Acquisitions - LIN Television

9 Months Ended

Sep. 30, 2012

Acquisitions

Note 2 — Acquisitions

New Vision Television, LLC

On October 12, 2012, LIN Television completed its acquisition (the “Acquisition”) of television stations in eight markets from affiliates and subsidiaries of New Vision Television, LLC (“New Vision”) for $334.9 million, subject to certain post-closing adjustments, and including the assumption of $14.3 million of finance lease obligations.  As a result of the Acquisition, we now operate or service 43 television stations, seven digital channels and a growing portfolio of web sites, applications and mobile products in 23 U.S. markets.  Concurrent with the Acquisition, Vaughan Acquisition LLC (“Vaughan”), a third-party licensee, completed its acquisition of separately owned television stations in three markets for $4.6 million (the “Vaughan Acquired Stations”) from PBC Broadcasting, LLC (“PBC”).

LIN Television also agreed to provide certain services to the Vaughan Acquired Stations pursuant to shared services arrangements with Vaughan.  Under the shared services arrangements with Vaughan, we will provide sales, administrative and technical services, supporting the business and operation of the Vaughan Acquired Stations in exchange for commissions and fees that will provide us the benefit of certain returns from the business of the Vaughan Acquired Stations.  We expect that Vaughan will be considered a VIE, of which we are the primary beneficiary, and that we will consolidate the assets, liabilities, and results of operations of Vaughan and its consolidated subsidiaries.

The aggregate purchase price for these transactions is $339.5 million.  Pursuant to the terms of our purchase agreement with New Vision, $33.5 million of the purchase price at closing was funded from amounts previously deposited into escrow.  The remaining purchase price was funded from cash on hand and the net proceeds of the issuance and sale of the 63/8% Senior Notes due 2021 (the “63/8% Senior Notes”) as further described in Note 13 — “Subsequent Events”.  Vaughan financed its portion of the aggregate purchase price with a term loan as further described in Note 13 — “Subsequent Events”.

In connection with the Acquisition, on May 4, 2012 when we entered into the purchase agreement for the Acquisition, we also entered into a commitment letter pursuant to which JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC committed to provide up to $265 million under a senior unsecured bridge loan facility.  Upon the closing of the Acquisition, we incurred a fee of $4 million related to this commitment.  Because we did not make use of the bridge loan facility this commitment fee will be recorded as a charge to our consolidated statement of operations during the fourth quarter of 2012.

The following table summarizes the provisional allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed by both us and Vaughan in the acquisitions (in thousands):

Current program rights assets	$	1,464
Non-current program rights assets	450
Property and equipment	69,899
Broadcast licenses	162,074
Definite-lived intangible assets	32,975
Current liabilities	(2,319		)
Long-term liabilities	(1,318		)
Long-term debt assumed	(13,989		)
Fair value of identifiable net assets acquired	249,236
Goodwill	90,264
Total	$	339,500

The amount allocated to definite-lived intangible assets represents the estimated fair values of favorable leases of $9 million, advertiser relationships of $8.7 million, retransmission consent agreements of $8.4 million, and other intangible assets of $6.9 million.

The provisional purchase price allocation presented above is based upon all information available to us at the present time, and is based upon management’s preliminary estimates of the fair values using valuation techniques including income, cost and market approaches. The purchase price allocation is provisional pending our final determination of the fair values of the assets and liabilities, which we expect will occur within twelve months following the Acquisition. Upon the completion of the final purchase price allocation, any reallocation of fair values to the assets acquired and liabilities assumed in the acquisitions could have a material impact on our depreciation and amortization expenses and future results of operations.

Goodwill of $90.3 million is the excess of the aggregate purchase price over the fair value of the identifiable net assets acquired, and primarily represents the benefits of synergies and economies of scale we expect to realize from the Acquisition.  All of the goodwill is deductible for tax purposes.

Due to the limited time between the Acquisition date and the filing of this Quarterly Report on Form 10-Q for the three months ended September 30, 2012, we are unable to provide the supplemental pro forma revenue and earnings of the combined entity.  We will include supplemental pro forma revenue and earnings of the combined entity in our Annual Report on Form 10-K for the year ended December 31, 2012.

ACME Television, LLC

On June 20, 2012, LIN Television exercised its option to acquire certain assets of the ACME Television, LLC television stations KWBQ-TV, KRWB-TV and KASY-TV (collectively the “Acquired Stations”), each of which serves the Albuquerque-Santa Fe, NM market.  LIN Television assigned its rights to acquire the remaining assets of the Acquired Stations, including the FCC license, to Tamer Media LLC (“Tamer Media”), an unrelated third party. The aggregate purchase price for the Acquired Stations is $17.3 million, of which we agreed to pay approximately $15.6 million and Tamer Media agreed to pay approximately $1.7 million.  On September 6, 2012, we funded $0.8 million of the purchase price into an escrow account, which is included in other assets in our consolidated balance sheet.  Completion of the transaction is subject to regulatory approvals and certain other terms and conditions.

LIN Television also agreed to provide certain services to the Acquired Stations pursuant to shared services arrangements with Tamer Media.  Under the shared services arrangements with Tamer Media, we will provide sales, administrative and technical services, supporting the business and operation of the Acquired Stations in exchange for commissions and fees that will provide us the benefit of certain returns from the business of the Acquired Stations.  We expect that Tamer Media will be considered a VIE, of which we are the primary beneficiary, and that we will consolidate the assets, liabilities, and results of operations of Tamer Media and its consolidated subsidiaries.

LIN Television Corporation

Acquisitions

Note 2 — Acquisitions

New Vision Television, LLC

On October 12, 2012, LIN Television completed its acquisition (the “Acquisition”) of television stations in eight markets from affiliates and subsidiaries of New Vision Television, LLC (“New Vision”) for $334.9 million, subject to certain post-closing adjustments, and including the assumption of $14.3 million of finance lease obligations.  As a result of the Acquisition, we now operate or service 43 television stations, seven digital channels and a growing portfolio of web sites, applications and mobile products in 23 U.S. markets.  Concurrent with the Acquisition, Vaughan Acquisition LLC (“Vaughan”), a third-party licensee, completed its acquisition of separately owned television stations in three markets for $4.6 million (the “Vaughan Acquired Stations”) from PBC Broadcasting, LLC (“PBC”).

LIN Television also agreed to provide certain services to the Vaughan Acquired Stations pursuant to shared services arrangements with Vaughan.  Under the shared services arrangements with Vaughan, we will provide sales, administrative and technical services, supporting the business and operation of the Vaughan Acquired Stations in exchange for commissions and fees that will provide us the benefit of certain returns from the business of the Vaughan Acquired Stations.  We expect that Vaughan will be considered a VIE, of which we are the primary beneficiary, and that we will consolidate the assets, liabilities, and results of operations of Vaughan and its consolidated subsidiaries.

The aggregate purchase price for these transactions is $339.5 million.  Pursuant to the terms of our purchase agreement with New Vision, $33.5 million of the purchase price at closing was funded from amounts previously deposited into escrow.  The remaining purchase price was funded from cash on hand and the net proceeds of the issuance and sale of the 63/8% Senior Notes due 2021 (the “63/8% Senior Notes”) as further described in Note 13 — “Subsequent Events”.  Vaughan financed its portion of the aggregate purchase price with a term loan as further described in Note 13 — “Subsequent Events”.

In connection with the Acquisition, on May 4, 2012 when we entered into the purchase agreement for the Acquisition, we also entered into a commitment letter pursuant to which JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC committed to provide up to $265 million under a senior unsecured bridge loan facility.  Upon the closing of the Acquisition, we incurred a fee of $4 million related to this commitment.  Because we did not make use of the bridge loan facility this commitment fee will be recorded as a charge to our consolidated statement of operations during the fourth quarter of 2012.

The following table summarizes the provisional allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed by both us and Vaughan in the acquisitions (in thousands):

Current program rights assets	$	1,464
Non-current program rights assets	450
Property and equipment	69,899
Broadcast licenses	162,074
Definite-lived intangible assets	32,975
Current liabilities	(2,319		)
Long-term liabilities	(1,318		)
Long-term debt assumed	(13,989		)
Fair value of identifiable net assets acquired	249,236
Goodwill	90,264
Total	$	339,500

The amount allocated to definite-lived intangible assets represents the estimated fair values of favorable leases of $9 million, advertiser relationships of $8.7 million, retransmission consent agreements of $8.4 million, and other intangible assets of $6.9 million.

The provisional purchase price allocation presented above is based upon all information available to us at the present time, and is based upon management’s preliminary estimates of the fair values using valuation techniques including income, cost and market approaches. The purchase price allocation is provisional pending our final determination of the fair values of the assets and liabilities, which we expect will occur within twelve months following the Acquisition. Upon the completion of the final purchase price allocation, any reallocation of fair values to the assets acquired and liabilities assumed in the acquisitions could have a material impact on our depreciation and amortization expenses and future results of operations.

Goodwill of $90.3 million is the excess of the aggregate purchase price over the fair value of the identifiable net assets acquired, and primarily represents the benefits of synergies and economies of scale we expect to realize from the Acquisition.  All of the goodwill is deductible for tax purposes.

Due to the limited time between the Acquisition date and the filing of this Quarterly Report on Form 10-Q for the three months ended September 30, 2012, we are unable to provide the supplemental pro forma revenue and earnings of the combined entity.  We will include supplemental pro forma revenue and earnings of the combined entity in our Annual Report on Form 10-K for the year ended December 31, 2012.

ACME Television, LLC

On June 20, 2012, LIN Television exercised its option to acquire certain assets of the ACME Television, LLC television stations KWBQ-TV, KRWB-TV and KASY-TV (collectively the “Acquired Stations”), each of which serves the Albuquerque-Santa Fe, NM market.  LIN Television assigned its rights to acquire the remaining assets of the Acquired Stations, including the FCC license, to Tamer Media LLC (“Tamer Media”), an unrelated third party. The aggregate purchase price for the Acquired Stations is $17.3 million, of which we agreed to pay approximately $15.6 million and Tamer Media agreed to pay approximately $1.7 million.  On September 6, 2012, we funded $0.8 million of the purchase price into an escrow account, which is included in other assets in our consolidated balance sheet.  Completion of the transaction is subject to regulatory approvals and certain other terms and conditions.

LIN Television also agreed to provide certain services to the Acquired Stations pursuant to shared services arrangements with Tamer Media.  Under the shared services arrangements with Tamer Media, we will provide sales, administrative and technical services, supporting the business and operation of the Acquired Stations in exchange for commissions and fees that will provide us the benefit of certain returns from the business of the Acquired Stations.  We expect that Tamer Media will be considered a VIE, of which we are the primary beneficiary, and that we will consolidate the assets, liabilities, and results of operations of Tamer Media and its consolidated subsidiaries.