UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
________________
Form 10-K
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þ
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the fiscal year ended December 31, 2009
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or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the transition period
from to
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LIN TV
Corp.
(Exact
name of registrant as specified in its charter)
Commission
File Number: 001-31311
LIN
Television Corporation
(Exact
name of registrant as specified in its charter)
Commission
File Number: 000-25206
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Delaware
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Delaware
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(State
or other jurisdiction of incorporation or organization)
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(State
or other jurisdiction of incorporation or organization)
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05-0501252
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13-3581627
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(I.R.S.
Employer Identification No.)
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(I.R.S.
Employer Identification No.)
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One
West Exchange Street, Suite 5A, Providence, Rhode Island 02903
(Address
of principal executive offices)
(401) 454-2880
(Registrant’s
telephone number, including area code)
Securities
Registered Pursuant to Section 12(b) of the Exchange Act:
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Title
of each class
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Name
of each exchange on which registered
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Class
A common stock, par value $0.01 per share
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New
York Stock Exchange
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ
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 has submitted electronically and posted to
its corporate Web site, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding twelve months (or for such shorter period that the
registrant was required to submit and post such files). Yes £ No
£
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. þ
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):
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Large
accelerated filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting company o
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(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act.) Yes o No þ
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates (based on the last reported sale price of the registrant’s
class A common stock on June 30, 2009 on the New York Stock Exchange)
was approximately $86 million.
DOCUMENTS
INCORPORATED BY REFERENCE
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Document
Description
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Form 10-K
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Portions
of the Registrant’s Proxy Statement on Schedule 14A for the Annual
Meeting of Stockholders to be held on May 11, 2010
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Part III
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NOTE:
This
combined Form 10-K is separately filed by LIN TV Corp. and LIN
Television Corporation. LIN Television Corporation meets the conditions set
forth in general instruction I(1) (a) and (b) of Form 10-K
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
March 3, 2010: 29,407,317 shares.
LIN TV
Corp. Class B common stock, $0.01 par value, issued and outstanding at
March 3, 2010: 23,502,059 shares.
LIN TV
Corp. Class C common stock, $0.01 par value, issued and outstanding at
March 3, 2010: 2 shares.
LIN
Television Corporation common stock, $0.01 par value, issued and
outstanding at March 3, 2010: 1,000 shares.
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F-97
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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 the
captions Item 1. Business and Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations. All of these
forward-looking statements are based on estimates and assumptions made by our
management, which, although we believe them to be reasonable, are inherently
uncertain. Therefore, you should not place undue reliance upon such
forward-looking statements. We cannot assure you that any of such statements
will be realized and it is likely that 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, as well as the following:
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·
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volatility
and disruption of the capital and credit markets and further adverse
changes in the national and local economies in which our stations
operate;
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·
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volatility
and periodic changes in our advertising
revenues;
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·
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restrictions
on our operations due to, and the effect of, our significant
indebtedness;
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·
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our
ability to continue to comply with financial debt covenants dependent on
cash flows;
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·
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our
guarantee of the General Electric Capital Corporation (“GECC”)
note;
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·
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effects
of complying with accounting standards, including with respect to the
treatment of our intangible assets;
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·
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increases
in our cost of borrowings or inability or unavailability of additional
debt or equity capital;
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·
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increased
competition, including from newer forms of entertainment and entertainment
media, or changes in the popularity or availability of
programming;
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·
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increased
costs, including increased news and syndicated programming costs and
increased capital expenditures as a result of acquisitions or necessary
technological enhancements;
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·
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effects
of our control relationships, including the control that HM Capital
Partners LLC (“HMC”) and its affiliates have with respect to corporate
transactions and activities we
undertake;
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·
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adverse
state or federal legislation or regulation or adverse determinations by
regulators, including adverse changes in, or interpretations of, the
exceptions to the FCC duopoly rule and the allocation of broadcast
spectrum;
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·
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declines
in the domestic advertising market;
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further
consolidation of national and local
advertisers;
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global
or local events that could disrupt television
broadcasting;
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risks
associated with acquisitions including integration of acquired
businesses;
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·
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changes
in television viewing patterns, ratings and commercial viewing
measurement;
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changes
in our television network affiliation
agreements;
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·
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changes
in our retransmission consent
agreements;
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seasonality
of the broadcast business due primarily to political advertising revenues
in even years; and
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·
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impact
of union activity, including possible strikes or work stoppages or our
inability to negotiate favorable terms for contract
renewals.
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Many of
these factors are beyond our control. Forward-looking statements contained
herein speak only as of the date hereof. We undertake no obligation to publicly
release the result of any revisions to these forward-looking statements, to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Overview
LIN TV
Corp. is a local television and digital media company, owning and/or operating
28 television stations and interactive television station and niche web sites in
17 U.S. markets. Our highly-rated stations deliver superior local news and
community stories, along with top-rated sports and entertainment programming, to
8% of U.S. television homes, reaching an average of 9.7 million households
per week. All of our television stations are affiliated with a national
broadcast network. We are a leader in the convergence of local broadcast
television and the Internet through our television station web sites and a
growing number of local interactive initiatives and Internet-based products and
services. Our stations are primarily located in the top 75 Designated Market
Areas (“DMA”) as measured by Nielsen Media Research (“Nielsen”). In this report,
the terms “Company,” “LIN TV”, “we”, “us” or “our” mean LIN TV Corp.
and all subsidiaries included in our consolidated financial statements. Our
class A common stock is traded on the New York Stock Exchange (“NYSE”) under the
symbol “TVL”.
We
provide free, over-the-air broadcasts of our programming 24 hours per day
to the communities we are licensed to serve. We are committed to serving the
public interest by providing free daily local news coverage, making public
service announcements and providing advertising time to political
candidates.
We seek
to have the largest local media presence in each of our local markets by
combining strong network and syndicated programming with leading local news, and
by pursuing our multi-channel strategy. This multi-channel strategy enables us
to increase our audience share by operating multiple stations on multiple
platforms in the same market. We currently deliver content over the air, on-line
and on mobile applications. We also operate multiple stations in nine
of our markets.
Development
of Our Business
Ownership
and organizational structure
Our
Company (including its predecessors) has owned and operated television stations
since 1966 and was incorporated on February 11, 1998. A group of investors
led by the predecessor of HMC acquired LIN Television Corporation, our
wholly-owned subsidiary, on March 3, 1998 and was incorporated on June 18,
1990. On May 3, 2002, we completed our initial public offering and our
class A common stock began trading on the NYSE. Our corporate offices are
at One West Exchange Street, Suite 5A, Providence, Rhode Island
02903.
We have
three classes of common stock. The class A common stock and the
class C common stock are both voting common stock, with the class C
common stock having 70% of the aggregate voting power. The class B common
stock is held by affiliates of HMC and has no voting rights, except that without
the consent of a majority of the class B common stock, we cannot enter into
a wide range of corporate transactions.
This
capital structure allowed us to issue voting stock while preserving the
pre-existing ownership structure in which the class B stockholders did not
have an attributable ownership interest in our television broadcast licenses
pursuant to the rules of the Federal Communications Commission
(“FCC”).
The
following diagram summarizes our corporate structure as of March 3,
2010:
Class
A Common
Stock
Stock
29,407,317 shares
outstanding
listed on the NYSE under the
symbol “TVL”
listed on the NYSE under the
symbol “TVL”
30%
voting power
Class
B Common
Stock
Stock
23,502,059
shares
outstanding, all of which are
currently held by affiliates or
former affiliates of HMC
outstanding, all of which are
currently held by affiliates or
former affiliates of HMC
Non-voting
Class
C Common
Stock
Stock
2 shares
outstanding, 1 of
which is held by affiliates of
Mr. Royal W. Carson III, a
which is held by affiliates of
Mr. Royal W. Carson III, a
director,
and the other by HMC
70%
voting power
LIN
TV Corp.
LIN
Television Corporation
Television Stations
and
Digital
Operations
Joint
Ventures
All of
the shares of our class B common stock are held by affiliates of HMC or
former affiliates of HMC. The class B common stock is convertible into
class A common stock or class C common stock in various circumstances.
The class C common stock is also convertible into class A common stock
in certain circumstances. If affiliates of HMC converted their shares of
class B common stock into shares of class A common stock and the
shares of class C common stock were converted into shares of class A
common stock as of March 3, 2010, the holders of the converted shares of
class C common stock would own less than 0.01% of the total outstanding
shares of class A common stock and resulting voting power, and the
affiliates of HMC would own 44.4% of the total outstanding shares of
class A common stock and resulting voting power.
HMC has
advised us that it has no current intention of converting its shares of
class B common stock into shares of class A voting common stock or
shares of class C voting common stock.
Our
television stations
We own,
operate and/or program 28 stations, including two stations pursuant to local
marketing agreements and one low-power station, which operates as a stand-alone
station. We also have an equity investment in other stations through a joint
venture. The following table lists the stations that we own, operate and/or
program, or in which we have an equity investment:
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Market
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DMA
Rank (1)
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Station
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Affiliation
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Digital
Channel
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Status(2)
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FCC
license expiration
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Owned:
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Indianapolis,
IN
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25
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WISH-TV
(3)
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CBS
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9
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8/1/2013
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WNDY-TV
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MNTV
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32
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8/1/2013
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Hartford-New
Haven, CT
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30
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WTNH-TV
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ABC
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10
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4/1/2015
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WCTX-TV
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MNTV
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39
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4/1/2015
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Columbus,
OH
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34
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WWHO-TV
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CW
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46
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10/1/2013
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Grand
Rapids-Kalamazoo-Battle Creek, MI
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41
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WOOD-TV
(3)
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NBC
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7
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10/1/2013
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WOTV-TV
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ABC
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20
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10/1/2013
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WXSP-CA
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MNTV
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Various
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10/1/2013
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Norfolk-Portsmouth-Newport
News, VA
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43
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WAVY-TV
(3)
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NBC
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31
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10/1/2012
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WVBT-TV
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FOX
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29
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10/1/2012
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Albuquerque,
NM
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44
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KRQE-TV
(3)
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CBS
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16
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10/1/2006
(5)
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KASA-TV
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FOX
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27
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10/1/2014
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Buffalo,
NY
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52
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WIVB-TV
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CBS
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39
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6/1/2015
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WNLO-TV
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CW
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32
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6/1/2015
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Austin,
TX
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48
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KXAN-TV
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NBC
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21
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8/1/2014
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KNVA-TV
(3)
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CW
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49
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LMA
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8/1/2014
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KBVO-TV(4)
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MNTV
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14
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8/1/2014
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Providence,
RI-New Bedford, MA
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53
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WPRI-TV
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CBS
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13
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4/1/2015
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WNAC-TV
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FOX
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54
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LMA
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4/1/2007(5)
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Mobile,
AL/Pensacola, FL
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60
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WALA-TV
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FOX
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9
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4/1/2013
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WFNA-TV
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CW
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25
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4/1/2013
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Dayton,
OH
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65
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WDTN-TV
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NBC
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50
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10/1/2013
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Green
Bay, WI
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70
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WLUK-TV
(3)
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FOX
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51
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12/1/2013
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Toledo,
OH
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73
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WUPW-TV
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FOX
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46
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10/1/2013
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Fort
Wayne, IN
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107
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WANE-TV
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CBS
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31
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8/1/2013
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Springfield-Holyoke,
MA
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111
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WWLP-TV
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NBC
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11
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4/1/2015
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Terre
Haute, IN
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152
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WTHI-TV
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CBS
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24
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8/1/2013
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Lafayette,
IN
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191
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WLFI-TV
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CBS
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11
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8/1/2013
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NBC
Universal/LIN Joint Venture:
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Dallas-Forth
Worth, TX
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5
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KXAS-TV
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NBC
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41
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JV
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8/1/2006
(5)
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San
Diego, CA
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28
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KNSD-TV
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NBC
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40
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JV
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12/1/2006
(5)
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(1)
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DMA
estimates and rankings are taken from Nielsen Local Universe Estimates for
the 2009-2010 Broadcast Season, effective September 21, 2009. There
are 210 DMAs in the United States. All Nielsen data included in
this report represents Nielsen’s estimates, and Nielsen has neither
reviewed nor approved the data included in this report.
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(2)
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All
of our stations are owned and operated except for those stations noted as
“LMA” which indicates stations to which we provide services under a local
marketing agreement (see “Distribution of Programming — local
marketing agreements” for a description of these agreements) and noted as
“JV” which indicates a station owned and operated by a joint venture to
which we are a party.
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(3)
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WISH-TV
includes a low-power station, WIIH-CA. WOOD-TV, WAVY-TV, KNVA-TV, WLUK-TV
each include a group of low-power stations. KRQE-TV includes two satellite
stations, KBIM-TV and KREZ-TV. We own and operate all of these
satellite stations and low-power stations, which broadcast identical
programming as the primary station.
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(4)
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KBVO-TV
is a satellite station of KXAN-TV on which programming is provided through
MyNetworkTV’s program service.
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(5)
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License
renewal applications have been filed with the FCC and are currently
pending.
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For more
information about our joint venture with NBC Universal, see “Joint Venture with
NBC Universal” below and Item 1A. “Risk Factors — The GECC Note could
result in significant liabilities, including (i) requiring us to make short-term
cash payments to the NBC Universal joint venture to fund interest payments, and
(ii) potentially giving rise to a change of control under our existing
indebtedness, which could cause such indebtedness to become immediately due and
payable,” as well as the description in the Liquidity and Capital Resources
section under Item 7. Management’s Discussion and Analysis and Note 14 –
“Commitments and Contingencies” to our consolidated financial
statements.
Description
of Our Business
Strategy
We seek
to increase our revenues and cash flow through achievement of a number of key
strategic and operating goals, which include: a) sustaining leadership in our
core television business; b) building new audiences for our multiplatform
product offerings; and c) continuing our implementation of cost
efficiencies and use of new technology to streamline operations.
The
principal components of our strategy are to:
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Preserve Our Local News
Leadership. We operated the number one or number two
local news station in 91% of our news markets1 for the year ended December 31,
2009. Our stations are committed to a “localist” approach, which sustains
our strong news positions and enhances our brand equity in the community.
We have been recognized for our local news expertise and have won many
awards during the past year, including several Emmy, Associated Press,
Edward R. Murrow and other local and regional awards. We believe that
strong local news programming is among the most important elements in
attracting local advertising revenue. In addition, news audiences serve as
vital lead-ins for other programming and help minimize the impact of
changes in network programming.
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Sustain and Grow Our Revenue
Share Through a Focus on Local Programming. We are
committed to improving the quality of our existing products, developing
new local products, and investing in our future. Local programming allows
us to leverage our existing production teams and on-air talent while
limiting our exposure to long-term syndicated programming contracts. It
also allows us to be more creative and go beyond selling :30 and :60
second spots, and is supported by our advertisers. In 2009, we added
nearly 1,500 hours of local programming and now have unique programs
tailored to the communities we serve in the majority of our
markets. As a result of our strong local station brands,
market-leading news and sales expertise, we achieved market share growth
in 2009.
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·
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Continue to Pursue Our
Multi-Channel Strategy. We continued to expand our
presence in our local markets in 2009 through the launch of MyAustinTV on
KBVO-TV in Austin, TX, and myRITV, a digital channel in Providence, RI.
These added channels and distribution capacity mark an innovative advance
in our digital strategy, which is focused on reinventing existing channels
and creating new brands that deliver targeted, niche programming to a
multiplatform audience, when we believe there is a revenue growth
opportunity. Our strategy also helps us appeal to a wider audience and
market of advertisers while providing economies of scale to pursue
additional and new programming services. As a result, we believe our
duopoly stations provide us with a substantial competitive advantage. For
the long term, we believe our spectrum has value beyond traditional
television channels and digital technology enables us to separate a
portion of that spectrum for incremental services. We have been active in
exploring use of that spectrum and have partnered with the Open Mobile
Video Coalition to launch new technology that will provide live, local and
national over-the-air digital television to consumers via next-generation
portable and mobile devices.
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·
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Continue to Invest in Digital
Media. Our new media teams are focused on embracing new
technologies and growing our portfolio of multimedia products and services
that provide audiences around-the-clock access to our trusted local news
and information. We delivered our largest audience to-date across all of
our web sites in 2009, including 824 million user actions and
approximately 3 billion advertising impressions, with users engaging our
content for more than 23 minutes on average. In addition, over 95 million
page impressions were served to users accessing our content via mobile
devices. Our syndication strategy helped distribute video to users who
consumed over 90 million video views. We will continue to focus on the
depth and breadth of our content in order to become the local online
destination for news and information in our markets, as well as expand our
new media platform through Mobility, Short Message Service (SMS) and
interactive television. Additionally, on October 2, 2009, we completed the
acquisition of Red McCombs Media, LP (“RMM”), an online advertising and
media services company based in Austin, Texas. This acquisition
significantly expands our local multi-platform offerings by providing
national advertising and enhanced services, including targeted display,
rich media, video advertising, custom-built vertical channels, search
engine marketing, search engine optimization and mobile
marketing.
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|
·
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Secure Subscriber Fees from
Pay-Television Operators. Local broadcast stations reach
90% of U.S. television households through carriage on cable,
telecommunications and satellite multi-channel video systems2. The surge of competition from satellite
and telecommunications companies, combined with our strong local and
national programming, provides us with compelling negotiating positions to
obtain compensation for our channels. We currently have agreements with
every major cable, telecommunications and satellite company in the markets
we serve.
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·
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Continue to Improve Our
Operating Efficiencies. We have achieved company-wide
operating efficiencies through economies of scale in the purchase of
programming, ratings services, research services, national sales
representation, capital equipment and other vendor services. In addition,
we operate two regional television technology centers that have
centralized engineering, operations and administration for multiple
stations at a single location. In 2009, we successfully integrated all of
our major mid-west, New England and mid-Atlantic stations into our
technology centers, saving manpower and reducing capital costs. A current
initiative is to improve our newsgathering and production process by
sharing resources and multitasking. We are
transitioning to journalists that have a wide range of skills, including
video camera operation, writing and editing. Our modern newsrooms create a
unique and instantaneous reporting culture that drives cost reduction and
efficiency. As a result of careful planning, training and communication,
our stations are embracing our new culture and working hard to produce
more local news on a 24/7 real-time basis for our web, mobile and
television using fewer resources.
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Principal
Sources of Revenue
Local,
national and political advertising revenues
Local,
national and political advertising, net of agency commissions, represented
approximately 84%, 90% and 92% of our total net revenues for the years ended
December 31, 2009, 2008 and 2007, respectively. We receive these revenues
principally from advertising time sold in our local news, network and syndicated
programming. Advertising rates are based upon a variety of factors,
including:
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·
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size
and demographic makeup of the market served by the television
station;
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·
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a
program’s popularity among television
viewers;
|
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·
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number
of advertisers competing for the available
time;
|
|
·
|
availability
of alternative advertising media in the station’s market
area;
|
|
·
|
our
station’s overall ability to attract viewers in its market
area;
|
|
·
|
our
station’s ability to attract viewers among particular demographic groups
that an advertiser may be
targeting; and
|
|
·
|
effectiveness
of our sales force.
|
Network
compensation
The three
oldest networks, ABC, CBS and NBC, had historically made cash compensation
payments for our carriage of their network programming. However, in accordance
with prevailing trends in our industry, our recent agreements with these
networks now reflect a reduction and eventual elimination of network
compensation payments to us and or require us to pay compensation to the
network.
The newer
networks, such as FOX, CW and MyNetworkTV, provide less network programming, pay
no network compensation and, in some instances, require us to pay network
compensation. However, these newer networks provide us with more advertising
inventory to sell than ABC, NBC or CBS.
2
Source: Nielsen DMA Universe Estimates. January,
2010.
Barter
revenues
We
occasionally barter our unsold advertising inventory for goods and services that
are required to operate our television stations or are used in sales and
marketing efforts. We also acquire certain syndicated programming by providing a
portion of the available advertising inventory within the program, in lieu of
cash payments.
Digital
revenues
We
generate digital revenues from advertising produced by our television stations’
Internet web sites, from retransmission consent fees received from cable,
satellite and telecommunications companies for the rights to carry our signals
in their pay television services to consumers and by providing online
advertising and media services through RMM.
Other
revenues
We
receive other revenues from sources such as renting space on our television
towers, renting our production facilities, copyright royalties and providing
television production services.
Sources
and Availability of Programming
We
program our television stations from the following program sources:
|
·
|
News
and general entertainment programming that is produced by our local
television stations;
|
|
·
|
Network
programming: such as “CSI” or “Ugly
Betty”;
|
|
·
|
Syndicated
programming: off-network programs, such as “The Simpsons” or “Two and a
Half Men”, and first-run programs, such as “Jeopardy”, “Entertainment
Tonight” or “Wheel of Fortune”;
|
|
·
|
Paid
programming: arrangements where a third party pays our stations for a
block of time, generally in one half hour or one hour time periods to air
long-form advertising or
“infomercials”; and
|
|
·
|
Local
Weather Station: we provide a 24-hour weather channel to local cable
systems in certain of our television
markets.
|
Locally
produced news and general entertainment programming
Our
stations produce an aggregate of 521 hours of local news programming per
week that we broadcast on all but one of our stations. We believe that
successful local news programming is an important element in attracting local
advertising revenues. In addition, our news programs which have had historically
high ratings and strong viewership, have served as strong lead-ins for other
programs and have created strong local station brands in each of our local
communities. Local news programming also allows us greater control over our
programming costs.
Our
current network affiliations and number of weekly hours of network, local news
and other local programming are as follows:
|
Network
|
DMA
|
DMA
Rank
|
Station
|
Weekly
Hours of Network Programming
|
Weekly
Hours of Local News Programming
|
Weekly
Hours of Other Local Programming
|
Network
Affiliation End Date
|
|||||||||
|
ABC
|
Hartford-New
Haven, CT
|
30
|
WTNH-TV
|
91
|
29
|
2
|
8/31/2011
|
|||||||||
|
Grand
Rapids-Kalamazoo-Battle Creek, MI
|
41
|
WOTV-TV
|
89
|
9
|
1
|
8/31/2011
|
||||||||||
|
CBS
|
Indianapolis,
IN
|
25
|
WISH-TV
|
94
|
32
|
1
|
12/31/2014
|
|||||||||
|
Albuquerque,
NM
|
44
|
KRQE-TV
|
99
|
28
|
-
|
12/31/2014
|
||||||||||
|
Buffalo,
NY
|
52
|
WIVB-TV
|
90
|
31
|
1
|
12/31/2014
|
||||||||||
|
Providence,
RI-New Bedford, MA
|
53
|
WPRI-TV
|
99
|
31
|
-
|
12/31/2014
|
||||||||||
|
Fort
Wayne, IN
|
107
|
WANE-TV
|
97
|
22
|
-
|
12/31/2014
|
||||||||||
|
Terre
Haute, IN
|
152
|
WTHI-TV
|
99
|
17
|
-
|
12/31/2014
|
||||||||||
|
Lafayette,
IN
|
191
|
WLFI-TV
|
98
|
22
|
-
|
12/31/2017
|
||||||||||
|
NBC
|
Grand
Rapids-Kalamazoo-Battle Creek, MI
|
41
|
WOOD-TV
|
96
|
32
|
6
|
1/1/2013
|
|||||||||
|
Norfolk-Portsmouth-Newport
News, VA
|
43
|
WAVY-TV
|
93
|
32
|
2
|
1/1/2013
|
||||||||||
|
Austin,
TX
|
48
|
KXAN-TV
|
81
|
29
|
-
|
1/1/2013
|
||||||||||
|
Dayton,
OH
|
65
|
WDTN-TV
|
96
|
27
|
2
|
1/1/2013
|
||||||||||
|
Springfield-Holyoke,
MA
|
111
|
WWLP-TV
|
95
|
35
|
3
|
1/1/2013
|
||||||||||
|
FOX
|
Norfolk-Portsmouth-Newport
News, VA
|
43
|
WVBT-TV
|
28
|
7
|
1
|
6/30/2013
|
|||||||||
|
Albuquerque,
NM
|
44
|
KASA-TV
|
28
|
12
|
-
|
6/30/2013
|
||||||||||
|
Providence,
RI-New Bedford, MA
|
53
|
WNAC-TV
|
28
|
12
|
5
|
6/30/2013
|
||||||||||
|
Mobile/Pensacola,
FL
|
60
|
WALA-TV
|
28
|
26
|
1
|
6/30/2013
|
||||||||||
|
Green
Bay, WI
|
70
|
WLUK-TV
|
28
|
42
|
11
|
6/30/2013
|
||||||||||
|
Toledo,
Ohio
|
73
|
WUPW-TV
|
28
|
11
|
-
|
6/30/2013
|
||||||||||
|
CW
|
Columbus,
OH
|
34
|
WWHO-TV
|
25
|
-
|
-
|
9/17/2016
|
|||||||||
|
Buffalo,
NY
|
52
|
WNLO-TV
|
33
|
6
|
1
|
9/17/2016
|
||||||||||
|
Austin,
TX
|
48
|
KNVA-TV
|
25
|
4
|
-
|
9/17/2016
|
||||||||||
|
Mobile/Pensacola,
FL
|
60
|
WFNA-TV
|
25
|
-
|
2
|
9/17/2016
|
||||||||||
|
MyNetworkTV(1)
|
Indianapolis,
IN
|
25
|
WNDY-TV
|
13
|
9
|
1
|
10/3/2011
|
|||||||||
|
Hartford-New
Haven, CT
|
30
|
WCTX-TV
|
10
|
9
|
1
|
10/3/2011
|
||||||||||
|
Grand
Rapids-Kalamazoo-Battle Creek, MI
|
41
|
WXSP-CA
|
10
|
4
|
1
|
10/3/2011
|
||||||||||
|
Austin,
TX
|
48
|
KBVO-TV
|
10
|
3
|
-
|
10/3/2011
|
||||||||||
|
1,636
|
521
|
42
|
|
(1)
|
On
September 28, 2009, MyNetworkTV changed its status from a
broadcast-network model to a program service model. The program
service differs from a broadcast network in that it is closer to a
television syndication business.
|
Network
programming
All of
our stations are affiliated with one of the national television networks. Our
network affiliation agreements provide a local station certain exclusive rights
and an obligation, subject to certain limited preemption rights, to carry the
network programming. While the networks retain most of the advertising time
within their programs for their own use, the local station also has the right to
sell a limited amount of advertising time within the network programs. Other
time periods, which are not programmed by the networks, are programmed by the
local station, for which the local station retains all of the advertising
revenues. Networks also share certain of their programming with cable networks
and make certain of their programming available through their web site or on web
sites such as hulu.com. These outlets compete with us for viewers in
the communities served by our stations.
The
programming strength of a particular national television network may affect a
local station’s competitive position. Our stations, however, are diversified
among the various networks, reducing the potential impact of any one network’s
performance. We believe that national television network affiliations remain an
efficient means of obtaining competitive programming, both for established
stations with strong local news franchises and for newer stations with greater
programming needs.
Our
stations generated an average of approximately 19% of their total net revenue
from the sale of advertising within network programming for the year ended
December 31, 2009. Our stations that are affiliated with ABC, CBS, FOX and
NBC generate a higher percentage of revenue from the sale of advertising within
network programming than stations affiliated with CW and MyNetwork.
Our
affiliation agreements have terms with scheduled expiration dates ranging
through December 31, 2017. These agreements are subject to earlier
termination by the networks under specified circumstances, including a change of
control of our Company, which would generally result from the acquisition of
shares having 50% or more of the voting power of our Company.
Syndicated
programming
We
acquire the rights to programs for time periods in which we do not air our local
news or network programs. These programs generally include reruns of current or
former network programs, such as “The Simpsons” or “Two and a Half Men”, or
first-run syndicated programs, such as “Jeopardy”, “Entertainment Tonight” or
“Wheel of Fortune”. We pay cash for these programs or exchange advertising time
within the program for the cost of the program rights. We compete with other
local television stations to acquire these programs, which has caused the cost
of program rights to increase over time. In addition, a television viewer can
now choose to watch many of these programs on national cable networks or
purchase these programs on DVDs or via downloads to computers, mobile video
devices or web-based video players, which has contributed to increasing
fragmentation of our local television audience.
Distribution
of Programming
The
programming that airs on our television stations can reach the television
audience by one or more of the following distribution systems:
|
·
|
Full-power
television stations;
|
|
·
|
Stations
we operate under local marketing
agreements;
|
|
·
|
Low-power
television stations;
|
|
·
|
Digital
channels;
|
|
·
|
Cable
television;
|
|
·
|
Satellite
television systems;
|
|
·
|
Telecommunications
systems; and
|
|
·
|
Internet.
|
Full-power
television stations
We own
and/or operate 27 full-power television stations that operate on the digital
over-the-air channels 2 through 54. Our full-power television
stations include two full-power stations for which we provide programming, sales
and other related services under local marketing agreements. During 2009, we
successfully completed the digital transition of all of our stations as mandated
by the FCC. See “Our television stations” for a listing of our
full-power television stations.
Local
marketing agreements
The FCC
television licenses for the two stations for which we provide programming, sales
and other related services under local marketing agreements (“LMAs”) are not
owned by us. Revenues generated by these stations contributed 5%, 4% and 5% to
our net revenue for the years ended December 31, 2009, 2008 and 2007,
respectively. We incur programming costs, operating costs and capital
expenditures related to the operation of these stations, and retain all
advertising revenues. In Providence and Austin, the two local markets where
these stations are located, we own and operate another station. These local
marketing agreement stations are an important part of our multi-channel
strategy. We have a purchase option to acquire the FCC licenses for the LMA
stations in Providence and Austin.
Low-power
television stations
We own
and operate a number of low-power television stations. We operate these stations
either as stand-alone station or as satellite stations. These low-power
broadcast television stations are licensed by the FCC to provide service to
substantially smaller areas than those of full-power stations. These stations
contributed approximately 1% of our total net revenue in each of the years ended
December 31, 2009, 2008 and 2007.
In five
of our markets, Albuquerque, Austin, Green Bay, Indianapolis and
Norfolk-Portsmouth-Newport News, we use our low power stations to extend the
geographic reach of our primary stations in these markets. In Grand Rapids we
have affiliated WXSP-TV, a group of low-power television stations, with
MyNetworkTV, to cover substantially all of the local market.
Cable,
satellite television and telecommunications systems
According
to Nielsen, cable, satellite television and telecommunications companies
currently provide video program services to approximately 90% of total U.S.
television households, with cable and telecommunications companies serving 62%
of US households and satellite providers serving 28%. As a result, cable,
satellite television and telecommunications companies are not only primary
competitors, but the primary means by which our television audience views our
television stations. Most of our stations are distributed pursuant to
retransmission consent agreements with multichannel video program distributors
that operate in markets we serve. As of December 31, 2009, we had
retransmission consent agreements with 106 distributors, including 102 MSOs and
regional telecommunications companies, the two major satellite television
providers, and two national telecommunications providers. For an
overview of FCC regulations governing carriage of television broadcast signals
by multichannel video program distributors, see “Federal Regulation of
Broadcasting - Cable and
Satellite Carriage of Local Television Signals.”
Internet
We
operate interactive television station and niche web sites in 17 U.S. markets
and offer a growing portfolio of Internet-based products and services that
provide traditional and new audiences around-the-clock access to our trusted
local news and information. We delivered our largest audience to-date
across all of our web sites in 2009, including 824 million user actions and
approximately 3 billion advertising impressions, with users engaging our content
for more than 23 minutes on average. In addition, over 95 million page
impressions were served to users accessing our content via mobile devices. Our
syndication strategy helped distribute video to users who consumed over 90
million video views.
Seasonality
of Our Business
Our
advertising revenues are generally highest in the second and fourth quarters of
each calendar year, due generally to higher advertising in the spring season and
in the period leading up to and including the end-of-year holiday season. Our
operating results are also significantly affected by annual cycles, as
advertising revenues are generally higher in even-numbered years (i.e., 2008,
2010) due to additional revenues associated with election years from
advertising spending by political candidates and incremental advertising
revenues associated with Olympic broadcasts.
The
broadcast television industry is also cyclical in nature and affected by
prevailing economic conditions. Since we rely on sales of advertising time for
substantially all of our revenues, our operating results are sensitive to
general economic and regional conditions in each local market where our stations
operate.
Joint
Venture with NBC Universal
We
hold an approximately 20% equity interest, and NBC Universal holds the remaining
approximately 80% equity interest, in a joint venture which is a limited partner
in a business that owns television stations KXAS-TV, an NBC affiliate in
Dallas, and KNSD-TV, an NBC affiliate in San Diego. We and NBC
Universal each have a 50% voting interest in the joint venture. NBC
Universal operates the two stations pursuant to a management
agreement.
The
joint venture is the obligor on an $815.5 million non-amortizing senior secured
note due 2023 (the “GECC Note”) held by General Electric Capital Corporation
(“GECC”), which provided financing to the venture. The GECC Note
bears interest at a rate of 8% per annum until March 2, 2013 and 9% per annum
thereafter. LIN TV has guaranteed the payment of principal and
interest on the GECC Note.
The
joint venture with NBC Universal has been adversely impacted by the recent
economic downturn, and it did not distribute any cash to NBC Universal or us
during the year ended December 31, 2009. In light of the adverse
effect of the economic downturn on the joint venture’s operating results, in
2009 we entered into an agreement with NBC Universal (the “Original Shortfall
Funding Agreement”) which provided that: a) we and NBC waived the requirement
that the joint venture maintain debt service reserve cash balances of at least
$15 million; b) the joint venture would use a portion of its existing debt
service reserve cash balances to fund interest payments in 2009; c) NBC agreed
to defer its receipt of 2008 and 2009 management fees; and d) we agreed that if
the joint venture does not have sufficient cash to fund interest payments on the
GECC Note through April 1, 2010, we and NBC Universal would each provide the
joint venture with a shortfall loan on the basis of our percentage of economic
interest in the joint venture. During the year ended December 31,
2009, the joint venture used approximately $14.9 million of the existing debt
service cash reserves, leaving approximately $0.2 million
available. As of March 15, 2010, we have not yet provided any funding
under the Original Shortfall Funding Agreement.
Because
of anticipated future cash shortfalls at the joint venture, on March 9, 2010,
NBC Universal and we entered into a new agreement (the “2010 Shortfall Funding
Agreement”) covering the period through April 1, 2011. Under the
terms of the 2010 Shortfall Funding Agreement: a) the joint venture may continue
to access any portion of its existing debt service reserve cash balances to fund
interest payments; b) NBC will continue to defer the payment of 2008 and 2009
management fees and will defer payment of 2010 management fees through March 31,
2011; and c) we agreed that if the joint venture does not have sufficient cash
to fund interest payments on the GECC Note through April 1, 2011, we and NBC
Universal would each provide the joint venture with a shortfall loan on the
basis of our percentage of economic interest in the joint venture.
Based
on our latest estimate of cash flow requirements of the joint venture
through April 1, 2010, our share of the estimated shortfall through April 1,
2010 is $3.0 million. Of this amount, we had accrued $2.0 million as
of September 30, 2009. Subsequent to September 30, 2009, we: (a) received
with the joint venture’s 2010 budget and (b) as noted above, entered into the
2010 Shortfall Funding Agreement to cover debt service shortfalls through April
1, 2011. Based on the 2010 budget provided by the joint venture, and our
discussions with the joint venture's management, we believe there will be an
additional debt service shortfall at the joint venture from April 2, 2010
through April 1, 2011 of $13.0 million to $15.0 million, of which, our share of
the shortfall could be approximately $3.0 million.
As
a result, we have accrued our portion of the estimated shortfalls through April
1, 2011, bringing the total accrual for our joint venture shortfall
obligations to $6 million as of December 31, 2009. This amount
reflects our probable and estimable obligations through the expiration of the
2010 Shortfall Funding Agreement on April 1, 2011. We do not believe our funding
obligations related to the joint venture, if any, beyond April 1, 2011 are
currently probable and estimable, therefore, we have not accrued for any
potential obligations beyond the $6 million discussed above. However, our actual
cash shortfall funding could exceed our estimate.
Our
ability to honor our shortfall loan obligations under the Original Shortfall
Funding Agreement and/or the 2010 Shortfall Funding Agreement is limited by
certain covenants contained in our Amended Credit Agreement and the indentures
governing our senior subordinated notes. If we are unable to make
payments under the Original Shortfall Funding Agreement or 2010 Shortfall
Funding Agreement, the joint venture may be unable to fund interest obligations
under the GECC Note, resulting in an event of default. In addition,
if the joint venture experiences further cash shortfalls beyond April 1, 2011,
we may decide to fund such cash shortfalls, or to fund such shortfalls through
further loans or equity contributions to the joint venture.
On
December 3, 2009, General Electric Corporation (“GE”), which wholly owns GECC,
and Comcast Corporation (“Comcast”) announced a definitive agreement to
form a joint venture that will be 51 percent owned by Comcast, 49 percent owned
by GE and managed by Comcast. The proposed joint venture will include
NBC Universal. As of March 15, 2010, the proposed transaction is
undergoing regulatory review and it is not certain whether or when the
transaction will receive the approvals required to
close. Furthermore, assuming the transaction is completed, we cannot
predict the effect the joint venture between Comcast and GE may have on our
joint venture with NBC Universal.
For
more information about our joint venture with NBC Universal, see Item 1A. “Risk
Factors — The GECC Note could result in significant liabilities, including
(i) requiring us to make short-term cash payments to the NBC Universal joint
venture to fund interest payments, and (ii) potentially giving rise to a change
of control under our existing indebtedness, which could cause such indebtedness
to become immediately due and payable,” as well as the description in the
Liquidity and Capital Resources section under Item 7. Management’s Discussion
and Analysis and Note 14 – “Commitments and Contingencies” to our consolidated
financial statements.
Competitive
Conditions in the Television Industry
The
television broadcast industry has become highly competitive as a result of new
technologies and new program distribution systems. In most of our local markets,
we compete directly against other local broadcast stations, cable, satellite
television and telecommunication systems for audience. We also compete with
online video services, including web sites such as Hulu.com, which provide
access to some of the same programming, including network programming that we
provide and other
emerging technologies including mobile television.
Federal
Regulation of Television Broadcasting
Overview of Regulatory
Issues. Our television operations are subject to the
jurisdiction of the FCC under the Communications Act of 1934, as amended (the
"Communications Act"). The Communications Act prohibits the operation of
broadcast stations except pursuant to licenses issued by the FCC and empowers
the FCC, among other things, to issue, renew, revoke and modify broadcasting
licenses; assign frequency bands; determine stations' frequencies, locations and
power; and regulate the equipment used by stations.
The
Communications Act prohibits the assignment of a broadcast license or the
transfer of control of a license without the FCC's prior approval. The FCC also
regulates certain aspects of the operation of cable television systems, direct
broadcast satellite ("DBS") systems and other electronic media that compete with
broadcast stations. In addition, the FCC regulates matters such as television
station ownership, network-affiliate relations, cable and DBS systems' carriage
of television station signals, carriage of syndicated and network programming on
distant stations, political advertising practices, children’s programming and
obscene and indecent programming.
License Renewals. Under
the Communications Act, the FCC generally may grant and renew broadcast licenses
for terms of eight years, though licenses may be renewed for a shorter period
under certain circumstances. The Communications Act requires the FCC to renew a
broadcast license if the FCC finds that (i) the station has served the
public interest, convenience and necessity; (ii) there have been no serious
violations of either the Communications Act or the FCC's rules and regulations
by the licensee; and (iii) there have been no other serious violations that
taken together constitute a pattern of abuse. In making its determination, the
FCC may consider petitions to deny but cannot consider whether the public
interest would be better served by issuing the license to a person other than
the renewal applicant. We are in good standing with respect to each
of our FCC licenses. Our licenses have expiration dates ranging between 2006 and
2015. The table on page 7 includes the expiration date of each of our
licenses. We have timely filed license renewal applications for each of our
stations. Once an application for renewal is filed, each station remains
licensed while its application is pending, even after its license expiration
date has passed. Certain of our licenses have pending applications for renewal.
We expect the FCC to renew each of these licenses but we make no assurance that
it will do so.
Ownership
Regulation. The Communications Act and FCC rules limit
the ability of individuals and entities to have ownership or other attributable
interests in certain combinations of broadcast stations and other
media. In 1999, the FCC modified its local television ownership
rules. In 2003, the FCC issued an order that would have liberalized most of the
ownership rules, permitting us to acquire television stations in certain markets
where we are currently prohibited from acquiring additional
stations. In 2004, the Third Circuit Court of Appeals stayed and
remanded several of the FCC’s 2003 ownership rule changes. In July 2006, as part
of the FCC’s statutorily required quadrennial review of its media ownership
rules, the FCC sought comment on how to address the issues raised by the Third
Circuit Court of Appeals’s decision. In February 2008, the FCC
released an order that re-adopted its 1999 local television ownership rules, and
those rules are currently in effect. Several parties have appealed
the FCC’s February 2008 decision. In November, 2009 the FCC initiated
its statutorily required quadrennial review process, but it has not yet proposed
any rule changes. We cannot predict how pending appeals of
prior FCC ownership rule decisions or the pending quadrennial review proceeding
may result in changes to the FCC’s broadcast ownership rules. The
FCC's currently effective ownership rules that are material to our operations
are summarized below.
Local Television
Ownership. Under the FCC's current local television ownership
(or "duopoly") rule, a party may own multiple television stations without regard
to signal contour overlap provided they are located in separate Nielsen DMAs. In
addition, the rules permit parties to own up to two TV stations in the same DMA
so long as (i) at least one of the two stations is not among the top
four-ranked stations in the market based on audience share at the time an
application for approval of the acquisition is filed with the FCC, and
(ii) at least eight independently owned and operating full-power commercial
and non-commercial television stations would remain in the market after the
acquisition. In addition, without regard to the number of remaining or
independently owned television stations, the FCC will permit television
duopolies within the same DMA so long as the Grade B signal contours of the
stations involved do not overlap. Stations designated by the FCC as "satellite"
stations, which are full-power stations that typically rebroadcast the
programming of a "parent" station, are exempt from the local television
ownership rule. Also, the FCC may grant a waiver of the local television
ownership rule if one of the two television stations is a "failed" or "failing"
station or if the proposed transaction would result in the construction of a new
television station (an unbuilt-station waiver). We are currently in compliance
with the local television ownership rule.
The FCC’s
1999 ownership order established a new rule attributing LMAs for ownership
purposes. The FCC grandfathered LMAs that were entered into prior to
November 5, 1996, permitting those stations to continue operations pursuant to
the LMAs until the conclusion of the FCC’s 2004 biennial review. The
FCC stated it would conduct a case-by-case review of grandfathered LMAs and
assess the appropriateness of extending the grandfathering
periods. Subsequently, the FCC invited comments as to whether,
instead of beginning the review of the grandfathered LMAs in 2004, it should do
so in 2006. The FCC did not initiate any review of grandfathered LMAs
in 2004 or as part of its 2006 quadrennial review. We do not know
when, or if, the FCC will conduct any such review of grandfathered
LMAs. Grandfathered local marketing agreements can be freely
transferred during the grandfather period, but duopolies may be transferred only
where the two-station combination continues to qualify under the duopoly
rule.
We must
obtain FCC approval before acquiring ownership of additional television
stations, including the stations in Providence and Austin for which we have
option agreements. In the event that the FCC determines that the
grandfathered LMA that we have in Providence is ineligible for conversion to
full ownership, we have the right to assign our purchase option to a third party
and we believe we can arrange a suitable disposition, including alternative
non-attributable operating arrangements with such a party, such as a more
limited programming and services agreement or joint sales agreement, if
necessary, which will not be materially less favorable to us than the current
local marketing agreement. In Austin, we assigned our purchase option for
KNVA-TV, for which we also have a grandfathered LMA, to a third party, Vaughan
Media, LLC, that during 2009 exercised the option and acquired the outstanding
shares of the entity that holds the FCC license for that station. We
continue to provide programming and other services to KNVA-TV pursuant to the
grandfathered LMA with that station.
National Television Ownership
Cap. The Communications Act, as amended in 2004, limits the
number of television stations one entity may own nationally. Under the rule, no
entity may have an attributable interest in television stations that reach, in
the aggregate, more than 39% of all U.S. television households. The FCC
currently discounts the audience reach of a UHF station by 50% when computing
the national television ownership cap. Our stations reach is
approximately 8% of U.S. households.
Media
Cross-Ownership. The FCC historically has prohibited the
licensee of a radio or TV station from directly or indirectly owning, operating,
or controlling a daily newspaper if the station's specified service contour
encompasses the entire community where the newspaper is published. The FCC
revised its newspaper/broadcast cross-ownership rule in December 2007; however,
since the order revising that rule was appealed the rule is not yet
effective. Under the revised rule, newspaper/broadcast
cross-ownership would nonetheless be permissible if (i) the market at issue
is one of the 20 largest DMAs; (ii) the transaction involves the
combination of only one major daily newspaper and only one television or radio
station; (iii) where the transaction involves a television station, at
least eight independently owned and operating major media voices (major
newspapers and full-power television stations) would remain in the DMA following
the transaction; and (iv) where the transaction involves a television
station, that station is not among the top four-ranked stations in the DMA. For
all other proposed newspaper/broadcast transactions, the FCC's historic
prohibition generally would remain in place. The cross-ownership rules also
permit cross ownership of radio and television stations under a graduated
test based on the number of independently owned media voices in the local
market. In large markets (markets with at least 20 independently owned media
voices), a single entity can own up to one television station and seven radio
stations or, if permissible under the local television ownership rule (if eight
full-power television stations would remain in the market post transaction), two
television stations and six radio stations.
Attribution of
Ownership. Under the FCC's attribution policies, the following
relationships and interests generally are attributable for purposes of the FCC's
broadcast ownership restrictions:
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holders
of 5% or more of the licensee's voting stock, unless the holder is a
qualified passive investor, in which case the threshold is a 20% or
greater voting stock interest;
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all
officers and directors of a licensee and its direct or indirect
parent(s);
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any
equity interest in a limited partnership or limited liability company,
unless properly "insulated" from management activities;
and
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equity
and/or debt interests which in the aggregate exceed 33% of a licensee's
total assets, if the interest holder supplies more than 15% of the
station's total weekly programming, or is a same-market broadcast company,
cable operator or newspaper (the "equity/debt plus"
standard).
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Under the
single majority shareholder exception to the FCC's attribution policies,
otherwise attributable interests under 50% are not attributable if a corporate
licensee is controlled by a single majority shareholder and the minority
interest holder is not otherwise attributable under the "equity/debt plus"
standard. Thus, in our case, where we have a single majority shareholder,
ownership of minority stock interests of up to 33% are not attributable absent
other factors.
Because
of these multiple ownership and cross-ownership rules, any person or entity that
acquires an attributable interest in us may violate the FCC’s rules if that
purchaser also has an attributable interest in other television or radio
stations, or in daily newspapers, depending on the number and location of those
radio or television stations or daily newspapers. Such person or entity also may
be restricted in the companies in which it may invest to the extent that those
investments give rise to an attributable interest. If the holder of an
attributable interest violates any of these ownership rules or if a proposed
acquisition by us would cause such a violation, we may be unable to obtain from
the FCC one or more authorizations needed to conduct our television station
business and may be unable to obtain the FCC’s consents for certain future
acquisitions.
Digital Television
Transition. We terminated all analog broadcasts on
our full power stations on or before June 12, 2009 in connection with the
transition to digital television. Following the transition, each of
our full power stations broadcasts a 19.4 megabit-per-second (Mbps) data stream,
rather than a single analog program stream. FCC regulations permit
substantial flexibility in how we use that data stream. For example,
we are permitted to provide a mix of high definition and standard television
program streams free-to-air, additional program-related data, subscription video
or audio streams, and non-broadcast services. A new technical
standard, currently being tested, would permit digital stations to provide video
and data streams that can be more readily received on mobile devices (such as
computers and smart phones), if those devices incorporate the
technology. These digital channels remain subject to specific FCC
regulations. For example, we are required to carry additional
children’s educational programming if we transmit multiple program streams, and
we must pay the U.S. Treasury 5% of gross revenues for any non-broadcast
services we provide using our digital signals. The FCC is evaluating
whether to impose further public interest programming requirements on digital
broadcasters. The FCC’s current digital transition implementation
plan would maintain the secondary status of low-power television stations with
respect to DTV operations and many low-power television stations, particularly
in major markets, could be displaced, including some of ours.
Cable and Satellite Carriage of
Local Television Signals. Pursuant to FCC rules, full
power television stations can obtain carriage of their signals by multichannel
program distributors in one of two ways: via mandatory carriage or via
“retransmission consent.” Once every three years each station must
formally elect either mandatory carriage (“must-carry” for cable distributors
and “carry one-carry all” for satellite television providers) or retransmission
consent. The next election must be made by October 1, 2011, and
will be effective January 1, 2012. A mandatory carriage election
invokes FCC rules that requires the distributor to carry a single program stream
and related data in the station’s local market. Distributors may
decline carriage for a variety of reasons, including a lack of channel capacity,
the station’s failure to deliver a good quality signal, the presence of a nearby
affiliate of the same network or, in the case of satellite distributors, if the
distributor does not carry any other local broadcast stations in the electing
station’s market. Distributors do not pay a fee to stations that
elect mandatory carriage.
A station
that elects retransmission consent waives its mandatory carriage rights, and the
station and the distributor must negotiate in good faith for carriage of the
station’s signal. Negotiated terms may include channel position,
service tier carriage, carriage of multiple program streams, compensation and
other consideration. If a station elects to negotiate retransmission
terms, it is possible that the station and the distributor will not reach
agreement and that the distributor will not carry the station’s
signal.
FCC rules
govern which local television signals a satellite subscriber may
receive. Congress has also imposed certain requirements relating to
satellite distribution of local television signals to “unserved” households that
do not receive a useable signal from a local network-affiliated
station. One law that facilitates satellite distribution of local
broadcast signals, the Satellite Home Viewer Extension and Reauthorization Act
of 2004 (“SHVERA”), would have expired by its terms at the end of
2009. However, Congress extended SHVERA until March 28,
2010. We believe Congress will again extend the SHVERA regime, with
some changes, before the end of that period, but we cannot provide assurances
that Congress will do so.
Programming and station
operations. The Communications Act requires broadcasters to
serve the public interest. Broadcast station licensees are required to present
programming that is responsive to community problems, needs and interests and to
maintain records demonstrating such responsiveness. Stations must
follow various rules that regulate, among other things, children’s television
programming and advertising, political advertising, sponsorship identification,
contest and lottery advertising and program ratings guidelines. The FCC has
proposed to re-establish a number of formalized procedures designed to improve
television broadcasters’ service to their local communities. These proposals
include the establishment of community advisory boards, quantitative programming
guidelines and maintenance of a main studio in a station’s community of
license.
The FCC
is also charged with enforcing restrictions or prohibitions on the broadcast of
obscene and indecent programs and in recent years has increased its enforcement
activities in this area, issuing large fines against radio and television
stations found to have carried such programming (even if originated by a
third-party program supplier, such as a network). In June 2007, the
FCC increased the maximum monetary penalty for carriage of indecent programming
tenfold to $325,000 per station per violation with a cap of $3 million for
any "single act," and put the licenses of repeat offenders in jeopardy. Court
challenges to the FCC’s indecency enforcement regime are pending at various
stages. We are unable to predict whether the enforcement of the indecency
regulations will have a material adverse effect on our ability to provide
competitive programming.
Recent regulatory developments,
proposed legislation and regulation. Congress and the FCC
currently have under consideration, and may in the future adopt, new laws,
regulations and policies regarding a wide variety of matters that could affect,
directly or indirectly, the operation and ownership of our
stations. The foregoing discussion summarizes the federal statutes
and regulations material to our operations, but does not purport to be a
complete summary of all the provisions of the Communications Act or of other
current or proposed statutes, regulations, and policies affecting our business.
The summaries should be read in conjunction with the text of the statutes,
rules, regulations, orders, and decisions described herein. We are unable at
this time to predict the outcome of any of the pending FCC rule-making
proceedings referenced above, the outcome of any reconsideration or appellate
proceedings concerning any changes in FCC rules or policies noted above, the
possible outcome of any proposed or pending Congressional legislation, or the
impact of any of those changes on our stations.
Employees
As of
December 31, 2009, we employed approximately 1,840 full time employees, 221
of which were represented by labor unions. We believe that our employee
relations are generally good.
Available
Information
We file
annual, quarterly, and current reports, proxy statements, and other documents
with the Securities and Exchange Commission (“SEC”) under the Securities
Exchange Act of 1934 (the “Exchange Act”). The public may read and copy any
materials that we file with the SEC at the SEC’s Public Reference Room at
100 F Street, NE, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. Also, the SEC maintains an Internet web site that contains
reports, proxy and information statements, and other information regarding
issuers, including our filings, which we file electronically with the SEC. The
public can obtain any documents that we file with the SEC at
http://www.sec.gov.
We also
make available free-of-charge through our Internet web site (at
http://www.lintv.com) our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments
to those reports filed or furnished pursuant to Section 13(a) of the
Exchange Act as soon as reasonably practicable after we electronically file such
material with, or furnish such material, to the SEC.
We also
make available on our web site our corporate governance guidelines, the charters
for our audit committee, compensation committee, and nominating and corporate
governance committee, and our code of business conduct and ethics, and such
information is available there to any stockholder who is interested in reviewing
this information. In addition, we intend to disclose on our web site any
amendments to, or waivers from, our code of business conduct and ethics that are
required to be publicly disclosed pursuant to rules of the SEC and the
NYSE.
Risks
Associated with Our Business Activities
Our operating
results are primarily dependent on advertising revenues, which can vary
substantially
from period-to-period based on many factors beyond our control, including
economic downturns and viewer preferences.
Our
operations and performance are materially affected by a number of factors beyond
our control, including economic conditions and viewer
preferences. For example, the economic downturn adversely affected
local and national advertising revenues across all of our stations during
2009. Advertising revenue, including local, national and political
advertising revenues, consisted of approximately 84%, 90% and 92% of our total
revenues for the years ended December 31, 2009, 2008 and 2007,
respectively. Local advertising revenues decreased 13% and 9% for the
years ended December 31, 2009 and 2008, respectively, compared to their
respective prior periods. National advertising revenues decreased 17%, 16% and
1% for the years ended December 31, 2009, 2008 and 2007, respectively, compared
to their respective prior periods. This volatility in advertising
revenues results in decreased revenues and weaker results of operations for
us. While we have seen some signs of recovery, continued weakness in
advertising revenues caused by economic conditions could have a material adverse
effect on our financial condition, cash flows and results of operations, which
could impair our ability to comply with the covenants in our debt instruments,
as more fully described below.
In
addition to economic conditions, our ability to generate advertising revenues
depends on factors such as:
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the
relative popularity of the programming on our
stations;
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the
demographic characteristics of our
markets; and
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the
activities of our competitors.
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Our
programming may not attract sufficient targeted viewership or we may not achieve
favorable ratings. Our ratings depend partly upon unpredictable and volatile
factors beyond our control, such as viewer preferences, competing programming
and the availability of other entertainment activities. A shift in viewer
preferences could cause our programming not to gain popularity or to decline in
popularity, which could cause our advertising revenues to decline. We, and those
on whom we rely for programming, may not be able to anticipate and react
effectively to shifts in viewer tastes and interests of our local markets. In
addition, political advertising revenue from elections and advertising revenues
from Olympic Games, which generally occur in the even years, create large
fluctuations in our operating results on a year-to-year basis. For
example, during 2009, we had political advertising revenues of $13.2 million,
compared to $47.0 million in the prior year.
We
depend to a significant degree on automotive advertising.
Approximately
19%, 24% and 28% of our net advertising revenues for the years ended
December 31, 2009, 2008, and 2007, respectively, consisted of automotive
advertising. A significant decrease in these revenues in the future could have a
material adverse effect on our results of operations and cash flows, which could
affect our ability to fund operations and service our debt obligations and
affect the value of our common stock. Automotive advertising continues to be
adversely affected by the difficulties experienced by the automotive
industry.
The GECC Note
could result in significant liabilities, including (i) requiring us to make
short term cash payments to the NBC Universal joint venture to fund interest
payments, and (ii) potentially giving rise to a change of control under our
existing indebtedness, which would cause such existing indebtedness to
become immediately due
and payable.
We may be
required to make cash payments to the joint venture to fund interest payments on
the GECC Note. Our joint venture with NBC Universal has been
adversely impacted by the current economic downturn. Under the
Original Shortfall Funding Agreement, we may be required to provide shortfall
loans to the joint venture, in an amount based on our approximately 20% economic
interest in the joint venture, if the joint venture does not have sufficient
cash to fund interest obligations under the GECC Note through April 1,
2010. As of March 15, 2010, we have not yet provided any funding
under the Original Shortfall Funding Agreement.
Because
of anticipated future cash shortfalls at the joint venture, on March 9,
2010, NBC Universal and we entered into the 2010 Shortfall Funding Agreement
covering the period through April 1, 2011. Under the 2010 Shortfall
Funding Agreement: a) the joint venture may continue to access any portion of
its existing debt service reserve cash balances to fund interest payments; b)
NBC will continue to defer the payment of 2008 and 2009 management fees and will
defer payment of 2010 management fees through March 31, 2011; and c) we agreed
that if the joint venture does not have sufficient cash to fund interest
payments on the GECC Note through April 1, 2011, we and NBC Universal would each
provide the joint venture with a shortfall loan on the basis of our percentage
of economic interest in the joint venture. Under the terms of the Original
Shortfall Funding Agreement and the 2010 Shortfall Funding Agreement, we
estimate our share of shortfall funding could be $5.0 million to $7.0 million
through the April 1, 2011 expiry of the 2010 Shortfall Funding
Agreement. However, our actual cash shortfall funding could exceed
our estimate.
Our
ability to honor our shortfall loan obligations under the Original Shortfall
Funding Agreement and the 2010 Shortfall Funding Agreement is subject to
compliance with restrictions under our senior credit facility and the indentures
governing our senior notes. Based on the 2010 budget provided by
joint venture management, and our forecast of total leverage and consolidated
EBITDA during 2010 and 2011, we expect to have the capacity within these
restrictions to provide shortfall funding under the 2010 Shortfall Funding
Agreement in proportion to our approximately 20 percent economic interest in the
joint venture through the April 1, 2011 expiration of the 2010 Shortfall Funding
Agreement. However, there can be no assurance that we will have the capacity
within these restrictions to provide such funding. If we are required
to fund a portion of a shortfall loan, we plan to use our available cash
balances or available borrowings under our credit facility. In addition, if the
joint venture experiences further cash shortfalls beyond April 1, 2011, we may
decide to fund such cash shortfalls, or to fund such shortfalls through further
loans or equity contributions to the joint venture. If we are unable to make
payments under the Original Shortfall Funding Agreement or 2010 Shortfall
Funding Agreement, the joint venture may be unable to fund interest obligations
under the GECC Note, resulting in an event of default.
An event
of default under the GECC Note will occur if the joint venture fails to make any
scheduled interest payment within 90 days of the date due and payable, or to pay
the principal amount on the maturity date. If the joint venture fails
to pay interest on the GECC Note, and neither NBC Universal nor we make a
shortfall loan to fund the interest payment within 90 days of the date due and
payable, an event of default would occur and GECC could accelerate the maturity
of the entire amount due under the GECC Note. Other than the
acceleration of the principal amount upon an event of default, prepayment of the
principal of the note is prohibited unless agreed upon by both NBC Universal and
us. Upon an event of default under the GECC Note, GECC’s only
recourse would be to the joint venture, our equity interest in the joint venture
and, after exhausting all remedies against the assets of the joint venture and
the other equity interests in the joint venture, to LIN TV pursuant to its
guarantee of the GECC Note.
Under the
terms of its guarantee of the GECC Note, LIN TV would be required to make a
payment for an amount to be determined upon occurrence of the following events:
a) there is an event of default; b) neither NBC Universal or us remedy the
default; and c) after GECC exhausts all remedies against the assets of the joint
venture, the total amount realized upon exercise of those remedies is less than
the $815.5 million principal amount of the GECC Note. Upon the
occurrence of such events, the amount owed by LIN TV to GECC pursuant to the
guarantee would be equal to the difference between i) the total amount for which
the joint venture’s assets were sold and ii) the principal amount and any unpaid
interest due under the GECC Note. As of December 31, 2009, we
estimate the fair value of the television stations in the joint venture to be
approximately $366 million less than the outstanding balance of the GECC note of
$815.5 million.
If an
event of default occurs under the GECC Note, LIN TV, which conducts all of its
operations through its subsidiaries, could experience material adverse
consequences, including:
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GECC,
after exhausting all remedies against the joint venture, could enforce its
rights under the guarantee, which could cause LIN TV to determine that LIN
Television should seek to sell material assets owned by it in order to
satisfy LIN TV’s obligations under the
guarantee;
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GECC’s
initiation of proceedings against LIN TV under the guarantee could result
in a change of control or other material adverse consequences to LIN
Television, which could cause an acceleration of LIN Television’s credit
facility and other outstanding
indebtedness; and
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if
the GECC Note is prepaid because of an acceleration on default or
otherwise, we would incur a substantial tax liability of approximately
$273.6 million related to our deferred gain associated with the formation
of the joint venture, exclusive of any potential NOL
utilization.
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We have a
substantial amount of debt, which could adversely affect our financial
condition,
liquidity and results of operations, reduce our operating flexibility and
put us at
greater risk for default and acceleration of our debt.
As of
December 31, 2009, we had approximately $683.0 million of consolidated
indebtedness and a deficit of $169.2 million of consolidated stockholders’
equity. Our outstanding debt under our credit facility is due November 14, 2011
and all of our 6½% senior subordinated notes are due May 15,
2013. Subject to the limitations in our senior credit facility and
the indentures governing the senior subordinated notes, we may incur additional
material indebtedness in the future, and we may become more
leveraged. Accordingly, we now have and will continue to have
significant debt service obligations. We have also guaranteed the $815.5 million
GECC Note as described above.
Our large
amount of indebtedness could, for example:
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require
us to use a substantial portion of our cash flow from operations to pay
interest and principal on indebtedness and reduce the availability of our
cash flow to fund working capital, capital expenditures, acquisitions and
other general corporate activities;
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require
us to dispose of television stations or other assets at times or on terms
that may be less advantageous than those we might otherwise be able to
obtain;
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limit
our ability to obtain additional financing in the
future;
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expose
us to greater interest rate risk, because the interest rates on our credit
facility vary; and
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impair
our ability to successfully withstand a sustained downturn in our business
or the economy in general and place us at a disadvantage relative to our
less leveraged competitors.
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The
indentures governing our senior subordinated notes also contain change of
control provisions which may require us to purchase all or a portion of our
6½% senior subordinated notes at a price equal to 101% of the principal
amount of the notes, together with accrued and unpaid interest.
Any of
these consequences could have a material adverse effect on our business,
liquidity and results of operations.
We
could fail to comply with our financial covenants, which would adversely affect
our financial condition.
Our debt
instruments require us to comply with financial covenants, including, among
others, leverage ratios and interest coverage tests. These covenants restrict
the manner in which we conduct our business and may impact our operating
results. Further, weak results of operations due to reduced advertising revenues
may make it harder for us to comply with such covenants. Our failure to comply
with these covenants could result in events of default, which, if not cured or
waived, would permit acceleration of our indebtedness under our debt agreements
or under other instruments that contain cross-acceleration or cross-default
provisions. In the past, we have obtained amendments with respect to compliance
with financial ratio tests in our credit facility. For example, on
July 31, 2009, we entered into an Amended and Restated Credit Agreement (the
“Amended Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative
Agent, and banks and financial institutions party thereto, as a result of the
continued declines in revenues during 2009 and to address continued compliance
with the financial covenants in our credit agreement. For further information on
the Amended Credit Agreement see “Description of
Indebtedness”. Consents or amendments that may be required in the
future may not be available on reasonable terms, or at all.
Our debt
instruments also contain certain other restrictions on our business and
operations, including, for example, covenants that restrict our ability to
dispose of assets, incur additional indebtedness, pay dividends, make
investments, make acquisitions, engage in mergers or consolidations and make
capital expenditures.
We may not be
able to generate sufficient cash flow to meet our debt service obligations,
forcing us to refinance all or a portion of our indebtedness, sell assets or obtain
additional financing, which we may not be able to do on commercially reasonable
terms.
Our
ability to make scheduled payments of principal and interest on our indebtedness
and our ability to refinance our indebtedness will depend on our future
performance, which, to a certain extent, will be subject to economic, financial,
competitive and other factors beyond our control. Cash interest paid during the
years ended December 31, 2009, 2008 and 2007 was $40.1 million, $48.8 million
and $55.6 million, respectively. Our required payments of principal were $15.9
million, $202.0 million and $120.1 million for the years ended December 31,
2009, 2008 and 2007, respectively. Our business may not continue to generate
sufficient cash flow from operations in the future to pay our debt service
obligations or to fund our other liquidity needs. As a result, we may need to
refinance all or a portion of our indebtedness, on or before maturity, sell
assets or obtain additional financing. We may not be able to refinance any of
our indebtedness or sell assets on commercially reasonable terms, if at all. If
we are unable to generate sufficient cash flow, or refinance our indebtedness,
or sell assets on commercially reasonable terms, we may have to seek to
restructure our remaining debt obligations, which could have a material adverse
effect on the value of our class A common stock and the market, if any, for our
debt. The current volatility in the capital markets may also impact our ability
to refinance our debt or to refinance our debt on terms similar to our existing
debt agreements.
Additionally,
we have a history of net losses and a substantial accumulated deficit. We had
net losses of $830.4 million and $234.5 million for the years ended
December 31, 2008 and 2006, respectively, primarily as a result of
impairment of our broadcast licenses and goodwill, and interest expense. As of
December 31, 2009, we had an accumulated deficit of $1.2 billion. These
losses may or may not recur, and our accumulated deficit may therefore continue
indefinitely.
We have a
material amount of intangible assets and we have recorded substantial
impairments
of these assets. Future write-downs of intangible assets would reduce
net income
or increase net loss, which could have a material adverse effect on our results
of operations and the value of our
class A common stock.
Future
impairment charges could have a significant adverse effect on our reported
results of operations and stockholders’ equity. Approximately $516.1 million or
65% of our total assets as of December 31, 2009 consisted of
indefinite-lived intangible assets. Intangible assets principally include
broadcast licenses and goodwill, which are required to be tested for impairment
at least annually, with impairment being measured as the excess of the carrying
value of the goodwill or the intangible asset over its fair value. In addition,
goodwill and intangible assets will be tested more often for impairment as
circumstances warrant.
We
recorded an impairment of our broadcast licenses of $37.2 million and $599.6
million during the years ended December 31, 2009 and 2008, respectively,
and we recorded an impairment of goodwill of $2.7 million and
$420.9 million during the years ended December 31, 2009 and 2008,
respectively. For further details see Note 6 – "Intangible
Assets".
If we
determine in a future period, as part of our testing for impairment of
intangible assets and goodwill, that the carrying amount of our intangible
assets exceeds the fair value of these assets, we may incur an impairment charge
that could have a material adverse effect on our results of operations and the
value of our class A common stock.
Our
strategy has historically included growth through acquisitions, which could pose
various risks and increase our leverage.
We have
pursued and intend to selectively continue to pursue strategic acquisitions,
subject to market conditions, our liquidity, and the availability of attractive
acquisition candidates, with the goal of improving our business. We may not be
successful in identifying attractive acquisition targets nor have the financial
capacity to complete future acquisitions. Acquisitions involve inherent risks,
such as increasing leverage and debt service requirements and combining company
cultures and facilities, which could have a material adverse effect on our
operating results, particularly during the period immediately following any
acquisition. We may not be able to successfully implement effective cost
controls or increase revenues as a result of any acquisition. In addition,
future acquisitions may result in our assumption of unexpected liabilities and
may result in the diversion of management’s attention from the operation of our
core business.
Certain
acquisitions, such as television stations, are subject to the approval of the
FCC and, potentially, other regulatory authorities. The need for FCC and other
regulatory approvals could restrict our ability to consummate future
transactions and potentially require us to divest some television stations if
the FCC believes that a proposed acquisition would result in excessive
concentration in a market, even if the proposed combinations may otherwise
comply with FCC ownership limitations.
HMC and its
affiliates, whose interests may differ from your interests, have approval
rights with
respect to significant transactions and could convert their equity interests in our
Company into a block of substantial voting power, thereby reducing the
voting power of our
other shareholders.
HMC and
its affiliates own one share of our class C common stock, which represents
35% of our outstanding voting power, and also have the ability to convert shares
of our non-voting class B common stock into class A common stock,
subject to FCC approval. Upon the conversion of the majority of the non-voting
class B common stock into class A common stock, the class C
common stock will automatically convert into an equal number of shares of
class A common stock. If this occurs, affiliates of HMC would own
approximately 44.4% of our voting equity interests and will effectively have the
ability to elect the entire board of directors and to approve or disapprove any
corporate transaction or other matters submitted to our shareholders for
approval, including the approval of mergers or other significant corporate
transactions. The interests of HMC and its affiliates may differ from the
interests of our other stockholders and HMC and its affiliates could take
actions or make decisions that are not in the best interests of our other
stockholders.
For
example, HMC may from time-to-time acquire and hold controlling or
non-controlling interests in television broadcast assets that may directly or
indirectly compete with our company for advertising revenues. In addition, HMC
and its affiliates may from time-to-time identify, pursue and consummate
acquisitions of television stations or other broadcast related businesses that
may be complementary to our business and therefore such acquisition
opportunities may not be available to us.
Moreover,
Royal W. Carson, III, a director, and HMC, combined beneficially own
all of our class C common stock and therefore possess 70% of the combined
voting power. Accordingly, Mr. Carson and HMC together have the power to
elect our entire board of directors and, through this control, to approve or
disapprove any corporate transaction or other matter submitted to our
stockholders for approval, including the approval of mergers or other
significant corporate transactions. Mr. Carson has prior business relations
with HMC. Mr. Carson is the President of Carson Private Capital
Incorporated, an investment firm that sponsors funds-of-funds and dedicated
funds that have invested substantially all of the net capital of these funds in
private equity investment funds sponsored by firms like HMC or its affiliates.
Mr. Carson also serves on an advisory board representing the interests of
limited partners of Hicks, Muse, Tate & Furst Equity Fund V, L.P.;
Sector Performance Fund, L.P.; and Hicks, Muse, Tate & Furst Europe
Fund L.P., which are sponsored by HMC. The three listed funds do not have
an investment in us. In addition, Peter S. Brodsky, one of our directors, is a
partner of HMC.
If
we are unable to compete effectively, our revenue could decline.
The
entertainment industry, and particularly the television industry, is highly
competitive and is undergoing a period of consolidation and significant change.
Many of our current and potential competitors have greater financial, marketing,
programming and broadcasting resources than we do. Technological innovation and
the resulting proliferation of television entertainment alternatives, such as
cable, satellite television and telecommunications video services, Internet,
wireless, pay-per-view and video-on-demand, digital video recorders, DVDs and
mobile video devices have fragmented television viewing audiences and have
subjected free over-the-air television broadcast stations to new types of
competition. As a result, we are experiencing increased competition
for viewing audience and advertisers. Significant declines in viewership and
advertising revenues could materially and adversely affect our business,
financial condition and results of operations.
New
technologies may affect our broadcasting operations.
The
television broadcasting business is subject to rapid technological change,
evolving industry standards, and the emergence of new technologies. We cannot
predict the effect such technologies will have on our broadcast
operations. In addition, the capital expenditures necessary to
implement these new technologies could be substantial and other companies
employing such technologies before we are able to could aggressively compete
with our business.
It would be
difficult to take us over, which could adversely affect the trading price
of our
class A common stock.
Affiliates
of HMC effectively have the ability to determine whether a change of control
will occur through their ownership of one of the two outstanding shares of our
class C common stock and all of the shares of our class B common
stock. Provisions of Delaware corporate law and our bylaws and certificate of
incorporation, including the 70% voting power of our class C common stock
held by Mr. Carson and HMC and the voting power that affiliates of HMC
would hold upon conversion of their shares of class B stock into
class A stock or class C stock, make it difficult for a third party to
acquire control of us, even if a change of control would benefit the holders of
our class A common stock. These provisions and controlling ownership by
affiliates of HMC could also adversely affect the public trading price of our
class A common stock.
The loss of
network affiliation agreements or changes in network affiliations could have
a material and
adverse effect on our results of operations if we are unable to quickly
replace the
network affiliation.
The
non-renewal or termination of a network affiliation agreement or a change in
network affiliations could have a material adverse effect on us. Each of the
networks generally provides our affiliated stations with up to 22 hours of
prime time programming per week. In return, our stations broadcast
network-inserted commercials during that programming and, in some cases, receive
cash payments from networks. In other cases, we make cash payments to certain
networks.
Some of
our network affiliation agreements are subject to earlier termination by the
networks under specified circumstances, including as a result of a change of
control of our Company, which would generally result upon the acquisition of
shares having 50% or more of our voting power. In the event that affiliates of
HMC elect to convert our class B common stock shares held by them into
shares of either class A common stock or class C common stock, such
conversion may result in a change of control of our Company causing an early
termination of some or all of our network affiliation agreements. Some of the
networks with which our stations are affiliated have required us, upon renewal
of affiliation agreements, to reduce or eliminate network compensation and, in
specific cases, to make cash payments to the network, and to accept other
material modifications of existing affiliation agreements. Consequently, our
affiliation agreements may not all remain in place and each network may not
continue to provide programming or compensation to us on the same basis as it
currently provides programming or compensation to our stations. If any of our
stations cease to maintain affiliation agreements with networks for any reason,
we would need to find alternative sources of programming, which may be less
attractive and more expensive.
A change
in network affiliation in a given television market may have many short-term and
long-term consequences, depending upon the circumstances surrounding the change.
Potential short-term consequences include: a) increased marketing costs and
increased internal operating costs, which can vary widely depending on the
amount of marketing required to educate the audience regarding the change and to
maintain the station’s viewing audience; b) short term loss of market share or
slower market growth due to advertiser uncertainty about the switch; c) costs of
building a new or larger news operation; d) other increases in station
programming costs, if necessary; and e) the cost of equipment needed to conform
the station’s programming, equipment and logos to the new network affiliation.
Long-term consequences are more difficult to assess, due to the cyclical nature
of each of the major network’s share of the audience that changes from
year-to-year with programs coming to the end of their production cycle, and the
audience acceptance of new programs in the future and the fact that national
network audience ratings are not necessarily indicative of how a network’s
programming is accepted in an individual market. How well a particular network
fares in an affiliation switch depends largely on the value of the broadcast
license, which is influenced by the length of time the television station has
been broadcasting, the quality and location of the license, the audience
acceptance of the local news programming and community involvement of the local
television station and the quality of the station non-network programming. In
addition, the majority of the revenue earned by television stations is
attributable to locally produced news and syndicated programming, rather than to
network affiliation payments and advertising sales related to network
programming. The circumstances that may surround a network affiliation switch
cause uncertainty as to the actual costs that will be incurred by us and, if
these costs are significant, the switch could have a material adverse impact on
the income we derive from the affected station.
Changes
by the national broadcast television networks in their respective business
models and practices could adversely affect our business, financial condition
and results of operations.
In recent
years, the networks have streamed their programming on the Internet and other
distribution platforms in close proximity to network programming broadcast on
local television stations, including those we own. These and other practices by
the networks dilute the exclusivity and value of network programming originally
broadcast by the local stations and could adversely affect the business,
financial conditions and results of operations of our stations.
We
depend on key personnel, and we may not be able to operate and grow our
businesses effectively if we lose the services of our management or are unable
to attract and retain qualified personnel in the future.
We depend
on the efforts of our management and other key employees. The success
of our business depends heavily on our ability to develop and retain management
and to attract and retain qualified personnel in the future. Competition for
senior management personnel is intense and we may not be able to retain our key
personnel. If we are unable to do so, our business, financial
condition or results of operations may be adversely affected.
Risks
Related to Our Industry
The
FCC’s National Broadband Plan could result in the reallocation of broadcast
spectrum for wireless broadband use, which could materially impair our ability
to provide competitive services.
The
American Recovery and Reinvestment Act of 2009 directed the FCC to deliver to
Congress, within one year of enactment, a “National Broadband
Plan.” The FCC has indicated that it will deliver the National
Broadband Plan to Congress by March 17, 2010. Certain members of the
FCC’s National Broadband Plan staff have expressed the view that some or all of
the spectrum presently allocated for television broadcasting should be reclaimed
and reallocated to be used for other purposes, including mobile wireless
broadband, and in informal discussions with broadcasters and other stakeholders
they have described possible mechanisms by which this could be
accomplished. If the National Broadband Plan includes one or more
proposals to reallocate broadcast spectrum, further action by the FCC or
Congress, or both, would be necessary in order to develop and implement
them. A reallocation, if it occurs, could result in voluntary or
involuntary modification of television broadcast licenses. We cannot
predict the likelihood, timing, or extent of a spectrum
reallocation. If some or all of our television stations are required
to change frequencies or reduce the amount of spectrum they use, our stations
could suffer material adverse effects, including but not limited to substantial
conversion costs, reduction or loss of over-the-air signal coverage, and an
inability to provide high definition programming and additional program streams,
including mobile video services.
Our
ability to successfully negotiate future retransmission consent agreements may
be hindered by the interests of networks with whom we are
affiliated.
Our
affiliation agreements with some broadcast networks include certain terms that
may affect our ability to permit cable, satellite and telecommunications
providers (“MVPDs”) to retransmit network programming, and in some cases, we may
lose the right to grant retransmission consent to such providers. We
may not be able to successfully negotiate retransmission consent agreements with
the MVPDs in our local markets if the broadcast networks withhold their consent
to the retransmission of those portions of our stations’ signals containing
network programming, or the networks may require us to pay compensation in
exchange for permitting redistribution of network programming by
MVPDs. If we are required to make payments to networks in connection
with signal retransmission, those payments may adversely affect our operating
results. If we lose the right to grant retransmission consent, we may be unable
to satisfy certain obligations under our existing retransmission consent
agreements with MVPDs and there could be a material adverse effect on our
results of operations.
Our industry is
subject to significant syndicated and other programming costs, and increased
programming costs could adversely affect our operating
results.
Our
industry is subject to significant syndicated and other programming costs. We
often acquire program rights two or three years in advance, making it difficult
for us to accurately predict how a program will perform. In some instances, we
may have to replace programs before their costs have been fully amortized,
resulting in impairments and write-offs that increase station operating costs.
We may be exposed to future programming cost increases, which may adversely
affect our operating results.
Federal
regulation of the broadcasting industry limits our operating flexibility, which
may affect our ability to generate revenue or reduce our costs.
The FCC
regulates our business, just as it does all other companies in the broadcasting
industry. We must ask the FCC’s approval whenever we need a new license,
seek to renew, assign or modify a license, purchase a new station, sell an
existing station or transfer the control of one of our subsidiaries that holds a
license. Our FCC licenses and those of the stations we program pursuant to
LMAs are critical to our operations; we cannot operate without them. We
cannot be certain that the FCC will renew these licenses in the future or
approve new acquisitions in a timely manner, if at all. If licenses are
not renewed or acquisitions approved, we may lose revenue that we otherwise
could have earned.
In
addition, Congress and the FCC may, in the future, adopt new laws, regulations
and policies regarding a wide variety of matters (including technological
changes) that could, directly or indirectly, materially and adversely affect the
operation and ownership of our broadcast properties. (See “Federal
Regulation of Television Broadcasting” in Item 1. Business)
Changes in FCC
ownership rules through FCC action, judicial review or federal legislation may
limit our ability to continue providing services to stations under local marketing
agreements, may prevent us from obtaining ownership of the stations we currently
provide services to under local marketing agreements and/or may preclude
us from
obtaining the full economic value of one or more of our duopoly, or two-station
operations upon a sale, merger or other similar
transaction transferring ownership of such station or
stations.
FCC
ownership rules currently impose significant limitations on the ability of
broadcast licensees to have attributable interests in multiple media properties.
In addition, federal law prohibits one company from owning broadcast television
stations that collectively have service areas encompassing more than an
aggregate 39% share of national television households. Ownership restrictions
under FCC rules also include a variety of local limits on media ownership. The
restrictions include an ownership limit of one television station in most medium
and smaller television markets and two stations in most larger markets, known as
the television duopoly rule. The regulations also include a prohibition on the
common ownership of a newspaper and television station in the same market
(newspaper-television cross-ownership), limits on common ownership of radio and
television stations in the same market (radio-television station ownership) and
limits on radio ownership of four to eight radio stations in a local
market.
Should
the FCC liberalize media ownership rules, attractive opportunities may arise for
additional television station and other media acquisitions. But these changes
also create additional competition for us from other entities, such as national
broadcast networks, large station groups, newspaper chains and cable operators
who may be better positioned to take advantage of such changes and benefit from
the resulting operating synergies both nationally and in specific
markets.
Should
the television duopoly rule become relaxed, we may be able to acquire the
ownership of one or both of the stations in Austin and Providence for which we
currently provide programming, sales and other related services under local
marketing agreements and for which we have purchase option agreements to
purchase these stations. Should we be unable to do so, there is no assurance
that the grandfathering of our local marketing agreements will be permitted
beyond conclusion of the current further rule-making. We had net revenues of
$15.7 million, or 5% of our total net revenues, attributable to local
marketing agreements for the year ended December 31, 2009.
Any potential
hostilities, natural disasters or terrorist attacks may affect our revenues and
results of operations.
If the
U.S. becomes engaged in new, large scale foreign hostilities, is impacted by any
significant natural disasters or if there is a terrorist attack against the
U.S., we may lose advertising revenue and incur increased broadcasting expenses
due to pre-emption, delay or cancellation of advertising campaigns and increased
costs of providing news coverage of such events. We cannot predict the extent
and duration of any future disruption to our programming schedule, the amount of
advertising revenue that would be lost or delayed or the amount by which our
expenses would increase as a result. Consequently, any related future loss of
revenue and increased expenses could negatively affect our results of
operations.
None.
We
maintain our corporate headquarters in Providence under an operating lease that
expires on March 31, 2015.
Each of
our stations has facilities consisting of offices, studios, sales offices and
tower and transmitter sites. Tower and transmitter sites are located in areas
that provide optimal coverage to each of our markets. We own substantially all
of the offices and studios where our stations are located and generally own the
property where our towers and primary transmitters are located. We lease the
remaining properties, consisting primarily of sales office locations and
microwave transmitter sites. While none of the station properties owned or
leased by us are individually material to our operations, if we were required to
relocate any of our towers, the cost could be significant. This is because the
number of sites in any geographic area that permit a tower of reasonable height
to provide good coverage of the market is limited, and zoning and other land use
restrictions, as well as Federal Aviation Administration and FCC regulations,
limit the number of alternative locations or increase the cost of acquiring them
for tower sites.
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.
Our
class A common stock is listed on the NYSE under the symbol “TVL”. There is
no established trading market for our class B common stock or our
class C common stock.
On
November 12, 2009, we were notified by the NYSE that we had regained compliance
with the NYSE’s continued listing standards. We had received a non-compliance
notification from the NYSE on January 8, 2009 because the average market
capitalization of our class A common stock over a consecutive 30 trading-day
period was less than $75 million. The November 12, 2009 notice
from the NYSE was delivered following our compliance with the NYSE minimum
market capitalization requirements over the prior two consecutive
quarters.
The
following table sets forth the high and low sales prices for our class A
common stock for the periods indicated, as reported by the NYSE:
|
High
|
Low
|
|||||||
|
2008
|
||||||||
|
1st
Quarter
|
$
|
13.71
|
$
|
8.91
|
||||
|
2nd
Quarter
|
11.05
|
5.91
|
||||||
|
3rd
Quarter
|
7.14
|
4.52
|
||||||
|
4th
Quarter
|
5.23
|
0.61
|
||||||
|
2009
|
||||||||
|
1st
Quarter
|
$
|
1.96
|
$
|
0.45
|
||||
|
2nd
Quarter
|
3.55
|
1.11
|
||||||
|
3rd
Quarter
|
6.25
|
1.21
|
||||||
|
4th
Quarter
|
5.47
|
2.33
|
||||||
We have
never declared or paid any cash dividends on our class A common stock and
the terms of our indebtedness limit the payment of such dividends. We do not
anticipate paying dividends in the foreseeable future.
As of
December 31, 2009, there were approximately 36 stockholders of record of
our class A common stock, 20 stockholders of record of our class B
common stock and two stockholders of record of our class C common
stock.
The
common stock of our wholly-owned subsidiary, LIN Television Corporation, all of
which is held directly by us, has not been registered under the Exchange Act and
is not listed on any national securities exchange.
Equity
compensation plans
The
following table provides information about the securities authorized for
issuance under our stock-based compensation plans, including our 1998 Stock
Option Plan, Amended and Restated 2002 Stock Plan, and Third Amended and
Restated 2002 Non-Employee Director Stock Plan, as of December 31,
2009:
|
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options warrants
and rights
|
Weighted-average
exercise price of outstanding options warrants and rights
|
Number
of securities remaining available for future issuance under the
stock-based compensation plans(1)
|
|||||||||
|
Stock-based
compensation plans approved by security holders
|
3,720,246
|
$
|
2.36
|
1,381,859
|
||||||||
|
Stock-based
compensation plans not approved by security holders
|
-
|
-
|
-
|
|||||||||
|
(1)
|
Includes
729,221 shares available for future issuance under the Amended and
Restated 2002 Stock Plan, and excludes 1,552,983 shares available for
future issuance under the 1998 Stock Option Plan, which we do not intend
to re-grant and consider unavailable for future grant, and 652,638 shares
available for future issuance under the Third Amended and Restated 2002
Non-Employee Director Stock Plan. Both the Amended and Restated 2002 Stock
Plan and the Third Amended and Restated 2002 Non-Employee Director Stock
Plan, in addition to the future grant of stock options, permit the grant
of “stock awards” that may take the form of restricted or unrestricted
stock, with or without payment for such stock
awards.
|
Comparative
stock performance graph
The
following graph compares the cumulative total return performance of our
class A common stock for five years ending December 31, 2009 versus
the performance of: a) the NYSE Composite Index; and b) a peer index
consisting of the following broadcast television companies: Gray Communications
Systems, Inc.; Sinclair Broadcasting Group, Inc.; Belo Corporation; Nextstar
Broadcasting Group, Inc.; and CBS Corporation (the “Television Index”). The
graph assumes the investment of $100 in our class A common stock and in
each of the indices on December 31, 2004. The performance shown is not
necessarily indicative of future performance.
|
12/31/2004
|
12/31/2005
|
12/31/2006
|
12/31/2007
|
12/31/2008
|
12/31/2009
|
|||||||||||||||||||
|
LIN
TV Corp. (TVL)
|
$
|
100.00
|
$
|
58.32
|
$
|
52.09
|
$
|
63.72
|
$
|
5.71
|
$
|
23.35
|
||||||||||||
|
NYSE
Composite Index
|
$
|
100.00
|
$
|
106.95
|
$
|
126.06
|
$
|
134.35
|
$
|
79.41
|
$
|
99.10
|
||||||||||||
|
Television
Index
|
$
|
100.00
|
$
|
80.02
|
$
|
120.56
|
$
|
108.98
|
$
|
36.72
|
$
|
65.65
|
||||||||||||
Set forth
below is our selected consolidated financial data for each of the five years in
the period ended December 31, 2009. The selected financial data as of
December 31, 2009 and 2008 and for the years ended December 31, 2009,
2008 and 2007 is derived from audited consolidated financial statements that
appear elsewhere in this report. The selected financial data should be read in
conjunction with Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our historical consolidated financial
statements and the notes thereto. The historical results presented are not
necessarily indicative of future results. All financial information shown
reflect the operations of our Puerto Rico stations and the Banks Broadcasting
joint venture as discontinued for all periods presented. Our Banks Broadcasting
joint venture station and Puerto Rico stations were sold in 2009 and 2007,
respectively.
The
selected consolidated financial data of LIN Television Corporation is identical
to LIN TV Corp. with the exception of basic and diluted loss per common
share, which is not presented for LIN Television Corporation.
|
Year
Ended December 31,
|
||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
| Consolidated Statement of Operations Data: | ||||||||||||||||||||
| Net revenues | $ | 339,474 | $ | 399,814 | $ | 395,910 | $ | 420,468 | $ | 315,446 | ||||||||||
| Impairment of goodwill, broadcast licenses and broadcast equipment(1) | $ | 39,894 | $ | 1,029,238 | $ | - | $ | 318,071 | $ | 33,421 | ||||||||||
| Operating income (loss) | $ | 22,113 | $ | (952,421 | ) | $ | 110,357 | $ | (235,799 | ) | $ | 27,590 | ||||||||
| (Gain) loss on early extinguishment of debt(2) | $ | (50,149 | ) | $ | (8,822 | ) | $ | 855 | $ | - | $ | 14,395 | ||||||||
| Income (loss) from continuing operations | $ | 9,559 | $ | (830,387 | ) | $ | 28,543 | $ | (228,355 | ) | $ | (32,530 | ) | |||||||
| (Loss) income from discontinued operations, net of tax | $ | (446 | ) | $ | 23 | $ | 2,973 | $ | (6,145 | ) | $ | 6,389 | ||||||||
| Gain from sale of discontinued operations, net of tax | $ | - | $ | - | $ | 22,166 | $ | - | $ | - | ||||||||||
| Net income (loss) | $ | 9,113 | $ | (830,364 | ) | $ |
53,682
|
$ | (234,500 | ) | $ | (26,141 | ) | |||||||
| Basic income (loss) per common share: | ||||||||||||||||||||
|
Income
(loss) from continuing operations
|
$
|
0.19
|
$
|
(16.33
|
)
|
$
|
0.57
|
$
|
(4.65
|
)
|
$
|
(0.64
|
)
|
|||||||
|
(Loss)
income from discontinued operations, net of tax
|
(0.01
|
)
|
-
|
0.06
|
(0.13
|
)
|
0.13
|
|||||||||||||
|
Gain
from sale of discontinued operations, net of tax
|
-
|
-
|
0.44
|
-
|
-
|
|||||||||||||||
|
Net
income (loss)
|
$
|
0.18
|
$
|
(16.33
|
)
|
$
|
1.07
|
$
|
(4.78
|
)
|
$
|
(0.51
|
)
|
|||||||
|
Weighted
average basic shares outstanding
|
51,464
|
50,865
|
50,468
|
49,012
|
50,765
|
|||||||||||||||
|
Diluted
income (loss) per common share:
|
||||||||||||||||||||
|
Income
(loss) from continuing operations
|
$
|
0.19
|
$
|
(16.33
|
)
|
$
|
0.56
|
$
|
(4.65
|
)
|
$
|
(0.64
|
)
|
|||||||
|
(Loss)
income from discontinued operations, net of tax
|
(0.01
|
)
|
-
|
0.05
|
(0.13
|
)
|
0.13
|
|||||||||||||
|
Gain
from sale of discontinued operations, net of tax
|
-
|
-
|
0.40
|
-
|
-
|
|||||||||||||||
|
Net
income (loss)
|
$
|
0.18
|
$
|
(16.33
|
)
|
$
|
1.01
|
$
|
(4.78
|
)
|
$
|
(0.51
|
)
|
|||||||
|
Weighted
average diluted shares outstanding
|
51,499
|
50,865
|
55,370
|
49,012
|
50,765
|
|||||||||||||||
|
Consolidated
Balance Sheet Data (at period end):
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$
|
11,105
|
$
|
20,106
|
$
|
40,031
|
$
|
6,085
|
$
|
11,135
|
||||||||||
|
Intangible
assets, net
|
$
|
516,136
|
$
|
547,301
|
$
|
1,556,708
|
$
|
1,574,125
|
$
|
1,931,981
|
||||||||||
|
Total
assets
|
$
|
790,503
|
$
|
852,594
|
$
|
1,981,968
|
$
|
2,125,846
|
$
|
2,406,633
|
||||||||||
|
Total
debt
|
$
|
682,954
|
$
|
743,353
|
$
|
832,776
|
$
|
946,798
|
$
|
981,714
|
||||||||||
|
Total
stockholders' (deficit) equity
|
$
|
(169,154
|
)
|
$
|
(189,281
|
)
|
$
|
656,098
|
$
|
588,721
|
$
|
828,872
|
||||||||
|
Other
Data:
|
||||||||||||||||||||
|
Distributions
from equity investments
|
$
|
-
|
$
|
2,649
|
$
|
3,113
|
$
|
4,890
|
$
|
4,953
|
||||||||||
|
Program
payments
|
$
|
25,005
|
$
|
26,854
|
$
|
27,604
|
$
|
25,784
|
$
|
24,397
|
||||||||||
|
(1)
|
During
the years ended December 31, 2009 and 2008, we recorded impairment charges
to our broadcast licenses and goodwill, including broadcast equipment in
2008, as more fully described in Note 6 - "Intangible Assets" in our
Notes to Consolidated Financial Statements. We also recorded
impairment charges of $318.1 and $33.4 million during the years ended
December 31, 2006 and 2005, respectively, as a result of our annual test
for impairment of our broadcast licenses and goodwill.
|
|
(2)
|
During
the years ended December 31, 2009 and 2008, we recorded a gain on
extinguishment of debt, as more fully described in Note 7 - "Debt"
in our Notes to Consolidated Financial Statements. We also
recorded a loss on extinguishment of debt of $0.9 million in 2007 related
to the repayment of $120.1 million of our terms loans and a loss on
extinguishment of debt of $14.4 million in 2006 due to the early
termination of our previous credit facilities and to the retirement of our
8% Senior Notes.
|
The
remaining assets and liabilities of the Banks Broadcasting joint venture and our
Puerto Rico stations were sold in 2009 and 2007,
respectively. Accordingly, our consolidated financial statements
reflect the operations of the Puerto Rico stations and the operations, assets
and liabilities of the Banks Broadcasting joint venture stations as discontinued
for all periods presented.
Executive
Summary
We own
and operate and/or program 28 television stations in 17 mid-sized markets. Our
operating revenues are derived primarily from the sale of advertising time to
local, national and political advertisers and, to a much lesser extent, from
digital revenues, network compensation, barter and other
revenues. During 2009, economic conditions continued to adversely
impact local and national advertising across all of our markets. We
recorded net income of $9.1 million for the year ended December 31,
2009, compared to net loss of $830.4 million and net income of
$53.7 million for the years ended December 31, 2008 and 2007,
respectively. Our net income of $9.1 million for the year ended
December 31, 2009 included: (a) a pre-tax gain on early extinguishment of debt
of $50.1 million related to our purchase of a portion of our senior subordinated
notes; and (b) a pre-tax non-cash impairment charge of $39.9 million related to
our broadcast licenses and goodwill recorded during the second quarter of 2009,
as further described in Note 6 – “Intangible Assets.”
Our
operating highlights for 2009 include the following:
|
·
|
Total
revenues decreased $60.3 million compared to 2008, primarily due to a
decline in political revenues of $33.8 million in 2009 as a result of the
Presidential, Congressional, state and local elections that took place
during 2008. The decrease in revenue in 2009 also reflected the
television advertising marketplace decline in our local markets resulting
from the economic downturn. Advertising categories for which local and
national advertising sales decreased for 2009 compared to 2008 were
automotive, retail, restaurants, media/telecommunications, services,
financial services and entertainment. Advertising categories for which
revenues increased for 2009 included grocery and food items, home
improvement and health and
beauty.
|
|
·
|
As
a result of declines in the demand for automobiles during 2009 and the
related restructurings in the automobile industry, automotive advertising
declines exceeded declines we experienced in other advertising
categories. The automotive category, which represented 19% of
our local and national advertising sales for 2009, decreased by 31%
compared to 2008, during which the automotive category represented 24% of
our local and national advertising sales. However, in the
fourth quarter of 2009, automotive advertising increased by 9% as compared
to the same period in 2008. During both the fourth quarter of
2009 and 2008 automotive advertising represented 22% of our local and
national advertising sales.
|
|
·
|
During
the latter half of the fourth quarter of 2009, we began to experience
increases in our national and local advertising revenues as a result of
modest recovery in advertising spending when compared to 2008. We
anticipate continued modest recovery during 2010 and increases in
advertising spending as a result of the 2010 Olympics and Congressional,
state and local elections.
|
|
·
|
Operating
expenses decreased approximately $1.0 billion compared to 2008 primarily
as a result of the $1.0 billion impairment charge recorded during 2008.
Additionally, direct operating, selling, general and administrative and
corporate expenses decreased $11.9 million, $12.4 million and $2.3
million, respectively, compared to 2008 primarily as a result of cost
savings realized from the restructuring initiatives implemented during
2008 and 2009.
|
|
·
|
During
the year ended December 31, 2009, we purchased a total principal amount of
$79.7 million and $42.0 million of our 6½% Senior Subordinated Notes and
6½% Senior Subordinated Notes – Class B, respectively, at market prices
using available balances under our revolving credit facility and available
cash balances. The total purchase price for the transactions was $68.4
million, resulting in a pre-tax gain on extinguishment of debt of $50.1
million, net of a write-off of deferred financing fees and discount
related to the notes of $3.2
million.
|
|
·
|
During
the six months ended June 30, 2009, we experienced declines in revenues
compared to the same periods in 2008, which were in excess of our original
2009 plan. As a result, and to address continued compliance
with the financial covenants in our credit agreement, on July 31, 2009 we
entered into the Amended Credit Agreement. Under the Amended Credit
Agreement, our aggregate revolving credit commitments remained at $225.0
million and our outstanding term loans remained at the July 31, 2009
balance of $69.9 million. The Amended Credit Agreement revised the
Company’s financial covenants, tightened exceptions to certain of the
negative covenants, increased the interest rates and fees payable on
borrowings, and provided the lenders with additional
collateral. For further information on the Amended Credit
Agreement see “Description of
Indebtedness”.
|
|
·
|
On
October 2, 2009, we completed the acquisition of RMM, an online
advertising and media services company based in Austin,
Texas. This acquisition significantly expands our local
multi-platform offerings by providing national advertising and enhanced
services, including targeted display, rich media, video advertising,
custom-built vertical channels, search engine marketing, search engine
optimization, and mobile marketing. We believe this acquisition will
further diversify and augment our digital marketing and sales business, as
well as provide new opportunities for
growth.
|
|
·
|
Our
joint venture with NBC Universal continues to be adversely impacted by the
recent economic downturn. As described in Item 1, “Business - Our Joint
Venture with NBC Universal,” on March 9, 2010 we and NBC Universal entered
into the 2010 Shortfall Funding Agreement through April 1, 2011, on terms
substantially the same as the Original Shortfall Funding Agreement. During
the year ended December 31, 2009, we accrued a total of $6.0 million for
our probable and estimable obligations under both the Original and 2010
Shortfall Funding Agreements relating to our joint venture with NBC
Universal. In part because of changes in the timing of working capital
needs at the joint venture stations, as of March 15, 2010, we have not yet
provided any funding under these agreements. However, as of
March 15, 2010, this $6.0 million liability continues to reflect our best
estimate of probable obligations under the Original Shortfall Funding
Agreement and 2010 Shortfall Funding
Agreement.
|
Critical
Accounting Policies, Estimates and Recently Issued Accounting
Pronouncements
Certain
of our accounting policies, as well as estimates we make, are critical to the
presentation of our financial condition and results of operations since they are
particularly sensitive to our judgment. Some of these policies and estimates
relate to matters that are inherently uncertain. The estimates and judgments we
make affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosures of contingent liabilities. On an on-going basis, we
evaluate our estimates, including those related to intangible assets and
goodwill, receivables and investments, program rights, income taxes, stock-based
compensation, employee medical insurance claims, pensions, useful lives of
property and equipment, 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
additional information about these and other accounting policies, see
Note 1 – “Basis of Presentation and Summary of Significant Accounting
Policies” to our consolidated financial statements included elsewhere in this
report. We have discussed each of these critical accounting policies and related
estimates with the Audit Committee of our Board of Directors.
Valuation
of long-lived assets and intangible assets
Approximately
$516.1 million or 65% of our total assets as of December 31, 2009
consisted of indefinite-lived intangible assets. Intangible assets principally
include broadcast licenses and goodwill. If the fair value of these assets is
less than the carrying value, we may be required to record an impairment
charge.
We test
the impairment of our broadcast licenses annually or whenever events or changes
in circumstances indicate that such assets might be impaired. The impairment
test consists of a comparison of the fair value of broadcast licenses with their
carrying amount on a station-by-station basis using a discounted cash flow
valuation method, assuming a hypothetical startup scenario. The future value of
our broadcast licenses could be significantly impaired by the loss of the
corresponding network affiliation agreements. Accordingly, such an event could
trigger an assessment of the carrying value of a broadcast license.
We test
the impairment of our goodwill annually or whenever events or changes in
circumstances indicate that goodwill might be impaired. The first step of the
goodwill impairment test compares the fair value of a station with its carrying
amount, including goodwill. The fair value of a station is determined through
the use of a discounted cash flow analysis. The valuation assumptions used in
the discounted cash flow model reflect historical performance of the station and
prevailing values in the markets for broadcasting properties. If the fair value
of the station exceeds its carrying amount, goodwill is not considered impaired.
If the carrying amount of the station exceeds its fair value, the second step of
the goodwill impairment test is performed to measure the amount of impairment
loss, if any. The second step of the goodwill impairment test compares the
implied fair value of goodwill with the carrying amount of that goodwill. The
implied fair value of goodwill is determined by performing a hypothetical
purchase price allocation, using the station’s fair value (as determined in the
first step described above) as the purchase price. If the carrying amount of
goodwill exceeds the implied fair value, an impairment charge is recognized in
an amount equal to that excess, but not more than the carrying value of the
goodwill. An impairment assessment could be triggered by a significant
reduction, or a forecast of such reductions, in operating results or cash flows
at one or more of our television stations, a significant adverse change in the
national or local advertising marketplaces in which our television stations
operate, or by adverse changes to FCC ownership rules, among other
factors.
The
assumptions used in the valuation testing have certain subjective components
including anticipated future operating results and cash flows based on our own
internal business plans as well as future expectations about general economic
and local market conditions. The changes in the discount rate used for our
broadcast licenses and goodwill reflected in the table below are primarily
driven by changes in the average beta for the public equity of companies in the
television and media sector and the average cost of capital in each of the
periods. The changes in the market growth rates and operating profit margins for
both our broadcast licenses and goodwill reflect changes in the outlook for
advertising revenues in certain markets where our stations operate in each of
the periods.
We based
the valuation of broadcast licenses on the following average industry-based
assumptions:
|
December
31, 2009
|
June
30, 2009
|
December
31, 2008
|
June
30, 2008
|
December
31, 2007
|
||||||||||||||||
|
Market
revenue growth
|
2.2%
|
0.2%
|
1.0%
|
1.2%
|
1.8%
|
|||||||||||||||
|
Operating
profit margins
|
30.5%
|
30.5%
|
26.6%
|
31.5%
|
33.2%
|
|||||||||||||||
|
Discount
rate
|
11.0%
|
12.0%
|
11.0%
|
9.0%
|
8.0%
|
|||||||||||||||
|
Tax
rate
|
38.3%
|
38.3%
|
38.3%
|
38.4%
|
38.4%
|
|||||||||||||||
|
Capitalization
rate
|
1.8%
|
1.8%
|
1.8%
|
2.2%
|
2.2%
|
|||||||||||||||
As of
December 31, 2009, we would not incur an impairment of our broadcast
licenses if we were to decrease the market revenue growth by 2%; decrease the
operating profit margins by 10% from the projected operating profit margins; or
increase the discount rate used in the valuation calculation by 2%.
The
valuation of goodwill is based on the following assumptions, which take into
account our internal projections and industry assumptions related to market
revenue growth, operating cash flows and prevailing discount rates:
|
December
31, 2009
|
June
30, 2009
|
December
31, 2008
|
June
30, 2008
|
December
31, 2007
|
||||||||||||||||
|
Market
revenue growth
|
2.5%
|
0.5%
|
1.0%
|
1.2%
|
1.8%
|
|||||||||||||||
|
Operating
profit margins
|
34.4%
|
36.4%
|
34.0%
|
39.7%
|
42.8%
|
|||||||||||||||
|
Discount
rate
|
12.5%
|
15.0%
|
14.5%
|
11.5%
|
10.0%
|
|||||||||||||||
|
Tax
rate
|
38.4%
|
38.2%
|
38.2%
|
38.6%
|
38.5%
|
|||||||||||||||
|
Capitalization
rate
|
1.8%
|
1.9%
|
1.9%
|
2.3%
|
2.1%
|
|||||||||||||||
As of
December 31, 2009, if we were to decrease the market revenue growth by 1% and by
2% of the projected growth rate, the enterprise value of our stations with
goodwill would decrease by $42 million and $78 million, respectively. If we were
to decrease the operating profit margins by 5% and 10% from the projected
operating profit margins, the enterprise value of our stations with goodwill
would decrease by $82 million and $165 million, respectively. If we were to
increase the discount rate used in the valuation calculation by 1% and 2%, the
enterprise value of our stations with goodwill would decrease by $47 million and
$87 million, respectively.
Network
affiliations
Other
broadcast companies may use different assumptions in valuing acquired broadcast
licenses and their related network affiliations than those that we use. These
different assumptions may result in the use of valuation methods that can result
in significant variances in the amount of purchase price allocated to these
assets by these broadcast companies.
We
believe that the value of a television station is derived primarily from the
attributes of its broadcast license. These attributes have a significant impact
on the audience for network programming in a local television market compared to
the national viewing patterns of the same network programming. These attributes
and their impact on audiences can include:
|
·
|
the
scarcity of broadcast licenses assigned by the FCC to a particular market
determines how many television networks and other program sources are
viewed in a particular market;
|
|
·
|
the
length of time the broadcast license has been broadcasting. Television
stations that have been broadcasting since the late 1940s are viewed more
often than newer television
stations;
|
|
·
|
the
quality of the broadcast signal and location of the broadcast station
within a market (i.e. the value of being licensed in the smallest city
within a tri-city market has less value than being licensed in the largest
city);
|
|
·
|
the
audience acceptance of the local news programming and community
involvement of the local television station. The local television
station’s news programming that attracts the largest audience in a market
generally will provide a larger audience for its network programming;
and
|
|
·
|
the
quality of the other non-network programming carried by the television
station. A local television station’s syndicated programming that attracts
the largest audience in a market generally will provide larger audience
lead-ins to its network
programming.
|
A local
television station can be the top-rated station in a market, regardless of the
national ranking of its affiliated network, depending on the factors or
attributes listed above. ABC, CBS, FOX and NBC, each have affiliations with
local television stations that have the largest primetime audience in the local
market in which the station operates regardless of the network’s primetime
rating.
Some
broadcasting companies believe that network affiliations are the most important
component of the value of a station. These companies generally believe that
television stations with network affiliations have the most successful local
news programming and the network affiliation relationship enhances the audience
for local syndicated programming. As a result, these broadcasting companies
allocate a significant portion of the purchase price for any station that they
may acquire to the network affiliation relationship.
We
generally have acquired broadcast licenses in markets with a number of
commercial television stations equal to or less than the number of television
networks seeking affiliates. The methodology we used in connection with the
valuation of the stations acquired is based on our evaluation of the broadcast
licenses and the characteristics of the markets in which they operated. We
believed that in substantially all our markets we would be able to replace a
network affiliation agreement with little or no economic loss to our television
station. As a result of this assumption, we ascribed no incremental value to the
incumbent network affiliation in substantially all our markets in which we
operate beyond the cost of negotiating a new agreement with another network and
the value of any terms that were more favorable or unfavorable than those
generally prevailing in the market. Other broadcasting companies have valued
network affiliations on the basis that it is the affiliation and not the other
attributes of the station, including its broadcast license, which contributes to
the operating performance of that station. As a result, we believe that these
broadcasting companies include in their network affiliation valuation amounts
related to attributes that we believe are more appropriately reflected in the
value of the broadcast license or goodwill.
In future
acquisitions, the valuation of the broadcast licenses and network affiliations
may differ from those attributable to our existing stations due to different
facts and circumstances for each station and market being
evaluated.
Valuation
allowance for deferred tax assets
We record
a valuation allowance to reduce our deferred tax assets to an amount that is
more likely than not to be realized. While we have considered future taxable
income and feasible tax planning strategies in assessing the need for a
valuation allowance, in the event that we were to determine that we would not be
able to realize all or part of our deferred tax assets in the future, an
adjustment to the deferred tax asset would be charged to income in the period in
which such a determination was made.
Revenue
recognition
We
recognize advertising and other program-related revenue during the period in
which advertising or programs are aired on our television stations or carried by
our Internet web sites or the web sites of our advertiser network. We recognize
retransmission consent fees in the period in which our service is
delivered.
Stock-based
compensation
We
estimate the fair value of stock-based awards using a Black-Scholes valuation
model. The Black-Scholes model requires us to make assumptions and judgments
about the variables to be assumed in the calculation, including the option’s
expected life, the price volatility of the underlying stock and the number of
stock-based awards that are expected to be forfeited. The expected life
represents the weighted average period of time that options granted are expected
to be outstanding giving consideration to vesting schedules and our historical
exercise patterns. Price volatility is based on historical trends for our class
A common stock and the common stock of peer group companies engaged in the
broadcasting business. Expected forfeitures are estimated using our historical
experience. If future changes in estimates differ significantly from our current
estimates, our future stock-based compensation expense and results of operations
could be materially impacted.
Retirement
plan
We have
historically provided a defined benefit retirement plan to our employees who did
not receive matching contributions from our Company to their 401(k) Plan
accounts. Our pension benefit obligations and related costs are calculated using
actuarial concepts. Our defined benefit plan is a non-contributory plan under
which we may make contributions either to: a) traditional plan participants
based on periodic actuarial valuations, which are expensed over the expected
average remaining service lives of current employees; or b) cash balance
plan participants based on 5% of each participant’s eligible
compensation.
Effective
April 1, 2009, this plan was frozen and we do not expect to make additional
benefit accruals to this plan. As a result of this action, during the
year ended December 31, 2009, we recorded a net curtailment gain that included a
$0.4 million charge related to prior service cost and a gain to our projected
benefit obligation of $4.0 million as a result of the reduction of future
compensation increases.
We
contributed $0.6 million to our pension plan during the year ended December
31, 2009 and $3.0 million in each of years ended December 31, 2008 and
2007. We anticipate contributing approximately $3.1 million to our pension
plan in 2010 although we currently have no minimum funding requirements as
defined by ERISA and federal tax laws.
Pension plan
assumptions:
Weighted-average
assumptions used to estimate our pension benefit obligations and to determine
our net periodic pension benefit cost, and the actual long-term rate-of-return
on plan assets are as follows:
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Discount
rate used to estimate our pension benefit obligation
|
5.75%
|
6.00%
|
6.25%
|
|||||||||
|
Discount
rate used to determine net periodic pension benefit
|
6.00%-7.25%
|
6.25%
|
5.75%
|
|||||||||
|
Rate
of compensation increase
|
4.50%
|
4.50%
|
4.50%
|
|||||||||
|
Expected
long-term rate-of-return plan assets
|
8.25%
|
8.25%
|
8.25%
|
|||||||||
|
Actual
long-term rate-of-return on plan assets
|
20.4%
|
(27.6)%
|
9.90%
|
|||||||||
We used
the Citigroup Pension Discount Curve to aid in the selection of our discount
rate, which we believe reflects the weighted rate of a theoretical high quality
bond portfolio consistent with the duration of the cash flows related to our
pension liability.
We
considered the current levels of expected returns on a risk-free investment, the
historical levels of risk premium associated with each of our pension asset
classes, the expected future returns for each of our pension asset classes and
then weighted each asset class based on our pension plan asset allocation to
derive an expected long-term return on pension plan assets. During
the year ended December 31, 2009, our actual long-term rate of return on plan
assets was 20.4%.
As a
result of the plan freeze during 2009, we have no further service cost or
amortization of prior service cost related to the plan. In addition, because the
plan is now frozen and participants became inactive during 2009, the net losses
related to the plan included in accumulated other comprehensive income will now
be amortized over the average remaining life expectancy of the inactive
participants instead of the average remaining service period. For these reasons,
our 2010 expense is expected to be approximately $22 thousand, which is
significantly less than in prior periods. For every 2.5% change in the actual
return compared to the expected long-term return on pension plan assets and for
every 0.25% change in the actual discount rate compared to the discount rate
assumption for 2010, our 2010 pension expense would change by less than $0.1
million.
Our
investment objective is to achieve a consistent total rate-of-return that will
equal or exceed our actuarial assumptions and to equal or exceed the benchmarks
that we use for each of our pension plan asset classes including the S&P 500
Index, S&P Mid-cap Index, Russell 2000 Index, MSCI EAFE Index and the Lehman
Brothers Aggregate Bond Index. The following asset allocation is designed to
create a diversified portfolio of pension plan assets that is consistent with
our target asset allocation and risk policy:
|
Target
Allocation
|
Percentage
of Plan Assets at December 31,
|
||||||||
|
Asset
Category
|
2009
|
2009
|
2008
|
||||||
|
Equity
securities
|
70%
|
78%
|
57%
|
||||||
|
Debt
securities
|
30%
|
22%
|
43%
|
||||||
|
100%
|
100%
|
100%
|
|||||||
Our
actual allocation of plan assets for 2009 is not in range of our target
allocation in an effort to realize potential gains associated with the equity
market rebound. During late 2009, our Retirement Committee decided to
set the target allocation at 60% equity securities and 40% debt securities.
Beginning in 2010, the funds in our plan will be rebalanced on a quarterly basis
in line with this new allocation. We continue to monitor the
performance of these funds and anticipate the allocation moving in line with the
target as the economic outlook stabilizes.
Recently
issued accounting pronouncements
In
December 2009, the FASB issued ASU 2009-17 “Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities” (“ASU 2009-17”). ASU 2009-17 is effective for
interim and annual reporting periods beginning after November 15,
2009. ASU 2009-17 amends the Codification to include the amendments
prescribed by Financial Accounting Standard (“FAS”) 167, “Amendments to FASB
Interpretation No. 46(R)”, which amends certain guidance in FIN 46(R) to
eliminate the exemption for special purpose entities, require a new qualitative
approach for determining who should consolidate a variable interest entity and
change the requirement for when to reassess who should consolidate a variable
interest entity. We adopted ASU 2009-17 effective January 1, 2010, and it
did not have a material impact on our financial position or results of
operations.
In
December 2009, the FASB issued ASU 2009-15
“Transfers and Servicing (Topic 860): Accounting for Transfers of
Financial Assets” (“ASU 2009-15”). ASU 2009-15 is effective for interim and
annual reporting periods beginning after November 15, 2009 and must be applied
to transfers occurring on or after the effective date. ASU 2009-15
amends the Codification to include the amendments prescribed by FAS 166 “Accounting for Transfers of Financial
Assets—an amendment of FASB Statement No. 140”, which clarifies that the
objective of paragraph 9 of Statement 140 is to determine whether a transferor
and all of the entities included in the transferor’s financial statements being
presented have surrendered control over transferred financial assets. We
adopted FAS 166 effective January 1, 2010, and it did not have a material impact
on our financial position or results of operations.
In
October 2009, the FASB issued ASU 2009-13 “Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging
Issues Task Force” (“ASC 605-25”). ASC 605-25 is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. ASC 605-25 addresses how to separate
deliverables and how to measure and allocate arrangement consideration to one or
more units of accounting. We plan to adopt ASC 605-25 effective January 1, 2011,
and we do not expect it to have a material impact on our financial position or
results of operations.
In August
2009, the FASB issued ASU 2009-05 “Measuring Liabilities at Fair Value” (“ASC
820-10”). ASC 820-10 is effective for the first reporting period, including
interim periods, beginning after issuance. ASC 820-10 clarifies the application
of certain valuation techniques in circumstances in which a quoted price in an
active market for the identical liability is not available and clarifies that
when estimating the fair value of a liability, the fair value is not adjusted to
reflect the impact of contractual restrictions that prevent its transfer. ASC
820-10 became effective for us on October 1, 2009. We adopted ASC
820-10 effective September 30, 2009, and it did not have a material impact on
our financial position or results of operations.
In April
2009, the FASB issued ASC 825-10, “Interim Disclosures about Fair Value of
Financial Instruments” (“ASC 825-10”), which requires public entities to
disclose in their interim financial statements the fair value of all financial
instruments within the scope of FASB Statement No. 107, “Disclosures about Fair
Value of Financial Instruments”, as well as the method(s) and significant
assumptions used to estimate the fair value of those financial
instruments. The adoption of ASC 825-10 had no impact on our
financial position or results of operations.
Also in
April 2009, the FASB issued ASC 320-10, “Recognition and Presentation of
Other-Than-Temporary Impairments” (“ASC 320-10”), to change the method for
determining whether an other-than-temporary impairment exists for debt
securities and the amount of an impairment charge to be recorded in earnings.
ASC 320-10 also requires enhanced disclosures, including the Company’s
methodology and key inputs used for determining the amount of credit losses
recorded in earnings. We adopted ASC 320-10 during the second quarter of 2009
and the adoption had no impact on our financial position or results of
operations.
Effective
January 1, 2009, the Company adopted ASC 805-10, “Business Combinations” (“ASC
805-10”). ASC 805-10 establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed and any non-controlling interest in the
acquiree; how the acquirer recognizes and measures the goodwill acquired in a
business combination; and how the acquirer determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. We have applied the provisions of
ASC 805-10 to our acquisition of RMM and the appropriate disclosures are
included in Note 2 – “Acquisitions”.
In
December 2008, the FASB issued ASC 715-10, “Employers’ Disclosures about
Postretirement Benefit Plan Assets” (“ASC 715-20”). ASC 715-20 is effective for
fiscal years ending after December 15, 2009. ASC 715-20 increases disclosure
requirements related to an employer’s defined benefit pension or other
postretirement plans. We adopted the provisions of ASC 715-10 by
including the required additional financial statement disclosures as of December
31, 2009 in Note 11 – “Retirement Plans”. The adoption of ASC 715-10 had
no impact on our financial position or results of operations.
In
November 2008, the FASB issued ASC 605-25, “Revenue Arrangements with Multiple
Deliverables” (“ASC 605-25”). ASC 605-25 is effective for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
December 31, 2009 and shall be applied on a prospective
basis. Earlier application is permitted as of the beginning of a
fiscal year. ASC 605-25 addresses some aspects of the accounting by a vendor for
arrangements under which it will perform multiple revenue-generating activities.
We plan to adopt these aspects of ASC-605-25 effective January 1, 2010, and we
do not expect it to have a material impact on our financial position or results
of operations
Results
of Operations
Set forth
below are the key operating areas that contributed to our results for the years
ended December 31, 2009, 2008 and 2007. Our consolidated financial
statements reflect the operations, assets and liabilities of the Puerto Rico
stations and the operations of the Banks Broadcasting joint venture stations as
discontinued for all periods presented. As a result, reported financial results
may not be comparable to certain historical financial information and prior year
performance may not be indicative of future financial performance.
Our
results of operations are as follows (in thousands):
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2009
|
2009
vs 2008
|
2008
|
2008
vs 2007
|
2007
|
||||||||||||||||
|
Local
time sales
|
$
|
214,472
|
(13)%
|
|
$
|
246,144
|
(9)%
|
|
$
|
270,926
|
||||||||||
|
National
time sales
|
101,616
|
(17)%
|
|
122,462
|
(16)%
|
|
144,980
|
|||||||||||||
|
Political
time sales
|
13,205
|
(72)%
|
|
47,034
|
669%
|
|
6,119
|
|||||||||||||
|
Digital
revenues
|
42,952
|
48%
|
|
29,074
|
95%
|
|
14,900
|
|||||||||||||
|
Network
compensation
|
3,786
|
1%
|
|
3,744
|
(12)%
|
|
4,252
|
|||||||||||||
|
Barter
revenues
|
4,777
|
(1)%
|
|
4,812
|
(40)%
|
|
8,047
|
|||||||||||||
|
Other
revenues
|
4,058
|
1%
|
|
4,019
|
(5)%
|
|
4,235
|
|||||||||||||
|
Agency
commissions
|
(45,392
|
)
|
(21)%
|
|
(57,475
|
)
|
-
|
(57,549
|
)
|
|||||||||||
|
Net
revenues
|
339,474
|
(15)%
|
|
399,814
|
1%
|
|
395,910
|
|||||||||||||
|
Operating
costs and expenses:
|
||||||||||||||||||||
|
Direct
operating
|
106,611
|
(10)%
|
|
118,483
|
2%
|
|
116,611
|
|||||||||||||
|
Selling,
general and administrative
|
102,923
|
(11)%
|
|
115,287
|
-
|
114,741
|
||||||||||||||
|
Amortization
of program rights
|
24,631
|
3%
|
|
23,946
|
(3)%
|
|
24,646
|
|||||||||||||
|
Corporate
|
18,090
|
(11)%
|
|
20,340
|
(6)%
|
|
21,706
|
|||||||||||||
|
Depreciation
|
30,365
|
2%
|
|
29,713
|
(4)%
|
|
30,847
|
|||||||||||||
|
Amortization
of intangible assets
|
649
|
146%
|
|
264
|
(87)%
|
|
2,049
|
|||||||||||||
|
Impairment
of goodwill, broadcast licenses and broadcast
equipment
|
39,894
|
(96)%
|
|
1,029,238
|
-
|
-
|
||||||||||||||
|
Restructuring
charge (benefit)
|
498
|
(96)%
|
|
12,902
|
(1,735)%
|
|
(74
|
)
|
||||||||||||
|
(Gain)
loss from asset dispositions
|
(6,300
|
)
|
406%
|
|
2,062
|
(108)%
|
|
(24,973
|
)
|
|||||||||||
|
Total
operating costs and expenses
|
(317,361
|
)
|
(77)%
|
|
(1,352,235
|
)
|
374%
|
|
(285,553
|
)
|
||||||||||
|
Operating
income (loss)
|
$
|
22,113
|
102%
|
|
$
|
(952,421
|
)
|
(963)%
|
|
$
|
110,357
|
|||||||||
Three-Year
Comparison
Net revenues
consist primarily of national, local and political advertising revenues,
net of sales adjustments and agency commissions. Additional but less significant
amounts are generated from Internet revenues, retransmission consent fees,
barter revenues, network compensation, production revenues, tower rental income
and station copyright royalties.
Net
revenues during the year ended December 31, 2009 decreased by $60.3 million when
compared with the prior year. The decrease was primarily due to: a) a decrease
in political advertising sales of $33.8 million; b) a decrease in local
advertising sales of $31.7 million; and c) a decrease in national advertising
sales of $20.8 million. These decreases were partially offset by: a) an increase
in digital revenue of $13.9 million; and b) a decrease in agency commissions of
$12.1 million.
The
decrease in local and national advertising sales during 2009 is primarily due to
the economic downturn that has broadly impacted demand for advertising. The
decrease in political advertising sales during the year ended December 31, 2009,
compared to the same period last year, is a result of the Presidential,
Congressional, state and local elections in 2008 that did not recur in
2009.
The
increase in digital revenues for the year ended December 31, 2009, compared to
the same period last year, is primarily due to new retransmission consent
agreements reached with cable operators during the second half of 2008, and an
increase in Internet revenues. The increase in Internet revenues is a
result of new sales initiatives, increased traffic to our web sites and
incremental revenue from the acquisition of RMM in October 2009.
Net
revenues during the year ended December 31, 2008 increased by $3.9 million when
compared with the prior year. The increase was primarily due to: a)
an increase in political advertising sales of $40.9 million; and b) an increase
in digital revenue of $14.2 million. These increases were offset by:
a) a decrease in local advertising sales of $24.8 million; b) a decrease in
national advertising sales of $22.5 million; and c) the collective decrease in
barter and all other revenue categories of $3.9 million.
The
increase in political advertising revenues during the year ended
December 31, 2008, compared to the prior year, was the result of the
Presidential, Congressional, state and local elections that took place during
2008. The decrease in both local and national advertising sales is
principally due to the economic downturn that began in 2008 and impacted a
number of local economies and national advertising
categories.
Direct operating
expenses (excluding depreciation and amortization of intangible assets),
which consist
primarily of news, engineering and programming expenses, decreased $11.9
million, or 10%, for the year ended December 31, 2009, compared to the prior
year. The decrease is primarily attributable to lower employee costs
as a result of headcount reductions completed during the fourth quarter of 2008
and the second quarter of 2009.
Direct
operating expenses increased $1.9 million, or 2%, for the year ended December
31, 2008, compared to the prior year as a result of increases in employee
salaries.
Selling, general
and administrative expenses consist primarily of employee salaries, sales
commissions, employee benefit costs, advertising, promotional expenses and
research, and these costs decreased $12.4 million, or 11%, for the year ended
December 31, 2009, compared to the prior year. This decrease is also primarily
attributable to lower employee costs as a result of headcount reductions
completed during the fourth quarter of 2008 and the second quarter of
2009.
Selling,
general and administrative expenses were flat for the year ended December 31,
2008, compared to the prior year.
Selling
expenses as a percentage of net revenues were 7.8% in each of the years ended
December 31, 2009 and 2008 and 7.9% for the year ended December 31,
2007.
Amortization of
program rights represents the recognition of expense associated with
syndicated programming, features and specials, and these costs increased
$0.7 million, or 3%, for the year ended December 31, 2009 and
decreased $0.7 million, or 3%, for the year ended December 31, 2008,
compared to their respective prior years.
Corporate
expenses represent corporate executive management, accounting, legal and
other costs associated with the centralized management of our stations, and
these costs decreased $2.3 million or 11% for the year ended December 31, 2009,
compared to the prior year. The decrease is primarily due to lower
professional and legal fees.
Corporate
expenses decreased $1.4 million or 6% for the year ended December 31, 2008,
compared to the prior year. The decrease is primarily due to a $3.6 million
decrease in compensation costs, including fair value changes to the executive
deferred compensation plan, lower bonus and stock based compensation, and
benefit costs, offset by higher legal and professional fees of $1.7
million.
Depreciation
expense increased $0.7 million or 2% for the year ended
December 31, 2009 and decreased $1.1 million or 4% for the year ended
December 31, 2008, compared to their respective prior years. The
increase during 2009 is primarily the result of accelerated depreciation of the
remaining analog equipment due to the digital transition. The decrease during
2008 is due to assets that became fully depreciated.
Amortization of
intangible assets increased $0.4 million or 146% for the year ended
December 31, 2009 and decreased $1.8 million or 87% for the year ended
December 31, 2008, compared to their respective prior years. The increase
during 2009 is a result of the amortization of the intangible assets acquired in
the RMM acquisition. The decrease during 2008 was due to lower amortization
expense related to finite-lived intangible assets that became fully amortized in
2008 and 2007.
Impairment of
goodwill, broadcast licenses and broadcast equipment reflects non-cash
impairment charges recorded during the years ended December 31, 2009 and
2008 of approximately $39.9 million and $1.0 billion, respectively. The
2009 charge includes an impairment to the carrying values of our broadcast
licenses of $37.2 million and an impairment to the carrying values of our
goodwill of $2.7 million. The 2008 charge includes $8.7 million for obsolete
broadcast equipment identified during the year as a result of the transition to
digital television, as well as $599.6 million related to broadcast licenses and
$420.9 million related to goodwill. No impairments were required for
the year ended December 31, 2007. (For further information regarding these
charges, see Note 6 – “Intangible Assets”.)
Restructuring
charge of $0.5 million was recorded during 2009 as a result of the
consolidation of certain activities at our stations, which resulted in the
termination of 28 employees. During 2008, we effected a
restructuring that included a workforce reduction of 144 employees and the
cancellation of certain syndicated television program and operating
contracts. The total charge for this plan was $12.9 million,
including $4.3 million for a workforce reduction and $8.6 million for the
cancellation of the contracts.
(Gain) loss from
asset dispositions for the year ended December 31, 2009 was $6.3 million
and was primarily attributable to: a) a gain on the exchange of certain
equipment with Sprint Nextel of $6.4 million, partially offset by b) a loss of
$0.1 million for the disposal of fixed assets. (Gain) loss from asset
dispositions for the year ended December 31, 2008 included: a) $2.0 million net
loss for the disposal of fixed assets; and b) $1.2 million write-off of other
assets; partially offset by c) $1.1 million gain from the exchange of certain
equipment.
Other
(Income) Expense
Interest expense,
net decreased $10.3 million or 19% for the year ended December 31, 2009,
compared to the prior year due to lower average borrowings outstanding as a
result of the purchase of our 2.50% Exchangeable Senior Subordinated Debentures
in 2008 and the purchase of a portion of our outstanding 6½% senior subordinated
notes in 2008 and 2009. Interest expense, net decreased $9.6 million
or 15% for the year ended December 31, 2008, compared to the prior year due to a
reduction in average borrowings outstanding under our credit facility and the
repayment of other debt.
The
following table summarizes our total net interest expense:
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Components
of interest expense:
|
||||||||||||
|
Credit
Facility
|
$
|
10,008
|
$
|
11,174
|
$
|
17,079
|
||||||
|
6½%
Senior Subordinated Notes
|
19,175
|
25,299
|
25,356
|
|||||||||
|
6½%
Senior Subordinated Notes -- Class B
|
11,403
|
14,756
|
14,743
|
|||||||||
|
2.50%
Exchangeable Senior Subordinated Debentures
|
-
|
2,803
|
7,527
|
|||||||||
|
Other
interest costs and (interest income)
|
3,700
|
603
|
(456
|
)
|
||||||||
|
Total
interest expense, net
|
$
|
44,286
|
$
|
54,635
|
$
|
64,249
|
||||||
Share of loss
(income) in equity investments reflects primarily an
impairment charge of $6.0 million for the year ended December 31, 2009, relating
to accrued loan obligations to our joint venture with NBC Universal, pursuant to
the Original Shortfall Funding Agreement and the 2010 Shortfall Funding
Agreement, as discussed further in Item 1. “Business – Joint Venture with NBC
Universal” and within the Liquidity and Capital Resources section of
Item 7. "Management’s
Discussion and Analysis of Financial Condition and Results of
Operations". Because of uncertainty surrounding the
joint venture’s ability to repay future shortfall loans, we concluded the $6.0
million loan was fully impaired during 2009. As of March 15, 2010,
this $6.0 million liability continues to reflect our best estimate of probable
obligations under the Original Shortfall Funding Agreement and 2010 Shortfall
Funding Agreement.
Share of
(income) loss
in equity investments was a loss of $52.7 million for the year ended December
31, 2008, primarily related to the $53.6 million write-off of our investment in
our joint venture with NBC Universal. During the fourth quarter of
2008, due to the continued decline in operating profits at the joint venture
stations, we determined that there was an other than temporary impairment in our
investment. As a result, and in the absence of the ability to recover
our carrying amount of the investment, we recorded a loss of $53.6 million to
write-off our equity investment in the NBC Universal joint venture.
(Gain) loss on
derivative instruments increased $0.1 million and $0.3 million for the
year ended December 31, 2009 and 2008, respectively, compared to their
respective prior year periods due to fluctuations in market interest
rates.
During
2009, our derivative instrument consisted of an interest rate hedge agreement
entered into during the second quarter of 2006 to hedge the variability in cash
flows associated with notional amount of the declining balances of our
term loans, which effectively converted the floating rate LIBOR-based payments
under this portion of the facility to fixed payments. We designated this
interest rate hedge agreement as a cash flow hedge. Accordingly, changes in the
value of this agreement are recorded in other comprehensive income (loss) and
released into earnings over the life of the agreement through periodic interest
payments, and the ineffective portion of the hedge is recorded in
earnings.
During
2008 and 2007, our derivative instruments consisted of the interest rate hedge
described above and the embedded derivatives within our 2.50% Exchangeable
Senior Subordinated Debentures. As a result of the purchase of the 2.50%
Exchangeable Senior Subordinated Debentures during the second quarter of 2008,
we recorded a gain of approximately $0.4 million for the remaining fair value of
the embedded derivatives associated with those debentures.
(Gain) loss on
extinguishment of debt increased $41.3 million and $9.7 million for the
year ended December 31, 2009 and 2008, respectively, compared to their
respective prior year periods. The increase in both the years ended December 31,
2009 and 2008 was primarily due a gain of $50.1 million and $13.8 million,
respectively, related to the purchase of our 6½% senior subordinated notes as
further described in “Description of Indebtedness”.
Income taxes
reflected a provision for (benefit from) income tax of
$13.8 million, $(222.2) million and $18.2 million for the years ended
in December 31, 2009 2008, and 2007, respectively. In 2008, we recorded an
impairment charge of $1.0 billion related to our broadcast licenses and
goodwill. Our 2008 impairment charge also includes an $8.7 million charge for
the write-off of certain broadcast assets that became obsolete as a result of
the DTV transition. We recorded no intangible asset impairment charges in
2007.
Additionally,
in 2008, our effective tax rate was impacted by the change in our valuation
allowance of $39.0 million. This amount was primarily attributable to
our 2000 to 2002 net operating losses that more likely than not will not be
utilized because of the expiration of the carryforward statute of limitations
period. Our recorded provision for income tax of $13.8 million for
the year ended December 31, 2009 represents an effective tax rate of 59.2%
compared to a benefit from income tax of $222.2 million for the year ended
December 31, 2008, which represents an effective tax rate of 21.1%. The increase
in the 2009 effective tax rate is primarily due to the impact of various state
law changes on our effective tax rate. The decrease in our 2008
benefit from income taxes compared to our statutory rate is a result of the
significant impairment charge during 2008.
Results
of Discontinued Operations
Our
consolidated financial statements reflect the operations of the Puerto Rico
stations and the operations, assets and liabilities of the Banks Broadcasting
joint venture stations as discontinued for all periods presented. As a result,
(loss) income from discontinued operations was $(446) thousand, $23 thousand and
$3.0 million for the years ended December 31, 2009, 2008 and 2007,
respectively. Gain from the sale of discontinued operations was $11 thousand and
$22.2 million for the year ended December 31, 2009 and 2007,
respectively.
On April
23, 2009, Banks Broadcasting completed the sale of KNIN-TV, a CW affiliate in
Boise, for $6.6 million to Journal Broadcast Corporation. As a result of the
sale we received, on the basis of our economic interest in Banks
Broadcasting, a distribution of $2.6 million during the second quarter of
2009. The operating loss for the year ended December 31, 2009 includes an
impairment charge of $1.9 million to reduce the carrying value of broadcast
licenses to fair value based on the final sale price of KNIN-TV of $6.6 million.
Net loss included within discontinued operations for the year ended December 31,
2009 reflects our 50% share of net losses of Banks Broadcasting, net of taxes,
through the April 23, 2009 disposal date.
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 the 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.
The
following table presents summarized information for the operations of our Puerto
Rico stations and the operations of the Banks Broadcasting joint venture
stations that were previously included in our historical operating results (in
thousands):
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
||||||||||||||||||
|
Banks
Broadcasting
|
Banks
Broadcasting
|
Puerto
Rico
|
Banks
Broadcasting
|
Total
|
||||||||||||||||
|
Net
revenues
|
$
|
823
|
$
|
2,911
|
$
|
9,868
|
$
|
4,523
|
$
|
14,391
|
||||||||||
|
Operating
(loss) income
|
$
|
(3,141
|
)
|
$
|
736
|
$
|
(1,094
|
)
|
$
|
1,702
|
$
|
608
|
||||||||
|
Net
(loss) income
|
$
|
(446
|
)
|
$
|
23
|
$
|
(368
|
)
|
$
|
3,341
|
$
|
2,973
|
||||||||
Liquidity
and Capital Resources
Our
principal sources of funds for working capital have historically been cash from
operations and borrowings under our credit facility. As of December 31, 2009, we
had unrestricted cash and cash equivalents of $11.1 million, $2.0 million of
restricted cash and a $225.0 million revolving credit facility, of which $21.0
million was available for borrowing, subject to certain covenant
restrictions.
Our total
outstanding debt as of December 31, 2009 was $683.0 million. This excludes the
contingent obligation associated with our guarantee of an $815.5 million
promissory note associated with our joint venture with NBC Universal (see
Note 14 - “Commitments and Contingencies” for further details). The outstanding
debt under our credit facility is due November 14, 2011 and all of our
6½% senior subordinated notes are due May 15, 2013. As of
December 31, 2009, the total fair value of our outstanding debt was $616.2
million.
Our
operating plan for the next 12 months requires that we generate cash from
operations, utilize available borrowings, and make certain debt repayments,
including mandatory repayments of term loans under our credit facility. Our
ability to borrow under our revolving credit facility is contingent on our
compliance with certain financial covenants, which are measured, in part, by the
level of earnings before interest expense, taxes, depreciation and amortization
(“EBITDA”) we generate from our operations. During the six months
ended June 30, 2009, we experienced declines in revenues compared to the same
periods in 2008 which were in excess of our original 2009 plan. As a
result, and to address continued compliance with the financial covenants in our
credit agreement, on July 31, 2009 we entered into the Amended Credit
Agreement. For further information regarding the terms of the Amended
Credit Agreement see “Description of Indebtedness”. As of December 31, 2009, we
were in compliance with all financial and non-financial covenants in the Amended
Credit Agreement.
Our
ability to generate cash from operations and from borrowings under our credit
facility could be affected by, but is not limited to, the following
factors:
|
·
|
The
economic downturn, which has adversely affected local and national
advertising revenues across all of our stations, with local advertising
revenues decreasing 13% for the year ended December 31, 2009 as compared
to 2008, and national advertising revenues decreasing 17% for the year
ended December 31, 2009 as compared to 2008. Approximately 81%, 79% and
91% of our net revenues for the years ended December 31, 2009, 2008 and
2007, respectively, were derived from local and national advertising. We
anticipate a modest recovery during 2010 as the U.S. economy emerges from
recession, but there can be no assurance that this will
occur.
|
|
·
|
The
seasonality of the broadcast business, due primarily to political
advertising revenues occurring in even years, which will result in
increased political advertising revenues in 2010. Political advertising
revenues were $13.2 million, $47.0 million and $6.1 million for the years
ended December 31, 2009, 2008 and 2007,
respectively.
|
| · |
Economic
and credit market conditions can impact our advertisers’ ability to pay
for advertising and the timing of those payments. During 2009,
despite the economic downturn, we did not experience significant
deterioration in the collectability of our outstanding receivables. We
have evaluated our receivables due from customers who are experiencing
financial difficulty, and the net realizable value of those receivables is
not material to our financial position as of December 31, 2009. Our days
sales outstanding as of the years ended December 31, 2009 and 2008 was 74
and 78, respectively. We experienced an improvement in days sales
outstanding during 2009 and 2008 as a result of our centralization of
credit and collection functions in 2007 and the resulting on-going
improvement in our collections
function.
|
|
·
|
Volatility
in the equity markets impacts the fair value of our pension plan assets
and ultimately the cash funding requirements of our pension
plan. As of December 31, 2009, the fair value of our pension
plan assets was $68.8 million compared to $61.5 million as of December 31,
2008. In order to manage our liquidity, we contributed $0.6 million
to our pension plan during 2009. We anticipate contributing
$3.1 million to our pension plan during 2010. Additionally,
effective January 1, 2010, we resumed Company contributions to the 401(k)
Plan, whereby the Company will provide a 3% non-elective contribution to
all eligible employees. We expect to contribute approximately
$4.2 million to our 401(k) Plan during
2010.
|
|
·
|
We
are exposed to potential losses related to fluctuations in interest rates.
Borrowings under our credit facility bear an interest rate based on, at
our option, either a) the LIBOR interest rate, or b) the ABR
rate, which is an interest rate that is equal to the greatest of (i) the
Prime Rate, (ii) the Federal Funds Effective Rate plus ½ of
1 percent, and (iii) the one-month LIBOR rate plus 1%. In addition,
the rate we select also bears an applicable margin rate of 3.750% or
2.750% for LIBOR based loans and ABR rate loans, respectively. 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 rate LIBOR rate-based payments on our term loan to
fixed payments at 5.33% plus the applicable margin rate calculated under
our credit facility, which expires in 2011. Our senior
subordinated notes bear a fixed interest rate of
6½%.
|
Cash
Requirements Related to the NBC Universal Joint Venture
Our joint
venture with NBC Universal has been adversely impacted by the current economic
downturn. The joint venture distributed no cash to NBC Universal and
us during the year ended December 31, 2009. Although the joint
venture distributed cash to NBC Universal and us in the amount of $13.0 million
and $12.0 million for the years ended December 31, 2008 and 2007, the cash
distributions for 2008 included nonrecurring cash proceeds of $12.6 million from
the sale of broadcast towers.
In light
of the adverse effect of the economic downturn on the joint venture’s operating
results, in 2009 we entered into the Original Shortfall Funding Agreement with
NBC Universal, which provided that: a) we and NBC waived the requirement that
the joint venture maintain debt service reserve cash balances of at least $15
million; b) the joint venture would use a portion of its existing debt service
reserve cash balances to fund interest payments in 2009; c) NBC agreed to defer
its receipt of 2008 and 2009 management fees; and d) we agreed that if the joint
venture does not have sufficient cash to fund interest payments on the GECC Note
through April 1, 2010, we and NBC Universal would each provide the joint venture
with a shortfall loan on the basis of our percentage of economic interest in the
joint venture. During the year ended December 31, 2009, the joint
venture used approximately $14.9 million of the existing debt service cash
reserves, leaving approximately $0.2 million available. As of March
15, 2010, we have not yet provided any funding under the Original Shortfall
Funding Agreement.
Because
of anticipated future shortfalls at the joint venture, on March 9, 2010, NBC
Universal and we entered into the 2010 Shortfall Funding Agreement covering the
period through April 1, 2011. Under the terms of the 2010 Shortfall
Funding Agreement: a) the joint venture may continue to access any portion of
its existing debt service reserve cash balances to fund interest payments; b)
NBC will continue to defer the payment of 2008 and 2009 management fees
and will defer payment of 2010 management fees through March 31, 2011
(payable subject to repayment first of any joint venture shortfall loans); and
c) we agreed that if the joint venture does not have sufficient cash to fund
interest payments on the GECC Note through April 1, 2011, we and NBC Universal
would each provide the joint venture with a shortfall loan on the basis of our
percentage of economic interest in the joint venture.
The
timing of anticipated debt service shortfalls at the joint venture is affected
by the levels of working capital at the stations owned by the joint venture
and their anticipated uses of working capital to fund operations and to
distribute cash to the joint venture for the purpose of servicing the
interest expense on the GECC Note. We recognize liabilities under the
Original Shortfall Funding Agreement and the 2010 Shortfall Funding Agreement
when those liabilities become both probable and estimable, which result when
joint venture management provides us with budget or forecast information of
operating cash flows and working capital needs indicating that a debt service
shortfall is probable to occur.
During
2009, joint venture management provided us a revised outlook for 2009 after each
quarter end, which, as of September 30, 2009, resulted in an accrual of $2.0
million for our probable and estimable obligations under the Original Shortfall
Funding Agreement through the April 1, 2010 expiry of that
agreement. Due to uncertainty surrounding the joint venture’s ability
to repay the shortfall loan, we concurrently impaired the loan as of September
30, 2009. Based on our latest estimate of cash flow requirements of the joint
venture through April 1, 2010, our share of the estimated shortfall through
April 1, 2010 is $3.0 million, of which $2.0 million was accrued as of September
30, 2009. Subsequent
to September 30, 2009, we: (a) received the joint venture’s 2010 budget and (b)
as noted above, entered into the 2010 Shortfall Funding Agreement to cover debt
service shortfalls through April 1, 2011. Based on the 2010 budget provided by
the joint venture, and our discussions with the joint venture's management, we
believe there will be an additional debt service shortfall at the joint venture
from April 2, 2010 through April 1, 2011 of $13.0 million to $15.0 million, of
which, our share of the shortfall could be approximately $3.0
million.
As a
result, we have accrued our portion of the estimated shortfalls through April 1,
2011, bringing the total accrual for our joint venture shortfall obligations to
$6.0 million as of December 31, 2009. Due to uncertainty surrounding
the joint venture’s ability to repay the shortfall loans, we concurrently
impaired all accrued loans to the joint venture as of December 31, 2009. This
amount reflects our probable and estimable obligations through the expiration of
the 2010 Shortfall Funding Agreement on April 1, 2011. We do not believe our
funding obligations related to the joint venture, if any, beyond April 1, 2011
are currently probable and estimable, therefore, we have not accrued for
any potential obligations beyond the $6.0 million discussed above. However, our
actual cash shortfall funding could exceed our estimate. As of
March 15, 2010, we have not yet provided any funding under either of these
agreements. We expect to fund our $3.0 million share of shortfall liabilities
under the Original Shortfall Funding Agreement during the first quarter of 2010,
and the remaining $3.0 million amount through the period ending April 1,
2011. We do not believe our funding obligations related to the joint
venture, if any, beyond April 1, 2011 are currently estimable and probable,
therefore, we have not accrued for any potential obligations beyond the $6.0
million discussed above. However, our actual cash shortfall funding
could exceed our estimate.
Our
ability to honor our shortfall loan obligations under the Original Shortfall
Funding Agreement and the 2010 Shortfall Funding Agreement is subject to
compliance with restrictions under our senior credit facility and the indentures
governing our senior notes. Based on the 2010 budget provided by
joint venture management, and our forecast of total leverage and consolidated
EBITDA during 2010 and 2011, we expect to have the capacity within these
restrictions to provide shortfall funding under the 2010 Shortfall Funding
Agreement in proportion to our approximately 20 percent economic interest in the
joint venture through the April 1, 2011 expiration of the 2010 Shortfall Funding
Agreement. However, there can be no assurance that we will have the
capacity to provide such funding. If we are required to fund a
portion of a shortfall loan, we plan to use our available cash balances or
available borrowings under our credit facility. In addition, if the joint
venture experiences further cash shortfalls beyond April 1, 2011, we may decide
to fund such cash shortfalls, or to fund such shortfalls through further loans
or equity contributions to the joint venture. If we are unable to make payments
under the Original Shortfall Funding Agreement or the 2010 Shortfall Funding
Agreement, the joint venture may be unable to fund interest obligations under
the GECC Note, resulting in an event of default.
An event
of default under the GECC Note will occur if the joint venture fails to make any
scheduled interest payment within 90 days of the date due and payable, or to pay
the principal amount on the maturity date. If the joint venture fails
to pay interest on the GECC Note, and neither NBC Universal nor we make a
shortfall loan to fund the interest payment within 90 days of the date due and
payable, an event of default would occur and GECC could accelerate the maturity
of the entire amount due under the GECC Note. Other than the
acceleration of the principal amount upon an event of default, prepayment of the
principal of the note is prohibited unless agreed upon by both NBC Universal and
us. Upon an event of default under the GECC Note, GECC’s only
recourse is to the joint venture, our equity interest in the joint venture and,
after exhausting all remedies against the assets of the joint venture and the
other equity interests in the joint venture, to LIN TV pursuant to its guarantee
of the GECC Note.
Under the
terms of its guarantee of the GECC Note, LIN TV would be required to make a
payment for an amount to be determined upon occurrence of the following events:
a) there is an event of default; b) neither NBC Universal or us remedy the
default; and c) after GECC exhausts all remedies against the assets of the joint
venture, the total amount realized upon exercise of those remedies is less than
the $815.5 million principal amount of the GECC Note. Upon the
occurrence of such events, the amount owed by LIN TV to GECC pursuant to the
guarantee would be calculated as the difference between i) the total amount at
which the joint venture’s assets were sold and ii) the principal amount and any
unpaid interest due under the GECC Note. As of December 31, 2009, we
estimate the fair value of the television stations in the joint venture to be
approximately $366 million less than the outstanding balance of the GECC note of
$815.5 million.
Although
we believe the probability is remote that there would be an event of default and
therefore an acceleration of the principal amount of the GECC Note during 2010,
there can be no assurances that such an event of default will not
occur. There are no financial or similar covenants in the GECC Note
and, since both NBC Universal and we have agreed to fund interest payments
through April 1, 2011 if the joint venture is unable to do so, NBC Universal and
we are able to control the occurrence of a default under the GECC
Note.
Factors
Affecting Liquidity in 2009 and 2010 Outlook
|
·
|
During
the year ended December 31, 2009, we completed a purchase of a portion of
our 6½% Senior Subordinated Notes and 6½% Senior Subordinated Notes –
Class B at market prices using available balances under our revolving
credit facility and available cash balances. During the year ended
December 31, 2009, we purchased a total principal amount of $79.7 million
and $42.0 million of our 6½% Senior Subordinated Notes and 6½% Senior
Subordinated Notes – Class B, respectively. For further
information see “Description of
Indebtedness”.
|
|
·
|
We
completed a restructuring during the second quarter of 2009 that included
the consolidation of certain activities at our stations that resulted in
the termination of 28 employees. We anticipate savings of
approximately $0.9 million per year from this restructuring; however, if
our operational needs change during the year we may not be able to realize
all of these savings.
|
|
·
|
We
are using our strong local television station brands and considerable
news, sports, weather, traffic and other local video content to develop
new revenue streams. These new revenues are generated by our television
station web sites, the launch of our mobile telephone and smart phone
applications, the acquisition of RMM and scheduled increases in
retransmission consent fees. Our digital revenues increased 48% or
$13.9 million for the year ended December 31, 2009, compared to prior
year.
|
|
·
|
We
anticipate spending of approximately $16.5 million on capital expenditures
during 2010 primarily for broadcast and related equipment, compared to
capital expenditures of approximately $10.2 million during 2009.
Additional spending may be required for any unplanned major repairs for
equipment failures.
|
|
·
|
On
April 23, 2009, our Banks Broadcasting joint venture completed the sale of
KNIN-TV, a CW affiliate in Boise, for $6.6 million to Journal Broadcast
Corporation. As a result of the sale we received, on the basis of our
economic interest in Banks Broadcasting, a distribution of $2.6
million during the quarter ended June 30, 2009. We expect to receive net
proceeds of approximately $0.2 million during the second quarter of 2010
from amounts held in escrow at the expiration of a one year indemnity
period.
|
We have
also assessed the impact the current market conditions could have on third
parties with whom we do business, specifically as it relates to our interest
rate hedge and insurance contracts. Management performs a quarterly
assessment of the critical terms of the interest rate hedge including, among
other matters, an assessment of the counterparties’
creditworthiness. Based on our assessment at December 31, 2009, we do
not believe there is a significant risk associated with the creditworthiness of
our interest rate hedge counterparty. Given current economic
conditions, management also reviewed the insurance contracts associated with our
facilities and business continuity insurance providers and noted no material
credit risks.
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. These cash requirements include
working capital, capital expenditures, interest payments and scheduled principal
payments. Our anticipated cash payments for our debt and related
interest are described below.
Contractual
Obligations
The
following table summarizes our estimated future contractual cash obligations at
December 31, 2009 (in thousands):
|
2010
|
2011-2012
|
2013-2014
|
2015
and thereafter
|
Total
|
||||||||||||||||
|
Principal
payments and mandatory redemptions on debt (1)
|
$
|
16,372
|
$
|
254,479
|
$
|
417,199
|
$
|
-
|
$
|
688,050
|
||||||||||
|
Cash
interest on debt (2)
|
39,334
|
63,699
|
10,169
|
-
|
113,202
|
|||||||||||||||
|
Program
payments (3)
|
25,731
|
35,742
|
4,604
|
-
|
66,077
|
|||||||||||||||
|
Operating
leases (4)
|
1,308
|
1,041
|
657
|
360
|
3,366
|
|||||||||||||||
|
Operating
agreements(5)
|
9,532
|
10,139
|
2,636
|
-
|
22,307
|
|||||||||||||||
|
Deferred
compensation payments(6)
|
1,084
|
885
|
-
|
-
|
1,969
|
|||||||||||||||
|
Total
|
$
|
93,361
|
$
|
365,985
|
$
|
435,265
|
$
|
360
|
$
|
894,971
|
||||||||||
|
(1)
|
We are obligated to
make mandatory quarterly principal payments and to use proceeds of asset
sales not reinvested to pay-down the term loan under our credit
facility. Additionally, we are required to make mandatory
prepayments of principal on our term loan subject to a computation of
excess cash following the delivery of our year-end financial statements as
described in “Description of Indebtedness”. We are also obligated to repay
in full our credit facility on November 4, 2011, and each of our 6½%
Senior Subordinated Notes and 6½% Senior Subordinated Notes –
Class B on May 15, 2013. The amount does not include any
potential amounts that may be paid related to the GECC Note as described
in Item 1A. Risk Factors “The General Electric Capital Corporation
(“GECC”) Note could result in significant liabilities, including (i)
requiring us to make short term cash payments to the NBC Universal joint
venture to fund interest payments, and (ii) potentially giving rise to a
change of control under our existing indebtedness, which would cause such
existing indebtedness to become immediately due and payable”.
|
|
(2)
|
We
have contractual obligations to pay cash interest on our credit facility,
as well as commitment fees of 0.750% on our revolving credit facility
through November 2011, and on each of our 6½% Senior Subordinated Notes
through 2013, our 6½% Senior Subordinated Notes – Class B and
our RMM Notes, as described in “Description of
Indebtedness”.
|
|
(3)
|
We
have entered into commitments for future syndicated news, entertainment,
and sports programming. We have recorded $66.1 million of program
obligations as of December 31, 2009 and have unrecorded commitments
of $12.4 million for programming that is not available to air as of
December 31, 2009.
|
|
(4)
|
We
lease land, buildings, vehicles and equipment under non-cancelable
operating lease agreements.
|
|
(5)
|
We
have entered into a variety of agreements for services used in the
operation of our stations including rating services, consulting and
research services, news video services, news weather services, marketing
services and other operating contracts under non-cancelable operating
agreements.
|
|
(6)
|
Includes
scheduled payments to certain employees covered under our deferred
compensation plan.
|
The above
table excludes future payments for our defined benefit retirement plans,
deferred taxes and executive compensation, with the exception of scheduled
deferred compensation payments detailed above, because their future cash
outflows are uncertain. Also excluded from the above table are potential
interest shortfall payments to our joint venture with NBC Universal. Additional
information regarding our financial commitments at December 31, 2009 is
provided in the notes to our consolidated financial statements. See Note 7
- “Debt”, Note 11 - “Retirement Plans” and Note 14 - “Commitments and
Contingencies” of our consolidated financial statements.
Summary
of Cash Flows
The
following table presents summarized cash flow information (in
thousands):
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
2009
vs 2008
|
2008
vs 2007
|
||||||||||||||||
|
Cash
provided by operating activities
|
$
|
27,246
|
$
|
83,796
|
$
|
42,716
|
$
|
(56,550
|
)
|
$
|
41,080
|
|||||||||
|
Cash
(used in) provided by investing activities
|
(14,386
|
)
|
(24,455
|
)
|
103,047
|
10,069
|
(127,502
|
)
|
||||||||||||
|
Cash
used in financing activities
|
(21,861
|
)
|
(79,266
|
)
|
(118,061
|
)
|
57,405
|
38,795
|
||||||||||||
|
Net
(decrease) increase in cash and cash equivalents
|
$
|
(9,001
|
)
|
$
|
(19,925
|
)
|
$
|
27,702
|
$
|
10,924
|
$
|
(47,627
|
)
|
|||||||
Net cash provided
by operating activities decreased $56.6 million to $27.2 million for the
year ended December 31, 2009, compared to cash provided by operating activities
of $83.8 million for the prior year. The decrease was primarily due
to a decrease in revenue of $60.3 million, in addition to amounts paid during
the year ended December 31, 2009 of $9.5 million for restructuring
expenses.
Net cash
provided by operating activities increased $41.1 million for the year ended
December 31, 2008 primarily due to changes in working capital including a
decrease in accounts receivable of $21.3 million and an increase in accrued
expenses of $19.6 million, offset by a decrease in accounts payable of $3.4
million.
Net cash (used
in) provided by investing activities decreased $10.1 million to
$14.4 million for year ended December 31, 2009, compared to cash used
in investing activities of $24.5 million for the prior year. The decrease
is primarily attributable to a reduction in capital expenditures of $18.3
million, plus net proceeds of $2.6 million received from the sale of KNIN-TV
included within discontinued operations, both of which were offset by $6.0
million paid under our settlement with 54 Broadcasting, along with $1.2 million
of cash paid for our acquisition of RMM, a transfer from cash and cash
equivalents to restricted cash of $2.0 million, and $2.6 million of dividends
received during 2008 related to our joint venture with NBC Universal, which were
not received during the same period in 2009.
Net cash
(used in) provided by investing activities decreased $127.5 million to
$24.5 million for year ended December 31, 2008, compared to cash
provided by investing activities of $103.0 million for the prior year. The
decrease is primarily due to the sale of certain assets and discontinued
operations during 2007 that did not recur in 2008.
Net cash used in
financing activities decreased $57.4 million to $21.9 million for the
year ended December 31, 2009, compared to cash used in financing activities of
$79.3 million for the prior year. The decrease was primarily due to a decrease
in principal payments on long-term debt of $138.0 million, offset by a decrease
in proceeds from our revolving credit facility of $74.0 million compared to the
same period last year.
Net cash
used in financing activities decreased $38.8 million to $79.3 million for the
year ended December 31, 2008, compared to cash used in financing activities of
$118.1 million for the prior year. This decrease was due to our purchase of $125
million of our 2.50% Exchangeable Senior Subordinated Debentures, all of which
were tendered to us and our purchase of a notional amount of $19.4 million and
$6.7 million of our 6½% Senior Subordinated Notes and 6½% Senior Subordinated
Notes – Class B, respectively. Additionally, the decrease was due to
our repayment of $77.0 million of our outstanding term loans. These decreases
were partially offset by $135.0 million of borrowings under our credit
facility.
Description
of Indebtedness
Debt
consisted of the following (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Credit
Facility:
|
||||||||
|
Revolving
credit loans
|
$
|
204,000
|
$
|
135,000
|
||||
|
Term
loans
|
61,975
|
77,875
|
||||||
|
6½%
Senior Subordinated Notes due 2013
|
275,883
|
355,583
|
||||||
|
$141,316
and $183,285, 6½% Senior Subordinated Notes due 2013 - Class B, net of
discount of $4,965 and $8,390 at December 31, 2009 and 2008,
respectively
|
136,351
|
174,895
|
||||||
|
$2,157
LIN-RMM Note, net of discount of $160
|
1,997
|
-
|
||||||
|
$1,598
RMM Note, net of premium of $112
|
1,710
|
-
|
||||||
|
$1,121
RMM Bank Note, net of discount of $83
|
1,038
|
-
|
||||||
|
Total debt
|
682,954
|
743,353
|
||||||
|
Less
current portion
|
16,372
|
15,900
|
||||||
|
Total
long-term debt
|
$
|
666,582
|
$
|
727,453
|
||||
During
the period January 1, 2009 to July 31, 2009, prior to the execution of the
Amended Credit Agreement, borrowings under our credit facility bore an interest
rate based on, at our option, either a) the LIBOR interest rate, or
b) an interest rate equal to the greater of the Prime Rate or the Federal
Funds Effective Rate plus ½ of 1 percent. In addition, the rate we selected
also bore an applicable margin rate of 0.625% to 1.500%, depending on us
achieving certain financial ratios. The unused portion of the revolving credit
facility was subject to a commitment fee of 0.25% to 0.50% depending on us
achieving certain financial ratios.
Amended
Credit Agreement
On July
31, 2009, we entered into the Amended Credit Agreement, which provided that our
aggregate revolving credit commitments remained at $225.0 million and our
outstanding term loans remained at $69.9 million (as of July 31, 2009). The
terms of the Amended Credit Agreement include, but are not limited to,
modifications to certain financial covenants, including our consolidated
leverage ratio, consolidated interest coverage ratio and consolidated senior
leverage ratio, a general tightening of the exceptions to our negative covenants
(principally by means of reducing the types and amounts of permitted
transactions), an increase in the interest rates and fees payable with respect
to borrowings under the Amended Credit Agreement, and the inclusion of certain
collateral-related provisions, principally relating to the provision of account
control agreements and mortgages with respect to certain real property that we
own. Certain revised financial condition covenants, and other key
terms, are as follows:
|
Prior
|
As
Amended
|
|||||||
|
Consolidated
Leverage Ratio:
|
||||||||
|
July
1, 2009 through September 30, 2009
|
7.00x
|
9.00x
|
||||||
|
October
1, 2009 to December 31, 2009
|
7.00x
|
10.50x
|
||||||
|
January
1, 2010 through March 31, 2010
|
6.50x
|
10.00x
|
||||||
|
April
1, 2010 through June 30, 2010
|
6.50x
|
9.00x
|
||||||
|
July
1, 2010 through September 30, 2010
|
6.00x
|
7.50x
|
||||||
|
October
1, 2010 and thereafter
|
6.00x
|
6.00x
|
||||||
|
Consolidated
Interest Coverage Ratio:
|
||||||||
|
July
1, 2009 through September 30, 2009
|
2.00x
|
1.75x
|
||||||
|
October
1, 2009 through December 31, 2009
|
2.00x
|
1.50x
|
||||||
|
January
1, 2010 through June 30, 2010
|
2.25x
|
1.75x
|
||||||
|
July
1, 2010 through September 30, 2010
|
2.25x
|
2.00x
|
||||||
|
October
1, 2010 and thereafter
|
2.25x
|
2.25x
|
||||||
|
Consolidated
Senior Leverage Ratio:
|
||||||||
|
July
1, 2009 through September 30, 2009
|
3.50x
|
3.75x
|
||||||
|
October
1, 2009 through December 31, 2009
|
3.50x
|
4.25x
|
||||||
|
January
1, 2010 through March 31, 2010
|
3.50x
|
4.00x
|
||||||
|
April
1, 2010 through June 30, 2010
|
3.50x
|
3.75x
|
||||||
|
July
1, 2010 through September 30, 2010
|
3.50x
|
3.00x
|
||||||
|
October
1, 2010 and thereafter
|
3.50x
|
2.25x
|
||||||
|
Interest
rate on borrowings
|
LIBOR
+ 150bps*
|
LIBOR
+ 375bps
|
||||||
|
*
At consolidated leverage of 7x or greater.
|
||||||||
The
Amended Credit Agreement revises the calculation of Consolidated Total Debt used
in our consolidated leverage ratios to exclude the netting of cash and cash
equivalents against total debt.
The
credit facility permits us to prepay loans and to permanently reduce the
revolving credit commitments, in whole or in part, at any time. We repaid
$15.9 million of the term loans during 2009, all of which related to
mandatory quarterly amortization payments.
On an
annual basis following the delivery of our year-end financial statements,
the Amended Credit Agreement requires mandatory prepayments of principal of
the term loans, as well as a permanent reduction in revolving credit
commitments, based on a computation of excess cash flow for the preceding
fiscal year, as more fully set forth in the Amended Credit Agreement. In
addition, the Amended Credit Agreement restricts the use of proceeds from asset
sales or from the issuance of debt (with the result that such proceeds, subject
to certain exceptions, must be used for mandatory prepayments of principal and
permanent reductions in revolving credit commitments), and includes a cash
ceiling, which requires that LIN Television utilize unrestricted cash and cash
equivalent balances in excess of $12.5 million to prepay principal amounts
outstanding, but not permanently reduce capacity, under our revolving credit
facility.
Borrowings
under our credit facility bear an interest rate based on, at our option, either
a) the LIBOR interest rate, or b) the ABR rate, which is an interest
rate that is equal to the greatest of (i) the Prime Rate, (ii) the Federal Funds
Effective Rate plus ½ of 1 percent, or (iii) the one-month LIBOR rate plus
1%. In addition, the rate we select also bears an applicable margin rate of
3.750% or 2.750% for LIBOR based loans and ABR rate loans,
respectively. Lastly, the unused portion of the revolving credit facility
is subject to a commitment fee of 0.750% depending on our consolidated leverage
ratio.
Our
revolving credit facility may be used for working capital and general corporate
purposes. For example, during the year ended December 31, 2009, we used $66
million under this facility to purchase a portion of our 6½% Senior
Subordinated Notes and 6½% Senior Subordinated Notes – Class B
and we used approximately $12 million under this facility to partially fund
interest payments related to these remaining outstanding
notes.
The
following table summarizes certain key terms of our credit facility (in
thousands):
|
Credit
Facility
|
||||||||
|
Revolving
Facility
|
Term
Loans
|
|||||||
|
Final
maturity date
|
11/4/2011
|
11/4/2011
|
||||||
|
Available
balance at December 31, 2009(1)
|
$
|
21,000
|
$
|
-
|
||||
|
Average
rates as of December 31, 2009:
|
||||||||
|
Interest
rate (2)
|
0.35%
|
0.26%
|
||||||
|
Applicable
margin(3)
|
3.75%
|
3.75%
|
||||||
|
Total
|
4.10%
|
4.01%
|
||||||
|
(1)
|
As
of March 15, 2010, the unused balance of the revolving credit facility was
$34.0 million.
|
|
(2)
|
Weighted
average rate for loans outstanding as of December 31,
2009.
|
|
(3)
|
The
outstanding loans as of December 31, 2009 include LIBOR based loans, which
have an applicable margin of 3.75%.
|
The
credit facility also contains provisions that prohibit any modification of the
indentures governing our senior subordinated notes in any manner adverse to the
lenders and that limits our ability to refinance or otherwise prepay our senior
subordinated notes without the consent of such lenders.
6½% Senior Subordinated Notes
and 6½% Senior Subordinated Notes – Class B
|
6½% Senior
Subordinated Notes
|
6½% Senior
Subordinated Notes - Class B
|
|||||
|
Final
maturity date
|
5/15/2013
|
5/15/2013
|
||||
|
Annual
interest rate
|
6.5%
|
6.5%
|
||||
|
Payable
semi-annually in arrears
|
May
15th
|
May
15th
|
||||
|
November
15th
|
November
15th
|
The
6½% Senior Subordinated Notes and 6½% Senior Subordinated Notes –
Class B are unsecured and are subordinated in right of payment to all
senior indebtedness, including our credit facility.
The
indentures governing the 6½% Senior Subordinated Notes and 6½% Senior
Subordinated Notes – Class B contain covenants limiting, among other
things, the incurrence of additional indebtedness and issuance of capital stock;
layering of indebtedness; the payment of dividends on, and redemption of, our
capital stock; liens; mergers, consolidations and sales of all or substantially
all of our assets; asset sales; asset swaps; dividend and other payment
restrictions affecting restricted subsidiaries; and transactions with
affiliates. The indentures also have change of control provisions which may
require our Company to purchase all or a portion of each of the 6½% Senior
Subordinated Notes and the 6½% Senior Subordinated Notes —
Class B at a price equal to 101% of the principal amount of the notes,
together with accrued and unpaid interest. The 6½% Senior Subordinated
Notes and the 6½% Senior Subordinated Notes – Class B have
certain limitations and financial penalties for early redemption of the
notes.
During
2008, we commenced a plan under Rule 10b5-1 of the Securities Exchange Act of
1934 to purchase a portion of our 6½% Senior Subordinated Notes and
6½% Senior Subordinated Notes – Class B at market prices using available
balances under our revolving credit facility and available cash balances. During
the year ended December 31, 2009, we purchased a total principal amount of $79.7
million and $42.0 million of our 6½% Senior Subordinated Notes and 6½% Senior
Subordinated Notes – Class B, respectively, under this plan. The total purchase
price for the transactions was $68.4 million, resulting in a gain on
extinguishment of debt of $50.1 million, net of a write-off of deferred
financing fees and discount related to the notes of $1.3 million and $1.9
million, respectively. Including the amounts purchased during 2008,
we have purchased a total notional amount of $147.8 million of such notes for an
aggregate purchase price of approximately $80.7 million.
RMM
Notes
In
connection with the acquisition of RMM as further described in Note 2 –
“Acquisitions”, LIN Television issued a $2.0 million unsecured promissory note
to McCombs Family Partners, Ltd. (the “LIN-RMM Note”) and a subsidiary of LIN
Television also assumed $1.7 million of RMM's existing secured indebtedness to
McCombs Family Partners, Ltd. (the “RMM Note”) and a $1.0 million unsecured
promissory note to a financial institution (the “RMM Bank Note”).
The
following table summarizes the material terms of each of these
notes:
|
LIN-RMM Note
|
RMM
Note
|
RMM
Bank Note
|
|||||
|
Final
maturity date
|
1/1/2011
|
1/1/2012
|
1/1/2011
|
||||
|
Effective
interest rate
|
9.7%
|
4.0%
|
9.9%
|
||||
|
Payment
frequency
|
Due
at maturity
|
Monthly
|
Quarterly
|
Repayment
of Principal
The
following table summarizes future principal repayments on our debt agreements
(in thousands):
|
Revolving
Facility
|
Term
Loans(1)
|
6½% Senior
Subordinated Notes
|
6½% Senior
Subordinated Notes - Class B
|
RMM
Notes(2)
|
Total
|
|||||||||||||||||||
|
Final
maturity date
|
11/4/2011
|
11/4/2011
|
5/15/2013
|
5/15/2013
|
1/1/2012
|
|||||||||||||||||||
|
2010
|
$ | - | $ | 15,900 | $ | - | $ | - | $ | 472 | $ | 16,372 | ||||||||||||
|
2011
|
204,000 | 46,075 | - | - | 3,824 | 253,899 | ||||||||||||||||||
|
2012
|
- | - | - | - | 580 | 580 | ||||||||||||||||||
|
2013
|
- | - | 275,883 | 141,316 | - | 417,199 | ||||||||||||||||||
|
2014
|
- | - | - | - | - | - | ||||||||||||||||||
|
Total
|
$ | 204,000 | $ | 61,975 | $ | 275,883 | $ | 141,316 | $ | 4,876 | $ | 688,050 | ||||||||||||
|
(1)
|
The
above table excludes any pay-down of our term loans with proceeds from
previous asset sales that have not been reinvested within one-year after
such sales.
|
|
(2)
|
Debt
incurred and assumed upon the acquisition of RMM on October 2,
2009.
|
The fair
values of our long-term debt are estimated based on quoted market prices for the
same or similar issues, or based on the current rates offered to us for debt of
the same remaining maturities. The carrying amounts and fair values of our
long-term debt were as follows (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Carrying
amount
|
$
|
682,954
|
$
|
743,353
|
||||
|
Fair
value
|
$
|
616,247
|
$
|
402,524
|
||||
Off
Balance Sheet Arrangements
GECC
Note
We have
guaranteed the GECC Note, which is 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% per annum thereafter. The GECC Note was assumed
by our joint venture with NBC Universal in 1998 and in the event of a
default and acceleration of the note, our guarantee would require LIN TV to pay
any shortfall should the assets of the joint venture be liquidated and not be
sufficient to satisfy the principal amount due under the GECC Note. The GECC
Note is not LIN TV or LIN Television’s obligation nor the obligation of any of
our subsidiaries, GECC has recourse only to the joint venture, our equity
interest in the joint venture and, after exhausting all remedies against the
assets of the joint venture and the other equity interest in the joint venture,
to LIN TV pursuant to its guarantee. Acceleration of the GECC Note
upon an event of default, and GECC’s pursuit of remedies against LIN TV pursuant
to the guarantee, could, if they result in material adverse consequences to LIN
Television, cause an acceleration of LIN Television’s credit facility and other
outstanding indebtedness. For more information about the GECC Note, see the
description of the NBC Universal Joint Venture in Item 1. “Business — Joint
Venture with NBC Universal” and Item 1A. Risk Factors “The GECC Note could
result in significant liabilities, including (i) requiring us to make short term
cash payments to the NBC Universal joint venture to fund interest payments, and
(ii) potentially giving rise to a change of control under our existing
indebtedness, which could cause such indebtedness to become immediately due and
payable”, as well as the description of the GECC Note in Note 14
- "Commitments and Contingencies" to our consolidated financial
statements.
Future
Program Rights Agreements
We record
program rights agreements on our balance sheet on the first broadcast date the
programs are available for air. As a result, we have commitments for future
program rights agreements not recorded on our balance sheet at December 31,
2009 of $53.7 million, as detailed in Note 14 – “Commitments and
Contingencies.”
We are
exposed to market risk related to interest rates on 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 total
debt at December 31, 2009 was $683.0 million, including current
portion of $16.4 million, of which the senior subordinated notes bear a fixed
interest rate and the credit facility bears an interest rate based on, at our
option, either a) the LIBOR interest rate, or b) the ABR rate, which
is an interest rate that is equal to the greatest of (i) the Prime Rate, (ii)
the Federal Funds Effective Rate plus ½ of 1 percent, and (iii) the
one-month LIBOR rate plus 1%. In addition, the rate we select also bears an
applicable margin rate of 3.750% or 2.750% for LIBOR based loans and ABR rate
loans, respectively. Our credit facility outstanding balance was
$266.0 million as of December 31, 2009.
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 December 31, 2009 would result in an
estimated $2.0 million increase in annualized interest expense assuming a
constant balance outstanding of $266.0 million less the notional amount
of the declining balances of our term loans covered with an interest
rate hedge agreement described below.
During
the second quarter of 2006, we entered into a contract to hedge a notional
amount of the declining balances of our term loans (“2006 interest rate
hedge”). 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 liability was
$4.2 million at December 31, 2009. This amount will be released into
earnings over the life of the 2006 interest rate hedge through periodic interest
payments.
See index
on page F-1.
None.
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 December 31, 2009. 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 SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the company’s
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their
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 December 31,
2009, 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) Management’s Report on
Internal Control Over Financial Reporting. Our management is responsible
for establishing and maintaining adequate internal control over financial
reporting, as defined in Exchange Act Rule 13a-15(f). Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policy or procedures may deteriorate. Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we have conducted an evaluation of the effectiveness of our
internal control over financial reporting based upon the Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organization
of the Treadway Commission. As permitted by the SEC, we have excluded RMM from
our evaluation as of December 31, 2009 because it was acquired by us in a
purchase business combination on October 2, 2009. RMM is an operating division
of Primeland, Inc., a wholly-owned subsidiary of LIN Television, whose total
assets and total revenues represent 1% and 1%, respectively, of our consolidated
financial statement amounts as of and for the year ended December 31, 2009.
Based on this evaluation, which excludes RMM because it was acquired in a
purchase business combination on October 2, 2009, our Chief Executive Officer
and Chief Financial Officer have concluded that our internal control over
financial reporting was effective as of December 31, 2009.
The
effectiveness of our internal control over financial reporting as of
December 31, 2009 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which
is included herein.
c) 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 December 31, 2009 that have materially affected or are reasonably
likely to materially affect our internal control over financial
reporting.
None.
Information
regarding members of our Board of Directors is contained in our Proxy Statement
for the 2010 Annual Meeting of the Stockholders under the caption “Election of
Directors” and is incorporated herein by reference. Information regarding our
executive officers is contained in our Proxy Statement for the 2010 Annual
Meeting of the Stockholders under the caption “Directors and Executive Officers”
and is incorporated herein by reference. Information regarding
Section 16(a) compliance is contained in our Proxy Statement for the 2010
Annual Meeting of Stockholders under the caption “Security Ownership of Certain
Beneficial Owners and Management” and is incorporated herein by reference.
Information regarding our Audit Committee and our Audit Committee Financial
Expert is contained in our Proxy Statement for the 2010 Annual Meeting of the
Stockholders under the caption “Report of the Audit Committee of our Board of
Directors” and is incorporated herein by reference.
The
information required by this item is contained in our Proxy Statement for the
2010 Annual Meeting of Stockholders under the captions “Compensation Discussion
and Analysis,” “Director Compensation,” “Report of the Compensation Committee of
our Board of Directors,” and “Compensation Committee Interlocks and Insider
Participation,” which is incorporated by reference in this
document.
The
information required by this item about our securities authorized for issuance
under equity compensation plans as of December 31, 2009 is included in
Part I, Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities of this Annual
Report on Form 10-K. All other information required by this item is
contained in our Proxy Statement for the 2010 Annual Meeting of Stockholders
under the caption “Security Ownership of Certain Beneficial Owners and
Management”, which is incorporated by reference in this document.
The
response to this item is contained in our Proxy Statement for the 2010 Annual
Meeting of Stockholders under the caption “Certain Relationships and Related
Transactions”, which is incorporated by reference in this document.
The
response to this item is contained in our Proxy Statement for the 2010 Annual
Meeting of Stockholders under the caption “Independent Registered Public
Accounting Firm Fees and Other Matters”, which is incorporated by reference in
this document.
(a) See
Index to Financial Statements on page F-1.
(b) Exhibits.
|
No.
|
Description
|
|
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 to
our Annual Report on Form 10-K for the fiscal year ended December 31, 2007
(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)
|
|
4.2
|
Indenture,
dated as of May 12, 2003, among LIN Television Corporation, the
guarantors named therein and the Bank of New York, as Trustee, relating to
the 6½% Senior Subordinated Notes (filed as Exhibit 4.1 to our
Current Report on Form 8-K filed as of May 14, 2003 (File Nos.
001-31311 and 000-25206) and incorporated by reference
herein)
|
|
4.4
|
Indenture,
dated as of September 29, 2005, among LIN Television Corporation, the
guarantors listed therein and The Bank of New York Trust Company,
N.A., as Trustee, relating to the 6½% Senior Subordinated Notes due
2013 — Class B of LIN Television Corporation (filed as
Exhibit 4.1 to our Current Report on Form 8-K filed as of
October 5, 2005 (File Nos. 001-31311 and 000- 25206) and
incorporated by reference herein)
|
|
4.6
|
Supplemental
Indenture, dated as of March 10, 2005, among WAPA America, Inc., WWHO
Broadcasting, LLC, LIN Television Corporation and The Bank of New York, as
Trustee, for the 6½% Senior Subordinated Notes due 2013 (filed as
Exhibit 4.6 to our Quarterly Report on Form 10-Q filed as of
November 9, 2005 (File Nos. 001-31311 and 000-25206) and incorporated
by reference herein)
|
|
4.8
|
Supplemental
Indenture, dated as of March 16, 2006, among LIN of Alabama, LLC, LIN
of Colorado, LLC, LIN of New Mexico, LLC, LIN of Wisconsin, LLC, and
S&E Network, Inc., LIN Television Corporation and The Bank of New
York, as Trustee for the 6½% Senior Subordinated Notes due 2013
(filed as Exhibit 4.8 to our Form 10-K as of March 16, 2006
(File No. 001-31311 and 000-25206) and incorporated by reference
herein)
|
|
10.1
|
Registration
Rights Agreement by and among LIN TV Corp. (f/k/a Ranger Equity Holdings
Corporation) and the stockholders named therein (filed as Exhibit 4.2
to our Registration Statement on Form S-1 (Registration
No. 333-83068) and incorporated by reference
herein)
|
|
10.2*
|
LIN
Television Corporation Retirement Plan, as amended and restated
(incorporated herein by reference to the Registration Statement on
Form S-1 of LIN Broadcasting Corporation (Registration
No. 33-84718))
|
|
10.3*
|
LIN
Television Corporation 401(k) Plan and Trust (incorporated herein by
reference to the Registration Statement on Form S-1 of LIN
Broadcasting Corporation (Registration
No. 33-84718))
|
|
10.4*
|
LIN
TV Corp. (formerly known as Ranger Equity Holdings Corporation) 1998 Stock
Option Plan (filed as Exhibit 10.26 to our Annual Report on
Form 10-K of LIN Holdings Corp. and LIN Television Corporation for
the fiscal year ended December 31, 1998 (File No. 333-54003-06)
and incorporated by reference herein)
|
|
10.5*
|
LIN
TV Corp. Amended and Restated 2002 Stock Plan, dated as of May 4,
2005 (filed as Exhibit 10.7 to our Quarterly Report on Form 10-Q
filed as of May 6, 2005 (File Nos. 001-31311 and 000-25206) and
incorporated by reference herein)
|
|
10.6*
|
First
Amendment to the LIN TV Corp. Amended and Restated 2002 Stock Plan, dated
as of December 31, 2008 (Filed as Exhibit 10.6 to our Annual Report on
Form 10-K for the fiscal year ended December 31, 2008 (File Nos. 001-31311
and 000-25206) and incorporated by reference
herein)
|
|
10.7*
|
LIN
Television Corporation Supplemental Benefit Retirement Plan (As Amended
and Restated effective December 21, 2004) (Filed as
Exhibit 10.38 to our Annual Report on Form 10-K for the fiscal
year ended December 31, 2004 (File Nos. 001-31311 and 000-25206) and
incorporated by reference herein)
|
|
10.8
|
Second
Amendment to the Supplemental Benefit Retirement Plan of LIN Television
and Subsidiary Companies, dated as of December 31, 2008 (Filed as Exhibit
10.8 to our Annual Report on Form 10-K for the fiscal year ended December
31, 2008 (File Nos. 001-31311 and 000-25206) and incorporated by reference
herein)
|
|
10.9*
|
Third
Amended and Restated 2002 Non-Employee Director Stock Plan, effective
December 1, 2006. (Filed on November 3, 2006 as Appendix A
to our Schedule 14A (Proxy Statement) (File No. 001-31311) and
incorporated by reference herein)
|
|
10.10*
|
First
Amendment to the LIN TV Corp. Third Amended and Restated 2002 Non-Employee
Director Stock Plan, dated as of December 23, 2008 (Filed as Exhibit 10.10
to our Annual Report on Form 10-K for the fiscal year ended December 31,
2008 (File Nos. 001-31311 and 000-25206) and incorporated by reference
herein)
|
|
10.12*
|
Form
of Employee Grant Option Agreement (Filed as Exhibit 10.19 to our
Form 10-K filed as of March 15, 2007 (File Nos. 001-31311 and
000-25206) and incorporated by reference herein.)
|
|
10.13*
|
Form
of Non-Employee Director Grant Option Agreement (Filed as
Exhibit 10.23 to our Form 10-K filed as of March 15, 2007
(File Nos. 001-31311 and 000-25206) and incorporated by reference
herein)
|
|
10.14*
|
Summary
of Director Compensation Policies filed as Exhibit 10.14
herein.
|
|
10.15*
|
Form
of a Non-qualified Stock Option Letter Agreement (filed as
Exhibit 10.6 to our Current Report on Form 8-K filed as of
July 6, 2005 (File Nos. 001-31311 and 000-25206) and incorporated by
reference herein)
|
|
10.16*
|
Form
of Restricted Stock Agreement (filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed as of August 16, 2005 (File
No. 001-31311) and incorporated by reference
herein)
|
|
10.17*
|
Clarification
of the Supplemental Benefit Retirement Plan of LIN Television Corporation
and subsidiary companies, dated October 29 2009. (Filed as exhibit 10.7 to
our Form 10-Q filed as of November 3, 2009 (File Nos. 001-31311 and
000-25206) and incorporated by reference herein)
|
|
10.18*
|
Employment
Agreement dated November 1, 2006, and made effective as of
July 12, 2006, between LIN Television Corporation and Vincent L.
Sadusky (Filed as exhibit 10.1 to our Current Report on Form 8-K
filed as of February 27, 2007 (File Nos. 001-31311 and 000-25206) and
incorporated by reference herein)
|
|
10.19*
|
Employment
Agreement dated February 22, 2007, and made effective as of
September 6, 2006, between LIN Television Corporation and Scott
M. Blumenthal (Filed as exhibit 10.2 to our Current Report on
Form 8-K filed as of February 27, 2007 (File Nos. 001-31311 and
000-25206) and incorporated by reference herein)
|
|
10.20*
|
Employment
Agreement dated February 22, 2007, and made effective as of
September 6, 2006, between LIN Television Corporation and Denise M.
Parent (Filed as exhibit 10.4 to our Current Report on Form 8-K
filed as of February 27, 2007 (File Nos. 001-31311 and 000-25206) and
incorporated by reference herein)
|
|
10.21*
|
Employment
Agreement between LIN TV Corp., LIN Television Corporation and Richard
Schmaeling dated September 30, 2008, effective as of October 6,
2008. (Filed as exhibit 10.1 to our Current Report on Form 8-K filed as of
October 3, 2008 (File Nos.001-31311) and incorporated by reference
herein)
|
|
10.22*
|
Employment
Agreement between LIN TV Corp., LIN Television Corporation and Robert
Richter dated September 30, 2008 effective as of September 10, 2008.
(Filed as exhibit 10.22 to our Form 10-K for the fiscal year ended
December 31, 2008 (File Nos. 001-31311 and 000-25206) and incorporated by
reference herein)
|
|
10.23*
|
Employment
Agreement between LIN TV Corp., LIN Television Corporation and Nicholas
N. Mohamed, dated and effective February 18, 2009. (Filed as exhibit
10.1 to our Current Report on Form 8-K filed as of March 26, 2009 (Files
Nos. 001-31311 and 000-25206) and incorporated by reference
herein)
|
|
10.24*
|
Amendment
to Employment Agreement dated October 29, 2009 between LIN TV Corp., LIN
Television Corporation and Vincent L. Sadusky. (Filed as exhibit 10.1 to
our Form 10-Q filed as of November 3, 2009 (File Nos. 001-31311 and
000-25206) and incorporated by reference herein)
|
|
10.25*
|
Amendment
to Employment Agreement dated October 29, 2009 between LIN TV Corp., LIN
Television Corporation and Scott M. Blumenthal. (Filed as exhibit 10.2 to
our Form 10-Q filed as of November 3, 2009 (File Nos. 001-31311 and
000-25206) and incorporated by reference herein)
|
|
10.26*
|
Amendment
to Employment Agreement dated October 29, 2009 between LIN TV Corp., LIN
Television Corporation and Denise M. Parent. (Filed as exhibit 10.3 to our
Form 10-Q filed as of November 3, 2009 (File Nos. 001-31311 and 000-25206)
and incorporated by reference herein)
|
|
10.27*
|
Amendment
to Employment Agreement dated October 29, 2009 between LIN TV Corp., LIN
Television Corporation and Richard Schmaeling. (Filed as exhibit 10.4 to
our Form 10-Q filed as of November 3, 2009 (File Nos. 001-31311 and
000-25206) and incorporated by reference herein)
|
|
10.28*
|
Amendment
to Employment Agreement dated October 29, 2009 between LIN TV Corp., LIN
Television Corporation and Robert Richter. (Filed as exhibit 10.5 to our
Form 10-Q filed as of November 3, 2009 (File Nos. 001-31311 and 000-25206)
and incorporated by reference herein)
|
|
10.29*
|
Amendment
to Employment Agreement dated October 29, 2009 between LIN TV Corp., LIN
Television Corporation and Nicholas N. Mohamed. (Filed as exhibit 10.6 to
our Form 10-Q filed as of November 3, 2009 (File Nos. 001-31311 and
000-25206) and incorporated by reference herein)
|
|
10.30*
|
Second
Amendment to Employment Agreement dated February 28, 2010 between LIN TV
Corp., LIN Television Corporation and Vincent L. Sadusky, filed as Exhibit
10.30 herein.
|
|
10.31*
|
Second
Amendment to Employment Agreement dated February 28, 2010 between LIN TV
Corp., LIN Television Corporation and Scott M. Blumenthal, filed as
Exhibit 10.31 herein.
|
|
10.32*
|
Second
Amendment to Employment Agreement dated February 28, 2010 between LIN TV
Corp., LIN Television Corporation and Denise M. Parent, filed as Exhibit
10.32 herein.
|
|
10.33*
|
Second
Amendment to Employment Agreement dated February 28, 2010 between LIN TV
Corp., LIN Television Corporation and Richard J. Schmaeling, filed as
Exhibit 10.33 herein.
|
|
10.34*
|
Second
Amendment to Employment Agreement dated February 28, 2010 between LIN TV
Corp., LIN Television Corporation and Robert Richter, filed as Exhibit
10.34 herein.
|
|
10.35*
|
Second
Amendment to Employment Agreement dated February 28, 2010 between LIN TV
Corp., LIN Television Corporation and Nicholas N. Mohamed, filed as
Exhibit 10.35 herein.
|
|
10.36
|
Amended
and Restated Credit Agreement dated as of November 4, 2005 as amended and
restated as of July 31, 2009 among LIN Television Corporation, as the
Borrower, the lenders party hereto, JPMorgan Chase Bank, N.A., as
Administrative Agent, as an Issuing Lender and as Swingline Lender J.P.
Morgan Securities Inc. and Deutsche Bank Securities, Inc.,
as Joint Lead Arrangers and Joint Bookrunners, Deutsche Bank Trust
Company Americas, as Syndication Agent and as an Issuing Lender, and
Goldman Sachs Credit Partners, L.P., Bank of America, N.A. and
Wachovia Bank, National Association, as Documentation Agents and The
Bank of Nova Scotia and Suntrust Bank, as Co-Documentation Agents.
(Filed as exhibit 99.1 to our Current Report on Form 8-K filed as of
August 6, 2009 (File Nos. 000-25206 and 001-31311) and incorporated by
reference herein.
|
|
21
|
Subsidiaries
of the Registrant
|
|
23.1
|
Consent
of PricewaterhouseCoopers LLP
|
|
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
|
__________
|
*
|
Management
contracts and compensatory plans or arrangements required to be filed as
an exhibit pursuant to Item 15(b) of
Form 10-K.
|
|
(c)
|
Financial
Statement Schedule
|
The
following financial statement schedule is filed herewith:
Schedule I —
Condensed Financial Information of the Registrant
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
Date:
March 15,
2010 /s/ Vincent L.
Sadusky
Vincent
L.
Sadusky
President,
Chief Executive Officer and Director
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of each of LIN TV Corp. and LIN
Television Corporation in the capacities and on the dates
indicated.
|
/s/ VINCENT
L. SADUSKY
|
President,
Chief Executive Officer and Director
|
3/15/2010
|
|
Vincent
L. Sadusky
|
|
|
|
/s/ RICHARD
J. SCHMAELING
|
Senior
Vice President, Chief Financial Officer
|
3/15/2010
|
|
Richard
Schmaeling
|
(Principal
Financial Officer)
|
|
|
/s/ NICHOLAS
N. MOHAMED
|
Vice
President, Controller
|
3/15/2010
|
|
Nicholas
N. Mohamed
|
(Principal
Accounting Officer)
|
|
|
/s/ WILLIAM
S. BANOWSKY, JR.
|
Director
|
3/15/2010
|
|
William
S. Banowsky, JR.
|
||
|
/s/ DR.
WILLIAM H. CUNNINGHAM
|
Director
|
3/15/2010
|
|
Dr.
William H. Cunningham
|
||
|
/s/ DOUGLAS
W. MCCORMICK
|
Chairman
of the Board
|
3/15/2010
|
|
Douglas
W. McCormick
|
||
|
/s/ MICHAEL
A. PAUSIC
|
Director
|
3/15/2010
|
|
Michael
A. Pausic
|
|
LIN
TV Corp.
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
LIN
Television Corporation
|
|
|
F-50
|
|
|
F-51
|
|
|
F-52
|
|
|
F-53
|
|
|
F-54
|
|
|
F-55
|
|
|
Financial
Statement Schedule
|
|
|
F-97
|
To
the Board of Directors and Shareholders of LIN TV Corp.:
In
our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of LIN TV
Corp. and its subsidiaries at December 31, 2009 and December 31, 2008, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying
index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's
management is responsible for these financial statements and financial statement
schedule, for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in Management's Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to express
opinions on these financial statements, on the financial statement schedule, and
on the Company's internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
As
described in Management's Report on Internal Control over Financial Reporting,
management has excluded RMM from its assessment of internal control over
financial reporting as of December 31, 2009 because it was acquired by the
Company in a purchase business combination on October 2, 2009. We have also
excluded RMM from our audit of internal control over financial reporting. RMM is
an operating division of Primeland, Inc., a wholly owned subsidiary of LIN
Television Corporation, whose total assets and total revenues represent 1%
and 1%, respectively, of the related consolidated financial statement amounts as
of and for the year ended December 31, 2009.
/s/
PricewaterhouseCoopers LLP
Hartford,
Connecticut
March
15, 2010
| Part I. Financial Information | ||||||||
| Item 1. Consolidated Financial Statements | ||||||||
| LIN TV Corp. | ||||||||
| Consolidated Balance Sheets | ||||||||
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
(in
thousands, except share data)
|
|||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$
|
11,105
|
$
|
20,106
|
||||
|
Restricted
cash
|
2,000
|
-
|
||||||
|
Accounts
receivable, less allowance for doubtful accounts (2009 - $2,272; 2008 -
$2,761)
|
73,948
|
68,277
|
||||||
|
Program
rights
|
2,126
|
3,311
|
||||||
|
Assets
held for sale
|
-
|
430
|
||||||
|
Other
current assets
|
6,402
|
5,045
|
||||||
|
Total
current assets
|
95,581
|
97,169
|
||||||
|
Property
and equipment, net
|
165,061
|
180,679
|
||||||
|
Deferred
financing costs
|
8,389
|
8,511
|
||||||
|
Program
rights
|
1,400
|
3,422
|
||||||
|
Goodwill
|
117,259
|
117,159
|
||||||
|
Broadcast
licenses and other intangible assets, net
|
398,877
|
430,142
|
||||||
|
Assets
held for sale
|
-
|
8,872
|
||||||
|
Other
assets
|
3,936
|
6,640
|
||||||
|
Total
assets
|
$
|
790,503
|
$
|
852,594
|
||||
|
LIABILITIES,
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
|
||||||||
|
Current
liabilities:
|
||||||||
|
Current
portion of long-term debt
|
$
|
16,372
|
$
|
15,900
|
||||
|
Accounts
payable
|
6,556
|
7,988
|
||||||
|
Accrued
expenses
|
41,916
|
56,701
|
||||||
|
Program
obligations
|
10,319
|
10,109
|
||||||
|
Liabilities
held for sale
|
-
|
429
|
||||||
|
Total
current liabilities
|
75,163
|
91,127
|
||||||
|
Long-term
debt, excluding current portion
|
666,582
|
727,453
|
||||||
|
Deferred
income taxes, net
|
162,025
|
141,702
|
||||||
|
Program
obligations
|
2,092
|
5,336
|
||||||
|
Liabilities
held for sale
|
-
|
343
|
||||||
|
Other
liabilities
|
53,795
|
68,883
|
||||||
|
Total
liabilities
|
959,657
|
1,034,844
|
||||||
|
Stockholders'
Deficit:
|
||||||||
|
Class
A common stock, $0.01 par value, 100,000,000 shares
authorized,
|
||||||||
|
Issued:
30,270,167 and 29,733,672 shares at December 31, 2009 and 2008,
respectively
|
||||||||
|
Outstanding:
29,397,349 and 27,927,244 shares at December 31, 2009 and 2008,
respectively
|
294
|
294
|
||||||
|
Class
B common stock, $0.01 par value, 50,000,000 shares
authorized, 23,502,059 shares at December 31, 2009 and 2008,
issued and outstanding; convertible into an equal number of shares of
Class A or Class C common stock
|
235
|
235
|
||||||
|
Class
C common stock, $0.01 par value, 50,000,000 shares authorized, 2 shares at
December 31, 2009 and 2008 issued and outstanding; convertible into an
equal number of shares of Class A common stock
|
-
|
-
|
||||||
|
Treasury
stock, 872,818 and 1,806,428 shares of Class A common stock at December
31, 2009 and 2008, respectively, at cost
|
(7,869
|
)
|
(18,005
|
)
|
||||
|
Additional
paid-in capital
|
1,104,161
|
1,101,919
|
||||||
|
Accumulated
deficit
|
(1,238,058
|
)
|
(1,239,090
|
)
|
||||
|
Accumulated
other comprehensive loss
|
(27,917
|
)
|
(34,634
|
)
|
||||
|
Total
stockholders' deficit
|
(169,154
|
)
|
(189,281
|
)
|
||||
|
Noncontrolling
interest
|
-
|
7,031
|
||||||
|
Total
deficit
|
(169,154
|
)
|
(182,250
|
)
|
||||
|
Total
liabilities, preferred stock and stockholders’
deficit
|
$
|
790,503
|
$
|
852,594
|
||||
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
||||||||
|
Consolidated
Statements of Operations
|
||||||||||||
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(in
thousands, except per share data)
|
||||||||||||
|
Net
revenues
|
$
|
339,474
|
$
|
399,814
|
$
|
395,910
|
||||||
|
Operating
costs and expenses:
|
||||||||||||
|
Direct
operating
|
106,611
|
118,483
|
116,611
|
|||||||||
|
Selling,
general and administrative
|
102,923
|
115,287
|
114,741
|
|||||||||
|
Amortization
of program rights
|
24,631
|
23,946
|
24,646
|
|||||||||
|
Corporate
|
18,090
|
20,340
|
21,706
|
|||||||||
|
Depreciation
|
30,365
|
29,713
|
30,847
|
|||||||||
|
Amortization
of intangible assets
|
649
|
264
|
2,049
|
|||||||||
|
Impairment
of goodwill, broadcast licenses and broadcast
equipment
|
39,894
|
1,029,238
|
-
|
|||||||||
|
Restructuring
charge (benefit)
|
498
|
12,902
|
(74
|
)
|
||||||||
|
(Gain)
loss from asset dispositions
|
(6,300
|
)
|
2,062
|
(24,973
|
)
|
|||||||
|
Operating
income (loss)
|
22,113
|
(952,421
|
)
|
110,357
|
||||||||
|
Other
(income) expense:
|
||||||||||||
|
Interest
expense, net
|
44,286
|
54,635
|
64,249
|
|||||||||
|
Share
of loss (income) in equity investments
|
6,128
|
52,703
|
(2,091
|
)
|
||||||||
|
(Gain)
loss on derivative instruments
|
(208
|
)
|
(105
|
)
|
223
|
|||||||
|
(Gain)
loss on extinguishment of debt
|
(50,149
|
)
|
(8,822
|
)
|
855
|
|||||||
|
Other,
net
|
(1,344
|
)
|
1,720
|
366
|
||||||||
|
Total
other (income) expense, net
|
(1,287
|
)
|
100,131
|
63,602
|
||||||||
|
Income
(loss) from continuing operations before provision for (benefit from)
income taxes
|
23,400
|
(1,052,552
|
)
|
46,755
|
||||||||
|
Provision
for (benefit from) income taxes
|
13,841
|
(222,165
|
)
|
18,212
|
||||||||
|
Income
(loss) from continuing operations
|
9,559
|
(830,387
|
)
|
28,543
|
||||||||
|
Discontinued
operations:
|
||||||||||||
|
(Loss)
income from discontinued operations, net of gain from the sale of
discontinued operations of $11 in 2009, and net of (benefit from)
provision for income taxes of $(628), $296 and $(3,308) for the year ended
December 31, 2009, 2008 and 2007, respectively
|
(446
|
)
|
23
|
2,973
|
||||||||
|
Gain
from the sale of discontinued operations, net of provision for
income taxes of $2,619 for the year ended December 31,
2007
|
-
|
-
|
22,166
|
|||||||||
|
Net
income (loss)
|
$
|
9,113
|
$
|
(830,364
|
)
|
$
|
53,682
|
|||||
|
Basic
income (loss) per common share:
|
||||||||||||
|
Income
(loss) from continuing operations
|
$
|
0.19
|
$
|
(16.33
|
)
|
$
|
0.57
|
|||||
|
(Loss)
income from discontinued operations, net of tax
|
(0.01
|
)
|
-
|
0.06
|
||||||||
|
Gain
from the sale of discontinued operations, net of tax
|
-
|
-
|
0.44
|
|||||||||
|
Net
income (loss)
|
$
|
0.18
|
$
|
(16.33
|
)
|
$
|
1.07
|
|||||
|
Weighted
- average number of common shares outstanding used in calculating basic
income (loss) per common share
|
51,464
|
50,865
|
50,468
|
|||||||||
|
Diluted
income (loss) per common share:
|
||||||||||||
|
Income
(loss) from continuing operations
|
$
|
0.19
|
$
|
(16.33
|
)
|
$
|
0.56
|
|||||
|
(Loss)
income from discontinued operations, net of tax
|
(0.01
|
)
|
-
|
0.05
|
||||||||
|
Gain
from the sale of discontinued operations, net of tax
|
-
|
-
|
0.40
|
|||||||||
|
Net
income (loss)
|
$
|
0.18
|
$
|
(16.33
|
)
|
$
|
1.01
|
|||||
|
Weighted
- average number of common shares outstanding used in calculating diluted
income (loss) per common share
|
51,499
|
50,865
|
55,370
|
|||||||||
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
||||||||||||
|
Consolidated
Statements of Stockholders' Equity (Deficit) and Comprehensive Income
(Loss)
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
(in
thousands, except share data)
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Total
Equity (Deficit)
|
Common
Stock
|
Treasury Stock
(at cost)
|
Additional
Paid-In Capital
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Loss
|
Total
Stockholders' Equity (Deficit)
|
Noncontrolling
Interest
|
Comprehensive
Income (Loss)
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Class
A
|
Class
B
|
Class
C
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance
at December 31, 2006
|
$ | 599,034 | 29,053,302 | $ | 290 | 23,502,059 | $ | 235 | 2 | $ | - | $ | (18,005 | ) | $ | 1,087,396 | $ | (462,408 | ) | $ | (18,787 | ) | $ | 588,721 | $ | 10,313 | ||||||||||||||||||||||||||||||
|
Amortization
of prior service cost, net of tax of $49
|
76 | - | - | - | - | - | - | - | - | - | 76 | 76 | - | $ | 76 | |||||||||||||||||||||||||||||||||||||||||
|
Amortization
of net loss, net of tax of $3,665
|
5,642 | - | - | - | - | - | - | - | - | - | 5,642 | 5,642 | - | 5,642 | ||||||||||||||||||||||||||||||||||||||||||
|
Unrealized
loss on cash flow hedges, net of tax of $970
|
(1,503 | ) | - | - | - | - | - | - | - | - | - | (1,503 | ) | (1,503 | ) | - | (1,503 | ) | ||||||||||||||||||||||||||||||||||||||
|
Recognition
of accumulated benefit obligation for discontinued
operations
|
419 | - | - | - | - | - | - | - | - | - | 419 | 419 | - | 419 | ||||||||||||||||||||||||||||||||||||||||||
|
Exercises
of stock under employee compensation plans
|
2,064 | 182,452 | 2 | - | - | - | - | - | 2,062 | - | - | 2,064 | - | |||||||||||||||||||||||||||||||||||||||||||
|
Tax
benefit from stock exercises
|
778 | - | - | - | - | - | - | - | 778 | - | - | 778 | - | |||||||||||||||||||||||||||||||||||||||||||
|
Stock-based
compensation, continuing operations
|
6,171 | 2,287 | - | - | - | - | - | - | 6,171 | - | - | 6,171 | - | |||||||||||||||||||||||||||||||||||||||||||
|
Restricted
shares cancelled
|
- | (107,868 | ) | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
|
Stock-based
compensation, discontinued operations
|
48 | - | - | - | - | - | - | - | 48 | - | - | 48 | - | |||||||||||||||||||||||||||||||||||||||||||
|
Net
income (loss)
|
52,415 | - | - | - | - | - | - | - | - | 53,682 | - | 53,682 | (1,267 | ) | 53,682 | |||||||||||||||||||||||||||||||||||||||||
|
Comprehensive
income - 2007
|
$ | 58,316 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance
at December 31, 2007
|
665,144 | 29,130,173 | $ | 292 | 23,502,059 | $ | 235 | 2 | $ | - | $ | (18,005 | ) | $ | 1,096,455 | $ | (408,726 | ) | $ | (14,153 | ) | $ | 656,098 | $ | 9,046 | |||||||||||||||||||||||||||||||
|
Amortization
of prior service cost, net of tax of $49
|
76 | - | - | - | - | - | - | - | - | - | 76 | 76 | - | 76 | ||||||||||||||||||||||||||||||||||||||||||
|
Amortization
of net loss, net of tax of $12,595
|
(18,935 | ) | - | - | - | - | - | - | - | - | - | (18,935 | ) | (18,935 | ) | - | (18,935 | ) | ||||||||||||||||||||||||||||||||||||||
|
Unrealized
loss on cash flow hedges, net of tax of $1,076
|
(1,622 | ) | - | - | - | - | - | - | - | - | - | (1,622 | ) | (1,622 | ) | - | (1,622 | ) | ||||||||||||||||||||||||||||||||||||||
|
Exercises
of stock under employee compensation plans
|
1,303 | 261,703 | 2 | - | - | - | - | - | 1,301 | - | - | 1,303 | - | |||||||||||||||||||||||||||||||||||||||||||
|
Tax
provision from stock exercises
|
(361 | ) | - | - | - | - | - | - | (361 | ) | - | - | (361 | ) | - | |||||||||||||||||||||||||||||||||||||||||
|
Stock-based
compensation, continuing operations
|
4,514 | 437,337 | - | - | - | - | - | - | 4,514 | - | - | 4,514 | - | |||||||||||||||||||||||||||||||||||||||||||
|
Restricted
shares cancelled
|
- | (95,541 | ) | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
|
Stock-based
compensation, discontinued operations
|
10 | - | - | - | - | - | - | - | 10 | - | - | 10 | - | |||||||||||||||||||||||||||||||||||||||||||
|
Net
loss
|
(832,379 | ) | - | - | - | - | - | - | - | - | (830,364 | ) | - | (830,364 | ) | (2,015 | ) | (830,364 | ) | |||||||||||||||||||||||||||||||||||||
|
Comprehensive
loss - 2008
|
$ | (850,845 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance
at December 31, 2008
|
(182,250 | ) | 29,733,672 | $ | 294 | 23,502,059 | $ | 235 | 2 | $ | - | $ | (18,005 | ) | $ | 1,101,919 | $ | (1,239,090 | ) | $ | (34,634 | ) | $ | (189,281 | ) | $ | 7,031 | |||||||||||||||||||||||||||||
|
Amortization
of prior service cost, net of tax of $184
|
283 | - | - | - | - | - | - | - | - | - | 283 | 283 | - | 283 | ||||||||||||||||||||||||||||||||||||||||||
|
Amortization
of net loss, net of tax of $3,593
|
5,208 | - | - | - | - | - | - | - | - | - | 5,208 | 5,208 | - | 5,208 | ||||||||||||||||||||||||||||||||||||||||||
|
Pension
tax liability, net of tax
|
(20 | ) | - | - | - | - | - | - | - | - | - | (20 | ) | (20 | ) | - | (20 | ) | ||||||||||||||||||||||||||||||||||||||
|
Unrealized
gain on cash flow hedges, net of tax of $858
|
1,246 | - | - | - | - | - | - | - | - | - | 1,246 | 1,246 | - | 1,246 | ||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of treasury stock (See Note 2 - "Acquisitions")
|
2,055 | - | - | - | - | - | - | 2,055 | - | - | - | 2,055 | - | |||||||||||||||||||||||||||||||||||||||||||
|
Loss
on issuance of treasury stock
|
- | - | - | - | - | - | - | 8,081 | - | (8,081 | ) | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
|
Tax
provision from stock exercises
|
(171 | ) | - | - | - | - | - | - | - | (171 | ) | - | - | (171 | ) | - | ||||||||||||||||||||||||||||||||||||||||
|
Stock-based
compensation
|
2,413 | 591,500 | - | - | - | - | - | - | 2,413 | - | - | 2,413 | - | |||||||||||||||||||||||||||||||||||||||||||
|
Restricted
shares cancelled
|
- | (55,005 | ) | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
|
Distribution
to minority shareholders
|
(2,644 | ) | - | - | - | - | - | - | - | - | - | - | - | (2,644 | ) | |||||||||||||||||||||||||||||||||||||||||
|
Net
income (loss)
|
4,726 | - | - | - | - | - | - | - | - | 9,113 | - | 9,113 | (4,387 | ) | 9,113 | |||||||||||||||||||||||||||||||||||||||||
|
Comprehensive
income - 2009
|
$ | 15,830 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance
at December 31, 2009
|
$ | (169,154 | ) | 30,270,167 | $ | 294 | 23,502,059 | $ | 235 | 2 | $ | - | $ | (7,869 | ) | $ | 1,104,161 | $ | (1,238,058 | ) | $ | (27,917 | ) | $ | (169,154 | ) | $ | - | ||||||||||||||||||||||||||||
|
The
accompanying notes are an integral part of the consolidated financial
statements
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Consolidated
Statements of Cash Flows
|
||||||||||||
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008 |
2007
|
||||||||||
|
OPERATING
ACTIVITIES:
|
(in
thousands)
|
|||||||||||
|
Net
income (loss)
|
$ | 9,113 | $ | (830,364 | ) | $ | 53,682 | |||||
|
Loss
(income) from discontinued operations
|
446 | (23 | ) | (2,973 | ) | |||||||
|
Gain
from sale of discontinued operations
|
- | - | (22,166 | ) | ||||||||
|
Adjustment
to reconcile net income (loss) to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
|
30,365 | 29,713 | 30,847 | |||||||||
|
Amortization
of intangible assets
|
649 | 264 | 2,049 | |||||||||
|
Impairment
of goodwill, broadcast licenses and broadcast
equipment
|
39,894 | 1,029,238 | - | |||||||||
|
Amortization
of financing costs and note discounts
|
4,273 | 5,860 | 8,608 | |||||||||
|
Amortization
of program rights
|
24,631 | 23,946 | 24,646 | |||||||||
|
Program
payments
|
(25,005 | ) | (26,854 | ) | (27,604 | ) | ||||||
|
(Gain)
loss on extinguishment of debt
|
(50,149 | ) | (8,822 | ) | 855 | |||||||
|
(Gain)
loss on derivative investments
|
(208 | ) | (105 | ) | 223 | |||||||
|
Share
of loss (income) in equity investments
|
6,128 | 52,703 | (2,091 | ) | ||||||||
|
Deferred
income taxes, net
|
18,274 | (235,856 | ) | 18,875 | ||||||||
|
Stock-based
compensation
|
2,413 | 4,523 | 5,859 | |||||||||
|
(Gain)
loss from asset dispositions
|
(6,300 | ) | 2,062 | (24,973 | ) | |||||||
|
Other,
net
|
(159 | ) | (2,636 | ) | 1,282 | |||||||
|
Changes
in operating assets and liabilities, net of acquisitions and
disposals:
|
||||||||||||
|
Accounts
receivable
|
(3,857 | ) | 21,304 | 1,927 | ||||||||
|
Other
assets
|
1,169 | 4,405 | 1,842 | |||||||||
|
Accounts
payable
|
(2,839 | ) | (3,427 | ) | 3,327 | |||||||
|
Accrued
interest expense
|
(918 | ) | (483 | ) | (126 | ) | ||||||
|
Other
liabilities and accrued expenses
|
(20,573 | ) | 19,587 | (18,582 | ) | |||||||
|
Net
cash provided by operating activities, continuing
operations
|
27,347 | 85,035 | 55,507 | |||||||||
|
Net
cash used in operating activities, discontinued
operations
|
(101 | ) | (1,239 | ) | (12,791 | ) | ||||||
|
Net
cash provided by operating activities
|
27,246 | 83,796 | 42,716 | |||||||||
|
INVESTING
ACTIVITIES:
|
||||||||||||
|
Capital
expenditures
|
(10,247 | ) | (28,537 | ) | (25,290 | ) | ||||||
|
Cash
paid for broadcast licenses
|
(7,561 | ) | - | - | ||||||||
|
Payments
for business combinations, net of cash acquired
|
(1,236 | ) | - | (52,250 | ) | |||||||
|
Change
in restricted cash
|
(2,000 | ) | - | - | ||||||||
|
Distributions
from equity investments
|
- | 2,649 | 3,113 | |||||||||
|
Proceeds
from sale of other operating assets and 700 MHz
licenses
|
783 | - | 39,250 | |||||||||
|
Other
investments, net
|
- | 2,167 | (620 | ) | ||||||||
|
Net
cash used in investing activities, continuing
operations
|
(20,261 | ) | (23,721 | ) | (35,797 | ) | ||||||
|
Net
cash provided by (used in) investing activities, discontinued
operations
|
5,875 | (734 | ) | 138,844 | ||||||||
|
Net
cash (used in) provided by investing activities
|
(14,386 | ) | (24,455 | ) | 103,047 | |||||||
|
FINANCING
ACTIVITIES:
|
||||||||||||
|
Net
proceeds on exercises of employee and director stock based
compensation
|
- | 1,301 | 2,064 | |||||||||
|
Proceeds
from borrowings on long-term debt
|
91,000 | 165,000 | 60,000 | |||||||||
|
Principal
payments on long-term debt
|
(106,379 | ) | (244,335 | ) | (180,125 | ) | ||||||
|
Payments
of long-term debt financing costs
|
(3,838 | ) | (1,232 | ) | - | |||||||
|
Net
cash used in financing activities, continuing
operations
|
(19,217 | ) | (79,266 | ) | (118,061 | ) | ||||||
|
Net
cash used in financing activities, discontinued
operations
|
(2,644 | ) | - | - | ||||||||
|
Net
cash used in financing activities
|
(21,861 | ) | (79,266 | ) | (118,061 | ) | ||||||
|
Net
(decrease) increase in cash and cash equivalents
|
(9,001 | ) | (19,925 | ) | 27,702 | |||||||
|
Cash
and cash equivalents at the beginning of the period
|
20,106 | 40,031 | 12,329 | |||||||||
|
Cash
and cash equivalents at the end of the period
|
$ | 11,105 | $ | 20,106 | $ | 40,031 | ||||||
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
||||||||||||
Notes
to Consolidated Financial Statements
Note 1 —
Basis of Presentation and Summary of Significant Accounting
Policies
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
consolidated financial statements.
We
guarantee substantially all of LIN Television’s debt. All of the consolidated
wholly-owned subsidiaries of LIN Television fully and unconditionally guarantee
the Company’s Senior Credit Facility, 6½% Senior Subordinated Notes and 6½%
Senior Subordinated Notes – Class B on a joint-and-several basis.
Our
consolidated financial statements reflect the operations of the Puerto Rico
stations and the operations, assets and liabilities of Banks Broadcasting, Inc.
(“Banks Broadcasting”) as discontinued for all periods presented. The assets and
liabilities of Banks Broadcasting are shown as discontinued effective
September 30, 2007 and our Puerto Rico stations were sold in 2007 (See
Note 3 — “Discontinued Operations” for further discussion of our
discontinued operations.)
The
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States. Certain changes
in classifications have been made to the prior period financial statements to
conform to the current financial statement presentation. Our significant
accounting policies are described below.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business.
Financial
Condition
We have
experienced significant operating losses since our inception and we have a
stockholders’ deficit as of December 31, 2009. The economic downturn
and credit crisis had a significant impact on the demand for advertising within
the markets in which our stations operate. Based on our projections for 2010,
which we believe use reasonable assumptions regarding the current economic
environment, we estimate that cash flows from our operations, together with cash
available under our revolving credit facility, will be sufficient to fund our
cash requirements over the next 12 months, including scheduled interest and
required principal payments on our outstanding indebtedness and planned capital
expenditures and projected working capital needs. In addition, based
on our projections, we believe that we will remain in compliance with the
financial covenants in our credit agreement over the next four
quarters. We cannot assure, however, that our projections will be
realized and actual results may differ materially.
Our
operating plan for the next 12 months requires that we generate cash from
operations, utilize available borrowings, and make certain repayments of
indebtedness, including mandatory repayments of term loans under our credit
facility. Our ability to borrow under our revolving credit facility is
contingent on our compliance with certain financial covenants, which are
measured, in part, by the level of earnings before interest expense, taxes,
depreciation and amortization (“EBITDA”) we generate from our
operations. During the six months ended June 30, 2009, we experienced
declines in revenues compared to the same periods in 2008, which were in excess
of our original 2009 plan. As a result, and to address continued
compliance with the financial covenants in our credit agreement, on July 31,
2009 we entered into an Amended and Restated Credit Agreement (the “Amended
Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent, and
banks and financial institutions party thereto. Our ability to sustain
compliance with the Amended Credit Agreement requires, during
2010, a reduction in our consolidated leverage ratio and our
consolidated senior leverage ratio, and an increase in our consolidated interest
coverage ratio, as more fully described in Note 7 –
“Debt”.
Our joint
venture with NBC Universal has been adversely impacted by the current economic
downturn. The joint venture distributed no cash to NBC Universal and
us during the year ended December 31, 2009 and used approximately $14.9 million
of the existing debt service cash reserves, leaving approximately $0.2 million
available.
In light
of the adverse effect of the economic downturn on the joint venture’s operating
results, in 2009 we entered into the Original Shortfall Funding Agreement with
NBC Universal, which provided that: a) we and NBC waived the requirement that
the joint venture maintain debt service reserve cash balances of at least $15
million; b) the joint venture would use a portion of its existing debt service
reserve cash balances to fund interest payments in 2009; c) NBC agreed to defer
its receipt of 2008 and 2009 management fees; and d) we agreed that if the joint
venture does not have sufficient cash to fund interest payments on the GECC Note
through April 1, 2010, we and NBC Universal would each provide the joint venture
with a shortfall loan on the basis of our percentage of economic interest in the
joint venture. As of March 15, 2010, we have not yet provided any
funding under the Original Shortfall Funding Agreement.
Because
of anticipated future shortfalls at the joint venture, on March 9, 2010, NBC
Universal and we entered into the 2010 Shortfall Funding Agreement covering the
period through April 1, 2011. Under the terms of the 2010 Shortfall
Funding Agreement: a) the joint venture may continue to access any portion of
its existing debt service reserve cash balances to fund interest payments; b)
NBC will continue to defer the payment of 2008 and 2009 management fees and
defer payment of 2010 management fees through March 31, 2011; and c) we agreed
that if the joint venture does not have sufficient cash to fund interest
payments on the GECC Note through April 1, 2011, we and NBC Universal would each
provide the joint venture with a shortfall loan on the basis of our percentage
of economic interest in the joint venture.
As of
December 31, 2009, we have accrued $6.0 million for our probable and estimable
obligations under these agreements, and due to uncertainity surrounding the
joint venture's ability to repay the shortfall loans, concurrent with the
recognition of these liabilities we have impaired the loans, resulting in a $6.0
million charge recognized in share of loss (income) in equity investments
in our consolidated statement of operations for the year ended December 31,
2009. For further details on the timing of debt service shortfalls and our
recognition of liabilities under both the Original Shortfall Funding Agreement
and the 2010 Shortfall Funding Agreement see Note 14 – “Commitments and
Contingencies”.
Principles
of consolidation
The
accompanying consolidated financial statements include the accounts of our
Company and its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions have been eliminated. We conduct our
business through our subsidiaries and have no operations or assets other than
our investment in our subsidiaries and equity-method investments. We operate in
one reportable segment.
Our 50
percent interest in the Banks Broadcasting joint venture was consolidated in our
financial statements effective March 31, 2004 because we were the primary
beneficiary of this variable interest entity (see Note 3 – “Discontinued
Operations” for further discussion of Banks Broadcasting).
Use
of estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires our management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
the notes thereto. Our actual results could differ from these estimates.
Estimates are used when accounting for the collectability of receivables,
valuation of intangible assets, equity investments, deferred tax valuation
allowances, amortization and valuation of program rights, stock-based
compensation, pension costs, barter transactions and net assets of businesses
acquired.
Cash
and cash equivalents
Cash
equivalents consist of highly liquid, short-term investments that have an
original maturity of three months or less when purchased. Our excess cash is
invested primarily in short-term U.S. Government securities and money
market funds. We had no material losses on our cash or cash equivalents
during fiscal 2009. All available cash is on deposit with banking institutions
that we believe to be financially sound. We maintain a $2.0 million compensating
balance related to a line of credit with one of our creditors, which has been
classified as restricted cash in our consolidated balance sheet.
Property
and equipment
Property
and equipment is recorded at cost and is depreciated using the straight-line
method over the estimated useful lives of the assets, an average of 30 to
40 years for buildings and fixtures, and 3 to 15 years for broadcast
and other equipment. Upon retirement or other disposition, the cost and related
accumulated depreciation of the assets are removed from the accounts and the
resulting gain or loss is included in consolidated net income or loss.
Expenditures for maintenance and repairs, including expenditures for planned
major maintenance activities, are expensed as incurred. We review our
property and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable.
Nonmonetary
exchanges
We
exchange productive assets, such as broadcast equipment, with third parties
through nonmonetary exchanges. We recognize gains or losses on nonmonetary
exchanges in an amount equal to the difference between the fair value of the
assets received and the fair value of the assets surrendered.
Equity
investments
Equity
investments that we do not have a controlling interest in are accounted for
using the equity method. Our share of the net loss or income for these
investments, including any equity investment impairments, is included in share
of loss (income) from equity investments on our consolidated statement of
operations. We review our interest in our equity investments for impairment if
there is a series of operating losses or other factors that may indicate that
there is a decrease in the value of our investment that is other than
temporary.
Revenue
recognition
We
recognize advertising and other program-related revenue during the period in
which advertising or programs are aired on our television stations or carried by
our Internet web sites or the web sites of our advertiser network. We recognize
retransmission consent fees in the period in which these services are
performed.
Barter
transactions
We
account for barter transactions at the fair value of the goods or services we
receive from our customers, or the advertising time provided, whichever is more
clearly indicative of fair value based on the judgment of our management. We
record barter advertising revenue at the time the advertisement is aired and
barter expense at the time the goods or services are used. We account for barter
programs at fair value based on a calculation using the actual cash
advertisements we sell within barter programs multiplied by one minus the
program profit margin for similar syndicated programs where we pay cash to
acquire the program rights. We record barter program revenue and expense when we
air the barter program. We do not record barter revenue or expenses related to
network programs. Barter revenue and expense included in the consolidated
statements of operations are as follows (in thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Barter
revenue
|
$
|
4,777
|
$
|
4,812
|
$
|
8,047
|
||||||
|
Barter
expense
|
(4,932
|
)
|
(5,016
|
)
|
(7,667
|
)
|
||||||
|
$
|
(155
|
)
|
$
|
(204
|
)
|
$
|
380
|
|||||
Advertising
expense
Advertising
costs are expensed as incurred. We incurred advertising costs in the amounts of
$3.2 million, $5.5 million and $6.1 million in the years ended
December 31, 2009, 2008 and 2007, respectively.
Intangible
assets
Intangible
assets primarily include broadcast licenses, network affiliations, customer
relationships, acquired internal use software, non-compete agreements and
goodwill.
We test
the impairment of our broadcast licenses annually or whenever events or changes
in circumstances indicate that such assets might be impaired. The impairment
test consists of a comparison of the fair value of broadcast licenses with their
carrying amount on a station-by-station basis using a discounted cash-flow
valuation method, assuming a hypothetical start-up scenario. The future value of
our broadcast licenses could be significantly impaired by the loss of the
corresponding network affiliation agreements. Accordingly, such an event could
trigger an assessment of the carrying value of a broadcast license.
We test
the impairment of goodwill annually or whenever events or changes in
circumstances indicate that goodwill might be impaired. The first step of the
goodwill impairment test compares the fair value of a station with its carrying
amount, including goodwill. The fair value of a station is determined through
the use of a discounted cash flow analysis. The valuation assumptions used in
the discounted cash flow model reflect historical performance of the station and
prevailing values in the markets for broadcasting properties. If the fair value
of the station exceeds its carrying amount, goodwill is not considered impaired.
If the carrying amount of the station exceeds its fair value, the second step of
the goodwill impairment test is performed to measure the amount of impairment
loss, if any. The second step of the goodwill impairment test compares the
implied fair value of goodwill with the carrying amount of that goodwill. The
implied fair value of goodwill is determined by performing a hypothetical
purchase price allocation, using the station’s fair value (as determined in step
one) as the purchase price. If the carrying amount of goodwill exceeds the
implied fair value, an impairment charge is recognized in an amount equal to
that excess, but not more than the carrying value of the goodwill. An impairment
assessment could be triggered by a significant reduction, or a forecast of such
reductions, in operating results or cash flows at one or more of our television
stations, a significant adverse change in the national or local advertising
marketplaces in which our television stations operate, or by adverse changes to
Federal Communications Commission (“FCC”) ownership rules, among other
factors. We recorded impairment charges during 2009 and 2008, which
are more fully described in Note 6 - "Intangible Assets".
Long
lived-assets
We
periodically evaluate the net realizable value of long-lived assets, including
tangible and intangible assets, relying on a number of factors including
operating results, business plans, economic projections and anticipated future
cash flows. Impairment in the carrying value of an asset is recognized when the
expected future operating cash flow derived from the asset is less than its
carrying value.
Program
rights
Program
rights are recorded as assets when the license period begins and the programs
are delivered to our stations for broadcasting, at the gross amount of the
related obligations. Costs incurred in connection with the purchase of programs
to be broadcast within one year are classified as current assets, while costs of
those programs to be broadcast subsequently are considered non-current. The
program costs are charged to operations over their estimated broadcast periods
using the straight-line method.
If the
projected future net revenues associated with a program are less than the
current carrying value of the program rights (i.e. due to poor ratings), we
would be required to write-down the program rights assets to equal the amount of
projected future net revenues. If the actual usage of the program rights is on a
more accelerated basis than straight-line over the life of the contract, we
would be required to write-down the program rights to equal the lesser of the
amount of projected future net revenues or the average revenue per run
multiplied by the number of remaining runs. We recorded no
impairments to our program rights during 2009, 2008 or 2007.
Program
obligations are classified as current or non-current in accordance with the
payment terms of the license agreement.
Stock-based
compensation
At
December 31, 2009, we have three stock-based employee compensation plans,
which are described more fully in Note 8 – “Stock-Based Compensation”. We
estimate the fair value of stock-based awards using a Black-Scholes valuation
model. The Black-Scholes model requires us to make assumptions and judgments
about the variables used in the calculation, including the option’s expected
life, the price volatility of the underlying stock and the number of stock-based
awards that are expected to be forfeited. The expected life represents the
weighted average period of time that options granted are expected to be
outstanding giving consideration to vesting schedules and our historical
exercise patterns. Price volatility is based on historical trends for our class
A common stock and the common stock of peer group companies engaged in the
broadcasting business. Expected forfeitures are estimated using our historical
experience. If future changes in estimates differ significantly from our current
estimates, our future stock-based compensation expense and results of operations
could be materially impacted.
The
following table presents the stock-based compensation expense included in the
consolidated statements of operations
(in thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Direct
operating
|
$
|
308
|
$
|
536
|
$
|
653
|
||||||
|
Selling,
general and administrative
|
586
|
1,057
|
1,348
|
|||||||||
|
Corporate
|
1,519
|
2,930
|
3,858
|
|||||||||
|
Stock-based
compensation expense before tax
|
2,413
|
4,523
|
5,859
|
|||||||||
|
Income
tax benefit (at 35% statutory rate)
|
(845
|
)
|
(1,583
|
)
|
(2,051
|
)
|
||||||
|
Net
stock-based compensation expense
|
$
|
1,568
|
$
|
2,940
|
$
|
3,808
|
||||||
Income
taxes
Deferred
income taxes are recognized based on temporary differences between the financial
statement and the tax basis of assets and liabilities using statutory tax rates
in effect in the years in which the temporary differences are expected to
reverse. A valuation allowance is applied against net deferred tax assets if it
is determined that it is more likely than not that some or all of the deferred
tax assets will not be realized. When accounting for uncertainty in income taxes
we follow the prescribed recognition threshold and measurement methodology for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. For benefits to be recognized, a tax
position must be more-likely than not to be sustained upon examination by taxing
authorities.
We
recognize interest and penalties related to uncertain tax positions as a
component of income tax expense.
Concentration
of credit risk
Financial
instruments that potentially subject us to concentrations of credit risk consist
principally of cash and cash equivalents, investments and trade receivables.
Concentration of credit risk with respect to cash and cash equivalents and
investments are limited as we maintain primary banking relationships with only
large nationally recognized institutions. We evaluated the viability of these
institutions as of December 31, 2009 and we believe our risk is minimal. Credit
risk with respect to trade receivables is limited, as the trade receivables are
primarily related to advertising revenues generated from a large diversified
group of local and nationally recognized advertisers and advertising agencies.
We do not require collateral or other security against trade receivable
balances, however, we do maintain reserves for potential bad debt losses, which
are based on historical bad debt write-offs, and such reserves and bad debts
have been within management’s expectations for all years presented.
Additionally,
management performs a quarterly assessment of the critical terms of the interest
rate hedge including, among other matters, an assessment of the counterparties’
creditworthiness. Based on our assessment at December 31, 2009, we do
not believe there is a significant risk associated with the creditworthiness of
our interest rate hedge counterparty.
If we
incur additional indebtedness or amend or replace our current indebtedness,
current volatility within the credit markets may impact our ability to refinance
our debt or to refinance our debt on terms similar to our existing debt
agreements.
Income
(loss) per share
Basic
income (loss) per common share is computed by dividing income (loss)
attributable to common stockholders by the number of weighted-average
outstanding shares of common stock. For the year ended December 31, 2008,
because we incurred a net loss, there was no difference between basic and
diluted income per share. As a result of the net loss, all potential
common shares from the exercise of stock options, the vesting of restricted
stock and the potential common shares from the assumed conversion of the
contingently convertible debt were anti-dilutive.
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 income per common share (in
thousands):
|
Year
Ended December 31,
|
||||||||
|
2009
|
2007
|
|||||||
|
Numerator for income per common
share calculation:
|
||||||||
|
Income
available to common shareholders from continuing operations,
basic
|
$ | 9,559 | $ | 28,543 | ||||
|
Interest
expense on contingently convertible debt, net of tax
|
- | 2,060 | ||||||
|
Derivative
gain, net of tax
|
- | 145 | ||||||
|
Income
available to common shareholders from continuing operations,
diluted
|
9,559 | 30,748 | ||||||
|
(Loss)
income available to common shareholders from discontinued operations,
basic and diluted
|
(446 | ) | 25,139 | |||||
|
Net
income available to common shareholders
|
$ | 9,113 | $ | 55,887 | ||||
|
Denominator
for income per common share calculation:
|
||||||||
|
Weighted-average
common shares, basic
|
51,464 | 50,468 | ||||||
|
Effect
of dilutive securities:
|
||||||||
|
Stock
options and restricted stock
|
24 | 1,549 | ||||||
|
Contingent
shares related to RMM (see Note 2 – “Acquisitions”)
|
11 | - | ||||||
|
Contingent
convertible debt
|
- | 3,353 | ||||||
|
Weighted-average
common shares, diluted
|
51,499 | 55,370 | ||||||
Fair
value of financial instruments
Certain
financial instruments, including cash and cash equivalents, investments,
accounts receivable and accounts payable are carried in the consolidated
financial statements at amounts that approximate fair value. For certain
financial assets and liabilities recorded at fair value on a recurring basis we
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. For more information on our assets
and liabilities measured at fair value using the prescribed three level fair
value hierarchy see Note 9 - "Fair Value Measurement".
Derivative
financial instruments
Derivatives
are required to be recorded as assets or liabilities and measured at fair value.
Gains or losses resulting from changes in the fair values of derivatives are
recognized immediately or deferred, depending on the use of the derivative and
whether or not it qualifies as a hedge. We presently use derivative financial
instruments in the management of our interest rate exposure for our long-term
debt, principally our credit facility. We do not use derivative financial
instruments for trading purposes.
Retirement
plans
We have a
defined benefit retirement plan covering certain of our employees. Our pension
benefit obligations and related costs are calculated using prescribed actuarial
concepts. Additionally, we record the unfunded status of our plan on
our consolidated balance sheet.
Recently
issued accounting pronouncements
In
December 2009, the FASB issued ASU 2009-17 “Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities” (“ASU 2009-17”). ASU 2009-17 is effective for
interim and annual reporting periods beginning after November 15,
2009. ASU 2009-17 amends the Codification to include the amendments
prescribed by Financial Accounting Standard (“FAS”) 167, “Amendments to FASB
Interpretation No. 46(R)”, which amends certain guidance in FIN 46(R) to
eliminate the exemption for special purpose entities, require a new qualitative
approach for determining who should consolidate a variable interest entity and
change the requirement for when to reassess who should consolidate a variable
interest entity. We adopted ASU 2009-17 effective January 1, 2010, and it
did not have a material impact on our financial position or results of
operations.
In
December 2009, the FASB issued ASU 2009-15
“Transfers and Servicing (Topic 860): Accounting for Transfers of
Financial Assets” (“ASU 2009-15”). ASU 2009-15 is effective for interim and
annual reporting periods beginning after November 15, 2009 and must be applied
to transfers occurring on or after the effective date. ASU 2009-15
amends the Codification to include the amendments prescribed by FAS 166 “Accounting for Transfers of Financial
Assets—an amendment of FASB Statement No. 140”, which clarifies that the
objective of paragraph 9 of Statement 140 is to determine whether a transferor
and all of the entities included in the transferor’s financial statements being
presented have surrendered control over transferred financial assets. We
adopted FAS 166 effective January 1, 2010, and it did not have a material impact
on our financial position or results of operations.
In
October 2009, the FASB issued ASU 2009-13 “Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging
Issues Task Force” (“ASC 605-25”). ASC 605-25 is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. ASC 605-25 addresses how to separate
deliverables and how to measure and allocate arrangement consideration to one or
more units of accounting. We plan to adopt ASC 605-25 effective January 1, 2011,
and we do not expect it to have a material impact on our financial position or
results of operations.
In August
2009, the FASB issued ASU 2009-05 “Measuring Liabilities at Fair Value” (“ASC
820-10”). ASC 820-10 is effective for the first reporting period, including
interim periods, beginning after issuance. ASC 820-10 clarifies the application
of certain valuation techniques in circumstances in which a quoted price in an
active market for the identical liability is not available and clarifies that
when estimating the fair value of a liability, the fair value is not adjusted to
reflect the impact of contractual restrictions that prevent its transfer. ASC
820-10 became effective for us on October 1, 2009. We adopted ASC
820-10 effective September 30, 2009, and it did not have a material impact on
our financial position or results of operations.
In April
2009, the FASB issued ASC 825-10, “Interim Disclosures about Fair Value of
Financial Instruments” (“ASC 825-10”), which requires public entities to
disclose in their interim financial statements the fair value of all financial
instruments within the scope of FASB Statement No. 107, “Disclosures about Fair
Value of Financial Instruments”, as well as the method(s) and significant
assumptions used to estimate the fair value of those financial
instruments. The adoption of ASC 825-10 had no impact on our
financial position or results of operations.
Also in
April 2009, the FASB issued ASC 320-10, “Recognition and Presentation of
Other-Than-Temporary Impairments” (“ASC 320-10”), to change the method for
determining whether an other-than-temporary impairment exists for debt
securities and the amount of an impairment charge to be recorded in earnings.
ASC 320-10 also requires enhanced disclosures, including the Company’s
methodology and key inputs used for determining the amount of credit losses
recorded in earnings. We adopted ASC 320-10 during the second quarter of 2009
and the adoption had no impact on our financial position or results of
operations.
Effective
January 1, 2009, the Company adopted ASC 805-10, “Business Combinations” (“ASC
805-10”). ASC 805-10 establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed and any non-controlling interest in the
acquiree; how the acquirer recognizes and measures the goodwill acquired in a
business combination; and how the acquirer determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. We have applied the provisions of
ASC 805-10 to our acquisition of RMM and the appropriate disclosures are
included in Note 2 – “Acquisitions”.
In
December 2008, the FASB issued ASC 715-10, “Employers’ Disclosures about
Postretirement Benefit Plan Assets” (“ASC 715-20”). ASC 715-20 is effective for
fiscal years ending after December 15, 2009. ASC 715-20 increases disclosure
requirements related to an employer’s defined benefit pension or other
postretirement plans. We adopted the provisions of ASC 715-10 by
including the required additional financial statement disclosures as of December
31, 2009 in Note 11 – “Retirement Plans”. The adoption of ASC 715-10 had
no impact on our financial position or results of operations.
In
November 2008, the FASB issued ASC 605-25, “Revenue Arrangements with Multiple
Deliverables” (“ASC 605-25”). ASC 605-25 is effective for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
December 31, 2009 and shall be applied on a prospective
basis. Earlier application is permitted as of the beginning of a
fiscal year. ASC 605-25 addresses some aspects of the accounting by a vendor for
arrangements under which it will perform multiple revenue-generating activities.
We plan to adopt these aspects of ASC-605-25 effective January 1, 2010, and we
do not expect it to have a material impact on our financial position or results
of operations
Note 2 —
Acquisitions
RMM
On
October 2, 2009, we acquired Red McCombs Media, LP ("RMM"), an online
advertising and media services company based in Austin, Texas. The acquisition
provides us with a national interactive footprint and significantly expands our
multi-platform offerings by providing national online advertising and enhanced
services, including targeted display, rich media, video advertising,
custom-built vertical channels, search engine marketing, search engine
optimization, and mobile marketing. The acquisition was effected through the
merger of RMM with and into Primeland Television, Inc., a wholly owned
subsidiary of LIN Television, which subsequently changed its name to Primeland,
Inc. ("Primeland").
The
following table summarizes the final allocation of the purchase price to the
estimated fair values of the assets acquired and liabilities assumed in the
acquisition:
|
Current
assets
|
$
|
1,852
|
||
|
Non-current
assets
|
6,812
|
|||
|
Goodwill
|
2,773
|
|||
|
Current
liabilities
|
(1,855
|
)
|
||
|
Long-term
debt assumed
|
(2,739
|
)
|
||
|
Total
|
$
|
6,843
|
||
|
Cash
consideration
|
$
|
1,236
|
||
|
Equity
consideration
|
2,056
|
|||
|
Long-term
note to sellers
|
1,957
|
|||
|
Equity
value shortfall amount
|
1,594
|
|||
|
Total
contributed capital
|
$
|
6,843
|
||
As part
of the merger consideration, we issued 933,610 shares of class A common stock,
from shares held within treasury, to the former owners of RMM. The
class A common stock was issued in a private placement transaction that was
exempt from registration under the Securities Act of 1933, as amended. The
number of shares of class A common stock issued by us to the sellers is subject
to adjustment in the event that the value of the equity consideration is
less than $4.5 million as of the six month anniversary of the
acquisition. If the value of our class A common stock as of the
six-month anniversary of the acquisition is less than $4.5 million (such
difference, the “Equity Value Shortfall Amount”), we are obligated, at our
option to: a) issue to the sellers a number of additional shares of our class A
common stock having a value as of the six-month anniversary of the acquisition,
equal to the Equity Value Shortfall Amount; b) make a cash payment to the
sellers in an amount equal to the Equity Value Shortfall Amount; or c) satisfy
the Equity Value Shortfall Amount through any combination of the foregoing we
determine appropriate. In the event that we choose to issue
additional shares of our class A common stock to the sellers to satisfy all or a
portion of the Equity Value Shortfall Amount, a final adjustment will be made at
the twelve month anniversary of the acquisition. In the event that the value of
such shares as of the 12-month anniversary of the acquisition is less than or
exceeds the Equity Value Shortfall Amount by at least $0.25 per share, we are
required to make a cash payment to the sellers or the sellers are required to
return shares to us. The merger consideration is also subject to
customary adjustments for working capital and indemnification for claims against
RMM related to the period prior to the merger.
As of the acquisition
date, we classified the Equity Value Shortfall Amount as a current liability,
and estimated the fair value to be $1.6 million, which is based on an
option pricing model reflecting our assumptions about the value that market
participants would place on this liability. Since October 2, 2009, the value of
our class A common stock has increased, and as a result the fair value of the
Equity Value Shortfall Amount has decreased to $0.6 million as of December 31,
2009. Therefore, we recorded a gain in other, net of $1.0 million in our
consolidated statement of operations for the year ended December 31, 2009. Under the terms of the
merger agreement, our actual liability could range from zero to $4.5 million,
depending on the fair value of our class A common stock as of the six month and
twelve month anniversary dates of the acquisition of April 2, 2010 and October
2, 2010, respectively.
In
connection with the acquisition, we recognized $2.8 million of goodwill, all of
which is amortizable for tax purposes. The goodwill primarily represents
synergies between us and RMM that we expect to benefit from as a result of
expanded distribution channels provided by RMM’s broad advertising network.
Additionally, we recognized $6.6 million of other finite-lived intangible
assets, all of which are amortizable for tax purposes, and are primarily
comprised of advertiser relationships, completed technology and management
non-compete agreements.
Additionally,
in connection with the acquisition we entered into an incentive compensation
arrangement with certain key members of management. The arrangement
provides payments to those employees based on the EBITDA generated by RMM during
2012. Our liability under this arrangement could range from zero to
$24.0 million, and is payable in 2013.
The
following summarizes the activity in acquisition related restructuring
liabilities for the year ended December 31, 2009 and 2008 (in
thousands):
|
Acquisition
Date
|
Balance
as of
December
31, 2008
|
Year
Ended
December
31, 2009
|
Balance
as of
December
31, 2009
|
||||||||||||||
|
Payments
|
Additions
|
||||||||||||||||
|
Stations
acquired from Emmis
|
November
30, 2005
|
$
|
3,605
|
$
|
(1,197
|
)
|
$
|
-
|
$
|
2,408
|
|||||||
|
Acquisition
Date
|
Balance
as of
December
31, 2007
|
Year
Ended
December
31, 2008
|
Balance
as of
December
31, 2008
|
||||||||||||||
|
Payments
|
Adjustments
|
||||||||||||||||
|
Acquisition
of Sunrise Television Corp.
|
May
2, 2002
|
$
|
40
|
$
|
17
|
$
|
(23
|
)
(1)
|
$
|
-
|
|||||||
|
Stations
acquired from Viacom
|
March
31, 2005
|
86
|
87
|
1
|
-
|
||||||||||||
|
Stations
acquired from Emmis
|
November
30, 2005
|
4,644
|
1,039
|
-
|
3,605
|
||||||||||||
|
Station
acquired from Raycom
|
February
22, 2007
|
446
|
357
|
(89
|
)
(2)
|
-
|
|||||||||||
|
$
|
5,216
|
$
|
1,500
|
$
|
(111
|
)
|
$
|
3,605
|
|||||||||
|
(1)
|
Adjustment
for retirement benefits owed in connection with the Sunrise Television
Corp. acquisition.
|
|
(2)
|
Adjustment
to final payout of contract related to master control automation system
related to KASA-TV.
|
Note 3 —
Discontinued Operations
Our
consolidated financial statements reflect the operations of the Puerto Rico
stations and the operations, assets and liabilities of the Banks Broadcasting
joint venture as discontinued for all periods presented.
Out-of-Period
Adjustment
We
discovered during the preparation of our 2007 financial statements a
$3.1 million deferred tax liability, relating to an asset that had been
fully-impaired for the six months ended June 30, 2006, had not been removed
from our deferred tax liabilities as of June 30, 2006 nor was the benefit
realized in our earnings for the six months ended June 30, 2006. The
original asset to which the deferred tax liability related was a fair value
adjustment of $7.7 million initially recorded at March 31, 2004, when
we consolidated the broadcast licenses of Banks Broadcasting because we were the
primary beneficiary of this variable interest entity.
We
concluded that the effect of this $3.1 million adjustment was not material
to the prior year. Accordingly, the 2006 financial statements were not revised.
Instead, this adjustment of $3.1 million was recorded to the income (loss)
from discontinued operations for the year ended December 31, 2007, since we
reflected the operations of Banks Broadcasting as discontinued operations
effective with the filing of our Form 10-Q for the period ended
September 30, 2007.
Banks
Broadcasting
On April
23, 2009, the Banks Broadcasting joint venture completed the sale of KNIN-TV, a
CW affiliate in Boise, for $6.6 million to Journal Broadcast Corporation. As a
result of the sale we received, on the basis of our economic interest in Banks
Broadcasting, a distribution of $2.6 million during the year ended December
31, 2009. The operating loss for the year ended December 31, 2009 includes an
impairment charge of $1.9 million to reduce the carrying value of broadcast
licenses to fair value based on the final sale price of KNIN-TV of $6.6 million.
Net loss included within discontinued operations for the year ended December 31,
2009 reflects our 50% share of net losses of the Banks Broadcasting joint
venture, net of taxes, through the April 23, 2009 disposal date.
Following
the sale of KNIN-TV on April 23, 2009, substantially all of the assets of the
Banks Broadcasting joint venture had been liquidated.
During
the years ended December 31, 2008 and 2007, Banks Broadcasting distributed
$2.5 million and $2.0 million, respectively, in cash to us and we provided
no capital contributions to Banks Broadcasting during the years ended
December 31, 2009, 2008 and 2007. 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. Additionally, in July 2007, Banks
Broadcasting sold the operating assets, including the broadcast license, of
KSCW-TV, a CW affiliate in Wichita, to Sunflower Broadcasting, Inc. for $6.8
million of which $5.4 million was paid in cash at the closing and the remaining
$1.4 million was held in escrow and released in July 2008. Our
consolidated operating results for the third quarter of 2007 included a $0.5
million loss from the sale of KSCW-TV, net of an income tax benefit of $0.4
million.
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 we recorded a gain on the sale of
$22.7 million, net of income tax benefit, in our 2007 operating
results.
The
following presents summarized information for the discontinued
operations as follows (in thousands):
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
||||||||||||||||||
|
Banks
Broadcasting
|
Banks
Broadcasting
|
Puerto
Rico
|
Banks
Broadcasting
|
Total
|
||||||||||||||||
|
Net
revenues
|
$
|
823
|
$
|
2,911
|
$
|
9,868
|
$
|
4,523
|
$
|
14,391
|
||||||||||
|
Operating
(loss) income
|
$
|
(3,141
|
)
|
$
|
736
|
$
|
(1,094
|
)
|
$
|
1,702
|
$
|
608
|
||||||||
|
Net
(loss) income
|
$
|
(446
|
)
|
$
|
23
|
$
|
(368
|
)
|
$
|
3,341
|
$
|
2,973
|
||||||||
Note 4 —
Investments
Joint
Venture with NBC Universal
We own a
20.38 percent interest in Station Venture Holdings, LLC (“SVH”), a joint venture
with NBC Universal, and account for our interest using the equity method as we
do not have a controlling interest. SVH wholly owns Station Venture Operations,
LP (“SVO”), which is the operating company that manages KXAS-TV and KNSD-TV, the
television stations that comprise the joint venture. The following presents the
summarized financial information of SVH (in thousands):
|
Year
Ended December 31,
|
|||||||||||||
|
2009
|
2008
|
2007
|
|||||||||||
|
Cash
distributions to SVH from SVO(1)
|
$
|
51,071
|
$
|
79,144
|
$
|
80,298
|
|||||||
|
Income
to SVH from SVO
|
$
|
31,100
|
$
|
64,101
|
$
|
76,800
|
|||||||
|
Other
expense, net (primarily interest on the GECC note)(2)
|
$
|
(66,146
|
)
|
$
|
(66,146
|
)
|
$
|
(66,146
|
)
|
||||
|
Net
(loss) income of SVH
|
$
|
(35,034
|
)
|
$
|
(1,874
|
)
|
$
|
11,386
|
|||||
|
Cash
distributions from SVH to us
|
$
|
-
|
$
|
2,649
|
$
|
2,344
|
|||||||
|
December
31,
|
|||||||||||||
|
2009
|
2008
|
||||||||||||
|
Cash
and cash equivalents
|
$
|
223
|
$
|
15,104
|
|||||||||
|
Non-current
assets
|
$
|
195,287
|
$
|
215,258
|
|||||||||
|
Current
liabilities
|
$
|
544
|
$
|
362
|
|||||||||
|
Non-current
liabilities (2)
|
$
|
815,500
|
$
|
815,500
|
|||||||||
|
(1)
|
Cash
distributions from equity investments include proceeds of $12.6 million
from the sale of broadcast towers for the year ended December 31,
2008.
|
|
(2)
|
See
Note 14 - "Commitments and Contingencies" for further description of the
General Electric Capital Corporation ("GECC") Note and LIN TV's guarantee
of the GECC Note.
|
During
the year ended December 31, 2009, we did not recognize our 20.38 percent share
of SVH’s net loss, because the investment was written down to zero during the
year ended December 31, 2008 as described below, and accordingly we suspended
recognition of equity method gains and losses.
During
the year ended December 31, 2009, we recognized a contingent liability of $6.0
million based on our estimate of amounts that we expect to loan to the SVH joint
venture pursuant to the Original and 2010 Shortfall Funding Agreements with
NBC Universal, as discussed further in Note 14 – “Commitments and
Contingencies”. Because of uncertainty surrounding the joint
venture’s ability to repay the shortfall loan, we concluded the loan was fully
impaired during 2009. Accordingly, we recognized a charge of $6.0
million, which has been classified as share of loss (income) in equity
investments during the year ended December 31, 2009 to reflect the impairment of
the loan. As of March 15, 2010, we have not yet provided any funding under
these agreements. However, as of March 15, 2010, this $6.0 million
liability continues to reflect our best estimate of probable obligations under
the Original Shortfall Funding Agreement and 2010 Shortfall Funding
Agreement.
During
the fourth quarter of 2008, due to the continued decline in operating profits of
this joint venture, we determined that there was an other-than-temporary
impairment in our investment in the joint venture with NBC
Universal. As a result, and in the absence of the ability to recover
our carrying amount of the investment, we recorded a loss of $53.6 million to
write-off our equity investment in the joint venture, which is included in the
share of loss (income) in equity investment in our consolidated statement of
operations.
WAND(TV)
Partnership
On
November 1, 2007, we sold our 33.33% interest in WAND(TV) Partnership to a
wholly-owned subsidiary of Block Communications, Inc. for $6.8 million in
cash and recorded a gain of approximately $0.7 million.
Prior to
the sale of WAND(TV) Partnership, we accounted for our 33.33% interest using the
equity method, as we did not have a controlling interest. Our management
services agreement with WAND(TV) Partnership, under which we provided specified
management, engineering and related services for a fixed fee, was also
terminated on November 1, 2007. Included in this agreement was a cash management
arrangement under which we incurred expenditures on behalf of WAND(TV)
Partnership and were periodically reimbursed.
The
following presents the summarized financial information of the WAND(TV)
Partnership (in thousands):
|
Nine
Months Ended
November
1, 2007
(Date
of Sale)
|
||||
|
Net
revenues
|
$
|
4,503
|
||
|
Operating
income
|
$
|
358
|
||
|
Net
loss
|
$
|
(307
|
)
|
|
|
Cash
distributions to us
|
$
|
700
|
||
Note 5 —
Property and Equipment
Property
and equipment consisted of the following (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Land
and land improvements
|
$
|
16,075
|
$
|
16,075
|
||||
|
Buildings
and fixtures
|
131,424
|
129,302
|
||||||
|
Broadcast
equipment and other
|
252,597
|
249,989
|
||||||
|
Total
property and equipment
|
400,096
|
395,366
|
||||||
|
Less
accumulated depreciation
|
(235,035
|
)
|
(214,687
|
)
|
||||
|
Property
and equipment, net
|
$
|
165,061
|
$
|
180,679
|
||||
We
recorded depreciation expense of $30.4 million, $29.7 million and
$30.8 million for the years ended December 31, 2009, 2008 and 2007,
respectively.
Under a
Federal Communications Commission (“FCC”) order, we have been exchanging
spectrum with Sprint Nextel, which has been used primarily to send news feeds
via microwave back to the television studios and to send broadcast feeds to
television transmission and tower sites, for new microwave digital
equipment. During the years ended December 31, 2009, 2008 and 2007,
we received $5.5 million, $4.6 million and $1.6 million, respectively, of
equipment pursuant to this exchange. Additionally, during 2009, 2008
and 2007 we recognized a gain of $6.4 million, $0.9 million and zero related to
this equipment, which is recorded in (gain) loss from asset dispositions in
our consolidated statement of operations.
During
2008, we recorded a charge of $8.7 million for the write-off of certain
broadcast assets that have become obsolete as a result of the DTV
transition. The charge has been recorded in impairment of goodwill,
broadcast licenses and broadcast equipment in our consolidated
statement of operations.
Note 6 —
Intangible Assets
The
following table summarizes the carrying amount of each major class of intangible
assets (in thousands):
|
Weighted
Average Remaining Useful Life
(in
years)
|
|||||||||
|
December
31,
|
|||||||||
|
2009
|
2008
|
||||||||
|
Finite-Lived
Intangible Assets:
|
|||||||||
|
LMA
purchase options(1)
|
-
|
$
|
64
|
$
|
64
|
||||
|
Network
affiliations(1)
|
-
|
1,753
|
1,753
|
||||||
|
Customer
relationships
|
7
|
2,489
|
-
|
||||||
|
Non-compete
agreements
|
5
|
1,588
|
-
|
||||||
|
Internal
use software
|
7
|
1,863
|
-
|
||||||
|
Other
intangible assets
|
13
|
6,646
|
5,979
|
||||||
|
Accumulated
amortization
|
(7,327
|
)
|
(6,678
|
)
|
|||||
| Net finite-lived intangible assets |
$
|
7,076
|
$
|
1,118
|
|||||
|
Indefinite-Lived
Intangible Assets:
|
|||||||||
|
Broadcast
licenses
|
$
|
391,801
|
$
|
429,024
|
|||||
|
Goodwill
|
117,259
|
117,159
|
|||||||
|
$
|
509,060
|
$
|
546,183
|
||||||
|
Summary:
|
|||||||||
|
Goodwill
|
$
|
117,259
|
$
|
117,159
|
|||||
|
Broadcast
licenses and finite-lived intangible assets, net
|
398,877
|
430,142
|
|||||||
|
Total
intangible assets
|
$
|
516,136
|
$
|
547,301
|
|||||
|
(1)
|
These
assets are fully amortized and therefore have no remaining useful
life.
|
We
recorded amortization expense of $0.6 million, $0.3 million and
$2.0 million for the years ended December 31, 2009, 2008 and 2007. We
recorded an impairment of our indefinite-lived intangible assets of $39.9
million and $1.0 billion for the years ended December 31, 2009 and
2008.
The
following table summarizes the projected aggregate amortization expense for the
next five years and thereafter (in thousands):
|
Year Ended December
31,
|
||||||||||||||||||||||||||||
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
Total
|
||||||||||||||||||||||
|
Amortization
expense
|
$
|
1,583
|
$
|
1,102
|
$
|
988
|
$
|
986
|
$
|
932
|
$
|
1,485
|
$
|
7,076
|
||||||||||||||
We
recorded an impairment charge of $39.9 million during the second quarter of
2009 that included an impairment to the carrying values of our broadcast
licenses of $37.2 million, relating to 26 of our television stations; and
an impairment to the carrying values of our goodwill of $2.7 million, relating
to two of our television stations. We tested our indefinite-lived intangible
assets for impairment at June 30, 2009, 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. The need for an impairment analysis at
June 30, 2009 was triggered by the continued decline in advertising revenue at
certain of our stations in excess of our original plan, due to the ongoing
effects of the economic downturn, that resulted in downward adjustments to their
respective forecasts. There were no additional
impairment charges recorded as of September 30, 2009 or December 31,
2009.
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. We tested our indefinite-lived intangible
assets for impairment 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; c) the lower growth in
advertising revenues; and d) the decline in the operating profit margins of some
of our stations.
We
recorded an additional impairment charge in the fourth quarter of 2008 of $723.5
million, including a goodwill impairment charge of $309.6 million, relating to 8
of our television stations and to the goodwill related to the NBC Universal
joint venture, and an impairment charge to the carrying value of our
broadcast licenses of $413.9 million, relating to 26 of our television stations.
This was due to the continued economic recession that started in December 2007
and the resulting decline in advertising revenues.
There
were no events during 2007 to warrant the performance of an interim impairment
test of our indefinite-lived intangible assets. Additionally, there
was no impairment charge recorded as of December 31, 2007.
The
changes in the carrying amount of goodwill for the year ended December 31, 2009
and 2008, respectively, are as follows (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Goodwill
|
$
|
666,812
|
$
|
664,103
|
||||
|
Accumulated
impairment losses
|
(549,653
|
)
|
(128,685
|
)
|
||||
|
Balance
as of January 1, 2009 and 2008, respectively
|
|
117,159
|
|
535,418
|
||||
|
Additions
|
|
2,773
|
|
-
|
||||
|
Tax
adjustments
|
|
-
|
|
2,709
|
||||
|
Impairments
|
|
(2,673
|
)
|
|
(420,968
|
)
|
||
|
Goodwill
|
|
669,585
|
|
666,812
|
||||
|
Accumulated
impairment losses
|
(552,326
|
)
|
(549,653
|
)
|
||||
|
Balance
as of December 31, 2009 and 2008, respectively
|
$
|
117,259
|
$
|
117,159
|
||||
The
values of our goodwill and broadcast licenses measured at fair value on a
nonrecurring basis during the year ended December 31, 2009 are as follows using
the three-level fair value hierarchy established by FAS 157:
|
Quoted
Prices in Active Markets
|
Significant
Observable Inputs
|
Significant
Unobservable Inputs
|
||||||||||
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
||||||||||
|
Broadcast
licenses
|
$ | - | $ | - | $ | 391,801 | ||||||
|
Goodwill
|
$ | - | $ | - | $ | 117,259 | ||||||
Note 7 —
Long-term Debt
Debt
consisted of the following (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Credit
Facility:
|
||||||||
|
Revolving
credit loans
|
$
|
204,000
|
$
|
135,000
|
||||
|
Term
loans
|
61,975
|
77,875
|
||||||
|
6½%
Senior Subordinated Notes due 2013
|
275,883
|
355,583
|
||||||
|
$141,316
and $183,285, 6½% Senior Subordinated Notes due 2013 - Class B, net of
discount of $4,965 and $8,390 at December 31, 2009 and 2008,
respectively
|
136,351
|
174,895
|
||||||
|
$2,157
LIN-RMM Note, net of discount of $160
|
1,997
|
-
|
||||||
|
$1,598
RMM Note, net of premium of $112
|
1,710
|
-
|
||||||
|
$1,121
RMM Bank Note, net of discount of $83
|
1,038
|
-
|
||||||
|
Total debt
|
682,954
|
743,353
|
||||||
|
Less
current portion
|
16,372
|
15,900
|
||||||
|
Total
long-term debt
|
$
|
666,582
|
$
|
727,453
|
||||
During
the period January 1, 2009 to July 31, 2009, prior to the execution of the
Amended Credit Agreement, borrowings under our credit facility bore an interest
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 ½ of 1 percent. In addition, the rate we
selected also bore an applicable margin rate of 0.625% to 1.500%, depending on
us achieving certain financial ratios. The unused portion of the revolving
credit facility was subject to a commitment fee of 0.25% to 0.50% depending on
us achieving certain financial ratios.
Amended
Credit Agreement
On July
31, 2009, we entered into the Amended Credit Agreement, which provided that our
aggregate revolving credit commitments remained at $225.0 million and our
outstanding term loans remained at $69.9 million (as of July 31, 2009). The
terms of the Amended Credit Agreement include, but are not limited to,
modifications to certain financial covenants, including our consolidated
leverage ratio, consolidated interest coverage ratio and consolidated senior
leverage ratio, a general tightening of the exceptions to our negative covenants
(principally by means of reducing the types and amounts of permitted
transactions), an increase in the interest rates and fees payable with respect
to borrowings under the Amended Credit Agreement, and the inclusion of certain
collateral-related provisions, principally relating to the provision of account
control agreements and mortgages with respect to certain real property that we
own. Certain revised financial condition covenants, and other key terms,
are as follows:
|
Prior
|
As
Amended
|
|||||||
|
Consolidated
Leverage Ratio:
|
||||||||
|
July
1, 2009 through September 30, 2009
|
7.00x
|
9.00x
|
||||||
|
October
1, 2009 to December 31, 2009
|
7.00x
|
10.50x
|
||||||
|
January
1, 2010 through March 31, 2010
|
6.50x
|
10.00x
|
||||||
|
April
1, 2010 through June 30, 2010
|
6.50x
|
9.00x
|
||||||
|
July
1, 2010 through September 30, 2010
|
6.00x
|
7.50x
|
||||||
|
October
1, 2010 and thereafter
|
6.00x
|
6.00x
|
||||||
|
Consolidated
Interest Coverage Ratio:
|
||||||||
|
July
1, 2009 through September 30, 2009
|
2.00x
|
1.75x
|
||||||
|
October
1, 2009 through December 31, 2009
|
2.00x
|
1.50x
|
||||||
|
January
1, 2010 through June 30, 2010
|
2.25x
|
1.75x
|
||||||
|
July
1, 2010 through September 30, 2010
|
2.25x
|
2.00x
|
||||||
|
October
1, 2010 and thereafter
|
2.25x
|
2.25x
|
||||||
|
Consolidated
Senior Leverage Ratio:
|
||||||||
|
July
1, 2009 through September 30, 2009
|
3.50x
|
3.75x
|
||||||
|
October
1, 2009 through December 31, 2009
|
3.50x
|
4.25x
|
||||||
|
January
1, 2010 through March 31, 2010
|
3.50x
|
4.00x
|
||||||
|
April
1, 2010 through June 30, 2010
|
3.50x
|
3.75x
|
||||||
|
July
1, 2010 through September 30, 2010
|
3.50x
|
3.00x
|
||||||
|
October
1, 2010 and thereafter
|
3.50x
|
2.25x
|
||||||
|
Interest
rate on borrowings
|
LIBOR
+ 150bps*
|
LIBOR
+ 375bps
|
||||||
|
*
At consolidated leverage of 7x or greater.
|
||||||||
The
Amended Credit Agreement revises the calculation of Consolidated Total Debt used
in our consolidated leverage ratios to exclude the netting of cash and cash
equivalents against total debt.
The
credit facility permits us to prepay loans and to permanently reduce the
revolving credit commitments, in whole or in part, at any time. We repaid
$15.9 million of the term loans during 2009, all of which related to
mandatory quarterly amortization payments.
On an
annual basis following the delivery of our year-end financial statements,
the Amended Credit Agreement requires mandatory prepayments of principal of
the term loans, as well as a permanent reduction in revolving credit
commitments, based on a computation of excess cash flow for the preceding
fiscal year, as more fully set forth in the Amended Credit Agreement. In
addition, the Amended Credit Agreement restricts the use of proceeds from asset
sales or from the issuance of debt (with the result that such proceeds, subject
to certain exceptions, must be used for mandatory prepayments of principal and
permanent reductions in revolving credit commitments), and includes a cash
ceiling, which requires that LIN Television utilize unrestricted cash and cash
equivalent balances in excess of $12.5 million to prepay principal amounts
outstanding, but not permanently reduce capacity, under our revolving credit
facility.
Borrowings
under our credit facility bear an interest rate based on, at our option, either
a) the LIBOR interest rate, or b) the ABR rate, which is an interest
rate that is equal to the greatest of (i) the Prime Rate, (ii) the Federal Funds
Effective Rate plus ½ of 1 percent, and (iii) the one-month LIBOR rate plus
1%. In addition, the rate we select also bears an applicable margin rate of
3.750% or 2.750% for LIBOR based loans and ABR rate loans,
respectively. Lastly, the unused portion of the revolving credit facility
is subject to a commitment fee of 0.750% depending on our consolidated leverage
ratio.
Our
revolving credit facility may be used for working capital and general corporate
purposes. For example, during the year ended December 31, 2009, we used $66
million under this facility to purchase a portion of our 6½% Senior
Subordinated Notes and 6½% Senior Subordinated Notes – Class B
and we used approximately $12 million under this facility to partially fund
interest payments related to these remaining outstanding
notes.
The
following table summarizes certain key terms of our credit facility (in
thousands):
|
Credit
Facility
|
||||||||
|
Revolving
Facility
|
Term
Loans
|
|||||||
|
Final
maturity date
|
11/4/2011
|
11/4/2011
|
||||||
|
Available
balance at December 31, 2009 (1)
|
$
|
21,000
|
$
|
-
|
||||
|
Average
rates as of December 31, 2009:
|
||||||||
|
Interest
rate (2)
|
0.35%
|
0.26%
|
||||||
|
Applicable
margin (3)
|
3.75%
|
3.75%
|
||||||
|
Total
|
4.10%
|
4.01%
|
||||||
|
(1)
|
As
of March 15, 2010, the unused balance of the revolving credit facility was
$34.0 million.
|
|
(2)
|
Weighted
average rate for loans outstanding as of December 31,
2009.
|
|
(3)
|
The
outstanding loans as of December 31, 2009 include LIBOR based loans, which
have an applicable margin of 3.75%.
|
We are
required, under the terms of the credit facility, to comply with specified
financial ratio covenants, including maximum leverage ratios and a minimum
interest coverage ratio. As of December 31, 2009, we were in
compliance with all of the covenants under our credit facility.
The
credit facility also contains provisions that prohibit any modification of the
indentures governing our senior subordinated notes in any manner adverse to the
lenders and that limits our ability to refinance or otherwise prepay our senior
subordinated notes without the consent of such lenders.
6½% Senior Subordinated Notes
and 6½% Senior Subordinated Notes – Class B
|
6½% Senior
Subordinated Notes
|
6½% Senior
Subordinated Notes - Class B
|
|||||
|
Final
maturity date
|
5/15/2013
|
5/15/2013
|
||||
|
Annual
interest rate
|
6.5%
|
6.5%
|
||||
|
Payable
semi-annually in arrears
|
May
15th
|
May
15th
|
||||
|
November
15th
|
November
15th
|
The
6½% Senior Subordinated Notes and 6½% Senior Subordinated Notes –
Class B are unsecured and are subordinated in right of payment to all
senior indebtedness, including our credit facility.
The
indentures governing the 6½% Senior Subordinated Notes and 6½% Senior
Subordinated Notes – Class B contain covenants limiting, among other
things, the incurrence of additional indebtedness and issuance of capital stock;
layering of indebtedness; the payment of dividends on, and redemption of, our
capital stock; liens; mergers, consolidations and sales of all or substantially
all of our assets; asset sales; asset swaps; dividend and other payment
restrictions affecting restricted subsidiaries; and transactions with
affiliates. The indentures also have change of control provisions which may
require our Company to purchase all or a portion of each of the 6½% Senior
Subordinated Notes and the 6½% Senior Subordinated Notes —
Class B at a price equal to 101% of the principal amount of the notes,
together with accrued and unpaid interest. The 6½% Senior Subordinated
Notes and the 6½% Senior Subordinated Notes – Class B have
certain limitations and financial penalties for early redemption of the
notes.
During
2008, we commenced a plan under Rule 10b5-1 of the Securities Exchange Act of
1934 to purchase a portion of our 6½% Senior Subordinated Notes and
6½% Senior Subordinated Notes – Class B at market prices using available
balances under our revolving credit facility and available cash balances. During
the year ended December 31, 2009, we purchased a total principal amount of $79.7
million and $42.0 million of our 6½% Senior Subordinated Notes and 6½% Senior
Subordinated Notes – Class B, respectively, under this plan. The total purchase
price for the transactions was $68.4 million, resulting in a gain on
extinguishment of debt of $50.1 million, net of a write-off of deferred
financing fees and discount related to the notes of $1.3 million and $1.9
million, respectively. Including the amounts purchased during 2008,
we have purchased a total notional amount of $147.8 million of such notes for an
aggregate purchase price of approximately $80.7 million.
RMM
Notes
In
connection with the acquisition of RMM as further described in Note 2 –
“Acquisitions”, LIN Television issued a $2.0 million unsecured promissory note
to McCombs Family Partners, Ltd. (the “LIN-RMM Note”), and a subsidiary of LIN
Television also assumed $1.7 million of RMM's existing secured indebtedness to
McCombs Family Partners, Ltd. (the “RMM Note”) and a $1.0 million unsecured
promissory note to a financial institution (the “RMM Bank Note”).
The
following table summarizes the material terms of each of these
notes:
|
LIN-RMM
Note
|
RMM
Note
|
RMM
Bank Note
|
|||||
|
Final
maturity date
|
1/1/2011
|
1/1/2012
|
1/1/2011
|
||||
|
Effective
interest rate
|
9.7%
|
4.0%
|
9.9%
|
||||
|
Payment
frequency
|
Due
at maturity
|
Monthly
|
Quarterly
|
Repayment
of Principal
The
following table summarizes future principal repayments on our debt agreements
(in thousands):
|
Revolving
Facility
|
Term
Loans(1)
|
6½% Senior
Subordinated Notes
|
6½% Senior
Subordinated Notes - Class B
|
RMM
Notes(2)
|
Total
|
|||||||||||||||||||
|
Final
maturity date
|
11/4/2011
|
11/4/2011
|
5/15/2013
|
5/15/2013
|
1/1/2012
|
|||||||||||||||||||
|
2010
|
$ | - | $ | 15,900 | $ | - | $ | - | $ | 472 | $ | 16,372 | ||||||||||||
|
2011
|
204,000 | 46,075 | - | - | 3,824 | 253,899 | ||||||||||||||||||
|
2012
|
- | - | - | - | 580 | 580 | ||||||||||||||||||
|
2013
|
- | - | 275,883 | 141,316 | - | 417,199 | ||||||||||||||||||
|
2014
|
- | - | - | - | - | - | ||||||||||||||||||
|
Total
|
$ | 204,000 | $ | 61,975 | $ | 275,883 | $ | 141,316 | $ | 4,876 | $ | 688,050 | ||||||||||||
|
(1)
|
The
above table excludes any pay-down of our term loans with proceeds from
previous asset sales that have not been reinvested within one-year after
such sales.
|
|
(2)
|
Debt
incurred and assumed upon the acquisition of RMM on October 2,
2009.
|
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Carrying
amount
|
$
|
682,954
|
$
|
743,353
|
||||
|
Fair
value
|
$
|
616,247
|
$
|
402,524
|
||||
Note 8 —
Stock-Based Compensation
We have
several stock-based employee compensation plans, including our 1998 Option Plan,
the Amended and Restated 2002 Stock Plan and the Third Amended and Restated 2002
Non-Employee Director Stock Plan (collectively, the “Option Plans”), which
permit us to grant non-qualified options in our class A common stock or
restricted stock units, which convert into our class A common stock upon
vesting, to certain directors, officers and key employees of our
Company.
The
following table presents the stock-based compensation expense included in our
consolidated statements of operations as follows (in thousands):
|
For
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Employee
stock purchase plans
|
$
|
-
|
$
|
19
|
$
|
(36
|
)
|
|||||
|
Employee
stock option plans
|
1,130
|
3,111
|
3,834
|
|||||||||
|
Restricted
stock unit awards
|
634
|
1,384
|
2,374
|
|||||||||
|
Modifications
to stock option agreements
|
649
|
9
|
(313
|
)
|
||||||||
|
Share-based
compensation expense before tax
|
2,413
|
4,523
|
5,859
|
|||||||||
|
Income
tax benefit (at 35% statutory rate)
|
(845
|
)
|
(1,583
|
)
|
(2,051
|
)
|
||||||
|
Net
stock-based compensation expense
|
$
|
1,568
|
$
|
2,940
|
$
|
3,808
|
||||||
We
recognized stock-based compensation expense (income) related to
modifications to our stock option agreements of $0.6 million, $9 thousand and
$(0.3) million for the years ended December 31, 2009, 2008 and 2007,
respectively. The modifications impacted 257 employees in 2009 and
11 employees in each of 2008 and 2007. We expect to record an
additional $1.5 million of expense related to the modification completed during
2009 over the remaining vesting period of the new grants. We expect
no further charges for the modifications prior to 2009. These
modifications related to the following:
|
·
|
On
June 2, 2009, we completed an exchange offer which enabled employees and
non-employee directors to exchange some or all of their outstanding
options to purchase shares of our class A common stock, for new options to
purchase shares of our class A common stock, on a one for one
basis. A total of 257 employees participated in the exchange,
in which options to purchase an aggregate of 2,931,285 shares of our class
A common stock were exchanged. The new options have an exercise
price of $1.99 per share, equal to the closing price per share of our
class A common stock on June 2, 2009. The new stock options vest ratably
over three years.
|
|
·
|
Under
our 1998 plan certain employee option agreements were eligible for
make-whole payments when these employees exercised their options and the
market price of our class A common stock was below $1.00. We recorded
stock-based compensation expense (income) of $9 thousand and
$(0.3) million related to this modification for the years ended
December 31, 2008 and 2007, respectively. We made payments to
employees that related to this provision of $0.4 million and
$0.2 million for the years ended December 31, 2008 and
2007.
|
We did
not capitalize any stock-based compensation for the years ended
December 31, 2009, 2008 and 2007.
We have
not yet recognized compensation expense relating to our unvested employee stock
options and stock awards of $7.8 million in the aggregate, which will be
recognized over a weighted-average future period of approximately 1.62 to 3.45
years.
During
the year ended December 31, 2009, we received no proceeds from the exercise
of stock options.
Stock
Option Plans
Options
granted under the stock option plans generally vest over a three or four-year
service period, using the graded vesting attribution method. Options expire ten
years from the date of grant. We issue new shares of our class A common
stock when options are exercised. There were 6,655,000 shares authorized
for grant under the various Option Plans and 1,382,000 shares available for
future grant as of December 31, 2009. Both the shares authorized and shares
available exclude 1,553,000 shares under the 1998 Stock Plan, which we do
not intend to re-grant and consider unavailable for future grants.
The
following table provides additional information regarding our Option Plans for
the year ended December 31, 2009 as follows (in thousands, except per share
data):
|
Shares
|
Weighted-Average
Exercise Price Per Share
|
|||||||
|
Outstanding
at the beginning of the year
|
3,291
|
$
|
10.07
|
|||||
|
Granted
during the year
|
3,732
|
2.36
|
||||||
|
Exercised
or converted during the year
|
-
|
-
|
||||||
|
Forfeited
during the year
|
(3,303
|
)
|
10.04
|
|||||
|
Outstanding
at the end of the year
|
3,720
|
$
|
2.36
|
|||||
|
Exercisable
or convertible at the end of the year
|
250
|
|||||||
|
Total
intrinsic value of options exercised
|
$
|
-
|
||||||
|
Total
fair value of options vested during the year
|
$
|
-
|
||||||
|
Total
fair value of options granted during the year
|
$
|
8,820
|
||||||
The
following table summarizes information about our Option Plans at
December 31, 2009 (in thousands, except per share data):
|
Options
Outstanding
|
Options
Vested
|
||||||||||||
|
Range
of Exercise Prices
|
Number
Outstanding
|
Weighted-Average
Remaining Contractual Life
|
Weighted-Average
Exercise Price
|
Number
Exercisable
|
Weighted-Average
Exercise Price
|
||||||||
|
$0.59
to $2.07
|
3,059
|
9.4
|
$
|
1.97
|
-
|
$
|
-
|
||||||
|
$2.08
to $4.03
|
65
|
9.8
|
4.03
|
-
|
-
|
||||||||
|
$4.04
to $8.65
|
596
|
10.0
|
4.19
|
250
|
8.65
|
||||||||
|
3,720
|
$
|
2.37
|
250
|
$
|
8.65
|
||||||||
|
Weighted
average remaining contractual life
|
9.5
|
||||||||||||
|
Aggregate
intrinsic value
|
$
|
7,796
|
$
|
6,813
|
|||||||||
The
intrinsic value in the table above represents the total pre-tax intrinsic value,
based on our closing price as of December 31, 2009, which would have been
received by the option holders had all option holders exercised their options
and immediately sold their shares on that date. We estimate the fair value of
stock options, when new options are granted or when existing option grants are
modified, using a Black-Scholes valuation model. The fair value of each option
grant is estimated on the date of grant or modification, based on a single
employee group and the graded vesting approach, using the following
assumptions:
|
2009
|
2008
|
2007
|
|||||||
|
Expected
term(1)
|
4
to 5 years
|
5
to 6 years
|
5
to 7 years
|
||||||
|
Expected
volatility (2)
|
67%
to 87%
|
40%
to 41%
|
26%
to 32%
|
||||||
|
Expected
dividends
|
$
0.00
|
$
0.00
|
$
0.00
|
||||||
|
Risk-free
rate (3)
|
0.4%
to 3.6%
|
1.2%
to 3.7%
|
3.3%
to 5.1%
|
||||||
|
(1)
|
The
expected term was estimated using the historical and expected terms of
similar broadcast companies whose information was publicly available, as
our exercise history does not provide a reasonable basis to estimate
expected term.
|
|
(2)
|
The
stock volatility for each grant is measured using the weighted-average of
historical daily price changes of our common stock since our initial
public offering in May 2002, as well as comparison to peer
companies.
|
|
(3)
|
The
risk-free interest rate for each grant is equal to the U.S. Treasury yield
curve in effect at the time of grant for instruments with a similar
expected life.
|
Restricted
Stock Awards
We
granted 591,500 and 437,000 shares of restricted stock to employees and
directors for the years ended December 31, 2009 and 2008, respectively. We
granted no restricted stock awards during 2007. Stock granted to directors in
lieu of director fees are immediately vested. As of December 31, 2009,
1,053,000 shares of restricted stock were unvested.
The
following table provides additional information regarding the restricted stock
awards for the year ended December 31, 2009 (in thousands, except per share
data):
|
Shares
|
Weighted
Average Fair Value
|
|||||||
|
Unvested
at the beginning of the year
|
749
|
$
|
8.02
|
|||||
|
Granted
during the year
|
591
|
4.19
|
||||||
|
Vested
during the year
|
(232
|
)
|
9.20
|
|||||
|
Forfeited
during the year
|
(55
|
)
|
8.65
|
|||||
|
Unvested
at the end of the year
|
1,053
|
$
|
5.57
|
|||||
|
Total
fair value of awards vested during the year
|
$
|
566
|
||||||
The
following table provides further information for both our restricted stock and
stock option awards (in thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Total
fair value of awards granted
|
$
|
11,295
|
$
|
3,028
|
$
|
16,429
|
||||||
|
Total
intrinsic value of awards exercised
|
$
|
-
|
$
|
106
|
$
|
202
|
||||||
|
Total
fair value of awards vested
|
$
|
566
|
$
|
1,969
|
$
|
9,401
|
||||||
Note 9 —
Fair Value Measurement
We record
the fair value of certain financial assets and liabilities on a recurring
basis. The following table summarizes the financial assets and
liabilities measured at fair value in the accompanying financial statements
using the prescribed three-level fair value hierarchy as of December 31, 2009
and 2008 (in thousands):
|
Quoted
Prices in Active Markets
|
Significant
Observable Inputs
|
Significant
Unobservable Inputs
|
||||||||||||||
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
Total
|
|||||||||||||
|
2009:
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Deferred
compensation related investments
|
$ | 1,369 | $ | - | $ | - | $ | 1,369 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Interest
rate hedge
|
$ | - | $ | 4,181 | $ | - | $ | 4,181 | ||||||||
|
Deferred
compensation related liabilities
|
$ | 1,369 | $ | - | $ | - | $ | 1,369 | ||||||||
|
Equity
value shortfall amount
|
$ | - | $ | - | $ | 627 | $ | 627 | ||||||||
|
2008:
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Deferred
compensation related investments
|
$ | 3,917 | $ | - | $ | - | $ | 3,917 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Interest
rate hedge
|
$ | - | $ | 6,493 | $ | - | $ | 6,493 | ||||||||
|
Deferred
compensation related liabilities
|
$ | 3,917 | $ | - | $ | - | $ | 3,917 | ||||||||
The
following table details the change in fair value of our Level 3 liability for
the year ended December 31, 2009:
|
Equity
Value Shortfall Amount
|
||||
|
Balance
as of October 2, 2009
|
$
|
1,594
|
||
|
Unrealized
gain from the change in fair value
|
(967
|
)
|
||
|
Balance
as of December 31, 2009
|
$
|
627
|
||
The fair
value of interest rate hedge 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. With respect to the deferred compensation
plan, the fair value of deferred compensation is determined based on the fair
value of the investments selected by employees.
The fair
value of the Equity Value Shortfall Amount, described further in Note 2
–“Acquisitions” is determined based on an option pricing model reflecting our
assumptions about the value that market participants would place on this
liability. As of the October 2, 2009 acquisition date of RMM, the
estimated fair value was $1.6 million. Since October 2, 2009, the
value of our class A common stock has increased and as a result the fair value
of the Equity Value Shortfall Amount has decreased to $0.6 million as of
December 31, 2009. Therefore, we recorded a gain in other, net of $1.0 million
in our consolidated statement of operations for the year ended December 31,
2009.
During
the second quarter of 2006, we entered into a contract to hedge a
notional amount of the declining balances of our term loans (“2006
interest rate hedge”). 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. We designated the 2006 interest rate hedge
as a cash flow hedge. The fair value of the 2006 interest rate hedge liability
was $4.2 million and $6.5 million at December 31, 2009 and 2008,
respectively. This amount will be released into earnings over the life of the
2006 interest rate hedge through periodic interest payments. We have
recognized a gain of $0.2 million and a loss of $(0.3) million for
ineffectiveness during the years ended December 31, 2009 and December 31, 2008
respectively, related to this hedge in (gain) loss on derivative instruments in
our consolidated statement of operations.
During
the second quarter of 2008, we purchased $125.0 million of our 2.50%
Exchangeable Senior Subordinated Debentures, all of which were tendered to
us. These debentures had certain embedded derivative features that
were required to be separately identified and recorded at fair value each
period. The fair value of these derivatives on issue of the
debentures was $21.1 million and this amount was recorded as an original issue
discount and accreted through interest expense from the date of issuance through
May 15, 2008. As a result of the purchase of the debentures, during
the second quarter of 2008, we recorded a gain of $0.4 million to earnings for
the remaining fair value of these derivatives.
The
following table summarizes our derivative activity (in thousands):
|
(Gain)
Loss on Derivative Instruments
|
Comprehensive
Gain (Loss), Net of Tax
|
|||||||||||||||||||||||
|
Year
Ended December 31,
|
Year
Ended December 31,
|
|||||||||||||||||||||||
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|||||||||||||||||||
|
Mark-to-Market
Adjustments on:
|
||||||||||||||||||||||||
|
2.5%
Exchangeable Senior Subordinated Debentures
|
$
|
-
|
$
|
(375
|
)
|
$
|
223
|
$ |
-
|
$
|
-
|
$
|
-
|
|||||||||||
|
2006
interest rate hedge
|
(208
|
)
|
270
|
-
|
1,246
|
(1,622
|
)
|
(1,503
|
)
|
|||||||||||||||
|
Total
|
$
|
(208
|
)
|
$
|
(105
|
)
|
$
|
223
|
$
|
1,246
|
$
|
(1,622
|
)
|
$
|
(1,503
|
)
|
||||||||
The
following table summarizes the balances for our derivative liability included in
other liabilities in our consolidated balance sheet (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
2006
interest rate hedge
|
$
|
4,181
|
$
|
6,493
|
||||
Note
10 – Accumulated Other Comprehensive Loss
The
balance of related after-tax components comprising accumulated other
comprehensive loss are summarized below (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Pension
tax liability
|
$
|
(5,760
|
)
|
$
|
(5,740
|
)
|
||
|
Pension
net loss
|
(19,641
|
)
|
(24,849
|
)
|
||||
|
Pension
prior service costs
|
-
|
(283
|
)
|
|||||
|
Unrealized
loss on derivatives
|
(2,516
|
)
|
(3,762
|
)
|
||||
|
Accumulated
other comprehensive loss
|
$
|
(27,917
|
)
|
$
|
(34,634
|
)
|
||
Note 11 —
Retirement Plans
401(k)
Plan
We have
historically provided a defined contribution plan (“401(k) Plan”) for almost all
of our employees. We have historically made contributions to the 401(k) Plan on
behalf of employee groups that were not covered by our defined benefit
retirement plan matching 50% of the employee’s contribution up to 6% of the
employee’s total annual compensation. Contributions made by us vest in 20%
annual increments until the employee is 100% vested after five years. We
contributed $0.5 million, $2.8 million and $2.7 million to the
401(k) Plan in the years ended December 31, 2009, 2008 and 2007,
respectively. We suspended our contributions to our 401(k) Plan during
2009. Effective January 1, 2010, we resumed company contributions to
the 401(k) Plan, which will provide a 3% non-elective contribution to all
eligible employees.
Retirement
Plan
We have
historically provided a defined benefit retirement plan to our employees who did
not receive matching contributions from our Company to their 401(k) Plan
accounts. Our defined benefit plan is a non-contributory plan under which we may
make contributions either to: a) traditional plan participants based on
periodic actuarial valuations, which are expensed over the expected average
remaining service lives of current employees; or b) cash balance plan
participants based on 5% of each participant’s eligible
compensation.
Effective
April 1, 2009, this plan was frozen and we do not expect to make additional
benefit accruals to this plan. As a result of this action, during the
year ended December 31, 2009, we recorded a net curtailment gain that included a
$0.4 million charge related to prior service cost and a gain to our projected
benefit obligation of $4.0 million as a result of the reduction of future
compensation increases.
We
contributed $0.6 million to our pension plan during December 31, 2009 and
$3.0 million in each of years ended December 31, 2008 and 2007. We
anticipate contributing approximately $3.1 million to our pension plan in
2010 although we currently have no minimum funding requirements as defined by
ERISA and federal tax laws.
We record
the under-funded status of our defined benefit plan as a liability. The plan
assets and benefit obligations of our defined benefit plan are recorded at fair
value as of December 31, 2009.
Information
regarding the change in the projected benefit obligation, the accumulated
benefit obligation and the change in the fair value of plan assets, are as
follows (in thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Change
in projected benefit obligation
|
||||||||||||
|
Projected
benefit obligation, beginning of period
|
$
|
110,179
|
$
|
104,185
|
$
|
106,507
|
||||||
|
Service
cost
|
385
|
2,254
|
2,244
|
|||||||||
|
Interest
cost
|
6,353
|
6,403
|
6,038
|
|||||||||
|
Actuarial
loss (gain)
|
867
|
1,278
|
(6,505
|
)
|
||||||||
|
Benefits
paid
|
(5,322
|
)
|
(3,941
|
)
|
(4,099
|
)
|
||||||
|
Curtailment
|
(4,045
|
)
|
-
|
-
|
||||||||
|
Projected
benefit obligation, end of period
|
$
|
108,417
|
$
|
110,179
|
$
|
104,185
|
||||||
|
Accumulated
benefit obligation
|
$
|
108,417
|
$
|
104,988
|
$
|
98,847
|
||||||
|
Change
in plan assets
|
||||||||||||
|
Fair
value of plan assets, beginning of period
|
$
|
61,482
|
$
|
86,080
|
$
|
79,190
|
||||||
|
Actual
return (loss) on plan assets
|
12,049
|
(23,669
|
)
|
7,828
|
||||||||
|
Employer
contributions
|
588
|
3,012
|
3,161
|
|||||||||
|
Benefits
paid
|
(5,322
|
)
|
(3,941
|
)
|
(4,099
|
)
|
||||||
|
Fair
value of plan assets, end of period
|
$
|
68,797
|
$
|
61,482
|
$
|
86,080
|
||||||
|
Unfunded
status of the plan
|
$
|
(39,620
|
)
|
$
|
(48,697
|
)
|
$
|
(18,105
|
)
|
|||
|
Total
amount recognized as accrued benefit liability
|
$
|
(39,620
|
)
|
$
|
(48,697
|
)
|
$
|
(18,105
|
)
|
|||
The
following table includes the pension-related accounts recognized on the balance
sheets and the components of accumulated other comprehensive loss related to the
net periodic pension benefit costs as follows (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Other
accrued expenses (current)
|
$
|
(385
|
)
|
$
|
(415
|
)
|
||
|
Other
liabilities (long-term)
|
(39,235
|
)
|
(48,282
|
)
|
||||
|
Total
amount recognized as accrued pension benefit
liability
|
$
|
(39,620
|
)
|
$
|
(48,697
|
)
|
||
|
Accumulated
other comprehensive loss:
|
||||||||
|
Net
loss, net of tax benefit of $12,838 and $16,431 for the years ended
December 31, 2009 and 2008, respectively
|
$
|
19,641
|
$
|
24,849
|
||||
|
Prior
service costs, net of tax benefit $184 for the year ended December 31,
2008
|
-
|
283
|
||||||
|
Pension
tax liability
|
5,760
|
5,740
|
||||||
|
Accumulated
other comprehensive loss related to net periodic pension benefit
cost
|
$
|
25,401
|
$
|
30,872
|
||||
The total
net loss of $19.6 million, which is net of tax, relates to deferred
actuarial losses from changes in discount rates, differences between actual and
assumed asset returns and differences between actual and assumed demographic
experience (rates of compensation increases, rates of turnover, retirement rates
and mortality rates). During the year ended December 31, 2009, as a result of
the curtailment of our plan, we recognized the remaining prior service cost
balance of $0.4 million, before taxes, in accumulated other comprehensive income
as a component of our net periodic pension cost. During 2010, we expect to
amortize net losses of $0.4 million, which are included in the accumulated other
comprehensive loss, net of tax, at December 31, 2009.
Components
of net periodic pension benefit cost were (in thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Service
cost
|
$
|
385
|
$
|
2,254
|
$
|
2,244
|
||||||
|
Interest
cost
|
6,353
|
6,403
|
6,038
|
|||||||||
|
Expected
return on plan assets
|
(6,610
|
)
|
(6,823
|
)
|
(6,220
|
)
|
||||||
|
Amortization
of prior service cost
|
31
|
123
|
123
|
|||||||||
|
Amortization
of net loss
|
165
|
243
|
1,182
|
|||||||||
|
Curtailment
|
438
|
-
|
-
|
|||||||||
|
Net
periodic benefit cost
|
$
|
762
|
$
|
2,200
|
$
|
3,367
|
||||||
Our
expected future pension benefit payments for the next 10 years are as
follows (in thousands):
|
For
Years Ended December 31,
|
||||
|
2010
|
$
|
5,145
|
||
|
2011
|
$
|
5,029
|
||
|
2012
|
$
|
5,006
|
||
|
2013
|
$
|
5,194
|
||
|
2014
|
$
|
5,546
|
||
|
2015
through 2019
|
$
|
31,796
|
||
Weighted-average
assumptions used to estimate our pension benefit obligations and to determine
our net periodic pension benefit cost, and the actual long-term rate-of-return
on plan assets are as follows:
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Discount
rate used to estimate our pension benefit obligation
|
5.75%
|
6.00%
|
6.25%
|
|||||||||
|
Discount
rate used to determine net periodic pension benefit
|
6.00%-7.25%
|
6.25%
|
5.75%
|
|||||||||
|
Rate
of compensation increase
|
4.50%
|
4.50%
|
4.50%
|
|||||||||
|
Expected
long-term rate-of-return plan assets
|
8.25%
|
8.25%
|
8.25%
|
|||||||||
|
Actual
long-term rate-of-return on plan assets
|
20.4%
|
(27.6)%
|
9.90%
|
|||||||||
We used
the Citigroup Pension Discount Curve to aid in the selection of our discount
rate, which we believe reflects the weighted rate of a theoretical high quality
bond portfolio consistent with the duration of the cash flows related to our
pension liability.
We
considered the current levels of expected returns on a risk-free investment, the
historical levels of risk premium associated with each of our pension asset
classes, the expected future returns for each of our pension asset classes and
then weighted each asset class based on our pension plan asset allocation to
derive an expected long-term return on pension plan assets. During
the year ended December 31, 2009, our actual long-term rate of return on plan
assets was 20.4%.
As a
result of the plan freeze during 2009, we have no further service cost or
amortization of prior service cost related to the plan. In addition, because the
plan is now frozen and participants became inactive during 2009, the net losses
related to the plan included in accumulated other comprehensive income will now
be amortized over the average remaining life expectancy of the inactive
participants instead of average remaining service period.
Our
investment objective is to achieve a consistent total rate-of-return that will
equal or exceed our actuarial assumptions and to equal or exceed the benchmarks
that we use for each of our pension plan asset classes including the S&P 500
Index, S&P Mid-cap Index, Russell 2000 Index, MSCI EAFE Index and the Lehman
Brothers Aggregate Bond Index. The following asset allocation is designed to
create a diversified portfolio of pension plan assets that is consistent with
our target asset allocation and risk policy:
|
Target
Allocation
|
Percentage
of Plan Assets at December 31,
|
||||||||
|
Asset
Category
|
2009
|
2009
|
2008
|
||||||
|
Equity
securities
|
70%
|
78%
|
57%
|
||||||
|
Debt
securities
|
30%
|
22%
|
43%
|
||||||
|
100%
|
100%
|
100%
|
|||||||
Our
actual allocation of plan assets for 2009 is not in range of our target
allocation in an effort to realize potential gains associated with the equity
market rebound. During late 2009, our Retirement Committee decided to
set the target allocation at 60% equity securities and 40% debt
securities. Beginning in 2010, on a quarterly basis, the funds in our
plan will be rebalanced in line with this new allocation. We continue
to monitor the performance of these funds and anticipate the allocation moving
in line with the target as the economic outlook stabilizes.
The
following table summarizes our pension plan assets measured at fair value using
the three-level fair value hierarchy established by ASC 157 as of December 31,
2009 and 2008 (in thousands):
|
Significant
Observable Inputs
|
Significant
Unobservable Inputs
|
||||||||||
|
(Level
2)
|
(Level
3)
|
Total
|
|||||||||
|
December
31, 2009:
|
|||||||||||
|
Guaranteed
deposit account
|
$
|
-
|
$
|
5,094
|
$
|
5,094
|
|||||
|
U.S.
stock funds
|
34,959
|
-
|
34,959
|
||||||||
|
International
stock funds
|
8,608
|
-
|
8,608
|
||||||||
|
U.S.
bond funds
|
20,136
|
-
|
20,136
|
||||||||
|
Total
|
$
|
63,703
|
$
|
5,094
|
$
|
68,797
|
|||||
|
December
31, 2008:
|
|||||||||||
|
Guaranteed
deposit account
|
$
|
-
|
$
|
190
|
$
|
190
|
|||||
|
U.S.
stock funds
|
29,171
|
-
|
29,171
|
||||||||
|
International
stock funds
|
5,669
|
-
|
5,669
|
||||||||
|
U.S.
bond funds
|
26,451
|
-
|
26,451
|
||||||||
|
Total
|
$
|
61,291
|
$
|
190
|
$
|
61,481
|
|||||
The
guaranteed deposit is invested primarily in publicly traded and privately placed
debt securities and mortgage loans. Fair value is calculated by
discounting the expected future investment cash flow from both investment income
and repayment of principal for each investment purchased directly for the
guaranteed deposit fund. The U.S. and International stock funds and U.S. bond
funds consist of various funds that are valued at the net asset value of units
held by the plan at year-end as determined by the custodian, based on fair value
of the underlying securities. These methods may produce a fair value
calculation that may not be indicative of net realizable value or reflective of
future values. Furthermore, while we believe these valuation methods
are appropriate and consistent with other market participants, the use of
different methodologies or assumptions to determine fair value of certain
financial instruments could result in different fair value measurement at the
reporting date.
The
following table details the change in fair value of the Level 3 investments for
the years ended December 31, 2009 and 2008:
|
Guaranteed
Deposit Account
|
||||
|
Balance
as of December 31, 2007
|
$
|
1,168
|
||
|
Interest
income
|
56
|
|||
|
Purchases,
sales, issuances and settlements (net)
|
(1,034
|
)
|
||
|
Balance
as of December 31, 2008
|
190
|
|||
|
Interest
income
|
85
|
|||
|
Purchases,
sales, issuances and settlements (net)
|
4,819
|
|||
|
Balance
as of December 31, 2009
|
$
|
5,094
|
||
Note 12 —
Restructuring
During
the second quarter of 2009, we recorded a restructuring charge of $0.5 million
as a result of the consolidation of certain activities at our stations which
resulted in the termination of 28 employees. We made cash payments of
$0.5 million during the year ended December 31, 2009 related to this
restructuring.
During
2008, we effected a restructuring that included a workforce reduction and the
cancellation of certain syndicated television program contracts. The
total charge for the plan was $12.9 million, including $4.3 million for a
workforce reduction of 144 employees and $8.6 million for the cancellation of
the contracts. We made cash payments of $9.0 million during the year
ended December 31, 2009 related to these restructuring
activities. Cumulatively under the plan, we have made payments of
$12.6 million through December 31, 2009. As of December 31, 2009, we had $0.3
million in accrued expenses and accounts payable in the consolidated balance
sheet for this restructuring and expect to make cash payments of $0.3 million
during 2010 and thereafter.
During
the year ended December 31, 2007, we recorded $0.3 million for
temporary labor costs and made cash payments of approximately $4.3 million for
severance and contractual costs related to a restructuring plan initiated in
2006.
The
activity for these restructuring charges are as follows (in
thousands):
|
Balance as of December 31,
2007
|
Year
Ended
December
31, 2008
|
Balance as of December 31,
2008
|
Year
Ended
December
31, 2009
|
Balance as of December 31,
2009
|
||||||||||||||||||||||
|
Charges
|
Payments
|
Charges
|
Payments
|
|||||||||||||||||||||||
|
Severance
and related
|
$
|
-
|
$
|
4,322
|
$
|
829
|
$
|
3,493
|
$
|
(498
|
)
|
$
|
3,991
|
$
|
-
|
|||||||||||
|
Contractual
and other
|
57
|
8,580
|
2,769
|
5,868
|
-
|
5,509
|
359
|
|||||||||||||||||||
|
Total
|
$
|
57
|
$
|
12,902
|
$
|
3,598
|
$
|
9,361
|
$
|
(498
|
)
|
$
|
9,500
|
$
|
359
|
|||||||||||
Note 13 —
Related Party Transactions
Centennial Cable of Puerto
Rico. Centennial Cable of Puerto Rico, in which HMC had a
substantial economic interest, provided our Puerto Rico operations with a barter
agreement for advertising and promotional services which are reflected in our
consolidated financial statements as discontinued operations for the year ended
December 31, 2007.
Note 14 —
Commitments and Contingencies
Commitments
We lease
land, buildings, vehicles and equipment pursuant to non-cancelable operating
lease agreements and we contract for general services pursuant to non-cancelable
operating agreements that expire at various dates through 2017. In addition, we
have entered into commitments for future syndicated entertainment and sports
programming. Future payments for these non-cancelable operating leases and
agreements, and future payments associated with syndicated television programs
at December 31, 2009 are as follows (in thousands):
|
Year
|
Operating
Leases and Agreements
|
Syndicated
Television Programming
|
Total
|
|||||||||
|
2010
|
$
|
10,840
|
$
|
25,731
|
$
|
36,571
|
||||||
|
2011
|
5,949
|
22,029
|
27,978
|
|||||||||
|
2012
|
5,231
|
13,713
|
18,944
|
|||||||||
|
2013
|
2,533
|
4,604
|
7,137
|
|||||||||
|
2014
|
760
|
-
|
760
|
|||||||||
|
Thereafter
|
360
|
-
|
360
|
|||||||||
|
Total
obligations
|
25,673
|
66,077
|
91,750
|
|||||||||
|
Less
recorded contracts
|
-
|
(12,411
|
)
|
(12,411
|
)
|
|||||||
|
Future
contracts
|
$
|
25,673
|
$
|
53,666
|
$
|
79,339
|
||||||
Rent
expense, resulting from operating leases, was $2.1 million for the year ended
December 31, 2009, and $2.2 million in each of the years ended
December 31, 2008 and 2007.
Contingencies
GECC
Note
GECC
provided debt financing for a joint venture between NBC Universal and us, in the
form of an $815.5 million non-amortizing senior secured note due 2023 bearing
interest at an initial rate of 8% per annum until March 2, 2013 and 9% per annum
thereafter (the “GECC Note”). The GECC Note is an obligation of the
joint venture. We have a 20% equity interest in the joint venture and NBC
Universal has the remaining 80% equity interest, in which we and NBC Universal
each have a 50% voting interest. NBC Universal operates two
television stations, KXAS-TV, an NBC affiliate in Dallas, and KNSD-TV, an NBC
affiliate in San Diego, pursuant to a management agreement. NBC
Universal and GECC are both majority-owned subsidiaries of General Electric
Company. LIN TV has guaranteed the payment of principal and interest
on the GECC Note.
Our joint
venture with NBC Universal has been adversely impacted by the current economic
downturn. The joint venture distributed no cash to NBC Universal and
us during the year ended December 31, 2009. Although the joint
venture distributed cash to NBC Universal and us in the amount of $13.0
million and $12.0 million for the years ended December 31, 2008 and
2007, respectively, the cash distributions for 2008 included nonrecurring cash
proceeds of $12.6 million from the sale of broadcast towers.
In light
of the adverse effect of the economic downturn on the joint venture’s operating
results, in 2009 we entered into the Original Shortfall Funding Agreement with
NBC Universal, which provided that: a) we and NBC waived the requirement that
the joint venture maintain debt service reserve cash balances of at least $15
million; b) the joint venture would use a portion of its existing debt service
reserve cash balances to fund interest payments in 2009; c) NBC agreed to defer
its receipt of 2008 and 2009 management fees; and d) we agreed that if the joint
venture does not have sufficient cash to fund interest payments on the GECC Note
through April 1, 2010, we and NBC Universal would each provide the joint venture
with a shortfall loan on the basis of our percentage of economic interest in the
joint venture. During the year ended December 31, 2009, the joint
venture used approximately $14.9 million of the existing debt service cash
reserves, leaving approximately $0.2 million available. As of March
15, 2010, we have not yet provided any funding under the Original Shortfall
Funding Agreement.
Because
of anticipated future shortfalls at the joint venture, on March 9, 2010, NBC
Universal and we entered into the 2010 Shortfall Funding Agreement covering the
period through April 1, 2011. Under the terms of the 2010 Shortfall
Funding Agreement: a) the joint venture may continue to access any portion of
its existing debt service reserve cash balances to fund interest payments; b)
NBC will continue to defer the payment of 2008 and 2009 management fees
and defer payment of 2010 management fees through March 31, 2011
(payable subject to repayment first of any joint venture shortfall loans); and
c) we agreed that if the joint venture does not have sufficient cash to fund
interest payments on the GECC Note through April 1, 2011, we and NBC Universal
would each provide the joint venture with a shortfall loan on the basis of our
percentage of economic interest in the joint venture.
The
timing of anticipated debt service shortfalls at the joint venture is affected
by the levels of working capital at the stations owned by the joint venture and
their anticipated uses of working capital to fund operations and to distribute
cash to the joint venture for the purpose of servicing the interest expense on
the GECC Note. We recognize liabilities under the Original Shortfall
Funding Agreement and the 2010 Shortfall Funding Agreement when those
liabilities become both probable and estimable, which result when joint venture
management provides us with budget or forecast information of operating cash
flows and working capital needs indicating that a debt service shortfall is
probable to occur.
During
2009, joint venture management provided us a revised outlook for 2009 after each
quarter end, which, as of September 30, 2009, resulted in an accrual of $2.0
million for our probable and estimable obligations under the Original Shortfall
Funding Agreement through the April 1, 2010 expiry of that
agreement. Due to uncertainty surrounding the joint venture’s ability
to repay the shortfall loan, we concurrently impaired the loan as of September
30, 2009. Based on our latest estimate of cash flow requirements of the joint
venture through April 1, 2010, our share of the estimated shortfall through
April 1, 2010 is $3.0 million, of which $2.0 million was accrued as of September
30, 2009. Subsequent
to September 30, 2009, we: (a) received the joint venture’s 2010 budget and (b)
as noted above, entered into the 2010 Shortfall Funding Agreement to cover debt
service shortfalls through April 1, 2011. Based on the 2010 budget provided by
the joint venture, and our discussions with the joint venture's management, we
believe there will be an additional debt service shortfall at the joint venture
from April 2, 2010 through April 1, 2011 of $13.0 million to $15.0 million, of
which, our share of the shortfall could be approximately $3.0
million.
As a
result, we have accrued our portion of the estimated shortfalls through April 1,
2011, bringing the total accrual for our joint venture shortfall obligations to
$6.0 million as of December 31, 2009. Due to uncertainty surrounding
the joint venture’s ability to repay the shortfall loans, we concurrently
impaired all accrued loans to the joint venture as of December 31,
2009. As of
March 15, 2010, we have not yet provided any funding under either of these
agreements. We expect to fund our $3.0 million share of shortfall liabilities
under the Original Shortfall Funding Agreement during the first quarter of 2010,
and the remaining $3.0 million amount through the period ending April 1,
2011. We do not believe our funding obligations related to the joint
venture, if any, beyond April 1, 2011 are currently estimable and probable,
therefore, we have not accrued for any potential obligations beyond the $6.0
million discussed above. However, our actual cash shortfall funding
could exceed our estimate.
Our ability to honor our shortfall loan obligations under the Original Shortfall Funding Agreement and the 2010 Shortfall Funding Agreement is subject to compliance with restrictions under our senior credit facility and the indentures governing our senior notes. Based on the 2010 budget provided by joint venture management, and our forecast of total leverage and consolidated EBITDA during 2010 and 2011, we expect to have the capacity within these restrictions to provide shortfall funding under the 2010 Shortfall Funding Agreement in proportion to our approximately 20 percent economic interest in the joint venture through the April 1, 2011 expiration of the 2010 Shortfall Funding Agreement. However, there can be no assurance that we will have the capacity to provide such funding. If we are required to fund a portion of a shortfall loan, we plan to use our available cash balances or available borrowings under our credit facility. In addition, if the joint venture experiences further cash shortfalls beyond April 1, 2011, we may decide to fund such cash shortfalls, or to fund such shortfalls through further loans or equity contributions to the joint venture. If we are unable to make payments under the Original Shortfall Funding Agreement or the 2010 Shortfall Funding Agreement, the joint venture may be unable to fund interest obligations under the GECC Note, resulting in an event of default.
An event
of default under the GECC Note will occur if the joint venture fails to make any
scheduled interest payment within 90 days of the date due and payable, or to pay
the principal amount on the maturity date. If the joint venture fails
to pay interest on the GECC Note, and neither NBC Universal nor we make a
shortfall loan to fund the interest payment within 90 days of the date due and
payable, an event of default would occur and GECC could accelerate the maturity
of the entire amount due under the GECC Note. Other than the
acceleration of the principal amount upon an event of default, prepayment of the
principal of the note is prohibited unless agreed upon by both NBC Universal and
us. Upon an event of default under the GECC Note, GECC’s only
recourse is to the joint venture, our equity interest in the joint venture and,
after exhausting all remedies against the assets of the joint venture and the
other equity interests in the joint venture, to LIN TV pursuant to its guarantee
of the GECC Note.
Under the
terms of its guarantee of the GECC Note, LIN TV would be required to make a
payment for an amount to be determined upon occurrence of the following events:
a) there is an event of default; b) neither NBC Universal or us remedy the
default; and c) after GECC exhausts all remedies against the assets of the joint
venture, the total amount realized upon exercise of those remedies is less than
the $815.5 million principal amount of the GECC Note. Upon the
occurrence of such events, the amount owed by LIN TV to GECC pursuant to the
guarantee would be calculated as the difference between i) the total amount at
which the joint venture’s assets were sold and ii) the principal amount and any
unpaid interest due under the GECC Note. As of December 31, 2009, we
estimate the fair value of the television stations in the joint venture to be
approximately $366 million less than the outstanding balance of the GECC note of
$815.5 million.
Although
we believe the probability is remote that there would be an event of default and
therefore an acceleration of the principal amount of the GECC Note during 2010,
there can be no assurances that such an event of default will not
occur. There are no financial or similar covenants in the GECC Note
and, since both NBC Universal and we have agreed to fund interest payments
through April 1, 2011 if the joint venture is unable to do so, NBC Universal and
we are able to control the occurrence of a default under the GECC
Note.
If an
event of default occurs under the GECC Note, LIN TV, which conducts all of its
operations through its subsidiaries, could experience material adverse
consequences, including:
|
·
|
GECC,
after exhausting all remedies against the joint venture, could enforce its
rights under the guarantee, which could cause LIN TV to determine that LIN
Television should seek to sell material assets owned by it in order to
satisfy LIN TV’s obligations under the
guarantee;
|
|
·
|
GECC’s
initiation of proceedings against LIN TV under the guarantee could result
in a change of control or other material adverse consequences to LIN
Television, which could cause an acceleration of LIN Television’s credit
facility and other outstanding
indebtedness; and
|
|
·
|
if
the GECC Note is prepaid because of an acceleration on default or
otherwise, we would incur a substantial tax liability of approximately
$273.6 million related to our deferred gain associated with the formation
of the joint venture, exclusive of any potential NOL
utilization.
|
On
December 3, 2009, General Electric Corporation (“GE”), which wholly owns GECC,
and Comcast Corporation (“Comcast”) announced a definitive agreement to
form a joint venture that will be 51 percent owned by Comcast, 49 percent owned
by GE and managed by Comcast. The proposed joint venture will include
NBC Universal. As of March 15, 2010, the proposed transaction is
undergoing regulatory review and it is not certain whether or when the
transaction will receive the approvals required to
close. Furthermore, assuming the transaction is completed, we cannot
predict the effect the joint venture between Comcast and GE may have on our
joint venture with NBC Universal.
Litigation
We are
currently and from time-to-time involved in litigation incidental to the conduct
of our business. In the opinion of our management, such litigation as of
December 31, 2009 is not likely to have a material adverse effect on our
financial position, results of operations or cash flows.
Note 15 —
Income Taxes
The
income (loss) before income taxes was solely from domestic
operations. The provision for (benefit from) income taxes consist of
the following (in thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$
|
579
|
$
|
-
|
$
|
792
|
||||||
|
State
|
452
|
429
|
512
|
|||||||||
|
$
|
1,031
|
$
|
429
|
$
|
1,304
|
|||||||
|
Deferred:
|
||||||||||||
|
Federal
|
$
|
5,588
|
$
|
(188,386
|
)
|
$
|
15,098
|
|||||
|
State
|
7,222
|
(34,208
|
)
|
1,810
|
||||||||
|
12,810
|
(222,594
|
)
|
16,908
|
|||||||||
|
$
|
13,841
|
$
|
(222,165
|
)
|
$
|
18,212
|
||||||
The
following table reconciles the amount that would be calculated by applying the
35% federal statutory rate to income (loss) before income taxes to the actual
provision for (benefit from) income taxes (in thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Provision
(benefit) assuming federal statutory rate
|
$
|
8,190
|
$
|
(368,394
|
)
|
$
|
16,357
|
|||||
|
State
taxes, net of federal tax benefit
|
1,877
|
(34,923
|
)
|
2,377
|
||||||||
|
State
tax law changes, net of federal tax benefit
|
3,597
|
6,195
|
(451
|
)
|
||||||||
|
Change
in valuation allowance
|
(1,345
|
)
|
39,036
|
(418
|
)
|
|||||||
|
Impairment
of goodwill
|
60
|
135,591
|
-
|
|||||||||
|
Stock
compensation
|
580
|
-
|
-
|
|||||||||
|
Other
|
882
|
330
|
347
|
|||||||||
|
$
|
13,841
|
$
|
(222,165
|
)
|
$
|
18,212
|
||||||
|
Effective
income tax rate on continuing operations
|
59.2%
|
21.1%
|
39.0%
|
|||||||||
The
components of the net deferred tax liability are as follows (in
thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Deferred
tax liabilities:
|
||||||||
|
Deferred
gain related to equity investment in NBC joint
venture
|
$
|
273,592
|
$
|
271,279
|
||||
|
Property
and equipment
|
15,240
|
14,781
|
||||||
|
Noncontrolling
interest
|
-
|
677
|
||||||
|
Deferred
gain on debt repurchase
|
18,274
|
-
|
||||||
|
Other
|
5,842
|
5,828
|
||||||
|
$
|
312,948
|
$
|
292,565
|
|||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating loss carryforwards
|
$
|
(125,123
|
)
|
$
|
(100,361
|
)
|
||
|
Equity
investments
|
(14,728
|
)
|
(18,165
|
)
|
||||
|
Intangible
assets
|
(20,239
|
)
|
(30,609
|
)
|
||||
|
Other
|
(41,812
|
)
|
(54,052
|
)
|
||||
|
Valuation
allowance
|
50,979
|
52,324
|
||||||
|
(150,923
|
)
|
(150,863
|
)
|
|||||
|
Net
deferred tax liabilities
|
$
|
162,025
|
$
|
141,702
|
||||
We
maintain a valuation allowance related to our deferred tax asset position when
management believes it is more likely than not that the net deferred tax assets
will not be realized in the future. Our valuation allowance was
$51.0 million as of December 31, 2009, which represents a decrease of
$1.3 million for the year ended December 31, 2009. This
decrease is primarily attributable to additional taxable income generated and
corresponding utilization of prior year net operating losses that were subject
to a valuation allowance. Components of our valuation allowance
were:
|
|
·
|
federal
net operating loss carryforwards of
$31.4 million;
|
|
|
·
|
state
net operating loss carryforwards of
$10.1 million;
|
|
|
·
|
state
deferred tax assets of $0.8 million recorded in connection with
the acquisitions of stations in 2005 and 2006;
and
|
|
|
·
|
state
deferred tax assets of $8.7 million related to the impairment of the
broadcast licenses and goodwill.
|
At
December 31, 2009, we had federal net operating loss carryforwards of
approximately $328.6 million that begin to expire in 2021. Additionally, we had state net
operating loss carryforwards that vary by jurisdiction (tax effected, net of
federal benefit) of approximately $10.1 million, expiring through
2029.
We
recorded no amounts related to uncertain tax positions for the years ended
December 31, 2009, 2008 and 2007. We file a consolidated federal
income tax return and we file numerous other consolidated and separate income
tax returns in U.S. state jurisdictions. Tax years 2005-2008 remain
open to examination by major taxing jurisdictions.
Note
16 – Accrued Expenses
Accrued
expenses consisted of the following (in thousands):
|
December
31,
|
|||||||
|
2009
|
2008
|
||||||
|
Accrued
acquisition costs (See Note 2 – "Acquisitions")
|
$
|
3,035
|
$
|
3,605
|
|||
|
Accrued
barter, net
|
3,978
|
4,831
|
|||||
|
Accrued
compensation
|
7,303
|
6,614
|
|||||
|
Accrued
contract costs
|
6,739
|
7,108
|
|||||
|
Accrued
interest
|
3,617
|
4,535
|
|||||
|
Accrued
purchase option (See Note 19 – "Supplemental Disclosure of Cash Flow
Information")
|
-
|
7,688
|
|||||
|
Accrued
restructuring (See Note 12 – "Restructuring")
|
359
|
9,361
|
|||||
|
Accrued
shortfall loan to SVH (See Note 14 – “Commitments and
Contingencies”)
|
6,000 | - | |||||
|
Other
accrued expenses
|
10,885
|
12,959
|
|||||
|
Total
|
$
|
41,916
|
$
|
56,701
|
|||
Note
17 – Subsequent Events
Joint
Venture with NBC Universal:
On March
9, 2010, because of anticipated future debt service shortfalls at the NBC joint
venture, NBC Universal and we entered into the 2010 Shortfall Funding
Agreement. For further information on the 2010 Shortfall Funding
Agreement see Note 14 – “Commitments and Contingencies”.
Note 18 -Unaudited
Quarterly Data
|
Quarter
Ended
|
||||||||||||||||
|
March
31,
2009
|
June
30,
2009
|
September
30,
2009
|
December
31,
2009
|
|||||||||||||
|
Net
revenues
|
$
|
74,475
|
$
|
82,517
|
$
|
81,371
|
$
|
101,111
|
||||||||
|
Operating
income (loss)
|
4,757
|
(25,814
|
)(1)
|
13,787
|
29,383
|
(3)
|
||||||||||
|
Income
(loss) from continuing operations
|
25,006
|
(25,334
|
)
|
(875
|
)
|
10,762
|
(3)
|
|||||||||
|
Loss
from discontinued operations
|
(284
|
)
(2)
|
(162
|
)(2)
|
-
|
-
|
||||||||||
|
Net
income (loss)
|
$
|
24,722
|
$
|
(25,496
|
)
|
$
|
(875
|
)
|
$
|
10,762
|
||||||
|
Basic
income (loss) per common share:
|
||||||||||||||||
|
Income
(loss) from continuing operations
|
$
|
0.49
|
$
|
(0.50
|
)
|
$
|
(0.02
|
)
|
$
|
0.21
|
||||||
|
Loss from
discontinued operations
|
(0.01
|
)
|
-
|
-
|
-
|
|||||||||||
|
Net
income (loss)
|
$
|
0.48
|
$
|
(0.50
|
)
|
$
|
(0.02
|
)
|
$
|
0.21
|
||||||
|
Diluted
income (loss) per common share:
|
||||||||||||||||
|
Income
(loss) from continuing operations
|
$
|
0.49
|
$
|
(0.50
|
)
|
$
|
(0.02
|
)
|
$
|
0.21
|
||||||
|
Loss from
discontinued operations
|
(0.01
|
)
|
-
|
-
|
-
|
|||||||||||
|
Net income (loss)
|
$
|
0.48
|
$
|
(0.50
|
)
|
$
|
(0.02
|
)
|
$
|
0.21
|
||||||
|
Weighted
- average number of common shares outstanding used in calculating income
(loss) per common share:
|
||||||||||||||||
|
Basic
|
51,114
|
51,128
|
51,367
|
52,272
|
||||||||||||
|
Diluted
|
51,122
|
51,128
|
51,367
|
53,286
|
||||||||||||
|
(1)
|
Includes
an impairment charge of $39.9 million, including $37.2 million impairment
to the carrying value of our broadcast licenses and $2.7 million
impairment to the carrying values of our goodwill.
|
|
(2)
|
Includes
the results of operations of Banks Broadcasting.
|
|
(3)
|
Includes
an out of period adjustment for a gain on the exchange of equipment of
$0.9 million and $0.5 million in operating income and income from
continuing operations, respectively, that should have been recorded in
third quarter of 2009. We concluded this amount was immaterial
to our financial statements as of September 30, 2009 and have corrected
the item as an out of period
adjustment.
|
|
Quarter
Ended
|
||||||||||||||||
|
March
31,
2008
|
June
30,
2008
|
September
30,
2008
|
December
31,
2008
|
|||||||||||||
| (in thousands, except share data) | ||||||||||||||||
|
Net
revenues
|
$
|
93,064
|
$
|
103,703
|
$
|
98,804
|
$
|
104,243
|
||||||||
|
Operating
income (loss)
|
15,574
|
(269,938
|
)
(1)
|
24,541
|
(722,598
|
)
(2)
|
||||||||||
|
Income
(loss) from continuing operations
|
875
|
(215,759
|
)
|
10,217
|
(625,720
|
)
|
||||||||||
|
Income
(loss) from discontinued operations
|
588
|
(3)
|
(208
|
)
(3)
|
(196
|
)(3)
|
(161
|
)
(3)
|
||||||||
|
Net
income (loss)
|
$
|
1,463
|
$
|
(215,967
|
)
|
$
|
10,021
|
$
|
(625,881
|
)
|
||||||
|
Basic
income (loss) per common share:
|
||||||||||||||||
|
Income
(loss) from continuing operations
|
$
|
0.02
|
$
|
(4.26
|
)
|
$
|
0.20
|
$
|
(12.24
|
)
|
||||||
|
Income from
discontinued operations
|
0.01
|
-
|
-
|
-
|
||||||||||||
|
Net
income (loss)
|
$
|
0.03
|
$
|
(4.26
|
)
|
$
|
0.20
|
$
|
(12.24
|
)
|
||||||
|
Diluted
income (loss) per common share:
|
||||||||||||||||
|
Income
(loss) from continuing operations
|
$
|
0.02
|
$
|
(4.26
|
)
|
$
|
0.20
|
$
|
(12.24
|
)
|
||||||
|
Income from
discontinued operations
|
0.01
|
-
|
-
|
-
|
||||||||||||
|
Net
income (loss)
|
$
|
0.03
|
$
|
(4.26
|
)
|
$
|
0.20
|
$
|
(12.24
|
)
|
||||||
|
Weighted
- average number of common shares outstanding used in calculating income
(loss) per common share:
|
||||||||||||||||
|
Basic
|
50,597
|
50,664
|
50,620
|
51,106
|
||||||||||||
|
Diluted
|
51,613
|
50,664
|
50,620
|
51,106
|
||||||||||||
|
(1)
|
Includes
an impairment charge of $297.0 million, including $185.7 million
impairment to the carrying value of our broadcast licenses and $111.3
million impairment to the carrying values of our
goodwill.
|
|
(2)
|
Includes
an impairment charge of $732.2 million, including $413.9 million
impairment to the carrying value of our broadcast licenses, $309.6 million
impairment to the carrying values of our goodwill and $8.7 million for the
write-off of certain broadcast assets that have become obsolete as a
result of the DTV transition.
|
|
(3)
|
Includes
the result of operations of Banks
Broadcasting.
|
Note 19 —
Supplemental Disclosure of Cash Flow Information
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
| (in thousands) | ||||||||||||
|
Cash
paid for interest expense
|
$
|
40,130
|
$
|
48,777
|
$
|
55,644
|
||||||
|
Cash
paid for income taxes – continuing operations
|
$
|
16
|
$
|
1,152
|
$
|
862
|
||||||
|
Cash
(refunded from) paid for income taxes – discontinued
operations
|
-
|
(6
|
)
|
621
|
||||||||
|
Cash
paid for income taxes
|
$
|
16
|
$
|
1,146
|
$
|
1,483
|
||||||
|
Non-cash
investing activities:
|
||||||||||||
|
Accrual
for estimated joint venture loan
|
$
|
6,000
|
$
|
-
|
$
|
-
|
||||||
|
KNVA-TV:
|
||||||||||||
|
Fair
value of broadcast license acquired
|
$
|
-
|
$
|
8,661
|
$
|
-
|
||||||
|
Cash
paid
|
-
|
973
|
-
|
|||||||||
|
Liabilities
assumed
|
$
|
-
|
$
|
7,688
|
$
|
-
|
||||||
On
May 27, 2009, the FCC approved the transfer of the shares of 54
Broadcasting to Vaughan Media, LLC (“Vaughan Media”). 54 Broadcasting
holds the FCC broadcast license to KNVA-TV in Austin, TX, for which we provide
programming under a local marketing agreement. On July 27, 2009, we
assigned our option to purchase the shares of 54 Broadcasting to Vaughan Media,
which acquired the stock of 54 Broadcasting on July 27, 2009. Pursuant to
the settlement agreement we reached on March 2, 2009 with the former
shareholders of 54 Broadcasting, as a result of a complaint filed against us and
Vaughan Media by 54 Broadcasting alleging that our assignment and subsequent
exercise were not valid, on the date of the closing of this transfer, we made a
payment of $6.0 million to 54 Broadcasting prior to Vaughan Media’s exercise of
the option to purchase the shares of 54 Broadcasting. We incurred
approximately $1.7 million of legal and other expenses associated with the
consummation of this transaction.
Note 20
– Valuation and Qualifying Accounts
|
Balance
at Beginning of Period
|
Charged
to Operations
|
Deductions
|
Balance
at End of Period
|
|||||||||||||
|
Allowance
for doubtful accounts as of December 31, (in thousands):
|
||||||||||||||||
|
2009
|
$
|
2,761
|
$
|
791
|
$
|
(1,280
|
)
|
$
|
2,272
|
|||||||
|
2008
|
$
|
1,640
|
$
|
2,458
|
$
|
(1,337
|
)
|
$
|
2,761
|
|||||||
|
2007
|
$
|
1,208
|
$
|
1,709
|
$
|
(1,277
|
)
|
$
|
1,640
|
|||||||
|
Valuation
allowance on state and federal deferred tax assets as of December 31, (in
thousands):
|
||||||||||||||||
|
2009
|
$
|
52,324
|
$
|
(1,345
|
)
|
$
|
-
|
$
|
50,979
|
|||||||
|
2008
|
$
|
13,288
|
$
|
39,036
|
$
|
-
|
$
|
52,324
|
||||||||
|
2007
|
$
|
13,706
|
$
|
(418
|
)
|
$
|
-
|
$
|
13,288
|
|||||||
To
the Board of Directors and Shareholder of LIN Television
Corporation:
In
our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of LIN
Television Corporation and its subsidiaries at December 31, 2009 and December
31, 2008, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's
management is responsible for these financial statements and financial statement
schedule, for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in Management's Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to express
opinions on these financial statements, on the financial statement schedule, and
on the Company's internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
As
described in Management's Report on Internal Control over Financial Reporting,
management has excluded RMM from its assessment of internal control over
financial reporting as of December 31, 2009 because it was acquired by the
Company in a purchase business combination on October 2, 2009. We have also
excluded RMM from our audit of internal control over financial reporting. RMM is
an operating division of Primeland, Inc., a wholly owned subsidiary of LIN
Television Corporation, whose total assets and total revenues represent 1%
and 1%, respectively, of the related consolidated financial statement amounts as
of and for the year ended December 31, 2009.
/s/
PricewaterhouseCoopers LLP
Hartford,
Connecticut
March 15, 2010
|
Consolidated
Balance Sheets
|
||||||||
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
(in
thousands, except share data)
|
|||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$
|
11,105
|
$
|
20,106
|
||||
|
Restricted
cash
|
2,000
|
-
|
||||||
|
Accounts
receivable, less allowance for doubtful accounts (2009 - $2,272; 2008 -
$2,761)
|
73,948
|
68,277
|
||||||
|
Program
rights
|
2,126
|
3,311
|
||||||
|
Assets
held for sale
|
-
|
430
|
||||||
|
Other
current assets
|
6,402
|
5,045
|
||||||
|
Total
current assets
|
95,581
|
97,169
|
||||||
|
Property
and equipment, net
|
165,061
|
180,679
|
||||||
|
Deferred
financing costs
|
8,389
|
8,511
|
||||||
|
Program
rights
|
1,400
|
3,422
|
||||||
|
Goodwill
|
117,259
|
117,159
|
||||||
|
Broadcast
licenses and other intangible assets, net
|
398,877
|
430,142
|
||||||
|
Assets
held for sale
|
-
|
8,872
|
||||||
|
Other
assets
|
3,936
|
6,640
|
||||||
|
Total
assets
|
$
|
790,503
|
$
|
852,594
|
||||
|
LIABILITIES,
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
|
||||||||
|
Current
liabilities:
|
||||||||
|
Current
portion of long-term debt
|
$
|
16,372
|
$
|
15,900
|
||||
|
Accounts
payable
|
6,556
|
7,988
|
||||||
|
Accrued
expenses
|
41,916
|
56,701
|
||||||
|
Program
obligations
|
10,319
|
10,109
|
||||||
|
Liabilities
held for sale
|
-
|
429
|
||||||
|
Total
current liabilities
|
75,163
|
91,127
|
||||||
|
Long-term
debt, excluding current portion
|
666,582
|
727,453
|
||||||
|
Deferred
income taxes, net
|
162,025
|
141,702
|
||||||
|
Program
obligations
|
2,092
|
5,336
|
||||||
|
Liabilities
held for sale
|
-
|
343
|
||||||
|
Other
liabilities
|
53,795
|
68,883
|
||||||
|
Total
liabilities
|
959,657
|
1,034,844
|
||||||
|
Stockholders'
deficit:
|
||||||||
|
Common
stock, $0.00 par value, 1,000 shares
|
-
|
-
|
||||||
|
Investment
in parent company’s stock, at cost
|
(7,869
|
)
|
(18,005
|
)
|
||||
|
Additional
paid-in capital
|
1,104,690
|
1,102,448
|
||||||
|
Accumulated
deficit
|
(1,238,058
|
)
|
(1,239,090
|
)
|
||||
|
Accumulated
other comprehensive loss
|
(27,917
|
)
|
(34,634
|
)
|
||||
|
Total
stockholders' deficit
|
(169,154
|
)
|
(189,281
|
)
|
||||
|
Noncontrolling
interest
|
-
|
7,031
|
||||||
|
Total
deficit
|
(169,154
|
)
|
(182,250
|
)
|
||||
|
Total
liabilities, preferred stock and stockholders’
deficit
|
$
|
790,503
|
$
|
852,594
|
||||
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
||||||||
|
Consolidated
Statements of Operations
|
|||||||||||||
|
Year
Ended December 31,
|
|||||||||||||
|
2009
|
2008
|
2007
|
|||||||||||
|
(in
thousands, except per share data)
|
|||||||||||||
|
Net
revenues
|
$
|
339,474
|
$
|
399,814
|
$
|
395,910
|
|||||||
|
Operating
costs and expenses:
|
|||||||||||||
|
Direct
operating
|
106,611
|
118,483
|
116,611
|
||||||||||
|
Selling,
general and administrative
|
102,923
|
115,287
|
114,741
|
||||||||||
|
Amortization
of program rights
|
24,631
|
23,946
|
24,646
|
||||||||||
|
Corporate
|
18,090
|
20,340
|
21,706
|
||||||||||
|
Depreciation
|
30,365
|
29,713
|
30,847
|
||||||||||
|
Amortization
of intangible assets
|
649
|
264
|
2,049
|
||||||||||
|
Impairment
of goodwill, broadcast licenses and broadcast
equipment
|
39,894
|
1,029,238
|
-
|
||||||||||
|
Restructuring
charge (benefit)
|
498
|
12,902
|
(74
|
)
|
|||||||||
|
(Gain)
loss from asset dispositions
|
(6,300
|
)
|
2,062
|
(24,973
|
)
|
||||||||
|
Operating
income (loss)
|
22,113
|
(952,421
|
)
|
110,357
|
|||||||||
|
Other
(income) expense:
|
|||||||||||||
|
Interest
expense, net
|
44,286
|
54,635
|
64,249
|
||||||||||
|
Share
of loss (income) in equity investments
|
6,128
|
52,703
|
(2,091
|
)
|
|||||||||
|
(Gain)
loss on derivative instruments
|
(208
|
)
|
(105
|
)
|
223
|
||||||||
|
(Gain)
loss on extinguishment of debt
|
(50,149
|
)
|
(8,822
|
)
|
855
|
||||||||
|
Other,
net
|
(1,344
|
)
|
1,720
|
366
|
|||||||||
|
Total
other (income) expense, net
|
(1,287
|
)
|
100,131
|
63,602
|
|||||||||
|
Income
(loss) from continuing operations before provision for (benefit from)
income taxes
|
23,400
|
(1,052,552
|
)
|
46,755
|
|||||||||
|
Provision
for (benefit from) income taxes
|
13,841
|
(222,165
|
)
|
18,212
|
|||||||||
|
Income
(loss) from continuing operations
|
9,559
|
(830,387
|
)
|
28,543
|
|||||||||
|
Discontinued
operations:
|
|||||||||||||
|
(Loss)
income from discontinued operations, net of gain from the sale of
discontinued operations of $11 in 2009, and net of (benefit from)
provision for income taxes of $(628), $296 and $(3,308) for the year ended
December 31, 2009, 2008 and 2007, respectively
|
(446
|
)
|
23
|
2,973
|
|||||||||
|
Gain
from the sale of discontinued operations, net of provision for income
taxes of $2,619 for the year ended December 31, 2007
|
-
|
-
|
22,166
|
||||||||||
|
Net
income (loss)
|
$
|
9,113
|
$
|
(830,364
|
)
|
$
|
53,682
|
||||||
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
|||||||||||||
|
Consolidated
Statements of Stockholders' Equity (Deficit) and Comprehensive Income
(Loss)
|
||||||||||||||||||||||||||||||||||||||||
| (in thousands, except share data) | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
Common
Stock
|
||||||||||||||||||||||||||||||||||||||||
|
Total
Equity (Deficit)
|
Shares
|
Amount |
Investment
in Parent Company's Common Stock, at cost
|
Additional
Paid-In Capital
|
Accumulated Deficit |
Accumulated
Other Comprehensive Loss
|
Total
Stockholders' Equity (Deficit)
|
Noncontrolling
Interest
|
Comprehensive
(Loss) Income
|
|||||||||||||||||||||||||||||||
|
Balance
at December 31, 2006
|
$ | 599,034 | 1,000 | $ | - | $ | (18,005 | ) | $ | 1,087,921 | $ | (462,408 | ) | $ | (18,787 | ) | $ | 588,721 | $ | 10,313 | ||||||||||||||||||||
|
Amortization
of prior service cost, net of tax of $49
|
76 | - | - | - | - | - | 76 | 76 | - | $ | 76 | |||||||||||||||||||||||||||||
|
Amortization
of net loss, net of tax of $3,665
|
5,642 | - | - | - | - | - | 5,642 | 5,642 | - | 5,642 | ||||||||||||||||||||||||||||||
|
Unrealized
loss on cash flow hedges, net of tax of $970
|
(1,503 | ) | - | - | - | - | - | (1,503 | ) | (1,503 | ) | - | (1,503 | ) | ||||||||||||||||||||||||||
|
Recognition
of accumulated benefit obligation for discontinued
operations
|
419 | - | - | - | - | - | 419 | 419 | - | 419 | ||||||||||||||||||||||||||||||
|
Exercises
of stock options under employee compensation plans
|
2,064 | - | - | - | 2,064 | - | - | 2,064 | - | |||||||||||||||||||||||||||||||
|
Tax
benefit from stock exercises
|
778 | - | - | - | 778 | - | - | 778 | - | |||||||||||||||||||||||||||||||
|
Stock-based
compensation, continuing operations
|
6,171 | - | - | - | 6,171 | - | - | 6,171 | - | |||||||||||||||||||||||||||||||
|
Stock-based
compensation, discontinued operations
|
48 | - | - | - | 48 | - | - | 48 | - | |||||||||||||||||||||||||||||||
|
Net
income (loss)
|
52,415 | - | - | - | - | 53,682 | - | 53,682 | (1,267 | ) | 53,682 | |||||||||||||||||||||||||||||
|
Comprehensive
income - 2007
|
$ | 58,316 | ||||||||||||||||||||||||||||||||||||||
|
Balance
at December 31, 2007
|
$ | 665,144 | 1,000 | $ | - | $ | (18,005 | ) | $ | 1,096,982 | $ | (408,726 | ) | $ | (14,153 | ) | $ | 656,098 | $ | 9,046 | ||||||||||||||||||||
|
Amortization
of prior service cost, net of tax of $49
|
76 | - | - | - | - | - | 76 | 76 | - | 76 | ||||||||||||||||||||||||||||||
|
Amortization
of net loss, net of tax of $12,595
|
(18,935 | ) | - | - | - | - | - | (18,935 | ) | (18,935 | ) | - | (18,935 | ) | ||||||||||||||||||||||||||
|
Unrealized
loss on cash flow hedges, net of tax $1,076
|
(1,622 | ) | - | - | - | - | - | (1,622 | ) | (1,622 | ) | - | (1,622 | ) | ||||||||||||||||||||||||||
|
Exercises
of stock options under employee compensation plans
|
1,303 | - | - | - | 1,303 | - | - | 1,303 | - | |||||||||||||||||||||||||||||||
|
Tax
provision from stock exercises
|
(361 | ) | - | - | - | (361 | ) | - | - | (361 | ) | - | ||||||||||||||||||||||||||||
|
Stock-based
compensation, continuing operations
|
4,514 | - | - | - | 4,514 | - | 4,514 | - | ||||||||||||||||||||||||||||||||
|
Stock-based
compensation, discontinued operations
|
10 | - | - | - | 10 | - | 10 | - | ||||||||||||||||||||||||||||||||
|
Net
loss
|
(832,379 | ) | - | - | - | - | (830,364 | ) | (830,364 | ) | (2,015 | ) | (830,364 | ) | ||||||||||||||||||||||||||
|
Comprehensive
loss - 2008
|
$ | (850,845 | ) | |||||||||||||||||||||||||||||||||||||
|
Balance
at December 31, 2008
|
$ | (182,250 | ) | 1,000 | $ | - | $ | (18,005 | ) | $ | 1,102,448 | $ | (1,239,090 | ) | $ | (34,634 | ) | $ | (189,281 | ) | $ | 7,031 | ||||||||||||||||||
|
Amortization
of prior service cost, net of tax of $184
|
283 | - | - | - | - | - | 283 | 283 | - | 283 | ||||||||||||||||||||||||||||||
|
Amortization
of net loss, net of tax of $3,593
|
5,208 | - | - | - | - | - | 5,208 | 5,208 | - | 5,208 | ||||||||||||||||||||||||||||||
|
Pension
liability adjustment, net of tax
|
(20 | ) | - | - | - | - | - | (20 | ) | (20 | ) | - | (20 | ) | ||||||||||||||||||||||||||
|
Unrealized gain
on cash flow hedges, net of tax of $858
|
1,246 | - | - | - | - | - | 1,246 | 1,246 | - | 1,246 | ||||||||||||||||||||||||||||||
|
Issuance
of treasury stock (See Note 2 - "Acquisitions")
|
2,055 | - | - | 2,055 | - | - | - | 2,055 | - | |||||||||||||||||||||||||||||||
|
Loss
on issuance of treasury stock
|
- | 8,081 | (8,081 | ) | - | - | - | |||||||||||||||||||||||||||||||||
|
Tax
provision from stock exercises
|
(171 | ) | - | - | - | (171 | ) | - | - | (171 | ) | - | ||||||||||||||||||||||||||||
|
Stock-based
compensation
|
2,413 | - | - | - | 2,413 | - | - | 2,413 | - | |||||||||||||||||||||||||||||||
|
Distribution
to minority shareholders
|
(2,644 | ) | - | - | - | - | - | - | - | (2,644 | ) | |||||||||||||||||||||||||||||
|
Net
income (loss)
|
4,726 | - | - | - | - | 9,113 | - | 9,113 | (4,387 | ) | 9,113 | |||||||||||||||||||||||||||||
|
Comprehensive
income - 2009
|
$ | 15,830 | ||||||||||||||||||||||||||||||||||||||
|
Balance
at December 31, 2009
|
$ | (169,154 | ) | 1,000 | $ | - | $ | (7,869 | ) | $ | 1,104,690 | $ | (1,238,058 | ) | $ | (27,917 | ) | $ | (169,154 | ) | $ | - | ||||||||||||||||||
|
The
accompanying notes are an integral part of the consolidated financial
statements
|
||||||||||||||||||||||||||||||||||||||||
|
Consolidated
Statements of Cash Flows
|
||||||||||||
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008 |
2007
|
||||||||||
|
OPERATING
ACTIVITIES:
|
(in
thousands)
|
|||||||||||
|
Net
income (loss)
|
$ | 9,113 | $ | (830,364 | ) | $ | 53,682 | |||||
|
Loss
(income) from discontinued operations
|
446 | (23 | ) | (2,973 | ) | |||||||
|
Gain
from sale of discontinued operations
|
- | - | (22,166 | ) | ||||||||
|
Adjustment
to reconcile net income (loss) to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
|
30,365 | 29,713 | 30,847 | |||||||||
|
Amortization
of intangible assets
|
649 | 264 | 2,049 | |||||||||
|
Impairment
of goodwill, broadcast licenses and broadcast
equipment
|
39,894 | 1,029,238 | - | |||||||||
|
Amortization
of financing costs and note discounts
|
4,273 | 5,860 | 8,608 | |||||||||
|
Amortization
of program rights
|
24,631 | 23,946 | 24,646 | |||||||||
|
Program
payments
|
(25,005 | ) | (26,854 | ) | (27,604 | ) | ||||||
|
(Gain)
loss on extinguishment of debt
|
(50,149 | ) | (8,822 | ) | 855 | |||||||
|
(Gain)
loss on derivative investments
|
(208 | ) | (105 | ) | 223 | |||||||
|
Share
of loss (income) in equity investments
|
6,128 | 52,703 | (2,091 | ) | ||||||||
|
Deferred
income taxes, net
|
18,274 | (235,856 | ) | 18,875 | ||||||||
|
Stock-based
compensation
|
2,413 | 4,523 | 5,859 | |||||||||
|
(Gain)
loss from asset disposition
|
(6,300 | ) | 2,062 | (24,973 | ) | |||||||
|
Other,
net
|
(159 | ) | (2,636 | ) | 1,282 | |||||||
|
Changes
in operating assets and liabilities, net of acquisitions and
disposals:
|
||||||||||||
|
Accounts
receivable
|
(3,857 | ) | 21,304 | 1,927 | ||||||||
|
Other
assets
|
1,169 | 4,405 | 1,842 | |||||||||
|
Accounts
payable
|
(2,839 | ) | (3,427 | ) | 3,327 | |||||||
|
Accrued
interest expense
|
(918 | ) | (483 | ) | (126 | ) | ||||||
|
Other
liabilities and accrued expenses
|
(20,573 | ) | 19,587 | (18,582 | ) | |||||||
|
Net
cash provided by operating activities, continuing
operations
|
27,347 | 85,035 | 55,507 | |||||||||
|
Net
cash used in operating activities, discontinued
operations
|
(101 | ) | (1,239 | ) | (12,791 | ) | ||||||
|
Net
cash provided by operating activities
|
27,246 | 83,796 | 42,716 | |||||||||
|
INVESTING
ACTIVITIES:
|
||||||||||||
|
Capital
expenditures
|
(10,247 | ) | (28,537 | ) | (25,290 | ) | ||||||
|
Cash
paid for broadcast licenses
|
(7,561 | ) | - | - | ||||||||
|
Payments
for business combinations, net of cash acquired
|
(1,236 | ) | - | (52,250 | ) | |||||||
|
Change
in restricted cash
|
(2,000 | ) | - | - | ||||||||
|
Distributions
from equity investments
|
- | 2,649 | 3,113 | |||||||||
|
Proceeds
from sale of other operating assets and 700 MHz
licenses
|
783 | - | 39,250 | |||||||||
|
Other
investments, net
|
- | 2,167 | (620 | ) | ||||||||
|
Net
cash used in investing activities, continuing
operations
|
(20,261 | ) | (23,721 | ) | (35,797 | ) | ||||||
|
Net
cash provided by (used in) investing activities, discontinued
operations
|
5,875 | (734 | ) | 138,844 | ||||||||
|
Net
cash (used in) provided by investing activities
|
(14,386 | ) | (24,455 | ) | 103,047 | |||||||
|
FINANCING
ACTIVITIES:
|
||||||||||||
|
Net
proceeds on exercises of employee and director stock based
compensation
|
- | 1,301 | 2,064 | |||||||||
|
Proceeds
from borrowings on long-term debt
|
91,000 | 165,000 | 60,000 | |||||||||
|
Principal
payments on long-term debt
|
(106,379 | ) | (244,335 | ) | (180,125 | ) | ||||||
|
Payments
of long-term debt financing costs
|
(3,838 | ) | (1,232 | ) | - | |||||||
|
Net
cash used in financing activities, continuing
operations
|
(19,217 | ) | (79,266 | ) | (118,061 | ) | ||||||
|
Net
cash used in financing activities, discontinued
operations
|
(2,644 | ) | - | - | ||||||||
|
Net
cash used in financing activities
|
(21,861 | ) | (79,266 | ) | (118,061 | ) | ||||||
|
Net
(decrease) increase in cash and cash equivalents
|
(9,001 | ) | (19,925 | ) | 27,702 | |||||||
|
Cash
and cash equivalents at the beginning of the period
|
20,106 | 40,031 | 12,329 | |||||||||
|
Cash
and cash equivalents at the end of the period
|
$ | 11,105 | $ | 20,106 | $ | 40,031 | ||||||
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
||||||||||||
Notes
to Consolidated Financial Statements
Note 1 —
Basis of Presentation and Summary of Significant Accounting
Policies
LIN
Television Corporation (“LIN Television”), together with its subsidiaries,
is a 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 Corporation and all subsidiaries included in our consolidated
financial statements. LIN Television is a wholly-owned subsidiary of LIN TV
Corp. ("LIN TV").
All of
the consolidated wholly-owned subsidiaries of LIN Television fully and
unconditionally guarantee the Company’s Senior Credit Facility, 6½% Senior
Subordinated Notes and 6½% Senior Subordinated Notes – Class B on a
joint-and-several basis.
Our
consolidated financial statements reflect the operations of the Puerto Rico
stations and the operations, assets and liabilities of Banks Broadcasting, Inc.
(“Banks Broadcasting”) as discontinued for all periods presented. The assets and
liabilities of Banks Broadcasting are shown as discontinued effective
September 30, 2007 and our Puerto Rico stations were sold in 2007 (See
Note 3 — “Discontinued Operations” for further discussion of our
discontinued operations.)
The
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States. Certain changes
in classifications have been made to the prior period financial statements to
conform to the current financial statement presentation. Our significant
accounting policies are described below.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business.
Financial
Condition
We have
experienced significant operating losses since our inception and we have a
stockholders’ deficit as of December 31, 2009. The economic downturn
and credit crisis had a significant impact on the demand for advertising within
the markets in which our stations operate. Based on our projections for 2010,
which we believe use reasonable assumptions regarding the current economic
environment, we estimate that cash flows from our operations, together with cash
available under our revolving credit facility, will be sufficient to fund our
cash requirements over the next 12 months, including scheduled interest and
required principal payments on our outstanding indebtedness and planned capital
expenditures and projected working capital needs. In addition, based
on our projections, we believe that we will remain in compliance with the
financial covenants in our credit agreement over the next four
quarters. We cannot assure, however, that our projections will be
realized and actual results may differ materially.
Our
operating plan for the next 12 months requires that we generate cash from
operations, utilize available borrowings, and make certain repayments of
indebtedness, including mandatory repayments of term loans under our credit
facility. Our ability to borrow under our revolving credit facility is
contingent on our compliance with certain financial covenants, which are
measured, in part, by the level of earnings before interest expense, taxes,
depreciation and amortization (“EBITDA”) we generate from our
operations. During the six months ended June 30, 2009, we experienced
declines in revenues compared to the same periods in 2008, which were in excess
of our original 2009 plan. As a result, and to address continued
compliance with the financial covenants in our credit agreement, on July 31,
2009 we entered into an Amended and Restated Credit Agreement (the “Amended
Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent, and
banks and financial institutions party thereto. Our ability to sustain
compliance with the Amended Credit Agreement requires, during
2010, a reduction in our consolidated leverage ratio and our
consolidated senior leverage ratio, and an increase in our consolidated interest
coverage ratio, as more fully described in Note 7 –
“Debt”.
Our joint
venture with NBC Universal has been adversely impacted by the current economic
downturn. The joint venture distributed no cash to NBC Universal and
us during the year ended December 31, 2009 and used approximately $14.9 million
of the existing debt service cash reserves, leaving approximately $0.2 million
available.
In light
of the adverse effect of the economic downturn on the joint venture’s operating
results, in 2009 we entered into the Original Shortfall Funding Agreement with
NBC Universal, which provided that: a) we and NBC waived the requirement that
the joint venture maintain debt service reserve cash balances of at least $15
million; b) the joint venture would use a portion of its existing debt service
reserve cash balances to fund interest payments in 2009; c) NBC agreed to defer
its receipt of 2008 and 2009 management fees; and d) we agreed that if the joint
venture does not have sufficient cash to fund interest payments on the GECC Note
through April 1, 2010, we and NBC Universal would each provide the joint venture
with a shortfall loan on the basis of our percentage of economic interest in the
joint venture. As of March 15, 2010, we have not yet provided any
funding under the Original Shortfall Funding Agreement.
Because
of anticipated future shortfalls at the joint venture, on March 9, 2010, NBC
Universal and we entered into the 2010 Shortfall Funding Agreement covering the
period through April 1, 2011. Under the terms of the 2010 Shortfall
Funding Agreement: a) the joint venture may continue to access any portion of
its existing debt service reserve cash balances to fund interest payments; b)
NBC will continue to defer the payment of 2008 and 2009 management fees and
defer payment of 2010 management fees through March 31, 2011; and c) we agreed
that if the joint venture does not have sufficient cash to fund interest
payments on the GECC Note through April 1, 2011, we and NBC Universal would each
provide the joint venture with a shortfall loan on the basis of our percentage
of economic interest in the joint venture.
As of
December 31, 2009, we have accrued $6.0 million for our probable and estimable
obligations under these agreements, and due to uncertainity surrounding the
joint venture's ability to repay the shortfall loans, concurrent with the
recognition of these liabilities we have impaired the loans, resulting in a $6.0
million charge recognized in share of loss (income) in equity investments
in our consolidated statement of operations for the year ended December 31,
2009. For further details on the timing of debt service shortfalls and our
recognition of liabilities under both the Original Shortfall Funding Agreement
and the 2010 Shortfall Funding Agreement see Note 14 – “Commitments and
Contingencies”.
Principles
of consolidation
The
accompanying consolidated financial statements include the accounts of our
Company and its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions have been eliminated. We conduct our
business through our subsidiaries and have no operations or assets other than
our investment in our subsidiaries and equity-method investments. We operate in
one reportable segment.
Our 50
percent interest in the Banks Broadcasting joint venture was consolidated in our
financial statements effective March 31, 2004 because we were the primary
beneficiary of this variable interest entity (see Note 3 – “Discontinued
Operations” for further discussion of Banks Broadcasting).
Use
of estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires our management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
the notes thereto. Our actual results could differ from these estimates.
Estimates are used when accounting for the collectability of receivables,
valuation of intangible assets, equity investments, deferred tax valuation
allowances, amortization and valuation of program rights, stock-based
compensation, pension costs, barter transactions and net assets of businesses
acquired.
Cash
and cash equivalents
Cash
equivalents consist of highly liquid, short-term investments that have an
original maturity of three months or less when purchased. Our excess cash is
invested primarily in short-term U.S. Government securities and money
market funds. We had no material losses on our cash or cash equivalents
during fiscal 2009. All available cash is on deposit with banking institutions
that we believe to be financially sound. We maintain a $2.0 million compensating
balance related to a line of credit with one of our creditors, which has been
classified as restricted cash in our consolidated balance sheet.
Property
and equipment
Property
and equipment is recorded at cost and is depreciated using the straight-line
method over the estimated useful lives of the assets, an average of 30 to
40 years for buildings and fixtures, and 3 to 15 years for broadcast
and other equipment. Upon retirement or other disposition, the cost and related
accumulated depreciation of the assets are removed from the accounts and the
resulting gain or loss is included in consolidated net income or loss.
Expenditures for maintenance and repairs, including expenditures for planned
major maintenance activities, are expensed as incurred. We review our
property and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable.
Nonmonetary
exchanges
We
exchange productive assets, such as broadcast equipment, with third parties
through nonmonetary exchanges. We recognize gains or losses on nonmonetary
exchanges in an amount equal to the difference between the fair value of the
assets received and the fair value of the assets surrendered.
Equity
investments
Equity
investments that we do not have a controlling interest in are accounted for
using the equity method. Our share of the net loss or income for these
investments, including any equity investment impairments, is included in share
of loss (income) from equity investments on our consolidated statement of
operations. We review our interest in our equity investments for impairment if
there is a series of operating losses or other factors that may indicate that
there is a decrease in the value of our investment that is other than
temporary.
Revenue
recognition
We
recognize advertising and other program-related revenue during the period in
which advertising or programs are aired on our television stations or carried by
our Internet web sites or the web sites of our advertiser network. We recognize
retransmission consent fees in the period in which these services are
performed.
Barter
transactions
We
account for barter transactions at the fair value of the goods or services we
receive from our customers, or the advertising time provided, whichever is more
clearly indicative of fair value based on the judgment of our management. We
record barter advertising revenue at the time the advertisement is aired and
barter expense at the time the goods or services are used. We account for barter
programs at fair value based on a calculation using the actual cash
advertisements we sell within barter programs multiplied by one minus the
program profit margin for similar syndicated programs where we pay cash to
acquire the program rights. We record barter program revenue and expense when we
air the barter program. We do not record barter revenue or expenses related to
network programs. Barter revenue and expense included in the consolidated
statements of operations are as follows (in thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Barter
revenue
|
$
|
4,777
|
$
|
4,812
|
$
|
8,047
|
||||||
|
Barter
expense
|
(4,932
|
)
|
(5,016
|
)
|
(7,667
|
)
|
||||||
|
$
|
(155
|
)
|
$
|
(204
|
)
|
$
|
380
|
|||||
Advertising
expense
Advertising
costs are expensed as incurred. We incurred advertising costs in the amounts of
$3.2 million, $5.5 million and $6.1 million in the years ended
December 31, 2009, 2008 and 2007, respectively.
Intangible
assets
Intangible
assets primarily include broadcast licenses, network affiliations, customer
relationships, acquired internal use software, non-compete agreements and
goodwill.
We test
the impairment of our broadcast licenses annually or whenever events or changes
in circumstances indicate that such assets might be impaired. The impairment
test consists of a comparison of the fair value of broadcast licenses with their
carrying amount on a station-by-station basis using a discounted cash-flow
valuation method, assuming a hypothetical start-up scenario. The future value of
our broadcast licenses could be significantly impaired by the loss of the
corresponding network affiliation agreements. Accordingly, such an event could
trigger an assessment of the carrying value of a broadcast license.
We test
the impairment of goodwill annually or whenever events or changes in
circumstances indicate that goodwill might be impaired. The first step of the
goodwill impairment test compares the fair value of a station with its carrying
amount, including goodwill. The fair value of a station is determined through
the use of a discounted cash flow analysis. The valuation assumptions used in
the discounted cash flow model reflect historical performance of the station and
prevailing values in the markets for broadcasting properties. If the fair value
of the station exceeds its carrying amount, goodwill is not considered impaired.
If the carrying amount of the station exceeds its fair value, the second step of
the goodwill impairment test is performed to measure the amount of impairment
loss, if any. The second step of the goodwill impairment test compares the
implied fair value of goodwill with the carrying amount of that goodwill. The
implied fair value of goodwill is determined by performing a hypothetical
purchase price allocation, using the station’s fair value (as determined in step
one) as the purchase price. If the carrying amount of goodwill exceeds the
implied fair value, an impairment charge is recognized in an amount equal to
that excess, but not more than the carrying value of the goodwill. An impairment
assessment could be triggered by a significant reduction, or a forecast of such
reductions, in operating results or cash flows at one or more of our television
stations, a significant adverse change in the national or local advertising
marketplaces in which our television stations operate, or by adverse changes to
Federal Communications Commission (“FCC”) ownership rules, among other
factors. We recorded impairment charges during 2009 and 2008, which
are more fully described in Note 6 - "Intangible Assets".
Long
lived-assets
We
periodically evaluate the net realizable value of long-lived assets, including
tangible and intangible assets, relying on a number of factors including
operating results, business plans, economic projections and anticipated future
cash flows. Impairment in the carrying value of an asset is recognized when the
expected future operating cash flow derived from the asset is less than its
carrying value.
Program
rights
Program
rights are recorded as assets when the license period begins and the programs
are delivered to our stations for broadcasting, at the gross amount of the
related obligations. Costs incurred in connection with the purchase of programs
to be broadcast within one year are classified as current assets, while costs of
those programs to be broadcast subsequently are considered non-current. The
program costs are charged to operations over their estimated broadcast periods
using the straight-line method.
If the
projected future net revenues associated with a program are less than the
current carrying value of the program rights (i.e. due to poor ratings), we
would be required to write-down the program rights assets to equal the amount of
projected future net revenues. If the actual usage of the program rights is on a
more accelerated basis than straight-line over the life of the contract, we
would be required to write-down the program rights to equal the lesser of the
amount of projected future net revenues or the average revenue per run
multiplied by the number of remaining runs. We recorded no
impairments to our program rights during 2009, 2008 or 2007.
Program
obligations are classified as current or non-current in accordance with the
payment terms of the license agreement.
Stock-based
compensation
At
December 31, 2009, LIN TV had three stock-based employee compensation
plans, which are described more fully in Note 8 – “Stock-Based
Compensation”. We estimate the fair value of stock-based awards using a
Black-Scholes valuation model. The Black-Scholes model requires us to make
assumptions and judgments about the variables used in the calculation, including
the option’s expected life, the price volatility of the underlying stock and the
number of stock-based awards that are expected to be forfeited. The expected
life represents the weighted average period of time that options granted are
expected to be outstanding giving consideration to vesting schedules and our
historical exercise patterns. Price volatility is based on historical trends for
our class A common stock and the common stock of peer group companies engaged in
the broadcasting business. Expected forfeitures are estimated using our
historical experience. If future changes in estimates differ significantly from
our current estimates, our future stock-based compensation expense and results
of operations could be materially impacted.
The
following table presents the stock-based compensation expense included in the
consolidated statements of operations
(in thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Direct
operating
|
$
|
308
|
$
|
536
|
$
|
653
|
||||||
|
Selling,
general and administrative
|
586
|
1,057
|
1,348
|
|||||||||
|
Corporate
|
1,519
|
2,930
|
3,858
|
|||||||||
|
Stock-based
compensation expense before tax
|
2,413
|
4,523
|
5,859
|
|||||||||
|
Income
tax benefit (at 35% statutory rate)
|
(845
|
)
|
(1,583
|
)
|
(2,051
|
)
|
||||||
|
Net
stock-based compensation expense
|
$
|
1,568
|
$
|
2,940
|
$
|
3,808
|
||||||
Income
taxes
Deferred
income taxes are recognized based on temporary differences between the financial
statement and the tax basis of assets and liabilities using statutory tax rates
in effect in the years in which the temporary differences are expected to
reverse. A valuation allowance is applied against net deferred tax assets if it
is determined that it is more likely than not that some or all of the deferred
tax assets will not be realized. When accounting for uncertainty in income taxes
we follow the prescribed recognition threshold and measurement methodology for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. For benefits to be recognized, a tax
position must be more-likely than not to be sustained upon examination by taxing
authorities.
We
recognize interest and penalties related to uncertain tax positions as a
component of income tax expense.
Concentration
of credit risk
Financial
instruments that potentially subject us to concentrations of credit risk consist
principally of cash and cash equivalents, investments and trade receivables.
Concentration of credit risk with respect to cash and cash equivalents and
investments are limited as we maintain primary banking relationships with only
large nationally recognized institutions. We evaluated the viability of these
institutions as of December 31, 2009 and we believe our risk is minimal. Credit
risk with respect to trade receivables is limited, as the trade receivables are
primarily related to advertising revenues generated from a large diversified
group of local and nationally recognized advertisers and advertising agencies.
We do not require collateral or other security against trade receivable
balances, however, we do maintain reserves for potential bad debt losses, which
are based on historical bad debt write-offs, and such reserves and bad debts
have been within management’s expectations for all years presented.
Additionally,
management performs a quarterly assessment of the critical terms of the interest
rate hedge including, among other matters, an assessment of the counterparties’
creditworthiness. Based on our assessment at December 31, 2009, we do
not believe there is a significant risk associated with the creditworthiness of
our interest rate hedge counterparty.
If we
incur additional indebtedness or amend or replace our current indebtedness,
current volatility within the credit markets may impact our ability to refinance
our debt or to refinance our debt on terms similar to our existing debt
agreements.
Fair
value of financial instruments
Certain
financial instruments, including cash and cash equivalents, investments,
accounts receivable and accounts payable are carried in the consolidated
financial statements at amounts that approximate fair value. For certain
financial assets and liabilities recorded at fair value on a recurring basis we
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. For more information on our assets
and liabilities measured at fair value using the prescribed three level fair
value hierarchy see Note 9 - "Fair Value Measurement".
Derivative
financial instruments
Derivatives
are required to be recorded as assets or liabilities and measured at fair value.
Gains or losses resulting from changes in the fair values of derivatives are
recognized immediately or deferred, depending on the use of the derivative and
whether or not it qualifies as a hedge. We presently use derivative financial
instruments in the management of our interest rate exposure for our long-term
debt, principally our credit facility. We do not use derivative financial
instruments for trading purposes.
Retirement
plans
We have a
defined benefit retirement plan covering certain of our employees. Our pension
benefit obligations and related costs are calculated using prescribed actuarial
concepts. Additionally, we record the unfunded status of our plan on
our consolidated balance sheet.
Recently
issued accounting pronouncements
In
December 2009, the FASB issued ASU 2009-17 “Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities” (“ASU 2009-17”). ASU 2009-17 is effective for
interim and annual reporting periods beginning after November 15,
2009. ASU 2009-17 amends the Codification to include the amendments
prescribed by Financial Accounting Standard (“FAS”) 167, “Amendments to FASB
Interpretation No. 46(R)”, which amends certain guidance in FIN 46(R) to
eliminate the exemption for special purpose entities, require a new qualitative
approach for determining who should consolidate a variable interest entity and
change the requirement for when to reassess who should consolidate a variable
interest entity. We adopted ASU 2009-17 effective January 1, 2010, and it
did not have a material impact on our financial position or results of
operations.
In
December 2009, the FASB issued ASU 2009-15
“Transfers and Servicing (Topic 860): Accounting for Transfers of
Financial Assets” (“ASU 2009-15”). ASU 2009-15 is effective for interim and
annual reporting periods beginning after November 15, 2009 and must be applied
to transfers occurring on or after the effective date. ASU 2009-15
amends the Codification to include the amendments prescribed by FAS 166 “Accounting for Transfers of Financial
Assets—an amendment of FASB Statement No. 140”, which clarifies that the
objective of paragraph 9 of Statement 140 is to determine whether a transferor
and all of the entities included in the transferor’s financial statements being
presented have surrendered control over transferred financial assets. We
adopted FAS 166 effective January 1, 2010, and it did not have a material impact
on our financial position or results of operations.
In
October 2009, the FASB issued ASU 2009-13 “Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging
Issues Task Force” (“ASC 605-25”). ASC 605-25 is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. ASC 605-25 addresses how to separate
deliverables and how to measure and allocate arrangement consideration to one or
more units of accounting. We plan to adopt ASC 605-25 effective January 1, 2011,
and we do not expect it to have a material impact on our financial position or
results of operations.
In August
2009, the FASB issued ASU 2009-05 “Measuring Liabilities at Fair Value” (“ASC
820-10”). ASC 820-10 is effective for the first reporting period, including
interim periods, beginning after issuance. ASC 820-10 clarifies the application
of certain valuation techniques in circumstances in which a quoted price in an
active market for the identical liability is not available and clarifies that
when estimating the fair value of a liability, the fair value is not adjusted to
reflect the impact of contractual restrictions that prevent its transfer. ASC
820-10 became effective for us on October 1, 2009. We adopted ASC
820-10 effective September 30, 2009, and it did not have a material impact on
our financial position or results of operations.
In April
2009, the FASB issued ASC 825-10, “Interim Disclosures about Fair Value of
Financial Instruments” (“ASC 825-10”), which requires public entities to
disclose in their interim financial statements the fair value of all financial
instruments within the scope of FASB Statement No. 107, “Disclosures about Fair
Value of Financial Instruments”, as well as the method(s) and significant
assumptions used to estimate the fair value of those financial
instruments. The adoption of ASC 825-10 had no impact on our
financial position or results of operations.
Also in
April 2009, the FASB issued ASC 320-10, “Recognition and Presentation of
Other-Than-Temporary Impairments” (“ASC 320-10”), to change the method for
determining whether an other-than-temporary impairment exists for debt
securities and the amount of an impairment charge to be recorded in earnings.
ASC 320-10 also requires enhanced disclosures, including the Company’s
methodology and key inputs used for determining the amount of credit losses
recorded in earnings. We adopted ASC 320-10 during the second quarter of 2009
and the adoption had no impact on our financial position or results of
operations.
Effective
January 1, 2009, the Company adopted ASC 805-10, “Business Combinations” (“ASC
805-10”). ASC 805-10 establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed and any non-controlling interest in the
acquiree; how the acquirer recognizes and measures the goodwill acquired in a
business combination; and how the acquirer determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. We have applied the provisions of
ASC 805-10 to our acquisition of RMM and the appropriate disclosures are
included in Note 2 – “Acquisitions”.
In
December 2008, the FASB issued ASC 715-10, “Employers’ Disclosures about
Postretirement Benefit Plan Assets” (“ASC 715-20”). ASC 715-20 is effective for
fiscal years ending after December 15, 2009. ASC 715-20 increases disclosure
requirements related to an employer’s defined benefit pension or other
postretirement plans. We adopted the provisions of ASC 715-10 by
including the required additional financial statement disclosures as of December
31, 2009 in Note 11 – “Retirement Plans”. The adoption of ASC 715-10 had
no impact on our financial position or results of operations.
In
November 2008, the FASB issued ASC 605-25, “Revenue Arrangements with Multiple
Deliverables” (“ASC 605-25”). ASC 605-25 is effective for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
December 31, 2009 and shall be applied on a prospective
basis. Earlier application is permitted as of the beginning of a
fiscal year. ASC 605-25 addresses some aspects of the accounting by a vendor for
arrangements under which it will perform multiple revenue-generating activities.
We plan to adopt these aspects of ASC-605-25 effective January 1, 2010, and we
do not expect it to have a material impact on our financial position or results
of operations
Note 2 —
Acquisitions
RMM
On
October 2, 2009, we acquired Red McCombs Media, LP ("RMM"), an online
advertising and media services company based in Austin, Texas. The acquisition
provides us with a national interactive footprint and significantly expands our
multi-platform offerings by providing national online advertising and enhanced
services, including targeted display, rich media, video advertising,
custom-built vertical channels, search engine marketing, search engine
optimization, and mobile marketing. The acquisition was effected through the
merger of RMM with and into Primeland Television, Inc., a wholly owned
subsidiary of LIN Television, which subsequently changed its name to Primeland,
Inc. ("Primeland").
The
following table summarizes the final allocation of the purchase price to the
estimated fair values of the assets acquired and liabilities assumed in the
acquisition:
|
Current
assets
|
$
|
1,852
|
||
|
Non-current
assets
|
6,812
|
|||
|
Goodwill
|
2,773
|
|||
|
Current
liabilities
|
(1,855
|
)
|
||
|
Long-term
debt assumed
|
(2,739
|
)
|
||
|
Total
|
$
|
6,843
|
||
|
Cash
consideration
|
$
|
1,236
|
||
|
Equity
consideration
|
2,056
|
|||
|
Long-term
note to sellers
|
1,957
|
|||
|
Equity
value shortfall amount
|
1,594
|
|||
|
Total
contributed capital
|
$
|
6,843
|
||
As part
of the merger consideration, LIN TV issued 933,610 shares of class A
common stock, from shares held within treasury, to the former owners of
RMM. The class A common stock was issued in a private placement
transaction that was exempt from registration under the Securities Act of 1933,
as amended. The number of shares of class A common stock issued by us to the
sellers is subject to adjustment in the event that the value of the equity
consideration is less than $4.5 million as of the six month anniversary of the
acquisition. If the value of LIN TV's class A common stock as of the
six-month anniversary of the acquisition is less than $4.5 million (such
difference, the “Equity Value Shortfall Amount”), we are obligated, at our
option to: a) issue to the sellers a number of additional shares of our class A
common stock having a value as of the six-month anniversary of the acquisition,
equal to the Equity Value Shortfall Amount; b) make a cash payment to the
sellers in an amount equal to the Equity Value Shortfall Amount; or c) satisfy
the Equity Value Shortfall Amount through any combination of the foregoing we
determine appropriate. In the event that we choose to issue
additional shares of LIN TV's class A common stock to the sellers to satisfy all
or a portion of the Equity Value Shortfall Amount, a final adjustment will be
made at the twelve month anniversary of the acquisition. In the event that the
value of such shares as of the 12-month anniversary of the acquisition is less
than or exceeds the Equity Value Shortfall Amount by at least $0.25 per share,
we are required to make a cash payment to the sellers or the sellers are
required to return shares to us. The merger consideration is also
subject to customary adjustments for working capital and indemnification for
claims against RMM related to the period prior to the merger.
As of the acquisition
date, we classified the Equity Value Shortfall Amount as a current liability,
and estimated the fair value to be $1.6 million, which is based on an
option pricing model reflecting our assumptions about the value that market
participants would place on this liability. Since October 2, 2009, the value of
LIN TV's class A common stock has increased, and as a result the fair value of
the Equity Value Shortfall Amount has decreased to $0.6 million as of December
31, 2009. Therefore, we recorded a gain in other, net of $1.0 million in our
consolidated statement of operations for the year ended December 31, 2009. Under the terms of the
merger agreement, our actual liability could range from zero to $4.5 million,
depending on the fair value of LIN TV's class A common stock as of the six month
and twelve month anniversary dates of the acquisition of April 2, 2010 and
October 2, 2010, respectively.
In
connection with the acquisition, we recognized $2.8 million of goodwill, all of
which is amortizable for tax purposes. The goodwill primarily represents
synergies between us and RMM that we expect to benefit from as a result of
expanded distribution channels provided by RMM’s broad advertising network.
Additionally, we recognized $6.6 million of other finite-lived intangible
assets, all of which are amortizable for tax purposes, and are primarily
comprised of advertiser relationships, completed technology and management
non-compete agreements.
Additionally,
in connection with the acquisition we entered into an incentive compensation
arrangement with certain key members of management. The arrangement
provides payments to those employees based on the EBITDA generated by RMM during
2012. Our liability under this arrangement could range from zero to
$24.0 million, and is payable in 2013.
The
following summarizes the activity in acquisition related restructuring
liabilities for the year ended December 31, 2009 and 2008 (in
thousands):
|
Acquisition
Date
|
Balance
as of
December
31, 2008
|
Year
Ended
December
31, 2009
|
Balance
as of
December
31, 2009
|
||||||||||||||
|
Payments
|
Additions
|
||||||||||||||||
|
Stations
acquired from Emmis
|
November
30, 2005
|
$
|
3,605
|
$
|
(1,197
|
)
|
$
|
-
|
$
|
2,408
|
|||||||
|
Acquisition
Date
|
Balance
as of
December
31, 2007
|
Year
Ended
December
31, 2008
|
Balance
as of
December
31, 2008
|
||||||||||||||
|
Payments
|
Adjustments
|
||||||||||||||||
|
Acquisition
of Sunrise Television Corp.
|
May
2, 2002
|
$
|
40
|
$
|
17
|
$
|
(23
|
)
(1)
|
$
|
-
|
|||||||
|
Stations
acquired from Viacom
|
March
31, 2005
|
86
|
87
|
1
|
-
|
||||||||||||
|
Stations
acquired from Emmis
|
November
30, 2005
|
4,644
|
1,039
|
-
|
3,605
|
||||||||||||
|
Station
acquired from Raycom
|
February
22, 2007
|
446
|
357
|
(89
|
)
(2)
|
-
|
|||||||||||
|
$
|
5,216
|
$
|
1,500
|
$
|
(111
|
)
|
$
|
3,605
|
|||||||||
|
(1)
|
Adjustment
for retirement benefits owed in connection with the Sunrise Television
Corp. acquisition.
|
|
(2)
|
Adjustment
to final payout of contract related to master control automation system
related to KASA-TV.
|
Note 3 —
Discontinued Operations
Our
consolidated financial statements reflect the operations of the Puerto Rico
stations and the operations, assets and liabilities of the Banks Broadcasting
joint venture as discontinued for all periods presented.
Out-of-Period
Adjustment
We
discovered during the preparation of our 2007 financial statements a
$3.1 million deferred tax liability, relating to an asset that had been
fully-impaired for the six months ended June 30, 2006, had not been removed
from our deferred tax liabilities as of June 30, 2006 nor was the benefit
realized in our earnings for the six months ended June 30, 2006. The
original asset to which the deferred tax liability related was a fair value
adjustment of $7.7 million initially recorded at March 31, 2004, when
we consolidated the broadcast licenses of Banks Broadcasting because we were the
primary beneficiary of this variable interest entity.
We
concluded that the effect of this $3.1 million adjustment was not material
to the prior year. Accordingly, the 2006 financial statements were not revised.
Instead, this adjustment of $3.1 million was recorded to the income (loss)
from discontinued operations for the year ended December 31, 2007, since we
reflected the operations of Banks Broadcasting as discontinued operations
effective with the filing of our Form 10-Q for the period ended
September 30, 2007.
Banks
Broadcasting
On April
23, 2009, the Banks Broadcasting joint venture completed the sale of KNIN-TV, a
CW affiliate in Boise, for $6.6 million to Journal Broadcast Corporation. As a
result of the sale we received, on the basis of our economic interest in Banks
Broadcasting, a distribution of $2.6 million during the year ended December
31, 2009. The operating loss for the year ended December 31, 2009 includes an
impairment charge of $1.9 million to reduce the carrying value of broadcast
licenses to fair value based on the final sale price of KNIN-TV of $6.6 million.
Net loss included within discontinued operations for the year ended December 31,
2009 reflects our 50% share of net losses of the Banks Broadcasting joint
venture, net of taxes, through the April 23, 2009 disposal date.
Following
the sale of KNIN-TV on April 23, 2009, substantially all of the assets of the
Banks Broadcasting joint venture had been liquidated.
During
the years ended December 31, 2008 and 2007, Banks Broadcasting distributed
$2.5 million and $2.0 million, respectively, in cash to us and we provided
no capital contributions to Banks Broadcasting during the years ended
December 31, 2009, 2008 and 2007. 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. Additionally, in July 2007, Banks
Broadcasting sold the operating assets, including the broadcast license, of
KSCW-TV, a CW affiliate in Wichita, to Sunflower Broadcasting, Inc. for $6.8
million of which $5.4 million was paid in cash at the closing and the remaining
$1.4 million was held in escrow and released in July 2008. Our
consolidated operating results for the third quarter of 2007 included a $0.5
million loss from the sale of KSCW-TV, net of an income tax benefit of $0.4
million.
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 we recorded a gain on the sale of
$22.7 million, net of income tax benefit, in our 2007 operating
results.
The
following presents summarized information for the discontinued
operations as follows (in thousands):
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
||||||||||||||||||
|
Banks
Broadcasting
|
Banks
Broadcasting
|
Puerto
Rico
|
Banks
Broadcasting
|
Total
|
||||||||||||||||
|
Net
revenues
|
$
|
823
|
$
|
2,911
|
$
|
9,868
|
$
|
4,523
|
$
|
14,391
|
||||||||||
|
Operating
(loss) income
|
$
|
(3,141
|
)
|
$
|
736
|
$
|
(1,094
|
)
|
$
|
1,702
|
$
|
608
|
||||||||
|
Net
(loss) income
|
$
|
(446
|
)
|
$
|
23
|
$
|
(368
|
)
|
$
|
3,341
|
$
|
2,973
|
||||||||
Note 4 —
Investments
Joint
Venture with NBC Universal
We own a
20.38 percent interest in Station Venture Holdings, LLC (“SVH”), a joint venture
with NBC Universal, and account for our interest using the equity method as we
do not have a controlling interest. SVH wholly owns Station Venture Operations,
LP (“SVO”), which is the operating company that manages KXAS-TV and KNSD-TV, the
television stations that comprise the joint venture. The following presents the
summarized financial information of SVH (in thousands):
|
Year
Ended December 31,
|
|||||||||||||
|
2009
|
2008
|
2007
|
|||||||||||
|
Cash
distributions to SVH from SVO(1)
|
$
|
51,071
|
$
|
79,144
|
$
|
80,298
|
|||||||
|
Income
to SVH from SVO
|
$
|
31,100
|
$
|
64,101
|
$
|
76,800
|
|||||||
|
Other
expense, net (primarily interest on the GECC note)(2)
|
$
|
(66,146
|
)
|
$
|
(66,146
|
)
|
$
|
(66,146
|
)
|
||||
|
Net
(loss) income of SVH
|
$
|
(35,034
|
)
|
$
|
(1,874
|
)
|
$
|
11,386
|
|||||
|
Cash
distributions from SVH to us
|
$
|
-
|
$
|
2,649
|
$
|
2,344
|
|||||||
|
December
31,
|
|||||||||||||
|
2009
|
2008
|
||||||||||||
|
Cash
and cash equivalents
|
$
|
223
|
$
|
15,104
|
|||||||||
|
Non-current
assets
|
$
|
195,287
|
$
|
215,258
|
|||||||||
|
Current
liabilities
|
$
|
544
|
$
|
362
|
|||||||||
|
Non-current
liabilities (2)
|
$
|
815,500
|
$
|
815,500
|
|||||||||
|
(1)
|
Cash
distributions from equity investments include proceeds of $12.6 million
from the sale of broadcast towers for the year ended December 31,
2008.
|
|
(2)
|
See
Note 14 - "Commitments and Contingencies" for further description of the
General Electric Capital Corporation ("GECC") Note and LIN TV's guarantee
of the GECC Note.
|
During
the year ended December 31, 2009, we did not recognize our 20.38 percent share
of SVH’s net loss, because the investment was written down to zero during the
year ended December 31, 2008 as described below, and accordingly we suspended
recognition of equity method gains and losses.
During
the year ended December 31, 2009, we recognized a contingent liability of $6.0
million based on our estimate of amounts that we expect to loan to the SVH joint
venture pursuant to the Original and 2010 Shortfall Funding Agreements with
NBC Universal, as discussed further in Note 14 – “Commitments and
Contingencies”. Because of uncertainty surrounding the joint
venture’s ability to repay the shortfall loan, we concluded the loan was fully
impaired during 2009. Accordingly, we recognized a charge of $6.0
million, which has been classified as share of loss (income) in equity
investments during the year ended December 31, 2009 to reflect the impairment of
the loan. As of March 15, 2010, we have not yet provided any funding under
these agreements. However, as of March 15, 2010, this $6.0 million
liability continues to reflect our best estimate of probable obligations under
the Original Shortfall Funding Agreement and 2010 Shortfall Funding
Agreement.
During
the fourth quarter of 2008, due to the continued decline in operating profits of
this joint venture, we determined that there was an other-than-temporary
impairment in our investment in the joint venture with NBC
Universal. As a result, and in the absence of the ability to recover
our carrying amount of the investment, we recorded a loss of $53.6 million to
write-off our equity investment in the joint venture, which is included in the
share of loss (income) in equity investment in our consolidated statement of
operations.
WAND(TV)
Partnership
On
November 1, 2007, we sold our 33.33% interest in WAND(TV) Partnership to a
wholly-owned subsidiary of Block Communications, Inc. for $6.8 million in
cash and recorded a gain of approximately $0.7 million.
Prior to
the sale of WAND(TV) Partnership, we accounted for our 33.33% interest using the
equity method, as we did not have a controlling interest. Our management
services agreement with WAND(TV) Partnership, under which we provided specified
management, engineering and related services for a fixed fee, was also
terminated on November 1, 2007. Included in this agreement was a cash management
arrangement under which we incurred expenditures on behalf of WAND(TV)
Partnership and were periodically reimbursed.
The
following presents the summarized financial information of the WAND(TV)
Partnership (in thousands):
|
Nine
Months Ended
November
1, 2007
(Date
of Sale)
|
||||
|
Net
revenues
|
$
|
4,503
|
||
|
Operating
income
|
$
|
358
|
||
|
Net
loss
|
$
|
(307
|
)
|
|
|
Cash
distributions to us
|
$
|
700
|
||
Note 5 —
Property and Equipment
Property
and equipment consisted of the following (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Land
and land improvements
|
$
|
16,075
|
$
|
16,075
|
||||
|
Buildings
and fixtures
|
131,424
|
129,302
|
||||||
|
Broadcast
equipment and other
|
252,597
|
249,989
|
||||||
|
Total
property and equipment
|
400,096
|
395,366
|
||||||
|
Less
accumulated depreciation
|
(235,035
|
)
|
(214,687
|
)
|
||||
|
Property
and equipment, net
|
$
|
165,061
|
$
|
180,679
|
||||
We
recorded depreciation expense of $30.4 million, $29.7 million and
$30.8 million for the years ended December 31, 2009, 2008 and 2007,
respectively.
Under a
Federal Communications Commission (“FCC”) order, we have been exchanging
spectrum with Sprint Nextel, which has been used primarily to send news feeds
via microwave back to the television studios and to send broadcast feeds to
television transmission and tower sites, for new microwave digital
equipment. During the years ended December 31, 2009, 2008 and 2007,
we received $5.5 million, $4.6 million and $1.6 million, respectively, of
equipment pursuant to this exchange. Additionally, during 2009, 2008
and 2007 we recognized a gain of $6.4 million, $0.9 million and zero related to
this equipment, which is recorded in (gain) loss from asset dispositions in
our consolidated statement of operations.
During
2008, we recorded a charge of $8.7 million for the write-off of certain
broadcast assets that have become obsolete as a result of the DTV
transition. The charge has been recorded in impairment of goodwill,
broadcast licenses and broadcast equipment in our consolidated
statement of operations.
Note 6 —
Intangible Assets
The
following table summarizes the carrying amount of each major class of intangible
assets (in thousands):
|
Weighted
Average Remaining Useful Life
(in
years)
|
|||||||||
|
December
31,
|
|||||||||
|
2009
|
2008
|
||||||||
|
Finite-Lived
Intangible Assets:
|
|||||||||
|
LMA
purchase options(1)
|
-
|
$
|
64
|
$
|
64
|
||||
|
Network
affiliations(1)
|
-
|
1,753
|
1,753
|
||||||
|
Customer
relationships
|
7
|
2,489
|
-
|
||||||
|
Non-compete
agreements
|
5
|
1,588
|
-
|
||||||
|
Internal
use software
|
7
|
1,863
|
-
|
||||||
|
Other
intangible assets
|
13
|
6,646
|
5,979
|
||||||
|
Accumulated
amortization
|
(7,327
|
)
|
(6,678
|
)
|
|||||
| Net finite-lived intangible assets |
$
|
7,076
|
$
|
1,118
|
|||||
|
Indefinite-Lived
Intangible Assets:
|
|||||||||
|
Broadcast
licenses
|
$
|
391,801
|
$
|
429,024
|
|||||
|
Goodwill
|
117,259
|
117,159
|
|||||||
|
$
|
509,060
|
$
|
546,183
|
||||||
|
Summary:
|
|||||||||
|
Goodwill
|
$
|
117,259
|
$
|
117,159
|
|||||
|
Broadcast
licenses and finite-lived intangible assets, net
|
398,877
|
430,142
|
|||||||
|
Total
intangible assets
|
$
|
516,136
|
$
|
547,301
|
|||||
|
(1)
|
These
assets are fully amortized and therefore have no remaining useful
life.
|
We
recorded amortization expense of $0.6 million, $0.3 million and
$2.0 million for the years ended December 31, 2009, 2008 and 2007. We
recorded an impairment of our indefinite-lived intangible assets of $39.9
million and $1.0 billion for the years ended December 31, 2009 and
2008.
The
following table summarizes the projected aggregate amortization expense for the
next five years and thereafter (in thousands):
|
Year Ended December
31,
|
||||||||||||||||||||||||||||
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
Total
|
||||||||||||||||||||||
|
Amortization
expense
|
$
|
1,583
|
$
|
1,102
|
$
|
988
|
$
|
986
|
$
|
932
|
$
|
1,485
|
$
|
7,076
|
||||||||||||||
We
recorded an impairment charge of $39.9 million during the second quarter of
2009 that included an impairment to the carrying values of our broadcast
licenses of $37.2 million, relating to 26 of our television stations; and
an impairment to the carrying values of our goodwill of $2.7 million, relating
to two of our television stations. We tested our indefinite-lived intangible
assets for impairment at June 30, 2009, 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. The need for an impairment analysis at
June 30, 2009 was triggered by the continued decline in advertising revenue at
certain of our stations in excess of our original plan, due to the ongoing
effects of the economic downturn, that resulted in downward adjustments to their
respective forecasts. There were no additional
impairment charges recorded as of September 30, 2009 or December 31,
2009.
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. We tested our indefinite-lived intangible
assets for impairment 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; c) the lower growth in
advertising revenues; and d) the decline in the operating profit margins of some
of our stations.
We
recorded an additional impairment charge in the fourth quarter of 2008 of $723.5
million, including a goodwill impairment charge of $309.6 million, relating to 8
of our television stations and to the goodwill related to the NBC Universal
joint venture, and an impairment charge to the carrying value of our
broadcast licenses of $413.9 million, relating to 26 of our television stations.
This was due to the continued economic recession that started in December 2007
and the resulting decline in advertising revenues.
There
were no events during 2007 to warrant the performance of an interim impairment
test of our indefinite-lived intangible assets. Additionally, there
was no impairment charge recorded as of December 31, 2007.
The
changes in the carrying amount of goodwill for the year ended December 31, 2009
and 2008, respectively, are as follows (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Goodwill
|
$
|
666,812
|
$
|
664,103
|
||||
|
Accumulated
impairment losses
|
(549,653
|
)
|
(128,685
|
)
|
||||
|
Balance
as of January 1, 2009 and 2008, respectively
|
|
117,159
|
|
535,418
|
||||
|
Additions
|
|
2,773
|
|
-
|
||||
|
Tax
adjustments
|
|
-
|
|
2,709
|
||||
|
Impairments
|
|
(2,673
|
)
|
|
(420,968
|
)
|
||
|
Goodwill
|
|
669,585
|
|
666,812
|
||||
|
Accumulated
impairment losses
|
(552,326
|
)
|
(549,653
|
)
|
||||
|
Balance
as of December 31, 2009 and 2008, respectively
|
$
|
117,259
|
$
|
117,159
|
||||
The
values of our goodwill and broadcast licenses measured at fair value on a
nonrecurring basis during the year ended December 31, 2009 are as follows using
the three-level fair value hierarchy established by FAS 157:
|
Quoted
Prices in Active Markets
|
Significant
Observable Inputs
|
Significant
Unobservable Inputs
|
||||||||||
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
||||||||||
|
Broadcast
licenses
|
$ | - | $ | - | $ | 391,801 | ||||||
|
Goodwill
|
$ | - | $ | - | $ | 117,259 | ||||||
Note 7 —
Long-term Debt
Debt
consisted of the following (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Credit
Facility:
|
||||||||
|
Revolving
credit loans
|
$
|
204,000
|
$
|
135,000
|
||||
|
Term
loans
|
61,975
|
77,875
|
||||||
|
6½%
Senior Subordinated Notes due 2013
|
275,883
|
355,583
|
||||||
|
$141,316
and $183,285, 6½% Senior Subordinated Notes due 2013 - Class B, net of
discount of $4,965 and $8,390 at December 31, 2009 and 2008,
respectively
|
136,351
|
174,895
|
||||||
|
$2,157
LIN-RMM Note, net of discount of $160
|
1,997
|
-
|
||||||
|
$1,598
RMM Note, net of premium of $112
|
1,710
|
-
|
||||||
|
$1,121
RMM Bank Note, net of discount of $83
|
1,038
|
-
|
||||||
|
Total debt
|
682,954
|
743,353
|
||||||
|
Less
current portion
|
16,372
|
15,900
|
||||||
|
Total
long-term debt
|
$
|
666,582
|
$
|
727,453
|
||||
During
the period January 1, 2009 to July 31, 2009, prior to the execution of the
Amended Credit Agreement, borrowings under our credit facility bore an interest
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 ½ of 1 percent. In addition, the rate we
selected also bore an applicable margin rate of 0.625% to 1.500%, depending on
us achieving certain financial ratios. The unused portion of the revolving
credit facility was subject to a commitment fee of 0.25% to 0.50% depending on
us achieving certain financial ratios.
Amended
Credit Agreement
On July
31, 2009, we entered into the Amended Credit Agreement, which provided that our
aggregate revolving credit commitments remained at $225.0 million and our
outstanding term loans remained at $69.9 million (as of July 31, 2009). The
terms of the Amended Credit Agreement include, but are not limited to,
modifications to certain financial covenants, including our consolidated
leverage ratio, consolidated interest coverage ratio and consolidated senior
leverage ratio, a general tightening of the exceptions to our negative covenants
(principally by means of reducing the types and amounts of permitted
transactions), an increase in the interest rates and fees payable with respect
to borrowings under the Amended Credit Agreement, and the inclusion of certain
collateral-related provisions, principally relating to the provision of account
control agreements and mortgages with respect to certain real property that we
own. Certain revised financial condition covenants, and other key terms,
are as follows:
|
Prior
|
As
Amended
|
|||||||
|
Consolidated
Leverage Ratio:
|
||||||||
|
July
1, 2009 through September 30, 2009
|
7.00x
|
9.00x
|
||||||
|
October
1, 2009 to December 31, 2009
|
7.00x
|
10.50x
|
||||||
|
January
1, 2010 through March 31, 2010
|
6.50x
|
10.00x
|
||||||
|
April
1, 2010 through June 30, 2010
|
6.50x
|
9.00x
|
||||||
|
July
1, 2010 through September 30, 2010
|
6.00x
|
7.50x
|
||||||
|
October
1, 2010 and thereafter
|
6.00x
|
6.00x
|
||||||
|
Consolidated
Interest Coverage Ratio:
|
||||||||
|
July
1, 2009 through September 30, 2009
|
2.00x
|
1.75x
|
||||||
|
October
1, 2009 through December 31, 2009
|
2.00x
|
1.50x
|
||||||
|
January
1, 2010 through June 30, 2010
|
2.25x
|
1.75x
|
||||||
|
July
1, 2010 through September 30, 2010
|
2.25x
|
2.00x
|
||||||
|
October
1, 2010 and thereafter
|
2.25x
|
2.25x
|
||||||
|
Consolidated
Senior Leverage Ratio:
|
||||||||
|
July
1, 2009 through September 30, 2009
|
3.50x
|
3.75x
|
||||||
|
October
1, 2009 through December 31, 2009
|
3.50x
|
4.25x
|
||||||
|
January
1, 2010 through March 31, 2010
|
3.50x
|
4.00x
|
||||||
|
April
1, 2010 through June 30, 2010
|
3.50x
|
3.75x
|
||||||
|
July
1, 2010 through September 30, 2010
|
3.50x
|
3.00x
|
||||||
|
October
1, 2010 and thereafter
|
3.50x
|
2.25x
|
||||||
|
Interest
rate on borrowings
|
LIBOR
+ 150bps*
|
LIBOR
+ 375bps
|
||||||
|
*
At consolidated leverage of 7x or greater.
|
||||||||
The
Amended Credit Agreement revises the calculation of Consolidated Total Debt used
in our consolidated leverage ratios to exclude the netting of cash and cash
equivalents against total debt.
The
credit facility permits us to prepay loans and to permanently reduce the
revolving credit commitments, in whole or in part, at any time. We repaid
$15.9 million of the term loans during 2009, all of which related to
mandatory quarterly amortization payments.
On an
annual basis following the delivery of our year-end financial statements,
the Amended Credit Agreement requires mandatory prepayments of principal of
the term loans, as well as a permanent reduction in revolving credit
commitments, based on a computation of excess cash flow for the preceding
fiscal year, as more fully set forth in the Amended Credit Agreement. In
addition, the Amended Credit Agreement restricts the use of proceeds from asset
sales or from the issuance of debt (with the result that such proceeds, subject
to certain exceptions, must be used for mandatory prepayments of principal and
permanent reductions in revolving credit commitments), and includes a cash
ceiling, which requires that LIN Television utilize unrestricted cash and cash
equivalent balances in excess of $12.5 million to prepay principal amounts
outstanding, but not permanently reduce capacity, under our revolving credit
facility.
Borrowings
under our credit facility bear an interest rate based on, at our option, either
a) the LIBOR interest rate, or b) the ABR rate, which is an interest
rate that is equal to the greatest of (i) the Prime Rate, (ii) the Federal Funds
Effective Rate plus ½ of 1 percent, and (iii) the one-month LIBOR rate plus
1%. In addition, the rate we select also bears an applicable margin rate of
3.750% or 2.750% for LIBOR based loans and ABR rate loans,
respectively. Lastly, the unused portion of the revolving credit facility
is subject to a commitment fee of 0.750% depending on our consolidated leverage
ratio.
Our
revolving credit facility may be used for working capital and general corporate
purposes. For example, during the year ended December 31, 2009, we used $66
million under this facility to purchase a portion of our 6½% Senior
Subordinated Notes and 6½% Senior Subordinated Notes – Class B
and we used approximately $12 million under this facility to partially fund
interest payments related to these remaining outstanding
notes.
The
following table summarizes certain key terms of our credit facility (in
thousands):
|
Credit
Facility
|
||||||||
|
Revolving
Facility
|
Term
Loans
|
|||||||
|
Final
maturity date
|
11/4/2011
|
11/4/2011
|
||||||
|
Available
balance at December 31, 2009 (1)
|
$
|
21,000
|
$
|
-
|
||||
|
Average
rates as of December 31, 2009:
|
||||||||
|
Interest
rate (2)
|
0.35%
|
0.26%
|
||||||
|
Applicable
margin (3)
|
3.75%
|
3.75%
|
||||||
|
Total
|
4.10%
|
4.01%
|
||||||
|
(1)
|
As
of March 15, 2010, the unused balance of the revolving credit facility was
$34.0 million.
|
|
(2)
|
Weighted
average rate for loans outstanding as of December 31,
2009.
|
|
(3)
|
The
outstanding loans as of December 31, 2009 include LIBOR based loans, which
have an applicable margin of 3.75%.
|
We are
required, under the terms of the credit facility, to comply with specified
financial ratio covenants, including maximum leverage ratios and a minimum
interest coverage ratio. As of December 31, 2009, we were in
compliance with all of the covenants under our credit facility.
The
credit facility also contains provisions that prohibit any modification of the
indentures governing our senior subordinated notes in any manner adverse to the
lenders and that limits our ability to refinance or otherwise prepay our senior
subordinated notes without the consent of such lenders.
6½% Senior Subordinated Notes
and 6½% Senior Subordinated Notes – Class B
|
6½% Senior
Subordinated Notes
|
6½% Senior
Subordinated Notes - Class B
|
|||||
|
Final
maturity date
|
5/15/2013
|
5/15/2013
|
||||
|
Annual
interest rate
|
6.5%
|
6.5%
|
||||
|
Payable
semi-annually in arrears
|
May
15th
|
May
15th
|
||||
|
November
15th
|
November
15th
|
The
6½% Senior Subordinated Notes and 6½% Senior Subordinated Notes –
Class B are unsecured and are subordinated in right of payment to all
senior indebtedness, including our credit facility.
The
indentures governing the 6½% Senior Subordinated Notes and 6½% Senior
Subordinated Notes – Class B contain covenants limiting, among other
things, the incurrence of additional indebtedness and issuance of capital stock;
layering of indebtedness; the payment of dividends on, and redemption of, our
capital stock; liens; mergers, consolidations and sales of all or substantially
all of our assets; asset sales; asset swaps; dividend and other payment
restrictions affecting restricted subsidiaries; and transactions with
affiliates. The indentures also have change of control provisions which may
require our Company to purchase all or a portion of each of the 6½% Senior
Subordinated Notes and the 6½% Senior Subordinated Notes —
Class B at a price equal to 101% of the principal amount of the notes,
together with accrued and unpaid interest. The 6½% Senior Subordinated
Notes and the 6½% Senior Subordinated Notes – Class B have
certain limitations and financial penalties for early redemption of the
notes.
During
2008, we commenced a plan under Rule 10b5-1 of the Securities Exchange Act of
1934 to purchase a portion of our 6½% Senior Subordinated Notes and
6½% Senior Subordinated Notes – Class B at market prices using available
balances under our revolving credit facility and available cash balances. During
the year ended December 31, 2009, we purchased a total principal amount of $79.7
million and $42.0 million of our 6½% Senior Subordinated Notes and 6½% Senior
Subordinated Notes – Class B, respectively, under this plan. The total purchase
price for the transactions was $68.4 million, resulting in a gain on
extinguishment of debt of $50.1 million, net of a write-off of deferred
financing fees and discount related to the notes of $1.3 million and $1.9
million, respectively. Including the amounts purchased during 2008,
we have purchased a total notional amount of $147.8 million of such notes for an
aggregate purchase price of approximately $80.7 million.
RMM
Notes
In
connection with the acquisition of RMM as further described in Note 2 –
“Acquisitions”, LIN Television issued a $2.0 million unsecured promissory note
to McCombs Family Partners, Ltd. (the “LIN-RMM Note”), and a subsidiary of LIN
Television also assumed $1.7 million of RMM's existing secured indebtedness to
McCombs Family Partners, Ltd. (the “RMM Note”) and a $1.0 million unsecured
promissory note to a financial institution (the “RMM Bank Note”).
The
following table summarizes the material terms of each of these
notes:
|
LIN-RMM
Note
|
RMM
Note
|
RMM
Bank Note
|
|||||
|
Final
maturity date
|
1/1/2011
|
1/1/2012
|
1/1/2011
|
||||
|
Effective
interest rate
|
9.7%
|
4.0%
|
9.9%
|
||||
|
Payment
frequency
|
Due
at maturity
|
Monthly
|
Quarterly
|
Repayment
of Principal
The
following table summarizes future principal repayments on our debt agreements
(in thousands):
|
Revolving
Facility
|
Term
Loans(1)
|
6½% Senior
Subordinated Notes
|
6½% Senior
Subordinated Notes - Class B
|
RMM
Notes(2)
|
Total
|
|||||||||||||||||||
|
Final
maturity date
|
11/4/2011
|
11/4/2011
|
5/15/2013
|
5/15/2013
|
1/1/2012
|
|||||||||||||||||||
|
2010
|
$ | - | $ | 15,900 | $ | - | $ | - | $ | 472 | $ | 16,372 | ||||||||||||
|
2011
|
204,000 | 46,075 | - | - | 3,824 | 253,899 | ||||||||||||||||||
|
2012
|
- | - | - | - | 580 | 580 | ||||||||||||||||||
|
2013
|
- | - | 275,883 | 141,316 | - | 417,199 | ||||||||||||||||||
|
2014
|
- | - | - | - | - | - | ||||||||||||||||||
|
Total
|
$ | 204,000 | $ | 61,975 | $ | 275,883 | $ | 141,316 | $ | 4,876 | $ | 688,050 | ||||||||||||
|
(1)
|
The
above table excludes any pay-down of our term loans with proceeds from
previous asset sales that have not been reinvested within one-year after
such sales.
|
|
(2)
|
Debt
incurred and assumed upon the acquisition of RMM on October 2,
2009.
|
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Carrying
amount
|
$
|
682,954
|
$
|
743,353
|
||||
|
Fair
value
|
$
|
616,247
|
$
|
402,524
|
||||
Note 8 —
Stock-Based Compensation
We have
several stock-based employee compensation plans, including LIN
TV's 1998 Option Plan, the Amended and Restated 2002 Stock Plan and the
Third Amended and Restated 2002 Non-Employee Director Stock Plan (collectively,
the “Option Plans”), which permit us to grant non-qualified options in LIN
TV's class A common stock or restricted stock units, which convert
into LIN TV's class A common stock upon vesting, to certain directors,
officers and key employees of our Company.
The
following table presents the stock-based compensation expense included in our
consolidated statements of operations as follows (in thousands):
|
For
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Employee
stock purchase plans
|
$
|
-
|
$
|
19
|
$
|
(36
|
)
|
|||||
|
Employee
stock option plans
|
1,130
|
3,111
|
3,834
|
|||||||||
|
Restricted
stock unit awards
|
634
|
1,384
|
2,374
|
|||||||||
|
Modifications
to stock option agreements
|
649
|
9
|
(313
|
)
|
||||||||
|
Share-based
compensation expense before tax
|
2,413
|
4,523
|
5,859
|
|||||||||
|
Income
tax benefit (at 35% statutory rate)
|
(845
|
)
|
(1,583
|
)
|
(2,051
|
)
|
||||||
|
Net
stock-based compensation expense
|
$
|
1,568
|
$
|
2,940
|
$
|
3,808
|
||||||
We
recognized stock-based compensation expense (income) related to
modifications to our stock option agreements of $0.6 million, $9 thousand and
$(0.3) million for the years ended December 31, 2009, 2008 and 2007,
respectively. The modifications impacted 257 employees in 2009 and
11 employees in each of 2008 and 2007. We expect to record an
additional $1.5 million of expense related to the modification completed during
2009 over the remaining vesting period of the new grants. We expect
no further charges for the modifications prior to 2009. These
modifications related to the following:
|
·
|
On
June 2, 2009, we completed an exchange offer which enabled employees and
non-employee directors to exchange some or all of their outstanding
options to purchase shares of LIN TV's class A common stock, for new
options to purchase shares of LIN TV's class A common stock, on a one for
one basis. A total of 257 employees participated in the
exchange, in which options to purchase an aggregate of 2,931,285 shares of
LIN TV's class A common stock were exchanged. The new options
have an exercise price of $1.99 per share, equal to the closing price per
share of LIN TV's class A common stock on June 2, 2009. The new stock
options vest ratably over three
years.
|
|
·
|
Under
our 1998 plan certain employee option agreements were eligible for
make-whole payments when these employees exercised their options and the
market price of LIN TV's class A common stock was below $1.00. We recorded
stock-based compensation expense (income) of $9 thousand and
$(0.3) million related to this modification for the years ended
December 31, 2008 and 2007, respectively. We made payments to
employees that related to this provision of $0.4 million and
$0.2 million for the years ended December 31, 2008 and
2007.
|
We did
not capitalize any stock-based compensation for the years ended
December 31, 2009, 2008 and 2007.
We have
not yet recognized compensation expense relating to our unvested employee stock
options and stock awards of $7.8 million in the aggregate, which will be
recognized over a weighted-average future period of approximately 1.62 to 3.45
years.
During
the year ended December 31, 2009, we received no proceeds from the exercise
of stock options.
Stock
Option Plans
Options
granted under the stock option plans generally vest over a three or four-year
service period, using the graded vesting attribution method. Options expire ten
years from the date of grant. We issue new shares of LIN TV's class A common
stock when options are exercised. There were 6,655,000 shares authorized
for grant under the various Option Plans and 1,382,000 shares available for
future grant as of December 31, 2009. Both the shares authorized and shares
available exclude 1,553,000 shares under the 1998 Stock Plan, which we do
not intend to re-grant and consider unavailable for future grants.
The
following table provides additional information regarding our Option Plans for
the year ended December 31, 2009 as follows (in thousands, except per share
data):
|
Shares
|
Weighted-Average
Exercise Price Per Share
|
|||||||
|
Outstanding
at the beginning of the year
|
3,291
|
$
|
10.07
|
|||||
|
Granted
during the year
|
3,732
|
2.36
|
||||||
|
Exercised
or converted during the year
|
-
|
-
|
||||||
|
Forfeited
during the year
|
(3,303
|
)
|
10.04
|
|||||
|
Outstanding
at the end of the year
|
3,720
|
$
|
2.36
|
|||||
|
Exercisable
or convertible at the end of the year
|
250
|
|||||||
|
Total
intrinsic value of options exercised
|
$
|
-
|
||||||
|
Total
fair value of options vested during the year
|
$
|
-
|
||||||
|
Total
fair value of options granted during the year
|
$
|
8,820
|
||||||
The
following table summarizes information about our Option Plans at
December 31, 2009 (in thousands, except per share data):
|
Options
Outstanding
|
Options
Vested
|
||||||||||||
|
Range
of Exercise Prices
|
Number
Outstanding
|
Weighted-Average
Remaining Contractual Life
|
Weighted-Average
Exercise Price
|
Number
Exercisable
|
Weighted-Average
Exercise Price
|
||||||||
|
$0.59
to $2.07
|
3,059
|
9.4
|
$
|
1.97
|
-
|
$
|
-
|
||||||
|
$2.08
to $4.03
|
65
|
9.8
|
4.03
|
-
|
-
|
||||||||
|
$4.04
to $8.65
|
596
|
10.0
|
4.19
|
250
|
8.65
|
||||||||
|
3,720
|
$
|
2.37
|
250
|
$
|
8.65
|
||||||||
|
Weighted
average remaining contractual life
|
9.5
|
||||||||||||
|
Aggregate
intrinsic value
|
$
|
7,796
|
$
|
6,813
|
|||||||||
The
intrinsic value in the table above represents the total pre-tax intrinsic value,
based on our closing price as of December 31, 2009, which would have been
received by the option holders had all option holders exercised their options
and immediately sold their shares on that date. We estimate the fair value of
stock options, when new options are granted or when existing option grants are
modified, using a Black-Scholes valuation model. The fair value of each option
grant is estimated on the date of grant or modification, based on a single
employee group and the graded vesting approach, using the following
assumptions:
|
2009
|
2008
|
2007
|
|||||||
|
Expected
term(1)
|
4
to 5 years
|
5
to 6 years
|
5
to 7 years
|
||||||
|
Expected
volatility (2)
|
67%
to 87%
|
40%
to 41%
|
26%
to 32%
|
||||||
|
Expected
dividends
|
$
0.00
|
$
0.00
|
$
0.00
|
||||||
|
Risk-free
rate (3)
|
0.4%
to 3.6%
|
1.2%
to 3.7%
|
3.3%
to 5.1%
|
||||||
|
(1)
|
The
expected term was estimated using the historical and expected terms of
similar broadcast companies whose information was publicly available, as
our exercise history does not provide a reasonable basis to estimate
expected term.
|
|
(2)
|
The
stock volatility for each grant is measured using the weighted-average of
historical daily price changes of LIN TV's common stock since LIN
TV's initial public offering in May 2002, as well as comparison to
peer companies.
|
|
(3)
|
The
risk-free interest rate for each grant is equal to the U.S. Treasury yield
curve in effect at the time of grant for instruments with a similar
expected life.
|
Restricted
Stock Awards
We
granted 591,500 and 437,000 shares of restricted stock to employees and
directors for the years ended December 31, 2009 and 2008, respectively. We
granted no restricted stock awards during 2007. Stock granted to directors in
lieu of director fees are immediately vested. As of December 31, 2009,
1,053,000 shares of restricted stock were unvested.
The
following table provides additional information regarding the restricted stock
awards for the year ended December 31, 2009 (in thousands, except per share
data):
|
Shares
|
Weighted
Average Fair Value
|
|||||||
|
Unvested
at the beginning of the year
|
749
|
$
|
8.02
|
|||||
|
Granted
during the year
|
591
|
4.19
|
||||||
|
Vested
during the year
|
(232
|
)
|
9.20
|
|||||
|
Forfeited
during the year
|
(55
|
)
|
8.65
|
|||||
|
Unvested
at the end of the year
|
1,053
|
$
|
5.57
|
|||||
|
Total
fair value of awards vested during the year
|
$
|
566
|
||||||
The
following table provides further information for both our restricted stock and
stock option awards (in thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Total
fair value of awards granted
|
$
|
11,295
|
$
|
3,028
|
$
|
16,429
|
||||||
|
Total
intrinsic value of awards exercised
|
$
|
-
|
$
|
106
|
$
|
202
|
||||||
|
Total
fair value of awards vested
|
$
|
566
|
$
|
1,969
|
$
|
9,401
|
||||||
Note 9 —
Fair Value Measurement
We record
the fair value of certain financial assets and liabilities on a recurring
basis. The following table summarizes the financial assets and
liabilities measured at fair value in the accompanying financial statements
using the prescribed three-level fair value hierarchy as of December 31, 2009
and 2008 (in thousands):
|
Quoted
Prices in Active Markets
|
Significant
Observable Inputs
|
Significant
Unobservable Inputs
|
||||||||||||||
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
Total
|
|||||||||||||
|
2009:
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Deferred
compensation related investments
|
$ | 1,369 | $ | - | $ | - | $ | 1,369 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Interest
rate hedge
|
$ | - | $ | 4,181 | $ | - | $ | 4,181 | ||||||||
|
Deferred
compensation related liabilities
|
$ | 1,369 | $ | - | $ | - | $ | 1,369 | ||||||||
|
Equity
value shortfall amount
|
$ | - | $ | - | $ | 627 | $ | 627 | ||||||||
|
2008:
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Deferred
compensation related investments
|
$ | 3,917 | $ | - | $ | - | $ | 3,917 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Interest
rate hedge
|
$ | - | $ | 6,493 | $ | - | $ | 6,493 | ||||||||
|
Deferred
compensation related liabilities
|
$ | 3,917 | $ | - | $ | - | $ | 3,917 | ||||||||
The
following table details the change in fair value of our Level 3 liability for
the year ended December 31, 2009:
|
Equity
Value Shortfall Amount
|
||||
|
Balance
as of October 2, 2009
|
$
|
1,594
|
||
|
Unrealized
gain from the change in fair value
|
(967
|
)
|
||
|
Balance
as of December 31, 2009
|
$
|
627
|
||
The fair
value of interest rate hedge 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. With respect to the deferred compensation
plan, the fair value of deferred compensation is determined based on the fair
value of the investments selected by employees.
The fair
value of the Equity Value Shortfall Amount, described further in Note 2
–“Acquisitions” is determined based on an option pricing model reflecting our
assumptions about the value that market participants would place on this
liability. As of the October 2, 2009 acquisition date of RMM, the
estimated fair value was $1.6 million. Since October 2, 2009, the
value of LIN TV's class A common stock has increased and as a result the fair
value of the Equity Value Shortfall Amount has decreased to $0.6 million as of
December 31, 2009. Therefore, we recorded a gain in other, net of $1.0 million
in our consolidated statement of operations for the year ended December 31,
2009.
During
the second quarter of 2006, we entered into a contract to hedge a
notional amount of the declining balances of our term loans (“2006
interest rate hedge”). 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. We designated the 2006 interest rate hedge
as a cash flow hedge. The fair value of the 2006 interest rate hedge liability
was $4.2 million and $6.5 million at December 31, 2009 and 2008,
respectively. This amount will be released into earnings over the life of the
2006 interest rate hedge through periodic interest payments. We have
recognized a gain of $0.2 million and a loss of $(0.3) million for
ineffectiveness during the years ended December 31, 2009 and December 31, 2008
respectively, related to this hedge in (gain) loss on derivative instruments in
our consolidated statement of operations.
During
the second quarter of 2008, we purchased $125.0 million of our 2.50%
Exchangeable Senior Subordinated Debentures, all of which were tendered to
us. These debentures had certain embedded derivative features that
were required to be separately identified and recorded at fair value each
period. The fair value of these derivatives on issue of the
debentures was $21.1 million and this amount was recorded as an original issue
discount and accreted through interest expense from the date of issuance through
May 15, 2008. As a result of the purchase of the debentures, during
the second quarter of 2008, we recorded a gain of $0.4 million to earnings for
the remaining fair value of these derivatives.
The
following table summarizes our derivative activity (in thousands):
|
(Gain)
Loss on Derivative Instruments
|
Comprehensive
Gain (Loss), Net of Tax
|
|||||||||||||||||||||||
|
Year
Ended December 31,
|
Year
Ended December 31,
|
|||||||||||||||||||||||
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|||||||||||||||||||
|
Mark-to-Market
Adjustments on:
|
||||||||||||||||||||||||
|
2.5%
Exchangeable Senior Subordinated Debentures
|
$
|
-
|
$
|
(375
|
)
|
$
|
223
|
$ |
-
|
$
|
-
|
$
|
-
|
|||||||||||
|
2006
interest rate hedge
|
(208
|
)
|
270
|
-
|
1,246
|
(1,622
|
)
|
(1,503
|
)
|
|||||||||||||||
|
Total
|
$
|
(208
|
)
|
$
|
(105
|
)
|
$
|
223
|
$
|
1,246
|
$
|
(1,622
|
)
|
$
|
(1,503
|
)
|
||||||||
The
following table summarizes the balances for our derivative liability included in
other liabilities in our consolidated balance sheet (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
2006
interest rate hedge
|
$
|
4,181
|
$
|
6,493
|
||||
Note
10 – Accumulated Other Comprehensive Loss
The
balance of related after-tax components comprising accumulated other
comprehensive loss are summarized below (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Pension
tax liability
|
$
|
(5,760
|
)
|
$
|
(5,740
|
)
|
||
|
Pension
net loss
|
(19,641
|
)
|
(24,849
|
)
|
||||
|
Pension
prior service costs
|
-
|
(283
|
)
|
|||||
|
Unrealized
loss on derivatives
|
(2,516
|
)
|
(3,762
|
)
|
||||
|
Accumulated
other comprehensive loss
|
$
|
(27,917
|
)
|
$
|
(34,634
|
)
|
||
Note 11 —
Retirement Plans
401(k)
Plan
We have
historically provided a defined contribution plan (“401(k) Plan”) for almost all
of our employees. We have historically made contributions to the 401(k) Plan on
behalf of employee groups that were not covered by our defined benefit
retirement plan matching 50% of the employee’s contribution up to 6% of the
employee’s total annual compensation. Contributions made by us vest in 20%
annual increments until the employee is 100% vested after five years. We
contributed $0.5 million, $2.8 million and $2.7 million to the
401(k) Plan in the years ended December 31, 2009, 2008 and 2007,
respectively. We suspended our contributions to our 401(k) Plan during
2009. Effective January 1, 2010, we resumed company contributions to
the 401(k) Plan, which will provide a 3% non-elective contribution to all
eligible employees.
Retirement
Plan
We have
historically provided a defined benefit retirement plan to our employees who did
not receive matching contributions from our Company to their 401(k) Plan
accounts. Our defined benefit plan is a non-contributory plan under which we may
make contributions either to: a) traditional plan participants based on
periodic actuarial valuations, which are expensed over the expected average
remaining service lives of current employees; or b) cash balance plan
participants based on 5% of each participant’s eligible
compensation.
Effective
April 1, 2009, this plan was frozen and we do not expect to make additional
benefit accruals to this plan. As a result of this action, during the
year ended December 31, 2009, we recorded a net curtailment gain that included a
$0.4 million charge related to prior service cost and a gain to our projected
benefit obligation of $4.0 million as a result of the reduction of future
compensation increases.
We
contributed $0.6 million to our pension plan during December 31, 2009 and
$3.0 million in each of years ended December 31, 2008 and 2007. We
anticipate contributing approximately $3.1 million to our pension plan in
2010 although we currently have no minimum funding requirements as defined by
ERISA and federal tax laws.
We record
the under-funded status of our defined benefit plan as a liability. The plan
assets and benefit obligations of our defined benefit plan are recorded at fair
value as of December 31, 2009.
Information
regarding the change in the projected benefit obligation, the accumulated
benefit obligation and the change in the fair value of plan assets, are as
follows (in thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Change
in projected benefit obligation
|
||||||||||||
|
Projected
benefit obligation, beginning of period
|
$
|
110,179
|
$
|
104,185
|
$
|
106,507
|
||||||
|
Service
cost
|
385
|
2,254
|
2,244
|
|||||||||
|
Interest
cost
|
6,353
|
6,403
|
6,038
|
|||||||||
|
Actuarial
loss (gain)
|
867
|
1,278
|
(6,505
|
)
|
||||||||
|
Benefits
paid
|
(5,322
|
)
|
(3,941
|
)
|
(4,099
|
)
|
||||||
|
Curtailment
|
(4,045
|
)
|
-
|
-
|
||||||||
|
Projected
benefit obligation, end of period
|
$
|
108,417
|
$
|
110,179
|
$
|
104,185
|
||||||
|
Accumulated
benefit obligation
|
$
|
108,417
|
$
|
104,988
|
$
|
98,847
|
||||||
|
Change
in plan assets
|
||||||||||||
|
Fair
value of plan assets, beginning of period
|
$
|
61,482
|
$
|
86,080
|
$
|
79,190
|
||||||
|
Actual
return (loss) on plan assets
|
12,049
|
(23,669
|
)
|
7,828
|
||||||||
|
Employer
contributions
|
588
|
3,012
|
3,161
|
|||||||||
|
Benefits
paid
|
(5,322
|
)
|
(3,941
|
)
|
(4,099
|
)
|
||||||
|
Fair
value of plan assets, end of period
|
$
|
68,797
|
$
|
61,482
|
$
|
86,080
|
||||||
|
Unfunded
status of the plan
|
$
|
(39,620
|
)
|
$
|
(48,697
|
)
|
$
|
(18,105
|
)
|
|||
|
Total
amount recognized as accrued benefit liability
|
$
|
(39,620
|
)
|
$
|
(48,697
|
)
|
$
|
(18,105
|
)
|
|||
The
following table includes the pension-related accounts recognized on the balance
sheets and the components of accumulated other comprehensive loss related to the
net periodic pension benefit costs as follows (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Other
accrued expenses (current)
|
$
|
(385
|
)
|
$
|
(415
|
)
|
||
|
Other
liabilities (long-term)
|
(39,235
|
)
|
(48,282
|
)
|
||||
|
Total
amount recognized as accrued pension benefit
liability
|
$
|
(39,620
|
)
|
$
|
(48,697
|
)
|
||
|
Accumulated
other comprehensive loss:
|
||||||||
|
Net
loss, net of tax benefit of $12,838 and $16,431 for the years ended
December 31, 2009 and 2008, respectively
|
$
|
19,641
|
$
|
24,849
|
||||
|
Prior
service costs, net of tax benefit $184 for the year ended December 31,
2008
|
-
|
283
|
||||||
|
Pension
tax liability
|
5,760
|
5,740
|
||||||
|
Accumulated
other comprehensive loss related to net periodic pension benefit
cost
|
$
|
25,401
|
$
|
30,872
|
||||
The total
net loss of $19.6 million, which is net of tax, relates to deferred
actuarial losses from changes in discount rates, differences between actual and
assumed asset returns and differences between actual and assumed demographic
experience (rates of compensation increases, rates of turnover, retirement rates
and mortality rates). During the year ended December 31, 2009, as a result of
the curtailment of our plan, we recognized the remaining prior service cost
balance of $0.4 million, before taxes, in accumulated other comprehensive income
as a component of our net periodic pension cost. During 2010, we expect to
amortize net losses of $0.4 million, which are included in the accumulated other
comprehensive loss, net of tax, at December 31, 2009.
Components
of net periodic pension benefit cost were (in thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Service
cost
|
$
|
385
|
$
|
2,254
|
$
|
2,244
|
||||||
|
Interest
cost
|
6,353
|
6,403
|
6,038
|
|||||||||
|
Expected
return on plan assets
|
(6,610
|
)
|
(6,823
|
)
|
(6,220
|
)
|
||||||
|
Amortization
of prior service cost
|
31
|
123
|
123
|
|||||||||
|
Amortization
of net loss
|
165
|
243
|
1,182
|
|||||||||
|
Curtailment
|
438
|
-
|
-
|
|||||||||
|
Net
periodic benefit cost
|
$
|
762
|
$
|
2,200
|
$
|
3,367
|
||||||
Our
expected future pension benefit payments for the next 10 years are as
follows (in thousands):
|
For
Years Ended December 31,
|
||||
|
2010
|
$
|
5,145
|
||
|
2011
|
$
|
5,029
|
||
|
2012
|
$
|
5,006
|
||
|
2013
|
$
|
5,194
|
||
|
2014
|
$
|
5,546
|
||
|
2015
through 2019
|
$
|
31,796
|
||
Weighted-average
assumptions used to estimate our pension benefit obligations and to determine
our net periodic pension benefit cost, and the actual long-term rate-of-return
on plan assets are as follows:
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Discount
rate used to estimate our pension benefit obligation
|
5.75%
|
6.00%
|
6.25%
|
|||||||||
|
Discount
rate used to determine net periodic pension benefit
|
6.00%-7.25%
|
6.25%
|
5.75%
|
|||||||||
|
Rate
of compensation increase
|
4.50%
|
4.50%
|
4.50%
|
|||||||||
|
Expected
long-term rate-of-return plan assets
|
8.25%
|
8.25%
|
8.25%
|
|||||||||
|
Actual
long-term rate-of-return on plan assets
|
20.4%
|
(27.6)%
|
9.90%
|
|||||||||
We used
the Citigroup Pension Discount Curve to aid in the selection of our discount
rate, which we believe reflects the weighted rate of a theoretical high quality
bond portfolio consistent with the duration of the cash flows related to our
pension liability.
We
considered the current levels of expected returns on a risk-free investment, the
historical levels of risk premium associated with each of our pension asset
classes, the expected future returns for each of our pension asset classes and
then weighted each asset class based on our pension plan asset allocation to
derive an expected long-term return on pension plan assets. During
the year ended December 31, 2009, our actual long-term rate of return on plan
assets was 20.4%.
As a
result of the plan freeze during 2009, we have no further service cost or
amortization of prior service cost related to the plan. In addition, because the
plan is now frozen and participants became inactive during 2009, the net losses
related to the plan included in accumulated other comprehensive income will now
be amortized over the average remaining life expectancy of the inactive
participants instead of average remaining service period.
Our
investment objective is to achieve a consistent total rate-of-return that will
equal or exceed our actuarial assumptions and to equal or exceed the benchmarks
that we use for each of our pension plan asset classes including the S&P 500
Index, S&P Mid-cap Index, Russell 2000 Index, MSCI EAFE Index and the Lehman
Brothers Aggregate Bond Index. The following asset allocation is designed to
create a diversified portfolio of pension plan assets that is consistent with
our target asset allocation and risk policy:
|
Target
Allocation
|
Percentage
of Plan Assets at December 31,
|
||||||||
|
Asset
Category
|
2009
|
2009
|
2008
|
||||||
|
Equity
securities
|
70%
|
78%
|
57%
|
||||||
|
Debt
securities
|
30%
|
22%
|
43%
|
||||||
|
100%
|
100%
|
100%
|
|||||||
Our
actual allocation of plan assets for 2009 is not in range of our target
allocation in an effort to realize potential gains associated with the equity
market rebound. During late 2009, our Retirement Committee decided to
set the target allocation at 60% equity securities and 40% debt
securities. Beginning in 2010, on a quarterly basis, the funds in our
plan will be rebalanced in line with this new allocation. We continue
to monitor the performance of these funds and anticipate the allocation moving
in line with the target as the economic outlook stabilizes.
The
following table summarizes our pension plan assets measured at fair value using
the three-level fair value hierarchy established by ASC 157 as of December 31,
2009 and 2008 (in thousands):
|
Significant
Observable Inputs
|
Significant
Unobservable Inputs
|
||||||||||
|
(Level
2)
|
(Level
3)
|
Total
|
|||||||||
|
December
31, 2009:
|
|||||||||||
|
Guaranteed
deposit account
|
$
|
-
|
$
|
5,094
|
$
|
5,094
|
|||||
|
U.S.
stock funds
|
34,959
|
-
|
34,959
|
||||||||
|
International
stock funds
|
8,608
|
-
|
8,608
|
||||||||
|
U.S.
bond funds
|
20,136
|
-
|
20,136
|
||||||||
|
Total
|
$
|
63,703
|
$
|
5,094
|
$
|
68,797
|
|||||
|
December
31, 2008:
|
|||||||||||
|
Guaranteed
deposit account
|
$
|
-
|
$
|
190
|
$
|
190
|
|||||
|
U.S.
stock funds
|
29,171
|
-
|
29,171
|
||||||||
|
International
stock funds
|
5,669
|
-
|
5,669
|
||||||||
|
U.S.
bond funds
|
26,451
|
-
|
26,451
|
||||||||
|
Total
|
$
|
61,291
|
$
|
190
|
$
|
61,481
|
|||||
The
guaranteed deposit is invested primarily in publicly traded and privately placed
debt securities and mortgage loans. Fair value is calculated by
discounting the expected future investment cash flow from both investment income
and repayment of principal for each investment purchased directly for the
guaranteed deposit fund. The U.S. and International stock funds and U.S. bond
funds consist of various funds that are valued at the net asset value of units
held by the plan at year-end as determined by the custodian, based on fair value
of the underlying securities. These methods may produce a fair value
calculation that may not be indicative of net realizable value or reflective of
future values. Furthermore, while we believe these valuation methods
are appropriate and consistent with other market participants, the use of
different methodologies or assumptions to determine fair value of certain
financial instruments could result in different fair value measurement at the
reporting date.
The
following table details the change in fair value of the Level 3 investments for
the years ended December 31, 2009 and 2008:
|
Guaranteed
Deposit Account
|
||||
|
Balance
as of December 31, 2007
|
$
|
1,168
|
||
|
Interest
income
|
56
|
|||
|
Purchases,
sales, issuances and settlements (net)
|
(1,034
|
)
|
||
|
Balance
as of December 31, 2008
|
190
|
|||
|
Interest
income
|
85
|
|||
|
Purchases,
sales, issuances and settlements (net)
|
4,819
|
|||
|
Balance
as of December 31, 2009
|
$
|
5,094
|
||
Note 12 —
Restructuring
During
the second quarter of 2009, we recorded a restructuring charge of $0.5 million
as a result of the consolidation of certain activities at our stations which
resulted in the termination of 28 employees. We made cash payments of
$0.5 million during the year ended December 31, 2009 related to this
restructuring.
During
2008, we effected a restructuring that included a workforce reduction and the
cancellation of certain syndicated television program contracts. The
total charge for the plan was $12.9 million, including $4.3 million for a
workforce reduction of 144 employees and $8.6 million for the cancellation of
the contracts. We made cash payments of $9.0 million during the year
ended December 31, 2009 related to these restructuring
activities. Cumulatively under the plan, we have made payments of
$12.6 million through December 31, 2009. As of December 31, 2009, we had $0.3
million in accrued expenses and accounts payable in the consolidated balance
sheet for this restructuring and expect to make cash payments of $0.3 million
during 2010 and thereafter.
During
the year ended December 31, 2007, we recorded $0.3 million for
temporary labor costs and made cash payments of approximately $4.3 million for
severance and contractual costs related to a restructuring plan initiated in
2006.
The
activity for these restructuring charges are as follows (in
thousands):
|
Balance as of December 31,
2007
|
Year
Ended
December
31, 2008
|
Balance as of December 31,
2008
|
Year
Ended
December
31, 2009
|
Balance as of December 31,
2009
|
||||||||||||||||||||||
|
Charges
|
Payments
|
Charges
|
Payments
|
|||||||||||||||||||||||
|
Severance
and related
|
$
|
-
|
$
|
4,322
|
$
|
829
|
$
|
3,493
|
$
|
(498
|
)
|
$
|
3,991
|
$
|
-
|
|||||||||||
|
Contractual
and other
|
57
|
8,580
|
2,769
|
5,868
|
-
|
5,509
|
359
|
|||||||||||||||||||
|
Total
|
$
|
57
|
$
|
12,902
|
$
|
3,598
|
$
|
9,361
|
$
|
(498
|
)
|
$
|
9,500
|
$
|
359
|
|||||||||||
Note 13 —
Related Party Transactions
Centennial Cable of Puerto
Rico. Centennial Cable of Puerto Rico, in which HMC had a
substantial economic interest, provided our Puerto Rico operations with a barter
agreement for advertising and promotional services which are reflected in our
consolidated financial statements as discontinued operations for the year ended
December 31, 2007.
Note 14 —
Commitments and Contingencies
Commitments
We lease
land, buildings, vehicles and equipment pursuant to non-cancelable operating
lease agreements and we contract for general services pursuant to non-cancelable
operating agreements that expire at various dates through 2017. In addition, we
have entered into commitments for future syndicated entertainment and sports
programming. Future payments for these non-cancelable operating leases and
agreements, and future payments associated with syndicated television programs
at December 31, 2009 are as follows (in thousands):
|
Year
|
Operating
Leases and Agreements
|
Syndicated
Television Programming
|
Total
|
|||||||||
|
2010
|
$
|
10,840
|
$
|
25,731
|
$
|
36,571
|
||||||
|
2011
|
5,949
|
22,029
|
27,978
|
|||||||||
|
2012
|
5,231
|
13,713
|
18,944
|
|||||||||
|
2013
|
2,533
|
4,604
|
7,137
|
|||||||||
|
2014
|
760
|
-
|
760
|
|||||||||
|
Thereafter
|
360
|
-
|
360
|
|||||||||
|
Total
obligations
|
25,673
|
66,077
|
91,750
|
|||||||||
|
Less
recorded contracts
|
-
|
(12,411
|
)
|
(12,411
|
)
|
|||||||
|
Future
contracts
|
$
|
25,673
|
$
|
53,666
|
$
|
79,339
|
||||||
Rent
expense, resulting from operating leases, was $2.1 million for the year ended
December 31, 2009, and $2.2 million in each of the years ended
December 31, 2008 and 2007.
Contingencies
GECC
Note
GECC
provided debt financing for a joint venture between NBC Universal and us, in the
form of an $815.5 million non-amortizing senior secured note due 2023 bearing
interest at an initial rate of 8% per annum until March 2, 2013 and 9% per annum
thereafter (the “GECC Note”). The GECC Note is an obligation of the
joint venture. We have a 20% equity interest in the joint venture and NBC
Universal has the remaining 80% equity interest, in which we and NBC Universal
each have a 50% voting interest. NBC Universal operates two
television stations, KXAS-TV, an NBC affiliate in Dallas, and KNSD-TV, an NBC
affiliate in San Diego, pursuant to a management agreement. NBC
Universal and GECC are both majority-owned subsidiaries of General Electric
Company. LIN TV has guaranteed the payment of principal and interest
on the GECC Note.
Our joint
venture with NBC Universal has been adversely impacted by the current economic
downturn. The joint venture distributed no cash to NBC Universal and
us during the year ended December 31, 2009. Although the joint
venture distributed cash to NBC Universal and us in the amount of $13.0
million and $12.0 million for the years ended December 31, 2008 and
2007, respectively, the cash distributions for 2008 included nonrecurring cash
proceeds of $12.6 million from the sale of broadcast towers.
In light
of the adverse effect of the economic downturn on the joint venture’s operating
results, in 2009 we entered into the Original Shortfall Funding Agreement with
NBC Universal, which provided that: a) we and NBC waived the requirement that
the joint venture maintain debt service reserve cash balances of at least $15
million; b) the joint venture would use a portion of its existing debt service
reserve cash balances to fund interest payments in 2009; c) NBC agreed to defer
its receipt of 2008 and 2009 management fees; and d) we agreed that if the joint
venture does not have sufficient cash to fund interest payments on the GECC Note
through April 1, 2010, we and NBC Universal would each provide the joint venture
with a shortfall loan on the basis of our percentage of economic interest in the
joint venture. During the year ended December 31, 2009, the joint
venture used approximately $14.9 million of the existing debt service cash
reserves, leaving approximately $0.2 million available. As of March
15, 2010, we have not yet provided any funding under the Original Shortfall
Funding Agreement.
Because
of anticipated future shortfalls at the joint venture, on March 9, 2010, NBC
Universal and we entered into the 2010 Shortfall Funding Agreement covering the
period through April 1, 2011. Under the terms of the 2010 Shortfall
Funding Agreement: a) the joint venture may continue to access any portion of
its existing debt service reserve cash balances to fund interest payments; b)
NBC will continue to defer the payment of 2008 and 2009 management fees
and defer payment of 2010 management fees through March 31, 2011
(payable subject to repayment first of any joint venture shortfall loans); and
c) we agreed that if the joint venture does not have sufficient cash to fund
interest payments on the GECC Note through April 1, 2011, we and NBC Universal
would each provide the joint venture with a shortfall loan on the basis of our
percentage of economic interest in the joint venture.
The
timing of anticipated debt service shortfalls at the joint venture is affected
by the levels of working capital at the stations owned by the joint venture and
their anticipated uses of working capital to fund operations and to distribute
cash to the joint venture for the purpose of servicing the interest expense on
the GECC Note. We recognize liabilities under the Original Shortfall
Funding Agreement and the 2010 Shortfall Funding Agreement when those
liabilities become both probable and estimable, which result when joint venture
management provides us with budget or forecast information of operating cash
flows and working capital needs indicating that a debt service shortfall is
probable to occur.
During
2009, joint venture management provided us a revised outlook for 2009 after each
quarter end, which, as of September 30, 2009, resulted in an accrual of $2.0
million for our probable and estimable obligations under the Original Shortfall
Funding Agreement through the April 1, 2010 expiry of that
agreement. Due to uncertainty surrounding the joint venture’s ability
to repay the shortfall loan, we concurrently impaired the loan as of September
30, 2009. Based on our latest estimate of cash flow requirements of the joint
venture through April 1, 2010, our share of the estimated shortfall through
April 1, 2010 is $3.0 million, of which $2.0 million was accrued as of September
30, 2009. Subsequent
to September 30, 2009, we: (a) received the joint venture’s 2010 budget and (b)
as noted above, entered into the 2010 Shortfall Funding Agreement to cover debt
service shortfalls through April 1, 2011. Based on the 2010 budget provided by
the joint venture, and our discussions with the joint venture's management, we
believe there will be an additional debt service shortfall at the joint venture
from April 2, 2010 through April 1, 2011 of $13.0 million to $15.0 million, of
which, our share of the shortfall could be approximately $3.0
million.
As a
result, we have accrued our portion of the estimated shortfalls through April 1,
2011, bringing the total accrual for our joint venture shortfall obligations to
$6.0 million as of December 31, 2009. Due to uncertainty surrounding
the joint venture’s ability to repay the shortfall loans, we concurrently
impaired all accrued loans to the joint venture as of December 31,
2009. As of
March 15, 2010, we have not yet provided any funding under either of these
agreements. We expect to fund our $3.0 million share of shortfall liabilities
under the Original Shortfall Funding Agreement during the first quarter of 2010,
and the remaining $3.0 million amount through the period ending April 1,
2011. We do not believe our funding obligations related to the joint
venture, if any, beyond April 1, 2011 are currently estimable and probable,
therefore, we have not accrued for any potential obligations beyond the $6.0
million discussed above. However, our actual cash shortfall funding
could exceed our estimate.
Our ability to honor our shortfall loan obligations under the Original Shortfall Funding Agreement and the 2010 Shortfall Funding Agreement is subject to compliance with restrictions under our senior credit facility and the indentures governing our senior notes. Based on the 2010 budget provided by joint venture management, and our forecast of total leverage and consolidated EBITDA during 2010 and 2011, we expect to have the capacity within these restrictions to provide shortfall funding under the 2010 Shortfall Funding Agreement in proportion to our approximately 20 percent economic interest in the joint venture through the April 1, 2011 expiration of the 2010 Shortfall Funding Agreement. However, there can be no assurance that we will have the capacity to provide such funding. If we are required to fund a portion of a shortfall loan, we plan to use our available cash balances or available borrowings under our credit facility. In addition, if the joint venture experiences further cash shortfalls beyond April 1, 2011, we may decide to fund such cash shortfalls, or to fund such shortfalls through further loans or equity contributions to the joint venture. If we are unable to make payments under the Original Shortfall Funding Agreement or the 2010 Shortfall Funding Agreement, the joint venture may be unable to fund interest obligations under the GECC Note, resulting in an event of default.
An event
of default under the GECC Note will occur if the joint venture fails to make any
scheduled interest payment within 90 days of the date due and payable, or to pay
the principal amount on the maturity date. If the joint venture fails
to pay interest on the GECC Note, and neither NBC Universal nor we make a
shortfall loan to fund the interest payment within 90 days of the date due and
payable, an event of default would occur and GECC could accelerate the maturity
of the entire amount due under the GECC Note. Other than the
acceleration of the principal amount upon an event of default, prepayment of the
principal of the note is prohibited unless agreed upon by both NBC Universal and
us. Upon an event of default under the GECC Note, GECC’s only
recourse is to the joint venture, our equity interest in the joint venture and,
after exhausting all remedies against the assets of the joint venture and the
other equity interests in the joint venture, to LIN TV pursuant to its guarantee
of the GECC Note.
Under the
terms of its guarantee of the GECC Note, LIN TV would be required to make a
payment for an amount to be determined upon occurrence of the following events:
a) there is an event of default; b) neither NBC Universal or us remedy the
default; and c) after GECC exhausts all remedies against the assets of the joint
venture, the total amount realized upon exercise of those remedies is less than
the $815.5 million principal amount of the GECC Note. Upon the
occurrence of such events, the amount owed by LIN TV to GECC pursuant to the
guarantee would be calculated as the difference between i) the total amount at
which the joint venture’s assets were sold and ii) the principal amount and any
unpaid interest due under the GECC Note. As of December 31, 2009, we
estimate the fair value of the television stations in the joint venture to be
approximately $366 million less than the outstanding balance of the GECC note of
$815.5 million.
Although
we believe the probability is remote that there would be an event of default and
therefore an acceleration of the principal amount of the GECC Note during 2010,
there can be no assurances that such an event of default will not
occur. There are no financial or similar covenants in the GECC Note
and, since both NBC Universal and we have agreed to fund interest payments
through April 1, 2011 if the joint venture is unable to do so, NBC Universal and
we are able to control the occurrence of a default under the GECC
Note.
If an
event of default occurs under the GECC Note, LIN TV, which conducts all of its
operations through its subsidiaries, could experience material adverse
consequences, including:
|
·
|
GECC,
after exhausting all remedies against the joint venture, could enforce its
rights under the guarantee, which could cause LIN TV to determine that LIN
Television should seek to sell material assets owned by it in order to
satisfy LIN TV’s obligations under the
guarantee;
|
|
·
|
GECC’s
initiation of proceedings against LIN TV under the guarantee could result
in a change of control or other material adverse consequences to LIN
Television, which could cause an acceleration of LIN Television’s credit
facility and other outstanding
indebtedness; and
|
|
·
|
if
the GECC Note is prepaid because of an acceleration on default or
otherwise, we would incur a substantial tax liability of approximately
$273.6 million related to our deferred gain associated with the formation
of the joint venture, exclusive of any potential NOL
utilization.
|
On
December 3, 2009, General Electric Corporation (“GE”), which wholly owns GECC,
and Comcast Corporation (“Comcast”) announced a definitive agreement to
form a joint venture that will be 51 percent owned by Comcast, 49 percent owned
by GE and managed by Comcast. The proposed joint venture will include
NBC Universal. As of March 15, 2010, the proposed transaction is
undergoing regulatory review and it is not certain whether or when the
transaction will receive the approvals required to
close. Furthermore, assuming the transaction is completed, we cannot
predict the effect the joint venture between Comcast and GE may have on our
joint venture with NBC Universal.
Litigation
We are
currently and from time-to-time involved in litigation incidental to the conduct
of our business. In the opinion of our management, such litigation as of
December 31, 2009 is not likely to have a material adverse effect on our
financial position, results of operations or cash flows.
Note 15 —
Income Taxes
The
income (loss) before income taxes was solely from domestic
operations. The provision for (benefit from) income taxes consist of
the following (in thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$
|
579
|
$
|
-
|
$
|
792
|
||||||
|
State
|
452
|
429
|
512
|
|||||||||
|
$
|
1,031
|
$
|
429
|
$
|
1,304
|
|||||||
|
Deferred:
|
||||||||||||
|
Federal
|
$
|
5,588
|
$
|
(188,386
|
)
|
$
|
15,098
|
|||||
|
State
|
7,222
|
(34,208
|
)
|
1,810
|
||||||||
|
12,810
|
(222,594
|
)
|
16,908
|
|||||||||
|
$
|
13,841
|
$
|
(222,165
|
)
|
$
|
18,212
|
||||||
The
following table reconciles the amount that would be calculated by applying the
35% federal statutory rate to income (loss) before income taxes to the actual
provision for (benefit from) income taxes (in thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Provision
(benefit) assuming federal statutory rate
|
$
|
8,190
|
$
|
(368,394
|
)
|
$
|
16,357
|
|||||
|
State
taxes, net of federal tax benefit
|
1,877
|
(34,923
|
)
|
2,377
|
||||||||
|
State
tax law changes, net of federal tax benefit
|
3,597
|
6,195
|
(451
|
)
|
||||||||
|
Change
in valuation allowance
|
(1,345
|
)
|
39,036
|
(418
|
)
|
|||||||
|
Impairment
of goodwill
|
60
|
135,591
|
-
|
|||||||||
|
Stock
compensation
|
580
|
-
|
-
|
|||||||||
|
Other
|
882
|
330
|
347
|
|||||||||
|
$
|
13,841
|
$
|
(222,165
|
)
|
$
|
18,212
|
||||||
|
Effective
income tax rate on continuing operations
|
59.2%
|
21.1%
|
39.0%
|
|||||||||
The
components of the net deferred tax liability are as follows (in
thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Deferred
tax liabilities:
|
||||||||
|
Deferred
gain related to equity investment in NBC joint
venture
|
$
|
273,592
|
$
|
271,279
|
||||
|
Property
and equipment
|
15,240
|
14,781
|
||||||
|
Noncontrolling
interest
|
-
|
677
|
||||||
|
Deferred
gain on debt repurchase
|
18,274
|
-
|
||||||
|
Other
|
5,842
|
5,828
|
||||||
|
$
|
312,948
|
$
|
292,565
|
|||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating loss carryforwards
|
$
|
(125,123
|
)
|
$
|
(100,361
|
)
|
||
|
Equity
investments
|
(14,728
|
)
|
(18,165
|
)
|
||||
|
Intangible
assets
|
(20,239
|
)
|
(30,609
|
)
|
||||
|
Other
|
(41,812
|
)
|
(54,052
|
)
|
||||
|
Valuation
allowance
|
50,979
|
52,324
|
||||||
|
(150,923
|
)
|
(150,863
|
)
|
|||||
|
Net
deferred tax liabilities
|
$
|
162,025
|
$
|
141,702
|
||||
We
maintain a valuation allowance related to our deferred tax asset position when
management believes it is more likely than not that the net deferred tax assets
will not be realized in the future. Our valuation allowance was
$51.0 million as of December 31, 2009, which represents a decrease of
$1.3 million for the year ended December 31, 2009. This
decrease is primarily attributable to additional taxable income generated and
corresponding utilization of prior year net operating losses that were subject
to a valuation allowance. Components of our valuation allowance
were:
|
|
·
|
federal
net operating loss carryforwards of
$31.4 million;
|
|
|
·
|
state
net operating loss carryforwards of
$10.1 million;
|
|
|
·
|
state
deferred tax assets of $0.8 million recorded in connection with
the acquisitions of stations in 2005 and 2006;
and
|
|
|
·
|
state
deferred tax assets of $8.7 million related to the impairment of the
broadcast licenses and goodwill.
|
At
December 31, 2009, we had federal net operating loss carryforwards of
approximately $328.6 million that begin to expire in 2021. Additionally, we had state net
operating loss carryforwards that vary by jurisdiction (tax effected, net of
federal benefit) of approximately $10.1 million, expiring through
2029.
We
recorded no amounts related to uncertain tax positions for the years ended
December 31, 2009, 2008 and 2007. We file a consolidated federal
income tax return and we file numerous other consolidated and separate income
tax returns in U.S. state jurisdictions. Tax years 2005-2008 remain
open to examination by major taxing jurisdictions.
Note
16 – Accrued Expenses
Accrued
expenses consisted of the following (in thousands):
|
December
31,
|
|||||||
|
2009
|
2008
|
||||||
|
Accrued
acquisition costs (See Note 2 – "Acquisitions")
|
$
|
3,035
|
$
|
3,605
|
|||
|
Accrued
barter, net
|
3,978
|
4,831
|
|||||
|
Accrued
compensation
|
7,303
|
6,614
|
|||||
|
Accrued
contract costs
|
6,739
|
7,108
|
|||||
|
Accrued
interest
|
3,617
|
4,535
|
|||||
|
Accrued
purchase option (See Note 19 – "Supplemental Disclosure of Cash Flow
Information")
|
-
|
7,688
|
|||||
|
Accrued
restructuring (See Note 12 – "Restructuring")
|
359
|
9,361
|
|||||
|
Accrued
shortfall loan to SVH (See Note 14 – “Commitments and
Contingencies”)
|
6,000 | - | |||||
|
Other
accrued expenses
|
10,885
|
12,959
|
|||||
|
Total
|
$
|
41,916
|
$
|
56,701
|
|||
Note
17 – Subsequent Events
Joint
Venture with NBC Universal:
On March
9, 2010, because of anticipated future debt service shortfalls at the NBC joint
venture, NBC Universal and we entered into the 2010 Shortfall Funding
Agreement. For further information on the 2010 Shortfall Funding
Agreement see Note 14 – “Commitments and Contingencies”.
Note 18 -Unaudited
Quarterly Data
|
Quarter
Ended
|
||||||||||||||||
|
March
31,
2009
|
June
30,
2009
|
September
30,
2009
|
December
31,
2009
|
|||||||||||||
|
Net
revenues
|
$
|
74,475
|
$
|
82,517
|
$
|
81,371
|
$
|
101,111
|
||||||||
|
Operating
income (loss)
|
4,757
|
(25,814
|
)(1)
|
13,787
|
29,383
|
(3)
|
||||||||||
|
Income
(loss) from continuing operations
|
25,006
|
(25,334
|
)
|
(875
|
)
|
10,762
|
(3)
|
|||||||||
|
Loss
from discontinued operations
|
(284
|
)
(2)
|
(162
|
)(2)
|
-
|
-
|
||||||||||
|
Net
income (loss)
|
$
|
24,722
|
$
|
(25,496
|
)
|
$
|
(875
|
)
|
$
|
10,762
|
||||||
|
(1)
|
Includes
an impairment charge of $39.9 million, including $37.2 million impairment
to the carrying value of our broadcast licenses and $2.7 million
impairment to the carrying values of our goodwill.
|
|
(2)
|
Includes
the results of operations of Banks Broadcasting.
|
|
(3)
|
Includes
an out of period adjustment for a gain on the exchange of equipment of
$0.9 million and $0.5 million in operating income and income from
continuing operations, respectively, that should have been recorded in
third quarter of 2009. We concluded this amount was immaterial
to our financial statements as of September 30, 2009 and have corrected
the item as an out of period
adjustment.
|
|
Quarter
Ended
|
||||||||||||||||
|
March
31,
2008
|
June
30,
2008
|
September
30,
2008
|
December
31,
2008
|
|||||||||||||
| (in thousands, except share data) | ||||||||||||||||
|
Net
revenues
|
$
|
93,064
|
$
|
103,703
|
$
|
98,804
|
$
|
104,243
|
||||||||
|
Operating
income (loss)
|
15,574
|
(269,938
|
)
(1)
|
24,541
|
(722,598
|
)
(2)
|
||||||||||
|
Income
(loss) from continuing operations
|
875
|
(215,759
|
)
|
10,217
|
(625,720
|
)
|
||||||||||
|
Income
(loss) from discontinued operations
|
588
|
(3)
|
(208
|
)
(3)
|
(196
|
)(3)
|
(161
|
)
(3)
|
||||||||
|
Net
income (loss)
|
$
|
1,463
|
$
|
(215,967
|
)
|
$
|
10,021
|
$
|
(625,881
|
)
|
||||||
|
(1)
|
Includes
an impairment charge of $297.0 million, including $185.7 million
impairment to the carrying value of our broadcast licenses and $111.3
million impairment to the carrying values of our
goodwill.
|
|
(2)
|
Includes
an impairment charge of $732.2 million, including $413.9 million
impairment to the carrying value of our broadcast licenses, $309.6 million
impairment to the carrying values of our goodwill and $8.7 million for the
write-off of certain broadcast assets that have become obsolete as a
result of the DTV transition.
|
|
(3)
|
Includes
the result of operations of Banks
Broadcasting.
|
Note 19 —
Supplemental Disclosure of Cash Flow Information
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
| (in thousands) | ||||||||||||
|
Cash
paid for interest expense
|
$
|
40,130
|
$
|
48,777
|
$
|
55,644
|
||||||
|
Cash
paid for income taxes – continuing operations
|
$
|
16
|
$
|
1,152
|
$
|
862
|
||||||
|
Cash
(refunded from) paid for income taxes – discontinued
operations
|
-
|
(6
|
)
|
621
|
||||||||
|
Cash
paid for income taxes
|
$
|
16
|
$
|
1,146
|
$
|
1,483
|
||||||
|
Non-cash
investing activities:
|
||||||||||||
|
Accrual
for estimated joint venture loan
|
$
|
6,000
|
$
|
-
|
$
|
-
|
||||||
|
KNVA-TV:
|
||||||||||||
|
Fair
value of broadcast license acquired
|
$
|
-
|
$
|
8,661
|
$
|
-
|
||||||
|
Cash
paid
|
-
|
973
|
-
|
|||||||||
|
Liabilities
assumed
|
$
|
-
|
$
|
7,688
|
$
|
-
|
||||||
On
May 27, 2009, the FCC approved the transfer of the shares of 54
Broadcasting to Vaughan Media, LLC (“Vaughan Media”). 54 Broadcasting
holds the FCC broadcast license to KNVA-TV in Austin, TX, for which we provide
programming under a local marketing agreement. On July 27, 2009, we
assigned our option to purchase the shares of 54 Broadcasting to Vaughan Media,
which acquired the stock of 54 Broadcasting on July 27, 2009. Pursuant to
the settlement agreement we reached on March 2, 2009 with the former
shareholders of 54 Broadcasting, as a result of a complaint filed against us and
Vaughan Media by 54 Broadcasting alleging that our assignment and subsequent
exercise were not valid, on the date of the closing of this transfer, we made a
payment of $6.0 million to 54 Broadcasting prior to Vaughan Media’s exercise of
the option to purchase the shares of 54 Broadcasting. We incurred
approximately $1.7 million of legal and other expenses associated with the
consummation of this transaction.
Note 20
– Valuation and Qualifying Accounts
|
Balance
at Beginning of Period
|
Charged
to Operations
|
Deductions
|
Balance
at End of Period
|
|||||||||||||
|
Allowance
for doubtful accounts as of December 31, (in thousands):
|
||||||||||||||||
|
2009
|
$
|
2,761
|
$
|
791
|
$
|
(1,280
|
)
|
$
|
2,272
|
|||||||
|
2008
|
$
|
1,640
|
$
|
2,458
|
$
|
(1,337
|
)
|
$
|
2,761
|
|||||||
|
2007
|
$
|
1,208
|
$
|
1,709
|
$
|
(1,277
|
)
|
$
|
1,640
|
|||||||
|
Valuation
allowance on state and federal deferred tax assets as of December 31, (in
thousands):
|
||||||||||||||||
|
2009
|
$
|
52,324
|
$
|
(1,345
|
)
|
$
|
-
|
$
|
50,979
|
|||||||
|
2008
|
$
|
13,288
|
$
|
39,036
|
$
|
-
|
$
|
52,324
|
||||||||
|
2007
|
$
|
13,706
|
$
|
(418
|
)
|
$
|
-
|
$
|
13,288
|
|||||||
|
LIN
TV Corp.
|
||||||||
|
Condensed
Balance Sheets
|
||||||||
|
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Investment
in wholly-owned subsidiaries
|
$ | - | $ | - | ||||
|
Total
assets
|
$ | - | $ | - | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Liabilities:
|
||||||||
|
Accumulated
losses in excess of investment in wholly-owned
subsidiaries
|
$ | 133,368 | $ | 136,642 | ||||
|
Stockholders'
(Deficit) Equity:
|
||||||||
|
Class
A common stock, $0.01 par value, 100,000,000 shares
authorized,
|
||||||||
|
Issued:
30,270,167 and 29,733,672 shares at December 31, 2009 and 2008,
respectively
|
||||||||
|
Outstanding:
29,397,349 and 27,927,244 shares at December 31, 2009 and 2008,
respectively
|
294 | 294 | ||||||
|
Class
B common stock, $0.01 par value, 50,000,000 shares
authorized,
|
||||||||
|
23,502,059
shares at December 31, 2008 and 2007, respectively, issued and
outstanding;
|
||||||||
|
convertible
into an equal number of shares of Class A or Class C common
stock
|
235 | 235 | ||||||
|
Class
C common stock, $0.01 par value, 50,000,000 shares authorized, 2 shares
at
|
||||||||
|
December
31, 2009 and 2008, respectively, issued and outstanding;
convertible
|
||||||||
|
into
an equal number of shares of Class A common stock
|
- | - | ||||||
|
Additional
paid-in-capital
|
1,104,161 | 1,101,919 | ||||||
|
Accumulated
deficit
|
(1,238,058 | ) | (1,239,090 | ) | ||||
|
Total
stockholders' (deficit) equity
|
(133,368 | ) | (136,642 | ) | ||||
|
Total
liabilities and stockholders' (deficit) equity
|
$ | - | $ | - | ||||
|
LIN
TV Corp.
|
||||||||||||
|
Condensed
Statement of Operations
|
||||||||||||
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Share
of income (loss) wholly-owned subsidiaries
|
$ | 9,113 | $ | (830,364 | ) | $ | 53,682 | |||||
|
Net
income (loss)
|
$ | 9,113 | $ | (830,364 | ) | $ | 53,682 | |||||
|
Basic
income (loss) per common share
|
$ | 0.18 | $ | (16.33 | ) | $ | 1.07 | |||||
|
Diluted
income (loss) per common share
|
$ | 0.18 | $ | (16.33 | ) | $ | 1.01 | |||||
|
|
||||||||||||
|
Weighted
- average number of common shares outstanding used in calculating
basic income (loss) per common share
|
51,464 | 50,865 | 50,468 | |||||||||
|
Weighted
- average number of common shares outstanding used in calculating
diluted income (loss) per common share
|
51,499 | 50,865 | 55,370 | |||||||||
|
LIN
TV Corp.
|
||||||||||||
|
Condensed
Statement of Cash Flows
|
||||||||||||
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Operating
activities:
|
||||||||||||
|
Net
income (loss)
|
$ | 9,113 | $ | (830,364 | ) | $ | 53,682 | |||||
|
Share
of income (loss) in wholly-owned subsidiaries
|
(9,113 | ) | 830,364 | (53,682 | ) | |||||||
|
Net
cash used in operating activities
|
- | - | - | |||||||||
|
Net
change in cash and cash equivalents
|
- | - | - | |||||||||
|
Cash
and cash equivalents at end of the period
|
$ | - | $ | - | $ | - | ||||||