SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

6 Months Ended

Jun. 30, 2012

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 VIEs for which we are the primary beneficiary.  Noncontrolling interests 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 six months ended June 30, 2012 and 2011 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 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, 2011 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 the VIE.  All the liabilities 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 6, 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 June 30, 2012.  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 6, Related Person Transactions for more information on our arrangements with Cunningham.  Included in the accompanying consolidated statements of operations for the three months ended June 30, 2012 and 2011 are net broadcast revenues of $24.8 million and $22.6 million, respectively, that relate to LMAs with Cunningham.  For the six months ended June 30, 2012 and 2011, Cunningham’s stations provided us with approximately $48.1 million and $45.9 million, respectively, of net broadcast revenues.

We have outsourcing agreements with certain 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 the LMAs with Cunningham, we have determined that these outsourced license station assets are VIEs and we are the primary beneficiary.  Included in the accompanying consolidated statements of operations for the three months ended June 30, 2012 and 2011 are net broadcast revenues of $4.1 million and $2.9 million, respectively, that relate to these arrangements. For the six months ended June 30, 2012 and 2011, are net broadcast revenues of $7.7 million and $6.1 million, respectively, that relate to these arrangements.

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 for the periods presented (in thousands):

	As of June 30,2012		As of December 31, 2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,340	$	2,739
Accounts receivable	95		—
Income taxes receivable	131		142
Current portion of program contract costs	324		413
Prepaid expenses and other current assets	133		99
Total current asset	4,023		3,393
PROGRAM CONTRACT COSTS, less current portion	753		271
PROPERTY AND EQUIPMENT, net	6,308		6,658
GOODWILL	6,357		6,357
BROADCAST LICENSES	6,851		4,208
DEFINITE-LIVED INTANGIBLE ASSETS, net	8,660		6,601
OTHER ASSETS	11,918		5,980
Total assets	$	44,870	$	33,468
LIABILITIES
CURRENT LIABILITIES:
Accounts payable	$	15	$	37
Accrued liabilities	156		315
Current portion of notes payable, capital leases and commercial bank financing	5,600		11,074
Current portion of program contracts payable	281		373
Total current liabilities	6,052		11,799
LONG-TERM LIABILITIES:
Notes payable, capital leases and commercial bank financing, less current portion	2,351		2,411
Program contracts payable, less current portion	2,794		173
Total liabilities	$	11,197	$	14,383

The amounts above represent the consolidated assets and liabilities of the VIEs related to our LMAs with Cunningham and certain outsourcing agreements, for which we are the primary beneficiary, and have been aggregated as they all relate to our broadcast business.  Excluded from the amounts above are 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 June 30, 2012 and December 31, 2011 which are excluded from liabilities above were $29.8 million and $22.7 million, respectively.  The total capital lease assets excluded from above for each of the three months ended June 30, 2012 and the year ended December 31, 2011 were $11.8 million.  The risk and reward characteristics of the VIEs are similar.

In the fourth quarter of 2011, we began providing sales, programming and management services to the eight stations owned by Freedom Communications (Freedom) pursuant to an LMA.  Effective April 1, 2012, we completed the acquisition of these stations and the LMA was terminated.  We determined that the Freedom stations were VIEs during the period of the LMA based on the terms of the agreement.  We were not the primary beneficiary because the owner of the stations had the power to direct the activities of the VIEs that most significantly impacted the economic performance of the VIEs.  In the consolidated statements of operations for the six months ended June 30, 2012 are net broadcast revenues of $10.0 million and station production expenses of $7.8 million related to the Freedom LMAs, during the period prior to the acquisition.

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 for the periods presented (in thousands):

	As of June 30, 2012				As of December 31, 2011
	Carrying amount		Maximum exposure		Carrying amount		Maximum exposure
Investments in real estate ventures	$	3,929	$	3,929	$	8,009	$	8,009
Investments in investment companies	25,217		25,217		26,276		26,276
Total	$	29,146	$	29,146	$	34,285	$	34,285

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 $5.3 million and $0.9 million in the three months ended June 30, 2012 and 2011, respectively.  We recorded income of $6.7 million and $0.9 million for the six months ended June 30, 2012 and 2011, respectively.

Our maximum exposure is equal to the carrying value of our investments.  As of June 30, 2012 and December 31, 2011, our unfunded commitments related to private equity investment funds totaled $10.9 million for each of the periods.

Recent Accounting Pronouncements

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. This guidance did not have a material impact on our consolidated financial statements but we have included the additional quantitative and qualitative disclosures required for our Level 3 fair value measurements beginning with the quarter ended March 31, 2012.

In July 2012, the FASB issued new guidance for testing indefinite-lived intangible assets for impairment.  The new guidance allows companies to perform a qualitative assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar to the approach now applied to goodwill.  Companies can first determine based on certain qualitative factors whether it is “more likely than not” (a likelihood of more than 50 percent) that an indefinite-lived intangible asset is impaired.  The new standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets for impairment.  The revised standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 30, 2012 and early adoption is permitted. We plan to adopt this new guidance in the fourth quarter of 2012 when completing our annual impairment analysis.  This guidance will impact how we perform our annual impairment testing for indefinite-lived intangible assets 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

Upon entering into definitive agreements to purchase assets of Four Points Media Group LLC (Four Points) and Freedom in September 2011 and November 2011, respectively, we were required to deposit 10% of the purchase price for each acquisition into an escrow account.  Effective January 1, 2012, we closed the asset acquisition of Four Points for $200.0 million and used $20.0 million of restricted cash towards the acquisition. Effective April 1, 2012, we closed the asset acquisition of Freedom for $385.0 million and used $38.5 million of restricted cash towards the acquisition.

Additionally, under the terms of certain lease agreements, as of June 30, 2012 and December 31, 2011, 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

Total revenues include: (i) cash and barter advertising revenues, net of agency commissions; (ii) retransmission consent fees; (iii) network compensation; (iv) other broadcast revenues and (v) revenues from our other operating divisions.

Advertising revenues, net of agency commissions, are recognized in the period during which time spots are aired.

Our retransmission consent agreements contain both advertising and retransmission consent elements.  We have determined that our retransmission consent agreements are revenue arrangements with multiple deliverables.  Advertising and retransmission consent deliverables sold under our agreements are separated into different units of accounting at fair value.   Revenue applicable to the advertising element of the arrangement is recognized similar to the advertising revenue policy noted above.  Revenue applicable to the retransmission consent element of the arrangement is recognized over the life of the agreement.

Income Taxes

Our income tax provision for all periods consists of federal and state income taxes.  The tax provision for the three and six months ended June 30, 2012 and 2011 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 months ended June 30, 2012 and 2011 and six months ended June 30, 2011 approximated the statutory rate. Our effective income tax rate for the six months ended June 30, 2012 was lower than the statutory rate primarily due to a release of valuation allowance in the first quarter of $7.7 million related to certain deferred tax assets of Cunningham, one of our consolidated VIEs, as the weight of all available evidence supports full realization of those deferred tax assets.

Reclassifications

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

Subsequent events

On July 19, 2012, we entered into a definitive agreement to purchase the broadcast assets of six television stations owned and/or operated by Newport Television (Newport) for $412.5 million.  The six stations are located in five markets and have the following network affiliation or program service arrangements: WKRC (CBS) in Cincinnati, OH; WOAI (NBC) in San Antonio, TX; WHP (CBS) in Harrisburg/Lancaster/Lebanon/York, PA; WPMI (NBC) and WJTC (IND) in Mobile, AL/Pensacola, FL; and KSAS (FOX) in Wichita/Hutchinson, KS.  We will also acquire Newport’s rights under the local marketing agreements with WLYH (CW) in Harrisburg, PA and KMTW (MNT) in Wichita, KS, as well as options to acquire the license assets. The purchase agreement includes other customary provisions, including representations and warranties, covenants and indemnification provisions.   Upon entering into the asset purchase agreement we deposited 10% of the purchase price, $41.3 million, into escrow.  Upon closing, we expect to finance the $412.5 million purchase price, less the $41.3 million in escrow, with available cash along with a bank loan and/or by assessing the capital markets. Additionally, we entered into agreements with Deerfield Media, Inc. (Deerfield) to sell Deerfield the license assets of one of our stations in San Antonio (KMYS CW) and our station in Cincinnati (WSTR MNT), subject to FTS’s purchase option with respect to WSTR when expires March 31, 2013, and assigned Deerfield the right to buy the license assets of WPMI and WJTC in the Mobile/Pensacola market, after which we intend to provide sales and other non-programming services to each of these four stations pursuant to shared services and joint sales agreements.  All of the aforementioned transactions are expected to close no earlier than December 2012, subject to closing conditions, including without limitation approval of the FCC and customary antitrust clearance.

On July 17, 2012, we entered into an agreement to purchase the assets of Bay Television, Inc. (Bay TV), which owns the television station WTTA-TV in the Tampa/St. Petersburg, Florida market, for $40.0 million.  The transaction is expected to close in the fourth quarter of 2012, subject to approval of the FCC.  Concurrent with the acquisition, our LMA with Bay TV to provide certain sales, programming and other management services will be terminated.  As disclosed in Note 6. Related Person Transactions, our controlling shareholders own a controlling interest in Bay TV, and as such our board of directors obtained a fairness opinion from a third party valuation firm.  As this will be a transaction between entities under common control, the acquisition method of accounting will not be applied and the assets acquired will be recorded at their historical cost basis, upon closing.  The difference between the purchase price and the historical cost basis of the assets will be recorded as a reduction in additional paid-in capital.