COMMITMENTS AND CONTINGENCIES:

9 Months Ended

Sep. 30, 2012

COMMITMENTS AND CONTINGENCIES:

COMMITMENTS AND CONTINGENCIES:

4.COMMITMENTS AND CONTINGENCIES:

Litigation

We are party to lawsuits and claims from time to time in the ordinary course of business.  Actions currently pending are in various preliminary stages and no judgments or decisions have been rendered by hearing boards or courts in connection with such actions.  After reviewing developments to date with legal counsel, our management is of the opinion that the outcome of our pending and threatened matters will not have a material adverse effect on our consolidated balance sheets, consolidated statements of operations or consolidated statements of cash flows.

Various parties have filed petitions to deny our applications or our LMA partners’ applications for the following stations’ license renewals:  WXLV-TV, Winston-Salem, North Carolina; WMYV-TV, Greensboro, North Carolina; WLFL-TV, Raleigh/Durham, North Carolina; WRDC-TV, Raleigh/Durham, North Carolina; WLOS-TV, Asheville, North Carolina, WMMP-TV, Charleston, South Carolina; WTAT-TV, Charleston, South Carolina; WMYA-TV, Anderson, South Carolina; WICS-TV in Springfield/Champaign, Illinois and WCGV-TV in Milwaukee, Wisconsin.  The FCC is in the process of considering the renewal applications and we believe the petitions have no merit.

Network Affiliations

On May 14, 2012, the Company and the licensees of stations to which we provide services, representing 20 affiliates of Fox Broadcast Company (FOX) in total, extended the network affiliation agreements with FOX from the existing term of December 31, 2012 to December 31, 2017.  Concurrently, we entered into an assignable option agreement with Fox Television Stations, Inc. (FTS) giving us or our assignee the right to purchase substantially all the assets of the WUTB station (Baltimore, MD) owned by FTS, which has a program service arrangement with MyNetworkTV, and entered into an option agreement giving FTS the right to purchase our stations in up to three of the following four markets: Las Vegas, NV, Raleigh, NC, Norfolk, VA, and Cincinnati, OH. Our stations in these markets are affiliated with the following networks or program service providers: Las Vegas (The CW and MyNetworkTV), Raleigh (The CW and MyNetworkTV), Norfolk (MyNetworkTV) and Cincinnati (MyNetworkTV).  These options are exercisable between July 1, 2012 and March 30, 2013.  The maximum total potential payments associated with the affiliation agreement and the option agreements is $50.0 million, which excludes any proceeds from the sale of stations upon FTS exercising its option, the $2.7 million purchase price we would pay to FTS for WUTB pursuant to our option, and ordinary course programming payments that will be due to FOX under the terms of the Company’s affiliation agreements.  If FTS decides to exercise its option to purchase one or more of the aforementioned stations, the total payments will be reduced by $25.0 million.  In the second quarter of 2012, we paid $25.0 million to FOX pursuant to the agreements, which is reflected as cash flows used in operating activities within the consolidated statement of cash flows for the nine month period ending September 30, 2012. During the second quarter of 2012, we recorded $50.0 million in other assets and $25.0 million of other accrued liabilities within the consolidated balance sheet, representing the additional obligation due to FOX if FTS does not exercise its option to acquire any of our stations.  The $50.0 million asset is being amortized through the current term of the affiliation agreement ending on December 31, 2017.  Approximately $2.2 million and $3.3 million of amortization expense has been recorded in the consolidated statement of operations during the three and nine months ended September 30, 2012, respectively.

Pending Acquisitions and Divestments

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 has received FCC approval and is expected to close in the fourth quarter of 2012.  Concurrent with the acquisition, our LMA with Bay TV to provide certain sales, programming and other management services will be terminated.  As discussed in Note 7. Related Person Transactions, our controlling shareholders own a controlling interest in Bay TV. With that in mind, 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.

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 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 will finance the $412.5 million purchase price, less the $41.3 million in escrow and the $6.0 million paid by Deerfield Media, Inc. (Deerfield) for certain license assets as described below, with the net proceeds from the 6.125% notes issued in October 2012. See Note 5. Notes Payable and Commercial Bank Financing for more information.

In July, we entered into agreements with Deerfield to sell Deerfield the license assets of one of our stations in San Antonio (KMYS CW) and our station in Cincinnati (WSTR MNT) for $5.6 million, subject to Fox Television Station’s purchase option with respect to WSTR which expires March 30, 2013, and assigned Deerfield the right to buy the license assets of WPMI and WJTC in the Mobile/Pensacola market for $6.0 million, 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. Our acquisition of Newport received antitrust clearance by the Department of Justice on August 28, 2012.

In August, we entered into an agreement to purchase the assets of KBTV (FOX) located in Port Arthur, TX, for $14.0 million, subject to approval of the FCC and other closing conditions.  Our right to purchase the license assets was assigned to Deerfield for $1.5 million, bringing our net purchase price to $12.5 million.  Upon closing, we intend to provide sales and other non-programming services to this station pursuant to shared services and joint sales agreements.

In October, we entered into an agreement to purchase the assets of the WUTB (MNT) station in Baltimore, MD owned by FOX for $2.7 million after exercising our purchase option as described under Network Affiliations above.  This transaction is subject to FCC approval and other closing conditions.  Our right to purchase the license assets under the agreement was assigned to Deerfield for $0.3 million, bringing our net purchase price to $2.4 million.  Upon closing, we intend to provide sales and other non-programming services to this station pursuant to shared services and joint sales agreements.

In October, we entered into an agreement to sell all of the assets of WLAJ-TV, to an unrelated third party for $14.4 million in cash.  The sale is subject to FCC approval and other closing conditions and we expect closing to occur in early 2013. As of September 30, 2012, the station is classified as held for sale and the results of operations are classified as discontinued operations during the three and nine months ended September 30, 2012. Since we acquired the station in April 2012 and this agreement was entered into shortly after acquisition, we believe the sale price approximates the fair value of the station on the original acquisition date. Therefore we do not expect to record a gain or loss upon sale of the station.