Basis of Presentation and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2012

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Summary of Significant Accounting Policies

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies

Description of Business

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

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”).

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.  Certain changes in classifications have been made to prior period financial statements to conform to the current financial statement presentation.  The interim results of operations are not necessarily indicative of the results to be expected for the full year.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of our Company, our wholly-owned and majority-owned and controlled subsidiaries, and variable interest entities (“VIEs”) for which we are the primary beneficiary.  We review all local marketing agreements (“LMAs”), shared services agreements (“SSAs”) or joint sales agreements (“JSAs”), to evaluate whether consolidation of such arrangements is required.  All intercompany accounts and transactions have been eliminated.  We conduct our business through our subsidiaries and have no operations or assets other than our investment in our subsidiaries and equity-method investments.  We operate in one reportable segment.

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 a SSA with WBDT Television, LLC (“WBDT”), a third party, for WBDT-TV in the Dayton, OH market. Under these agreements, we provide sales and administrative services to WBDT, have an obligation to reimburse certain of WBDT’s expenses, and we are compensated through a performance-based fee structure that provides us the benefit of certain returns from the operation of WBDT-TV.

We determined that WBDT is a VIE, and as a result of the JSA and SSA we have a variable interest in WBDT. The sole business of WBDT is the ownership and operation of WBDT-TV.  We are the primary beneficiary of that entity because of our obligation to reimburse certain of WBDT’s expenses that could result in losses that are significant to the VIE, the potential for us to participate in returns of WBDT-TV through a performance-based bonus, and our power to direct certain activities related to the operation of WBDT-TV, including its advertising sales, and certain of its programming, which significantly impact the economic performance of WBDT.  Therefore, we consolidate WBDT within our unaudited interim consolidated financial statements.

The carrying amounts and classifications of the assets and liabilities of WBDT, which have been included in our consolidated balance sheets were as follows (in thousands):

	March 31, 2012		December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	43	$	90
Accounts receivable, net	717		789
Program rights	689		697
Total current assets	1,449		1,576
Property and equipment, net	404		419
Program rights	709		877
Broadcast licenses and other intangible assets, net	7,812		7,815
Other assets	1		1
Total assets	$	10,375	$	10,688
LIABILITIES
Current liabilities:
Current portion of long-term debt	$	184	$	184
Accounts payable	819		739
Accrued expenses	51		98
Program obligations	802		904
Total current liabilities	1,856		1,925
Long-term debt, excluding current portion	552		598
Program obligations	782		980
Other liabilities	7,185		7,185
Total liabilities	10,375		10,688

The assets of our consolidated VIE can only be used to settle the obligations of the VIE, 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 WBDT of $7.2 million, as of March 31, 2012 and December 31, 2011, reduce the carrying value of the entity, to reflect the fact that as of March 31, 2012 and December 31, 2011, LIN Television has an option, exercisable by us if the Federal Communications Commission (“FCC”) attribution rules change, to acquire the assets or membership interests of WBDT for an exercise price, which may be less than the carrying value of the tangible and intangible net assets of WBDT.

Redeemable noncontrolling interest

The following table presents changes in the redeemable noncontrolling interest related to Nami Media, Inc. (“Nami Media”), which represents a third party’s proportionate share of the interest, as further described in Note 2 — “Acquisitions”, included in our consolidated balance sheets (in thousands):

	Redeemable Noncontrolling Interest
Balance as of December 31, 2011	$	3,503
Net loss	(151		)
Balance as of March 31, 2012	$	3,352

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 unaudited 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, amortization and impairment of program rights and intangible assets, stock-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, including shortfall funding liabilities to our joint venture with NBCUniversal Media, LLC (“NBCUniversal”), 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 stockholders by the number of weighted-average outstanding shares of common stock.  Diluted EPS reflects the effect of the assumed exercise of stock options and vesting of restricted shares only in the periods in which such effect would have been dilutive.

The following is a reconciliation of income available to common shareholders from operations and weighted-average common shares outstanding for purposes of calculating basic and diluted income per common share (in thousands):

	Three Months Ended March 31,
	2012			2011
Numerator for EPS calculation:
Income from continuing operations	$	5,115		$	1,611
Net loss attributable to noncontrolling interests included in continuing operations	382			—
Income from continuing operations attributable to LIN TV Corp.	5,497			1,611
Loss from discontinued operations	(1,231		)	(25		)
Net income attributable to LIN TV Corp.	$	4,266		$	1,586
Denominator for EPS calculation:
Weighted-average common shares, basic	56,184			54,983
Effect of dilutive securities:
Stock options	1,328			1,562
Weighted-average common shares, diluted	57,512			56,545

We apply the treasury stock method to measure the dilutive effect of our outstanding stock option and restricted stock awards and include the respective common share equivalents in the denominator of our diluted income per common share calculation.  Potentially dilutive securities representing 1.1 million shares and 0.4 million shares of common stock for the three months ended March 31, 2012 and March 31, 2011, respectively, were excluded from the computation of diluted income per common share 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 stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.

Recently Issued Accounting Pronouncements

In September 2011, there were revisions to the accounting standard for goodwill impairment tests. A company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The revisions are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We adopted this guidance effective January 1, 2012, and it did not have an impact on our financial position or results of operations.

In June 2011, there were revisions to the accounting standard for reporting comprehensive income, which require presentation of the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  We elected to present this information in a separate statement included within the primary financial statements following our consolidated statement of operations.  The revisions are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and should be applied retrospectively.  We adopted this guidance effective January 1, 2012, and the adoption did not have an impact on our financial position or results of operations.

In May 2011, the fair value accounting standard was amended to change fair value measurement principles and disclosure requirements.  The key changes in measurement principles include limiting the concepts of the highest and best use and valuation premise to nonfinancial assets, providing a framework for considering whether a premium or discount can be applied in a fair value measurement, and aligning the fair value measurement of instruments classified within an entity’s shareholders’ equity with the guidance for liabilities.  Disclosures are required for all transfers between Levels 1 and 2 within the valuation hierarchy, the use of a nonfinancial asset measured at fair value if its use differs from its highest and best use, the level in the valuation hierarchy of assets and liabilities not recorded at fair value but for which fair value is required to be disclosed, and for Level 3 measurements, quantitative information about unobservable inputs used, a description of the valuation processes used, and qualitative discussion about the sensitivity of the measurements.  We adopted this guidance effective January 1, 2012, and the adoption did not have an impact on our financial position or results of operations.