LIN 10Q - 2014.6.30
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
Quarterly Report pursuant to Section 13 OR 15 (d) of the Securities Exchange Act of 1934
 
For the quarterly period ended June 30, 2014
Commission file number: 001-36032
 
Commission file number: 000-25206
 
 
 
LIN Media LLC
 
LIN Television Corporation
(Exact name of registrant as specified in its charter)
 
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
Delaware
(State or other jurisdiction of incorporation or organization)
 
(State or other jurisdiction of incorporation or organization)
 
 
 
90-0935925
 
13-3581627
(I.R.S. Employer Identification No.)
 
(I.R.S. Employer Identification No.)
 
701 Brazos Street, Suite 800
Austin, Texas 78701
(Address of principal executive offices)
 
(512) 774-6110
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x
 
This combined Form 10-Q is separately filed by (i) LIN Media LLC and (ii) LIN Television Corporation. LIN Television Corporation meets the conditions set forth in general instruction H (1) (a) and (b) of Form 10-Q and is, therefore, filing this form with the reduced disclosure format permitted by such instruction.
 
LIN Media LLC Class A common shares, outstanding as of August 8, 2014: 37,693,498 shares.
LIN Media LLC Class B common shares, outstanding as of August 8, 2014: 17,901,726 shares.
LIN Media LLC Class C common shares, outstanding as of August 8, 2014: 2 shares.
LIN Television Corporation common stock, $0.01 par value, outstanding as of August 8, 2014: 1,000 shares.
 



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EXPLANATORY NOTE
 
On July 30, 2013, LIN TV Corp., a Delaware corporation (“LIN TV”), completed its merger with and into LIN Media LLC, a Delaware limited liability company and wholly owned subsidiary of LIN TV (“LIN LLC”), with LIN LLC as the surviving entity (the “2013 LIN LLC Merger”) pursuant to the Agreement and Plan of Merger, dated February 12, 2013, by and between LIN TV and LIN LLC (the “2013 LIN LLC Merger Agreement”).  Entry into the 2013 LIN LLC Merger Agreement had previously been reported by LIN TV on its Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on February 15, 2013. 

LIN LLC filed a Current Report on Form 8-K on July 31, 2013 (the “Form 8-K”) for the purpose of establishing LIN LLC as the successor registrant to LIN TV pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and to disclose certain related matters, including the consummation of the Merger.  Pursuant to Rule 12g-3(a) under the Exchange Act and in accordance with the filing of the Form 8-K, the class A common shares representing limited liability interests in LIN LLC, as the successor issuer to LIN TV, were deemed registered under Section 12(b) of the Exchange Act.  References to LIN LLC, we, us, or the Company in this Quarterly Report on Form 10-Q that include any period at and before the effectiveness of the 2013 LIN LLC Merger shall be deemed to refer to LIN TV as the predecessor registrant to LIN LLC.  For more information concerning the effects of the 2013 LIN LLC Merger and the succession of LIN LLC to LIN TV upon its effectiveness, please see the Form 8-K.


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Table of Contents
 
 
 
 
 
 
 
 
 


2

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Part I. Financial Information
Item 1. Unaudited Consolidated Financial Statements
 

3

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LIN Media LLC
Consolidated Balance Sheets
(unaudited)
 
June 30,
2014
 
December 31,
2013
 
(in thousands, except share data)
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
19,716

 
$
12,525

Marketable securities
980

 

Accounts receivable, less allowance for doubtful accounts (2014 - $3,867; 2013 - $3,188)
154,115

 
145,309

Deferred income tax assets
7,410

 
6,898

Other current assets
22,442

 
15,201

Total current assets
204,663

 
179,933

Property and equipment, net
217,362

 
221,078

Deferred financing costs
14,861

 
16,448

Goodwill
210,968

 
203,528

Broadcast licenses
536,515

 
536,515

Other intangible assets, net
48,480

 
47,049

Other assets
12,727

 
12,299

Total assets (a)
$
1,245,576

 
$
1,216,850

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Current portion of long-term debt
$
20,495

 
$
17,364

Accounts payable
17,299

 
14,002

Income taxes payable
463

 
1,420

Accrued expenses
67,583

 
51,696

Program obligations
6,968

 
7,027

Total current liabilities
112,808

 
91,509

Long-term debt, excluding current portion
910,729

 
927,328

Deferred income tax liabilities
61,579

 
64,686

Program obligations
3,559

 
4,146

Other liabilities
24,417

 
27,209

Total liabilities (a)
1,113,092

 
1,114,878

Commitments and Contingencies (Note 9)


 


Redeemable noncontrolling interest
9,905

 
12,845

LIN Media LLC shareholders’ equity:
 

 
 

Class A common shares, 100,000,000 shares authorized, Issued: 42,636,094 and 39,013,005 shares as of June 30, 2014 and December 31, 2013, respectively. Outstanding: 37,688,435 and 34,065,346 shares as of June 30, 2014 and December 31, 2013, respectively
642,840

 
624,564

Class B common shares, 50,000,000 shares authorized, 17,901,726 and 20,901,726 shares as of June 30, 2014 and December 31, 2013, respectively, issued and outstanding; convertible into an equal number of shares of class A common or class C common shares
518,365

 
518,395

Class C common shares, 50,000,000 shares authorized, 2 shares as of June 30, 2014 and December 31, 2013, issued and outstanding; convertible into an equal number of shares of class A common shares

 

Treasury shares, 4,947,659 shares of class A common shares as of June 30, 2014 and December 31, 2013, at cost
(21,984
)
 
(21,984
)
Accumulated deficit
(993,338
)
 
(1,006,322
)
Accumulated other comprehensive loss
(25,181
)
 
(25,526
)
Total LIN Media LLC shareholders’ equity
120,702

 
89,127

Noncontrolling interest
1,877

 

Total equity
122,579

 
89,127

Total liabilities, redeemable noncontrolling interest and shareholders’ equity
$
1,245,576

 
$
1,216,850

________________________________________________________________

(a)
Our consolidated assets as of June 30, 2014 and December 31, 2013 include total assets of: $55,165 and $56,056, respectively, of variable interest entities (“VIEs”) that can only be used to settle the obligations of the VIEs. These assets include broadcast licenses and other intangible assets of: $43,565 and $44,677 and program rights of: $1,948 and $2,186 as of June 30, 2014 and December 31, 2013, respectively. Our consolidated liabilities as of June 30, 2014 and December 31, 2013 include $3,752 and $4,126, respectively, of total liabilities of the VIEs for which the VIEs’ creditors have no recourse to the Company, including $2,525 and $2,727, respectively, of program obligations.  See further description in Note 1 — “Basis of Presentation and Summary of Significant Accounting Policies.”

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

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LIN Media LLC
Consolidated Statements of Operations
(unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands, except per share data)
 
(in thousands, except per share data)
Net revenues
$
188,765

 
$
164,346

 
$
355,006

 
$
305,338

 
 
 
 
 
 
 
 
Operating expenses:
 

 
 

 
 

 
 

Direct operating
75,487

 
63,623

 
144,921

 
118,191

Selling, general and administrative
48,308

 
40,040

 
93,248

 
77,338

Amortization of program rights
6,788

 
7,152

 
13,381

 
14,937

Corporate
8,656

 
9,094

 
21,197

 
19,365

Depreciation
11,087

 
11,320

 
21,773

 
22,958

Amortization of intangible assets
5,706

 
5,723

 
11,277

 
11,152

Restructuring charge

 
391

 

 
2,523

Loss from asset dispositions
5

 
87

 
99

 
182

Operating income
32,728

 
26,916

 
49,110

 
38,692

 
 
 
 
 
 
 
 
Other expense:
 

 
 

 
 

 
 

Interest expense, net
14,150

 
14,428

 
28,359

 
28,299

Share of loss in equity investments
25

 
25

 
100

 
25

Other (income) expense, net
(101
)
 
84

 
(83
)
 
60

Total other expense, net
14,074

 
14,537

 
28,376

 
28,384

 
 
 
 
 
 
 
 
Income before provision for income taxes
18,654

 
12,379

 
20,734

 
10,308

Provision for income taxes
7,788

 
5,210

 
8,809

 
4,159

Net income
10,866

 
7,169

 
11,925

 
6,149

Net loss attributable to noncontrolling interests
(461
)
 
(306
)
 
(1,059
)
 
(470
)
Net income attributable to LIN Media LLC
$
11,327

 
$
7,475

 
$
12,984

 
$
6,619

 
 
 
 
 
 
 
 
Basic net income per common share:
 
 
 
 
 
 
 
Net income
$
0.21

 
$
0.14

 
$
0.24

 
$
0.13

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding used in calculating basic income per common share
53,961

 
52,278

 
53,755

 
52,095

 
 
 
 
 
 
 
 
Diluted net income per common share:
 
 
 
 
 
 
 
Net income
$
0.20

 
$
0.13

 
$
0.23

 
$
0.12

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding used in calculating diluted income per common share
56,740

 
55,595

 
56,608

 
55,406

 

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

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LIN Media LLC
Consolidated Statements of Comprehensive Income
(unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands)
 
(in thousands)
Net income
$
10,866

 
$
7,169

 
$
11,925

 
$
6,149

Amortization of pension net losses, reclassified, net of tax of $101 and $169 for the three months ended June 30, 2014 and 2013, respectively, and $225 and $338 for the six months ended June 30, 2014 and 2013, respectively
154

 
259

 
345

 
518

Comprehensive income
11,020

 
7,428

 
12,270

 
6,667

Comprehensive loss attributable to noncontrolling interest
(461
)
 
(306
)
 
(1,059
)
 
(470
)
Comprehensive income attributable to LIN Media LLC
$
11,481

 
$
7,734

 
$
13,329

 
$
7,137

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


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LIN Media LLC
Consolidated Statement of Shareholders’ Equity
(unaudited)
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
Common Shares
 
Treasury
 
 
 
Other
 
 
 
Total
 
Class A
 
Class B
 
Class C
 
Shares
 
Accumulated
 
Comprehensive
 
Noncontrolling
 
Shareholders'
 
Amount
 
Amount
 
Amount
 
(at cost)
 
Deficit
 
Loss
 
Interest
 
Equity
Balance as of December 31, 2013
$
624,564

 
$
518,395

 
$

 
$
(21,984
)
 
$
(1,006,322
)
 
$
(25,526
)
 
$

 
$
89,127

Pension liability adjustment, net of tax of $225

 

 

 

 

 
345

 

 
345

Issuance of class A common shares
1,948

 

 

 

 

 

 

 
1,948

Conversion of class B common shares to class A common shares
30

 
(30
)
 

 

 

 

 

 

Tax benefit from exercise of share options and vesting of restricted share awards
11,965

 

 

 

 

 

 

 
11,965

Share-based compensation
4,333

 

 

 

 

 

 
13

 
4,346

Reclassification from redeemable noncontrolling interest

 

 

 

 

 

 
2,766

 
2,766

Net loss attributable to noncontrolling interest

 

 

 

 

 

 
(902
)
 
(902
)
Net income

 

 

 

 
12,984

 

 

 
12,984

Balance as of June 30, 2014
$
642,840

 
$
518,365

 
$

 
$
(21,984
)
 
$
(993,338
)
 
$
(25,181
)
 
$
1,877

 
$
122,579

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


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LIN Media LLC
Consolidated Statement of Stockholders’ Deficit
(unaudited)
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
Common Stock
 
Treasury
 
Additional
 
 
 
Other
 
Total
 
Class A
 
Class B
 
Class C
 
Stock
 
Paid-In
 
Accumulated
 
Comprehensive
 
Stockholders'
 
Amount
 
Amount
 
Amount
 
(at cost)
 
Capital
 
Deficit
 
Loss
 
Deficit
Balance as of December 31, 2012
$
313

 
$
235

 
$

 
$
(21,984
)
 
$
1,129,691

 
$
(1,164,435
)
 
$
(35,384
)
 
$
(91,564
)
Pension liability adjustment, net of tax of $338

 

 

 

 

 

 
518

 
518

Issuance of class A common stock
3

 

 

 

 
1,156

 

 

 
1,159

Tax benefit from exercise of stock options and vesting of restricted stock awards

 

 

 

 
1,497

 

 

 
1,497

Stock-based compensation

 

 

 

 
4,440

 

 

 
4,440

Net income attributable to LIN TV Corp.

 

 

 

 

 
6,619

 

 
6,619

Balance as of June 30, 2013
$
316

 
$
235

 
$

 
$
(21,984
)
 
$
1,136,784

 
$
(1,157,816
)
 
$
(34,866
)
 
$
(77,331
)
 
The accompanying notes are an integral part of the unaudited consolidated financial statements.

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LIN Media LLC
Consolidated Statements of Cash Flows
(unaudited) 
 
Six Months Ended June 30,
 
2014
 
2013
 
(in thousands)
OPERATING ACTIVITIES:
 

 
 

Net income
$
11,925

 
$
6,149

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

 
 

Depreciation
21,773

 
22,958

Amortization of intangible assets
11,277

 
11,152

Amortization of financing costs and note discounts
1,800

 
1,808

Amortization of program rights
13,381

 
14,937

Cash payments for programming
(13,784
)
 
(16,072
)
Share of loss in equity investments
100

 
25

Deferred income taxes, net
8,103

 
3,803

Share-based compensation
4,346

 
4,528

Loss from asset dispositions
99

 
182

Other, net
1,954

 
846

Changes in operating assets and liabilities, net of acquisitions:
 

 
 

Accounts receivable
717

 
1,203

Other assets
(9,934
)
 
(3,036
)
Accounts payable
(2,118
)
 
(6,479
)
Accrued interest expense
(160
)
 
4,510

Other liabilities and accrued expenses
11,871

 
(3,949
)
Net cash provided by operating activities
61,350

 
42,565

INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(11,463
)
 
(14,170
)
Acquisition of broadcast towers
(7,257
)
 

Payments for business combinations, net of cash acquired
(22,733
)
 
(9,824
)
Proceeds from the sale of assets
107

 
34

Contributions to equity investments
(100
)
 

Purchase of marketable securities
(980
)
 

Capital contribution to joint venture with NBCUniversal

 
(100,000
)
Net cash used in investing activities
(42,426
)
 
(123,960
)
FINANCING ACTIVITIES:
 

 
 

Net proceeds on exercises of employee and director share-based compensation
1,948

 
1,156

Proceeds from borrowings on long-term debt
45,000

 
96,000

Principal payments on long-term debt
(58,681
)
 
(41,617
)
Payment of long-term debt issue costs

 
(652
)
Net cash (used in) provided by financing activities
(11,733
)
 
54,887

Net increase (decrease) in cash and cash equivalents
7,191

 
(26,508
)
Cash and cash equivalents at the beginning of the period
12,525

 
46,307

Cash and cash equivalents at the end of the period
$
19,716

 
$
19,799

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

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LIN Media LLC
Notes to Unaudited Consolidated Financial Statements
 
Note 1 — Basis of Presentation and Summary of Significant Accounting Policies
 
Principles of Consolidation

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

On July 30, 2013, LIN TV Corp., a Delaware corporation (“LIN TV”), completed its merger with and into LIN LLC, a Delaware limited liability company and wholly owned subsidiary of LIN TV, with LIN LLC as the surviving entity (the “2013 LIN LLC Merger”) pursuant to the Agreement and Plan of Merger, dated February 12, 2013, by and between LIN TV and LIN LLC (the “2013 LIN LLC Merger Agreement”).  LIN LLC filed a Current Report on Form 8-K on July 31, 2013 (the “Form 8-K”) for the purpose of establishing LIN LLC as the successor registrant to LIN TV pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and to disclose certain related matters, including the consummation of the 2013 LIN LLC Merger.  Pursuant to Rule 12g-3(a) under the Exchange Act and in accordance with the filing of the Form 8-K, the class A common shares representing limited liability interests in LIN LLC, as the successor registrant to LIN TV, were deemed registered under Section 12(b) of the Exchange Act.  References to "LIN LLC," "we," "us," or the "Company" in this Quarterly Report on Form 10-Q that include any period at and before the effectiveness of the 2013 LIN LLC Merger shall be deemed to refer to LIN TV as the predecessor registrant to LIN LLC.  For more information concerning the effects of the 2013 LIN LLC Merger and the succession of LIN LLC to LIN TV upon its effectiveness, please see the Form 8-K.
 
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany accounts and transactions have been eliminated.
 
In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments necessary to state fairly our financial position, results of operations and cash flows for the periods presented.  The interim results of operations are not necessarily indicative of the results to be expected for the full year.
 
The accompanying consolidated financial statements include the accounts of our Company, our wholly-owned and majority-owned and controlled subsidiaries, and VIEs for which we are the primary beneficiary. We review all local marketing agreements (“LMAs”), shared services agreements (“SSAs”), joint sales agreements (“JSAs”) and related agreements to evaluate whether consolidation of entities that are party to such arrangements is required under U.S. GAAP.

During the first quarter of 2014, we began operating under two segments, which also represent our reportable segments, “Broadcast” and “Digital” that are disclosed separately from our corporate activities. Our Broadcast segment includes 43 television stations and seven digital channels that are either owned, operated or serviced by us in 23 U.S. markets, all of which are engaged principally in the sale of television advertising and digital advertising primarily related to our television station companion websites. Our Digital segment includes the operating results of the following digital companies: LIN Digital LLC ("LIN Digital"), LIN Mobile, LLC ("LIN Mobile"), Nami Media, Inc. ("Nami Media"), HYFN, Inc. ("HYFN"), Dedicated Media, Inc. ("Dedicated Media"), and Federated Media Publishing LLC ("Federated Media"). Corporate and unallocated expenses primarily include our costs to operate as a public company and to operate our corporate locations. Corporate is not a reportable segment. We have retrospectively recast prior period disclosures to reflect this change in our reportable operating segments. See Note 5 - “Segment Reporting” for further discussion. Prior to January 1, 2014, we had one reportable segment.

We conduct our business through LIN Television and its subsidiaries.  Prior to the 2013 LIN LLC Merger, LIN TV had no operations or assets other than its investments in its subsidiaries.  Subsequent to the 2013 LIN LLC Merger and consistent with its classification as a partnership for federal income tax purposes, LIN LLC has separate operations relating to the administration of the partnership.  The consolidated financial statements of LIN LLC represent its own operations and the consolidated operations of LIN Television, which remains a corporation after the 2013 LIN LLC Merger.  

On July 24, 2014, we filed a joint proxy statement/prospectus with the Securities and Exchange Commission which was mailed to the shareholders of LIN LLC in connection with a special meeting of the shareholders of LIN LLC to be held on August 20, 2014 for the purpose of voting on the proposal to adopt the Agreement and Plan of Merger, dated March 21, 2014, with Media General, Inc., a Virginia corporation ("Media General"), Mercury New Holdco, Inc., a Virginia corporation (“New Holdco”),

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Mercury Merger Sub 1, Inc., a Virginia corporation and a direct, wholly-owned subsidiary of New Holdco (“Merger Sub 1”), Mercury Merger Sub 2, LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of New Holdco (“Merger Sub 2”) (the “Merger Agreement”). If the transactions contemplated by the Merger Agreement (the "Merger") are completed, LIN LLC will become a wholly-owned subsidiary of New Holdco and Media General will become a wholly-owned subsidiary of LIN LLC ("New Media General"). The combined company will own and operate or service 74 stations across 46 markets, reaching approximately 26.5 million households or 23% of U.S. TV households (certain of these stations are expected to be swapped or otherwise divested in order to address regulatory considerations). The transaction is currently expected to close during the first quarter of 2015.

 Joint Venture Sale Transaction and Merger
 
On February 12, 2013, we, along with our wholly-owned subsidiaries LIN Television and LIN Television of Texas, L.P., a Delaware limited partnership (“LIN Texas”) entered into an agreement whereby LIN Texas sold its 20.38% equity interest in Station Venture Holdings ("SVH"), a joint venture in which an affiliate of NBCUniversal ("NBC") held the remaining 79.62% equity interest (collectively, the “JV Sale Transaction”). Pursuant to the JV Sale Transaction, LIN Television made a $100 million capital contribution to SVH and in turn, was released from the guarantee of an $815.5 million note held by SVH ("GECC Guarantee") as well as any further obligations related to any shortfall funding agreements between LIN Television and SVH.
 
Concurrent with the closing of the JV Sale Transaction, LIN TV entered into the 2013 LIN LLC Merger Agreement. The 2013 LIN LLC Merger enabled the surviving entity to be classified as a partnership for federal income tax purposes and the change in classification was treated as a liquidation of LIN TV for federal income tax purposes, with the result that LIN TV realized a capital loss in its 100% equity interest in LIN Television.

For further discussion of the JV Sale Transaction and the 2013 LIN LLC Merger, refer to Item 1. "Business," Note 1 - "Basis of Presentation and Summary of Significant Accounting Policies," and Note 13 - "Commitments and Contingencies" to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2013 (the "10-K").
 
Variable Interest Entities
 
In determining whether we are the primary beneficiary of a VIE for financial reporting purposes, we consider whether we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and whether we have the obligation to absorb losses or the right to receive returns that would be significant to the VIE. We consolidate VIEs when we are the primary beneficiary.
 
We have a JSA and an SSA with WBDT Television, LLC (“WBDT”) for WBDT-TV in the Dayton, OH market. We also have JSAs and SSAs with affiliates of Vaughan Acquisition LLC (“Vaughan”) for WTGS-TV in the Savannah, GA market, WYTV-TV in the Youngstown, OH market and KTKA-TV in the Topeka, KS market and SSAs with KASY-TV Licensee, LLC (“KASY”), KWBQ-TV, KRWB-TV and KASY-TV in the Albuquerque, Santa-Fe NM market. Under these agreements, we provide administrative services to these stations, have an obligation to reimburse certain of the stations' expenses, and we are compensated through a performance-based fee structure that provides us the benefit of certain returns from the operation of these stations. We determined that WBDT, Vaughan and KASY are VIEs and as a result of the JSAs and/or SSAs, we have variable interests in these entities. We are the primary beneficiary of these entities, and therefore, we consolidate these entities within our consolidated financial statements.

An order that the Federal Communications Commission (“FCC”) adopted in March 2014, however, will require changes in our relationship with these entities going forward. In that order, the FCC concluded that JSAs should be “attributable” for purposes of the media ownership rules if they permit a television licensee to sell more than 15% of the commercial inventory of a television station owned by a third party in the same market. Stations with JSAs that would put them in violation of the new rules will have until June 19, 2016 to amend or terminate those arrangements, unless they are able to obtain a waiver of such rules. Accordingly, absent further developments, we will be required to modify or terminate our existing JSAs by no later than June 19, 2016.

The carrying amounts and classifications of the assets and liabilities of the variable interest entities described above, which have been included in our consolidating balance sheets as of June 30, 2014 and December 31, 2013 are as follows (in thousands):

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June 30,
2014
 
December 31,
2013
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
418

 
$
278

Accounts receivable, net
6,823

 
6,345

Other assets
913

 
927

Total current assets
8,154

 
7,550

Property and equipment, net
2,192

 
2,469

Broadcast licenses and other intangible assets, net
43,565

 
44,677

Other assets
1,254

 
1,360

Total assets
$
55,165

 
$
56,056

 
 
 
 
LIABILITIES
 

 
 

Current liabilities:
 

 
 

Current portion of long-term debt
$
1,162

 
$
1,162

Accounts payable
45

 
63

Accrued expenses
1,184

 
1,336

Program obligations
1,283

 
1,303

Total current liabilities
3,674

 
3,864

Long-term debt, excluding current portion
2,424

 
3,005

Program obligations
1,242

 
1,424

Other liabilities
47,825

 
47,763

Total liabilities
$
55,165

 
$
56,056

 
The assets of our consolidated VIEs can only be used to settle the obligations of the VIEs and may not be sold, or otherwise disposed of, except for assets sold or replaced with others of like kind or value. Other liabilities of $47.8 million and $47.8 million as of June 30, 2014 and December 31, 2013, respectively, serve to reduce the carrying value of the entities, and are eliminated in our consolidated financial statements. This reflects the fact that as of June 30, 2014 and December 31, 2013, LIN Television has an option that it may exercise if the FCC attribution rules change. The option would allow LIN Television to acquire the assets or member’s interest of the VIE entities for a nominal exercise price, which is significantly less than the carrying value of their tangible and intangible net assets. The options are carried at zero on our consolidated balance sheet, as any value attributable to the options is eliminated in the consolidation of the VIEs. In an order adopted in March 2014, the FCC concluded that JSAs should be “attributable” for purposes of the media ownership rules if they permit a television licensee to sell more than 15% of the commercial inventory of a television station owned by a third party in the same market. Stations with JSAs that would put them in violation of the new rules will have until June 19, 2016 to amend or terminate those arrangements, unless they are able to obtain a waiver of such rules. Accordingly, absent further developments, or the grant of waivers, we will be required to modify or terminate our existing JSAs no later than June 19, 2016.

Redeemable Noncontrolling Interest
 
The redeemable noncontrolling interest as of December 31, 2013 includes the interest of minority shareholders of HYFN, Dedicated Media and Nami Media. During the six months ended June 30, 2014, we have reclassified the interest of the minority shareholders of Nami Media to permanent equity, as the mandatory redemption feature of Nami Media's minority shareholders' interest terminated in February 2014. Accordingly, the following table presents the activity of the redeemable noncontrolling interest included in our consolidated balance sheets related to HYFN and Dedicated Media, which represents third parties’ proportionate share of our consolidated net assets (in thousands):
 

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Redeemable
Noncontrolling
Interest
Balance as of December 31, 2013
$
12,845

Net loss
(1,059
)
Share-based compensation and other
(4
)
Reclassification to noncontrolling interest (Nami Media)
(1,877
)
Balance as of June 30, 2014
$
9,905

 
Use of Estimates
 
The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the notes thereto. Our actual results could differ from these estimates. Estimates are used for the allowance for doubtful accounts in receivables, valuation of goodwill and intangible assets, assumptions used to determine fair value of financial instruments, amortization and impairment of program rights and intangible assets, share-based compensation and other long-term incentive compensation arrangements, pension costs, barter transactions, income taxes, employee medical insurance claims, useful lives of property and equipment, contingencies, litigation and net assets of businesses acquired.
 
Net Earnings per Common Share
 
Basic earnings per share (“EPS”) is computed by dividing income attributable to common shareholders by the number of weighted-average outstanding common shares.  Diluted EPS reflects the effect of the assumed exercise of share options and vesting of restricted shares only in the periods in which such effect would have been dilutive.
 
The following table sets forth the computation of the common shares outstanding used in determining basic and diluted EPS (in thousands):

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Denominator for EPS calculation:
 
2014
 
2013
 
2014
 
2013
Weighted-average common shares, basic
 
53,961

 
52,278

 
53,755

 
52,095

Effect of dilutive securities:
 
0

 
 

 
0

 
 

Share options
 
2,779

 
3,317

 
2,853

 
3,311

Weighted-average common shares, diluted
 
56,740

 
55,595

 
56,608

 
55,406

 
We apply the treasury stock method to measure the dilutive effect of our outstanding share options and restricted share awards and include the respective common share equivalents in the denominator of our diluted EPS calculation.  Securities representing zero common shares for the three and six months ended June 30, 2014, respectively and less than 0.1 million shares of common stock for the three and six months ended June 30, 2013, respectively, were excluded from the computation of diluted EPS for these periods because their effect would have been anti-dilutive.  The net income per share amounts are the same for our class A, class B and class C common shares because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.

Cash and Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") and the International Accounting Standards Board ("IASB") issued a converged standard on revenue recognition from contracts with customers, ASU 2014-09 (Topic 606 and IFRS 15). This standard will supersede nearly all existing revenue recognition guidance. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. We are currently evaluating the impact this guidance will have on our financial condition, results of operations and cash flows.

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In April 2014, the FASB issued Accounting Standard Update No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360) - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" ("ASU 2014-08"). ASU 2014-08 changes the threshold for disclosing discontinued operations and the related disclosure requirements. Pursuant to ASU 2014-08, only disposals representing a strategic shift, such as a major line of business, a major geographical area or a major equity investment, should be presented as a discontinued operation. ASU 2014-08 is effective for annual periods beginning on or after December 15, 2014 with early adoption permitted but only for disposals or classifications as held for sale which have not been reported in financial statements previously issued or available for issuance. We are currently evaluating the impact that the new guidance will have on our disclosures and consolidated financial statements.

Note 2 — Acquisitions

Federated Media Publishing, Inc.
On February 3, 2014, LIN Digital Media LLC, a wholly owned subsidiary of LIN Television, acquired 100% of the capital stock of Federated Media Publishing, Inc., which we subsequently converted into a Delaware limited liability company ("Federated Media"). Federated Media is a digital content and conversational marketing company that leverages the relationships and content from its publishing network to deliver contextually relevant advertising and conversational and engagement tools that reach agencies’ and brands’ targeted audiences across digital and social media platforms. The purchase price totaled $22.5 million, net of cash, including post-closing adjustments, and was funded from cash on hand and amounts drawn on our revolving credit facility.
The following table summarizes the provisional allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed by us in the acquisition (in thousands):

Current assets
$
9,811

Property and equipment
72

Non-current assets
195

Other intangible assets
11,497

Goodwill
7,440

Current liabilities
(6,501
)
Total
$
22,514

 
The amount allocated to definite-lived intangible assets represents the estimated fair values of publisher relationships of $4.2 million, customer relationships of $1.2 million, completed technology of $3.9 million, and trademarks of $2.2 million. These intangible assets will be amortized over the estimated remaining useful lives of approximately 8 years for publisher relationships, 4 years for customer relationships, 3 years for completed technology and 7 years for trademarks.
 
Goodwill of $7.4 million is the excess of the aggregate purchase price over the fair value of the identifiable net assets acquired, and primarily represents the benefits of the incremental revenue we expect to generate from the acquisition of Federated Media.  All of the goodwill recognized in connection with the acquisition of Federated Media is deductible for tax purposes.
 
Net revenues and operating loss of Federated Media included in our consolidated statements of operations for the six months ended June 30, 2014 were $10.4 million and $0.7 million, respectively.
 
Dedicated Media, Inc.
 
On April 9, 2013, LIN Television acquired a 60% interest (calculated on a fully diluted basis) in Dedicated Media, a multi-channel advertisement buying and optimization company.  Under the terms of our agreement with Dedicated Media, we agreed to purchase the remaining outstanding shares of Dedicated Media by no later than February 15, 2015 if Dedicated Media achieves both (i) a target earnings before interest, taxes, depreciation and amortization (“EBITDA”) and (ii) a target gross profit in 2014, as outlined in the purchase agreement.  The purchase price of these shares is based on multiples of Dedicated Media’s 2014 EBITDA and gross profit.  Our maximum potential obligation under the purchase agreement is $26 million.  If Dedicated Media does not meet the target EBITDA or target gross profit in 2014, we have the option to purchase the remaining outstanding shares using the same purchase price multiple.


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 HYFN, Inc.
 
On April 4, 2013, LIN Television acquired a 50.1% interest (calculated on a fully diluted basis) in HYFN, a full service digital advertising agency specializing in the planning, development, deployment and support for websites, mobile sites, interactive banners, games and various applications for multiple devices.  Under the terms of our agreement with HYFN, we agreed to purchase the remaining outstanding shares of HYFN by no later than February 15, 2016 if HYFN achieves both (i) a target EBITDA and (ii) target net revenues in 2015, as outlined in the transaction agreements.  The purchase price of these shares is based on multiples of HYFN’s 2015 net revenue and EBITDA.  Our maximum potential obligation under the terms of our agreement is approximately $62.4 million.  If HYFN does not meet the target EBITDA or target net revenues in 2015, we have the option to purchase the remaining outstanding shares using the same purchase price multiple.
 
Our obligations to purchase the noncontrolling interest holders’ shares of both Dedicated Media and HYFN are outside of our control, because they are based on the achievement of certain financial targets described above. Therefore, the noncontrolling interest related to Dedicated Media and HYFN as of June 30, 2014 has been reported as redeemable noncontrolling interest and classified as temporary equity on our consolidated balance sheets. As of the acquisition dates, the fair values of the noncontrolling interests were $3.8 million and $7.2 million for Dedicated Media and HYFN, respectively, and were measured based on the purchase prices for our 60% and 50.1% ownership interest in Dedicated Media and HYFN, respectively, and the net assets acquired as of the acquisition dates. As of June 30, 2014, we believe that achievement of the financial targets is not yet probable and therefore, have not reflected these obligations in our consolidated financial statements.
 
If we do not purchase the remaining outstanding shares of Dedicated Media or HYFN by the dates set forth in the respective purchase agreements, the noncontrolling interest holders have the right to purchase our interest. The purchase price of these shares is based on the same purchase price multiple described above and is exercisable only if the applicable financial targets are not met and we do not elect to purchase the remaining interest. The fair value of this option is zero and no amounts related to these options are included in our consolidated financial statements as of June 30, 2014.

Pro Forma Information
 
The following table sets forth unaudited pro forma results of operations for the six months ended June 30, 2014 and June 30, 2013 assuming that the above acquisitions of Federated Media, Dedicated Media and HYFN along with transactions necessary to finance the acquisitions, occurred on January 1, 2013 (in thousands):
 
 
Six Months Ended 
 June 30, 2014
 
Six Months Ended 
 June 30, 2013
Net revenue
$
356,373

 
$
329,016

Net income
$
11,189

 
$
967

Basic income per common share attributable to LIN Media LLC
$
0.21

 
$
0.02

Diluted income per common share attributable to LIN Media LLC
$
0.20

 
$
0.02

 
This pro forma financial information is based on historical results of operations, adjusted for the allocation of the purchase price and other acquisition accounting adjustments, and is not necessarily indicative of what our results would have been had we operated the business since January 1, 2013. The pro forma adjustments for the six months ended June 30, 2014 and 2013 reflect depreciation expense, amortization of intangibles related to the fair value adjustments of the assets acquired, additional interest expense related to the financing of the transaction and the related tax effects of the adjustments.

In connection with the acquisition of Federated Media, we and Federated Media incurred a combined total of $0.8 million of transaction related costs primarily related to legal and other professional services. These costs were not included in the 2014 pro forma amounts. The 2013 pro forma net income was adjusted to include these costs, as they are directly attributable to the acquisition of Federated Media.

Note 3 — Intangible Assets
 
Goodwill totaled $211 million and $203.5 million at June 30, 2014 and December 31, 2013, respectively. The change in the carrying amount of goodwill during the six months ended June 30, 2014 was as follows (in thousands):
 

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Goodwill
Broadcast:
 
Balance as of December 31, 2013
$
185,237

Acquisitions

Balance as of June 30, 2014
$
185,237

Digital:
 
Balance as of December 31, 2013
18,291

Acquisitions
7,440

Balance as of June 30, 2014
$
25,731

Total:
 
Balance as of December 31, 2013
$
203,528

Acquisitions
7,440

Balance as of June 30, 2014
$
210,968


The following table summarizes the carrying amounts of intangible assets (in thousands):
 
 
June 30, 2014
 
December 31, 2013
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Broadcast licenses
$
536,515

 
$

 
$
536,515

 
$

Intangible assets subject to amortization (1)
98,673

 
(50,193
)
 
85,966

 
(38,917
)
Total
$
635,188

 
$
(50,193
)
 
$
622,481

 
$
(38,917
)
 
(1)
Intangible assets subject to amortization are amortized on a straight line basis and primarily include network affiliations, acquired customer and publisher relationships, completed technology, brand names, non-compete agreements, internal-use software, favorable operating leases, and retransmission consent agreements.

Note 4— Debt
 
LIN LLC guarantees all of LIN Television’s debt.  All of the consolidated 100% owned subsidiaries of LIN Television fully and unconditionally guarantee LIN Television’s senior secured credit facility, the 83/8% Senior Notes due 2018 (the “83/8% Senior Notes”), and the 63/8% Senior Notes due 2021 (the “63/8% Senior Notes”) on a joint-and-several basis.

Debt consisted of the following (in thousands):
 
 
June 30,
2014
 
December 31,
2013
Senior Secured Credit Facility:
 

 
 

Revolving credit loans
$

 
$
5,000

$112,500 and $118,750 Term loans, net of discount of $300 and $345 as June 30, 2014 and December 31, 2013, respectively
112,200

 
118,405

$312,600 and $314,200 Incremental term loans, net of discount of $1,515 and $1,684 as of June 30, 2014 and December 31, 2013, respectively
311,085

 
312,516

83/8% Senior Notes due 2018
200,000

 
200,000

63/8% Senior Notes due 2021
290,000

 
290,000

Capital lease obligations
14,354

 
14,604

Other debt
3,585

 
4,167

Total debt
931,224

 
944,692

Less current portion
20,495

 
17,364

Total long-term debt
$
910,729

 
$
927,328


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During the three and six months ended June 30, 2014, we paid $3.9 million and $7.9 million, respectively, of principal on the term loans and incremental term loans related to mandatory quarterly payments under our senior secured credit facility, respectively.

During the six months ended June 30, 2014, we drew $45 million on our revolving credit facility to fund the acquisition of Federated Media as well as normal operating activities. We subsequently made payments against these borrowings, resulting in an outstanding balance on our revolving credit facility of zero as of June 30, 2014.

The fair values of our long-term debt are estimated based on quoted market prices for the same or similar issues (Level 2 inputs of the three-level fair value hierarchy).  The carrying amounts and fair values of our long-term debt were as follows (in thousands):
 
June 30,
2014
 
December 31,
2013
Carrying amount
$
916,871

 
$
930,088

Fair value
942,968

 
954,255

 
Note 5 — Segment Reporting

During the first quarter of 2014, we began operating under two operating segments, which also represent our reportable segments, “Broadcast” and “Digital” that are disclosed separately from our corporate activities. Our Broadcast segment includes 43 television stations and seven digital channels that are either owned, operated or serviced by us in 23 U.S. markets, all of which are engaged principally in the sale of television advertising and digital advertising primarily related to our television station companion websites, and our Digital segment includes the operating results of the following digital companies; LIN Digital, LIN Mobile, Nami Media, HYFN, Dedicated Media, and Federated Media. Unallocated corporate expenses primarily include our costs to operate as a public company and to operate our corporate locations.

We use earnings before interest, taxes, depreciation and amortization, excluding non-recurring charges, restructuring charges, share-based compensation, loss or gain on sales of assets, and adjusting amortization of program rights to deduct cash paid for programming (“Adjusted EBITDA”) as the primary financial measure reported to the chief executive officer (the chief operating decision maker) for use in assessing our operating segments’ operating performance. We believe that this measure is useful to investors because it eliminates significant non-cash expenses and non-recurring charges and as a result, allows investors to better understand our operating segments’ performance. All adjustments to Adjusted EBITDA presented below to arrive at consolidated income before income taxes except for depreciation and amortization and cash paid for programming relate primarily to corporate activities. Cash paid for programming pertains only to our Broadcast segment. As a result, we have disclosed depreciation and amortization by segment, as this is the only adjustment to operating income that the chief executive officer reviews on a segment basis. We have retrospectively recast prior period disclosures to reflect this change in our reportable segments.

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands)
 
(in thousands)
Net revenues:
 
 
 
 
 
 
 
Broadcast
$
155,581

 
$
143,509

 
$
297,296

 
$
275,460

Digital
33,184

 
20,837

 
57,710

 
29,878

Total net revenues
$
188,765

 
$
164,346

 
$
355,006

 
$
305,338


The following table is a reconciliation of Adjusted EBITDA to consolidated income before provision for income taxes:


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Table of Contents

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands)
 
(in thousands)
 
 
 
 
 
 
 
 
Segment Adjusted EBITDA:
 
 
 
 
 
 
 
Broadcast
$
58,780

 
$
51,164

 
$
106,250

 
$
91,759

Digital
555

 
1,796

 
(338
)
 
1,960

Total segment Adjusted EBITDA
59,335

 
52,960

 
105,912

 
93,719

Unallocated corporate Adjusted EBITDA
(5,975
)
 
(5,189
)
 
(13,226
)
 
(9,808
)
Less:
 
 
 
 
 
 
 
Depreciation
11,087

 
11,320

 
21,773

 
22,958

Amortization of intangible assets
5,706

 
5,723

 
11,277

 
11,152

Amortization of program rights
6,788

 
7,152

 
13,381

 
14,937

Share-based compensation
2,039

 
2,587

 
4,346

 
4,528

Non-recurring(1) and acquisition-related charges
1,925

 
1,960

 
6,484

 
5,011

Restructuring charge

 
391

 

 
2,523

Loss on sale of assets
5

 
87

 
99

 
182

Add:
 
 
 
 
 
 
 
Cash payments for programming
6,918

 
8,365

 
13,784

 
16,072

Operating income
32,728

 
26,916

 
49,110

 
38,692

Other expense:
 
 
 
 
 
 
 
Interest expense, net
14,150

 
14,428

 
28,359

 
28,299

Share of loss in equity investments
25

 
25

 
100

 
25

Other (income) expense, net
(101
)
 
84

 
(83
)
 
60

Total other expense, net
14,074

 
14,537

 
28,376

 
28,384

Consolidated income before provision for income taxes
$
18,654

 
$
12,379

 
$
20,734

 
$
10,308

_______________________________
(1) Non-recurring charges for the three and six months ended June 30, 2014 primarily consist of expenses related to the Merger and non-recurring charges for the three and six months ended June 30, 2013 primarily consist of expenses related to the 2013 LIN LLC Merger.

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands)
 
(in thousands)
Operating income:
 
 
 
 
 
 
 
Broadcast
$
44,675

 
$
36,540

 
$
78,149

 
$
60,698

Digital
(1,422
)
 
740

 
(4,100
)
 
242

Unallocated corporate
(10,525
)
 
(10,364
)
 
(24,939
)
 
(22,248
)
Total operating income
$
32,728

 
$
26,916

 
$
49,110

 
$
38,692

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands)
 
(in thousands)
Depreciation and amortization:
 
 
 
 
 
 
 
Broadcast
$
14,218

 
$
15,846

 
$
28,354

 
$
32,110

Digital
1,981

 
1,036

 
3,756

 
1,677

Unallocated corporate
594

 
161

 
940

 
323

Total depreciation and amortization
$
16,793

 
$
17,043

 
$
33,050

 
$
34,110



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Table of Contents

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands)
 
(in thousands)
Capital expenditures:
 
 
 
 
 
 
 
Broadcast
$
4,368

 
$
5,640

 
$
8,305

 
$
11,369

Digital
1,247

 
884

 
2,386

 
1,683

Unallocated corporate
239

 
848

 
772

 
1,118

Total capital expenditures
$
5,854

 
$
7,372

 
$
11,463

 
$
14,170


 
June 30,
 
December 31,
 
2014
 
2013
 
(in thousands)
Assets:
 
 
 
Broadcast
$
1,089,107

 
$
1,100,343

Digital
93,847

 
69,690

Unallocated corporate
62,622

 
46,817

Total assets
$
1,245,576

 
$
1,216,850


Note 6 — Retirement Plans
 
The following table shows the components of the net periodic pension cost and the contributions to our 401(k) Plan and the retirement plans (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Net periodic pension (benefit) cost:
 

 
 

 
 

 
 

Interest cost
$
1,521

 
$
1,314

 
$
3,019

 
$
2,628

Expected return on plan assets
(1,782
)
 
(1,670
)
 
(3,540
)
 
(3,340
)
Amortization of net loss
254

 
428

 
569

 
856

Net periodic (benefit) cost
$
(7
)
 
$
72

 
$
48

 
$
144

Contributions:
 

 
 

 
 

 
 

401(k) Plan
$
1,003

 
$
1,092

 
$
2,145

 
$
2,424

Defined contribution retirement plans
33

 
35

 
72

 
84

Defined benefit retirement plans
1,333

 
1,416

 
2,680

 
2,713

Total contributions
$
2,369

 
$
2,543

 
$
4,897

 
$
5,221


See Note 10 — “Retirement Plans” in Item 15 of our 10-K for a full description of our retirement plans.
 
Note 7 — Restructuring
 
As of December 31, 2013, we had a restructuring accrual of $0.4 million related to severance and related costs as a result of the integration of the television stations acquired during 2012 as well as severance and related costs at some of our digital companies.  During the six months ended June 30, 2014, we made cash payments of $0.3 million related to these restructuring actions.  We expect to make cash payments of approximately $0.1 million during the remainder of the year with respect to such transactions.

The activity for these restructuring actions is as follows (in thousands):
 

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 Severance and
Related
Balance as of December 31, 2013
 
$
423

Charges
 

Payments
 
283

Balance as of June 30, 2014
 
$
140

 
Note 8 — Income Taxes
 
We recorded a provision for income taxes of $7.8 million and $8.8 million for the three and six months ended June 30, 2014, respectively, compared to a provision from income taxes of $5.2 million and $4.2 million for the three and six months ended June 30, 2013, respectively.  The provision for income taxes for the three and six months ended June 30, 2014 was primarily a result of our $18.7 million and $20.7 million income from operations before taxes during the three and six months ended June 30, 2014, respectively. Our effective income tax rate was 42.5% and 40.4% for the six months ended June 30, 2014 and June 30, 2013, respectively.  The increase in the effective income tax rate was primarily a result of an increase in state taxes, net of federal benefit, due to an increase in income from operations before taxes as compared to the same periods in the prior year. We expect our effective income tax rate to range between 40% and 42% during the remainder of 2014.
 
During the first quarter of 2013, approximately $162.8 million of short term deferred tax liabilities were reclassified to income taxes payable upon the consummation of the JV Sale Transaction. As a result of the close of the 2013 LIN LLC Merger on July 30, 2013, $131.5 million of this tax liability was extinguished, resulting in a remaining tax liability of approximately $31.3 million associated with the JV Sale Transaction. We made state and federal tax payments to settle this liability during the fourth quarter of 2013.  For further discussion regarding the income tax effects of the JV Sale Transaction and the 2013 LIN LLC Merger, see Note 1 — “Basis of Presentation and Summary of Significant Accounting Policies” and Note 13 — “Commitments and Contingencies” to our consolidated financial statements in our 10-K.
 
Note 9 — Commitments and Contingencies
 
Contingencies
 
GECC Guarantee and the 2013 LIN LLC Merger
 
As further described in Note 1 - "Basis of Presentation and Summary of Significant Accounting Policies," pursuant to the JV Sale Transaction, LIN Television made a $100 million capital contribution to SVH and in turn, was released from the GECC Guarantee as well as any further obligations related to any shortfall funding agreements between LIN Television and SVH.
In February 2013, we entered into a $60 million Incremental Facility and utilized $40 million of cash on hand and borrowings under our revolving credit facility to fund the $100 million payment.

As a result of the JV Sale Transaction, after utilizing all of our available Federal net operating loss (“NOL”) carryforwards, we had an approximate $162.8 million income tax payable remaining, $131.5 million of which was extinguished as a result of the 2013 LIN LLC Merger. We made state and federal tax payments to settle the remaining liability of $31.3 million during the fourth quarter of 2013.
 
For further discussion of the GECC Guarantee and the 2013 LIN LLC Merger, refer to Note 13 - "Commitments and Contingencies" to our consolidated financial statements in our 10-K.

The Merger

During the next 12 months and through the completion of the Merger, we expect to incur approximately $3 - $4 million of legal and professional fees associated with the transaction and related financing.  Contingent upon the consummation of the Merger and dependent upon the price of Media General's Class A common stock on the date of consummation, we will incur an advisory fee payable to J.P. Morgan Securities LLC, which we expect will be funded from the proceeds of Media General’s transaction financing. Based on the price of Media General's Class A common stock as of August 6, 2014, this advisory fee is estimated to be approximately $23 million, of which $1.5 million has already been paid. This advisory fee is contingent upon the consummation of the Merger and is not earned by JP Morgan until the Merger occurs. As of the date of this report, none of the necessary approvals or consents have been obtained from the FCC or the shareholders of Media General or LIN and as a

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result, there is no assurance that the Merger and the corresponding advisory fee to be paid to JP Morgan will occur. As a result we do not deem the payment of the advisory fee to be probable and accordingly, did not record an obligation for this amount as of June 30, 2014.

Litigation

We are involved in various claims and lawsuits that are generally incidental to our business. We are vigorously contesting all of these matters. The outcome of any current or future litigation cannot be accurately predicted. We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss can be made at this time because the inherently unpredictable nature of legal proceedings may be exacerbated by various factors, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; or (vi) there is a wide range of potential outcomes. Although the outcome of these and other legal proceedings cannot be predicted, we believe that their ultimate resolution will not have a material adverse effect on us.
 
Following the announcement on March 21, 2014 of the execution of the Merger Agreement, three complaints were filed in the Delaware Court of Chancery challenging the proposed acquisition of LIN LLC: Sciabacucchi v. Lin Media LLC, et al. (C.A. No. 9530CB), International Union of Operating Engineers Local 132 Pension Fund v. Lin Media LLC, et al. (C.A. No.9538CB), and Pryor v. Lin Media LLC, et al. (C.A. No. 9577CB). The litigations are putative class actions filed on behalf of the public stockholders of LIN LLC and name as defendants LIN LLC, our directors, Media General, New Holdco, Merger Sub 1 and Merger Sub 2 and HM Capital Partners LLC and several of our alleged affiliates (Hicks, Muse, Tate & Furst Equity Fund III, L.P.; HM3 Coinvestors, L.P.; Hicks, Muse, Tate & Furst Equity Fund IV, L.P.; Hicks, Muse, Tate & Furst Private Equity Fund IV, L.P.; HM4EQ Coinvestors, L.P.; Hicks, Muse & Co. Partners, L.P.; Muse Family Enterprises, Ltd.; and JRM Interim Investors, L.P. (together with HM Capital Partners LLC and individual director defendant John R. Muse, which we collectively refer to as “HMC”)).

On April 18, 2014, the plaintiff in Engineers Local 132 Pension Fund voluntarily dismissed that action without prejudice and, on April 21, 2014, the Court approved the dismissal.

The operative complaints generally allege that the individual defendants breached their fiduciary duties in connection with their consideration and approval of the Merger, that the entity defendants aided and abetted those breaches and that individual director defendant Royal W. Carson III and HMC breached their fiduciary duties as controlling shareholders of LIN LLC by causing LIN LLC to enter into the Merger, which plaintiffs allege will provide disparate consideration to HMC. The complaints seek, among other things, declaratory and injunctive relief enjoining the Merger. On April 25, 2014, the plaintiff in the Sciabacucchi action filed an amended complaint, and the plaintiffs in the Sciabacucchi and Pryor actions each filed a motion for an expedited hearing on the plaintiff’s (yet-to-be filed) motion for a permanent injunction to enjoin the Merger, requesting, among other things, that the Court set a permanent injunction hearing for September 2014. On April 30, 2014, the plaintiffs in the Sciabacucchi and Pryor actions filed a stipulation to consolidate the two actions, which was approved by the Court on May 1, 2014.
On May 15, 2014, plaintiffs in the consolidated action sent a letter to the Court withdrawing the pending motion to expedite.

The outcome of the lawsuit is uncertain and cannot be predicted with any certainty. An adverse judgment for monetary damages could have a material adverse effect on our operations and liquidity. An adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the Merger.


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Note 10 — Subsequent Event

On August 11, 2014, we received notice from CBS Television Network, a division of CBS Inc. that it will not renew the network affiliation agreement for WISH-TV in Indianapolis, Indiana when that agreement expires on December 31, 2014.  We are currently evaluating the impact of this event, including assessing the recoverability of the carrying value of the intangible assets associated with this television station.

Note 11 — Condensed Consolidating Financial Statements
 
LIN Television, a 100% owned subsidiary of LIN LLC, is the primary obligor of our senior secured credit facility, our 83/8% Senior Notes and our 63/8% Senior Notes, which are further described in Note 4 — “Debt”.  LIN LLC fully and unconditionally guarantees all of LIN Television’s debt on a joint-and-several basis.  Additionally, all of the consolidated 100% owned subsidiaries of LIN Television fully and unconditionally guarantee LIN Television’s senior secured credit facility, our 83/8% Senior Notes and our 63/8% Senior Notes on a joint-and-several basis, subject to customary release provisions.  There are certain contractual restrictions on LIN Television’s ability to obtain funds in the form of dividends or loans from the non-guarantor subsidiaries.
 
The following condensed consolidating financial statements present the consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income and consolidated statements of cash flows of LIN LLC, LIN Television, as the issuer, the guarantor subsidiaries, and the non-guarantor subsidiaries of LIN Television and the elimination entries necessary to consolidate or combine the issuer with the guarantor and non-guarantor subsidiaries.  These statements are presented in accordance with the disclosure requirements under SEC Regulation S-X Rule 3-10.


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Condensed Consolidating Balance Sheet
As of June 30, 2014
(in thousands)
 
LIN Media LLC
 
LIN Television
Corporation
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating/
Eliminating
Adjustments
 
LIN Media LLC
Consolidated
ASSETS
 

 
 

 
 

 
 

 
 

 
 

Current assets:
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
421

 
$
16,666

 
$
1,227

 
$
1,402

 
$

 
$
19,716

Marketable securities
980

 

 

 

 

 
980

Accounts receivable, net

 
86,727

 
46,348

 
21,040

 

 
154,115

Deferred income tax assets

 
5,711

 
1,628

 
71

 

 
7,410

Other current assets

 
18,629

 
2,236

 
1,577

 

 
22,442

Total current assets
1,401

 
127,733

 
51,439

 
24,090

 

 
204,663

Property and equipment, net

 
178,333

 
34,701

 
4,328

 

 
217,362

Deferred financing costs

 
14,782

 

 
79

 

 
14,861

Goodwill

 
169,492

 
25,958

 
15,518

 

 
210,968

Broadcast licenses

 

 
493,814

 
42,701

 

 
536,515

Other intangible assets, net

 
24,174

 
12,098

 
12,208

 

 
48,480

Advances to consolidated subsidiaries
2,284

 
11,652

 
960,653

 

 
(974,589
)
 

Investment in consolidated subsidiaries
117,017

 
1,541,939

 

 

 
(1,658,956
)
 

Other assets

 
52,939

 
2,845

 
1,386

 
(44,443
)
 
12,727

Total assets
$
120,702

 
$
2,121,044

 
$
1,581,508

 
$
100,310

 
$
(2,677,988
)
 
$
1,245,576

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY
 

 
 

 
 

 
 

 
 

 
 

Current liabilities:
 

 
 

 
 

 
 

 
 

 
 

Current portion of long-term debt
$

 
$
19,248

 
$

 
$
1,247

 
$

 
$
20,495

Accounts payable

 
3,623

 
8,738

 
4,938

 

 
17,299

Income taxes payable

 
147

 
316

 

 

 
463

Accrued expenses

 
52,524

 
10,921

 
4,138

 

 
67,583

Program obligations

 
4,885

 
800

 
1,283

 

 
6,968

Total current liabilities

 
80,427

 
20,775

 
11,606

 

 
112,808

Long-term debt, excluding current portion

 
908,247

 

 
2,482

 

 
910,729

Deferred income tax liabilities

 
26,049

 
35,062

 
468

 

 
61,579

Program obligations

 
2,177

 
140

 
1,242

 

 
3,559

Intercompany liabilities

 
962,937

 

 
11,652

 
(974,589
)
 

Other liabilities

 
24,190

 
148

 
44,522

 
(44,443
)
 
24,417

Total liabilities

 
2,004,027

 
56,125

 
71,972

 
(1,019,032
)
 
1,113,092

 
 
 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interest

 

 

 
9,905

 

 
9,905

 
 
 
 
 
 
 
 
 
 
 

Total shareholders’ equity (deficit)
120,702

 
117,017

 
1,525,383

 
16,556

 
(1,658,956
)
 
120,702

Noncontrolling interest

 

 

 
1,877

 

 
1,877

Total equity (deficit)
120,702

 
117,017

 
1,525,383

 
18,433

 
(1,658,956
)
 
122,579

 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities, redeemable noncontrolling interest and shareholders’ equity (deficit)
$
120,702

 
$
2,121,044

 
$
1,581,508

 
$
100,310

 
$
(2,677,988
)
 
$
1,245,576


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Condensed Consolidating Balance Sheet
As of December 31, 2013
(in thousands)
 
LIN Media LLC
 
LIN Television
Corporation
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating/
Eliminating
Adjustments
 
LIN Media LLC
Consolidated
ASSETS
 

 
 

 
 

 
 

 
 

 
 

Current assets:
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$

 
$
10,313

 
$
3

 
$
2,209

 
$

 
$
12,525

Accounts receivable, net

 
88,905

 
39,416

 
16,988

 

 
145,309

Deferred income tax assets

 
5,818

 
1,080

 

 

 
6,898

Other current assets

 
12,264

 
1,049

 
1,888

 

 
15,201

Total current assets

 
117,300

 
41,548

 
21,085

 

 
179,933

Property and equipment, net

 
180,480

 
35,752

 
4,846

 

 
221,078

Deferred financing costs

 
16,357

 

 
91

 

 
16,448

Goodwill

 
169,492

 
18,518

 
15,518

 

 
203,528

Broadcast licenses

 

 
493,814

 
42,701

 

 
536,515

Other intangible assets, net

 
31,303

 
1,840

 
13,906

 

 
47,049

Advances to consolidated subsidiaries
1,900

 
7,764

 
968,728

 

 
(978,392
)
 

Investment in consolidated subsidiaries
87,227

 
1,534,600

 

 

 
(1,621,827
)
 

Other assets

 
52,778

 
2,688

 
1,276

 
(44,443
)
 
12,299

Total assets
$
89,127

 
$
2,110,074

 
$
1,562,888

 
$
99,423

 
$
(2,644,662
)
 
$
1,216,850<