SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

9 Months Ended

Sep. 30, 2011

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries and variable interest entities (VIEs) for which we are the primary beneficiary.  Noncontrolling interest represents a minority owner’s proportionate share of the equity in certain of our consolidated entities.  All intercompany transactions and account balances have been eliminated in consolidation.

Interim Financial Statements

The consolidated financial statements for the three and nine months ended September 30, 2011 and 2010 are unaudited.  In the opinion of management, such financial statements have been presented on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income and consolidated statements of cash flows for these periods as adjusted for the adoption of recent accounting pronouncements discussed below, as necessary.

As permitted under the applicable rules and regulations of the Securities and Exchange Commission (SEC), the consolidated financial statements do not include all disclosures normally included with audited consolidated financial statements and, accordingly, should be read together with the audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC.  The consolidated statements of operations presented in the accompanying consolidated financial statements are not necessarily representative of operations for an entire year.

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.  The assets of each of our consolidated VIEs can only be used to settle the obligations of such VIE.  All the liabilities of, including debt held by, our VIEs are non-recourse to us.  However, our senior secured credit facility (Bank Credit Agreement) contains cross-default provisions with the VIE debt of Cunningham Broadcasting Corporation (Cunningham).  See Note 5, Related Person Transactions for more information.

We have entered into Local Marketing Agreements (LMAs) to provide programming, sales and managerial services for television stations of Cunningham, the license owner of seven television stations as of September 30, 2011.  We pay LMA fees to Cunningham and also reimburse all operating expenses.  We also have an acquisition agreement in which we have a purchase option to buy the license assets of the television stations which includes the Federal Communications Commission (FCC) license and certain other assets used to operate the station (License Assets).  Our applications to acquire the FCC licenses are pending approval.  We own the majority of the non-license assets of the Cunningham stations and our Bank Credit Agreement contains certain cross-default provisions with Cunningham whereby a default by Cunningham caused by insolvency would cause an event of default under our Bank Credit Agreement.  We have determined that the Cunningham stations are VIEs and that based on the terms of the agreements, the significance of our investment in the stations and the cross-default provisions with our Bank Credit Agreement, we are the primary beneficiary of the variable interests because we have the power to direct the activities which significantly impact the economic performance of the VIE through the sales and managerial services we provide and we absorb losses and returns that would be considered significant to Cunningham.  See Note 5, Related Person Transactions for more information on our arrangements with Cunningham.  Included in the accompanying consolidated statements of operations for the three months ended September 30, 2011 and 2010 are net revenues of $20.9 million and $22.5 million, respectively, that relate to LMAs with Cunningham.  For the nine months ended September 30, 2011 and 2010, Cunningham’s stations provided us with approximately $66.8 million and $67.8 million, respectively, of total revenue.

We have outsourcing agreements with other license owners, under which we provide certain non-programming related sales, operational and administrative services.  We pay a fee to the license owner based on a percentage of broadcast cash flow and we reimburse all operating expenses.  We also have a purchase option to buy the License Assets.  For the same reasons noted above regarding our LMAs, we have determined that the outsourced license station assets are VIEs and we are the primary beneficiary.

As of the dates indicated, the carrying amounts and classification of the assets and liabilities of the VIEs mentioned above which have been included in our consolidated balance sheets were as follows (in thousands):

	As of September 30,2011		As of December 31, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,730	$	5,319
Income taxes receivable	6		—
Current portion of program contract costs	456		480
Prepaid expenses and other current assets	132		105
Total current asset	3,324		5,904
PROGRAM CONTRACT COSTS, less current portion	338		491
PROPERTY AND EQUIPMENT, net	6,885		7,461
GOODWILL	6,357		6,357
BROADCAST LICENSES	4,208		4,183
DEFINITE-LIVED INTANGIBLE ASSETS, net	6,685		6,959
OTHER ASSETS	5,691		914
Total assets	$	33,488	$	32,269
LIABILITIES
CURRENT LIABILITIES:
Accounts payable	$	37	$	37
Accrued liabilities	268		773
Income taxes payable	—		44
Current portion of notes payable, capital leases and commercial bank financing	11,069		11,056
Current portion of program contracts payable	368		649
Total current liabilities	11,742		12,559
LONG-TERM LIABILITIES:
Notes payable, capital leases and commercial bank financing, less current portion	5,181		13,484
Program contracts payable, less current portion	215		190
Total liabilities	$	17,138	$	26,233

The amounts above represent the consolidated assets and liabilities of the VIEs related to our LMA and outsourcing agreements and have been aggregated as they all relate to our broadcast business.  Excluded from the amounts above are quarterly payments made to Cunningham under the LMA which are treated as a prepayment of the purchase price of the stations and capital leases between us and Cunningham which are eliminated in consolidation.  The total payments made under the LMA as of September 30, 2011 and December 31, 2010 which are excluded from liabilities above were $19.9 million and $11.7 million, respectively.  The total capital lease assets excluded from above were $7.7 million and $8.1 million as of September 30, 2011 and December 31, 2010, respectively.  The total capital lease liabilities excluded from above were $11.8 million and $11.9 million as of September 30, 2011 and December 31, 2010, respectively.  The risk and reward characteristics of the VIEs are similar.

We have investments in other real estate ventures and investment companies which are considered VIEs.  However, we do not participate in the management of these entities including the day-to-day operating decisions or other decisions which would allow us to control the entity, and therefore, we are not considered the primary beneficiary of these VIEs.  We account for these entities using the equity or cost method of accounting.

The carrying amounts of our investments in these VIEs for which we are not the primary beneficiary as of September 30, 2011 and December 31, 2010 were as follows (in thousands):

	As of September 30, 2011				As of December 31, 2010
	Carrying amount		Maximum exposure		Carrying amount		Maximum exposure
Investments in real estate ventures	$	8,241	$	8,241	$	7,769	$	7,769
Investments in investment companies	25,815		25,815		24,872		24,872
Total	$	34,056	$	34,056	$	32,641	$	32,641

The carrying amounts above are included in other assets in the consolidated balance sheets.  The income and loss related to these investments are recorded in income from equity and cost method investments in the consolidated statement of operations.  We recorded income of $1.3 million and $0.6 million in the quarters ended September 30, 2011 and 2010, respectively.  We recorded income of $2.2 million and $1.1 million for the nine months ended September 30, 2011 and 2010, respectively.

Our maximum exposure is equal to the carrying value of our investments.  As of September 30, 2011 and December 31, 2010, our unfunded commitments related to private equity investment funds totaled $12.9 million and $14.9 million, respectively.

Recent Accounting Pronouncements

In December 2010, the Financial Accounting Standards Board (FASB) issued amended guidance with respect to goodwill impairment.  The amended guidance requires that step two of the goodwill impairment test be performed if the carrying amount of a reporting unit is zero or negative and it is more likely than not that a goodwill impairment exists based on any adverse qualitative factors including an evaluation of the triggering circumstances noted in the guidance.  The change is effective for fiscal years and interim periods within those years beginning after December 15, 2010.  This guidance did not have a material impact on our consolidated financial statements.

In May 2011, the FASB issued new guidance for fair value measurements.  The purpose of the new guidance is to have a consistent definition of fair value between U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).  Many of the amendments to GAAP are not expected to have a significant impact on practice; however, the new guidance does require new and enhanced disclosure about fair value measurements.  The amendments are effective for interim and annual periods beginning after December 15, 2011 and should be applied prospectively.  We do not believe that this guidance will have a material impact on our consolidated financial statements but may require changes to our fair value disclosures.

In June 2011, the FASB issued new guidance on the presentation of comprehensive income in the financial statements.  The new guidance does not make any changes to the components that are recognized in net income or other comprehensive income but rather allows an entity to choose whether to present items of net income and other comprehensive income in one continuous statement or in two separate but consecutive statements.  Each component of net income and other comprehensive income along with their respective totals would need to be displayed under either alternative.  The new guidance is effective for fiscal years beginning after December 15, 2011.  We do not believe that this guidance will have a material impact on our consolidated financial statements.

In September 2011, the FASB issued the final Accounting Standards Update for goodwill impairment testing.  The standard allows an entity to first consider qualitative factors when deciding whether it is necessary to perform the current two-step goodwill impairment test.  An entity would need to perform step-one if it determines qualitatively that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount.  The changes are effective prospectively for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  We plan to adopt this new guidance in the fourth quarter of 2011 when completing our annual impairment analysis.  This guidance will impact how we perform our annual goodwill impairment testing and may change our related disclosures; however, we do not believe it will have a material impact on our consolidated financial statements.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the consolidated financial statements and in the disclosures of contingent assets and liabilities.  Actual results could differ from those estimates.

Restricted Cash

In October 2009, we established a cash collateral account with the proceeds from the sale of 9.25% Senior Secured Second Lien Notes due 2017 (the 9.25% Notes).  The cash collateral account restricted the use of cash therein to repurchase the 3.0% Convertible Senior Notes due 2027 (the 3.0% Notes) and our 4.875% Convertible Senior Notes due 2018 (the 4.875% Notes) upon, or prior to, the expiration of the put periods for such notes in May 2010 and January 2011, respectively.  Upon expiration of the put period for the 4.875% Notes in January 2011, the unused cash was used to reduce our overall debt balance pursuant to our Bank Credit Agreement.  During 2010, we used $53.6 million of restricted cash to repurchase a portion of the outstanding 3.0% and 4.875% Notes.  As of December 31, 2010, all of the restricted cash classified as current related to the 4.875% Notes’ January 2011 put option.

In September 2011, we entered into a definitive agreement to purchase the assets of Four Points Media Group LLC (Four Points) for $200.0 million.  Four Points owns and operates seven stations in four markets.  We expect the transaction to close in first quarter 2012 subject to the approval of the FCC.  Pursuant to the Asset Purchase Agreement we were required to hold 10% of the purchase price in an escrow account.  As of September 30, 2011, $20.0 million in restricted cash classified as noncurrent relates to the acquisition of Four Points.

Additionally, under the terms of certain lease agreements, as of September 30, 2011 and December 31, 2010, we were required to hold $0.2 million of restricted cash related to the removal of analog equipment from some of our leased towers.

Revenue Recognition

In first quarter 2011, we adopted the Emerging Issue Task Force’s amended guidance on accounting for revenue arrangements with multiple deliverables.  The amended guidance clarifies that each deliverable within our multiple-deliverable revenue arrangements is accounted for as a separate unit of accounting if the delivered item or items have value to the client on a standalone basis and for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the company.  The guidance requires us to determine an estimated selling price (ESP) for all deliverables within an arrangement if vendor-specific objective evidence (VSOE) or third-party evidence does not exist. Application of this guidance has not changed the allocation of the arrangement revenue to the elements in our multiple-deliverable arrangements.

We enter into multiple-deliverable revenue arrangements with multi-channel video programming distributors (MVPDs) that may include a combination of retransmission consent fees, advertising, and other marketing elements. We have determined that the retransmission consent fees and advertising elements have value on a standalone basis. The other marketing elements are not valued on a stand alone basis because they are immaterial to the overall arrangement.  We include the value of other marketing elements with the retransmission consent fee element.

Due to the complexities and uniqueness of each arrangement, we have determined that our ESP for the retransmission consent fee element is based upon the market, the MVPD, the network affiliation, the number of subscribers, the length of the contract and other factors. We recognize the revenue applicable to the retransmission consent element of the arrangement ratably over the life of the agreement which is representative of the delivery of our television broadcast signal.  Each arrangement’s life varies, typically ranging one to five years in length.

The advertising element of our multiple-deliverable arrangements is recognized in the period during which the time spots are aired.  The advertising revenue is valued using VSOE which is calculated using the average selling unit rate for the advertising spot in which the commercial aired.

Our arrangements generally do not include any performance, cancellation, or refund provisions.  Under certain agreements, the counterparty may terminate the agreement if particular actions occur such as the transmission failure of our broadcast signal for a certain period of time.

Income Taxes

Our income tax provision for all periods consists of federal and state income taxes.  The tax provision for the three and nine months ended September 30, 2011 and 2010 is based on the estimated effective tax rate applicable for the full year after taking into account discrete tax items and the effects of the noncontrolling interests.

Our effective income tax rate for the three and nine months ended September 30, 2011 and the nine months ended September 30, 2010 approximated the statutory rate. Our effective income tax rate for the three months ended September 30, 2010 was lower than the statutory rate primarily due to a $2.3 million benefit predominantly resulting from a change in estimate related to an increased deduction for the recovery of historical losses attributable to a disposition that took place in 2009.

Reclassifications

Certain reclassifications have been made to prior years’ consolidated financial statements to conform to the current year’s presentation.

It is no longer our intent to divest a portion of Alarm Funding Associates, LLC (Alarm Funding) and therefore all of the operations and net assets of Alarm Funding have been classified as continuing operations in our consolidated financial statements as of September 30, 2011.  We have reclassified the net assets previously reported as held for sale in our December 31, 2010 consolidated balance sheet and the operations of Alarm Funding are classified as continuing operations in the consolidated statements of operations for the three and nine months ended September 30, 2010.

Subsequent events

In November 2011, we entered into a definitive agreement to purchase the broadcast assets of Freedom Communications (“Freedom”) for $385.0 million.  Freedom owns and operates eight stations in seven markets.  We expect the transaction to close late in the first quarter or early in the second quarter of 2012 subject to Freedom’s shareholder approval which must be obtained by November 8, 2011, approval by the FCC, and customary antitrust clearance.  Following receipt of antitrust approval of the transaction, which is expected to occur within thirty days, and prior to closing of the acquisition, we will operate the stations pursuant to an LMA.