Equity Investments - LIN Television

3 Months Ended

Mar. 31, 2012

Equity Investments

Note 4 — Equity Investments

Joint Venture with NBCUniversal

We own an approximate 20% interest in Station Venture Holdings, LLC (“SVH”), a joint venture with NBCUniversal, and account for our interest using the equity method as we do not have a controlling interest. SVH holds a 99.75% interest in Station Venture Operations, LP (“SVO”), which is the operating company that manages KXAS-TV and KNSD-TV, the television stations that comprise the joint venture.

The following presents summarized financial information of SVH and SVO (in thousands):

	Three Months Ended March 31,
	2012			2011
SVO:
Net revenue	$	29,475		$	26,210
Operating expenses	(19,604		)	(17,669		)
Net income before taxes	9,891			8,552
Net income after taxes	9,861			8,522
SVH:
Equity in income from limited partnership interest in SVO	$	9,781		$	8,501
Interest and other expense	(17,139		)	(16,891		)
Net loss	$	(7,358	)	$	(8,390	)
Cash distributions to SVH from SVO	$	13,566		$	16,130
Shortfall loans from LIN Television to SVH	595			—
Shortfall loans from General Electric Company (“GE”) to SVH	2,325			—

	March 31,
	2012		2011
Shortfall loans outstanding and accrued interest payable to LIN Television from SVH	$	7,894	$	4,388
Shortfall loans outstanding and accrued interest payable to NBCUniversal and GE from SVH	30,842		17,144

In 2008, we recorded an impairment charge that reduced the carrying value of our investment in SVH to $0. At the SVO level, there continues to exist net equity of which we have a proportional share.  Subsequent to the reduction of the SVH carrying value to $0, and as a result of our guarantee of the debt financing provided by General Electric Capital Corporation (“GECC”) of SVH as further described in Note 12 — “Commitments and Contingencies”, we continue to track our share of the income or loss of SVH, but currently are not recording such loss in our financial statements until, or unless, our commitments to fund losses exceeds previously recognized impairment charges.  When SVH generates income, we will begin recording our proportionate share of such income once it exceeds the operating losses not previously recognized in our financial statements.

We recognize shortfall funding liabilities when it is probable and estimable that there will be a shortfall at the SVH level requiring funding from us, and only when we have reached or intend to reach a shortfall funding agreement covering the period for which we estimate debt service shortfalls to occur, as further described in Note 12—“Commitments and Contingencies”.  As of December 31, 2011, we had a shortfall liability of $4.1 million recognized for any potential shortfall loans to the joint venture during 2012 and into 2013.  During the three months ended March 31, 2012, pursuant to the shortfall funding agreement with GE as further described in Note 12 — “Commitments and Contingencies”, we funded a shortfall loan in the principal amount of $0.6 million representing our approximate 20% share of first quarter 2012 debt service shortfalls, and GE funded a shortfall loan in the principal amount of $2.3 million in respect of its approximate 80% share of first quarter 2012 debt service shortfalls.  As of March 31, 2012, we have a remaining accrued shortfall liability of $3.5 million for any potential shortfall loans during 2012 and into 2013. We believe that cash shortfalls beyond the amounts currently accrued are not probable. However, our prospective shortfall obligations could vary from our estimate based upon changes in the performance of the joint venture stations and any changes to the proportionate share of each party’s debt service shortfall obligation.

During the three months ended March 31, 2011, we recognized shortfall liabilities of $0.6 million. Because of uncertainty surrounding the joint venture’s ability to repay shortfall loans, we concluded that it was more likely than not that the amount recognized for accrued shortfall loans of $0.6 million would not be recovered within a reasonable period of time.  Accordingly, during the three months ended March 31, 2011, we recognized a charge of $0.6 million, to reflect the impairment of the shortfall loans, which was classified as share of loss in equity investments in our consolidated statement of operations. 

All amounts receivable under the shortfall loans, and all accrued interest due from the joint venture, are carried at zero on our consolidated balance sheets.  Should there be sufficient evidence in the future to suggest that collectability of the shortfall loans and accrued interest is reasonably certain, we would reverse the previously recognized impairment charges, reestablish notes receivable for all previously funded and accrued shortfall loans to the joint venture, and establish accrued interest receivable for all previously funded shortfall loans to the joint venture.

LIN Television Corporation

Equity Investments

Note 4 — Equity Investments

Joint Venture with NBCUniversal

We own an approximate 20% interest in Station Venture Holdings, LLC (“SVH”), a joint venture with NBCUniversal, and account for our interest using the equity method as we do not have a controlling interest. SVH holds a 99.75% interest in Station Venture Operations, LP (“SVO”), which is the operating company that manages KXAS-TV and KNSD-TV, the television stations that comprise the joint venture.

The following presents summarized financial information of SVH and SVO (in thousands):

	Three Months Ended March 31,
	2012			2011
SVO:
Net revenue	$	29,475		$	26,210
Operating expenses	(19,604		)	(17,669		)
Net income before taxes	9,891			8,552
Net income after taxes	9,861			8,522
SVH:
Equity in income from limited partnership interest in SVO	$	9,781		$	8,501
Interest and other expense	(17,139		)	(16,891		)
Net loss	$	(7,358	)	$	(8,390	)
Cash distributions to SVH from SVO	$	13,566		$	16,130
Shortfall loans from LIN Television to SVH	595			—
Shortfall loans from General Electric Company (“GE”) to SVH	2,325			—

	March 31,
	2012		2011
Shortfall loans outstanding and accrued interest payable to LIN Television from SVH	$	7,894	$	4,388
Shortfall loans outstanding and accrued interest payable to NBCUniversal and GE from SVH	30,842		17,144

In 2008, we recorded an impairment charge that reduced the carrying value of our investment in SVH to $0. At the SVO level, there continues to exist net equity of which we have a proportional share.  Subsequent to the reduction of the SVH carrying value to $0, and as a result of our guarantee of the debt financing provided by General Electric Capital Corporation (“GECC”) of SVH as further described in Note 12 — “Commitments and Contingencies”, we continue to track our share of the income or loss of SVH, but currently are not recording such loss in our financial statements until, or unless, our commitments to fund losses exceeds previously recognized impairment charges.  When SVH generates income, we will begin recording our proportionate share of such income once it exceeds the operating losses not previously recognized in our financial statements.

We recognize shortfall funding liabilities when it is probable and estimable that there will be a shortfall at the SVH level requiring funding from us, and only when we have reached or intend to reach a shortfall funding agreement covering the period for which we estimate debt service shortfalls to occur, as further described in Note 12—“Commitments and Contingencies”.  As of December 31, 2011, we had a shortfall liability of $4.1 million recognized for any potential shortfall loans to the joint venture during 2012 and into 2013.  During the three months ended March 31, 2012, pursuant to the shortfall funding agreement with GE as further described in Note 12 — “Commitments and Contingencies”, we funded a shortfall loan in the principal amount of $0.6 million representing our approximate 20% share of first quarter 2012 debt service shortfalls, and GE funded a shortfall loan in the principal amount of $2.3 million in respect of its approximate 80% share of first quarter 2012 debt service shortfalls.  As of March 31, 2012, we have a remaining accrued shortfall liability of $3.5 million for any potential shortfall loans during 2012 and into 2013. We believe that cash shortfalls beyond the amounts currently accrued are not probable. However, our prospective shortfall obligations could vary from our estimate based upon changes in the performance of the joint venture stations and any changes to the proportionate share of each party’s debt service shortfall obligation.

During the three months ended March 31, 2011, we recognized shortfall liabilities of $0.6 million. Because of uncertainty surrounding the joint venture’s ability to repay shortfall loans, we concluded that it was more likely than not that the amount recognized for accrued shortfall loans of $0.6 million would not be recovered within a reasonable period of time.  Accordingly, during the three months ended March 31, 2011, we recognized a charge of $0.6 million, to reflect the impairment of the shortfall loans, which was classified as share of loss in equity investments in our consolidated statement of operations. 

All amounts receivable under the shortfall loans, and all accrued interest due from the joint venture, are carried at zero on our consolidated balance sheets.  Should there be sufficient evidence in the future to suggest that collectability of the shortfall loans and accrued interest is reasonably certain, we would reverse the previously recognized impairment charges, reestablish notes receivable for all previously funded and accrued shortfall loans to the joint venture, and establish accrued interest receivable for all previously funded shortfall loans to the joint venture.