UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ
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Quarterly Report pursuant to Section 13 OR 15 (d) of the Securities
Exchange Act of 1934
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For the quarterly period ended June 30, 2008
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Commission file number: 001-31311
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Commission file number: 000-25206
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LIN TV Corp.
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LIN Television Corporation
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(Exact name of registrant as
specified in its charter)
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(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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05-0501252
(I.R.S. Employer
Identification No.)
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13-3581627
(I.R.S. Employer
Identification No.)
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Four Richmond Square, Suite 200, Providence, Rhode Island 02906
(Address of principal executive offices)
(401) 454-2880
(Registrants 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
þ
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
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Accelerated filer
þ
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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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
þ
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, issued and outstanding at August 2, 2008:
27,440,694 shares
LIN TV Corp. Class B common stock, $0.01 par value, issued and outstanding at August 2, 2008:
23,502,059 shares
LIN TV Corp. Class C common stock, $0.01 par value, issued and outstanding at August 2, 2008: 2
shares
LIN Television Corporation common stock, $0.01 par value, issued and outstanding at August 2, 2008:
1,000 shares
Part I. Financial Information
Item 1.
Unaudited Financial Statements
LIN TV Corp.
Condensed Consolidated Balance Sheets
(unaudited)
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June 30,
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December 31,
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2008
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2007
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(in thousands, except share data)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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8,758
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$
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40,031
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Accounts
receivable, less allowance for doubtful accounts (2008 $1,496; 2007 $1,640)
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79,144
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87,301
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Program rights
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3,997
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4,360
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Assets held for sale
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530
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289
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Other current assets
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7,970
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4,857
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Total current assets
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100,399
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136,838
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Property and equipment, net
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186,761
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191,250
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Deferred financing costs
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9,537
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14,406
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Equity investments
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54,660
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55,480
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Program rights
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4,991
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6,776
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Goodwill
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424,122
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535,418
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Broadcast licenses and other intangible assets, net
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835,430
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1,021,290
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Assets held for sale
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8,538
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9,180
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Other assets
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8,796
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11,330
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Total assets
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$
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1,633,234
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$
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1,981,968
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LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS EQUITY
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Current liabilities:
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Current portion of long-term debt
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$
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21,900
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$
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24,300
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Accounts payable
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5,026
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11,415
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Accrued compensation
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5,921
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6,754
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Accrued interest expense
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4,725
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5,018
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Accrued contract costs
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6,993
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6,934
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Other accrued expenses
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16,375
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13,573
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Program obligations
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11,089
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11,944
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Liabilities held for sale
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565
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549
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Total current liabilities
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72,594
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80,487
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Long-term debt, excluding current portion
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760,860
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808,476
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Deferred income taxes, net
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303,095
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374,548
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Program obligations
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8,188
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11,551
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Liabilities held for sale
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22
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198
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Other liabilities
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35,606
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41,564
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Total liabilities
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1,180,365
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1,316,824
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Preferred stock of Banks Broadcasting, Inc., $0.01 par value, 173,822 shares
issued and outstanding at June 30, 2008 and December 31, 2007
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7,163
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9,046
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Stockholders equity:
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Class A common stock, $0.01 par value, 100,000,000 shares authorized,
29,233,684 shares at June 30, 2008 and 29,130,173 shares at
December 31, 2007, respectively, issued and outstanding
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293
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292
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Class B common stock, $0.01 par value, 50,000,000 shares authorized,
23,502,059 shares at June 30, 2008 and December 31, 2007,
issued and outstanding; convertible into an equal number
of shares of Class A or Class C common stock
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235
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235
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Class C common stock, $0.01 par value, 50,000,000 shares authorized,
2 shares at June 30, 2008 and December 31, 2007, respectively,
issued and outstanding; convertible into an equal number of shares of Class A common stock
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Treasury stock, 1,806,428 shares of Class A common stock
at June 30, 2008 and December 31, 2007, at cost
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(18,005
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)
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(18,005
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)
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Additional paid-in capital
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1,100,320
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1,096,455
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Accumulated deficit
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(623,230
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)
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(408,726
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)
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Accumulated other comprehensive loss
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(13,907
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)
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(14,153
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)
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Total stockholders equity
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445,706
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656,098
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Total liabilities, preferred stock and stockholders equity
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$
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1,633,234
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$
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1,981,968
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The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
1
LIN TV Corp.
Condensed Consolidated Statements of Operations
(unaudited)
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Three months ended June 30,
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Six months ended June 30,
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2008
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2007
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2008
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2007
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(in thousands, except per share data)
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Net revenues
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$
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103,703
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$
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101,753
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$
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196,767
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$
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193,557
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Operating costs and expenses:
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Direct operating
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29,623
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28,391
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59,689
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57,338
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Selling, general and administrative
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28,261
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29,411
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56,836
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57,261
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Amortization of program rights
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5,588
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6,136
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11,764
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12,142
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Corporate
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6,209
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5,626
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11,239
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10,528
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Depreciation
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7,368
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8,187
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14,817
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16,212
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Amortization of intangible assets
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91
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523
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184
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1,146
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Impairment of intangible assets and goodwill
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296,972
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296,972
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Restructuring charge
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188
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91
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(Gain) loss from asset dispositions
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(471
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)
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711
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(370
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)
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702
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Operating (loss) income
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(269,938
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)
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22,580
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(254,364
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)
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38,137
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Other expense (income):
|
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|
|
|
|
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|
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|
|
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Interest expense, net
|
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13,922
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|
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15,674
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|
|
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28,313
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|
|
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33,646
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Share of expense (income) in equity investments
|
|
|
252
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|
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|
(1,037
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)
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|
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(199
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)
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(752
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)
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Loss (gain) on derivative instruments
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496
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(375
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)
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466
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Loss on extinguishment of debt
|
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3,604
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|
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|
|
|
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3,704
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|
|
|
551
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Other, net
|
|
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(488
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)
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|
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(52
|
)
|
|
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(39
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)
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(265
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)
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Total other expense, net
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17,290
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|
|
|
15,081
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31,404
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33,646
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|
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|
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(Loss) income from continuing operations before (benefit from)
provision for income taxes
|
|
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(287,228
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)
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7,499
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(285,768
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)
|
|
|
4,491
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|
(Benefit from) provision for income taxes
|
|
|
(71,469
|
)
|
|
|
3,401
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|
|
|
(70,884
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)
|
|
|
1,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(215,759
|
)
|
|
|
4,098
|
|
|
|
(214,884
|
)
|
|
|
2,513
|
|
Discontinued operations:
|
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|
|
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(Loss) income from discontinued operations, net of
(benefit) provision for income taxes of $80
and $147 for the three months ended
June 30, 2008 and 2007, respectively, and
net of (benefit) provision for income taxes of $141
and $(431) for the six months ended June 30,
2008 and 2007, respectively
|
|
|
(208
|
)
|
|
|
(165
|
)
|
|
|
380
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|
|
|
(934
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)
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|
|
|
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(Loss) gain from the sale of discontinued operations, net of
benefit from income taxes of $0 and $2,264, for the
three and six months ended June 30, 2007
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(419
|
)
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|
|
|
|
|
|
22,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(215,967
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)
|
|
$
|
3,514
|
|
|
$
|
(214,504
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)
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|
$
|
24,246
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic (loss) income per common share:
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|
|
|
|
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|
|
|
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|
(Loss) income from continuing operations
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|
$
|
(4.26
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)
|
|
$
|
0.08
|
|
|
$
|
(4.24
|
)
|
|
$
|
0.04
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
(Loss) gain from the sale of discontinued operations, net of tax
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(4.26
|
)
|
|
$
|
0.07
|
|
|
$
|
(4.23
|
)
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
used in calculating basic (loss) income per common share
|
|
|
50,664
|
|
|
|
49,141
|
|
|
|
50,718
|
|
|
|
49,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$
|
(4.26
|
)
|
|
$
|
0.08
|
|
|
$
|
(4.24
|
)
|
|
$
|
0.06
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
(Loss) gain from the sale of discontinued operations, net of tax
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(4.26
|
)
|
|
$
|
0.07
|
|
|
$
|
(4.23
|
)
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
used in calculating diluted (loss) income per common share
|
|
|
50,664
|
|
|
|
51,174
|
|
|
|
50,718
|
|
|
|
54,185
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
2
LIN TV Corp.
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(214,504
|
)
|
|
$
|
24,246
|
|
(Income) loss from discontinued operations
|
|
|
(380
|
)
|
|
|
934
|
|
Gain from sale of discontinued operations
|
|
|
|
|
|
|
(22,667
|
)
|
Adjustment to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
14,817
|
|
|
|
16,212
|
|
Amortization of intangible assets
|
|
|
184
|
|
|
|
1,146
|
|
Impairment of goodwill and intangible assets
|
|
|
296,972
|
|
|
|
|
|
Amortization of financing costs and note discounts
|
|
|
3,699
|
|
|
|
4,311
|
|
Amortization of program rights
|
|
|
11,764
|
|
|
|
12,142
|
|
Program payments
|
|
|
(13,751
|
)
|
|
|
(13,793
|
)
|
Loss on extinguishment of debt
|
|
|
3,704
|
|
|
|
551
|
|
(Gain) loss on derivative instruments
|
|
|
(375
|
)
|
|
|
466
|
|
Share of income in equity investments
|
|
|
(199
|
)
|
|
|
(752
|
)
|
Deferred income taxes, net
|
|
|
(71,491
|
)
|
|
|
6,624
|
|
Stock-based compensation
|
|
|
2,744
|
|
|
|
2,851
|
|
(Gain) loss from asset dispositions
|
|
|
(370
|
)
|
|
|
702
|
|
Other, net
|
|
|
813
|
|
|
|
2,201
|
|
Changes in operating assets and liabilities, net of acquisitions and disposals:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
9,854
|
|
|
|
2,636
|
|
Other assets
|
|
|
(1,859
|
)
|
|
|
(2,532
|
)
|
Accounts payable
|
|
|
(6,389
|
)
|
|
|
(2,915
|
)
|
Accrued interest expense
|
|
|
(293
|
)
|
|
|
14
|
|
Other accrued expenses
|
|
|
(5,519
|
)
|
|
|
(19,620
|
)
|
|
|
|
|
|
|
|
Net cash provided by operating activities, continuing operations
|
|
|
29,421
|
|
|
|
12,757
|
|
Net cash used in operating activities, discontinued operations
|
|
|
(1,192
|
)
|
|
|
(13,652
|
)
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
28,229
|
|
|
|
(895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(8,176
|
)
|
|
|
(5,127
|
)
|
Distributions from equity investments
|
|
|
1,019
|
|
|
|
2,214
|
|
Payments for business combinations
|
|
|
|
|
|
|
(52,250
|
)
|
Other investments
|
|
|
(100
|
)
|
|
|
(605
|
)
|
|
|
|
|
|
|
|
Net cash used in investing activities, continuing operations
|
|
|
(7,257
|
)
|
|
|
(55,768
|
)
|
Net cash (used in) provided by investing activities, discontinued operations
|
|
|
(686
|
)
|
|
|
129,479
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(7,943
|
)
|
|
|
73,711
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net proceeds on exercises of employee stock options and phantom stock units and
employee stock purchase plan issuances
|
|
|
991
|
|
|
|
1,529
|
|
Proceeds from borrowings on long-term debt
|
|
|
100,000
|
|
|
|
60,000
|
|
Principal payments on long-term debt
|
|
|
(152,550
|
)
|
|
|
(130,000
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities, continuing operations
|
|
|
(51,559
|
)
|
|
|
(68,471
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(51,559
|
)
|
|
|
(68,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(31,273
|
)
|
|
|
4,345
|
|
Cash and cash equivalents at the beginning of the period
|
|
|
40,031
|
|
|
|
12,329
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
8,758
|
|
|
$
|
16,674
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
3
LIN TV Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 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 television station group operator in the United States. LIN TV and its
subsidiaries are affiliates of HM Capital Partners LLC (HMC). In these notes, the terms
Company, LIN TV, we, us or our mean LIN TV Corp. and all subsidiaries included in our
condensed consolidated financial statements.
We guarantee all of LIN Televisions debt. All of the consolidated wholly-owned subsidiaries of LIN
Television fully and unconditionally guarantee all of our debt on a joint-and-several basis.
Changes in Classifications
Certain changes in classifications have been made to the prior period financial statements to
conform to the current financial statement presentation. Our condensed consolidated financial
statements reflect the operations, assets and liabilities of our Puerto Rico operations and of
Banks Broadcasting, Inc. (Banks Broadcasting) as discontinued under the provisions of Statement
of Financial Accounting Standards (SFAS) 144 Accounting for the Impairment or Disposal of
Long-Lived Assets, (SFAS 144) for all periods presented (see Note 3 Discontinued Operations
for further discussion of our discontinued operations).
Basis of Presentation
Our condensed consolidated financial statements have been prepared without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). Certain information and
footnote disclosures normally included in financial statements prepared in accordance with
generally accepted accounting principles in the United States (GAAP) have been condensed or
omitted pursuant to such rules and regulations, including the year-end condensed balance sheet
data, which was derived from audited financial statements, but does not include all disclosures
required by GAAP. We included audited consolidated financial statements for the year ended December
31, 2007 in our Annual Report on Form 10-K, which was filed with the SEC on March 14, 2008.
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. The interim results of operations are not necessarily indicative of the
results to be expected for the full year.
We consolidate Banks Broadcasting in accordance with Financial Accounting Standards Board (FASB)
Interpretation 46 Consolidation of Variable Interest Entities an Interpretation of ARB No. 51
Revised, (FIN 46R). The creditors of Banks Broadcasting have no recourse to us except for our
interest in the preferred stock of Banks Broadcasting.
4
LIN TV Corp.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires our management to make
estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated
financial statements and the notes to the unaudited condensed consolidated financial statements.
Our actual results could differ from these estimates. Estimates are used for the allowance for
doubtful accounts in receivables, fair value of goodwill and intangible assets, amortization of
program rights and intangible assets, stock-based compensation, pension costs, barter transactions,
income taxes, employee medical insurance claims, useful lives of
property, equipment and definite-lived intangible assets, contingencies, litigation and net assets of businesses acquired.
Net Earnings per Common Share
Basic earnings per share (EPS) is based upon net earnings divided by the weighted average number
of common shares outstanding during the period. Diluted EPS reflects the effect of the assumed
exercise of stock options, vesting of restricted shares and the potential common shares from the
assumed conversion of the contingently convertible debt only in the periods in which such effect
would have been dilutive.
For the three and six months ended June 30, 2008, the following was excluded from the calculation
of diluted EPS because their inclusion would have been anti-dilutive: a) outstanding stock options
to purchase 236,000 and 463,000 shares of our Class A common stock, respectively; b) unvested
restricted stock awards of 284,000 shares and 337,000 shares, respectively; and c) 1,658,000 shares
and 2,506,000 shares of our Class A common stock, respectively, potentially issuable upon the
conversion of contingently convertible debt. For the three months ended June 30, 2007, 3,353,000
shares of our Class A common stock potentially issuable upon the conversion of contingently
convertible debt were excluded from the calculation of diluted EPS because their inclusion would
have been anti-dilutive.
5
LIN
TV Corp.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The following is a reconciliation of income available to common shareholders from continuing
operations and weighted-average common shares outstanding for purposes of calculating basic and
diluted (loss) income per common share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
Six months
|
|
|
|
ended
|
|
|
ended
|
|
|
|
June 30, 2007
|
|
|
June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
Numerator for income per common share calculation:
|
|
|
|
|
|
|
|
|
Income available to common shareholders from
continuing operations, basic
|
|
$
|
4,098
|
|
|
$
|
2,513
|
|
Interest expense on contingently convertible
debt, net of tax
|
|
|
|
|
|
|
1,015
|
|
Derivative loss, net of tax
|
|
|
|
|
|
|
302
|
|
|
|
|
|
|
|
|
Income available to common shareholders from
continuing operations, diluted
|
|
|
4,098
|
|
|
|
3,830
|
|
(Loss) available to common shareholders from
discontinued operations, basic and diluted
|
|
|
(165
|
)
|
|
|
(934
|
)
|
(Loss) gain available to common shareholders from
sale of discontinued operations, basic and diluted
|
|
|
(419
|
)
|
|
|
22,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders, diluted
|
|
$
|
3,514
|
|
|
$
|
25,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for income
per common stock calculation:
|
|
|
|
|
|
|
|
|
Weighted-average common shares, basic
|
|
|
49,141
|
|
|
|
49,078
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
2,033
|
|
|
|
1,754
|
|
Contingent convertible debt
|
|
|
|
|
|
|
3,353
|
|
|
|
|
|
|
|
|
Weighted-average common shares, diluted
|
|
|
51,174
|
|
|
|
54,185
|
|
|
|
|
|
|
|
|
Comprehensive (Loss) Income
Our total comprehensive income includes net (loss) income and other comprehensive (loss) income
items listed in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(215,967
|
)
|
|
$
|
3,514
|
|
|
$
|
(214,504
|
)
|
|
$
|
24,246
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior period costs, net of
tax of $(12) and $(10) for the three months ended
June 30, 2008 and 2007, respectively, and net
of tax of $(24) and $(20) for the six months
ended June 30, 2008 and 2007
|
|
|
18
|
|
|
|
15
|
|
|
|
36
|
|
|
|
30
|
|
Amortization of net actuarial losses, net of
tax of $(19) and $(124) for the three months
ended June 30, 2008 and 2007, respectively,
and net of tax of $(38) and $(248) for the six
months ended June 30, 2008 and 2007
|
|
|
29
|
|
|
|
190
|
|
|
|
58
|
|
|
|
393
|
|
Change in fair value of cash flow hedges, net
of tax of $(1,107) and $(539) for the three
months ended June 30, 2008 and 2007,
respectively, and net of tax of $(101) and $(405)
for the six months ended June 30, 2008 and
2007
|
|
|
1,668
|
|
|
|
827
|
|
|
|
152
|
|
|
|
621
|
|
Recognition of accumulative benefit
obligation, discontinued operations
|
|
|
|
|
|
|
419
|
|
|
|
|
|
|
|
419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
$
|
(214,252
|
)
|
|
$
|
4,965
|
|
|
$
|
(214,258
|
)
|
|
$
|
25,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate
We estimated an annual effective tax rate of 25.0% and 45.3% as of June 30, 2008 and 2007,
respectively.
6
LIN TV Corp.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Recently Issued Accounting Pronouncements
In June 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3 Determination of the Useful
Life of Intangible Assets (FSP FAS 142-3), which is effective for financial statements issued
for fiscal years beginning after December 31, 2008, and interim periods within those fiscal years.
Early adoption is prohibited. FSP FAS 142-3 provides guidance for determining the useful life of a
recognized intangible asset and will be applied prospectively to intangible assets acquired after
the effective date. We plan to adopt FSP FAS 142-3 effective January 1, 2009, and its effects on
future periods will depend on the nature and significance of any acquisitions subject to SFAS 141R Business Combinations (SFAS 141R).
In March 2008, the FASB issued SFAS 161 Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133 (SFAS 161), which is effective for fiscal
years and interim periods beginning after November 15, 2008, with earlier adoption encouraged. This
statement is intended to improve transparency in financial reporting by requiring enhanced
disclosures of an entitys derivative instruments and hedging activities and their effects on the
entitys financial position, financial performance, and cash flows. SFAS 161 applies to all
derivative instruments within the scope of SFAS 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS 133), as well as related hedged items, bifurcated derivatives, and
nonderivative instruments that are designated and qualify as hedging instruments. We do not expect
SFAS 161 to have a material impact on our consolidated financial statements and we plan to adopt it
effective January 1, 2009.
In
December 2007, the FASB issued SFAS 141R, which is
effective prospectively for all business combinations with acquisition dates on or after the
beginning of the first fiscal year beginning after December 15, 2008, with the exception of the
accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141R
replaces SFAS 141 Business Combinations (SFAS 141), but it retains the underlying concepts of
SFAS 141 in that all business combinations are required to be accounted for at fair value under the
acquisition method of accounting. However, SFAS 141R changed the method of applying the
acquisition method in a number of significant ways. Acquisition costs will generally be expensed as
incurred; non-controlling interests will be valued at fair value at the acquisition date;
in-process research and development will be recorded at fair value at the acquisition date as an
indefinite-lived intangible asset; restructuring costs associated with a business combination will
generally be expensed subsequent to the acquisition date; and changes in deferred tax asset
valuation allowances and income tax uncertainties after the acquisition date generally will affect
income tax expense. We plan to adopt SFAS 141R effective January 1, 2009, and its effects on future
periods will depend on the nature and significance of any acquisitions subject to SFAS 141R.
In December 2007, the FASB issued SFAS 160 Non-controlling Interests in Consolidated Financial
Statements (SFAS 160), which amends Accounting Research Bulletin (ARB) 51, Consolidated
Financial Statements (ARB 51). SFAS 160 is effective for quarterly and annual reporting periods
that begin after December 15, 2008. SFAS 160 establishes accounting and reporting standards with
respect to non-controlling interests (also called minority interests) in an effort to improve the
relevance, comparability and transparency of financial information that a company provides with
respect to its non-controlling interests.
7
LIN TV Corp.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The significant requirements under SFAS 160 are the
reporting of the non-controlling interests separately in the equity section of the balance sheet and the reporting of the net income or loss
of the controlling and non-controlling interests separately on the face of the statement of
operations. We do not expect SFAS 160 to have a material impact on our consolidated financial
statements and we plan to adopt it effective January 1, 2009.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value
in accordance with GAAP, and expands disclosures about fair value measurements. For all of
our financial assets and liabilities that are recognized and disclosed at fair value on a recurring
basis, we adopted the provisions of SFAS 157 effective
January 1, 2008, and we do not expect SFAS
157 to have a material impact on our consolidated financial statements. For all assets and
liabilities that are non-financial that are recognized or disclosed at fair value in the financial
statements on a non-recurring basis, we plan to adopt the provisions of SFAS 157 effective January
1, 2009. This partial deferral was a result of Staff Position 157-2 Effective Date of FASB
Statement No. 157 (FSP 157-2) issued on February 12, 2008, which delayed the adoption of SFAS
157 for non-financial assets and liabilities that are recognized or disclosed at fair value on a
non-recurring basis. We are currently evaluating the impact of SFAS 157 on our financial statements
relative to non-financial assets and liabilities.
Note 2 Acquisitions
Acquisition Reserves
In connection with the acquisitions of television stations, we recorded certain liabilities
relating to employee severance costs, buy-outs of operating agreements and other transaction costs.
The following summarizes the activity related to our acquisition reserves (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
Acquisition Date
|
|
2007
|
|
|
Payments
|
|
|
Adjustments
|
|
|
2008
|
|
Acquisition of Sunrise Television Corp.
|
|
May 2, 2002
|
|
$
|
40
|
|
|
$
|
17
|
|
|
$
|
|
|
|
$
|
23
|
|
Stations acquired from Viacom
|
|
March 31, 2005
|
|
|
86
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
Stations acquired from Emmis
|
|
November 30, 2005
|
|
|
4,644
|
|
|
|
527
|
|
|
|
|
|
|
|
4,117
|
|
Station acquired from Raycom
|
|
February 22, 2007
|
|
|
446
|
|
|
|
357
|
|
|
|
(89
|
)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,216
|
|
|
$
|
987
|
|
|
$
|
(89
|
)
|
|
$
|
4,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents an adjustment to an operating agreement contract for a discontinued computer system.
|
Note 3 Discontinued Operations
Our condensed consolidated financial statements reflect the operations, assets and liabilities of
our Puerto Rico operations and of Banks Broadcasting as discontinued for all periods presented.
Puerto Rico Operations (WAPA-TV, WJPX-TV and WAPA America)
On March 30, 2007, we sold our Puerto Rico operations to InterMedia Partners VII, L.P. for $131.9
million in cash and, as a result, we recorded a gain on the sale of $22.7 million, net of income
tax benefit.
8
LIN TV Corp.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Banks Broadcasting
We own preferred stock that represents a 50% non-voting interest in Banks Broadcasting, which owns
KNIN-TV, a CW affiliate in Boise. We consolidate Banks Broadcasting under FIN 46R.
In March 2008, Banks Broadcasting sold certain of its 700 MHz spectrum licenses for $2.0 million in
cash with a related gain of $1.4 million. In June 2008, Banks Broadcasting signed a purchase
agreement to sell KNIN-TV for $8.0 million to Journal Broadcasting Corporation, subject to FCC
approval. The sale of KNIN-TV is expected to close in 2008 and we expect to record a gain of
approximately $0.1 million. Upon the completion of this sale, Banks Broadcasting will be
liquidated.
Banks Broadcasting distributed $2.0 million to us for the three and six months ended June 30, 2008,
and distributed no cash to us for the three and six months ended June 30, 2007. We provided no
capital contributions to Banks Broadcasting for the three and six months ended June 30, 2008 or
2007.
The carrying amounts of the assets and liabilities of Banks Broadcasting segregated on our balance
sheet as held for sale are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
Program rights
|
|
$
|
291
|
|
|
$
|
271
|
|
Other current assets
|
|
|
239
|
|
|
|
18
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
530
|
|
|
|
289
|
|
Property and equipment, net
|
|
|
782
|
|
|
|
748
|
|
Program rights
|
|
|
12
|
|
|
|
189
|
|
Intangible assets, net
|
|
|
7,744
|
|
|
|
8,243
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
9,068
|
|
|
$
|
9,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
6
|
|
Other accrued expenses
|
|
|
301
|
|
|
|
308
|
|
Program obligations
|
|
|
264
|
|
|
|
235
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
565
|
|
|
|
549
|
|
Program obligations
|
|
|
22
|
|
|
|
198
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
587
|
|
|
$
|
747
|
|
|
|
|
|
|
|
|
The following presents summarized information for the discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Puerto Rico:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,868
|
|
Operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks Broadcasting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
782
|
|
|
$
|
1,524
|
|
|
$
|
1,567
|
|
|
$
|
2,830
|
|
Operating (loss) income
|
|
|
(170
|
)
|
|
|
12
|
|
|
|
1,110
|
|
|
|
(428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(208
|
)
|
|
$
|
(165
|
)
|
|
$
|
380
|
|
|
$
|
(566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
782
|
|
|
$
|
1,524
|
|
|
$
|
1,567
|
|
|
$
|
12,698
|
|
Operating (loss) income
|
|
|
(170
|
)
|
|
|
12
|
|
|
|
1,110
|
|
|
|
(1,522
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(208
|
)
|
|
$
|
(165
|
)
|
|
$
|
380
|
|
|
$
|
(934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
LIN TV Corp.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Note 4 Equity Investments
Joint Venture with NBC Universal
We own a 20.38% interest in Station Venture Holdings, LLC, a joint venture with NBC Universal, and
account for our interest using the equity method as we do not have a controlling interest. The
following presents the summarized financial information of the NBC Universal joint venture (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions from equity investment
|
|
$
|
17,502
|
|
|
$
|
17,954
|
|
|
$
|
38,948
|
|
|
$
|
43,889
|
|
Income from equity investment
|
|
|
15,255
|
|
|
|
21,563
|
|
|
|
33,958
|
|
|
|
47,847
|
|
Other
expense, net (primarily interest on the GECC Note)
(1)
|
|
|
(16,491
|
)
|
|
|
(16,492
|
)
|
|
|
(32,982
|
)
|
|
|
(32,853
|
)
|
Net (loss) income
|
|
|
(1,236
|
)
|
|
|
5,071
|
|
|
|
976
|
|
|
|
14,994
|
|
Cash distributed to us
|
|
|
|
|
|
|
408
|
|
|
|
1,019
|
|
|
|
1,427
|
|
|
|
|
(1)
|
|
See Note 9 " Commitments and Contingencies" for further description of the GECC Note and LIN TV's Guarantee of the GECC
Note.
|
Note 5 Intangible Assets
The following table summarizes the carrying amount of intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
December 31, 2007
|
|
|
|
Gross carrying
|
|
|
Accumulated
|
|
|
Gross carrying
|
|
|
Accumulated
|
|
|
|
amount
|
|
|
Amortization
|
|
|
amount
|
|
|
Amortization
|
|
Goodwill
|
|
$
|
424,122
|
|
|
$
|
|
|
|
$
|
535,418
|
|
|
$
|
|
|
Broadcast licenses
|
|
|
834,231
|
|
|
|
|
|
|
|
1,019,908
|
|
|
|
|
|
Intangible
assets subject to amortization
(1)
|
|
|
7,796
|
|
|
|
(6,597
|
)
|
|
|
7,796
|
|
|
|
(6,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
1,266,149
|
|
|
$
|
(6,597
|
)
|
|
$
|
1,563,122
|
|
|
$
|
(6,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Intangibles subject to amortization are amortized on a straight-line basis and include the
following categories of intangible assets: acquired advertising contracts, advertiser lists,
advertiser relationships, favorable operating leases, tower rental income leases, local marketing
agreement, purchase options and network affiliation contracts and relationships.
|
We recorded an impairment charge of $297.0 million during the second quarter of 2008 that included
an impairment to the carrying values of our broadcast licenses of $185.7 million, relating to 19 of
our television stations; and an impairment to the carrying values of our goodwill of $111.3
million, relating to 8 of our television stations. As required by SFAS 142, Goodwill and Other
Intangible Assets (SFAS 142), we tested for
impairment our unamortized intangible assets at June 30, 2008,
between the required annual tests, because we believed events had occurred and circumstances
changed that would more likely than not reduce the fair value of our
broadcast licenses and goodwill below their
carrying amounts. These events included: a) the continued decline of the price of our Class A
common stock; b) the decline in the current selling prices of
television stations; and c) the lower growth in advertising revenues
and the
decline in the operating profit margins of some of our stations.
We used the income approach to test our broadcast licenses for impairments as of June 30, 2008 and
we used the same assumptions as disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2007, except for the following adjustments: a) the discount rate was adjusted from 8%
to 9%; b) market growth rates were adjusted from a range of 8.5% to
10
LIN TV Corp.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
40.9% to a
range of 0.1% to 2.1%; and c) operating profit margins were adjusted
from a range of 8.5% to 40.9% to a range of 8.5% to
39.8%.
The increase in the discount rate reflects the current volatility of stock prices of public
companies within the media sector. The changes in the market growth rates and operating profit
margins reflect the current general economic pressures now impacting both the national and a number
of local economies, and specifically, national and local advertising expenditures in the markets
where our stations operate.
We used the income approach to test goodwill for impairments as of June 30, 2008 and we used the
same assumptions as disclosed in our Annual Report on Form 10-K for the year ended December 31,
2007, except for the following adjustments: a) the discount rate was adjusted from 10% to 11.5%; b)
market growth rates were adjusted from a range of 1.0% to 2.7% to a range of 0.1% to 2.1%; and c)
operating profit margins were adjusted from a range of 35.3% to 40.3% to a range of 22.4% to 62.1%.
These assumptions are based on: a) the actual historical performance of our stations; b)
managements estimates of future performance of our stations; and c) the same market growth
assumptions used in the calculation of the fair value of our broadcast licenses.
The increase in the discount rate reflects the current volatility of our Class A common stock. The
changes in the market growth rates and operating profit margins reflect the current general
economic pressures now impacting both the national and a number of local economies, and
specifically, national and local advertising expenditures in the markets where our stations
operate.
Determining the fair value of our television stations requires our management to make a number of
judgments about assumptions and estimates that are highly subjective and that are based on
unobservable inputs or assumptions. The actual results may differ from these assumptions and
estimates; and it is possible that such differences could have a material impact on our financial
statements.
The following table summarizes the estimated amortization expense for the remainder of 2008 and for
the next five years and thereafter (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, to
|
|
|
|
|
|
|
|
|
December 31,
|
|
Year ending December 31,
|
|
There-
|
|
|
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
after
|
|
Total
|
Estimated amortization expense
|
|
$
|
171
|
|
|
$
|
80
|
|
|
$
|
74
|
|
|
$
|
68
|
|
|
$
|
61
|
|
|
$
|
59
|
|
|
$
|
686
|
|
|
$
|
1,199
|
|
11
LIN TV Corp.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Note 6 Debt
Debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Credit facility
|
|
$
|
227,325
|
|
|
$
|
154,875
|
|
6
1/2
% Senior Subordinated Notes due 2013
|
|
|
375,000
|
|
|
|
375,000
|
|
$190,000, 6
1/2
% Senior Subordinated Notes due
2013 Class B (net of discount of $9,565 and
$10,519 at June 30, 2008 and
December 31, 2007, respectively)
|
|
|
180,435
|
|
|
|
179,481
|
|
$125,000, 2.50% Exchangeable Senior
Subordinated Debentures due 2033 (net of
discount of $1,580 at December 31, 2007)
|
|
|
|
|
|
|
123,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
782,760
|
|
|
|
832,776
|
|
Less current portion
|
|
|
21,900
|
|
|
|
24,300
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
760,860
|
|
|
$
|
808,476
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2008, we repaid $27.6 million of the term loans under our
credit facility using available cash balances, including $11.6 million related to mandatory
quarterly payments and $16.0 million related to additional payments required because we did not
reinvest the remaining proceeds from certain of the 2007 asset sales.
On May 16, 2008, we purchased $125.0 million of our 2.50% Exchangeable Senior Subordinated
Debentures, all of which were tendered to us, using $115.0 million available under our revolving
credit facility and $10.0 million of our available cash balances. We subsequently repaid $15.0
million of our outstanding revolving credit loans on June 30, 2008.
At June 30, 2008, we were in compliance with all of the covenants under our credit facility. See
Note 7 Long-term Debt included in Item 15 of our Annual Report on Form 10-K for the year ended
December 31, 2007 for a full description of our credit facility.
12
LIN TV Corp.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Note 7 Retirement Plans
The following table shows the components of the net periodic pension benefit cost and the
contributions to the 401(k) Plan and to the retirement plans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net periodic pension benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
538
|
|
|
$
|
550
|
|
|
$
|
1,076
|
|
|
$
|
1,100
|
|
Interest cost
|
|
|
1,592
|
|
|
|
1,500
|
|
|
|
3,184
|
|
|
|
3,000
|
|
Expected return on plan assets
|
|
|
(1,705
|
)
|
|
|
(1,550
|
)
|
|
|
(3,410
|
)
|
|
|
3,100
|
|
Amortization of prior service cost
|
|
|
30
|
|
|
|
25
|
|
|
|
60
|
|
|
|
50
|
|
Amortization of net loss
|
|
|
48
|
|
|
|
314
|
|
|
|
96
|
|
|
|
641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
503
|
|
|
$
|
839
|
|
|
$
|
1,006
|
|
|
$
|
7,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) Plan
|
|
$
|
360
|
|
|
$
|
797
|
|
|
$
|
673
|
|
|
$
|
1,525
|
|
Retirements plans
|
|
|
1,500
|
|
|
|
750
|
|
|
|
2,250
|
|
|
|
1,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contributions
|
|
$
|
1,860
|
|
|
$
|
1,547
|
|
|
$
|
2,923
|
|
|
$
|
3,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect
to make contributions of $0.8 million to our defined benefit retirement plans during the
remainder of 2008. See Note 11 Retirement Plans included in Item 15 of our Annual Report on
Form 10-K for the year ended December 31, 2007 for a full description of our retirement plans.
Note 8 Fair Value Measurement
We record certain financial assets and liabilities at fair value on a recurring basis consistent
with SFAS 157. The following table summarizes the financial assets and liabilities measured at
fair value in the accompanying condensed consolidated balance sheet, using the three-level fair
value hierarchy established by SFAS 157 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
|
|
|
|
Significant
|
|
Signficant
|
|
|
|
|
Quoted prices in
|
|
observable
|
|
unobservable
|
|
|
|
|
active markets
|
|
inputs
|
|
inputs
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation related investments
|
|
$
|
5,229
|
|
|
|
$
|
|
|
$
|
|
|
|
$
|
5,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
3,271
|
|
|
|
|
|
|
|
3,271
|
|
Deferred compensation related liabilities
|
|
|
5,229
|
|
|
|
|
|
|
|
|
|
|
|
5,229
|
|
The fair value of interest rate swaps is determined based on the present value of future cash flows
using observable inputs, including interest rates associated with a similar financial instrument
using a series of three-month LIBOR-based loans through November 4, 2011. The fair value of
deferred compensation is determined based on the fair value of the investments elected by
employees.
13
LIN TV Corp.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Note 9 Commitments and Contingencies
In connection with the formation of the joint venture with NBC Universal, General Electric Capital
Corporation (GECC) provided an $815.5 million 25-year non-amortizing senior secured note bearing
an initial interest rate of 8.0% per annum until March 2, 2013 and 9.0% per annum thereafter (GECC
Note). The joint venture has historically produced cash flows to support the interest payments and
to maintain minimum levels of required cash balances of $15 million. In addition, the joint venture
has made cash distributions to us and to NBC Universal from the excess cash generated by the joint
venture of approximately $19.2 million on average each year during the past three years.
Accordingly, we expect that the interest payments on the GECC Note will be serviced solely by the
cash flow of the joint venture. The GECC Note is not an obligation of ours, but has recourse to the
joint venture, our equity interests therein and to LIN TV pursuant to a guarantee. If the joint
venture were to default on its obligations and became unable to pay principal or interest on the
GECC Note and GECC could not otherwise be repaid its money from the joint venture, GECC could
require us to pay the shortfall of any outstanding amounts under the GECC Note. If this happened,
LIN TV could experience material adverse consequences, including:
|
|
|
GECC could force us to sell the stock of LIN Television held by us to satisfy
outstanding amounts under the GECC Note;
|
|
|
|
|
if more than 50% of the ownership of LIN Television had to be sold to satisfy the
GECC Note, it could cause an acceleration of our credit facility and other outstanding
indebtedness; or
|
|
|
|
|
if the GECC Note is prepaid because of an acceleration or on default or otherwise, or
if the GECC Note is repaid at maturity, we may incur a substantial
tax liability. For a complete discussion of the risks associated with
LIN TVs Guarantee of the GECC Note, see Item 1A. Risk
Factors of our Annual Report on the Form 10-K for the year
ended December 31, 2007.
|
The joint venture is approximately 80% owned by NBC Universal. NBC Universal controls the
operations of the stations through a management contract. Therefore, the operation and
profitability of those stations and the likelihood of a default under the GECC Note are primarily
within NBC Universals control.
14
LIN TV Corp.
Managements Discussion and Analysis
Item 2. Managements 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. Managements
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, 2007. 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 update
these forward-looking statements, to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Executive Summary
We own and operate and/or program 29 television stations in 17 mid-sized markets in the United
States. Our operating revenues are derived primarily from the sale of advertising time to local,
national and political advertisers and to a lesser extent from digital revenues, network
compensation, barter and other revenues.
We recorded net loss of $216.0 million and $214.5 million for the three and six months ended June
30, 2008, respectively; and we recorded net income of $3.5 million and $24.3 million for the three
and six months ended June 30, 2007, respectively. The following are some of the key developments in
our operations for the three months ended June 30, 2008:
|
|
|
Net revenues increased 2% for the second quarter of 2008 compared to the same quarter
last year primarily due to increased political and digital revenues, offset by reduced
national and local advertising revenues.
|
|
|
|
|
Our gross local advertising revenues decreased by 5% for the second quarter of 2008
compared to the same quarter last year. The decrease is also due to the television
advertising marketplace decline in our markets resulting from general economic pressure
now impacting a number of local economies, primarily in the housing, automobile and retail
segments. Local advertising revenues represented 62% and 65% of total advertising revenues
for the second quarter of 2008 and 2007, respectively.
|
|
|
|
|
Our gross national advertising revenues decreased 11% for the second quarter of 2008
compared to the same quarter last year. The decrease is also due to the television
advertising marketplace decline in our markets, which has impacted most national
advertising categories, particularly automotive spending. National advertising revenues
represented 31% and 34% of total advertising revenues for the second quarter of 2008 and
2007, respectively.
|
15
LIN TV Corp.
Managements Discussion and Analysis (Continued)
|
|
|
The automotive category, which represents 23% of our local and national advertising
sales for the second quarter of 2008, decreased 15% compared to the same quarter last
year.
|
|
|
|
|
Our gross political advertising revenues were $8.1 million for the three months ended
June 30, 2008 compared to $1.0 million for the three months ended June 30, 2007. Political
elections generally occur in even years resulting in significant changes in political
advertising revenues between odd years (2005 and 2007) and even years (2006 and 2008).
Political advertising revenues represented 7% and 1% of total advertising revenues for the
three months ended June 30, 2008 and 2007, respectively.
|
|
|
|
|
Our digital revenues, which include revenues generated by our retransmission consent
agreements and Internet web sites, increased 100% compared to the same period in the prior
year. During the second quarter of 2008, total page views for our web sites were 145.8
million in the second quarter of 2008, compared to 98.2 million in the second quarter of
2007, representing a 48% increase. Unique visitors for our web sites were 13.7 million in
the second quarter of 2008, compared to 11.1 million in the second quarter of 2007,
representing a 23% increase.
|
|
|
|
|
As required by SFAS 142 Goodwill and Other Intangible Assets, in addition to the
required annual test, we test the impairment of our broadcast licenses and goodwill
whenever events or changes in circumstances indicate that such assets might be impaired.
The events that triggered the need for the impairment analyses at June 30, 2008 included,
without limitation: a) the decline of the price of our Class A common stock as of June 30,
2008; b) the decline in selling prices of television stations; and c)
the lower growth in advertising revenues and the decline in
station operating profit margins at some of our
television stations. This testing resulted in a $297.0 million non-cash impairment charge
for the second quarter ended June 30, 2008, which included a goodwill impairment charge of
$111.3 million and an impairment charge of $185.7 million related to our broadcast
licenses.
|
|
|
|
|
We repaid $5.5 million of the term loans under our credit facility during the second
quarter of 2008. In addition, we purchased $125.0 million of our 2.50% Exchangeable Senior
Subordinated Debentures, all of which were tendered to us, using $115.0 million available
under our revolving credit facility and $10.0 million of our available cash balances. We
subsequently repaid $15.0 million of our outstanding revolving credit loans on June 30,
2008. As a result, our total debt outstanding at June 30, 2008 was $782.8 million, or
$50.0 million less than our total debt at December 31, 2007.
|
Critical Accounting Policies and Estimates and Recently Issued Accounting Pronouncements
Certain of our accounting policies, as well as estimates that 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 related to intangible assets and goodwill, bad debts, program rights, income taxes,
stock-based compensation, employee medical
16
LIN TV Corp.
Managements Discussion and Analysis (Continued)
insurance
claims, pensions, useful lives of property, equipment, and indefinite-lived intangible assets, contingencies, barter transactions, acquired
asset valuations and litigation. 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. For a more detailed explanation of the judgments
made in these areas and a discussion of our accounting policies, refer to Critical Accounting
Policies, Estimates and Recently Issued Accounting Pronouncements included in Item 7, and Note 1 -
Summary of Significant Accounting Policies included in Item 15 of our Annual Report on Form 10-K
for the year ended December 31, 2007.
Fair Value Estimates
We record certain financial assets and liabilities at fair value on a recurring basis consistent
with SFAS 157. The following table summarizes the financial assets and liabilities measured at
fair value in the accompanying condensed consolidated balance sheet, using the three-level fair
value hierarchy established by SFAS 157 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
|
|
|
|
Significant
|
|
Signficant
|
|
|
|
|
Quoted prices in
|
|
observable
|
|
unobservable
|
|
|
|
|
active markets
|
|
inputs
|
|
inputs
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation related investments
|
|
$
|
5,229
|
|
|
|
$
|
|
|
|
$
|
|
|
$
|
5,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
3,271
|
|
|
|
|
|
|
|
3,271
|
|
Deferred compensation related liabilities
|
|
$
|
5,229
|
|
|
|
$
|
|
|
|
$
|
|
|
$
|
5,229
|
|
The fair value of interest rate swaps is determined based on the present value of future cash flows
using observable inputs, including interest rates associated with a similar financial instrument
using a series of three-month LIBOR-based loans through November 4, 2011. The fair value of
deferred compensation is determined based on the fair value of the investments elected by
employees.
Recent Accounting Pronouncements
In June 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3 Determination of the Useful
Life of Intangible Assets (FSP FAS 142-3), which is effective for financial statements issued
for fiscal years beginning after December 31, 2008, and interim periods within those fiscal years.
Early adoption is prohibited. FSP FAS 142-3 provides guidance for determining the useful life of a
recognized intangible asset and will be applied prospectively to intangible assets acquired after
the effective date. We plan to adopt FSP FAS 142-3 effective January 1, 2009, and its effects on
future periods will depend on the nature and significance of any acquisitions subject to SFAS 141R Business Combinations (SFAS 141R).
In March 2008, the FASB issued SFAS 161 Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133 (SFAS 161), which is effective for fiscal
years and interim periods beginning after November 15,
2008, with earlier adoption encouraged. This statement is intended to improve transparency in
financial reporting by requiring enhanced
17
LIN TV Corp.
Managements Discussion and Analysis (Continued)
disclosures of an entitys
derivative instruments and hedging activities and their effects on the entitys
financial position,
financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the
scope of SFAS 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as
well as related hedged items, bifurcated derivatives, and nonderivative instruments that are
designated and qualify as hedging instruments. We do not expect SFAS 161 to have a material impact
on our consolidated financial statements and we plan to adopt it effective January 1, 2009.
In December 2007, the FASB issued SFAS 141R, which is
effective prospectively for all business combinations with acquisition dates on or after the
beginning of the first fiscal year beginning after December 15, 2008, with the exception of the
accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141R
replaces SFAS 141 Business Combinations (SFAS 141), but it retains the underlying concepts of
SFAS 141 in that all business combinations are required to be accounted for at fair value under the
acquisition method of accounting. However, SFAS 141R changed the method of applying the
acquisition method in a number of significant ways. Acquisition costs will generally be expensed as
incurred; non-controlling interests will be valued at fair value at the acquisition date;
in-process research and development will be recorded at fair value at the acquisition date as an
indefinite-lived intangible asset; restructuring costs associated with a business combination will
generally be expensed subsequent to the acquisition date; and changes in deferred tax asset
valuation allowances and income tax uncertainties after the acquisition date generally will affect
income tax expense. We plan to adopt SFAS 141R effective January 1, 2009, and its effects on future
periods will depend on the nature and significance of any acquisitions subject to SFAS 141R.
In December 2007, the FASB issued SFAS 160 Non-controlling Interests in Consolidated Financial
Statements (SFAS 160), which amends Accounting Research Bulletin (ARB) 51, Consolidated
Financial Statements (ARB 51). SFAS 160 is effective for quarterly and annual reporting periods
that begin after December 15, 2008. SFAS 160 establishes accounting and reporting standards with
respect to non-controlling interests (also called minority interests) in an effort to improve the
relevance, comparability and transparency of financial information that a company provides with
respect to its non-controlling interests. The significant requirements under SFAS 160 are the
reporting of the non-controlling interests separately in the equity section of the balance sheet
and the reporting of the net income or loss of the controlling and non-controlling interests
separately on the face of the statement of operations. We do not expect SFAS 160 to have a material
impact on our consolidated financial statements and we plan to adopt it effective January 1, 2009.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value
in accordance with GAAP, and expands disclosures about fair value measurements. For all of
our financial assets and liabilities that are recognized and disclosed at fair value on a recurring
basis, we adopted the provisions of SFAS 157 effective January 1, 2008 and we do not expect SFAS
157 to have a material impact on our consolidated financial statements. For all assets and
liabilities that are non-financial that are recognized or disclosed at fair value in the financial
statements on a non-recurring basis, we plan to adopt the provisions of SFAS 157 effective January
1, 2009. This partial deferral was a result of Staff
Position 157-2 Effective Date of FASB Statement No. 157 (FSP 157-2) issued on February 12,
2008, which delayed the adoption of SFAS 157 for non-financial assets
18
LIN TV Corp.
Managements Discussion and Analysis (Continued)
and liabilities that are recognized or disclosed at fair value on a non-recurring basis. We are
currently evaluating the impact of SFAS 157 on our financial statements relative to non-financial
assets and liabilities.
Results of Operations
Our condensed consolidated financial statements reflect the operations, assets and liabilities of
our Puerto Rico operations and of Banks Broadcasting as discontinued for all periods presented. Set
forth below are key components that contributed to our operating results (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
% change
|
|
|
2008
|
|
|
2007
|
|
|
% change
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local advertising sales
|
|
$
|
66,832
|
|
|
$
|
70,451
|
|
|
|
-5
|
%
|
|
$
|
131,076
|
|
|
$
|
136,683
|
|
|
|
-4
|
%
|
National advertisng sales
|
|
|
33,565
|
|
|
|
37,604
|
|
|
|
-11
|
%
|
|
|
64,896
|
|
|
|
70,008
|
|
|
|
-7
|
%
|
Political advertising sales
|
|
|
8,121
|
|
|
|
970
|
|
|
|
736
|
%
|
|
|
11,321
|
|
|
|
1,571
|
|
|
|
620
|
%
|
Digital revenues
|
|
|
6,718
|
|
|
|
3,358
|
|
|
|
100
|
%
|
|
|
11,622
|
|
|
|
5,816
|
|
|
|
100
|
%
|
Network compensation
|
|
|
1,021
|
|
|
|
936
|
|
|
|
9
|
%
|
|
|
1,925
|
|
|
|
1,837
|
|
|
|
5
|
%
|
Barter revenues
|
|
|
1,358
|
|
|
|
2,249
|
|
|
|
-40
|
%
|
|
|
2,666
|
|
|
|
4,132
|
|
|
|
-35
|
%
|
Other revenues
|
|
|
1,084
|
|
|
|
1,030
|
|
|
|
5
|
%
|
|
|
1,833
|
|
|
|
1,807
|
|
|
|
1
|
%
|
Agency commissions
|
|
|
(14,996
|
)
|
|
|
(14,845
|
)
|
|
|
1
|
%
|
|
|
(28,572
|
)
|
|
|
(28,297
|
)
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
103,703
|
|
|
|
101,753
|
|
|
|
2
|
%
|
|
|
196,767
|
|
|
|
193,557
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
29,623
|
|
|
|
28,391
|
|
|
|
4
|
%
|
|
|
59,689
|
|
|
|
57,338
|
|
|
|
4
|
%
|
Selling, general and administrative
|
|
|
28,261
|
|
|
|
29,411
|
|
|
|
-4
|
%
|
|
|
56,836
|
|
|
|
57,261
|
|
|
|
-1
|
%
|
Amortization of program rights
|
|
|
5,588
|
|
|
|
6,136
|
|
|
|
-9
|
%
|
|
|
11,764
|
|
|
|
12,142
|
|
|
|
-3
|
%
|
Corporate
|
|
|
6,209
|
|
|
|
5,626
|
|
|
|
10
|
%
|
|
|
11,239
|
|
|
|
10,528
|
|
|
|
7
|
%
|
Depreciation
|
|
|
7,368
|
|
|
|
8,187
|
|
|
|
-10
|
%
|
|
|
14,817
|
|
|
|
16,212
|
|
|
|
-9
|
%
|
Amortization of intangible assets
|
|
|
91
|
|
|
|
523
|
|
|
|
-83
|
%
|
|
|
184
|
|
|
|
1,146
|
|
|
|
-84
|
%
|
Impairment of goodwill and intangible assets
|
|
|
296,972
|
|
|
|
|
|
|
|
0
|
%
|
|
|
296,972
|
|
|
|
|
|
|
|
|
|
Restructuring benefit
|
|
|
|
|
|
|
188
|
|
|
|
-100
|
%
|
|
|
|
|
|
|
91
|
|
|
|
-100
|
%
|
Loss (gain) from asset sales
|
|
|
(471
|
)
|
|
|
711
|
|
|
|
-166
|
%
|
|
|
(370
|
)
|
|
|
702
|
|
|
|
-153
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
373,641
|
|
|
|
79,173
|
|
|
|
372
|
%
|
|
|
451,131
|
|
|
|
155,420
|
|
|
|
190
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(loss) income
|
|
$
|
(269,938
|
)
|
|
$
|
22,580
|
|
|
|
1295
|
%
|
|
$
|
(254,364
|
)
|
|
$
|
38,137
|
|
|
|
767
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Comparison
Revenues
Net
revenues
consist primarily of national, local and political
advertising sales, net of sales
adjustments and agency commissions. Additional amounts are generated from Internet revenues,
retransmission consent fees, barter revenues, network compensation, production revenues and tower
rental income.
Net revenues increased $2.0 million, or 2%, for the three months ended June 30, 2008, compared with
the three months ended June 30, 2007. The increase was primarily due to: (a) an increase in
political advertising sales of $7.2 million; and (b) an increase in digital revenue of $3.4
million. These increases were partially offset by (a) a decrease
in local advertising sales of $3.6 million; (b) a decrease
in national advertising sales of $4.0 million; and (c) the decreases in all
other revenue categories of $1.0 million.
Net revenues increased $3.2 million, or 2%, for the six months ended June 30, 2008, compared with
the six months ended June 30, 2007. The increase was primarily due to: (a) an increase in political
advertising sales of $9.8 million; and (b) an increase in
digital revenue of $5.8 million. These
increases were partially offset by (a) a decrease in local
advertising sales of $5.6 million;
19
LIN TV Corp.
Managements Discussion and Analysis (Continued)
(b) a
decrease in national advertising sales of $5.1 million; and (c) the decreases in all other revenue categories of $1.7
million.
The increase in political advertising sales during the three and six months ended June 30, 2008,
compared to the same period last year, is a result of the upcoming Presidential, Congressional,
state and local elections. We expect higher political advertising sales in the last half of 2008
compared to the first half of 2008.
The
increase in digital revenues for the three and six months ended June 30, 2008 over the comparable periods last year is primarily due to several new retransmission
consent agreements reached with cable operators during 2007 and 2008, and an increase in Internet
revenues. We expect digital revenues to continue to increase over the last half of 2008 compared to
the first half of 2008.
The decrease in local advertising sales is due to general economic pressure now impacting a number
of local economies, primarily in the housing, automobile and retail segments. The decrease in
national time sales is due to the same general economic factors, which has impacted most national
advertising categories, particularly automotive spending. We expect this trend to continue for
local and national advertising over the last half of 2008 and into 2009.
Operating Costs and Expenses
Operating costs and expenses
increased $294.5 million to $373.6 million for the three months ended
June 30, 2008 compared to $79.2 million for the same period in 2007. This increase was primarily
due to an impairment charge of $297.0 million relating to our broadcast licenses and goodwill
described below. Other operating costs were down $2.5 million or 3% resulting primarily from a $1.2
million gain from asset sales and a decrease of $1.6 million in lower sales variable costs and
employee benefit expenses; offset by $0.3 million of other cost increases.
Operating costs and expenses increased $295.7 million to $451.1 million for the six months ended
June 30, 2008 compared to $155.4 million for the same period in 2007. This increase was primarily
due to an impairment charge of $297.0 million relating to our broadcast licenses and goodwill
described below. Other operating costs were down $1.3 million or 1% resulting primarily from a
$1.1 million gain from asset sales and a decrease of $1.9 million in lower sales variable costs and
employee benefit expenses; offset by $1.7 million of other cost increases, primarily for annual
employee compensation and contractual cost increases.
Impairment of broadcast licenses and goodwill
We recorded an impairment charge of $297.0 million during the second quarter of 2008 that included
an impairment to the carrying values of our broadcast licenses of $185.7 million, relating to 19 of
our television stations; and an impairment to the carrying values of our goodwill of $111.3
million, relating to 8 of our television stations. As required by SFAS 142, Goodwill and Other
Intangible Assets (SFAS 142), we tested for
impairment our unamortized intangible assets at June 30, 2008,
between the required annual tests, because we believed events had occurred and circumstances
changed that would more likely than not reduce the fair value of our
broadcast licenses and goodwill below their
carrying amounts. These events included: a) the continued decline of the price of our Class A
common stock; b) the decline in the current selling prices of
television stations; and c) the lower growth in advertising revenues
and the
decline in the operating profit margins of some of our stations.
20
LIN TV Corp.
Managements Discussion and Analysis (Continued)
We used the income approach to test our broadcast licenses for impairments as of June 30, 2008 and
we used the same assumptions as disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2007, except for the following adjustments: a) the discount rate was adjusted from 8%
to 9%; b) market growth rates were adjusted from a range of 8.5% to 40.9% to a range of 0.1% to
2.1%; and c) operating profit margins were adjusted from a range of 8.5% to 40.9% to a range of
8.5% to 39.8%.
The increase in the discount rate reflects the current volatility of stock prices of public
companies within the media sector. The changes in the market growth rates and operating profit
margins reflect the current general economic pressures now impacting both the national and a number
of local economies, and specifically, national and local advertising expenditures in the markets
where our stations operate.
We used the income approach to test goodwill for impairments as of June 30, 2008 and we used the
same assumptions as disclosed in our Annual Report on Form 10-K for the year ended December 31,
2007, except for the following adjustments: a) the discount rate was adjusted from 10% to 11.5%; b)
market growth rates were adjusted from a range of 1.0% to 2.7% to a range of 0.1% to 2.1%; and c)
operating profit margins were adjusted from a range of 35.3% to 40.3% to a range of 22.4% to 62.1%.
These assumptions are based on: a) the actual historical performance of our stations; b)
managements estimates of future performance of our stations; and c) the same market growth
assumptions used in the calculation of the fair value of our broadcast licenses.
The increase in the discount rate reflects the current volatility of our Class A common stock. The
changes in the market growth rates and operating profit margins reflect the current general
economic pressures now impacting both the national and a number of local economies, and
specifically, national and local advertising expenditures in the markets where our stations
operate.
Determining the fair value of our television stations requires our management to make a number of
judgments about assumptions and estimates that are highly subjective and that are based on
unobservable inputs or assumptions. The actual results may differ from these assumptions and
estimates; and it is possible that such differences could have a material impact on our financial
statements.
Other Expense (Income)
Other expense (income)
increased $2.2 million for the three months ended June 30, 2008 compared to
the same period in 2007, due primarily to a $3.6 million write-off of deferred financing fees
related to the purchase of $125.0 million of our 2.50% Exchangeable Senior Subordinated Debentures
and a $1.3 million decrease in our share of expense (income) from equity investments primarily
related to our joint venture with NBC; offset by lower interest expense of $1.8 million and a
decrease in other charges of $0.9 million. Other expense
(income) decreased $2.2 million for the
six months ended June 30, 2008 compared to the same period in 2007, due primarily to lower interest
expense of $5.3 million and other charges of $0.1 million;
offset by a $3.2 million write-off of deferred financing fees related to
the purchase of our debentures and pay-down of our term loans. The following summarizes the
components of our net interest expense (in thousands):
21
LIN TV Corp.
Managements Discussion and Analysis (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Credit facility
|
|
$
|
2,572
|
|
|
$
|
3,920
|
|
|
$
|
5,442
|
|
|
$
|
9,498
|
|
$375,000, 6
1/2
% Senior Subordinated Notes
|
|
|
6,404
|
|
|
|
6,405
|
|
|
|
12,741
|
|
|
|
12,750
|
|
$190,000, 6
1/2
% Senior Subordinated Notes-Class B
|
|
|
3,731
|
|
|
|
3,719
|
|
|
|
7,420
|
|
|
|
7,403
|
|
$125,000, 2.50% Exchangeable Senior
Subordinated Debentures
|
|
|
925
|
|
|
|
1,871
|
|
|
|
2,805
|
|
|
|
3,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
13,632
|
|
|
$
|
15,915
|
|
|
$
|
28,408
|
|
|
$
|
33,393
|
|
Other
interest costs and interest (income)
|
|
|
290
|
|
|
|
(241
|
)
|
|
|
(95
|
)
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net
|
|
$
|
13,922
|
|
|
$
|
15,674
|
|
|
$
|
28,313
|
|
|
$
|
33,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from) Provision for Income Taxes
Benefit from income taxes
for the three and six months ended June 30, 2008 was $71.5 million and
$70.9 million, respectively, compared to a provision for income taxes of $3.4 million and $2.0
million for the three and six months ended June 30, 2007. The change was primarily due to the
impairment of broadcast licenses and goodwill. We estimated an annual effective tax rate of 25.0%
and 45.3% as of June 30, 2008 and 2007, respectively.
Results of Discontinued Operations
Our consolidated financial statements reflect the operations of our Puerto Rico stations and Banks
Broadcasting as discontinued for all periods presented. Loss from discontinued operations was $0.2
million for both the three months ended June 30, 2008 and 2007. Income
from discontinued operations was $0.4 million for the six months ended June 30, 2008 compared to a
loss from discontinued operations of $0.9 million for the six
months ended June 30, 2007. Loss from the sale of discontinued
operations was $0.4 million and the gain from discontinued
operations was $22.7 million for the three and six months
ended June 30, 2007, respectively.
Puerto Rico Operations
We completed the sale of our Puerto Rico operations to InterMedia Partners VII, L.P. for $131.9
million in cash and recognized a related gain of $22.7 million after benefit of income taxes in the
first quarter of 2007. The stations sold included WAPA-TV, a full-power independent station, and
WJPX-TV, an independent station branded as MTV Puerto Rico, as well as WAPA America, a U.S.
Spanish-language cable channel. The proceeds from the sale of our Puerto Rico operations, net of
transaction fees, were used to pay-down $70.0 million of our term loans under our credit facility
and to repay borrowings incurred to fund the purchase of KASA-TV.
Banks Broadcasting
We own preferred stock that represents a 50% non-voting interest in Banks Broadcasting, which owns
KNIN-TV, a CW affiliate in Boise. We consolidate Banks Broadcasting under FIN 46R.
In March 2008, Banks Broadcasting sold certain of its 700 MHz spectrum licenses for $2.0 million in
cash with a related gain of $1.4 million. In June 2008, Banks Broadcasting signed a purchase
agreement to sell KNIN-TV for $8.0 million to Journal Broadcasting Corporation, subject to FCC
approval. The sale of KNIN-TV is expected to close in 2008 and we expect to record a gain of
approximately $0.1 million. Upon the completion of this sale, Banks Broadcasting will be
liquidated.
Banks Broadcasting distributed $2.0 million to us for the three and six months ended June 30, 2008,
and distributed no cash to
22
LIN TV Corp.
Managements Discussion and Analysis (Continued)
us for the three and six months ended June 30, 2007. We provided no capital contributions to Banks Broadcasting for the three and six
months ended June 30, 2008 or 2007.
The following table presents summarized information for our Puerto Rico operations and Banks
Broadcasting that were previously included in historical operating results (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Puerto Rico:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,868
|
|
Operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks Broadcasting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
782
|
|
|
$
|
1,524
|
|
|
$
|
1,567
|
|
|
$
|
2,830
|
|
Operating (loss) income
|
|
|
(170
|
)
|
|
|
12
|
|
|
|
1,110
|
|
|
|
(428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(208
|
)
|
|
$
|
(165
|
)
|
|
$
|
380
|
|
|
$
|
(566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
782
|
|
|
$
|
1,524
|
|
|
$
|
1,567
|
|
|
$
|
12,698
|
|
Operating (loss) income
|
|
|
(170
|
)
|
|
|
12
|
|
|
|
1,110
|
|
|
|
(1,522
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(208
|
)
|
|
$
|
(165
|
)
|
|
$
|
380
|
|
|
$
|
(934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
Our principal sources of funds for working capital have historically been cash from operations and
borrowings under our credit facility. Our operating cash-generating capability is one of our
fundamental strengths and provides us with substantial financial flexibility in meeting our
operating and investing needs. We believe our financial strength has been especially evident in
light of the current liquidity levels in the general credit markets. At June 30, 2008, we had cash
of $8.8 million and a $275.0 million revolving credit facility, of which $100.0 million was
outstanding at June 30, 2008 and $175.0 million was committed, but undrawn.
We believe that our cash flows from our current operations, together with available borrowings
under our credit facility, will be sufficient to meet our anticipated cash requirements for the
next 12 months and for the foreseeable future. These cash requirements include working capital,
capital expenditures, interest payments and scheduled principal payments on our credit facility
term loans.
23
LIN TV Corp.
Managements Discussion and Analysis (Continued)
Summary of Cash Flows
The following presents summarized cash flow information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
|
|
|
June 30,
|
|
|
Increase (Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
Cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
29,421
|
|
|
$
|
12,757
|
|
|
$
|
16,664
|
|
|
|
131
|
%
|
Discontinued operations
|
|
|
(1,192
|
)
|
|
|
(13,652
|
)
|
|
|
12,460
|
|
|
|
-91
|
%
|
Cash (used in) provided by investing activites
|
|
|
(7,943
|
)
|
|
|
73,711
|
|
|
|
(81,654
|
)
|
|
|
-111
|
%
|
Cash (used in) financing activites
|
|
|
(51,559
|
)
|
|
|
(68,471
|
)
|
|
|
16,912
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(31,273
|
)
|
|
$
|
4,345
|
|
|
$
|
(35,618
|
)
|
|
|
-820
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities from continuing operations
increased $16.7 million for
the six months ended June 30, 2008 compared to the same period last year. This increase was
primarily due to improved accounts receivable management of $9.0 million and to restructuring and
severance payments paid-out during the first two quarters of 2007.
Net cash used by operating activities from discontinued operations
decreased $12.5 million to $1.2
million compared to the same period last year. This decrease was primarily due to the sale of our
Puerto Rico operations in the first quarter of 2007.
Net cash (used in) provided by investing activities
decreased $81.7 million for the six months
ended June 30, 2008, compared to the same period last year. The change was primarily due to the net
proceeds of $131.9 million we received from the sale of our Puerto Rico operations less the $52.3
million we paid in connection with the acquisition of KASA-TV in the first quarter of 2007.
Net cash used in financing activities
decreased $16.9 million to $51.6 million for the six months
ended June 30, 2008, compared to $68.5 million for the same period last year. In 2008, net cash
used in financing activities was primarily due to: a) the purchase of $125.0 million of our 2.50%
Exchangeable Senior Subordinated Debentures, all of which were tendered to us on May 15, 2008; b)
the repayment of $27.6 million of our term loans under the credit facility; and c) the repayment of
$15.0 million of our revolving credit facility at the end of the second quarter; offset by
borrowings of $115.0 million under our revolving credit facility that were used, in addition to our
cash balances, to purchase the debentures. In 2007, net cash used in financing activities was
primarily due to the pay-down of the term loans under our credit facility from proceeds from the
sale of our Puerto Rico operations.
24
LIN TV Corp.
Managements Discussion and Analysis (Continued)
Description of Indebtedness
The following is a summary of our outstanding indebtedness (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Credit facility
|
|
$
|
227,325
|
|
|
$
|
154,875
|
|
6
1/2
% Senior Subordinated Notes due 2013
|
|
|
375,000
|
|
|
|
375,000
|
|
$190,000, 6
1/2
% Senior Subordinated Notes due
2013 Class B (net of discount of $9,565 and
$10,519 at June 30, 2008 and
December 31, 2007, respectively)
|
|
|
180,435
|
|
|
|
179,481
|
|
$125,000, 2.50% Exchangeable Senior
Subordinated Debentures due 2033 (net of
discount of $1,580 at December 31, 2007)
|
|
|
|
|
|
|
123,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
782,760
|
|
|
|
832,776
|
|
Less current portion
|
|
|
21,900
|
|
|
|
24,300
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
760,860
|
|
|
$
|
808,476
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2008, we repaid $27.6 million of the term loans under our
credit facility using available cash balances, including $11.6 million related to mandatory
quarterly payments and $16.0 million related to additional payments required because we did not
reinvest the remaining proceeds from certain of the 2007 asset sales.
On May 16, 2008, we purchased $125.0 million of our 2.50% Exchangeable Senior Subordinated
Debentures, all of which were tendered to us, using $115.0 million available under our revolving
credit facility and $10.0 million of our available cash balances. We subsequently repaid $15.0
million of our outstanding revolving credit loans on June 30, 2008.
At June 30, 2008, we were in compliance with all of the covenants under our credit facility. See
Note 7 Long-term Debt included in Item 15 of our Annual Report on Form 10-K for the year ended
December 31, 2007 for a full description of our credit facility.
Contractual Obligations
As of June 30, 2008, there had been no material changes in our contractual obligations from those
disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007 except for the
purchase of $125.0 million of our 2.50% Exchangeable Senior Subordinated Debentures in May 2008,
all of which were tendered to us, using $115.0 million under our revolving credit facility and
$10.0 million of available cash balances. The terms of our credit facility requires that the term
loans and the revolving credit loans be repaid on or before November 4, 2011.
Off-Balance Sheet Arrangements
As of June 30, 2008, there had been no material changes in our off-balance sheet arrangements from
those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007. See Note 9
Commitments and Contingencies regarding LIN TVs guarantee of the GECC Note and see Note 4
Equity Investments regarding our joint venture with NBC that holds the GECC Note.
25
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk related to interest rates on borrowings under our credit facility
debt. We use derivative financial instruments to mitigate our exposure to market risks from
fluctuations in interest rates. In accordance with our policy, we do not use derivative instruments
unless there is an underlying exposure and we do not hold or enter into derivative financial
instruments for speculative trading purposes.
Interest Rate Risk
Our long-term debt at June 30, 2008 was $760.9 million. Our senior subordinated notes in the principal amount of $565 million bear a fixed interest rate. Amounts borrowed under the credit facility
bear an interest at a rate based on, at our option, either a) the LIBOR interest rate, or b) an
interest rate that is equal to the greater of the Prime Rate or the Federal Funds Effective Rate
plus 0.5%. In addition, the rate we select also bears an applicable margin rate of 0.625% to 1.500%
depending on the achievement of certain financial ratios. The outstanding balance under our credit
facility was $227.3 million at June 30, 2008.
Accordingly, we are exposed to potential losses related to increases in interest rates. A
hypothetical 1% increase in the floating rate used as the basis for the interest charged on the
credit facility as of June 30, 2008 would result in an estimated $1.3 million increase in
annualized interest expense assuming a constant balance outstanding of $227.3 million, less the
notional amount of $100.0 million covered with an interest rate swap agreement. If we incur
additional indebtedness or amend or replace our current indebtedness, the current liquidity levels
in the general credit markets may impact our ability to refinance our debt or to refinance our debt
on terms similar to our existing debt agreements.
During the second quarter of 2006, we entered into a contract to hedge a notional $100 million of
our credit facility. The interest payments under our credit facility term loans are based on LIBOR
plus an applicable margin rate. To mitigate changes in our cash flows resulting from fluctuations
in interest rates, we entered into the 2006 interest rate hedge that effectively converted the
floating LIBOR rate-based-payments to fixed payments at 5.33% plus the applicable margin rate
calculated under our credit facility, which expires in November 2011. We designated the 2006
interest rate hedge as a cash flow hedge. The fair value of the 2006 interest rate hedge was a
liability of $3.3 million at June 30, 2008. This amount will be released into earnings over the
life of the 2006 interest rate hedge through periodic interest payments.
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 June 30, 2008. The term disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) under 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 SECs 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
26
accumulated and communicated to the companys
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 June 30, 2008, 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 June
30, 2008 that have materially affected or are reasonably likely to materially affect our internal
control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
We are involved in various claims and lawsuits that are generally incidental to our business. We
are vigorously contesting all of these matters and believe that their ultimate resolution will not
have a material adverse effect on us.
In November 2007, we assigned our option to acquire the outstanding shares of the entity holding
the FCC license of KNVA-TV to a third party, Vaughan Media, LLC (Vaughan Media), as permitted by
the terms of the option agreement. We program KNVA-TV pursuant to a local marketing agreement with
the entity holding KNVA-TVs FCC license. Vaughan Media subsequently exercised the option to
acquire the shares of the licensee. In response, on December 10, 2007, the licensee, 54
Broadcasting, Inc., filed a complaint against us and Vaughan Media in the 53rd Judicial District
Court of Travis County, Austin, Texas alleging that our assignment and the subsequent option
exercise were not valid. The action was subsequently removed to the United States District Court,
Western District of Texas, and Austin Division. We believe these claims are without merit and are
vigorously defending the action.
Item 1A. Risk Factors
In addition to the other information in this report, you should carefully consider the factors
discussed in Part I Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended
December 31, 2007, which could materially affect our business, financial condition or future
results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 23, 2005, our Board approved our repurchase of up to $200.0 million of our Class A common
stock (the Program). Share repurchases under the Program may be made from time-to-time in the
open market or in privately negotiated transactions. The Program may be suspended or discontinued
at any time. During the three months ended June 30, 2008 no purchases of Class A common stock were
made under the Program or otherwise.
27
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
We held our 2008 Annual Meeting of Stockholders on May 1, 2008. The following matters were approved
by the stockholders by the following votes:
|
|
|
The election of three members to our Board of Directors to serve as Class II directors
for a term of three years was held and the shares present were voted as follows:
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Shares Voted
|
|
Number of
|
|
|
For
|
|
Shares Withheld
|
Peter S. Brodsky
|
|
87,926,625
|
|
777,111
|
Douglas W. McCormick
|
|
88,521,741
|
|
182,495
|
Michael A. Pausic
|
|
88,522,048
|
|
182,188
|
|
|
|
The ratification of PricewaterhouseCoopers LLP as our independent registered public
accounting firm for the fiscal year ending December 31, 2008:
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
Shares Voted
|
|
Number of
|
Shares Voted For
|
|
Against
|
|
Shares Withheld
|
88,699,616
|
|
54,924
|
|
16,377
|
Item 5. Other Information
None.
28
Item 6. Exhibits
|
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)
|
|
|
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).
|
|
|
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 June 30, 2003 (File No. 000-25206) and incorporated by reference herein)
|
|
|
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).
|
|
|
31.1
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive
Officer of LIN TV Corp.
|
|
|
31.2
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Financial
Officer of LIN TV Corp.
|
|
|
31.3
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive
Officer of LIN Television Corporation.
|
|
|
31.4
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Financial
Officer of LIN Television Corporation.
|
|
|
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.
|
|
|
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.
|
29
SIGNATURES
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.
LIN TELEVISION CORPORATION
|
|
Dated: August 8, 2008
|
By:
|
/s/ Bart W. Catalane
|
|
|
|
Bart W. Catalane
|
|
|
|
Senior Vice President,
Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
|
|
|
By:
|
/s/ William A. Cunningham
|
|
|
|
William A. Cunningham
|
|
|
|
Vice President, Controller
(Principal Accounting Officer)
|
|
|
30
Part I. Financial Information
Item 1.
Unaudited Financial Statements
LIN
Television Corporation
Condensed Consolidated Balance Sheets
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands, except share data)
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,758
|
|
|
$
|
40,031
|
|
Accounts
receivable, less allowance for doubtful accounts (2008 $1,496; 2007 $1,640)
|
|
|
79,144
|
|
|
|
87,301
|
|
Program rights
|
|
|
3,997
|
|
|
|
4,360
|
|
Assets held for sale
|
|
|
530
|
|
|
|
289
|
|
Other current assets
|
|
|
7,970
|
|
|
|
4,857
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
100,399
|
|
|
|
136,838
|
|
Property and equipment, net
|
|
|
186,761
|
|
|
|
191,250
|
|
Deferred financing costs
|
|
|
9,537
|
|
|
|
14,406
|
|
Equity investments
|
|
|
54,660
|
|
|
|
55,480
|
|
Program rights
|
|
|
4,991
|
|
|
|
6,776
|
|
Goodwill
|
|
|
424,122
|
|
|
|
535,418
|
|
Broadcast licenses and other intangible assets, net
|
|
|
835,430
|
|
|
|
1,021,290
|
|
Assets held for sale
|
|
|
8,538
|
|
|
|
9,180
|
|
Other assets
|
|
|
8,796
|
|
|
|
11,330
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,633,234
|
|
|
$
|
1,981,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
21,900
|
|
|
$
|
24,300
|
|
Accounts payable
|
|
|
5,026
|
|
|
|
11,415
|
|
Accrued compensation
|
|
|
5,921
|
|
|
|
6,754
|
|
Accrued interest expense
|
|
|
4,725
|
|
|
|
5,018
|
|
Accrued contract costs
|
|
|
6,993
|
|
|
|
6,934
|
|
Other accrued expenses
|
|
|
16,375
|
|
|
|
13,573
|
|
Program obligations
|
|
|
11,089
|
|
|
|
11,944
|
|
Liabilities held for sale
|
|
|
565
|
|
|
|
549
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
72,594
|
|
|
|
80,487
|
|
Long-term debt, excluding current portion
|
|
|
760,860
|
|
|
|
808,476
|
|
Deferred income taxes, net
|
|
|
303,095
|
|
|
|
374,548
|
|
Program obligations
|
|
|
8,188
|
|
|
|
11,551
|
|
Liabilities held for sale
|
|
|
22
|
|
|
|
198
|
|
Other liabilities
|
|
|
35,606
|
|
|
|
41,564
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,180,365
|
|
|
|
1,316,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock of Banks Broadcasting, Inc., $0.01 par value, 173,822 shares
issued and outstanding at June 30, 2008 and December 31, 2007
|
|
|
7,163
|
|
|
|
9,046
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Investment
in parents stock, at cost
|
|
|
(18,005
|
)
|
|
|
(18,005
|
)
|
Additional paid-in capital
|
|
|
1,100,848
|
|
|
|
1,096,982
|
|
Accumulated deficit
|
|
|
(623,230
|
)
|
|
|
(408,726
|
)
|
Accumulated other comprehensive loss
|
|
|
(13,907
|
)
|
|
|
(14,153
|
)
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
445,706
|
|
|
|
656,098
|
|
|
|
|
|
|
|
|
Total liabilities, preferred stock and stockholders equity
|
|
$
|
1,633,234
|
|
|
$
|
1,981,968
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
32
LIN
Television Corporation
Condensed Consolidated Statements of Operations
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
103,703
|
|
|
$
|
101,753
|
|
|
$
|
196,767
|
|
|
$
|
193,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
29,623
|
|
|
|
28,391
|
|
|
|
59,689
|
|
|
|
57,338
|
|
Selling, general and administrative
|
|
|
28,261
|
|
|
|
29,411
|
|
|
|
56,836
|
|
|
|
57,261
|
|
Amortization of program rights
|
|
|
5,588
|
|
|
|
6,136
|
|
|
|
11,764
|
|
|
|
12,142
|
|
Corporate
|
|
|
6,209
|
|
|
|
5,626
|
|
|
|
11,239
|
|
|
|
10,528
|
|
Depreciation
|
|
|
7,368
|
|
|
|
8,187
|
|
|
|
14,817
|
|
|
|
16,212
|
|
Amortization of intangible assets
|
|
|
91
|
|
|
|
523
|
|
|
|
184
|
|
|
|
1,146
|
|
Impairment of intangible assets and goodwill
|
|
|
296,972
|
|
|
|
|
|
|
|
296,972
|
|
|
|
|
|
Restructuring charge
|
|
|
|
|
|
|
188
|
|
|
|
|
|
|
|
91
|
|
(Gain) loss from asset dispositions
|
|
|
(471
|
)
|
|
|
711
|
|
|
|
(370
|
)
|
|
|
702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(269,938
|
)
|
|
|
22,580
|
|
|
|
(254,364
|
)
|
|
|
38,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
13,922
|
|
|
|
15,674
|
|
|
|
28,313
|
|
|
|
33,646
|
|
Share of expense (income) in equity investments
|
|
|
252
|
|
|
|
(1,037
|
)
|
|
|
(199
|
)
|
|
|
(752
|
)
|
Loss (gain) on derivative instruments
|
|
|
|
|
|
|
496
|
|
|
|
(375
|
)
|
|
|
466
|
|
Loss on extinguishment of debt
|
|
|
3,604
|
|
|
|
|
|
|
|
3,704
|
|
|
|
551
|
|
Other, net
|
|
|
(488
|
)
|
|
|
(52
|
)
|
|
|
(39
|
)
|
|
|
(265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
17,290
|
|
|
|
15,081
|
|
|
|
31,404
|
|
|
|
33,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before (benefit from)
provision for income taxes
|
|
|
(287,228
|
)
|
|
|
7,499
|
|
|
|
(285,768
|
)
|
|
|
4,491
|
|
(Benefit from) provision for income taxes
|
|
|
(71,469
|
)
|
|
|
3,401
|
|
|
|
(70,884
|
)
|
|
|
1,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(215,759
|
)
|
|
|
4,098
|
|
|
|
(214,884
|
)
|
|
|
2,513
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations, net of
(benefit) provision for income taxes of $80
and $147 for the three months ended
June 30, 2008 and 2007, respectively, and
net of (benefit) provision for income taxes of $141
and $(431) for the six months ended June 30,
2008 and 2007, respectively
|
|
|
(208
|
)
|
|
|
(165
|
)
|
|
|
380
|
|
|
|
(934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain from the sale of discontinued operations, net of
benefit from income taxes of $0 and $2,264, for the
three and six months ended June 30, 2007
|
|
|
|
|
|
|
(419
|
)
|
|
|
|
|
|
|
22,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(215,967
|
)
|
|
$
|
3,514
|
|
|
$
|
(214,504
|
)
|
|
$
|
24,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
33
LIN Television Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(214,504
|
)
|
|
$
|
24,246
|
|
(Income) loss from discontinued operations
|
|
|
(380
|
)
|
|
|
934
|
|
Gain from sale of discontinued operations
|
|
|
|
|
|
|
(22,667
|
)
|
Adjustment to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
14,817
|
|
|
|
16,212
|
|
Amortization of intangible assets
|
|
|
184
|
|
|
|
1,146
|
|
Impairment of goodwill and intangible assets
|
|
|
296,972
|
|
|
|
|
|
Amortization of financing costs and note discounts
|
|
|
3,699
|
|
|
|
4,311
|
|
Amortization of program rights
|
|
|
11,764
|
|
|
|
12,142
|
|
Program payments
|
|
|
(13,751
|
)
|
|
|
(13,793
|
)
|
Loss on extinguishment of debt
|
|
|
3,704
|
|
|
|
551
|
|
(Gain) loss on derivative instruments
|
|
|
(375
|
)
|
|
|
466
|
|
Share of income in equity investments
|
|
|
(199
|
)
|
|
|
(752
|
)
|
Deferred income taxes, net
|
|
|
(71,491
|
)
|
|
|
6,624
|
|
Stock-based compensation
|
|
|
2,744
|
|
|
|
2,851
|
|
(Gain) loss from asset dispositions
|
|
|
(370
|
)
|
|
|
702
|
|
Other, net
|
|
|
813
|
|
|
|
2,201
|
|
Changes in operating assets and liabilities, net of acquisitions and disposals:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
9,854
|
|
|
|
2,636
|
|
Other assets
|
|
|
(1,859
|
)
|
|
|
(2,532
|
)
|
Accounts payable
|
|
|
(6,389
|
)
|
|
|
(2,915
|
)
|
Accrued interest expense
|
|
|
(293
|
)
|
|
|
14
|
|
Other accrued expenses
|
|
|
(5,519
|
)
|
|
|
(19,620
|
)
|
|
|
|
|
|
|
|
Net cash provided by operating activities, continuing operations
|
|
|
29,421
|
|
|
|
12,757
|
|
Net cash used in operating activities, discontinued operations
|
|
|
(1,192
|
)
|
|
|
(13,652
|
)
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
28,229
|
|
|
|
(895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(8,176
|
)
|
|
|
(5,127
|
)
|
Distributions from equity investments
|
|
|
1,019
|
|
|
|
2,214
|
|
Payments for business combinations
|
|
|
|
|
|
|
(52,250
|
)
|
Other investments
|
|
|
(100
|
)
|
|
|
(605
|
)
|
|
|
|
|
|
|
|
Net cash used in investing activities, continuing operations
|
|
|
(7,257
|
)
|
|
|
(55,768
|
)
|
Net cash (used in) provided by investing activities, discontinued operations
|
|
|
(686
|
)
|
|
|
129,479
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(7,943
|
)
|
|
|
73,711
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net proceeds on exercises of employee stock options and phantom stock units and
employee stock purchase plan issuances
|
|
|
991
|
|
|
|
1,529
|
|
Proceeds from borrowings on long-term debt
|
|
|
100,000
|
|
|
|
60,000
|
|
Principal payments on long-term debt
|
|
|
(152,550
|
)
|
|
|
(130,000
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities, continuing operations
|
|
|
(51,559
|
)
|
|
|
(68,471
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(51,559
|
)
|
|
|
(68,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(31,273
|
)
|
|
|
4,345
|
|
Cash and cash equivalents at the beginning of the period
|
|
|
40,031
|
|
|
|
12,329
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
8,758
|
|
|
$
|
16,674
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
34
LIN Television Corporation
Notes to Unaudited Condensed Consolidated Financials
Note 1 Basis of Presentation
Description of Business
LIN Television Corporation (LIN Television), together with its subsidiaries, is a television
station group operator in the United States. LIN Television and its subsidiaries are affiliates of
HM Capital Partners LLC (HMC). In these notes, the terms Company, LIN Television, we, us
or our mean LIN Television and all subsidiaries included in our condensed consolidated financial
statements. LIN Television is a wholly-owned subsidiary of LIN TV Corp. (LIN TV).
LIN TV fully and unconditionally guarantees all of our debt. All of the consolidated wholly-owned
subsidiaries of LIN Television fully and unconditionally guarantee all of our debt on a
joint-and-several basis.
Changes in Classifications
Certain changes in classifications have been made to the prior period financial statements to
conform to the current financial statement presentation. Our condensed consolidated financial
statements reflect the operations, assets and liabilities of our Puerto Rico operations and of
Banks Broadcasting, Inc. (Banks Broadcasting) as discontinued under the provisions of Statement
of Financial Accounting Standards (SFAS) 144 Accounting for the Impairment or Disposal of
Long-Lived Assets, (SFAS 144) for all periods presented (see Note 3 Discontinued Operations
for further discussion of our discontinued operations).
Basis of Presentation
Our condensed consolidated financial statements have been prepared without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). Certain information and
footnote disclosures normally included in financial statements prepared in accordance with
generally accepted accounting principles in the United States (GAAP) have been condensed or
omitted pursuant to such rules and regulations, including the year-end condensed balance sheet
data, which was derived from audited financial statements, but does not include all disclosures
required by GAAP. We included audited consolidated financial statements for the year ended December
31, 2007 in our Annual Report on Form 10-K, which was filed with the SEC on March 14, 2008.
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. The interim results of operations are not necessarily indicative of the
results to be expected for the full year.
We consolidate Banks Broadcasting in accordance with Financial Accounting Standards Board (FASB)
Interpretation 46 Consolidation of Variable Interest Entities an Interpretation of ARB No. 51
Revised, (FIN 46R). The creditors of Banks Broadcasting have no recourse to us except for our
interest in the preferred stock of Banks Broadcasting.
35
LIN Television Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires our management to make
estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated
financial statements and the notes to the unaudited condensed consolidated financial statements.
Our actual results could differ from these estimates. Estimates are used for the allowance for
doubtful accounts in receivables, fair value of goodwill and intangible assets, amortization of
program rights and intangible assets, stock-based compensation, pension costs, barter transactions,
income taxes, employee medical insurance claims, useful lives of
property, equipment
and definite-lived intangible assets, contingencies, litigation and net assets of businesses acquired.
36
LIN
Television Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Comprehensive (Loss) Income
Our total comprehensive income includes net (loss) income and other comprehensive (loss) income
items listed in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(215,967
|
)
|
|
$
|
3,514
|
|
|
$
|
(214,504
|
)
|
|
$
|
24,246
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior period costs, net of
tax of $(12) and $(10) for the three months ended
June 30, 2008 and 2007, respectively, and net
of tax of $(24) and $(20) for the six months
ended June 30, 2008 and 2007
|
|
|
18
|
|
|
|
15
|
|
|
|
36
|
|
|
|
30
|
|
Amortization of net actuarial losses, net of
tax of $(19) and $(124) for the three months
ended June 30, 2008 and 2007, respectively,
and net of tax of $(38) and $(248) for the six
months ended June 30, 2008 and 2007
|
|
|
29
|
|
|
|
190
|
|
|
|
58
|
|
|
|
393
|
|
Change in fair value of cash flow hedges, net
of tax of $(1,107) and $(539) for the three
months ended June 30, 2008 and 2007,
respectively, and net of tax of $(101) and $(405)
for the six months ended June 30, 2008 and
2007
|
|
|
1,668
|
|
|
|
827
|
|
|
|
152
|
|
|
|
621
|
|
Recognition of accumulative benefit
obligation, discontinued operations
|
|
|
|
|
|
|
419
|
|
|
|
|
|
|
|
419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
$
|
(214,252
|
)
|
|
$
|
4,965
|
|
|
$
|
(214,258
|
)
|
|
$
|
25,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate
We estimated an annual effective tax rate of 25.0% and 45.3% as of June 30, 2008 and 2007,
respectively.
37
LIN Television Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Recently Issued Accounting Pronouncements
In June 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3 Determination of the Useful
Life of Intangible Assets (FSP FAS 142-3), which is effective for financial statements issued
for fiscal years beginning after December 31, 2008, and interim periods within those fiscal years.
Early adoption is prohibited. FSP FAS 142-3 provides guidance for determining the useful life of a
recognized intangible asset and will be applied prospectively to intangible assets acquired after
the effective date. We plan to adopt FSP FAS 142-3 effective January 1, 2009, and its effects on
future periods will depend on the nature and significance of any
acquisitions subject to SFAS 141R Business Combinations
(SFAS 141R).
In March 2008, the FASB issued SFAS 161 Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133 (SFAS 161), which is effective for fiscal
years and interim periods beginning after November 15, 2008, with earlier adoption encouraged. This
statement is intended to improve transparency in financial reporting by requiring enhanced
disclosures of an entitys derivative instruments and hedging activities and their effects on the
entitys financial position, financial performance, and cash flows. SFAS 161 applies to all
derivative instruments within the scope of SFAS 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS 133), as well as related hedged items, bifurcated derivatives, and
nonderivative instruments that are designated and qualify as hedging instruments. We do not expect
SFAS 161 to have a material impact on our consolidated financial statements and we plan to adopt it
effective January 1, 2009.
In December 2007, the FASB issued SFAS 141R, which is
effective prospectively for all business combinations with acquisition dates on or after the
beginning of the first fiscal year beginning after December 15, 2008, with the exception of the
accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141R
replaces SFAS 141 Business Combinations (SFAS 141), but it retains the underlying concepts of
SFAS 141 in that all business combinations are required to be accounted for at fair value under the
acquisition method of accounting. However, SFAS 141R changed the method of applying the
acquisition method in a number of significant ways. Acquisition costs will generally be expensed as
incurred; non-controlling interests will be valued at fair value at the acquisition date;
in-process research and development will be recorded at fair value at the acquisition date as an
indefinite-lived intangible asset; restructuring costs associated with a business combination will
generally be expensed subsequent to the acquisition date; and changes in deferred tax asset
valuation allowances and income tax uncertainties after the acquisition date generally will affect
income tax expense. We plan to adopt SFAS 141R effective January 1, 2009, and its effects on future
periods will depend on the nature and significance of any acquisitions subject to SFAS 141R.
In December 2007, the FASB issued SFAS 160 Non-controlling Interests in Consolidated Financial
Statements (SFAS 160), which amends Accounting Research Bulletin (ARB) 51, Consolidated
Financial Statements (ARB 51). SFAS 160 is effective for quarterly and annual reporting periods
that begin after December 15, 2008. SFAS 160 establishes accounting and reporting standards with
respect to non-controlling interests (also called minority interests) in an effort to improve the
relevance, comparability and transparency of financial information that a company provides with
respect to its non-controlling interests.
38
LIN Television Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The significant requirements under SFAS 160 are the
reporting of the non-controlling interests separately in the equity section of the balance sheet and the reporting of the net income or loss
of the controlling and non-controlling interests separately on the face of the statement of
operations. We do not expect SFAS 160 to have a material impact on our consolidated financial
statements and we plan to adopt it effective January 1, 2009.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. For all of
our financial assets and liabilities that are recognized and disclosed at fair value on a recurring
basis, we adopted the provisions of SFAS 157 effective January 1, 2008, and we do not expect SFAS
157 to have a material impact on our consolidated financial statements. For all assets and
liabilities that are non-financial that are recognized or disclosed at fair value in the financial
statements on a non-recurring basis, we plan to adopt the provisions of SFAS 157 effective January
1, 2009. This partial deferral was a result of Staff Position 157-2 Effective Date of FASB
Statement No. 157 (FSP 157-2) issued on February 12, 2008, which delayed the adoption of SFAS
157 for non-financial assets and liabilities that are recognized or disclosed at fair value on a
non-recurring basis. We are currently evaluating the impact of SFAS 157 on our financial statements
relative to non-financial assets and liabilities.
Note 2 Acquisitions
Acquisition Reserves
In connection with the acquisitions of television stations, we recorded certain liabilities
relating to employee severance costs, buy-outs of operating agreements and other transaction costs.
The following summarizes the activity related to our acquisition reserves (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
Acquisition Date
|
|
2007
|
|
|
Payments
|
|
|
Adjustments
|
|
|
2008
|
|
Acquisition of Sunrise Television Corp.
|
|
May 2, 2002
|
|
$
|
40
|
|
|
$
|
17
|
|
|
$
|
|
|
|
$
|
23
|
|
Stations acquired from Viacom
|
|
March 31, 2005
|
|
|
86
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
Stations acquired from Emmis
|
|
November 30, 2005
|
|
|
4,644
|
|
|
|
527
|
|
|
|
|
|
|
|
4,117
|
|
Station acquired from Raycom
|
|
February 22, 2007
|
|
|
446
|
|
|
|
357
|
|
|
|
(89
|
)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,216
|
|
|
$
|
987
|
|
|
$
|
(89
|
)
|
|
$
|
4,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents an adjustment to an operating agreement contract for a discontinued computer system.
|
Note 3 Discontinued Operations
Our condensed consolidated financial statements reflect the operations, assets and liabilities of
our Puerto Rico operations and of Banks Broadcasting as discontinued for all periods presented.
Puerto Rico Operations (WAPA-TV, WJPX-TV and WAPA America)
On March 30, 2007, we sold our Puerto Rico operations to InterMedia Partners VII, L.P. for $131.9
million in cash and, as a result, we recorded a gain on the sale of $22.7 million, net of income
tax benefit.
39
LIN Television Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Banks Broadcasting
We own preferred stock that represents a 50% non-voting interest in Banks Broadcasting, which owns
KNIN-TV, a CW affiliate in Boise. We consolidate Banks Broadcasting under FIN 46R.
In March 2008, Banks Broadcasting sold certain of its 700 MHz spectrum licenses for $2.0 million in
cash with a related gain of $1.4 million. In June 2008, Banks Broadcasting signed a purchase
agreement to sell KNIN-TV for $8.0 million to Journal Broadcasting Corporation, subject to FCC
approval. The sale of KNIN-TV is expected to close in 2008 and we expect to record a gain of
approximately $0.1 million. Upon the completion of this sale, Banks Broadcasting will be
liquidated.
Banks Broadcasting distributed $2.0 million to us for the three and six months ended June 30, 2008,
and distributed no cash to us for the three and six months ended June 30, 2007. We provided no
capital contributions to Banks Broadcasting for the three and six months ended June 30, 2008 or
2007.
The carrying amounts of the assets and liabilities of Banks Broadcasting segregated on our balance
sheet as held for sale are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
Program rights
|
|
$
|
291
|
|
|
$
|
271
|
|
Other current assets
|
|
|
239
|
|
|
|
18
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
530
|
|
|
|
289
|
|
Property and equipment, net
|
|
|
782
|
|
|
|
748
|
|
Program rights
|
|
|
12
|
|
|
|
189
|
|
Intangible assets, net
|
|
|
7,744
|
|
|
|
8,243
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
9,068
|
|
|
$
|
9,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
6
|
|
Other accrued expenses
|
|
|
301
|
|
|
|
308
|
|
Program obligations
|
|
|
264
|
|
|
|
235
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
565
|
|
|
|
549
|
|
Program obligations
|
|
|
22
|
|
|
|
198
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
587
|
|
|
$
|
747
|
|
|
|
|
|
|
|
|
The following presents summarized information for the discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Puerto Rico:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,868
|
|
Operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks Broadcasting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
782
|
|
|
$
|
1,524
|
|
|
$
|
1,567
|
|
|
$
|
2,830
|
|
Operating (loss) income
|
|
|
(170
|
)
|
|
|
12
|
|
|
|
1,110
|
|
|
|
(428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(208
|
)
|
|
$
|
(165
|
)
|
|
$
|
380
|
|
|
$
|
(566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
782
|
|
|
$
|
1,524
|
|
|
$
|
1,567
|
|
|
$
|
12,698
|
|
Operating (loss) income
|
|
|
(170
|
)
|
|
|
12
|
|
|
|
1,110
|
|
|
|
(1,522
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(208
|
)
|
|
$
|
(165
|
)
|
|
$
|
380
|
|
|
$
|
(934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
LIN Television Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Note 4 Equity Investments
Joint Venture with NBC Universal
We own a 20.38% interest in Station Venture Holdings, LLC, a joint venture with NBC Universal, and
account for our interest using the equity method as we do not have a controlling interest. The
following presents the summarized financial information of the NBC Universal joint venture (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions from equity investment
|
|
$
|
17,502
|
|
|
$
|
17,954
|
|
|
$
|
38,948
|
|
|
$
|
43,889
|
|
Income from equity investment
|
|
|
15,255
|
|
|
|
21,563
|
|
|
|
33,958
|
|
|
|
47,847
|
|
Other expense, net (primarily interest on the GECC Note)
(1)
|
|
|
(16,491
|
)
|
|
|
(16,492
|
)
|
|
|
(32,982
|
)
|
|
|
(32,853
|
)
|
Net (loss) income
|
|
|
(1,236
|
)
|
|
|
5,071
|
|
|
|
976
|
|
|
|
14,994
|
|
Cash distributed to us
|
|
|
|
|
|
|
408
|
|
|
|
1,019
|
|
|
|
1,427
|
|
|
|
|
(1)
|
|
See Note 9 - Commitments and Contingencies for
further description of the GECC Note and LIN TVs Guarantee of
the GECC Note.
|
Note 5 Intangible Assets
The following table summarizes the carrying amount of intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
December 31, 2007
|
|
|
|
Gross carrying
|
|
|
Accumulated
|
|
|
Gross carrying
|
|
|
Accumulated
|
|
|
|
amount
|
|
|
Amortization
|
|
|
amount
|
|
|
Amortization
|
|
Goodwill
|
|
$
|
424,122
|
|
|
$
|
|
|
|
$
|
535,418
|
|
|
$
|
|
|
Broadcast licenses
|
|
|
834,231
|
|
|
|
|
|
|
|
1,019,908
|
|
|
|
|
|
Intangible
assets subject to amortization
(1)
|
|
|
7,796
|
|
|
|
(6,597
|
)
|
|
|
7,796
|
|
|
|
(6,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
1,266,149
|
|
|
$
|
(6,597
|
)
|
|
$
|
1,563,122
|
|
|
$
|
(6,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Intangibles subject to amortization are amortized on a straight-line basis and include the
following categories of intangible assets: acquired advertising contracts, advertiser lists,
advertiser relationships, favorable operating leases, tower rental income leases, local marketing
agreement, purchase options and network affiliation contracts and relationships.
|
We recorded an impairment charge of $297.0 million during the second quarter of 2008 that included
an impairment to the carrying values of our broadcast licenses of $185.7 million, relating to 19 of
our television stations; and an impairment to the carrying values of our goodwill of $111.3
million, relating to 8 of our television stations. As required by SFAS 142, Goodwill and Other
Intangible Assets (SFAS 142), we tested for
impairment our unamortized intangible assets at June 30, 2008,
between the required annual tests, because we believed events had occurred and circumstances
changed that would more likely than not reduce the fair value of our broadcast licenses and goodwill below their
carrying amounts. These events included: a) the continued decline of the price of our Class A
common stock; b) the decline in the current selling prices of
television stations; and c) the lower growth in advertising revenues
and the
decline in the operating profit margins of some of our stations.
We used the income approach to test our broadcast licenses for impairments as of June 30, 2008 and
we used the same assumptions as disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2007, except for the following adjustments: a) the discount rate was adjusted from 8%
to 9%; b) market growth rates were adjusted from a range of 8.5% to
41
LIN
Television Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
40.9% to a
range of 0.1% to 2.1%; and c) operating profit margins were adjusted
from a range of 8.5% to 40.9% to a range of 8.5% to
39.8%.
The increase in the discount rate reflects the current volatility of stock prices of public
companies within the media sector. The changes in the market growth rates and operating profit
margins reflect the current general economic pressures now impacting both the national and a number
of local economies, and specifically, national and local advertising expenditures in the markets
where our stations operate.
We used the income approach to test goodwill for impairments as of June 30, 2008 and we used the
same assumptions as disclosed in our Annual Report on Form 10-K for the year ended December 31,
2007, except for the following adjustments: a) the discount rate was adjusted from 10% to 11.5%; b)
market growth rates were adjusted from a range of 1.0% to 2.7% to a range of 0.1% to 2.1%; and c)
operating profit margins were adjusted from a range of 35.3% to 40.3% to a range of 22.4% to 62.1%.
These assumptions are based on: a) the actual historical performance of our stations; b)
managements estimates of future performance of our stations; and c) the same market growth
assumptions used in the calculation of the fair value of our broadcast licenses.
The increase in the discount rate reflects the current volatility of our Class A common stock. The
changes in the market growth rates and operating profit margins reflect the current general
economic pressures now impacting both the national and a number of local economies, and
specifically, national and local advertising expenditures in the markets where our stations
operate.
Determining the fair value of our television stations requires our management to make a number of
judgments about assumptions and estimates that are highly subjective and that are based on
unobservable inputs or assumptions. The actual results may differ from these assumptions and
estimates; and it is possible that such differences could have a material impact on our financial
statements.
The following table summarizes the estimated amortization expense for the remainder of 2008 and for
the next five years and thereafter (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, to
|
|
|
|
|
|
|
|
|
December 31,
|
|
Year ending December 31,
|
|
There-
|
|
|
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
after
|
|
Total
|
Estimated amortization expense
|
|
$
|
171
|
|
|
$
|
80
|
|
|
$
|
74
|
|
|
$
|
68
|
|
|
$
|
61
|
|
|
$
|
59
|
|
|
$
|
686
|
|
|
$
|
1,199
|
|
42
LIN
Television Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Note 6 Debt
Debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Credit facility
|
|
$
|
227,325
|
|
|
$
|
154,875
|
|
6
1/2
% Senior Subordinated Notes due 2013
|
|
|
375,000
|
|
|
|
375,000
|
|
$190,000, 6
1/2
% Senior Subordinated Notes due
2013 Class B (net of discount of $9,565 and
$10,519 at June 30, 2008 and
December 31, 2007, respectively)
|
|
|
180,435
|
|
|
|
179,481
|
|
$125,000, 2.50% Exchangeable Senior
Subordinated Debentures due 2033 (net of
discount of $1,580 at December 31, 2007)
|
|
|
|
|
|
|
123,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
782,760
|
|
|
|
832,776
|
|
Less current portion
|
|
|
21,900
|
|
|
|
24,300
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
760,860
|
|
|
$
|
808,476
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2008, we repaid $27.6 million of the term loans under our
credit facility using available cash balances, including $11.6 million related to mandatory
quarterly payments and $16.0 million related to additional payments required because we did not
reinvest the remaining proceeds from certain of the 2007 asset sales.
On May 16, 2008, we purchased $125.0 million of our 2.50% Exchangeable Senior Subordinated
Debentures, all of which were tendered to us, using $115.0 million available under our revolving
credit facility and $10.0 million of our available cash balances. We subsequently repaid $15.0
million of our outstanding revolving credit loans on June 30, 2008.
At June 30, 2008, we were in compliance with all of the covenants under our credit facility. See
Note 7 Long-term Debt included in Item 15 of our Annual Report on Form 10-K for the year ended
December 31, 2007 for a full description of our credit facility.
43
LIN
Television Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Note 7 Retirement Plans
The following table shows the components of the net periodic pension benefit cost and the
contributions to the 401(k) Plan and to the retirement plans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net periodic pension benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
538
|
|
|
$
|
550
|
|
|
$
|
1,076
|
|
|
$
|
1,100
|
|
Interest cost
|
|
|
1,592
|
|
|
|
1,500
|
|
|
|
3,184
|
|
|
|
3,000
|
|
Expected return on plan assets
|
|
|
(1,705
|
)
|
|
|
(1,550
|
)
|
|
|
(3,410
|
)
|
|
|
3,100
|
|
Amortization of prior service cost
|
|
|
30
|
|
|
|
25
|
|
|
|
60
|
|
|
|
50
|
|
Amortization of net loss
|
|
|
48
|
|
|
|
314
|
|
|
|
96
|
|
|
|
641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
503
|
|
|
$
|
839
|
|
|
$
|
1,006
|
|
|
$
|
7,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) Plan
|
|
$
|
360
|
|
|
$
|
797
|
|
|
$
|
673
|
|
|
$
|
1,525
|
|
Retirements plans
|
|
|
1,500
|
|
|
|
750
|
|
|
|
2,250
|
|
|
|
1,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contributions
|
|
$
|
1,860
|
|
|
$
|
1,547
|
|
|
$
|
2,923
|
|
|
$
|
3,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect
to make contributions of $0.8 million to our defined benefit retirement plans during the
remainder of 2008. See Note 11 Retirement Plans included in Item 15 of our Annual Report on
Form 10-K for the year ended December 31, 2007 for a full description of our retirement plans.
Note 8 Fair Value Measurement
We record certain financial assets and liabilities at fair value on a recurring basis consistent
with SFAS 157. The following table summarizes the financial assets and liabilities measured at
fair value in the accompanying condensed consolidated balance sheet, using the three-level fair
value hierarchy established by SFAS 157 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
|
|
|
|
Significant
|
|
Signficant
|
|
|
|
|
Quoted prices in
|
|
observable
|
|
unobservable
|
|
|
|
|
active markets
|
|
inputs
|
|
inputs
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation related investments
|
|
$
|
5,229
|
|
|
|
$
|
|
|
$
|
|
|
|
$
|
5,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
3,271
|
|
|
|
|
|
|
|
3,271
|
|
Deferred compensation related liabilities
|
|
|
5,229
|
|
|
|
|
|
|
|
|
|
|
|
5,229
|
|
The fair value of interest rate swaps is determined based on the present value of future cash flows
using observable inputs, including interest rates associated with a similar financial instrument
using a series of three-month LIBOR-based loans through November 4, 2011. The fair value of
deferred compensation is determined based on the fair value of the investments elected by
employees.
44
LIN
Television Corporation
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Note 9 Commitments and Contingencies
In connection with the formation of the joint venture with NBC Universal, General Electric Capital
Corporation (GECC) provided an $815.5 million 25-year non-amortizing senior secured note bearing
an initial interest rate of 8.0% per annum until March 2, 2013 and 9.0% per annum thereafter (GECC
Note). The joint venture has historically produced cash flows to support the interest payments and
to maintain minimum levels of required cash balances of $15 million. In addition, the joint venture
has made cash distributions to us and to NBC Universal from the excess cash generated by the joint
venture of approximately $19.2 million on average each year during the past three years.
Accordingly, we expect that the interest payments on the GECC Note will be serviced solely by the
cash flow of the joint venture. The GECC Note is not an obligation of ours, but has recourse to the
joint venture, our equity interests therein and to LIN TV pursuant to a guarantee. If the joint
venture were to default on its obligations and became unable to pay principal or interest on the
GECC Note and GECC could not otherwise be repaid its money from the joint venture, GECC could
require us to pay the shortfall of any outstanding amounts under the GECC Note. If this happened,
LIN TV could experience material adverse consequences, including:
|
|
|
GECC could force us to sell the stock of LIN Television held by us to satisfy
outstanding amounts under the GECC Note;
|
|
|
|
|
if more than 50% of the ownership of LIN Television had to be sold to satisfy the
GECC Note, it could cause an acceleration of our credit facility and other outstanding
indebtedness; or
|
|
|
|
|
if the GECC Note is prepaid because of an acceleration or on default or otherwise, or
if the GECC Note is repaid at maturity, we may incur a substantial
tax liability. For a complete discussion of the risks associated with
LIN TVs Guarantee of the GECC Note, see Item 1A. Risk
Factors of our Annual Report on the Form 10-K for the year
ended December 31, 2007.
|
The joint venture is approximately 80% owned by NBC Universal. NBC Universal controls the
operations of the stations through a management contract. Therefore, the operation and
profitability of those stations and the likelihood of a default under the GECC Note are primarily
within NBC Universals control.
45
Lin TV (NYSE:TVL)
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