Note 3 - Variable Interest Entities

9 Months Ended

Sep. 30, 2014

Disclosure Text Block [Abstract]

Variable Interest Entity Disclosure [Text Block]

Note 3: Variable Interest Entities

Shield Media LLC and Shield Media Lansing LLC, through their respective subsidiaries, WXXA and WLAJ, have Joint Sales Agreements (“JSA”) and Shared Service Agreements (“SSA”) in place with the Company. Under these agreements, the Company provides a variety of operational services for WXXA and WLAJ (the “Shield Stations”) as is described in more detail below.

The Company has options to acquire the Shield Stations at any time, subject to FCC consent, until the expiration of the applicable JSA. The FCC requires that the station licensee maintain independent control over the programming and operations of the station until an assignment of the station license has been approved by the FCC and consummated. In addition, the Company has entered into agreements with the Shield Stations to provide a variety of services, including: the sale of advertising time, marketing and promotion, news production, assistance with monitoring, maintenance, repair and replacement of the licensee’s technical equipment and facilities, providing traffic, accounting, bookkeeping and related administrative functions, access to the Company’s local towers, equipment and facilities and the maintenance and operation of websites for the Shield Stations. Although the licensee retains exclusive management and control over the stations’ programming, personnel and finances, including the total responsibility for all programming to be broadcast over the station, the Company believes that the services provided pursuant to the sales and shared service agreements provide the Company with contractual rights involving those activities of WXXA and WLAJ that most significantly impact the economic performance of each entity. In both the Albany and Lansing markets, the Company owns and operates another station. The agreements provide the Company’s local stations, along with WXXA and WLAJ, the ability to achieve operational efficiencies and economies of scale which improve cash flow.

An order that the FCC adopted in March of 2014, will require changes to the Company’s arrangements with the Shield Stations. 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 two years from the date on which the rules became effective (June 19, 2014) to amend or terminate those arrangements or to obtain a waiver of the rule. Accordingly, absent further developments or the grant of a waiver, the Company will be required to modify or terminate its existing JSAs within such two-year period.

Based on accounting guidance related to consolidation of VIEs, the Company is the primary beneficiary of these agreements and therefore consolidates the Shield Stations. Under the terms of the agreements, the Company sells the stations’ inventory, collects all cash receipts and also incurs operating costs associated with the operations of the Shield Stations. In return, the Company is paid a 30% JSA fee from the ad sales collected and is also paid an SSA fee for providing the operation services. In addition, in a given period, if expenses incurred by WXXA and WLAJ exceed their revenue share and the Shield Stations are not in a position to pay the Company the JSA and/or SSA fees, the Company would be at a loss for their services. Finally, if at any time either WXXA or WLAJ is in default of its loan, the Company, as the guarantor of the Shield Station loans, would be the responsible party.

In March of 2013, WLAJ, a wholly owned subsidiary of an unrelated party, Shield Media Lansing LLC, entered into an asset purchase agreement to purchase the assets (including the FCC license) of the WLAJ television station in Lansing, MI, from Sinclair. Concurrent with this agreement, the Company entered into the JSA and SSA with WLAJ referred to above to provide sales, operational and administrative services to WLAJ. The initial terms of the JSA and SSA are eight years, and the agreements can be automatically renewed for successive two year renewal terms. WLAJ paid $14.3 million in cash to purchase the station assets which was partially financed through a $10 million term loan which was jointly guaranteed by the Company and Shield Media Lansing LLC. The acquisition was also funded from the proceeds from an asset purchase agreement in which the Company purchased certain non-license assets of WLAJ from an advance of $5.4 million. The balance of the proceeds from the term loan and the asset purchase agreement between WLAJ and the Company, after Sinclair was paid, went toward transaction fees and working capital.

The financial results of WLAJ since March 1, 2013, have been consolidated by the Company in accordance with the VIE accounting guidance, and the purchase price of $14.3 million was allocated to the acquired assets and assumed liabilities based on estimated fair values upon the effective date of the transaction. The allocated fair value of acquired assets and assumed liabilities was determined using techniques similar to those described in Note 2 and is summarized as follows:

(In thousands)
Property and equipment	$	2,468
Broadcast licenses		7,700
Definite-lived intangible assets		2,100
Goodwill		2,366
Other liabilities		(310	)
Total	$	14,324

The amount allocated to definite-lived intangible assets represents the estimated fair values of network affiliations of $1.7 million and advertiser relationships of $0.4 million.

The results of operations for the nine months ended September 30, 2013, include the results of WLAJ since March 1, 2013. Net operating revenues of WLAJ included in the consolidated statements of comprehensive income, were $1.5 million and $4.3 million, respectively, for the three and nine months ended September 30, 2014; operating income was $0.3 million and $0.7 million, respectively, for the same periods. Net operating revenues of WLAJ included in the consolidated statements of comprehensive income, were $1.0 million and $2.5 million, respectively, for the three and nine months ended September 30, 2013; operating income was $0.1 million and $0.2 million, respectively, for the quarter and year to date periods.

As indicated above, the Company also provides certain sales, operational and administrative services to WXXA under the JSA and SSA which have remaining terms of seven years, and may be automatically renewed for successive two year renewal terms. Net operating revenues of WXXA included in the consolidated statements of comprehensive income, were $3.1 million and $9.3 million, respectively, for the three and nine months ended September 30, 2014; operating income was $0.4 million and $0.9 million, respectively, for the same periods. Net operating revenues of WXXA included in the consolidated statements of comprehensive income, were $2.6 million and $7.9 million, respectively, for the three and nine months ended September 30, 2013; operating income was $0.1 million and $0.4 million, respectively, for the same periods.

The carrying amounts and classification of the assets and liabilities of the Shield Stations which have been included in the consolidated balance sheets as of September 30, 2014, and December 31, 2013 were as follows:

	September 30,		December 31,
(In thousands)	2014		2013
Assets
Current assets
Cash and cash equivalents	$	1,047	$	4,110
Trade accounts receivable (less allowance for doubtful accounts 2014 - $66; 2013 - $105)		3,342		3,831
Prepaid expenses and other current assets		882		671
Total current assets		5,271		8,612
Property and equipment, net		2,088		2,996
Other assets, net		1,440		697
Definite lived intangible assets, net		3,170		3,400
Broadcast licenses		22,400		22,400
Goodwill		2,730		2,730
Total assets	$	37,099	$	40,835
Liabilities
Current liabilities
Trade accounts payable	$	29	$	-
Other accrued expenses and other current liabilities		2,581		2,180
Current installments of long-term debt		2,400		2,400
Total current liabilities		5,010		4,580
Long-term debt		27,800		29,600
Other liabilities		5,419		8,399
Total liabilities	$	38,229	$	42,579