |
| 144,249 |
| 377,901 |
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Property and equipment, net |
| 143,553 |
| 145,429 |
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Deferred financing costs |
| 10,837 |
| 12,472 |
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Goodwill |
| 122,158 |
| 122,069 |
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Broadcast licenses and other intangible assets, net |
| 398,795 |
| 400,081 |
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Assets held for sale |
| — |
| 12,505 |
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Other assets |
| 44,826 |
| 11,487 |
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Total assets (a) |
| $ | 864,418 |
| $ | 1,081,944 |
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LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Current portion of long-term debt |
| $ | 7,547 |
| $ | 253,856 |
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Accounts payable |
| 7,242 |
| 10,972 |
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Accrued expenses |
| 52,698 |
| 38,578 |
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Program obligations |
| 9,536 |
| 9,892 |
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Liabilities held for sale |
| — |
| 3,719 |
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Total current liabilities |
| 77,023 |
| 317,017 |
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Long-term debt, excluding current portion |
| 573,383 |
| 614,861 |
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Deferred income tax liabilities |
| 199,623 |
| 167,371 |
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Program obligations |
| 1,993 |
| 3,874 |
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Liabilities held for sale |
| — |
| 1,308 |
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Other liabilities |
| 47,374 |
| 58,642 |
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Total liabilities (a) |
| 899,396 |
| 1,163,073 |
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Commitments and Contingencies (Note 11) |
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Redeemable noncontrolling interest |
| 3,303 |
| 3,503 |
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Stockholders’ deficit: |
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Class A common stock, $0.01 par value, 100,000,000 shares authorized, |
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Outstanding: 29,836,611 and 33,012,351 shares as of September 30, 2012 and December 31, 2011, respectively |
| 311 |
| 309 |
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Class B common stock, $0.01 par value, 50,000,000 shares authorized, 23,401,726 shares as of September 30, 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 |
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Class C common stock, $0.01 par value, 50,000,000 shares authorized, 2 shares as of September 30, 2012 and December 31, 2011, issued and outstanding; convertible into an equal number of shares of class A common stock |
| — |
| — |
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Treasury stock, 4,947,659 and 1,637,818 shares of class A common stock as of September 30, 2012 and December 31, 2011, respectively, at cost |
| (21,984 | ) | (10,598 | ) | ||
Additional paid-in capital |
| 1,127,497 |
| 1,121,589 |
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Accumulated deficit |
| (1,106,347 | ) | (1,157,390 | ) | ||
Accumulated other comprehensive loss |
| (37,993 | ) | (38,777 | ) | ||
Total stockholders’ deficit |
| (38,281 | ) | (84,632 | ) | ||
Total liabilities, redeemable noncontrolling interest and stockholders’ deficit |
| $ | 864,418 |
| $ | 1,081,944 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
(a) Our consolidated assets as of September 30, 2012 and December 31, 2011 include total assets of $10,071 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 $7,809 and $7,815 and program rights of $1,183 and $1,574 as of September 30, 2012 and December 31, 2011, respectively. Our consolidated liabilities as of September 30, 2012 and December 31, 2011 include total liabilities of $2,242 and $2,721, respectively, of a VIE for which the VIE’s creditors have no recourse to the Company, including $1,247 and $1,884, respectively, of program obligations. See further description in Note 1 — “Basis of Presentation and Summary of Significant Accounting Policies”.
LIN TV Corp.
Consolidated Statements of Operations
(unaudited)
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
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| 2012 |
| 2011 |
| 2012 |
| 2011 |
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| (in thousands, except per share data) |
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Net revenues |
| $ | 133,076 |
| $ | 97,816 |
| $ | 357,292 |
| $ | 288,498 |
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Operating expenses: |
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Direct operating |
| 38,152 |
| 33,501 |
| 110,554 |
| 95,571 |
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Selling, general and administrative |
| 28,365 |
| 25,182 |
| 84,791 |
| 76,881 |
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Amortization of program rights |
| 5,612 |
| 5,517 |
| 16,212 |
| 16,192 |
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Corporate |
| 9,264 |
| 5,881 |
| 24,229 |
| 19,703 |
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Depreciation |
| 6,824 |
| 6,530 |
| 20,234 |
| 19,153 |
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Amortization of intangible assets |
| 507 |
| 233 |
| 1,462 |
| 781 |
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Restructuring |
| — |
| 498 |
| — |
| 498 |
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(Gain) loss from asset dispositions |
| (15 | ) | 51 |
| (12 | ) | 409 |
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Operating income |
| 44,367 |
| 20,423 |
| 99,822 |
| 59,310 |
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Other expense: |
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Interest expense, net |
| 9,310 |
| 12,608 |
| 28,946 |
| 38,257 |
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Share of loss in equity investments |
| 4,156 |
| 3,071 |
| 4,309 |
| 4,238 |
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Gain on derivative instruments |
| — |
| (565 | ) | — |
| (1,768 | ) | ||||
Loss on extinguishment of debt |
| — |
| — |
| 2,099 |
| 192 |
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Other expense, net |
| 88 |
| 60 |
| 176 |
| 58 |
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Total other expense, net |
| 13,554 |
| 15,174 |
| 35,530 |
| 40,977 |
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Income before provision for income taxes |
| 30,813 |
| 5,249 |
| 64,292 |
| 18,333 |
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Provision for income taxes |
| 11,194 |
| 2,247 |
| 24,101 |
| 12,818 |
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Income from continuing operations |
| 19,619 |
| 3,002 |
| 40,191 |
| 5,515 |
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Discontinued operations: |
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Income (loss) from discontinued operations, net of a provision for (benefit from) income taxes of $63 for the three months ended September 30, 2011, and $(541) and $146 for the nine months ended September 30, 2012 and 2011, respectively |
| — |
| 109 |
| (1,018 | ) | 253 |
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Gain on the sale of discontinued operations, net of a provision for income taxes of $6,223 for the nine months ended September 30, 2012 |
| — |
| — |
| 11,389 |
| — |
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Net income |
| 19,619 |
| 3,111 |
| 50,562 |
| 5,768 |
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Net (loss) income attributable to noncontrolling interests |
| (40 | ) | 153 |
| (481 | ) | 153 |
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Net income attributable to LIN TV Corp. |
| $ | 19,659 |
| $ | 2,958 |
| $ | 51,043 |
| $ | 5,615 |
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Basic income per common share attributable to LIN TV Corp.: |
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Income from continuing operations attributable to LIN TV Corp. |
| $ | 0.37 |
| $ | 0.05 |
| $ | 0.74 |
| $ | 0.10 |
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Loss from discontinued operations, net of tax |
| — |
| — |
| (0.02 | ) | — |
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Gain on the sale of discontinued operations, net of tax |
| — |
| — |
| 0.21 |
| — |
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Net income attributable to LIN TV Corp. |
| $ | 0.37 |
| $ | 0.05 |
| $ | 0.93 |
| $ | 0.10 |
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Weighted-average number of common shares outstanding used in calculating basic income per common share |
| 53,066 |
| 56,352 |
| 54,715 |
| 55,674 |
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Diluted income per common share attributable to LIN TV Corp.: |
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Income from continuing operations attributable to LIN TV Corp. |
| $ | 0.36 |
| $ | 0.05 |
| $ | 0.73 |
| $ | 0.10 |
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Loss from discontinued operations, net of tax |
| — |
| — |
| (0.02 | ) | — |
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Gain on the sale of discontinued operations, net of tax |
| — |
| — |
| 0.20 |
| — |
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Net income attributable to LIN TV Corp. |
| $ | 0.36 |
| $ | 0.05 |
| $ | 0.91 |
| $ | 0.10 |
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Weighted-average number of common shares outstanding used in calculating diluted income per common share |
| 54,353 |
| 57,431 |
| 55,989 |
| 56,985 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
LIN TV Corp.
Consolidated Statements of Comprehensive Income
(unaudited)
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| Three Months Ended |
| Nine Months Ended |
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| 2012 |
| 2011 |
| 2012 |
| 2011 |
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| (in thousands) |
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Net income |
| $ | 19,619 |
| $ | 3,111 |
| $ | 50,562 |
| $ | 5,768 |
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Amortization of pension net losses, net of tax of $169 and $79 for the three months ended September 30, 2012 and 2011, respectively, and $509 and $260 for the nine months ended September 30, 2012 and 2011, respectively |
| 262 |
| 120 |
| 784 |
| 332 |
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Comprehensive income |
| 19,881 |
| 3,231 |
| 51,346 |
| 6,100 |
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Comprehensive (loss) income attributable to noncontrolling interest |
| (40 | ) | 153 |
| (481 | ) | 153 |
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Comprehensive income attributable to LIN TV Corp. |
| $ | 19,921 |
| $ | 3,078 |
| $ | 51,827 |
| $ | 5,947 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
LIN TV Corp.
Consolidated Statement of Stockholders’ Deficit
(unaudited)
(in thousands)
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| Common Stock |
| Treasury |
| Additional |
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| Accumulated |
| Total |
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| Class A |
| Class B |
| Class C |
| Stock |
| Paid-In |
| Accumulated |
| Comprehensive |
| Stockholders’ |
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| Amount |
| Amount |
| Amount |
| (at cost) |
| Capital |
| Deficit |
| Loss |
| Deficit |
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Balance as of December 31, 2011 |
| $ | 309 |
| $ | 235 |
| $ | — |
| $ | (10,598 | ) | $ | 1,121,589 |
| $ | (1,157,390 | ) | $ | (38,777 | ) | $ | (84,632 | ) |
Amortization of pension net losses, net of tax of $509 |
| — |
| — |
| — |
| — |
| — |
| — |
| 784 |
| 784 |
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Stock-based compensation |
| 2 |
| — |
| — |
| — |
| 5,908 |
| — |
| — |
| 5,910 |
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Purchase of LIN TV Corp. class A common stock |
| — |
| — |
| — |
| (11,386 | ) | — |
| — |
| — |
| (11,386 | ) | ||||||||
Net income attributable to LIN TV Corp. |
| — |
| — |
| — |
| — |
| — |
| 51,043 |
| — |
| 51,043 |
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Balance as of September 30, 2012 |
| $ | 311 |
| $ | 235 |
| $ | — |
| $ | (21,984 | ) | $ | 1,127,497 |
| $ | (1,106,347 | ) | $ | (37,993 | ) | $ | (38,281 | ) |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
LIN TV Corp.
Consolidated Statement of Stockholders’ Deficit
(unaudited)
(in thousands)
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| Accumulated |
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| Common Stock |
| Treasury |
| Additional |
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| Other |
| Total |
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| Class A |
| Class B |
| Class C |
| Stock |
| Paid-In |
| Accumulated |
| Comprehensive |
| Stockholders’ |
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| Amount |
| Amount |
| Amount |
| (at cost) |
| Capital |
| Deficit |
| Loss |
| Deficit |
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Balance as of December 31, 2010 |
| $ | 294 |
| $ | 235 |
| $ | — |
| $ | (7,869 | ) | $ | 1,109,814 |
| $ | (1,205,967 | ) | $ | (27,939 | ) | $ | (131,432 | ) |
Amortization of pension net losses, net of tax of $260 |
| — |
| — |
| — |
| — |
| — |
| — |
| 332 |
| 332 |
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Stock-based compensation |
| 2 |
| — |
| — |
| — |
| 5,527 |
| — |
| — |
| 5,529 |
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Issuance of LIN TV Corp. class A common stock |
| 12 |
| — |
| — |
| — |
| 4,761 |
| — |
| — |
| 4,773 |
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Net income attributable to LIN TV Corp. |
| — |
| — |
| — |
| — |
| — |
| 5,615 |
| — |
| 5,615 |
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Balance as of September 30, 2011 |
| $ | 308 |
| $ | 235 |
| $ | — |
| $ | (7,869 | ) | $ | 1,120,102 |
| $ | (1,200,352 | ) | $ | (27,607 | ) | $ | (115,183 | ) |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
LIN TV Corp.
Consolidated Statements of Cash Flows
(unaudited)
|
| Nine Months Ended September, |
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| 2012 |
| 2011 |
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| (in thousands) |
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OPERATING ACTIVITIES: |
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Net income |
| $ | 50,562 |
| $ | 5,768 |
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Loss (income) from discontinued operations |
| 1,018 |
| (253 | ) | ||
Gain on the sale of discontinued operations |
| (11,389 | ) | — |
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Adjustment to reconcile net income to net cash provided by operating activities: |
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Depreciation |
| 20,234 |
| 19,153 |
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Amortization of intangible assets |
| 1,462 |
| 781 |
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Amortization of financing costs and note discounts |
| 1,746 |
| 2,858 |
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Amortization of program rights |
| 16,212 |
| 16,192 |
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Cash payments for programming |
| (17,202 | ) | (18,782 | ) | ||
Loss on extinguishment of debt |
| 871 |
| 192 |
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Gain on derivative instruments |
| — |
| (1,768 | ) | ||
Share of loss in equity investments |
| 4,309 |
| 4,238 |
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Deferred income taxes, net |
| 23,256 |
| 12,578 |
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Stock-based compensation |
| 5,308 |
| 4,856 |
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(Gain) loss from asset dispositions |
| (12 | ) | 409 |
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Other, net |
| 1,293 |
| 593 |
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Changes in operating assets and liabilities, net of acquisitions: |
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Accounts receivable |
| (6,371 | ) | 2,459 |
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Other assets |
| (1,634 | ) | (271 | ) | ||
Accounts payable |
| (3,730 | ) | 586 |
| ||
Accrued interest expense |
| 1,865 |
| 11,049 |
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Other liabilities and accrued expenses |
| 121 |
| (5,734 | ) | ||
Net cash provided by operating activities, continuing operations |
| 87,919 |
| 54,904 |
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Net cash used in operating activities, discontinued operations |
| (2,736 | ) | (237 | ) | ||
Net cash provided by operating activities |
| 85,183 |
| 54,667 |
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INVESTING ACTIVITIES: |
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Capital expenditures |
| (19,337 | ) | (11,588 | ) | ||
Change in restricted cash |
| 255,159 |
| — |
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Payments for business combinations, net of cash acquired |
| (34,325 | ) | (5,244 | ) | ||
Proceeds from the sale of assets |
| 62 |
| 48 |
| ||
Payments on derivative instruments |
| — |
| (1,822 | ) | ||
Shortfall loans to joint venture with NBCUniversal |
| (2,292 | ) | (1,408 | ) | ||
Other investments, net |
| — |
| (250 | ) | ||
Net cash provided by (used in) investing activities, continuing operations |
| 199,267 |
| (20,264 | ) | ||
Net cash provided by (used in) investing activities, discontinued operations |
| 29,520 |
| (94 | ) | ||
Net cash provided by (used in) investing activities |
| 228,787 |
| (20,358 | ) | ||
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FINANCING ACTIVITIES: |
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Net proceeds from exercises of employee and director stock-based compensation |
| 652 |
| 673 |
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Proceeds from borrowings on long-term debt |
| 20,000 |
| 920 |
| ||
Principal payments on long-term debt |
| (308,128 | ) | (9,666 | ) | ||
Payment of long-term debt issue costs |
| (359 | ) | (310 | ) | ||
Treasury stock purchased |
| (11,386 | ) | — |
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Net cash used in financing activities |
| (299,221 | ) | (8,383 | ) | ||
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Net increase in cash and cash equivalents |
| 14,749 |
| 25,926 |
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Cash and cash equivalents at the beginning of the period |
| 18,057 |
| 11,648 |
| ||
Cash and cash equivalents at the end of the period |
| $ | 32,806 |
| $ | 37,574 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
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 an 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. We are the primary beneficiary of WBDT, and therefore, we consolidate WBDT within our unaudited interim consolidated financial statements.
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):
|
| September 30, |
| December 31, |
| ||
ASSETS |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 90 |
| $ | 90 |
|
Accounts receivable, net |
| 610 |
| 789 |
| ||
Other assets |
| 639 |
| 697 |
| ||
Total current assets |
| 1,339 |
| 1,576 |
| ||
Property and equipment, net |
| 374 |
| 419 |
| ||
Broadcast licenses and other intangible assets, net |
| 7,809 |
| 7,815 |
| ||
Other assets |
| 549 |
| 878 |
| ||
Total assets |
| $ | 10,071 |
| $ | 10,688 |
|
|
|
|
|
|
| ||
LIABILITIES |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Current portion of long-term debt |
| $ | 184 |
| $ | 184 |
|
Accounts payable |
| 965 |
| 739 |
| ||
Accrued expenses |
| 30 |
| 98 |
| ||
Program obligations |
| 674 |
| 904 |
| ||
Total current liabilities |
| 1,853 |
| 1,925 |
| ||
Long-term debt, excluding current portion |
| 460 |
| 598 |
| ||
Program obligations |
| 573 |
| 980 |
| ||
Other liabilities |
| 7,185 |
| 7,185 |
| ||
Total liabilities |
| $ | 10,071 |
| $ | 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. As of September 30, 2012 and December 31, 2011, other liabilities of WBDT of $7.2 million reduce the carrying value of the entity, to reflect the fact that as of September 30, 2012 and December 31, 2011, LIN Television has an option 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. The option is exercisable by us only in the event that the Federal Communications Commission (“FCC”) attribution rules change.
Redeemable Noncontrolling Interest
The following table presents the activity of the redeemable noncontrolling interest included in our consolidated balance sheets related to Nami Media, Inc. (“Nami Media”), which represents a third party’s proportionate share of the interest (in thousands):
|
| Redeemable |
| |
Balance as of December 31, 2011 |
| $ | 3,503 |
|
Net loss |
| (200 | ) | |
Balance as of September 30, 2012 |
| $ | 3,303 |
|
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 table sets forth the computation of the common shares outstanding used in determining basic and diluted EPS (in thousands):
|
| Three Months Ended |
| Nine Months Ended |
| ||||
Denominator for EPS calculation: |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
Weighted-average common shares, basic |
| 53,066 |
| 56,352 |
| 54,715 |
| 55,674 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
Stock options |
| 1,287 |
| 1,079 |
| 1,274 |
| 1,311 |
|
Weighted-average common shares, diluted |
| 54,353 |
| 57,431 |
| 55,989 |
| 56,985 |
|
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 2.5 million shares and 2.6 million shares of common stock for the three months ended September 30, 2012 and 2011, respectively, and 1.7 million shares and 0.4 million shares of common stock for the nine months ended September 30, 2012 and 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.
Recently Issued Accounting Pronouncements
In July 2012, there were revisions to the accounting standard for impairment tests of indefinite-lived intangible assets other than goodwill. Under the revised standard a company can first perform a qualitative assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary. A company can choose to perform the qualitative assessment on none, some, or all of its indefinite-lived intangible assets, and can also bypass the qualitative assessment and perform the quantitative impairment test for any indefinite-lived intangible in any period. The revised standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted during 2012 if a company has not yet performed its 2012 annual impairment test or issued its financial statements. We will adopt this guidance no later than January 1, 2013, and we do not expect it to have a material impact on our financial position or results of operations.
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 the adoption did not have an impact on our financial position or results of operations.
In September 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 stockholders’ 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
New Vision Television, LLC
On October 12, 2012, LIN Television completed its acquisition (the “Acquisition”) of television stations in eight markets from affiliates and subsidiaries of New Vision Television, LLC (“New Vision”) for $334.9 million, subject to certain post-closing adjustments, and including the assumption of $14.3 million of finance lease obligations. As a result of the Acquisition, we now operate or service 43 television stations, seven digital channels and a growing portfolio of web sites, applications and mobile products in 23 U.S. markets. Concurrent with the Acquisition, Vaughan Acquisition LLC (“Vaughan”), a third-party licensee, completed its acquisition of separately owned television stations in three markets for $4.6 million (the “Vaughan Acquired Stations”) from PBC Broadcasting, LLC (“PBC”).
LIN Television also agreed to provide certain services to the Vaughan Acquired Stations pursuant to shared services arrangements with Vaughan. Under the shared services arrangements with Vaughan, we will provide sales, administrative and technical services, supporting the business and operation of the Vaughan Acquired Stations in exchange for commissions and fees that will provide us the benefit of certain returns from the business of the Vaughan Acquired Stations. We expect that Vaughan will be considered a VIE, of which we are the primary beneficiary, and that we will consolidate the assets, liabilities, and results of operations of Vaughan and its consolidated subsidiaries.
The aggregate purchase price for these transactions is $339.5 million. Pursuant to the terms of our purchase agreement with New Vision, $33.5 million of the purchase price at closing was funded from amounts previously deposited into escrow. The remaining purchase price was funded from cash on hand and the net proceeds of the issuance and sale of the 63/8% Senior Notes due 2021 (the “63/8% Senior Notes”) as further described in Note 13 — “Subsequent Events”. Vaughan financed its portion of the aggregate purchase price with a term loan as further described in Note 13 — “Subsequent Events”.
In connection with the Acquisition, on May 4, 2012 when we entered into the purchase agreement for the Acquisition, we also entered into a commitment letter pursuant to which JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC committed to provide up to $265 million under a senior unsecured bridge loan facility. Upon the closing of the Acquisition, we incurred a fee of $4 million related to this commitment. Because we did not make use of the bridge loan facility this commitment fee will be recorded as a charge to our consolidated statement of operations during the fourth quarter of 2012.
The following table summarizes the provisional allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed by both us and Vaughan in the acquisitions (in thousands):
Current program rights assets |
| $ | 1,464 |
|
Non-current program rights assets |
| 450 |
| |
Property and equipment |
| 69,899 |
| |
Broadcast licenses |
| 162,074 |
| |
Definite-lived intangible assets |
| 32,975 |
| |
Current liabilities |
| (2,319 | ) | |
Long-term liabilities |
| (1,318 | ) | |
Long-term debt assumed |
| (13,989 | ) | |
Fair value of identifiable net assets acquired |
| 249,236 |
| |
Goodwill |
| 90,264 |
| |
Total |
| $ | 339,500 |
|
The amount allocated to definite-lived intangible assets represents the estimated fair values of favorable leases of $9 million, advertiser relationships of $8.7 million, retransmission consent agreements of $8.4 million, and other intangible assets of $6.9 million.
The provisional purchase price allocation presented above is based upon all information available to us at the present time, and is based upon management’s preliminary estimates of the fair values using valuation techniques including income, cost and market approaches. The purchase price allocation is provisional pending our final determination of the fair values of the assets and liabilities, which we expect will occur within twelve months following the Acquisition. Upon the completion of the final purchase price allocation, any reallocation of fair values to the assets acquired and liabilities assumed in the acquisitions could have a material impact on our depreciation and amortization expenses and future results of operations.
Goodwill of $90.3 million is the excess of the aggregate purchase price over the fair value of the identifiable net assets acquired, and primarily represents the benefits of synergies and economies of scale we expect to realize from the Acquisition. All of the goodwill is deductible for tax purposes.
Due to the limited time between the Acquisition date and the filing of this Quarterly Report on Form 10-Q for the three months ended September 30, 2012, we are unable to provide the supplemental pro forma revenue and earnings of the combined entity. We will include supplemental pro forma revenue and earnings of the combined entity in our Annual Report on Form 10-K for the year ended December 31, 2012.
ACME Television, LLC
On June 20, 2012, LIN Television exercised its option to acquire certain assets of the ACME Television, LLC television stations KWBQ-TV, KRWB-TV and KASY-TV (collectively the “Acquired Stations”), each of which serves the Albuquerque-Santa Fe, NM market. LIN Television assigned its rights to acquire the remaining assets of the Acquired Stations, including the FCC license, to Tamer Media LLC (“Tamer Media”), an unrelated third party. The aggregate purchase price for the Acquired Stations is $17.3 million, of which we agreed to pay approximately $15.6 million and Tamer Media agreed to pay approximately $1.7 million. On September 6, 2012, we funded $0.8 million of the purchase price into an escrow account, which is included in other assets in our consolidated balance sheet. Completion of the transaction is subject to regulatory approvals and certain other terms and conditions.
LIN Television also agreed to provide certain services to the Acquired Stations pursuant to shared services arrangements with Tamer Media. Under the shared services arrangements with Tamer Media, we will provide sales, administrative and technical services, supporting the business and operation of the Acquired Stations in exchange for commissions and fees that will provide us the benefit of certain returns from the business of the Acquired Stations. We expect that Tamer Media will be considered a VIE, of which we are the primary beneficiary, and that we will consolidate the assets, liabilities, and results of operations of Tamer Media and its consolidated subsidiaries.
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 September 30, 2012, no amounts related to WWHO-TV were classified as assets or liabilities held for sale on our consolidated balance sheets. During the nine months ended September 30, 2012, we recorded a loss on the sale of WWHO-TV of $0.4 million ($0.3 million, net of tax).
WUPW-TV
On April 21, 2012, we completed the sale of substantially all of the assets of WUPW-TV to WUPW, LLC. As of September 30, 2012, no amounts related to WUPW-TV were classified as assets or liabilities held for sale on our consolidated balance sheets. During the nine months ended September 30, 2012, we recorded a gain on the sale of WUPW-TV of $18 million ($11.7 million, net of tax).
The following presents summarized information for the discontinued operations as follows (in thousands):
|
| Three Months Ended September 30, |
| ||||||||||||||||
|
| 2012 |
| 2011 |
| ||||||||||||||
|
| WWHO- |
| WUPW- |
| Total |
| WWHO- |
| WUPW- |
| Total |
| ||||||
Net revenues |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,113 |
| $ | 1,884 |
| $ | 2,997 |
|
Operating (loss) income |
| — |
| — |
| — |
| (133 | ) | 305 |
| 172 |
| ||||||
Net (loss) income |
| — |
| — |
| — |
| (87 | ) | 196 |
| 109 |
| ||||||
|
| Nine Months Ended September 30, |
| ||||||||||||||||
|
| 2012 |
| 2011 |
| ||||||||||||||
|
| WWHO- |
| WUPW- |
| Total |
| WWHO- |
| WUPW- |
| Total |
| ||||||
Net revenues |
| $ | 440 |
| $ | 2,193 |
| $ | 2,633 |
| $ | 3,376 |
| $ | 5,693 |
| $ | 9,069 |
|
Operating (loss) income |
| (393 | ) | (1,166 | ) | (1,559 | ) | (397 | ) | 796 |
| 399 |
| ||||||
Net (loss) income |
| (252 | ) | (766 | ) | (1,018 | ) | (259 | ) | 512 |
| 253 |
| ||||||
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% noncontrolling 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 |
| Nine Months Ended |
| ||||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
SVO: |
|
|
|
|
|
|
|
|
| ||||
Net revenue |
| $ | 44,610 |
| $ | 29,752 |
| $ | 107,157 |
| $ | 87,641 |
|
Operating expenses |
| (20,926 | ) | (18,493 | ) | (60,460 | ) | (54,526 | ) | ||||
Net income before taxes |
| 23,694 |
| 11,270 |
| 46,743 |
| 33,154 |
| ||||
Net income after taxes |
| 23,664 |
| 11,250 |
| 46,653 |
| 33,083 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
SVH: |
|
|
|
|
|
|
|
|
| ||||
Equity in income from limited partnership interest in SVO |
| $ | 23,597 |
| $ | 11,467 |
| $ | 46,477 |
| $ | 33,246 |
|
Interest and other expense |
| (17,484 | ) | (17,301 | ) | (51,822 | ) | (51,109 | ) | ||||
Net income (loss) |
| $ | 6,113 |
| $ | (5,834 | ) | $ | (5,345 | ) | $ | (17,863 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Cash distributions to SVH from SVO |
| $ | 13,621 |
| $ | 14,763 |
| $ | 38,353 |
| $ | 42,424 |
|
Shortfall loans from LIN Television to SVH |
| 611 |
| 389 |
| 2,292 |
| 1,408 |
| ||||
Shortfall loans from General Electric Company (“GE”) to SVH |
| 2,389 |
| 1,520 |
| 8,954 |
| 5,501 |
|
|
| September 30, |
| ||||
|
| 2012 |
| 2011 |
| ||
Shortfall loans outstanding and accrued interest payable to LIN Television from SVH |
| $ | 9,902 |
| $ | 5,982 |
|
Shortfall loans outstanding and accrued interest payable to NBCUniversal and GE from SVH |
| 38,685 |
| 23,372 |
| ||
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”) to SVH as further described in Note 11 — “Commitments and Contingencies”, we continue to track our share of the income or loss of SVH. We 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 11 — “Commitments and Contingencies”. As of December 31, 2011, we had an accrued shortfall liability of $4.1 million.
During October 2012, joint venture management provided us with a preliminary budget for 2013, which in comparison to our prior projections, reduced the outlook for retransmission consent fee revenues and increased the estimate for capital expenditures related to the construction of a new studio facility at KXAS-TV in Fort Worth, TX. For these reasons, and based on our assumption that we and GE will continue to enter into future shortfall funding agreements, as of September 30, 2012, we estimate our approximate 20% share of debt service shortfalls to be approximately $6 million. Accordingly, during the third quarter of 2012, we recognized an additional shortfall liability of $4.2 million, for our approximate 20% share of future joint venture debt service shortfalls.
Based on the joint venture’s preliminary budget for 2013, and certain long range forecast data provided by joint venture management, we believe that additional debt service shortfalls beyond those 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.
Because of uncertainty surrounding the joint venture’s ability to repay shortfall loans, we have historically concluded that it is more likely than not that the amounts recognized for accrued shortfall loans will not be recovered within a reasonable period of time. During the three and nine months ended September 30, 2012, we recognized a charge of $4.2 million and during the three and nine months ended September 30, 2011, we recognized charges of $3 million and $4.1 million, respectively, to reflect the impairment of the amounts recognized for accrued shortfall loans during these periods, which were 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 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 — 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 due 2018 (the “83/8% Senior Notes”), on a joint-and-several basis.
Debt consisted of the following (in thousands):
|
| September 30, |
| December 31, |
| ||
Senior Secured Credit Facility: |
|
|
|
|
| ||
Revolving credit loans |
| $ | — |
| $ | 35,000 |
|
$125,000 Term loans, net of discount of $530 and $604 as of September 30, 2012 and December 31, 2011, respectively |
| 124,470 |
| 124,396 |
| ||
$258,050 and $260,000 Incremental term loans, net of discount of $2,328 and $2,594 as of September 30, 2012 and December 31, 2011, respectively |
| 255,722 |
| 257,406 |
| ||
83/8% Senior Notes due 2018 |
| 200,000 |
| 200,000 |
| ||
61/2% 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 |
| 738 |
| 944 |
| ||
Total debt |
| 580,930 |
| 868,717 |
| ||
Less current portion |
| 7,547 |
| 253,856 |
| ||
Total long-term debt |
| $ | 573,383 |
| $ | 614,861 |
|
During the three and nine months ended September 30, 2012, we paid $0.7 million and $2 million, respectively, of principal on the incremental term loans related to mandatory quarterly payments under our senior secured credit facility.
On October 12, 2012, LIN Television completed the issuance and sale of its 63/8% Senior Notes in an aggregate principal amount of $290 million, and used the net proceeds of such notes to fund the remaining purchase price for the Acquisition as further described in Note 2 — “Acquisitions”. Additionally, on October 12, 2012, Vaughan, which we expect to be a consolidated VIE, entered into a five-year term loan with an unrelated third party in a principal amount of approximately $4.6 million to fund the purchase price for the television stations from PBC that were acquired by Vaughan. LIN Television fully and unconditionally guarantees this loan. For further information see Note 13 — “Subsequent Events”.
On January 20, 2012, we completed the redemption of $251 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 and cash on hand. As a result of this redemption, we recorded a loss on extinguishment of debt of $2.1 million to our consolidated statement of operations during the nine months ended September 30, 2012, consisting of a write-down of deferred financing fees and unamortized discount.
During the nine months ended September 30, 2011, we recorded a loss on extinguishment of debt of $0.2 million to our consolidated statements of operations, consisting of a write-down of deferred financing fees related to a reduction in our revolving credit commitments and the payment of the remaining balance on our term loans under our 2009 senior secured credit facility.
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):
|
| September 30, |
| December 31, |
| ||
Carrying amount |
| $ | 580,930 |
| $ | 868,717 |
|
Fair value |
| 595,865 |
| 860,164 |
| ||
Note 6 — 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 and nine months ended September 30, 2011, we recorded a gain on derivative instruments of $0.6 million and $1.8 million, respectively, 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 the entry into our existing 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 and nine months ended, September 30, 2012.
As of September 30, 2012, we have a derivative outstanding that continues to have a fair value of zero as further described in Note 2 — “Acquisitions” included in Item 15 of our Annual Report on Form 10-K for the year ended December 31, 2011 (“10-K”).
Note 7 — 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 September 30, 2012 and December 31, 2011 (in thousands):
|
| Quoted prices |
| Significant |
|
|
| |||
|
| (Level 1) |
| (Level 2) |
| Total |
| |||
September 30, 2012: |
|
|
|
|
|
|
| |||
Assets: |
|
|
|
|
|
|
| |||
Deferred compensation related investments |
| $ | 616 |
| $ | 2,041 |
| $ | 2,657 |
|
|
|
|
|
|
|
|
| |||
Liabilities: |
|
|
|
|
|
|
| |||
Deferred compensation related liabilities |
| $ | 2,652 |
| $ | — |
| $ | 2,652 |
|
|
|
|
|
|
|
|
| |||
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 8 — 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 |
| Nine Months Ended |
| ||||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Net periodic pension cost (benefit): |
|
|
|
|
|
|
|
|
| ||||
Interest cost |
| $ | 1,364 |
| $ | 1,495 |
| $ | 4,092 |
| $ | 4,484 |
|
Expected return on plan assets |
| (1,549 | ) | (1,700 | ) | (4,647 | ) | (5,100 | ) | ||||
Amortization of net loss |
| 431 |
| 197 |
| 1,293 |
| 592 |
| ||||
Net periodic cost (benefit): |
| $ | 246 |
| $ | (8 | ) | $ | 738 |
| $ | (24 | ) |
Contributions: |
|
|
|
|
|
|
|
|
| ||||
401(k) Plan |
| $ | 915 |
| $ | 944 |
| $ | 2,835 |
| $ | 2,811 |
|
Defined contribution retirement plans |
| 82 |
| 48 |
| 263 |
| 120 |
| ||||
Defined benefit retirement plans |
| 3,807 |
| 1,947 |
| 6,097 |
| 4,452 |
| ||||
Total contributions |
| $ | 4,804 |
| $ | 2,939 |
| $ | 9,195 |
| $ | 7,383 |
|
See Note 11 — “Retirement Plans” included in Item 15 of our 10-K for a full description of our retirement plans.
Note 9 — Restructuring
During the nine months ended September 30, 2012, we recorded a restructuring charge of $1.4 million, for severance and related costs 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 nine months ended September 30, 2012, we made cash payments of $1.4 million, respectively, related to these restructuring actions.
During the year ended December 31, 2011, we recorded a restructuring charge of $0.7 million for severance and related costs as a result of the consolidation of certain activities at our stations and our corporate headquarters. During the three and nine months ended September 30, 2012, we made cash payments of $0.1 million and $0.4 million, respectively, related to this restructuring action and expect to make cash payments of $0.1 million during the remainder of 2012.
The activities for these restructuring actions are as follows (in thousands):
|
| Severance and |
| |
Balance as of December 31, 2011 |
| $ | 515 |
|
Charges |
| 1,433 |
| |
Payments |
| (1,840 | ) | |
Balance as of September 30, 2012 |
| $ | 108 |
|
Note 10 — Income Taxes
We recorded a provision for income taxes of $11.2 million and $24.1 million for the three and nine months ended September 30, 2012, respectively, compared to a provision for income taxes of $2.2 million and $12.8 million for the three and nine months ended September 30, 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 periods last year. Our effective income tax rate was 37.5% and 69.9% for the nine months ended September 30, 2012 and September 30, 2011, respectively. The decrease in the effective income tax rate was primarily a result of state tax legislation enacted in Michigan in May 2011, which repealed the Michigan business tax (“MBT”), and implemented a corporate income tax instead, effective January 2012. As a result of the elimination of the MBT, certain future tax deductions, which were available to be utilized beginning in 2015, and had been recognized as deferred tax assets in our consolidated financial statements, will be not be deductible. Therefore, during the second quarter of 2011, we recognized incremental deferred income tax expense of $5.1 million, net of federal benefit, for the reversal of these previously established deferred tax assets.
Note 11 — Commitments and Contingencies
Commitments
|
|
|
| Syndicated |
|
|
| |||
|
| Operating Leases |
| Television |
|
|
| |||
|
| and Agreements |
| Programming |
| Total |
| |||
Year |
|
|
|
|
|
|
| |||
2012 |
| $ | 23,439 |
| $ | 22,212 |
| $ | 45,651 |
|
2013 |
| 15,952 |
| 21,258 |
| 37,210 |
| |||
2014 |
| 12,370 |
| 12,112 |
| 24,482 |
| |||
2015 |
| 8,857 |
| 2,025 |
| 10,882 |
| |||
2016 |
| 6,406 |
| 450 |
| 6,856 |
| |||
Thereafter |
| 7,387 |
| 240 |
| 7,627 |
| |||
Total obligations |
| 74,411 |
| 58,297 |
| 132,708 |
| |||
Less recorded contracts |
| — |
| (22,756 | ) | (22,756 | ) | |||
Future contracts |
| $ | 74,411 |
| $ | 35,541 |
| $ | 109,952 |
|
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.
Comcast Corporation owns and controls 51% of NBCUniversal and GE owns the remaining 49%. GECC is a wholly-owned subsidiary of GE.
In light of the adverse effect of the economic downturn on the joint venture’s operating results, we entered into agreements with NBCUniversal and GE, under which we agreed that if the joint venture does not have sufficient cash to fund interest payments on the GECC Note, we and NBCUniversal (the 2009 and 2010 shortfall funding agreements), and we and GE (the 2011 and 2012 shortfall funding agreements) would each provide the joint venture with a shortfall loan on the basis of our and NBCUniversal’s percentage of economic interest in the joint venture. For further information on these agreements see Note 15 — “Commitments and Contingencies” included in Item 15 of our 10-K. During the nine months ended September 30, 2012, we 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 shortfall funding agreement we and GE entered into on March 5, 2012 (the “2012 Shortfall Funding Agreement”), covering the period from April 2, 2012 through April 1, 2013.
We recognize shortfall funding liabilities to the joint venture on our consolidated balance sheet 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 an accrued shortfall liability of $4.1 million.
During the three and nine months ended September 30, 2012, pursuant to the shortfall funding agreements with GE, we made shortfall loans in the aggregate principal amounts of $0.6 million and $2.3 million, respectively, representing our approximate 20% share of debt service shortfalls during these periods, and GE made shortfall loans in the aggregate principal amounts of $2.4 million and $9 million, respectively, in respect of its approximate 80% share of debt service shortfalls during these periods.
During October 2012, joint venture management provided us with a preliminary budget for 2013, which in comparison to our prior projections, reduced the outlook for retransmission consent fee revenues and increased the estimate for capital expenditures related to the construction of a new studio facility at KXAS-TV in Fort Worth, TX. For these reasons, and based on our assumption that we and GE will continue to enter into future shortfall funding agreements, as of September 30, 2012, we estimate our approximate 20% share of debt service shortfalls to be approximately $6 million. Accordingly, during the third quarter of 2012, we recognized an additional shortfall liability of $4.2 million, for our approximate 20% share of future joint venture debt service shortfalls.
Based on the joint venture’s preliminary budget for 2013, and certain long range forecast data provided by joint venture management, we believe that additional debt service shortfalls beyond those 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 indentures governing our 83/8% Senior Notes and our 63/8% Senior Notes. Based on our estimate of debt service shortfalls at the joint venture, and our forecast of total leverage and consolidated EBITDA, we expect to have the capacity within these restrictions to provide funding to the joint venture for the $6 million accrued shortfall liability. As of September 30, 2012, we had availability under applicable debt covenants to fund future shortfall loans as follows: (i) $46.6 million of availability under the credit agreement governing our senior secured credit facility; and (ii) $226 million of availability under the indenture governing our 83/8% Senior Notes and our 63/8% 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 the credit agreement governing our senior secured credit facility, or the indentures governing our 83/8% Senior Notes and our 63/8% 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.
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 12 — Related Party
We have a non-controlling investment in an interactive service provider that hosts our web sites. During the three and nine months ended September 30, 2012, we incurred charges from the provider of $0.7 million and $1.9 million, respectively, and made cash payments to the provider of $0.8 million and $1.5 million, respectively, for web hosting services and web site development and customization. Additionally, during the three and nine months ended September 30, 2011, we incurred charges from, and made cash payments to, the provider of $0.6 million and $1.9 million, respectively, for web hosting services and web site development and customization.
Note 13 — Subsequent Events
On October 12, 2012, LIN Television completed its acquisition of television stations in eight markets from affiliates and subsidiaries of New Vision for $334.9 million, subject to certain post-closing adjustments, and including the assumption of $14.3 million of finance lease obligations. Additionally, on October 12, 2012, Vaughan completed its acquisition of separately owned television stations in three markets from PBC for $4.6 million. For further information on these acquisitions see Note 2 — “Acquisitions”.
On October 12, 2012, LIN Television also completed the issuance and sale of $290 million in aggregate principal amount of its 63/8% Senior Notes. The net proceeds of the 63/8% Senior Notes were used to fund the remaining purchase price for the Acquisition as further described in Note 2 — “Acquisitions”. These notes are guaranteed by LIN TV and by all of LIN Television’s wholly-owned subsidiaries. The notes will mature on January 15, 2021, and interest is payable January 15 and July 15 of each year, commencing on January 15, 2013. Additionally, on October 12, 2012, Vaughan entered into a five-year term loan with an unrelated third party in a principal amount of approximately $4.6 million to fund the purchase price for the television stations from PBC that were acquired by Vaughan. Vaughan subsequently made a principal payment of $1.3 million to the balance of the term loan. LIN Television fully and unconditionally guarantees this loan.
Note 14 — Condensed Consolidating Financial Statements
LIN Television, a 100% owned subsidiary of LIN TV, is the primary obligor of our senior secured credit facility, our 83/8% Senior Notes and our 63/8% Senior Notes, which are further described in Note 5 — “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, our 83/8% Senior Notes and our 63/8% 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.
Condensed Consolidating Balance Sheet
As of September 30, 2012
(in thousands)
|
| LIN TV Corp. |
| LIN Television |
| Guarantor |
| Non-Guarantor |
| Eliminations |
| LIN TV Corp. |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | — |
| $ | 30,513 |
| $ | 1,531 |
| $ | 762 |
| $ | — |
| $ | 32,806 |
|
Accounts receivable, net |
| — |
| 63,462 |
| 30,997 |
| 3,005 |
| — |
| 97,464 |
| ||||||
Deferred income tax assets |
| — |
| 3,336 |
| 3,997 |
| 42 |
| — |
| 7,375 |
| ||||||
Other current assets |
| — |
| 4,967 |
| 787 |
| 850 |
| — |
| 6,604 |
| ||||||
Total current assets |
| — |
| 102,278 |
| 37,312 |
| 4,659 |
| — |
| 144,249 |
| ||||||
Property and equipment, net |
| — |
| 101,547 |
| 40,262 |
| 1,744 |
| — |
| 143,553 |
| ||||||
Deferred financing costs |
| — |
| 10,837 |
| — |
| — |
| — |
| 10,837 |
| ||||||
Goodwill |
| — |
| 99,137 |
| 18,518 |
| 4,503 |
| — |
| 122,158 |
| ||||||
Broadcast licenses and other intangible assets, net |
| — |
| 1,353 |
| 386,055 |
| 11,387 |
| — |
| 398,795 |
| ||||||
Deferred income tax assets |
| — |
| 74,460 |
| — |
| — |
| (74,460 | ) | — |
| ||||||
Advances to consolidated subsidiaries |
| — |
| 11,750 |
| 1,429,852 |
| — |
| (1,441,602 | ) | — |
| ||||||
Investment in consolidated subsidiaries |
| — |
| 1,614,073 |
| — |
| — |
| (1,614,073 | ) | — |
| ||||||
Other assets |
| — |
| 48,889 |
| 2,588 |
| 534 |
| (7,185 | ) | 44,826 |
| ||||||
Total assets |
| $ | — |
| $ | 2,064,324 |
| $ | 1,914,587 |
| $ | 22,827 |
| $ | (3,137,320 | ) | $ | 864,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current portion of long-term debt |
| $ | — |
| $ | 7,287 |
| $ | — |
| $ | 260 |
| $ | — |
| $ | 7,547 |
|
Accounts payable |
| — |
| 6,095 |
| 789 |
| 358 |
| — |
| 7,242 |
| ||||||
Accrued expenses |
| — |
| 30,412 |
| 21,787 |
| 499 |
| — |
| 52,698 |
| ||||||
Program obligations |
| — |
| 7,454 |
| 1,408 |
| 674 |
| — |
| 9,536 |
| ||||||
Total current liabilities |
| — |
| 51,248 |
| 23,984 |
| 1,791 |
| — |
| 77,023 |
| ||||||
Long-term debt, excluding current portion |
| — |
| 572,905 |
| — |
| 478 |
| — |
| 573,383 |
| ||||||
Deferred income tax liabilities |
| — |
| — |
| 273,376 |
| 707 |
| (74,460 | ) | 199,623 |
| ||||||
Program obligations |
| — |
| 1,294 |
| 126 |
| 573 |
| — |
| 1,993 |
| ||||||
Intercompany liabilities |
| — |
| 1,429,852 |
| 7,594 |
| 4,156 |
| (1,441,602 | ) | — |
| ||||||
Accumulated losses in excess of investment in consolidated subsidiaries |
| 38,281 |
| — |
| — |
| — |
| (38,281 | ) | — |
| ||||||
Other liabilities |
| — |
| 47,306 |
| 68 |
| 7,185 |
| (7,185 | ) | 47,374 |
| ||||||
Total liabilities |
| 38,281 |
| 2,102,605 |
| 305,148 |
| 14,890 |
| (1,561,528 | ) | 899,396 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Redeemable noncontrolling interest |
| — |
| — |
| — |
| 3,303 |
| — |
| 3,303 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total stockholders’ (deficit) equity |
| (38,281 | ) | (38,281 | ) | 1,609,439 |
| 4,634 |
| (1,575,792 | ) | (38,281 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total liabilities, redeemable noncontrolling interest and stockholders’ (deficit) equity |
| $ | — |
| $ | 2,064,324 |
| $ | 1,914,587 |
| $ | 22,827 |
| $ | (3,137,320 | ) | $ | 864,418 |
|
Condensed Consolidating Balance Sheet
As of December 31, 2011
(in thousands)
|
| LIN TV Corp. |
| LIN Television |
| Guarantor |
| Non-Guarantor |
| Eliminations |
| LIN TV Corp. |
| ||||||
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 |
| 324 |
| — |
| 38,578 |
| ||||||
Program obligations |
| — |
| 8,472 |
| 1,324 |
| 96 |
| — |
| 9,892 |
| ||||||
Liabilities held for sale |
| — |
| 2,044 |
| 1,675 |
| — |
| — |
| 3,719 |
| ||||||
Total current liabilities |
| — |
| 299,399 |
| 16,262 |
| 1,356 |
| — |
| 317,017 |
| ||||||
Long-term debt, excluding current portion |
| — |
| 614,202 |
| — |
| 659 |
| — |
| 614,861 |
| ||||||
Deferred income tax liabilities |
| — |
| — |
| 266,820 |
| 1,465 |
| (100,914 | ) | 167,371 |
| ||||||
Program obligations |
| — |
| 1,375 |
| 712 |
| 1,787 |
| — |
| 3,874 |
| ||||||
Liabilities held for sale |
| — |
| 1,199 |
| 109 |
| — |
| — |
| 1,308 |
| ||||||
Intercompany liabilities |
| — |
| 1,360,824 |
| 8,416 |
| 1,611 |
| (1,370,851 | ) | — |
| ||||||
Accumulated losses in excess of investment in consolidated subsidiaries |
| 84,632 |
| — |
| — |
| — |
| (84,632 | ) | — |
| ||||||
Other liabilities |
| — |
| 53,359 |
| 5,052 |
| 7,416 |
| (7,185 | ) | 58,642 |
| ||||||
Total liabilities |
| 84,632 |
| 2,330,358 |
| 297,371 |
| 14,294 |
| (1,563,582 | ) | 1,163,073 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Redeemable noncontrolling interest |
| — |
| — |
| — |
| 3,503 |
| — |
| 3,503 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total stockholders’ (deficit) equity |
| (84,632 | ) | (84,632 | ) | 1,546,815 |
| 4,706 |
| (1,466,889 | ) | (84,632 | ) | ||||||
Total liabilities, redeemable noncontrolling interest and stockholders’ equity (deficit) |
| $ | — |
| $ | 2,245,726 |
| $ | 1,844,186 |
| $ | 22,503 |
| $ | (3,030,471 | ) | $ | 1,081,944 |
|
Condensed Consolidating Statement of Operations
For the Three Months Ended September 30, 2012
(in thousands)
|
| LIN TV Corp. |
| LIN Television |
| Guarantor |
| Non-Guarantor |
| Eliminations |
| LIN TV Corp. |
| ||||||
Net revenues |
| $ | — |
| $ | 83,940 |
| $ | 48,229 |
| $ | 1,879 |
| $ | (972 | ) | $ | 133,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Direct operating |
| — |
| 21,956 |
| 16,092 |
| 1,116 |
| (1,012 | ) | 38,152 |
| ||||||
Selling, general and administrative |
| — |
| 18,694 |
| 9,294 |
| 380 |
| (3 | ) | 28,365 |
| ||||||
Amortization of program rights |
| — |
| 4,054 |
| 1,378 |
| 180 |
| — |
| 5,612 |
| ||||||
Corporate |
| — |
| 8,310 |
| 954 |
| — |
| — |
| 9,264 |
| ||||||
Depreciation |
| — |
| 4,843 |
| 1,897 |
| 84 |
| — |
| 6,824 |
| ||||||
Amortization of intangible assets |
| — |
| 60 |
| 233 |
| 214 |
| — |
| 507 |
| ||||||
Loss (gain) from asset dispositions |
| — |
| 26 |
| (41 | ) | — |
| — |
| (15 | ) | ||||||
Operating income (loss) |
| — |
| 25,997 |
| 18,422 |
| (95 | ) | 43 |
| 44,367 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense, net |
| — |
| 9,303 |
| — |
| 38 |
| (31 | ) | 9,310 |
| ||||||
Share of loss in equity investments |
| — |
| — |
| 4,156 |
| — |
| — |
| 4,156 |
| ||||||
Intercompany fees and expenses |
| — |
| 16,310 |
| (16,310 | ) | — |
| — |
| — |
| ||||||
Other, net |
| — |
| 89 |
| (1 | ) | — |
| — |
| 88 |
| ||||||
Total other expense (income), net |
| — |
| 25,702 |
| (12,155 | ) | 38 |
| (31 | ) | 13,554 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) from continuing operations before taxes and equity in income (loss) from operations of consolidated subsidiaries |
| — |
| 295 |
| 30,577 |
| (133 | ) | 74 |
| 30,813 |
| ||||||
(Benefit from) provision for income taxes |
| — |
| (975 | ) | 12,231 |
| (62 | ) | — |
| 11,194 |
| ||||||
Net income (loss) from continuing operations |
| — |
| 1,270 |
| 18,346 |
| (71 | ) | 74 |
| 19,619 |
| ||||||
Equity in income (loss) from operations of consolidated subsidiaries |
| 19,659 |
| 18,389 |
| — |
| — |
| (38,048 | ) | — |
| ||||||
Net income (loss) |
| 19,659 |
| 19,659 |
| 18,346 |
| (71 | ) | (37,974 | ) | 19,619 |
| ||||||
Net loss attributable to noncontrolling interests |
| — |
| — |
| — |
| (40 | ) | — |
| (40 | ) | ||||||
Net income (loss) attributable to LIN TV Corp. |
| $ | 19,659 |
| $ | 19,659 |
| $ | 18,346 |
| $ | (31 | ) | $ | (37,974 | ) | $ | 19,659 |
|
Condensed Consolidating Statement of Comprehensive Income
For the Three Months Ended September 30, 2012
(in thousands)
|
| LIN TV Corp. |
| LIN Television |
| Guarantor |
| Non-Guarantor |
| Eliminations |
| LIN TV Corp. |
| ||||||
Net income (loss) |
| $ | 19,659 |
| $ | 19,659 |
| $ | 18,346 |
| $ | (71 | ) | $ | (37,974 | ) | $ | 19,619 |
|
Amortization of pension net losses, net of tax of $169 |
| 262 |
| 262 |
| — |
| — |
| (262 | ) | 262 |
| ||||||
Comprehensive income (loss) |
| 19,921 |
| 19,921 |
| 18,346 |
| (71 | ) | (38.236 | ) | 19,881 |
| ||||||
Comprehensive loss attributable to noncontrolling interest |
| — |
| — |
| — |
| (40 | ) | — |
| (40 | ) | ||||||
Comprehensive income (loss) attributable to LIN TV Corp. |
| $ | 19,921 |
| $ | 19,921 |
| $ | 18,346 |
| $ | (31 | ) | $ | (38,236 | ) | $ | 19,921 |
|
Condensed Consolidating Statement of Operations
For the Nine Months Ended September 30, 2012
(in thousands)
|
| LIN TV Corp. |
| LIN Television |
| Guarantor |
| Non-Guarantor |
| Eliminations |
| LIN TV Corp. |
| ||||||
Net revenues |
| $ | — |
| $ | 228,344 |
| $ | 126,136 |
| $ | 5,481 |
| $ | (2,669 | ) | $ | 357,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Direct operating |
| — |
| 64,558 |
| 44,848 |
| 3,662 |
| (2,514 | ) | 110,554 |
| ||||||
Selling, general and administrative |
| — |
| 55,758 |
| 27,960 |
| 1,374 |
| (301 | ) | 84,791 |
| ||||||
Amortization of program rights |
| — |
| 11,625 |
| 4,060 |
| 527 |
| — |
| 16,212 |
| ||||||
Corporate |
| — |
| 22,345 |
| 1,884 |
| — |
| — |
| 24,229 |
| ||||||
Depreciation |
| — |
| 14,373 |
| 5,654 |
| 207 |
| — |
| 20,234 |
| ||||||
Amortization of intangible assets |
| — |
| 179 |
| 701 |
| 582 |
| — |
| 1,462 |
| ||||||
Loss (gain) from asset dispositions |
| — |
| 30 |
| (42 | ) | — |
| — |
| (12 | ) | ||||||
Operating income (loss) |
| — |
| 59,476 |
| 41,071 |
| (871 | ) | 146 |
| 99,822 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense, net |
| — |
| 28,926 |
| — |
| 80 |
| (60 | ) | 28,946 |
| ||||||
Share of loss in equity investments |
| — |
| 153 |
| 4,156 |
| — |
| — |
| 4,309 |
| ||||||
Loss on extinguishment of debt |
| — |
| 2,099 |
| — |
| — |
| — |
| 2,099 |
| ||||||
Intercompany fees and expenses |
| — |
| 48,930 |
| (48,930 | ) | — |
| — |
| — |
| ||||||
Other, net |
| — |
| 176 |
| — |
| — |
| — |
| 176 |
| ||||||
Total other expense (income), net |
| — |
| 80,284 |
| (44,774 | ) | 80 |
| (60 | ) | 35,530 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
(Loss) income from continuing operations before taxes and equity in income (loss) from operations of consolidated subsidiaries |
| — |
| (20,808 | ) | 85,845 |
| (951 | ) | 206 |
| 64,292 |
| ||||||
(Benefit from) provision for income taxes |
| — |
|
| ) | 34,338 |
| (398 | ) | — |
| 24,101 |
| ||||||
Net (loss) income from continuing operations |
| — |
| (10,969 | ) | 51,507 |
| (553 | ) | 206 |
| 40,191 |
| ||||||
Loss from discontinued operations, net |
| — |
| (251 | ) | (744 | ) | — |
| (23 | ) | (1,018 | ) | ||||||
(Loss) gain on the sale of discontinued operations, net |
| — |
| (289 | ) | 11,678 |
| — |
| — |
| 11,389 |
| ||||||
Equity in income (loss) from operations of consolidated subsidiaries |
| 51,043 |
| 62,552 |
| — |
| — |
| (113,595 | ) | — |
| ||||||
Net income (loss) |
| 51,043 |
| 51,043 |
| 62,441 |
| (553 | ) | (113,412 | ) | 50,562 |
| ||||||
Net loss attributable to noncontrolling interests |
| — |
| — |
| — |
| (481 | ) | — |
| (481 | ) | ||||||
Net income (loss) attributable to LIN TV Corp. |
| $ | 51,043 |
| $ | 51,043 |
| $ | 62,441 |
| $ | (72 | ) | $ | (113,412 | ) | $ | 51,043 |
|
Condensed Consolidating Statement of Comprehensive Income
For the Nine Months Ended September 30, 2012
(in thousands)
|
| LIN TV Corp. |
| LIN Television |
| Guarantor |
| Non-Guarantor |
| Eliminations |
| LIN TV Corp. |
| ||||||
Net income (loss) |
| $ | 51,043 |
| $ | 51,043 |
| $ | 62,441 |
| $ | (553 | ) | $ | (113,412 | ) | $ | 50,562 |
|
Amortization of pension net losses, net of tax of $509 |
| 784 |
| 784 |
| — |
| — |
| (784 | ) | 784 |
| ||||||
Comprehensive income (loss) |
| 51,827 |
| 51,827 |
| 62,441 |
| (553 | ) | (114,196 | ) | 51,346 |
| ||||||
Comprehensive loss attributable to noncontrolling interest |
| — |
| — |
| — |
| (481 | ) | — |
| (481 | ) | ||||||
Comprehensive income (loss) attributable to LIN TV Corp. |
| $ | 51,827 |
| $ | 51,827 |
| $ | 62,441 |
| $ | (72 | ) | $ | (114,196 | ) | $ | 51,827 |
|
Condensed Consolidating Statement of Operations
For the Three Months Ended September 30, 2011
(in thousands)
|
| LIN TV Corp. |
| LIN Television |
| Guarantor |
| Non-Guarantor |
| Eliminations |
| LIN TV Corp. |
| ||||||
Net revenues |
| $ | — |
| $ | 63,714 |
| $ | 33,542 |
| $ | 501 |
| $ | 59 |
| $ | 97,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Direct operating |
| — |
| 20,146 |
| 13,935 |
| 102 |
| (682 | ) | 33,501 |
| ||||||
Selling, general and administrative |
| — |
| 16,892 |
| 8,336 |
| 96 |
| (142 | ) | 25,182 |
| ||||||
Amortization of program rights |
| — |
| 3,976 |
| 1,350 |
| 191 |
| — |
| 5,517 |
| ||||||
Corporate |
| — |
| 5,463 |
| 418 |
| — |
| — |
| 5,881 |
| ||||||
Depreciation |
| — |
| 4,794 |
| 1,721 |
| 15 |
| — |
| 6,530 |
| ||||||
Amortization of intangible assets |
| — |
| 94 |
| 138 |
| 1 |
| — |
| 233 |
| ||||||
Restructuring |
| — |
| 498 |
| — |
| — |
| — |
| 498 |
| ||||||
Loss from asset dispositions |
| — |
| 1 |
| 50 |
| — |
| — |
| 51 |
| ||||||
Operating income |
| — |
| 11,850 |
| 7,594 |
| 96 |
| 883 |
| 20,423 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense, net |
| — |
| 12,598 |
| 3 |
| 7 |
| — |
| 12,608 |
| ||||||
Share of loss in equity investments |
| — |
| 71 |
| 3,000 |
| — |
| — |
| 3,071 |
| ||||||
Gain on derivative instruments |
| — |
| (565 | ) | — |
| — |
| — |
| (565 | ) | ||||||
Intercompany fees and expenses |
| — |
| 16,310 |
| (16,310 | ) | — |
| — |
| — |
| ||||||
Other, net |
| — |
| 60 |
| — |
| — |
| — |
| 60 |
| ||||||
Total other expense (income), net |
| — |
| 28,474 |
| (13,307 | ) | 7 |
| — |
| 15,174 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
(Loss) income from continuing operations before taxes and equity in income (loss) from operations of consolidated subsidiaries |
| — |
| (16,624 | ) | 20,901 |
| 89 |
| 883 |
| 5,249 |
| ||||||
(Benefit from) provision for income taxes |
| — |
| (6,114 | ) | 8,361 |
| — |
| — |
| 2,247 |
| ||||||
Net (loss) income from continuing operations |
| — |
| (10,510 | ) | 12,540 |
| 89 |
| 883 |
| 3,002 |
| ||||||
(Loss) income from discontinued operations, net |
| — |
| (88 | ) | 197 |
| — |
| — |
| 109 |
| ||||||
Equity in income (loss) from operations of consolidated subsidiaries |
| 2,958 |
| 13,556 |
| — |
| — |
| (16,514 | ) | — |
| ||||||
Net income (loss) |
| 2,958 |
| 2,958 |
| 12,737 |
| 89 |
| (15,631 | ) | 3,111 |
| ||||||
Net income attributable to noncontrolling interests |
| — |
| — |
| — |
| 153 |
| — |
| 153 |
| ||||||
Net income (loss) attributable to LIN TV Corp. |
| $ | 2,958 |
| $ | 2,958 |
| $ | 12,737 |
| $ | (64 | ) | $ | (15,631 | ) | $ | 2,958 |
|
Condensed Consolidating Statement of Comprehensive Income
For the Three Months Ended September 30, 2011
(in thousands)
|
| LIN TV Corp. |
| LIN Television |
| Guarantor |
| Non-Guarantor |
| Eliminations |
| LIN TV Corp. |
| ||||||
Net income (loss) |
| $ | 2,958 |
| $ | 2,958 |
| $ | 12,737 |
| $ | 89 |
| $ | (15,631 | ) | $ | 3,111 |
|
Amortization of pension net losses, net of tax of $79 |
| 120 |
| 120 |
| — |
| — |
| (120 | ) | 120 |
| ||||||
Comprehensive income (loss) |
| $ | 3,078 |
| $ | 3,078 |
| $ | 12,737 |
| $ | 89 |
| $ | (15,751 | ) | $ | 3,231 |
|
Comprehensive income attributable to noncontrolling interest |
| — |
| — |
| — |
| 153 |
| — |
| 153 |
| ||||||
Comprehensive income (loss) attributable to LIN TV Corp. |
| $ | 3,078 |
| $ | 3,078 |
| $ | 12,737 |
| $ | (64 | ) | $ | (15,751 | ) | $ | 3,078 |
|
Condensed Consolidating Statement of Operations
For the Nine Months Ended September 30, 2011
(in thousands)
|
| LIN TV Corp. |
| LIN Television |
| Guarantor |
| Non-Guarantor |
| Eliminations |
| LIN TV Corp. |
| ||||||
Net revenues |
| $ | — |
| $ | 190,827 |
| $ | 99,127 |
| $ | 765 |
| $ | (2,221 | ) | $ | 288,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Direct operating |
| — |
| 58,207 |
| 39,072 |
| 153 |
| (1,861 | ) | 95,571 |
| ||||||
Selling, general and administrative |
| — |
| 51,245 |
| 25,960 |
| 148 |
| (472 | ) | 76,881 |
| ||||||
Amortization of program rights |
| — |
| 11,863 |
| 4,071 |
| 258 |
| — |
| 16,192 |
| ||||||
Corporate |
| — |
| 18,463 |
| 1,240 |
| — |
| — |
| 19,703 |
| ||||||
Depreciation |
| — |
| 14,149 |
| 4,984 |
| 20 |
| — |
| 19,153 |
| ||||||
Amortization of intangible assets |
| — |
| 156 |
| 623 |
| 2 |
| — |
| 781 |
| ||||||
Restructuring |
| — |
| 498 |
| — |
| — |
| — |
| 498 |
| ||||||
Loss from asset dispositions |
| — |
| 345 |
| 64 |
| — |
| — |
| 409 |
| ||||||
Operating income |
| — |
| 35,901 |
| 23,113 |
| 184 |
| 112 |
| 59,310 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense, net |
| — |
| 38,247 |
| 3 |
| 7 |
| — |
| 38,257 |
| ||||||
Share of loss in equity investments |
| — |
| 140 |
| 4,098 |
| — |
| — |
| 4,238 |
| ||||||
Gain on derivative instruments |
| — |
| (1,768 | ) | — |
| — |
| — |
| (1,768 | ) | ||||||
Loss on extinguishment of debt |
| — |
| 192 |
| — |
| — |
| — |
| 192 |
| ||||||
Intercompany fees and expenses |
| — |
| 48,930 |
| (48,930 | ) | — |
| — |
| — |
| ||||||
Other, net |
| — |
| 58 |
| — |
| — |
| — |
| 58 |
| ||||||
Total other expense (income), net |
| — |
| 85,799 |
| (44,829 | ) | 7 |
| — |
| 40,977 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
(Loss) income from continuing operations before taxes and equity in income (loss) from operations of consolidated subsidiaries |
| — |
| (49,898 | ) | 67,942 |
| 177 |
| 112 |
| 18,333 |
| ||||||
(Benefit from) provision for income taxes |
| — |
| (14,359 | ) | 27,177 |
| — |
| — |
| 12,818 |
| ||||||
Net (loss) income from continuing operations |
| — |
| (35,539 | ) | 40,765 |
| 177 |
| 112 |
| 5,515 |
| ||||||
(Loss) income from discontinued operations, net |
| — |
| (260 | ) | 513 |
| — |
| — |
| 253 |
| ||||||
Equity in income (loss) from operations of consolidated subsidiaries |
| 5,615 |
| 41,414 |
| — |
| — |
| (47,029 | ) | — |
| ||||||
Net income (loss) |
| 5,615 |
| 5,615 |
| 41,278 |
| 177 |
| (46,917 | ) | 5,768 |
| ||||||
Net income attributable to noncontrolling interests |
| — |
| — |
| — |
| 153 |
| — |
| 153 |
| ||||||
Net income (loss) attributable to LIN TV Corp. |
| $ | 5,615 |
| $ | 5,615 |
| $ | 41,278 |
| $ | 24 |
| $ | (46,917 | ) | $ | 5,615 |
|
Condensed Consolidating Statement of Comprehensive Income
For the Nine Months Ended September 30, 2011
(in thousands)
|
| LIN TV Corp. |
| LIN Television |
| Guarantor |
| Non-Guarantor |
| Eliminations |
| LIN TV Corp. |
| ||||||
Net income (loss) |
| $ | 5,615 |
| $ | 5,615 |
| $ | 41,278 |
| $ | 177 |
| $ | (46,917 | ) | $ | 5,768 |
|
Amortization of pension net losses, net of tax of $260 |
| 332 |
| 332 |
| — |
| — |
| (332 | ) | 332 |
| ||||||
Comprehensive income (loss) |
| $ | 5,947 |
| $ | 5,947 |
| $ | 41,278 |
| $ | 177 |
| $ | (47,249 | ) | $ | 6,100 |
|
Comprehensive income attributable to noncontrolling interest |
| — |
| — |
| — |
| 153 |
| — |
| 153 |
| ||||||
Comprehensive income (loss) attributable to LIN TV Corp. |
| $ | 5,947 |
| $ | 5,947 |
| $ | 41,278 |
| $ | 24 |
| $ | (47,249 | ) | $ | 5,947 |
|
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2012
(in thousands)
|
| LIN TV Corp. |
| LIN Television |
| Guarantor |
| Non-Guarantor |
| Eliminations |
| LIN TV Corp. |
| ||||||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net cash provided by (used in) operating activities, continuing operations |
| $ | — |
| $ | 93,607 |
| $ | (5,482 | ) | $ | (229 | ) | $ | 23 |
| $ | 87,919 |
|
Net cash used in operating activities, discontinued operations |
| — |
| (471 | ) | (2,242 | ) | — |
| (23 | ) | (2,736 | ) | ||||||
Net cash provided by (used in) operating activities |
| — |
| 93,136 |
| (7,724 | ) | (229 | ) | — |
| 85,183 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Capital expenditures |
| — |
| (13,227 | ) | (4,474 | ) | (1,636 | ) | — |
| (19,337 | ) | ||||||
Change in restricted cash |
| — |
| 255,159 |
| — |
| — |
| — |
| 255,159 |
| ||||||
Payments for business combinations, net of cash acquired |
| — |
| (34,325 | ) | — |
| — |
| — |
| (34,325 | ) | ||||||
Proceeds from the sale of assets |
| — |
| 17 |
| 45 |
| — |
| — |
| 62 |
| ||||||
Shortfall loans to joint venture with NBCUniversal |
| — |
| (2,292 | ) | — |
| — |
| — |
| (2,292 | ) | ||||||
Advances on intercompany borrowings |
| — |
| (2,000 | ) | — |
| — |
| 2,000 |
| — |
| ||||||
Payments from intercompany borrowings |
| — |
| 10,175 |
| — |
| — |
| (10,175 | ) | — |
| ||||||
Net cash provided by (used in) investing activities, continuing operations |
| — |
| 213,507 |
| (4,429 | ) | (1,636 | ) | (8,175 | ) | 199,267 |
| ||||||
Net cash provided by investing activities, discontinued operations |
| — |
| 6,314 |
| 23,206 |
| — |
| — |
| 29,520 |
| ||||||
Net cash provided by (used in) investing activities |
| — |
| 219,821 |
| 18,777 |
| (1,636 | ) | (8,175 | ) | 228,787 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net proceeds from exercises of employee and director stock-based compensation |
| — |
| 652 |
| — |
| — |
| — |
| 652 |
| ||||||
Proceeds from borrowings on long-term debt |
| — |
| 20,000 |
| — |
| — |
| — |
| 20,000 |
| ||||||
Principal payments on long-term debt |
| — |
| (307,922 | ) | — |
| (206 | ) | — |
| (308,128 | ) | ||||||
Payment of long-term debt issue costs |
| — |
| (359 | ) | — |
| — |
| — |
| (359 | ) | ||||||
Treasury stock purchased |
| — |
| (11,386 | ) | — |
| — |
| — |
| (11,386 | ) | ||||||
Proceeds from intercompany borrowings |
| — |
| — |
| — |
| 2,000 |
| (2,000 | ) | — |
| ||||||
Payments on intercompany borrowings |
| — |
| — |
| (10,175 | ) | — |
| 10,175 |
| — |
| ||||||
Net cash (used in) provided by financing activities |
| — |
| (299,015 | ) | (10,175 | ) | 1,794 |
| 8,175 |
| (299,221 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net increase (decrease) in cash and cash equivalents |
| — |
| 13,942 |
| 878 |
| (71 | ) | — |
| 14,749 |
| ||||||
Cash and cash equivalents at the beginning of the period |
| — |
| 16,571 |
| 653 |
| 833 |
| — |
| 18,057 |
| ||||||
Cash and cash equivalents at the end of the period |
| $ | — |
| $ | 30,513 |
| $ | 1,531 |
| $ | 762 |
| $ | — |
| $ | 32,806 |
|
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2011
(in thousands)
|
| LIN TV Corp. |
| LIN Television |
| Guarantor |
| Non-Guarantor |
| Eliminations |
| LIN TV Corp. |
| ||||||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net cash provided by (used in) operating activities, continuing operations |
| $ | — |
| $ | 47,478 |
| $ | 7,904 |
| $ | (478 | ) | $ | — |
| $ | 54,904 |
|
Net cash (used in) provided by operating activities, discontinued operations |
| — |
| (793 | ) | 556 |
| — |
| — |
| (237 | ) | ||||||
Net cash provided by (used in) operating activities |
| — |
| 46,685 |
| 8,460 |
| (478 | ) | — |
| 54,667 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Capital expenditures |
| — |
| (5,332 | ) | (6,223 | ) | (33 | ) | — |
| (11,588 | ) | ||||||
Payments for business combinations, net of cash acquired |
| — |
| (5,244 | ) | — |
| — |
| — |
| (5,244 | ) | ||||||
Proceeds from the sale of assets |
| — |
| 48 |
| — |
| — |
| — |
| 48 |
| ||||||
Payments on derivative instruments |
| — |
| (1,822 | ) | — |
| — |
| — |
| (1,822 | ) | ||||||
Shortfall loans to joint venture with NBCUniversal |
| — |
| (1,408 | ) | — |
| — |
| — |
| (1,408 | ) | ||||||
Other investments, net |
| — |
| (250 | ) | — |
| — |
| — |
| (250 | ) | ||||||
Payments from consolidated subsidiaries |
| — |
| 2,350 |
| — |
| — |
| (2,350 | ) | — |
| ||||||
Net cash used in investing activities, continuing operations |
| — |
| (11,658 | ) | (6,223 | ) | (33 | ) | (2,350 | ) | (20,264 | ) | ||||||
Net cash used in investing activities, discontinued operations |
| — |
| (94 | ) | — |
| — |
| — |
| (94 | ) | ||||||
Net cash used in investing activities |
| — |
| (11,752 | ) | (6,223 | ) | (33 | ) | (2,350 | ) | (20,358 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net proceeds from exercises of employee and director stock-based compensation |
| — |
| 673 |
| — |
| — |
| — |
| 673 |
| ||||||
Proceeds from borrowings on long-term debt |
| — |
| — |
| — |
| 920 |
| — |
| 920 |
| ||||||
Principal payments on long-term debt |
| — |
| (9,574 | ) | — |
| (92 | ) | — |
| (9,666 | ) | ||||||
Payment of long-term debt issue costs |
| — |
| (310 | ) | — |
| — |
| — |
| (310 | ) | ||||||
Payments on intercompany borrowings |
| — |
| — |
| (2,350 | ) | — |
| 2,350 |
| — |
| ||||||
Net cash (used in) provided by financing activities, continuing operations |
| — |
| (9,211 | ) | (2,350 | ) | 828 |
| 2,350 |
| (8,383 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net increase (decrease) in cash and cash equivalents |
| — |
| 25,722 |
| (113 | ) | 317 |
| — |
| 25,926 |
| ||||||
Cash and cash equivalents at the beginning of the period |
| — |
| 11,200 |
| 448 |
| — |
| — |
| 11,648 |
| ||||||
Cash and cash equivalents at the end of the period |
| $ | — |
| $ | 36,922 |
| $ | 335 |
| $ | 317 |
| $ | — |
| $ | 37,574 |
|
LIN TV Corp.
Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Special Note about Forward-Looking Statements
This report contains certain forward-looking statements with respect to our financial condition, results of operations and business, including statements under this caption Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. All of these forward-looking statements are based on estimates and assumptions made by our management, which, although we believe them to be reasonable, are inherently uncertain. Therefore, you should not place undue reliance upon such estimates and statements. We cannot assure you that any of such estimates or statements will be realized and actual results may differ materially from those contemplated by such forward-looking statements. Factors that may cause such differences include those discussed under the caption Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2011 (“10-K”). Many of these factors are beyond our control.
Forward-looking statements contained herein speak only as of the date hereof. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Executive Summary
We are a local multimedia company that, upon the completion of the acquisition further described below, operates or services 43 television stations, seven digital channels and a growing portfolio of web sites, applications and mobile products in 23 U.S. markets. Our operating revenues are primarily derived from the sale of advertising time to local, national and political advertisers. Additional, but less significant revenues are generated from our television station web sites, retransmission consent fees, interactive revenues and other revenues.
During the three and nine months ended September 30, 2012, net revenues increased $35.3 million and $68.8 million, respectively, compared to the same periods in 2011, primarily driven by an increase in our political advertising sales and local revenues. Political advertising sales increased $18.1 million and $25.9 million for the three and nine months ended September 30, 2012, respectively, compared to the same periods last year. During the three and nine months ended September 30, 2012, local revenues, which include net local advertising sales, retransmission consent fees and television station web site revenues, increased $10.7 million and $29.3 million, respectively, compared to the same periods last year. Our interactive revenues and national advertising sales also increased during both periods. Interactive revenues increased $4.1 million and $9.6 million, and national advertising sales increased $2.6 million and $5 million during the three and nine months ended September 30, 2012, respectively, compared to the same periods last year.
During the three and nine months ended September 30, 2012, we recognized an additional shortfall liability of $4.2 million, for our approximate 20% share of debt service shortfalls at our joint venture with NBCUniversal Media, LLC (“NBCUniversal”). During the three and nine months ended September 30, 2012, we made shortfall loans in the principal amounts of $0.6 million and $2.3 million, respectively, to our joint venture with NBCUniversal. As of September 30, 2012, we have an accrued shortfall liability of $6 million for our approximate 20% share of debt service shortfalls that we expect to fund during the remainder of 2012 and through 2013. Based on the joint venture’s preliminary budget for 2013, and certain long range forecast data provided by joint venture management, we believe that additional debt service shortfalls beyond those 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. For further information see Note 11 — “Commitments and Contingencies”.
On October 12, 2012, LIN Television completed its acquisition (the “Acquisition”) of television stations in eight markets from affiliates and subsidiaries of New Vision Television, LLC (“New Vision”) for $334.9 million, subject to certain post-closing adjustments, and including the assumption of $14.3 million of finance lease obligations. Additionally, on October 12, 2012, Vaughan Acquisition LLC (“Vaughan”), a third-party licensee, completed its acquisition of separately owned television stations in three markets for $4.6 million from PBC Broadcasting, LLC (“PBC”). LIN Television also agreed to provide certain services to the television stations acquired by Vaughan pursuant to shared services arrangements with Vaughan. We expect that Vaughan will be considered a VIE, of which we are the primary beneficiary, and that we will consolidate the assets, liabilities, and results of operations of Vaughan and its consolidated subsidiaries. For further information on these acquisitions see Note 2 — “Acquisitions”.
On October 12, 2012, LIN Television completed the issuance and sale of $290 million in aggregate principal amount of its 63/8% Senior Notes due 2021 (the “63/8% Senior Notes”). The net proceeds of the 63/8% Senior Notes were used to fund the remaining purchase price for the acquisition of television stations from New Vision as further described above. Additionally, on October 12, 2012, Vaughan entered into a five-year term loan with an unrelated third party in a principal amount of approximately $4.6 million to fund the purchase price for the television stations from PBC that were acquired by Vaughan. LIN Television fully and unconditionally guarantees this loan. For further information see Note 13 — “Subsequent Events”.
On February 16, 2012, we completed the sale of substantially all of the assets of WWHO-TV in Columbus, OH to Manhan Media, Inc. On April 21, 2012, we completed the sale of substantially all of the assets of WUPW-TV in Toledo, OH to WUPW, LLC. For further information see Note 3 — “Discontinued Operations”.
On January 20, 2012, we completed the redemption of $251 million, net of a discount of $1.2 million, of our 6½% Senior Subordinated Notes and our 6½% Senior Subordinated Notes — Class B (“6½% Senior Subordinated Notes”), and as of that date, there were no 6½% Senior Subordinated Notes outstanding. We used proceeds from an incremental term loan under our senior secured credit facility and cash on hand to fund the aggregate redemption price.
Critical Accounting Policies and Estimates
Certain of our accounting policies, as well as estimates we make, are critical to the presentation of our financial condition and results of operations since they are particularly sensitive to our judgment. Some of these policies and estimates relate to matters that are inherently uncertain. The estimates and judgments we make affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent liabilities. On an on-going basis, we evaluate our estimates, including those used for 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, litigation and net assets of businesses acquired. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and it is possible that such differences could have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements
In July 2012, there were revisions to the accounting standard for impairment tests of indefinite-lived intangible assets other than goodwill. Under the revised standard a company can first perform a qualitative assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary. A company can choose to perform the qualitative assessment on none, some, or all of its indefinite-lived intangible assets, and can also bypass the qualitative assessment and perform the quantitative impairment test for any indefinite-lived intangible in any period. The revised standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted during 2012 if a company has not yet performed its 2012 annual impairment test or issued its financial statements. We will adopt this guidance no later than January 1, 2013, and we do not expect it to have a material impact on our financial position or results of operations.
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 the adoption did not have an impact on our financial position or results of operations.
In September 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 stockholders’ 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.
Results of Operations
Set forth below are key components that contributed to our operating results (in thousands):
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||||||
|
| 2012 |
| 2011 |
| % |
| 2012 |
| 2011 |
| % |
| ||||
Local revenues |
| $ | 72,993 |
| $ | 62,323 |
| 17% |
| $ | 214,924 |
| $ | 185,632 |
| 16% |
|
National advertising sales |
| 26,102 |
| 23,473 |
| 11% |
| 74,625 |
| 69,651 |
| 7% |
| ||||
Political advertising sales |
| 20,389 |
| 2,320 |
| 779% |
| 30,970 |
| 5,092 |
| 508% |
| ||||
Interactive revenues |
| 10,876 |
| 6,815 |
| 60% |
| 28,382 |
| 18,772 |
| 51% |
| ||||
Other revenues |
| 2,716 |
| 2,885 |
| (6)% |
| 8,391 |
| 9,351 |
| (10)% |
| ||||
Net revenues |
| 133,076 |
| 97,816 |
| 36% |
| 357,292 |
| 288,498 |
| 24% |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Direct operating |
| 38,152 |
| 33,501 |
| 14% |
| 110,554 |
| 95,571 |
| 16% |
| ||||
Selling, general and administrative |
| 28,365 |
| 25,182 |
| 13% |
| 84,791 |
| 76,881 |
| 10% |
| ||||
Amortization of program rights |
| 5,612 |
| 5,517 |
| 2% |
| 16,212 |
| 16,192 |
| — |
| ||||
Corporate |
| 9,264 |
| 5,881 |
| 58% |
| 24,229 |
| 19,703 |
| 23% |
| ||||
Depreciation |
| 6,824 |
| 6,530 |
| 5% |
| 20,234 |
| 19,153 |
| 6% |
| ||||
Amortization of intangible assets |
| 507 |
| 233 |
| 118% |
| 1,462 |
| 781 |
| 87% |
| ||||
Restructuring charge |
| — |
| 498 |
| (100)% |
| — |
| 498 |
| (100)% |
| ||||
(Gain) loss from asset dispositions |
| (15 | ) | 51 |
| (129)% |
| (12 | ) | 409 |
| (103)% |
| ||||
Total operating expenses |
| 88,709 |
| 77,393 |
| 15% |
| 257,470 |
| 229,188 |
| 12% |
| ||||
Operating income |
| $ | 44,367 |
| $ | 20,423 |
| 117% |
| $ | 99,822 |
| $ | 59,310 |
| 68% |
|
Period Comparison
Revenues
Net revenues consist primarily of local revenues, which include net local advertising sales, retransmission consent fees and television station web site revenues, and net national and political advertising sales. Additional revenues include interactive revenues, barter revenues, network compensation, production revenues, tower rental income and station copyright royalties.
During the three months ended September 30, 2012, net revenues increased by $35.3 million, or 36%, compared to the same period in the prior year. The increase was primarily due to: (i) an $18.1 million increase in political advertising sales; (ii) a $10.7 million increase in local revenues; (iii) a $4.1 million increase in interactive revenues; and (iv) a $2.6 million increase in national advertising sales. These increases were partially offset by a $0.2 million decrease in other revenues.
During the nine months ended September 30, 2012, net revenues increased by $68.8 million, or 24%, compared to the same period in the prior year. The increase was primarily due to: (i) a $29.3 million increase in local revenues; (ii) a $25.9 million increase in political advertising sales; (iii) a $9.6 million increase in interactive revenues; and (iv) a $5 million increase in national advertising sales. These increases were partially offset by a $1 million decrease in other revenues.
The increase in local revenues during both periods is a result of growth in local advertising sales, retransmission consent revenues and television station web site revenues. The growth in retransmission consent revenues was a result of contract renewals and contractual rate increases. Television station web site revenues increased as a result of increased advertising and increased traffic to our web sites, as well as rate increases compared to the same periods in the prior year. We also benefited during both periods from incremental advertising revenue from the 2012 Summer Olympic Games. The increase in political advertising sales during both periods is due to the 2012 Presidential, Congressional, state and local elections. The increase in interactive revenues during both periods is a result of
growth in advertising sales from RMM compared to the same period in the prior year and revenues generated by Nami Media, which we acquired during the fourth quarter of 2011.
During the three and nine months ended September 30, 2012, the automotive category, which represented 28% and 27%, respectively, of local and national advertising sales, increased by 23% and 21%, respectively, as compared to the three and nine months ended September 30, 2011, during which the automotive category represented 24% and 23%, respectively, of local and national advertising sales. We believe the increases were primarily the result of disruptions in the automotive supply chain during the same periods of 2011, resulting from the March 2011 Japan earthquake and tsunami.
Operating Expenses
Operating expenses increased $11.3 million and $28.3 million, or 15% and 12%, for the three and nine months ended September 30, 2012, respectively, compared to the same periods last year. These increases are primarily due to increases in direct operating, selling, general and administrative and corporate expenses. Direct operating expenses increased $4.7 million and $15 million during the three and nine months ended September 30, 2012, respectively, compared to the same periods last year, primarily as a result of an increase in fees pursuant to network affiliation agreements, employee compensation expense and higher cost of goods sold related to RMM. Selling, general and administrative expenses increased $3.2 million and $7.9 million during the three and nine months ended September 30, 2012, respectively, primarily due to higher variable costs attributable to the growth in revenue compared to the same periods last year. Corporate expenses increased $3.4 million and $4.5 million during the three and nine months ended September 30, 2012, respectively, primarily due to increases in employee compensation expense and acquisition related expenses compared to the same periods last year.
Other Expense
The following summarizes the components of other expense, net (in thousands):
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Components of other expense, net: |
|
|
|
|
|
|
|
|
| ||||
Interest expense, net |
| $ | 9,310 |
| $ | 12,608 |
| $ | 28,946 |
| $ | 38,257 |
|
Share of loss in equity investments |
| 4,156 |
| 3,071 |
| 4,309 |
| 4,238 |
| ||||
Gain on derivative instruments |
| — |
| (565 | ) | — |
| (1,768 | ) | ||||
Loss on extinguishment of debt |
| — |
| — |
| 2,099 |
| 192 |
| ||||
Other expense, net |
| 88 |
| 60 |
| 176 |
| 58 |
| ||||
Total other expense, net |
| $ | 13,554 |
| $ | 15,174 |
| $ | 35,530 |
| $ | 40,977 |
|
Other expense, net decreased $1.6 million and $5.4 million, or 11% and 13%, during the three and nine months ended September 30, 2012, respectively, compared to the same periods last year, primarily due to a decrease in interest expense as further described below. The decrease in other expense, net during the nine months ended September 30, 2012 was partially offset by a $1.9 million increase in loss on extinguishment of debt, which was a result of the redemption of our 6½% Senior Subordinated Notes during the first quarter of 2012.
Interest Expense
The following summarizes the components of interest expense, net (in thousands):
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Components of interest expense: |
|
|
|
|
|
|
|
|
| ||||
Senior secured credit facility |
| $ | 4,896 |
| $ | 164 |
| $ | 14,851 |
| $ | 808 |
|
83/8% Senior Notes due 2018 |
| 4,396 |
| 4,347 |
| 13,044 |
| 12,995 |
| ||||
6½% Senior Subordinated Notes |
| — |
| 4,664 |
| 595 |
| 14,042 |
| ||||
6½% Senior Subordinated Notes - Class B |
| — |
| 2,757 |
| 306 |
| 8,295 |
| ||||
Other |
| 18 |
| 676 |
| 150 |
| 2,117 |
| ||||
Total interest expense, net |
| $ | 9,310 |
| $ | 12,608 |
| $ | 28,946 |
| $ | 38,257 |
|
Interest expense, net decreased by $3.3 million and $9.3 million, or 26% and 24%, during the three and nine months ended September 30, 2012, respectively, compared to the same periods last year, primarily as a result of the redemption of our 6½% Senior Subordinated Notes during the first quarter of 2012. The decreases were partially offset by an increase in interest expense in both periods as a result of an increase in borrowings under our senior secured credit facility compared to the same periods last year.
Provision for Income Taxes
Provision for income taxes increased $8.9 million and $11.3 million for the three and nine months ended September 30, 2012, respectively, compared to the same periods last year. 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 37.5% and 69.9 % for the nine months ended September 30, 2012 and September 30, 2011, respectively. The decrease in the effective income tax rate was primarily a result of state tax legislation enacted in Michigan in May 2011, which repealed the Michigan business tax (“MBT”), and implemented a corporate income tax instead, effective January 2012. As a result of the elimination of the MBT, certain future tax deductions, which were available to be utilized beginning in 2015, and had been recognized as deferred tax assets in our financial statements, will be not be deductible. Therefore, during the second quarter of 2011, we recognized incremental deferred income tax expense of $5.1 million, net of federal benefit, for the reversal of these previously established deferred tax assets.
Liquidity and Capital Resources
Our principal sources of funds for working capital have historically been cash from operations and borrowings under our senior secured credit facility. As of September 30, 2012, we had unrestricted cash and cash equivalents of $32.8 million, and a $75 million revolving credit facility, all of which was available, subject to certain covenant restrictions.
Our total outstanding debt as of September 30, 2012 was $580.9 million. This excludes the contingent obligation associated with our guarantee of the $815.5 million GECC Note associated with our joint venture with NBCUniversal (see Note 11 — “Commitments and Contingencies” for further details).
Our operating plan for the next 12 months anticipates that we generate cash from operations, utilize available borrowings, and make certain repayments of indebtedness, including mandatory repayments of term loans and incremental term loans under our senior secured credit facility. Our ability to borrow under our revolving credit facility is contingent on our compliance with certain financial covenants, which are measured, in part, by the level of earnings before interest expense, taxes, depreciation and amortization (“EBITDA”) that we generate from our operations. As of September 30, 2012, we were in compliance with all financial and nonfinancial covenants under our senior secured credit facility.
Our future ability to generate cash from operations and from borrowings under our senior secured credit facility could be adversely affected by a number of risks, which are discussed in the Liquidity and Capital Resources section within Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Item 1A. “Risk Factors” in our 10-K and elsewhere herein.
Our liquidity position during 2012 has been, and over the next 12 months and beyond will primarily be affected by, but is not limited to, the following:
· Continued growth in local and interactive revenues. During the three and nine months ended September 30, 2012, our local revenues increased 17% and 16%, respectively, compared to the same periods in the prior year. Additionally, during the three and nine months ended September 30, 2012, our interactive revenues increased 60% and 51%, respectively, compared to the same periods in the prior year. We expect further growth in our local and interactive revenues, however, there can be no assurance that this will occur.
· Cyclical fluctuations. We experience significant fluctuations in our political advertising revenues since advertising revenues are generally higher in even-numbered years due to additional revenues associated with political advertising related to local and national elections. During the three and nine months ended September 30, 2012, our net political advertising sales increased $18.1 million and $25.9 million, respectively, compared to the same periods in the prior year. We anticipate increased advertising revenues during the remainder of 2012 as a result of these cyclical fluctuations. Additionally, the U.S. Supreme Court’s ruling in 2010 that allowed for unlimited independent political expenditures from corporations and unions may further increase political advertising spending in even numbered years.
· Acquisition of television stations from New Vision. On October 12, 2012, LIN Television completed its acquisition of television stations in eight markets from affiliates and subsidiaries of New Vision for $334.9 million, subject to certain post-closing adjustments, and including the assumption of $14.3 million of finance lease obligations. Pursuant to the terms of our purchase agreement with New Vision, $33.5 million of the purchase price at closing was funded from amounts previously deposited into escrow. The remaining purchase price of $301.4 million was funded from cash on hand and the net proceeds of the issuance and sale of the 63/8% Senior Notes. Additionally, on October 12, 2012, Vaughan, a third-party licensee, completed its acquisition of separately owned television stations in three markets for $4.6 million from PBC. For further information see Note 2 — “Acquisitions”.
· 63/8% Senior Notes. On October 12, 2012, LIN Television completed the issuance and sale of $290 million in aggregate principal amount of its 63/8% Senior Notes. The net proceeds of the 63/8% Senior Notes were used to fund the remaining purchase price for the Acquisition. Additionally, on October 12, 2012, Vaughan entered into a five-year term loan with an unrelated third party in a principal amount of approximately $4.6 million to fund the purchase price for the television stations from PBC that were acquired by Vaughan. Vaughan subsequently made a principal payment of $1.3 million to the balance of the term loan. LIN Television fully and unconditionally guarantees this loan. For further information see Note 13 — “Subsequent Events”.
· 6½% Senior Subordinated Notes. On January 20, 2012, we completed the redemption of $251 million, net of a discount of $1.2 million, of our 6½% Senior Subordinated Notes. We used proceeds from an incremental term loan under our senior secured credit facility and cash on hand to fund the aggregate redemption price.
· Cash requirements related to the NBCUniversal joint venture. During the three and nine months ended September 30, 2012, we made shortfall loans in aggregate principal amounts of $0.6 million and $2.3 million, respectively. As of September 30, 2012, we have an accrued shortfall liability of $6 million for our approximate 20% share of debt service shortfalls. Based on the joint venture’s preliminary budget for 2013, and certain long range forecast data provided by joint venture management, we believe that additional debt service shortfalls beyond those 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.
· Cash requirements related to the acquisition of RMM. In connection with our acquisition of RMM, we entered into an incentive compensation arrangement with certain key members of management. The arrangement provides payments to those employees based on a computation of EBIDTA generated by RMM during 2012. Our liability under this arrangement could range from zero to $24 million, and is payable in 2013. As of September 30, 2012, we have recognized a current liability of $6.9 million related to this incentive compensation arrangement, and expect to pay $7.5 million to $8.5 million during the first quarter of 2013 under this arrangement.
· Sale of assets. During the nine months ended September 30, 2012, we received net cash proceeds of $6.3 million and $23.2 million related to the divestiture of substantially all of the assets of WWHO-TV in Columbus, OH and WUPW-TV in Toledo, OH, respectively.
· Stock repurchase program. During the nine months ended September 30, 2012, pursuant to our Board authorized stock repurchase program, we repurchased approximately 3.3 million shares of our class A common stock on the open market for an aggregate purchase price of $11.4 million.
· Employee benefit contributions. Our employee benefit plan contributions include contributions to our pension plan and the 401(k) Plan. Volatility in the equity markets impacts the fair value of our pension plan assets and ultimately the cash funding requirements of our pension plan. We expect to contribute $7.4 million to our pension plan and $4 million to our 401(k) Plan during 2012.
· Other investments. In connection with our acquisition of Nami Media, we may be required to purchase the remaining outstanding shares of Nami Media in 2014, with a purchase price based on multiples of Nami Media’s 2013 net revenue and EBITDA. Our maximum potential obligation under the Nami Media agreements is $37.4 million. For further information see Note 2 — “Acquisitions” included in our 10-K.
Contractual Obligations
The following table summarizes the estimated future cash payments related to amendments to certain program obligations and operating contracts since December 31, 2011.
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|
|
|
|
|
|
| 2017 and |
|
|
| |||||
|
| 2012 |
| 2013-2014 |
| 2015-2016 |
| thereafter |
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Program payments(1) |
| $ | 22,212 |
| $ | 33,370 |
| $ | 2,475 |
| $ | 240 |
| $ | 58,297 |
|
Operating agreements(2) |
| 22,577 |
| 25,454 |
| 12,605 |
| 3,533 |
| 64,169 |
| |||||
Operating leases(3) |
| 862 |
| 2,868 |
| 2,658 |
| 3,854 |
| 10,242 |
| |||||
(1) | We have entered into commitments for future syndicated news, entertainment, and sports programming. We have recorded $22.8 million of program obligations as of September 30, 2012 and have unrecorded commitments of $35.5 million for programming that is not available to air as of September 30, 2012. |
|
|
(2) | We have entered into a variety of agreements for services used in the operation of our stations including ratings services, consulting and research services, news video services, news weather services, marketing services and other operating contracts under non-cancelable operating agreements. |
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|
(3) | We lease land, buildings, vehicles and equipment under non-cancelable operating lease agreements. |
Other than as shown above, there were no material changes in our contractual obligations from those shown in Liquidity and Capital Resources within Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 10-K.
Summary of Cash Flows
The following presents summarized cash flow information (in thousands):
|
| Nine Months Ended |
|
|
| |||||
|
| 2012 |
| 2011 |
| 2012 vs 2011 |
| |||
Net cash provided by operating activities |
| $ | 85,183 |
| $ | 54,667 |
| $ | 30,516 |
|
Net cash provided by (used in) investing activities |
| 228,787 |
| (20,358 | ) | 249,145 |
| |||
Net cash used in financing activities |
| (299,221 | ) | (8,383 | ) | (290,838 | ) | |||
Net increase in cash and cash equivalents |
| $ | 14,749 |
| $ | 25,926 |
| $ | (11,177 | ) |
Net cash provided by operating activities increased $30.5 million to $85.2 million for the nine months ended September 30, 2012 compared to the same period in the prior year. The increase was primarily attributable to a $68.8 million increase in net revenues, offset by a $27.4 million increase in direct operating, selling, general and administrative and corporate expenses, compared to the same period in the prior year, and an increase in working capital of $9.7 million.
Net cash provided by (used in) investing activities increased $249.1 million to $228.8 million for the nine months ended September 30, 2012 compared to the same period in the prior year. The increase was primarily due to a $255.2 million decrease in restricted cash that was irrevocably deposited with a trustee in December 2011 for the redemption of our 6½% Senior Subordinated Notes on January 20, 2012. The increase was also due to $6.3 million and $23.2 million of net cash proceeds we received during the nine months ended September 30, 2012 related to the divestiture of substantially all of the assets of WWHO-TV and WUPW-TV, respectively. The increase was partially offset by our $33.5 million deposit into an escrow account pursuant to the purchase agreement with New Vision.
Net cash used in financing activities increased $290.8 million to $299.2 million for the nine months ended September 30, 2012 compared to the same period in the prior year. The increase was primarily due to the redemption of $251 million, net of a discount of $1.2 million, of our 6½% Senior Subordinated Notes during the nine months ended September 30, 2012 using the proceeds of an incremental term loan under our senior secured credit facility. The increase was also due to $35 million of net principal payments on our revolving credit facility, and the repurchase of $11.4 million of our class A common stock during the nine months ended September 30, 2012.
Description of Indebtedness
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 due 2018 (the “83/8% Senior Notes”), on a joint-and-several basis.
Debt consisted of the following (in thousands):
|
| September 30, |
| December 31, |
| ||
Senior Secured Credit Facility: |
|
|
|
|
| ||
Revolving credit loans |
| $ | — |
| $ | 35,000 |
|
$125,000 Term loans, net of discount of $530 and $604 as of September 30, 2012 and December 31, 2011, respectively |
| 124,470 |
| 124,396 |
| ||
$258,050 and $260,000 Incremental term loans, net of discount of $2,328 and $2,594 as of September 30, 2012 and December 31, 2011, respectively |
| 255,722 |
| 257,406 |
| ||
83/8% Senior Notes due 2018 |
| 200,000 |
| 200,000 |
| ||
61/2% 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 |
| 738 |
| 944 |
| ||
Total debt |
| 580,930 |
| 868,717 |
| ||
Less current portion |
| 7,547 |
| 253,856 |
| ||
Total long-term debt |
| $ | 573,383 |
| $ | 614,861 |
|
|
|
|
|
|
| ||
Total debt |
| $ | 580,930 |
| $ | 868,717 |
|
Cash and cash equivalents |
| (32,806 | ) | (18,057 | ) | ||
Restricted cash |
| — |
| (255,159 | ) | ||
Consolidated net debt(1) |
| $ | 548,124 |
| $ | 595,501 |
|
(1) | Consolidated net debt is a non-GAAP financial measure, and is equal to total debt less cash and cash equivalents. Solely for the purpose of computing consolidated net debt as of December 31, 2011, the credit agreement governing our senior secured credit facility permits restricted cash to be offset against total debt. Consolidated net debt provides investors with useful information about our financial position, and is one of the financial measures used to evaluate compliance with our debt covenants. |
During the three and nine months ended September 30, 2012, we paid $0.7 million and $2 million, respectively, of principal on the incremental term loans related to mandatory quarterly payments under our senior secured credit facility.
On October 12, 2012, LIN Television completed the issuance and sale of its 63/8% Senior Notes in an aggregate principal amount of $290 million, and used the net proceeds of such notes to fund the remaining purchase price for the Acquisition as further described in Note 2 — “Acquisitions”. Additionally, on October 12, 2012, Vaughan, which we expect to be a consolidated VIE, entered into a five-year term loan with an unrelated third party in a principal amount of approximately $4.6 million to fund the purchase price for the television stations from PBC that were acquired by Vaughan. LIN Television fully and unconditionally guarantees this loan. For further information see Note 13 — “Subsequent Events”.
On January 20, 2012, we completed the redemption of $251 million, net of a discount of $1.2 million, of our 6½% Senior Subordinated Notes using the proceeds of an incremental term loan funded in December 2011 and cash on hand. As a result of this redemption, we recorded a loss on extinguishment of debt of $2.1 million to our consolidated statement of operations during the nine months ended September 30, 2012, consisting of a write-down of deferred financing fees and unamortized discount.
During the nine months ended September 30, 2011, we recorded a loss on extinguishment of debt of $0.2 million to our consolidated statements of operations, consisting of a write-down of deferred financing fees related to a reduction in our revolving credit commitments and the payment of the remaining balance on our term loans under our 2009 senior secured credit facility.
See Note 7 — “Long-term Debt” included in Item 15 of our 10-K for a full description of our senior secured credit facility.
Off-Balance Sheet Arrangements
As of September 30, 2012, there had been no material changes in our off-balance sheet arrangements from those disclosed in our 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk related to interest rates on borrowings under our senior secured credit facility. 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.
Interest Rate Risk
Our long-term debt as of September 30, 2012 was $580.9 million, including a current portion of $7.5 million, of which our 83/8% Senior Notes bear a fixed interest rate and our senior secured credit facility bears an interest rate based on, at our option, either a) the LIBOR interest rate, or b) the ABR rate, which is an interest rate that is equal to the greatest of (i) the Prime Rate, (ii) the Federal Funds Effective Rate plus ½ of 1%, and (iii) the one-month LIBOR rate plus 1%. In addition, the rate we select also bears an applicable margin based upon our consolidated senior secured leverage ratio, which was set at 3.00% and 2.00% for LIBOR based loans and ABR rate loans, respectively, during 2012 through the issuance of these financial statements, and set at 2.75% and 1.75% thereafter for LIBOR based loans and ABR rate loans, respectively. Additionally, borrowings under the incremental term loan facility bear interest at a rate based, at our option, on an adjusted LIBOR rate, plus an applicable margin of 3.75%, or an adjusted Base Rate, plus an applicable margin of 2.75%; provided that the adjusted LIBOR rate shall at no time be less than 1.25% per annum.
The outstanding balance of our senior secured credit facility was $380.2 million as of September 30, 2012. Accordingly, a hypothetical 1% increase in the floating rate used as the basis for the interest charged on the senior secured credit facility as of September 30, 2012 would increase our annualized interest expense by $3.8 million, assuming such amounts remain outstanding under the facility.
Item 4. Controls and Procedures
a) Evaluation of disclosure controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2012. As permitted by the U.S. Securities and Exchange Commission (“SEC”), we have excluded Nami Media from our evaluation as of September 30, 2012 because it was acquired by us in a purchase business combination on November 22, 2011. Nami Media is a majority-owned and controlled subsidiary, whose both total assets and total revenues represent 1% of our consolidated financial statement amounts as of and for the nine months ended September 30, 2012. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving its objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2012, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
b) Changes in internal controls.
There were no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during the quarter ended September 30, 2012 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. As permitted by the SEC, we have excluded Nami Media from our evaluation as of September 30, 2012 because it was acquired by us in a purchase business combination on November 22, 2011.
We are involved in various claims and lawsuits that are generally incidental to our business. We are vigorously contesting all of these matters. The outcome of any current or future litigation cannot be accurately predicted. We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No further estimates of possible losses or range of losses can be made at this time because the inherently unpredictable nature of legal proceedings may be exacerbated by various factors, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; or (vi) there is a wide range of potential outcomes. Although the outcome of these and other legal proceedings cannot be predicted, we believe that their ultimate resolution will not have a material adverse effect on us.
On October 12, 2012, LIN Television completed its acquisition of television stations (the “Acquired Stations”) in eight markets from affiliates and subsidiaries of New Vision for $334.9 million, subject to certain post-closing adjustments, and including the assumption of $14.3 million of finance lease obligations. The risk factors discussed below related to the Acquisition and to our defined benefit pension plans should be read together with the factors discussed in Part 1 Item 1A. “Risk Factors” in our 10-K. These risk factors could materially affect our business, financial condition or future results.
We may not realize all of the anticipated operating synergies and cost savings from the Acquisition, which may adversely affect our financial performance.
We may not realize all of the anticipated operating synergies and cost savings from the Acquisition. These are forward-looking estimates and involve known and unknown risks, uncertainties and other factors that may cause the actual cost savings or cash generated to be materially different from our estimates or result in these savings not being realized in the time frame expected, or at all. Such estimates are based upon a variety of other factors and were derived utilizing numerous important assumptions, including: (i) the assumption that we will be able to take advantage of certain provisions in our retransmission consent agreements that would allow for increased rates from pay-television operators for the Acquired Stations; (ii) that we will be able to successfully migrate and develop new media platforms for the Acquired Stations; and (iii) that we will be able to leverage our existing technical service centers and shared administrative service centers in order to reduce costs at the Acquired Stations.
We may have difficulty integrating the Acquired Stations into our operating structure and if we are unable to manage effectively such integration, our operating results will suffer.
To manage effectively our integration and address the increased administrative demands that will result from the Acquisition, we will need, among other things, to continue to develop our financial and management controls and management information systems. We will also need to continue to identify, attract and retain highly skilled finance and management personnel. Failure to do any of these tasks in an efficient and timely manner could have an adverse impact on our financial position or results of operations. There are other risks associated with the growth of our business. For example, there is the possibility that:
· we may not be able to successfully reduce costs, increase gross advertising revenues or audience share or realize anticipated synergies and economies of scale with respect to any Acquired Station;
· our management may be reassigned from overseeing existing operations due to the need to integrate the Acquired Stations;
· we may experience difficulties integrating operations and systems, as well as company policies and cultures;
· we may fail to retain and assimilate employees of the Acquired Stations; and
· problems may arise in entering new markets in which we have little or no experience.
The occurrence of any of these events could have a material adverse effect on our results of operations, particularly during the period immediately following the Acquisition.
We consummated the Acquisition before the grant of the FCC’s consent became final, which may give rise to certain regulatory risks and the FCC could require us to restructure the transaction which may adversely affect any benefits we derive from the Acquisition.
In connection with the Acquisition, on May 11, 2012, we filed applications requesting the FCC’s consent to acquire from New Vision the FCC licenses for each of the Acquired Stations (the ‘‘Applications’’). The FCC placed the Applications on public notice for a 30-day period to provide interested third parties with an opportunity to object and to petition the FCC to deny the Applications. The 30-day public notice period ended on June 15, 2012. To date, no petitions to deny or other objections to the Applications have been filed with the FCC.
The FCC’s rules permitted consummation of the Acquisition immediately following the FCC’s grant of its consent to the Applications (the ‘‘FCC Consent’’). During the 30-day period following the publication of the FCC Consent, interested parties are afforded an opportunity to seek reconsideration or review by the FCC or, as the case may be, by a court of competent jurisdiction. Thereafter, the FCC has an additional ten days to set aside the FCC Consent on its own motion. Only once this 10-day period has elapsed is the FCC Consent considered ‘‘final’’ and not subject to further review, appeal, rescission, or reversal.
No party filed a petition to deny or any other objection to the Applications during the public notice period that concluded on June 15, 2012. The FCC granted consent for the Acquisition on October 2, 2012, and we completed the Acquisition on October 12, 2012. While we expect that the FCC Consent will thereafter become final in the ordinary course given that no objections were filed during the initial 30-day review period, it is possible that the FCC could, after granting a petition for reconsideration (properly filed by a third party and successfully prosecuted over our opposition), or acting on its own motion (and denying our request to stay its effect), rescind the previously granted FCC Consent and we could be required, among other things, to unwind our acquisition of the FCC licenses for one or more of the Acquired Stations which could have an adverse effect on our business.
Our defined benefit pension plan obligations are currently underfunded, and we may have to make significant cash payments to this plan, which would reduce the cash available for our business.
We have unfunded obligations under our defined benefit pension plan. The funded status of the defined benefit pension plan depends on such factors as asset returns, market interest rates, legislative changes and funding regulations. Our future required cash contributions and pension costs to the plan could increase if: (i) the returns on the assets of our plan were to decline in future periods; (ii) market interest rates were to decline; (iii) the Pension Benefit Guaranty Corporation (‘‘PBGC’’) were to require additional contributions to the plan as a result of acquisitions; or (iv) other actuarial assumptions were to be modified. Any such increases could have a material and adverse effect on our business, financial condition, results of operations or cash flows. The need to make contributions, which may be substantial, to such plan may reduce the cash available to meet our other obligations, including our debt obligations with respect to our senior secured credit facility, the 83/8% Senior Notes and the 63/8% Senior Notes or to meet the needs of our business. In addition, the PBGC may terminate our defined benefit pension plan under limited circumstances, including in the event the PBGC concludes that the risk may increase unreasonably if such plan continues. In the event a defined benefit pension plan is terminated for any reason while it is underfunded, we could be required to make an immediate payment to the PBGC of all or a substantial portion of such plan’s underfunding, as calculated by the PBGC based on its own assumptions (which might result in a larger obligation than that based on the assumptions we have used to fund such plan).
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
None.
None.
3.1 | Second Amended and Restated Certificate of Incorporation of LIN TV Corp., as amended (filed as Exhibit 3.1 to our Quarterly Report on Form 10-Q filed as of August 9, 2004 (File Nos. 001-31311 and 000-25206) and incorporated by reference herein). |
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3.2 | Third Amended and Restated Bylaws of LIN TV Corp., filed as Exhibit 3.2 (filed as Exhibit 3.2 to our Report on Form 10-K filed as of March 14, 2008 (File Nos. 001-31311 and 000-25206) and incorporated by reference herein). |
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3.3 | Restated Certificate of Incorporation of LIN Television Corporation (filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q of LIN TV Corp. and LIN Television Corporation for the fiscal quarter ended September 30, 2003 (File No. 000-25206) and incorporated by reference herein). |
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3.4 | Restated Bylaws of LIN Television Corporation (filed as Exhibit 3.4 to the Registration Statement on Form S-1 of LIN Television Corporation and LIN Holding Corp. (Registration No. 333-54003) and incorporated by reference herein). |
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4.1 | Specimen of stock certificate representing LIN TV Corp. Class A Common stock, par value $.01 per share (filed as Exhibit 4.1 to LIN TV Corp.’s Registration Statement on Form S-1 (Registration No. 333-83068) and incorporated by reference herein). |
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4.2 | Indenture, dated October 12, 2012, by and among LIN Television, the Guarantors and the Trustee (filed as Exhibit 4.1 to LIN TV Corp.’s Current Report on Form 8-K filed as of October 17, 2012 (File Nos. 001-31311 and 000-25206) and incorporated by reference herein). |
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4.3 | Registration Rights Agreement, dated October 12, 2012, by and among LIN Television, the Guarantors and the Representative (filed as Exhibit 4.2 to LIN TV Corp.’s Current Report on Form 8-K filed as of October 17, 2012 (File Nos. 001-31311 and 000-25206) and incorporated by reference herein). |
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10.1 | Asset Purchase Agreement, dated May 4, 2012, among NVT Networks, LLC, NVT License Company, LLC, NVT Birmingham, LLC, NVT Birmingham Licensee, LLC, NVT Mason City, LLC, NVT Mason City Licensee, LLC, NVT Portland, LLC, NVT Portland Licensee, LLC, NVT Hawaii, LLC, NVT Hawaii Licensee, LLC, NVT Wichita, LLC, NVT Wichita Licensee, LLC, NVT Topeka, LLC, NVT Topeka Licensee, LLC, NVT Savannah, LLC, NVT Savannah Licensee, LLC, NVT Youngstown, LLC and NVT Youngstown Licensee, LLC and LIN Television Corporation (filed as Exhibit 10.1 to our Report on Form 8-K filed as of May 7, 2012 (File Nos. 001-31311 and 000-25206) and incorporated by reference herein). |
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31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer of LIN TV Corp. |
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31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer of LIN TV Corp. |
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31.3 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer of LIN Television Corporation |
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31.4 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer of LIN Television Corporation |
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32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer and Chief Financial Officer of LIN TV Corp. |
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32.2 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer and Chief Financial Officer of LIN Television Corporation |
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101.INS* | XBRL Instance Document |
101.SCH* | XBRL Taxonomy Extension Schema Document |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18, as amended, of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each of LIN TV Corp. and LIN Television Corporation, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LIN TV CORP. |
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| LIN TELEVISION CORPORATION |
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Dated: | November 9, 2012 |
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By: | /s/ Richard J. Schmaeling |
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| Richard J. Schmaeling |
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| Senior Vice President, Chief Financial Officer |
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| (Principal Financial Officer) |
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Dated: | November 9, 2012 |
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By: | /s/ Nicholas N. Mohamed |
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| Nicholas N. Mohamed |
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| Vice President Controller |
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| (Principal Accounting Officer) |
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Table of Contents
Item 1. Unaudited Consolidated Financial Statements of LIN Television Corporation |
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| 45 | |
| 46 | |
| 47 | |
| 48 | |
| 50 | |
| 51 |
LIN Television Corporation
(unaudited)
|
| September 30, |
| December 31, |
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| (in thousands, except share data) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 32,806 |
| $ | 18,057 |
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Restricted cash |
| — |
| 255,159 |
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Accounts receivable, less allowance for doubtful accounts (2012 - $2,879; 2011 - $2,310) |
| 97,464 |
| 91,093 |
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Deferred income tax assets |
| 7,375 |
| 4,249 |
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Assets held for sale |
| — |
| 3,253 |
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Other current assets |
| 6,604 |
| 6,090 |
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Total current assets |
| 144,249 |
| 377,901 |
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Property and equipment, net |
| 143,553 |
| 145,429 |
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Deferred financing costs |
| 10,837 |
| 12,472 |
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Goodwill |
| 122,158 |
| 122,069 |
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Broadcast licenses and other intangible assets, net |
| 398,795 |
| 400,081 |
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Assets held for sale |
| — |
| 12,505 |
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Other assets |
| 44,826 |
| 11,487 |
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Total assets (a) |
| $ | 864,418 |
| $ | 1,081,944 |
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LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDER’S DEFICIT |
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Current liabilities: |
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Current portion of long-term debt |
| $ | 7,547 |
| $ | 253,856 |
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Accounts payable |
| 7,242 |
| 10,972 |
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Accrued expenses |
| 52,698 |
| 38,578 |
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Program obligations |
| 9,536 |
| 9,892 |
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Liabilities held for sale |
| — |
| 3,719 |
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Total current liabilities |
| 77,023 |
| 317,017 |
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Long-term debt, excluding current portion |
| 573,383 |
| 614,861 |
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Deferred income tax liabilities |
| 199,623 |
| 167,371 |
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Program obligations |
| 1,993 |
| 3,874 |
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Liabilities held for sale |
| — |
| 1,308 |
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Other liabilities |
| 47,374 |
| 58,642 |
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Total liabilities (a) |
| 899,396 |
| 1,163,073 |
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Commitments and Contingencies (Note 11) |
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Redeemable noncontrolling interest |
| 3,303 |
| 3,503 |
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Stockholder’s deficit: |
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Common stock, $0.01 par value, 1,000 shares |
| — |
| — |
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Investment in parent company’s stock, at cost |
| (21,984 | ) | (10,598 | ) | ||
Additional paid-in capital |
| 1,128,043 |
| 1,122,133 |
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Accumulated deficit |
| (1,106,347 | ) | (1,157,390 | ) | ||
Accumulated other comprehensive loss |
| (37,993 | ) | (38,777 | ) | ||
Total stockholder’s deficit |
| (38,281 | ) | (84,632 | ) | ||
Total liabilities, redeemable noncontrolling interest and stockholder’s deficit |
| $ | 864,418 |
| $ | 1,081,944 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
(a) Our consolidated assets as of September 30, 2012 and December 31, 2011 include total assets of $10,071 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 $7,809 and $7,815 and program rights of $1,183 and $1,574 as of September 30, 2012 and December 31, 2011, respectively. Our consolidated liabilities as of September 30, 2012 and December 31, 2011 include total liabilities of $2,242 and $2,721, respectively, of a VIE for which the VIE’s creditors have no recourse to the Company, including $1,247 and $1,884, respectively, of program obligations. See further description in Note 1 — “Basis of Presentation and Summary of Significant Accounting Policies”.
LIN Television Corporation
Consolidated Statements of Operations
(unaudited)
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
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| 2012 |
| 2011 |
| 2012 |
| 2011 |
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| (in thousands) |
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Net revenues |
| $ | 133,076 |
| $ | 97,816 |
| $ | 357,292 |
| $ | 288,498 |
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Operating expenses: |
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Direct operating |
| 38,152 |
| 33,501 |
| 110,554 |
| 95,571 |
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Selling, general and administrative |
| 28,365 |
| 25,182 |
| 84,791 |
| 76,881 |
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Amortization of program rights |
| 5,612 |
| 5,517 |
| 16,212 |
| 16,192 |
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Corporate |
| 9,264 |
| 5,881 |
| 24,229 |
| 19,703 |
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Depreciation |
| 6,824 |
| 6,530 |
| 20,234 |
| 19,153 |
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Amortization of intangible assets |
| 507 |
| 233 |
| 1,462 |
| 781 |
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Restructuring |
| — |
| 498 |
| — |
| 498 |
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(Gain) loss from asset dispositions |
| (15 | ) | 51 |
| (12 | ) | 409 |
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Operating income |
| 44,367 |
| 20,423 |
| 99,822 |
| 59,310 |
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Other expense: |
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Interest expense, net |
| 9,310 |
| 12,608 |
| 28,946 |
| 38,257 |
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Share of loss in equity investments |
| 4,156 |
| 3,071 |
| 4,309 |
| 4,238 |
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Gain on derivative instruments |
| — |
| (565 | ) | — |
| (1,768 | ) | ||||
Loss on extinguishment of debt |
| — |
| — |
| 2,099 |
| 192 |
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Other expense, net |
| 88 |
| 60 |
| 176 |
| 58 |
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Total other expense, net |
| 13,554 |
| 15,174 |
| 35,530 |
| 40,977 |
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Income before provision for income taxes |
| 30,813 |
| 5,249 |
| 64,292 |
| 18,333 |
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Provision for income taxes |
| 11,194 |
| 2,247 |
| 24,101 |
| 12,818 |
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Income from continuing operations |
| 19,619 |
| 3,002 |
| 40,191 |
| 5,515 |
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Discontinued operations: |
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Income (loss) from discontinued operations, net of a provision for (benefit from) income taxes of $63 for the three months ended September 30, 2011, and $(541) and $146 for the nine months ended September 30, 2012 and 2011, respectively |
| — |
| 109 |
| (1,018 | ) | 253 |
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Gain on the sale of discontinued operations, net of a provision for income taxes of $6,223 for the nine months ended September 30, 2012 |
| — |
| — |
| 11,389 |
| — |
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Net income |
| 19,619 |
| 3,111 |
| 50,562 |
| 5,768 |
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Net (loss) income attributable to noncontrolling interests |
| (40 | ) | 153 |
| (481 | ) | 153 |
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Net income attributable to LIN Television Corporation |
| $ | 19,659 |
| $ | 2,958 |
| $ | 51,043 |
| $ | 5,615 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
LIN Television Corporation
Consolidated Statements of Comprehensive Income
(unaudited)
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| Three Months Ended |
| Nine Months Ended |
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| 2012 |
| 2011 |
| 2012 |
| 2011 |
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| (in thousands) |
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Net income |
| $ | 19,619 |
| $ | 3,111 |
| $ | 50,562 |
| $ | 5,768 |
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Amortization of pension net losses, net of tax of $169 and $79 for the three months ended September 30, 2012 and 2011, respectively, and $509 and $260 for the nine months ended September 30, 2012 and 2011, respectively |
| 262 |
| 120 |
| 784 |
| 332 |
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Comprehensive income |
| 19,881 |
| 3,231 |
| 51,346 |
| 6,100 |
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Comprehensive (loss) income attributable to noncontrolling interest |
| (40 | ) | 153 |
| (481 | ) | 153 |
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Comprehensive income attributable to LIN Television Corporation |
| $ | 19,921 |
| $ | 3,078 |
| $ | 51,827 |
| $ | 5,947 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
LIN Television Corporation
Consolidated Statement of Stockholder’s Deficit
(unaudited)
(in thousands, except share data)
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| Investment in |
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| Common Stock |
| Parent |
| Additional |
| Accumulated |
| Accumulated |
| Total |
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| Shares |
| Amount |
| Stock, at cost |
| Capital |
| Deficit |
| Loss |
| Deficit |
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Balance as of December 31, 2011 |
| 1,000 |
| $ | — |
| $ | (10,598 | ) | $ | 1,122,133 |
| $ | (1,157,390 | ) | $ | (38,777 | ) | $ | (84,632 | ) |
Amortization of pension net losses, net of tax of $509 |
| — |
| — |
| — |
| — |
| — |
| 784 |
| 784 |
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Stock-based compensation |
| — |
| — |
| — |
| 5,910 |
| — |
| — |
| 5,910 |
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Purchase of LIN TV Corp. class A common stock |
| — |
| — |
| (11,386 | ) | — |
| — |
| — |
| (11,386 | ) | ||||||
Net income attributable to LIN Television Corporation |
| — |
| — |
| — |
| — |
| 51,043 |
| — |
| 51,043 |
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Balance as of September 30, 2012 |
| 1,000 |
| $ | — |
| $ | (21,984 | ) | $ | 1,128,043 |
| $ | (1,106,347 | ) | $ | (37,993 | ) | $ | (38,281 | ) |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
LIN Television Corporation
Consolidated Statement of Stockholder’s Deficit
(unaudited)
(in thousands, except share data)
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| Investment in |
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| Common Stock |
| Parent |
| Additional |
| Accumulated |
| Accumulated |
| Total |
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| Shares |
| Amount |
| Stock, at cost |
| Capital |
| Deficit |
| Loss |
| Deficit |
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Balance as of December 31, 2010 |
| 1,000 |
| $ | — |
| $ | (7,869 | ) | $ | 1,110,343 |
| $ | (1,205,967 | ) | $ | (27,939 | ) | $ | (131,432 | ) |
Amortization of pension net losses, net of tax of $260 |
| — |
| — |
| — |
| — |
| — |
| 332 |
| 332 |
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Stock-based compensation |
| — |
| — |
| — |
| 5,529 |
| — |
| — |
| 5,529 |
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Issuance of LIN TV Corp. class A common stock |
| — |
| — |
| — |
| 4,773 |
| — |
| — |
| 4,773 |
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Net income attributable to LIN Television Corporation |
| — |
| — |
| — |
| — |
| 5,615 |
| — |
| 5,615 |
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Balance as of September 30, 2011 |
| 1,000 |
| $ | — |
| $ | (7,869 | ) | $ | 1,120,645 |
| $ | (1,200,352 | ) | $ | (27,607 | ) | $ | (115,183 | ) |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
LIN Television Corporation
Consolidated Statements of Cash Flows
(unaudited)
|
| Nine Months Ended September, |
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| 2012 |
| 2011 |
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| (in thousands) |
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OPERATING ACTIVITIES: |
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Net income |
| $ | 50,562 |
| $ | 5,768 |
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Loss (income) from discontinued operations |
| 1,018 |
| (253 | ) | ||
Gain on the sale of discontinued operations |
| (11,389 | ) | — |
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Adjustment to reconcile net income to net cash provided by operating activities: |
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Depreciation |
| 20,234 |
| 19,153 |
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Amortization of intangible assets |
| 1,462 |
| 781 |
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Amortization of financing costs and note discounts |
| 1,746 |
| 2,858 |
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Amortization of program rights |
| 16,212 |
| 16,192 |
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Cash payments for programming |
| (17,202 | ) | (18,782 | ) | ||
Loss on extinguishment of debt |
| 871 |
| 192 |
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Gain on derivative instruments |
| — |
| (1,768 | ) | ||
Share of loss in equity investments |
| 4,309 |
| 4,238 |
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Deferred income taxes, net |
| 23,256 |
| 12,578 |
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Stock-based compensation |
| 5,308 |
| 4,856 |
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(Gain) loss from asset dispositions |
| (12 | ) | 409 |
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Other, net |
| 1,293 |
| 593 |
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Changes in operating assets and liabilities, net of acquisitions: |
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Accounts receivable |
| (6,371 | ) | 2,459 |
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Other assets |
| (1,634 | ) | (271 | ) | ||
Accounts payable |
| (3,730 | ) | 586 |
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Accrued interest expense |
| 1,865 |
| 11,049 |
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Other liabilities and accrued expenses |
| 121 |
| (5,734 | ) | ||
Net cash provided by operating activities, continuing operations |
| 87,919 |
| 54,904 |
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Net cash used in operating activities, discontinued operations |
| (2,736 | ) | (237 | ) | ||
Net cash provided by operating activities |
| 85,183 |
| 54,667 |
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INVESTING ACTIVITIES: |
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Capital expenditures |
| (19,337 | ) | (11,588 | ) | ||
Change in restricted cash |
| 255,159 |
| — |
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Payments for business combinations, net of cash acquired |
| (34,325 | ) | (5,244 | ) | ||
Proceeds from the sale of assets |
| 62 |
| 48 |
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Payments on derivative instruments |
| — |
| (1,822 | ) | ||
Shortfall loans to joint venture with NBCUniversal |
| (2,292 | ) | (1,408 | ) | ||
Other investments, net |
| — |
| (250 | ) | ||
Net cash provided by (used in) investing activities, continuing operations |
| 199,267 |
| (20,264 | ) | ||
Net cash provided by (used in) investing activities, discontinued operations |
| 29,520 |
| (94 | ) | ||
Net cash provided by (used in) investing activities |
| 228,787 |
| (20,358 | ) | ||
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FINANCING ACTIVITIES: |
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Net proceeds from exercises of employee and director stock-based compensation |
| 652 |
| 673 |
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Proceeds from borrowings on long-term debt |
| 20,000 |
| 920 |
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Principal payments on long-term debt |
| (308,128 | ) | (9,666 | ) | ||
Payment of long-term debt issue costs |
| (359 | ) | (310 | ) | ||
Treasury stock purchased |
| (11,386 | ) | — |
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Net cash used in financing activities |
| (299,221 | ) | (8,383 | ) | ||
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Net increase in cash and cash equivalents |
| 14,749 |
| 25,926 |
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Cash and cash equivalents at the beginning of the period |
| 18,057 |
| 11,648 |
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Cash and cash equivalents at the end of the period |
| $ | 32,806 |
| $ | 37,574 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
LIN Television Corporation
Notes to Consolidated Financial Statements
Note 1—Basis of Presentation and Summary of Significant Accounting Policies
LIN Television Corporation (“LIN Television”), together with its subsidiaries, is a local multimedia company operating in the United States. LIN Television and its subsidiaries are affiliates of HM Capital Partners I LP (“HMC”). In these notes, the terms “Company,” “we,” “us” or “our” mean LIN Television Corporation and all subsidiaries included in our consolidated financial statements. LIN Television is a wholly-owned subsidiary of LIN TV Corp. (“LIN TV”).
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 an 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. We are the primary beneficiary of WBDT, and therefore, we consolidate WBDT within our unaudited interim consolidated financial statements.
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):
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| September 30, |
| December 31, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 90 |
| $ | 90 |
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Accounts receivable, net |
| 610 |
| 789 |
| ||
Other assets |
| 639 |
| 697 |
| ||
Total current assets |
| 1,339 |
| 1,576 |
| ||
Property and equipment, net |
| 374 |
| 419 |
| ||
Broadcast licenses and other intangible assets, net |
| 7,809 |
| 7,815 |
| ||
Other assets |
| 549 |
| 878 |
| ||
Total assets |
| $ | 10,071 |
| $ | 10,688 |
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LIABILITIES |
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Current liabilities: |
|
|
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Current portion of long-term debt |
| $ | 184 |
| $ | 184 |
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Accounts payable |
| 965 |
| 739 |
| ||
Accrued expenses |
| 30 |
| 98 |
| ||
Program obligations |
| 674 |
| 904 |
| ||
Total current liabilities |
| 1,853 |
| 1,925 |
| ||
Long-term debt, excluding current portion |
| 460 |
| 598 |
| ||
Program obligations |
| 573 |
| 980 |
| ||
Other liabilities |
| 7,185 |
| 7,185 |
| ||
Total liabilities |
| $ | 10,071 |
| $ | 10,688 |
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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. As of September 30, 2012 and December 31, 2011, other liabilities of WBDT of $7.2 million reduce the carrying value of the entity, to reflect the fact that as of September 30, 2012 and December 31, 2011, LIN Television has an option 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. The option is exercisable by us only in the event that the Federal Communications Commission (“FCC”) attribution rules change.
Redeemable Noncontrolling Interest
The following table presents the activity of the redeemable noncontrolling interest included in our consolidated balance sheets related to Nami Media, Inc. (“Nami Media”), which represents a third party’s proportionate share of the interest (in thousands):
|
| Redeemable |
| |
Balance as of December 31, 2011 |
| $ | 3,503 |
|
Net loss |
| (200 | ) | |
Balance as of September 30, 2012 |
| $ | 3,303 |
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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.
Recently Issued Accounting Pronouncements
In July 2012, there were revisions to the accounting standard for impairment tests of indefinite-lived intangible assets other than goodwill. Under the revised standard a company can first perform a qualitative assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary. A company can choose to perform the qualitative assessment on none, some, or all of its indefinite-lived intangible assets, and can also bypass the qualitative assessment and perform the quantitative impairment test for any indefinite-lived intangible in any period. The revised standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted during 2012 if a company has not yet performed its 2012 annual impairment test or issued its financial statements. We will adopt this guidance no later than January 1, 2013, and we do not expect it to have a material impact on our financial position or results of operations.
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 the adoption did not have an impact on our financial position or results of operations.
In September 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 stockholders’ 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
New Vision Television, LLC
On October 12, 2012, LIN Television completed its acquisition (the “Acquisition”) of television stations in eight markets from affiliates and subsidiaries of New Vision Television, LLC (“New Vision”) for $334.9 million, subject to certain post-closing adjustments, and including the assumption of $14.3 million of finance lease obligations. As a result of the Acquisition, we now operate or service 43 television stations, seven digital channels and a growing portfolio of web sites, applications and mobile products in 23 U.S. markets. Concurrent with the Acquisition, Vaughan Acquisition LLC (“Vaughan”), a third-party licensee, completed its acquisition of separately owned television stations in three markets for $4.6 million (the “Vaughan Acquired Stations”) from PBC Broadcasting, LLC (“PBC”).
LIN Television also agreed to provide certain services to the Vaughan Acquired Stations pursuant to shared services arrangements with Vaughan. Under the shared services arrangements with Vaughan, we will provide sales, administrative and technical services, supporting the business and operation of the Vaughan Acquired Stations in exchange for commissions and fees that will provide us the benefit of certain returns from the business of the Vaughan Acquired Stations. We expect that Vaughan will be considered a VIE, of which we are the primary beneficiary, and that we will consolidate the assets, liabilities, and results of operations of Vaughan and its consolidated subsidiaries.
The aggregate purchase price for these transactions is $339.5 million. Pursuant to the terms of our purchase agreement with New Vision, $33.5 million of the purchase price at closing was funded from amounts previously deposited into escrow. The remaining purchase price was funded from cash on hand and the net proceeds of the issuance and sale of the 63/8% Senior Notes due 2021 (the “63/8% Senior Notes”) as further described in Note 13 — “Subsequent Events”. Vaughan financed its portion of the aggregate purchase price with a term loan as further described in Note 13 — “Subsequent Events”.
In connection with the Acquisition, on May 4, 2012 when we entered into the purchase agreement for the Acquisition, we also entered into a commitment letter pursuant to which JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC committed to provide up to $265 million under a senior unsecured bridge loan facility. Upon the closing of the Acquisition, we incurred a fee of $4 million related to this commitment. Because we did not make use of the bridge loan facility this commitment fee will be recorded as a charge to our consolidated statement of operations during the fourth quarter of 2012.
The following table summarizes the provisional allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed by both us and Vaughan in the acquisitions (in thousands):
Current program rights assets |
| $ | 1,464 |
|
Non-current program rights assets |
| 450 |
| |
Property and equipment |
| 69,899 |
| |
Broadcast licenses |
| 162,074 |
| |
Definite-lived intangible assets |
| 32,975 |
| |
Current liabilities |
| (2,319 | ) | |
Long-term liabilities |
| (1,318 | ) | |
Long-term debt assumed |
| (13,989 | ) | |
Fair value of identifiable net assets acquired |
| 249,236 |
| |
Goodwill |
| 90,264 |
| |
Total |
| $ | 339,500 |
|
The amount allocated to definite-lived intangible assets represents the estimated fair values of favorable leases of $9 million, advertiser relationships of $8.7 million, retransmission consent agreements of $8.4 million, and other intangible assets of $6.9 million.
The provisional purchase price allocation presented above is based upon all information available to us at the present time, and is based upon management’s preliminary estimates of the fair values using valuation techniques including income, cost and market approaches. The purchase price allocation is provisional pending our final determination of the fair values of the assets and liabilities, which we expect will occur within twelve months following the Acquisition. Upon the completion of the final purchase price allocation, any reallocation of fair values to the assets acquired and liabilities assumed in the acquisitions could have a material impact on our depreciation and amortization expenses and future results of operations.
Goodwill of $90.3 million is the excess of the aggregate purchase price over the fair value of the identifiable net assets acquired, and primarily represents the benefits of synergies and economies of scale we expect to realize from the Acquisition. All of the goodwill is deductible for tax purposes.
Due to the limited time between the Acquisition date and the filing of this Quarterly Report on Form 10-Q for the three months ended September 30, 2012, we are unable to provide the supplemental pro forma revenue and earnings of the combined entity. We will include supplemental pro forma revenue and earnings of the combined entity in our Annual Report on Form 10-K for the year ended December 31, 2012.
ACME Television, LLC
On June 20, 2012, LIN Television exercised its option to acquire certain assets of the ACME Television, LLC television stations KWBQ-TV, KRWB-TV and KASY-TV (collectively the “Acquired Stations”), each of which serves the Albuquerque-Santa Fe, NM market. LIN Television assigned its rights to acquire the remaining assets of the Acquired Stations, including the FCC license, to Tamer Media LLC (“Tamer Media”), an unrelated third party. The aggregate purchase price for the Acquired Stations is $17.3 million, of which we agreed to pay approximately $15.6 million and Tamer Media agreed to pay approximately $1.7 million. On September 6, 2012, we funded $0.8 million of the purchase price into an escrow account, which is included in other assets in our consolidated balance sheet. Completion of the transaction is subject to regulatory approvals and certain other terms and conditions.
LIN Television also agreed to provide certain services to the Acquired Stations pursuant to shared services arrangements with Tamer Media. Under the shared services arrangements with Tamer Media, we will provide sales, administrative and technical services, supporting the business and operation of the Acquired Stations in exchange for commissions and fees that will provide us the benefit of certain returns from the business of the Acquired Stations. We expect that Tamer Media will be considered a VIE, of which we are the primary beneficiary, and that we will consolidate the assets, liabilities, and results of operations of Tamer Media and its consolidated subsidiaries.
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 September 30, 2012, no amounts related to WWHO-TV were classified as assets or liabilities held for sale on our consolidated balance sheets. During the nine months ended September 30, 2012, we recorded a loss on the sale of WWHO-TV of $0.4 million ($0.3 million, net of tax).
WUPW-TV
On April 21, 2012, we completed the sale of substantially all of the assets of WUPW-TV to WUPW, LLC. As of September 30, 2012, no amounts related to WUPW-TV were classified as assets or liabilities held for sale on our consolidated balance sheets. During the nine months ended September 30, 2012, we recorded a gain on the sale of WUPW-TV of $18 million ($11.7 million, net of tax).
The following presents summarized information for the discontinued operations as follows (in thousands):
|
| Three Months Ended September 30, |
| ||||||||||||||||
|
| 2012 |
| 2011 |
| ||||||||||||||
|
| WWHO- |
| WUPW- |
| Total |
| WWHO- |
| WUPW- |
| Total |
| ||||||
Net revenues |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,113 |
| $ | 1,884 |
| $ | 2,997 |
|
Operating (loss) income |
| — |
| — |
| — |
| (133 | ) | 305 |
| 172 |
| ||||||
Net (loss) income |
| — |
| — |
| — |
| (87 | ) | 196 |
| 109 |
| ||||||
|
| Nine Months Ended September 30, |
| ||||||||||||||||
|
| 2012 |
| 2011 |
| ||||||||||||||
|
| WWHO- |
| WUPW- |
| Total |
| WWHO- |
| WUPW- |
| Total |
| ||||||
Net revenues |
| $ | 440 |
| $ | 2,193 |
| $ | 2,633 |
| $ | 3,376 |
| $ | 5,693 |
| $ | 9,069 |
|
Operating (loss) income |
| (393 | ) | (1,166 | ) | (1,559 | ) | (397 | ) | 796 |
| 399 |
| ||||||
Net (loss) income |
| (252 | ) | (766 | ) | (1,018 | ) | (259 | ) | 512 |
| 253 |
| ||||||
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% noncontrolling 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 |
| Nine Months Ended |
| ||||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
SVO: |
|
|
|
|
|
|
|
|
| ||||
Net revenue |
| $ | 44,610 |
| $ | 29,752 |
| $ | 107,157 |
| $ | 87,641 |
|
Operating expenses |
| (20,926 | ) | (18,493 | ) | (60,460 | ) | (54,526 | ) | ||||
Net income before taxes |
| 23,694 |
| 11,270 |
| 46,743 |
| 33,154 |
| ||||
Net income after taxes |
| 23,664 |
| 11,250 |
| 46,653 |
| 33,083 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
SVH: |
|
|
|
|
|
|
|
|
| ||||
Equity in income from limited partnership interest in SVO |
| $ | 23,597 |
| $ | 11,467 |
| $ | 46,477 |
| $ | 33,246 |
|
Interest and other expense |
| (17,484 | ) | (17,301 | ) | (51,822 | ) | (51,109 | ) | ||||
Net income (loss) |
| $ | 6,113 |
| $ | (5,834 | ) | $ | (5,345 | ) | $ | (17,863 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Cash distributions to SVH from SVO |
| $ | 13,621 |
| $ | 14,763 |
| $ | 38,353 |
| $ | 42,424 |
|
Shortfall loans from LIN Television to SVH |
| 611 |
| 389 |
| 2,292 |
| 1,408 |
| ||||
Shortfall loans from General Electric Company (“GE”) to SVH |
| 2,389 |
| 1,520 |
| 8,954 |
| 5,501 |
|
|
| September 30, |
| ||||
|
| 2012 |
| 2011 |
| ||
Shortfall loans outstanding and accrued interest payable to LIN Television from SVH |
| $ | 9,902 |
| $ | 5,982 |
|
Shortfall loans outstanding and accrued interest payable to NBCUniversal and GE from SVH |
| 38,685 |
| 23,372 |
| ||
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”) to SVH as further described in Note 11 — “Commitments and Contingencies”, we continue to track our share of the income or loss of SVH. We 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 11 — “Commitments and Contingencies”. As of December 31, 2011, we had an accrued shortfall liability of $4.1 million.
During October 2012, joint venture management provided us with a preliminary budget for 2013, which in comparison to our prior projections, reduced the outlook for retransmission consent fee revenues and increased the estimate for capital expenditures related to the construction of a new studio facility at KXAS-TV in Fort Worth, TX. For these reasons, and based on our assumption that we and GE will continue to enter into future shortfall funding agreements, as of September 30, 2012, we estimate our approximate 20% share of debt service shortfalls to be approximately $6 million. Accordingly, during the third quarter of 2012, we recognized an additional shortfall liability of $4.2 million, for our approximate 20% share of future joint venture debt service shortfalls.
Based on the joint venture’s preliminary budget for 2013, and certain long range forecast data provided by joint venture management, we believe that additional debt service shortfalls beyond those 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.
Because of uncertainty surrounding the joint venture’s ability to repay shortfall loans, we have historically concluded that it is more likely than not that the amounts recognized for accrued shortfall loans will not be recovered within a reasonable period of time. During the three and nine months ended September 30, 2012, we recognized a charge of $4.2 million and during the three and nine months ended September 30, 2011, we recognized charges of $3 million and $4.1 million, respectively, to reflect the impairment of the amounts recognized for accrued shortfall loans during these periods, which were 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 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 — Debt
LIN TV guarantees all of our 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 due 2018 (the “83/8% Senior Notes”), on a joint-and-several basis.
Debt consisted of the following (in thousands):
|
| September 30, |
| December 31, |
| ||
Senior Secured Credit Facility: |
|
|
|
|
| ||
Revolving credit loans |
| $ | — |
| $ | 35,000 |
|
$125,000 Term loans, net of discount of $530 and $604 as of September 30, 2012 and December 31, 2011, respectively |
| 124,470 |
| 124,396 |
| ||
$258,050 and $260,000 Incremental term loans, net of discount of $2,328 and $2,594 as of September 30, 2012 and December 31, 2011, respectively |
| 255,722 |
| 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 |
| 738 |
| 944 |
| ||
Total debt |
| 580,930 |
| 868,717 |
| ||
Less current portion |
| 7,547 |
| 253,856 |
| ||
Total long-term debt |
| $ | 573,383 |
| $ | 614,861 |
|
During the three and nine months ended September 30, 2012, we paid $0.7 million and $2 million, respectively, of principal on the incremental term loans related to mandatory quarterly payments under our senior secured credit facility.
On October 12, 2012, LIN Television completed the issuance and sale of its 63/8% Senior Notes in an aggregate principal amount of $290 million, and used the net proceeds of such notes to fund the remaining purchase price for the Acquisition as further described in Note 2 — “Acquisitions”. Additionally, on October 12, 2012, Vaughan, which we expect to be a consolidated VIE, entered into a five-year term loan with an unrelated third party in a principal amount of approximately $4.6 million to fund the purchase price for the television stations from PBC that were acquired by Vaughan. LIN Television fully and unconditionally guarantees this loan. For further information see Note 13 — “Subsequent Events”.
On January 20, 2012, we completed the redemption of $251 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 and cash on hand. As a result of this redemption, we recorded a loss on extinguishment of debt of $2.1 million to our consolidated statement of operations during the nine months ended September 30, 2012, consisting of a write-down of deferred financing fees and unamortized discount.
During the nine months ended September 30, 2011, we recorded a loss on extinguishment of debt of $0.2 million to our consolidated statements of operations, consisting of a write-down of deferred financing fees related to a reduction in our revolving credit commitments and the payment of the remaining balance on our term loans under our 2009 senior secured credit facility.
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):
|
| September 30, |
| December 31, |
| ||
Carrying amount |
| $ | 580,930 |
| $ | 868,717 |
|
Fair value |
| 595,865 |
| 860,164 |
| ||
Note 6 — 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 and nine months ended September 30, 2011, we recorded a gain on derivative instruments of $0.6 million and $1.8 million, respectively, 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 the entry into our existing 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 and nine months ended, September 30, 2012.
As of September 30, 2012, we have a derivative outstanding that continues to have a fair value of zero as further described in Note 2 — “Acquisitions” included in Item 15 of our Annual Report on Form 10-K for the year ended December 31, 2011 (“10-K”).
Note 7 — 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 September 30, 2012 and December 31, 2011 (in thousands):
|
| Quoted prices |
| Significant |
|
|
| |||
|
| (Level 1) |
| (Level 2) |
| Total |
| |||
September 30, 2012: |
|
|
|
|
|
|
| |||
Assets: |
|
|
|
|
|
|
| |||
Deferred compensation related investments |
| $ | 616 |
| $ | 2,041 |
| $ | 2,657 |
|
|
|
|
|
|
|
|
| |||
Liabilities: |
|
|
|
|
|
|
| |||
Deferred compensation related liabilities |
| $ | 2,652 |
| $ | — |
| $ | 2,652 |
|
|
|
|
|
|
|
|
| |||
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 8 — 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 |
| Nine Months Ended |
| ||||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Net periodic pension cost (benefit): |
|
|
|
|
|
|
|
|
| ||||
Interest cost |
| $ | 1,364 |
| $ | 1,495 |
| $ | 4,092 |
| $ | 4,484 |
|
Expected return on plan assets |
| (1,549 | ) | (1,700 | ) | (4,647 | ) | (5,100 | ) | ||||
Amortization of net loss |
| 431 |
| 197 |
| 1,293 |
| 592 |
| ||||
Net periodic cost (benefit): |
| $ | 246 |
| $ | (8 | ) | $ | 738 |
| $ | (24 | ) |
Contributions: |
|
|
|
|
|
|
|
|
| ||||
401(k) Plan |
| $ | 915 |
| $ | 944 |
| $ | 2,835 |
| $ | 2,811 |
|
Defined contribution retirement plans |
| 82 |
| 48 |
| 263 |
| 120 |
| ||||
Defined benefit retirement plans |
| 3,807 |
| 1,947 |
| 6,097 |
| 4,452 |
| ||||
Total contributions |
| $ | 4,804 |
| $ | 2,939 |
| $ | 9,195 |
| $ | 7,383 |
|
See Note 11 — “Retirement Plans” included in Item 15 of our 10-K for a full description of our retirement plans.
Note 9 — Restructuring
During the nine months ended September 30, 2012, we recorded a restructuring charge of $1.4 million, for severance and related costs 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 nine months ended September 30, 2012, we made cash payments of $1.4 million, respectively, related to these restructuring actions.
During the year ended December 31, 2011, we recorded a restructuring charge of $0.7 million for severance and related costs as a result of the consolidation of certain activities at our stations and our corporate headquarters. During the three and nine months ended September 30, 2012, we made cash payments of $0.1 million and $0.4 million, respectively, related to this restructuring action and expect to make cash payments of $0.1 million during the remainder of 2012.
The activities for these restructuring actions are as follows (in thousands):
|
| Severance and |
| |
Balance as of December 31, 2011 |
| $ | 515 |
|
Charges |
| 1,433 |
| |
Payments |
| (1,840 | ) | |
Balance as of September 30, 2012 |
| $ | 108 |
|
Note 10 — Income Taxes
We recorded a provision for income taxes of $11.2 million and $24.1 million for the three and nine months ended September 30, 2012, respectively, compared to a provision for income taxes of $2.2 million and $12.8 million for the three and nine months ended September 30, 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 periods last year. Our effective income tax rate was 37.5% and 69.9% for the nine months ended September 30, 2012 and September 30, 2011, respectively. The decrease in the effective income tax rate was primarily a result of state tax legislation enacted in Michigan in May 2011, which repealed the Michigan business tax (“MBT”), and implemented a corporate income tax instead, effective January 2012. As a result of the elimination of the MBT, certain future tax deductions, which were available to be utilized beginning in 2015, and had been recognized as deferred tax assets in our consolidated financial statements, will be not be deductible. Therefore, during the second quarter of 2011, we recognized incremental deferred income tax expense of $5.1 million, net of federal benefit, for the reversal of these previously established deferred tax assets.
Note 11 — Commitments and Contingencies
Commitments
|
|
|
| Syndicated |
|
|
| |||
|
| Operating Leases |
| Television |
|
|
| |||
|
| and Agreements |
| Programming |
| Total |
| |||
Year |
|
|
|
|
|
|
| |||
2012 |
| $ | 23,439 |
| $ | 22,212 |
| $ | 45,651 |
|
2013 |
| 15,952 |
| 21,258 |
| 37,210 |
| |||
2014 |
| 12,370 |
| 12,112 |
| 24,482 |
| |||
2015 |
| 8,857 |
| 2,025 |
| 10,882 |
| |||
2016 |
| 6,406 |
| 450 |
| 6,856 |
| |||
Thereafter |
| 7,387 |
| 240 |
| 7,627 |
| |||
Total obligations |
| 74,411 |
| 58,297 |
| 132,708 |
| |||
Less recorded contracts |
| — |
| (22,756 | ) | (22,756 | ) | |||
Future contracts |
| $ | 74,411 |
| $ | 35,541 |
| $ | 109,952 |
|
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.
Comcast Corporation owns and controls 51% of NBCUniversal and GE owns the remaining 49%. GECC is a wholly-owned subsidiary of GE.
In light of the adverse effect of the economic downturn on the joint venture’s operating results, we entered into agreements with NBCUniversal and GE, under which we agreed that if the joint venture does not have sufficient cash to fund interest payments on the GECC Note, we and NBCUniversal (the 2009 and 2010 shortfall funding agreements), and we and GE (the 2011 and 2012 shortfall funding agreements) would each provide the joint venture with a shortfall loan on the basis of our and NBCUniversal’s percentage of economic interest in the joint venture. For further information on these agreements see Note 15 — “Commitments and Contingencies” included in Item 15 of our 10-K. During the nine months ended September 30, 2012, we 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 shortfall funding agreement we and GE entered into on March 5, 2012 (the “2012 Shortfall Funding Agreement”), covering the period from April 2, 2012 through April 1, 2013.
We recognize shortfall funding liabilities to the joint venture on our consolidated balance sheet 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 an accrued shortfall liability of $4.1 million.
During the three and nine months ended September 30, 2012, pursuant to the shortfall funding agreements with GE, we made shortfall loans in the aggregate principal amounts of $0.6 million and $2.3 million, respectively, representing our approximate 20% share of debt service shortfalls during these periods, and GE made shortfall loans in the aggregate principal amounts of $2.4 million and $9 million, respectively, in respect of its approximate 80% share of debt service shortfalls during these periods.
During October 2012, joint venture management provided us with a preliminary budget for 2013, which in comparison to our prior projections, reduced the outlook for retransmission consent fee revenues and increased the estimate for capital expenditures related to the construction of a new studio facility at KXAS-TV in Fort Worth, TX. For these reasons, and based on our assumption that we and GE will continue to enter into future shortfall funding agreements, as of September 30, 2012, we estimate our approximate 20% share of debt service shortfalls to be approximately $6 million. Accordingly, during the third quarter of 2012, we recognized an additional shortfall liability of $4.2 million, for our approximate 20% share of future joint venture debt service shortfalls.
Based on the joint venture’s preliminary budget for 2013, and certain long range forecast data provided by joint venture management, we believe that additional debt service shortfalls beyond those 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 indentures governing our 83/8% Senior Notes and our 63/8% Senior Notes. Based on our estimate of debt service shortfalls, and our forecast of total leverage and consolidated EBITDA, we expect to have the capacity within these restrictions to provide funding to the joint venture for the $6 million accrued shortfall liability. As of September 30, 2012, we had availability under applicable debt covenants to fund future shortfall loans as follows: (i) $46.6 million of availability under the credit agreement governing our senior secured credit facility; and (ii) $226 million of availability under the indenture governing our 83/8% Senior Notes and our 63/8% 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 the credit agreement governing our senior secured credit facility, or the indentures governing our 83/8% Senior Notes and our 63/8% 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.
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 12 — Related Party
We have a non-controlling investment in an interactive service provider that hosts our web sites. During the three and nine months ended September 30, 2012, we incurred charges from the provider of $0.7 million and $1.9 million, respectively, and made cash payments to the provider of $0.8 million and $1.5 million, respectively, for web hosting services and web site development and customization. Additionally, during the three and nine months ended September 30, 2011, we incurred charges from, and made cash payments to, the provider of $0.6 million and $1.9 million, respectively, for web hosting services and web site development and customization.
Note 13 — Subsequent Events
On October 12, 2012, LIN Television completed its acquisition of television stations in eight markets from affiliates and subsidiaries of New Vision for $334.9 million, subject to certain post-closing adjustments, and including the assumption of $14.3 million of finance lease obligations. Additionally, on October 12, 2012, Vaughan completed its acquisition of separately owned television stations in three markets from PBC for $4.6 million. For further information on these acquisitions see Note 2 — “Acquisitions”.
On October 12, 2012, LIN Television also completed the issuance and sale of $290 million in aggregate principal amount of its 63/8% Senior Notes. The net proceeds of the 63/8% Senior Notes were used to fund the remaining purchase price for the Acquisition as further described in Note 2 — “Acquisitions”. These notes are guaranteed by LIN TV and by all of LIN Television’s wholly-owned subsidiaries. The notes will mature on January 15, 2021, and interest is payable January 15 and July 15 of each year, commencing on January 15, 2013. Additionally, on October 12, 2012, Vaughan entered into a five-year term loan with an unrelated third party in a principal amount of approximately $4.6 million to fund the purchase price for the television stations from PBC that were acquired by Vaughan. Vaughan subsequently made a principal payment of $1.3 million to the balance of the term loan. LIN Television fully and unconditionally guarantees this loan.