Table of Contents

 

 

 

**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

**Form 10-Q**

 
| **x** | ** ** | **Quarterly Report pursuant to  Section 13 OR 15 (d) of the Securities Exchange Act of 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 

**For the quarterly period ended September 30,2008**

 

| **Commission file  number: 001-31311** | ** ** | **Commission file  number: 000-25206** |
|----------------------------------------|------------|----------------------------------------|
|                                   |       |                                   |
| **LIN TV Corp.**                       | ** ** | **LIN Television  Corporation**        |
| (Exact name of registrant as           |       | (Exact name of registrant as           |
| specified in its charter)              |       | specified in its charter)              |
|                                   |       |                                   |
| **Delaware**                           | ** ** | **Delaware**                           |
| (State or other jurisdiction of        |       | (State or other jurisdiction of        |
| incorporation or organization)         |       | incorporation or organization)         |
|                                   |       |                                   |
| **05-0501252**                         | ** ** | **13-3581627**                         |
| (I.R.S. Employer                       |       | (I.R.S. Employer                       |
| Identification No.)                    |       | Identification No.)                    |

 

**Four Richmond Square, Suite 200,Providence, Rhode Island 02906**

(Address of principal executiveoffices)

 

**(401) 454-2880**

(Registrant’s telephone number,including area code)

 

Indicate bycheck mark whether the registrant: (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x No o

 

Indicate bycheck mark whether the registrant is a large accelerated filer, an acceleratedfiler, a non-accelerated filer or a smaller reporting company. See thedefinitions of “large accelerated filer”, “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o     Accelerated filer  x

Non-accelerated filer o  (Do not check if smaller reporting   company) Smaller reporting company o

 

Indicate bycheck mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o No x

 

This combined Form 10-Qis separately filed by (i) LIN TV Corp. and (ii) LIN TelevisionCorporation. LIN Television Corporation meets the conditions set forth ingeneral instruction H (1) (a) and (b) of Form 10-Q and is,therefore, filing this form with the reduced disclosure format permitted bysuch instruction.

 

LIN TV Corp. Class Acommon stock, $0.01 par value, issued and outstanding at October 27, 2008:27,864,356 shares

LIN TV Corp. Class Bcommon stock, $0.01 par value, issued and outstanding at October 27, 2008:23,502,059 shares

LIN TV Corp. Class Ccommon stock, $0.01 par value, issued and outstanding at October 27, 2008:2 shares

LIN TelevisionCorporation common stock, $0.01 par value, issued and outstanding at October 27,2008: 1,000 shares

 

 

 

----

Table of Contents

 

Tableof Contents

 
| ** **      | **Part I. Financial Information**                                                                                                       | ** ** |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **      | ** **                                                                                                                                   | ** ** |
| Item 1.         | Financial Statements                                                                                                                         | 3          |
|            | Unaudited  Condensed Financial Statements of LIN TV Corp.:                                                                                   |       |
|            | Condensed  Consolidated Balance Sheets                                                                                                       | 3          |
|            | Condensed  Consolidated Statements of Operations                                                                                             | 4          |
|            | Condensed  Consolidated Statements of Cash Flows                                                                                             | 5          |
|            | Notes to Unaudited Condensed Consolidated Financial  Statements  (See separate index for financial statements of LIN Television Corporation) | 6          |
|            |                                                                                                                                         |       |
| Item 2.         | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                  | 20         |
| Item 3.         | Quantitative  and Qualitative Disclosures about Market Risk                                                                                  | 36         |
| Item 4.         | Controls and  Procedures                                                                                                                     | 36         |
|            |                                                                                                                                         |       |
|            | **Part II.  Other Information**                                                                                                         |       |
|            |                                                                                                                                         |       |
| Item  1.        | Legal  Proceedings                                                                                                                           | 37         |
| Item  1A.       | Risk  Factors                                                                                                                                | 37         |
| Item 2.         | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                 | 38         |
| Item 3.         | Defaults  Upon Senior Securities                                                                                                             | 38         |
| Item 4.         | Submission  of Matters to a Vote of Security Holders                                                                                         | 38         |
| Item  5.        | Other  Information                                                                                                                           | 39         |
| Item 6.         | Exhibits                                                                                                                                     | 40         |
| Signature  Page | 41                                                                                                                                           |

 

2

----

Table of Contents

 

**Part I. Financial Information**

**Item 1. Financial Statements**

 

**LIN TV Corp.**

**Condensed Consolidated Balance Sheets**

**(unaudited)**

 
| ** **                                                                                                                                                                                                                                                            | ** ** | **September 30,**                                    | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                            | ** ** | **2008**                                                  | ** ** | **2007**              | ** ** |
| ** **                                                                                                                                                                                                                                                            | ** ** | **(in thousands, except share data)** | ** ** |
|                                                                                                                                                                                                                                                                  |       |                                                      |       |                  |       |
| **ASSETS**                                                                                                                                                                                                                                                            | ** ** |
| Current assets:                                                                                                                                                                                                                                                       |       |                                                      |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                                                                                             |       | $                                                         | 16,270     |                  | $          | 40,031 |   |
| Accounts receivable, less allowance for  doubtful accounts (2008 - $1,723; 2007 - $1,640)                                                                                                                                                                             |       | 76,040                                                    |       | 87,301                |       |
| Program rights                                                                                                                                                                                                                                                        |       | 3,751                                                     |       | 4,360                 |       |
| Assets held for sale                                                                                                                                                                                                                                                  |       | 501                                                       |       | 289                   |       |
| Other current assets                                                                                                                                                                                                                                                  |       | 6,647                                                     |       | 4,857                 |       |
| Total current assets                                                                                                                                                                                                                                                  |       | 103,209                                                   |       | 136,838               |       |
| Property and equipment, net                                                                                                                                                                                                                                           |       | 187,549                                                   |       | 191,250               |       |
| Deferred financing costs                                                                                                                                                                                                                                              |       | 9,673                                                     |       | 14,406                |       |
| Equity investments                                                                                                                                                                                                                                                    |       | 53,693                                                    |       | 55,480                |       |
| Program rights                                                                                                                                                                                                                                                        |       | 4,144                                                     |       | 6,776                 |       |
| Goodwill                                                                                                                                                                                                                                                              |       | 424,122                                                   |       | 535,418               |       |
| Broadcast licenses and other intangible  assets, net                                                                                                                                                                                                                  |       | 835,385                                                   |       | 1,021,290             |       |
| Assets held for sale                                                                                                                                                                                                                                                  |       | 8,567                                                     |       | 9,180                 |       |
| Other assets                                                                                                                                                                                                                                                          |       | 7,936                                                     |       | 11,330                |       |
| Total assets                                                                                                                                                                                                                                                          |       | $                                                         | 1,634,278  |                  | $          | 1,981,968 |   |
|                                                                                                                                                                                                                                                                  |       |                                                      |       |                  |       |
| **LIABILITIES, PREFERRED STOCK AND  STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                       | ** ** |
| Current liabilities:                                                                                                                                                                                                                                                  |       |                                                      |       |                  |       |
| Current portion of long-term debt                                                                                                                                                                                                                                     |       | $                                                         | 21,600     |                  | $          | 24,300 |   |
| Accounts payable                                                                                                                                                                                                                                                      |       | 4,593                                                     |       | 11,415                |       |
| Accrued compensation                                                                                                                                                                                                                                                  |       | 8,495                                                     |       | 6,754                 |       |
| Accrued interest expense                                                                                                                                                                                                                                              |       | 13,907                                                    |       | 5,018                 |       |
| Accrued contract costs                                                                                                                                                                                                                                                |       | 6,360                                                     |       | 6,934                 |       |
| Other accrued expenses                                                                                                                                                                                                                                                |       | 18,532                                                    |       | 13,573                |       |
| Program obligations                                                                                                                                                                                                                                                   |       | 11,302                                                    |       | 11,944                |       |
| Liabilities held for sale                                                                                                                                                                                                                                             |       | 563                                                       |       | 549                   |       |
| Total current liabilities                                                                                                                                                                                                                                             |       | 85,352                                                    |       | 80,487                |       |
| Long-term debt, excluding current portion                                                                                                                                                                                                                             |       | 739,163                                                   |       | 808,476               |       |
| Deferred income taxes, net                                                                                                                                                                                                                                            |       | 303,680                                                   |       | 374,548               |       |
| Program obligations                                                                                                                                                                                                                                                   |       | 6,626                                                     |       | 11,551                |       |
| Liabilities held for sale                                                                                                                                                                                                                                             |       | 41                                                        |       | 198                   |       |
| Other liabilities                                                                                                                                                                                                                                                     |       | 35,481                                                    |       | 41,564                |       |
| Total liabilities                                                                                                                                                                                                                                                     |       | 1,170,343                                                 |       | 1,316,824             |       |
|                                                                                                                                                                                                                                                                  |       |                                                      |       |                  |       |
|                                                                                                                                                                                                                                                                  |       |                                                      |       |                  |       |
| Preferred stock of Banks  Broadcasting, Inc., $0.01 par value, 173,822 shares issued and outstanding  at September 30, 2008 and December 31, 2007                                                                                                      |       | 7,095                                                     |       | 9,046                 |       |
| Stockholders’ equity:                                                                                                                                                                                                                                            |       |                                                      |       |                  |       |
| Class A common stock, $0.01 par value,  100,000,000 shares authorized, 29,670,829 shares at September 30, 2008  and 29,130,173 shares at December 31, 2007, respectively, issued and  outstanding                                                      |       | 293                                                       |       | 292                   |       |
| Class B common stock, $0.01 par value,  50,000,000 shares authorized, 23,502,059 shares at September 30, 2008  and December 31, 2007, issued and outstanding; convertible into an equal  number of shares of Class A or Class C common stock |       | 235                                                       |       | 235                   |       |
| Class C common stock, $0.01 par value,  50,000,000 shares authorized, 2 shares at September 30, 2008 and  December 31, 2007, respectively, issued and outstanding; convertible  into an equal number of shares of Class A common stock            |       | —                                                    |       | —                |       |
| Treasury stock, 1,806,428 shares of  Class A common stock at September 30, 2008 and December 31,  2007, at cost                                                                                                                                        |       | (18,005                                                   | )          | (18,005               | )          |
| Additional paid-in capital                                                                                                                                                                                                                                            |       | 1,101,354                                                 |       | 1,096,455             |       |
| Accumulated deficit                                                                                                                                                                                                                                                   |       | (613,209                                                  | )          | (408,726              | )          |
| Accumulated other comprehensive loss                                                                                                                                                                                                                                  |       | (13,828                                                   | )          | (14,153               | )          |
| Total stockholders’ equity                                                                                                                                                                                                                                       |       | 456,840                                                   |       | 656,098               |       |
| Total liabilities, preferred stock and  stockholders’ equity                                                                                                                                                                                                     |       | $                                                         | 1,634,278  |                  | $          | 1,981,968 |   |

 

The accompanying notes are an integral part of the unaudited condensedconsolidated financial statements.

 

3

----

Table of Contents

 

**LIN TV Corp.**

**CondensedConsolidated Statements of Operations**

**(unaudited)**

 
| ** **                                                                                                                                                                                                                                                                                                                                  | ** ** | **Three months ended September 30,**           | ** ** | **Nine months ended September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                  | ** ** | **2008**                                                           | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                                                                                                                                                                                                                                                                                                  | ** ** | **(in thousands, except per share data)** | ** ** |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                               |       |                                                    |       |   |   |   |   |
| Net revenues                                                                                                                                                                                                                                                                                                                                |       | $                                                                  | 98,804     |                                                    | $          | 93,740 |   | $ | 295,571 |   | $ | 287,297 |   |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                               |       |                                                    |       |   |   |   |   |
| Operating costs and expenses:                                                                                                                                                                                                                                                                                                               |       |                                                               |       |                                                    |       |   |   |   |   |
| Direct operating                                                                                                                                                                                                                                                                                                                            |       | 28,977                                                             |       | 29,016                                                  |       | 88,666 |   | 86,353 |   |
| Selling, general and administrative                                                                                                                                                                                                                                                                                                         |       | 28,321                                                             |       | 26,928                                                  |       | 85,157 |   | 84,188 |   |
| Amortization of program rights                                                                                                                                                                                                                                                                                                              |       | 5,856                                                              |       | 6,382                                                   |       | 17,620 |   | 18,523 |   |
| Corporate                                                                                                                                                                                                                                                                                                                                   |       | 3,683                                                              |       | 5,844                                                   |       | 14,922 |   | 16,374 |   |
| Depreciation                                                                                                                                                                                                                                                                                                                                |       | 7,308                                                              |       | 6,876                                                   |       | 22,125 |   | 23,088 |   |
| Amortization of intangible assets                                                                                                                                                                                                                                                                                                           |       | 44                                                                 |       | 523                                                     |       | 228 |   | 1,669 |   |
| Impairment of goodwill and broadcast  licenses                                                                                                                                                                                                                                                                                              |       | —                                                             |       | —                                                  |       | 296,972 |   | — |   |
| Restructuring benefit                                                                                                                                                                                                                                                                                                                       |       | —                                                             |       | (165                                                    | )          | — |   | (74 | ) |
| Loss (gain) from asset dispositions                                                                                                                                                                                                                                                                                                         |       | 74                                                                 |       | 679                                                     |       | (296 | ) | 1,382 |   |
| Operating income (loss)                                                                                                                                                                                                                                                                                                                     |       | 24,541                                                             |       | 17,657                                                  |       | (229,823 | ) | 55,794 |   |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                               |       |                                                    |       |   |   |   |   |
| Other expense (income):                                                                                                                                                                                                                                                                                                                     |       |                                                               |       |                                                    |       |   |   |   |   |
| Interest expense, net                                                                                                                                                                                                                                                                                                                       |       | 13,241                                                             |       | 15,567                                                  |       | 41,554 |   | 49,213 |   |
| Share of expense (income) in equity  investments                                                                                                                                                                                                                                                                                            |       | (662                                                               | )          | (420                                                    | )          | (861 | ) | (1,172 | ) |
| Gain on derivative instruments                                                                                                                                                                                                                                                                                                              |       | —                                                             |       | (1,384                                                  | )          | (375 | ) | (918 | ) |
| Loss on extinguishment of debt                                                                                                                                                                                                                                                                                                              |       | 491                                                                |       | —                                                  |       | 4,195 |   | 551 |   |
| Other, net                                                                                                                                                                                                                                                                                                                                  |       | 1,036                                                              |       | 159                                                     |       | 997 |   | (104 | ) |
| Total other expense, net                                                                                                                                                                                                                                                                                                                    |       | 14,106                                                             |       | 13,922                                                  |       | 45,510 |   | 47,570 |   |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                               |       |                                                    |       |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                               |       |                                                    |       |   |   |   |   |
| Income (loss) from continuing operations  before provision for (benefit from) income taxes                                                                                                                                                                                                                                                  |       | 10,435                                                             |       | 3,735                                                   |       | (275,333 | ) | 8,224 |   |
| Provision for (benefit from) income taxes                                                                                                                                                                                                                                                                                                   |       | 218                                                                |       | 1,177                                                   |       | (70,666 | ) | 3,155 |   |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                               |       |                                                    |       |   |   |   |   |
| Income (loss) from continuing operations                                                                                                                                                                                                                                                                                                    |       | 10,217                                                             |       | 2,558                                                   |       | (204,667 | ) | 5,069 |   |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                               |       |                                                    |       |   |   |   |   |
| Discontinued operations:                                                                                                                                                                                                                                                                                                                    |       |                                                               |       |                                                    |       |   |   |   |   |
| (Loss) income from discontinued operations,  net of (benefit from) provision for income taxes of $74 and $93 for the three  months ended September 30, 2008 and 2007, respectively, and net of  (benefit from) provision for income taxes of $215 and $(338) for the nine  months ended September 30, 2008 and 2007, respectively |       | (196                                                               | )          | (324                                                    | )          | 184 |   | (1,256 | ) |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                               |       |                                                    |       |   |   |   |   |
| (Loss) gain from the sale of discontinued  operations, net of benefit from income taxes of $355 and $2,620 for the three  and nine months ended September 30, 2007                                                                                                                                                                     |       | —                                                             |       | (501                                                    | )          | — |   | 22,166 |   |
| Net income (loss)                                                                                                                                                                                                                                                                                                                           |       | $                                                                  | 10,021     |                                                    | $          | 1,733 |   | $ | (204,483 | ) | $ | 25,979 |   |
| **Basic income (loss) per common share:**                                                                                                                                                                                                                                                                                                   |       |                                                               |       |                                                    |       |   |   |   |   |
| Income (loss) from continuing operations                                                                                                                                                                                                                                                                                                    |       | $                                                                  | 0.20       |                                                    | $          | 0.05 |   | $ | (4.04 | ) | $ | 0.10 |   |
| (Loss) income from discontinued operations,  net of tax                                                                                                                                                                                                                                                                                     |       | —                                                             |       | (0.01                                                   | )          | 0.01 |   | (0.03 | ) |
| (Loss) gain from the sale of discontinued  operations, net of tax                                                                                                                                                                                                                                                                           |       | —                                                             |       | (0.01                                                   | )          | — |   | 0.46 |   |
| Net income (loss)                                                                                                                                                                                                                                                                                                                           |       | $                                                                  | 0.20       |                                                    | $          | 0.03 |   | $ | (4.03 | ) | $ | 0.53 |   |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                               |       |                                                    |       |   |   |   |   |
| Weighted - average number of common shares  outstanding used in calculating basic (loss) income per common share                                                                                                                                                                                                                            |       | 50,620                                                             |       | 49,687                                                  |       | 50,714 |   | 49,300 |   |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                               |       |                                                    |       |   |   |   |   |
| **Diluted income (loss) per common share:**                                                                                                                                                                                                                                                                                                 |       |                                                               |       |                                                    |       |   |   |   |   |
| Income (loss) from continuing operations                                                                                                                                                                                                                                                                                                    |       | $                                                                  | 0.20       |                                                    | $          | 0.05 |   | $ | (4.04 | ) | $ | 0.11 |   |
| (Loss) income from discontinued operations,  net of tax                                                                                                                                                                                                                                                                                     |       | —                                                             |       | (0.01                                                   | )          | 0.01 |   | (0.02 | ) |
| (Loss) gain from the sale of discontinued  operations, net of tax                                                                                                                                                                                                                                                                           |       | —                                                             |       | (0.01                                                   | )          | — |   | 0.40 |   |
| Net income (loss)                                                                                                                                                                                                                                                                                                                           |       | $                                                                  | 0.20       |                                                    | $          | 0.03 |   | $ | (4.03 | ) | $ | 0.49 |   |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                               |       |                                                    |       |   |   |   |   |
| Weighted - average number of common shares  outstanding used in calculating diluted (loss) income per common share                                                                                                                                                                                                                          |       | 50,620                                                             |       | 51,232                                                  |       | 50,714 |   | 54,792 |   |

 

The accompanying notes are an integral part of the unaudited condensedconsolidated financial statements.

 

4

----

Table of Contents

 

**LIN TV Corp.**

**CondensedConsolidated Statements of Cash Flows**

**(unaudited)**

 
| ** **                                                                                                              | ** ** | **Nine months ended September 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                                              | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| ** **                                                                                                              | ** ** | **(in thousands)**                                 | ** ** |
| **OPERATING ACTIVITIES:**                                                                                               |       |                                                    |       |   |   |
| Net (loss) income                                                                                                       |       | $                                                       | (204,483   | ) | $ | 25,979 |   |
| (Income) loss from discontinued operations                                                                              |       | (184                                                    | )          | 1,256 |   |
| Gain from sale of discontinued operations                                                                               |       | —                                                  |       | (22,166 | ) |
| Adjustment to reconcile net (loss) income  to net cash provided by operating activities:                                |       |                                                    |       |   |   |
| Depreciation                                                                                                            |       | 22,125                                                  |       | 23,088 |   |
| Amortization of intangible assets                                                                                       |       | 228                                                     |       | 1,669 |   |
| Impairment of goodwill and intangible  assets                                                                           |       | 296,972                                                 |       | — |   |
| Amortization of financing costs and note  discounts                                                                     |       | 4,782                                                   |       | 6,468 |   |
| Amortization of program rights                                                                                          |       | 17,620                                                  |       | 18,523 |   |
| Program payments                                                                                                        |       | (19,909                                                 | )          | (20,745 | ) |
| Loss on extinguishment of debt                                                                                          |       | 4,195                                                   |       | 551 |   |
| Gain on derivative instruments                                                                                          |       | (375                                                    | )          | (918 | ) |
| Share of income in equity investments                                                                                   |       | (861                                                    | )          | (1,172 | ) |
| Deferred income taxes, net                                                                                              |       | (71,082                                                 | )          | 11,215 |   |
| Stock-based compensation                                                                                                |       | 3,583                                                   |       | 4,452 |   |
| (Gain) loss from asset dispositions                                                                                     |       | (296                                                    | )          | 1,382 |   |
| Other, net                                                                                                              |       | 400                                                     |       | (1,290 | ) |
| Changes in operating assets and  liabilities, net of acquisitions and disposals:                                        |       |                                                    |       |   |   |
| Accounts receivable                                                                                                     |       | 11,602                                                  |       | 2,575 |   |
| Other assets                                                                                                            |       | 2,104                                                   |       | 271 |   |
| Accounts payable                                                                                                        |       | (6,822                                                  | )          | (2,547 | ) |
| Accrued interest expense                                                                                                |       | 8,889                                                   |       | 10,031 |   |
| Other accrued expenses                                                                                                  |       | (2,076                                                  | )          | (14,710 | ) |
| **Net cash provided by operating activities,  continuing operations**                                                   |       | 66,412                                                  |       | 43,912 |   |
| **Net cash used in operating activities,  discontinued operations**                                                     |       | (1,142                                                  | )          | (16,966 | ) |
| **Net cash provided by operating activities**                                                                           |       | 65,270                                                  |       | 26,946 |   |
|                                                                                                                    |       |                                                    |       |   |   |
| **INVESTING ACTIVITIES:**                                                                                               |       |                                                    |       |   |   |
| Capital expenditures                                                                                                    |       | (16,314                                                 | )          | (9,074 | ) |
| Distributions from equity investments                                                                                   |       | 2,649                                                   |       | 2,806 |   |
| Payments for business combinations                                                                                      |       | —                                                  |       | (52,250 | ) |
| Other investments, net                                                                                                  |       | 401                                                     |       | (620 | ) |
| **Net cash used in investing activities,  continuing operations**                                                       |       | (13,264                                                 | )          | (59,138 | ) |
| **Net cash (used in) provided by investing  activities, discontinued operations**                                       |       | (693                                                    | )          | 135,791 |   |
| **Net cash (used in) provided by investing  activities**                                                                |       | (13,957                                                 | )          | 76,653 |   |
|                                                                                                                    |       |                                                    |       |   |   |
| **FINANCING ACTIVITIES:**                                                                                               |       |                                                    |       |   |   |
| Net proceeds on exercises of employee stock  options and phantom stock units and employee stock purchase plan issuances |       | 1,183                                                   |       | 1,749 |   |
| Proceeds from borrowings on long-term debt                                                                              |       | 115,000                                                 |       | 60,000 |   |
| Principal payments on long-term debt                                                                                    |       | (190,025                                                | )          | (145,000 | ) |
| Payment of long-term debt financing costs                                                                               |       | (1,232                                                  | )          | — |   |
| **Net cash used in financing activities,  continuing operations**                                                       |       | (75,074                                                 | )          | (83,251 | ) |
| **Net cash used in financing activities**                                                                               |       | (75,074                                                 | )          | (83,251 | ) |
|                                                                                                                    |       |                                                    |       |   |   |
| Net (decrease) increase in cash and cash  equivalents                                                                   |       | (23,761                                                 | )          | 20,348 |   |
| Cash and cash equivalents at the beginning  of the period                                                               |       | 40,031                                                  |       | 12,329 |   |
| Cash and cash equivalents at the end of the  period                                                                     |       | $                                                       | 16,270     |   | $ | 32,677 |   |

 

The accompanying notes are an integral part of the unaudited condensedconsolidated financial statements

 

5

----

Table of Contents

 

**LIN TVCorp. Notes to Unaudited Condensed Consolidated Financial Statements**

 

**Note 1 – Summary of Significant Accounting Policies**

* *

*Description of Business*

 

LINTV Corp. (“LIN TV”), together with its subsidiaries, including LIN TelevisionCorporation (“LIN Television”), is a television station group operator in theUnited States. LIN TV and its subsidiaries are affiliates of HM CapitalPartners LLC (“HMC”). In these notes, the terms “Company,” “LIN TV,” “we,” “us”or “our” mean LIN TV Corp. and all subsidiaries included in our condensedconsolidated financial statements.

 

Weguarantee all of LIN Television’s debt. All of the consolidated wholly-ownedsubsidiaries of LIN Television fully and unconditionally guarantee all of ourdebt on a joint-and-several basis.

 

*Changes in Classifications*

 

Certainchanges in classifications have been made to the prior period financialstatements to conform to the current financial statement presentation. Ourcondensed consolidated financial statements reflect the operations, assets andliabilities of our Puerto Rico operations and of Banks Broadcasting, Inc.(“Banks Broadcasting”) as discontinued under the provisions of Statement of FinancialAccounting Standards (“SFAS”) 144 “Accounting for the Impairment or Disposal ofLong-Lived Assets,” (“SFAS 144”) for all periods presented (see Note 3 – “DiscontinuedOperations” for further discussion of our discontinued operations).

 

*Basis of Presentation*

 

Ourcondensed consolidated financial statements have been prepared without audit,pursuant to the rules and regulations of the Securities and ExchangeCommission (“SEC”). Certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with generally acceptedaccounting principles in the United States (“GAAP”) have been condensed oromitted pursuant to such rules and regulations, including the year-endcondensed balance sheet data, which was derived from audited financialstatements, but does not include all disclosures required by GAAP. We includedaudited consolidated financial statements for the year ended December 31,2007 in our Annual Report on Form 10-K, which was filed with the SEC on March 14,2008.

 

Inthe opinion of management, the accompanying unaudited interim financialstatements contain all adjustments necessary to state fairly our financialposition, results of operations and cash flows for the periods presented. Theinterim results of operations are not necessarily indicative of the results tobe expected for the full year.

 

Weconsolidate Banks Broadcasting in accordance with Financial AccountingStandards Board (“FASB”) Interpretation 46 “Consolidation of Variable InterestEntities – an Interpretation of ARB No. 51 Revised,” (“FIN 46R”). Thecreditors of Banks Broadcasting have no recourse to us except for our interestin the preferred stock of Banks Broadcasting.

 

6

----

Tableof Contents

 

**LIN TV Corp.Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

*Use of Estimates*

 

Thepreparation of financial statements in conformity with GAAP requires ourmanagement to make estimates and assumptions that affect the amounts reportedin the unaudited condensed consolidated financial statements and the notes tothe unaudited condensed consolidated financial statements. Our actual resultscould differ from these estimates. Estimates are used for the allowance fordoubtful accounts related to accounts receivables, fair value of goodwill,intangible assets and equity investments, amortization of program rights andintangible assets, stock-based compensation, pension costs, bartertransactions, income taxes, employee medical insurance claims, useful lives ofproperty, equipment and definite-lived intangible assets, contingencies,litigation and net assets of businesses acquired.

 

*Net Earnings per Common Share*

 

Basicearnings per share (“EPS”) is based upon net earnings divided by the weightedaverage number of common shares outstanding during the period. Diluted EPSreflects the effect of the assumed exercise of stock options, vesting ofrestricted shares and the potential common shares from the assumed conversionof the contingently convertible debt only in the periods in which such effectwould have been dilutive.

 

Forthe three months ended September 30, 2008,unvested restricted stock awards of 455,000shares were excluded from the calculation of diluted EPS because theirinclusion would have been anti-dilutive. For the nine months ended September 30,2008, the following was excluded from the calculation of diluted EPS becausetheir inclusion would have been anti-dilutive: (a) outstanding stockoptions to purchase 146,000 shares of our Class A common stock; (b) unvestedrestricted stock awards of 534,000 shares; and (c) 2,506,000 shares of ourClass A common stock potentially issuable upon the conversion of contingentlyconvertible debt.

 

Thefollowing is a reconciliation of income available to common shareholders fromcontinuing operations and weighted-average common shares outstanding forpurposes of calculating basic and diluted income per common share (in thousands,except per share data):

 

7

----

Table of Contents

 

**LIN TV Corp.Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 
| ** **                                                                                      | ** ** | **Three months  ended** | ** ** | **Nine months  ended**  | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                      | ** ** | **September 30,  2007** | ** ** | **September 30,  2007** | ** ** |
|                                                                                            |       |                         |       |                         |       |
| **Numerator for income per common share  calculation:**                                         |       |                         |       |                         |       |
| Income available to common shareholders from  continuing operations, basic                      |       | $                            | 2,558      |                         | $          | 5,069 |   |
| Interest expense on contingently  convertible debt, net of tax                                  |       | —                       |       | 1,541                        |       |
| Derivative loss, net of tax                                                                     |       | —                       |       | (597                         | )          |
| Income available to common shareholders from  continuing operations, diluted                    |       | 2,558                        |       | 6,013                        |       |
| (Loss) income available to common  shareholders from discontinued operations, basic and diluted |       | (324                         | )          | (1,256                       | )          |
| (Loss) gain available to common  shareholders from discontinued operations, basic and diluted   |       | (501                         | )          | 22,166                       |       |
| Net income available to common  shareholders, diluted                                           |       | $                            | 1,733      |                         | $          | 26,923 |   |
|                                                                                            |       |                         |       |                         |       |
| **Denominator for income per common stock  calculation:**                                       |       |                         |       |                         |       |
| Weighted-average common shares, basic                                                           |       | 49,687                       |       | 49,300                       |       |
| Effect of dilutive securities:                                                                  |       |                         |       |                         |       |
| Stock options and restricted stock                                                              |       | 1,545                        |       | 2,139                        |       |
| Contingent convertible debt                                                                     |       | —                       |       | 3,353                        |       |
| Weighted-average common shares, diluted                                                         |       | 51,232                       |       | 54,792                       |       |

 

*Comprehensive Income (Loss)*

 

Ourtotal comprehensive income includes net income (loss) and other comprehensiveincome (loss) items listed in the table below (in thousands):

 
| ** **                                                                                                                                                                                                                                        | ** ** | **Three months ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                        | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                                                                                                                                                                                              |       |                                                     |       |                                                    |       |   |   |   |   |
| Net income (loss)                                                                                                                                                                                                                                 |       | $                                                        | 10,021     |                                                    | $          | 1,733 |   | $ | (204,483 | ) | $ | 25,979 |   |
| Other comprehensive income (loss), net of  tax:                                                                                                                                                                                                   |       |                                                     |       |                                                    |       |   |   |   |   |
| Amortization of prior period costs, net of  tax of $12 and $8 for the three months ended September 30, 2008 and  2007, respectively, and net of tax of $36 and $28 for the nine months ended  September 30, 2008 and 2007               |       | 18                                                       |       | 17                                                      |       | 54 |   | 47 |   |
| Amortization of net actuarial losses, net  of tax of $19 and $98 for the three months ended September 30, 2008 and  2007, respectively, and net of tax of $57 and $346 for the nine months ended  September 30, 2008 and 2007           |       | 29                                                       |       | 190                                                     |       | 87 |   | 583 |   |
| Change in fair value of cash flow hedges, net  of tax of $22 and ($709) for the three months ended September 30, 2008 and  2007, respectively, and net of tax of $123 and ($304) for the nine months  ended September 30, 2008 and 2007 |       | 32                                                       |       | (1,068                                                  | )          | 184 |   | (447 | ) |
| Recognition of accumulative benefit obligation,  discontinued operations                                                                                                                                                                          |       | —                                                   |       | —                                                  |       | — |   | 419 |   |
| Total comprehensive income (loss)                                                                                                                                                                                                                 |       | $                                                        | 10,100     |                                                    | $          | 872 |   | $ | (204,158 | ) | $ | 26,581 |   |

 

*Effective Tax Rate*

 

Weestimated an annual effective tax rate of 25.7% and 44.4% as of September 30,2008 and 2007, respectively.The change was primarily due to the impairment of our broadcastlicenses and goodwill, and our estimated annual loss from continuing operationsbefore benefit from income taxes.

 

8

----

Table of Contents

 

**LIN TV Corp.Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

*Recently Issued Accounting Pronouncements*

 

InSeptember 2008, the FASB issued FASB Staff Position (“FSP”) FSP SFAS 133-1and FIN 45-4 “Disclosures about Credit Derivatives and Certain Guarantees: AnAmendment of SFAS 133 and FIN 45; and Clarification of the Effective Date ofSFAS 161” (“FSP SFAS 133-1 and FIN 45-4”), which is effective for reportingperiods, both annual and interim, ending after November 15, 2008.  FSP SFAS 133-1 and FIN 45-4 applies to creditderivatives within the scope of SFAS 133 “Accounting for Derivative Instrumentsand Hedging Activities” (“SFAS 133”), hybrid instruments that have embeddedcredit derivatives, and guarantees within the scope of FIN 45, “Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others–an interpretation of FASB Statements No. 5,57, and 107 and rescission of FASB Interpretation No. 34”. This FSPrequires additional financial statement disclosures relative to the currentstatus of the payment/performance risk of the credit derivative or guarantee toenable users of financial statements to assess their potential effect on the financialposition, financial performance and cash flows. FSP SFAS 133-1 and FIN 45-4 impacts only our disclosure requirements andtherefore will not have a material impact on our financial position, financialperformance or cash flows.  We plan toadopt FSP SFAS 133-1 and FIN 45-4 and include the additional disclosures withour Annual Report on Form 10-K for year ending December 31, 2008.

 

InJune 2008, the FASB issued FSP SFAS 142-3 “Determination of the UsefulLife of Intangible Assets” (“FSP SFAS 142-3”), which is effective for financialstatements issued for fiscal years beginning after December 31, 2008, andinterim periods within those fiscal years. Early adoption is prohibited. FSP SFAS142-3 provides guidance for determining the useful life of a recognizedintangible asset and will be applied prospectively to intangible assetsacquired after the effective date. We plan to adopt FSP SFAS 142-3 effective January 1,2009, and its effects on future periods will depend on the nature andsignificance of any acquisitions subject to SFAS 141R “Business Combinations” (“SFAS141R”).

 

InMarch 2008, the FASB issued SFAS 161 “Disclosures about DerivativeInstruments and Hedging Activities, an amendment of FASB Statement No. 133”(“SFAS 161”), which is effective for fiscal years and interim periods beginningafter November 15, 2008, with earlier adoption encouraged. This statementis intended to improve transparency in financial reporting by requiringenhanced disclosures of an entity’s derivative instruments and hedgingactivities and their effects on the entity’s financial position, financialperformance, and cash flows. SFAS 161 applies to all derivative instrumentswithin the scope of SFAS 133, as well as related hedged items, bifurcatedderivatives, and nonderivative instruments that are designated and qualify ashedging instruments. SFAS 161 impacts only our disclosure requirements andtherefore will not have a material impact on our financial position, financialperformance or cash flows.  We plan toadopt SFAS 161 effective January 1, 2009.

 

InDecember 2007, the FASB issued SFAS 141R, which is effective prospectivelyfor all business combinations with acquisition dates on or after the beginningof the first fiscal year beginning after December 15, 2008, with theexception of the accounting for valuation allowances on deferred taxes andacquired tax contingencies. SFAS 141R replaces SFAS 141 “Business Combinations”(“SFAS 141”), but it retains the underlying concepts of SFAS 141 in that allbusiness combinations are required to be accounted for at fair value under theacquisition method of accounting. However,

 

9

----

Table of Contents

 

**LIN TV Corp.Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

SFAS141R changed the method of applying the acquisition method in a number ofsignificant ways. Acquisition costs will generally be expensed as incurred;non-controlling interests will be valued at fair value at the acquisition date;in-process research and development will be recorded at fair value at theacquisition date as an indefinite-lived intangible asset; restructuring costsassociated with a business combination will generally be expensed subsequent tothe acquisition date; and changes in deferred tax asset valuation allowancesand income tax uncertainties after the acquisition date generally will affectincome tax expense. We plan to adopt SFAS 141R effective January 1, 2009,and its effects on future periods will depend on the nature and significance ofany acquisitions subject to SFAS 141R.

 

InDecember 2007, the FASB issued SFAS 160 “Non-controlling Interests inConsolidated Financial Statements” (“SFAS 160”), which amends AccountingResearch Bulletin (“ARB”) 51, “Consolidated Financial Statements” (“ARB 51”).SFAS 160 is effective for quarterly and annual reporting periods that beginafter December 15, 2008. SFAS 160 establishes accounting and reportingstandards with respect to non-controlling interests (also called minorityinterests) in an effort to improve the relevance, comparability andtransparency of financial information that a company provides with respect toits non-controlling interests. The significant requirements under SFAS 160 arethe reporting of the non-controlling interests separately in the equity sectionof the balance sheet and the reporting of the net income or loss of thecontrolling and non-controlling interests separately on the face of the statementof operations. We plan to adopt SFAS 160 effective January 1, 2009, and wedo not expect it to have a material impact on our consolidated financialstatements.

 

InSeptember 2006, the FASB issued SFAS 157, “Fair Value Measurements” (“SFAS157”). SFAS 157 defines fair value, establishes a framework for measuring fairvalue in accordance with GAAP, and expands disclosures about fair valuemeasurements. For all of our financial assets and liabilities that arerecognized and disclosed at fair value on a recurring basis, we adopted theprovisions of SFAS 157 effective January 1, 2008.  The adoption of SFAS 157, relating tofinancial assets and liabilities that are recognized and disclosed at fairvalue on a recurring basis, did not have a material impact on our consolidatedfinancial statements. For all assets and liabilities that are non-financialthat are recognized or disclosed at fair value in the financial statements on anon-recurring basis, we plan to adopt the provisions of SFAS 157 effective January 1,2009. This partial deferral was a result of FSP SFAS 157-2 “Effective Date ofFASB Statement No. 157” (“FSP SFAS 157-2”) issued on February 12,2008, which delayed the adoption of SFAS 157 for non-financial assets andliabilities that are recognized or disclosed at fair value on a non-recurringbasis. We are currently evaluating the impact of SFAS 157 on our financialstatements relative to non-financial assets and liabilities. In October 2008,the FASB issued FSP SFAS 157-3 “Determining the Fair Value of a Financial AssetWhen the Market for That Asset is Not Active” (“FSP SFAS 157-3”), which iseffective upon issuance for all financial statements that have not beenissued.  FSP SFAS 157-3 clarifies theapplication of SFAS 157, in a market that is not active.  We have adopted FSP SFAS 157-3 effective withthis filing.  FSP SFAS 157-3 does nothave a material impact on our financial position, financial performance or cashflows.

 

10

----

Table of Contents

 

**LIN TV Corp.Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

**Note 2 – Acquisitions**

 

*Acquisition Reserves*

 

Inconnection with the acquisitions of television stations, we recorded certainliabilities relating to employee severance costs, buy-outs of operatingagreements and other transaction costs. The following summarizes the activityrelated to our acquisition reserves (in thousands):

 
| ** **                              | ** ** | ** **                | ** ** | **Balance as of  December 31,** | ** ** | ** **   | ** ** | ** **      | ** ** | **Balance as of  September 30,** | ** ** |
|-----------------------------------------|------------|---------------------------|------------|------------------------------------------------|------------|--------------|------------|-----------------|------------|-------------------------------------------------|------------|
| ** **                              | ** ** | **Acquisition Date** | ** ** | **2007**                                       | ** ** | **Payments** | ** ** | **Adjustments** | ** ** | **2008**                                        | ** ** |
|                                    |       |                      |       |                                           |       |         |       |            |       |                                            |       |
| Acquisition of Sunrise Television Corp. |       | May 2, 2002          |       | $                                              | 40         |         | $          | 17              |       | $                                               | —     |   | $ | 23 |   |
| Stations acquired from Viacom           |       | March 31, 2005       |       | 86                                             |       | 86           |       | —          |       | —                                          |       |
| Stations acquired from Emmis            |       | November 30, 2005    |       | 4,644                                          |       | 785          |       | —          |       | 3,859                                           |       |
| Station acquired from Raycom            |       | February 22, 2007    |       | 446                                            |       | 357          |       | (89             | )(1)       | —                                          |       |
|                                    |       |                      |       | $                                              | 5,216      |         | $          | 1,245           |       | $                                               | (89        | ) | $ | 3,882 |   |

 

----

| (1) |   | Represents an adjustment to  an operating agreement contract for a discontinued computer system. |
|-----|--------|--------------------------------------------------------------------------------------------------|

 

**Note 3 – Discontinued Operations**

 

Ourcondensed consolidated financial statements reflect the operations, assets andliabilities of our Puerto Rico operations and of Banks Broadcasting asdiscontinued for all periods presented.

 

*Puerto Rico Operations (WAPA-TV, WJPX-TV and WAPA America)*

 

OnMarch 30, 2007, we sold our Puerto Rico operations to InterMedia PartnersVII, L.P. for $131.9 million in cash and, as a result, we recorded a gain onthe sale of $22.7 million, net of income tax benefit.

 

*Banks Broadcasting*

 

Weown preferred stock that represents a 50% non-voting interest in BanksBroadcasting, which owns KNIN-TV, a CW affiliate in Boise. We consolidate BanksBroadcasting under FIN 46R.

 

InJuly 2007, Banks Broadcasting sold the operating assets, including thebroadcast licenses, of KSCW-TV, a CW affiliate in Wichita, to SunflowerBroadcasting, Inc. for $6.8 million, of which $5.4 million was paid incash at the closing and the remaining $1.4 million was held in escrow andreleased in July 2008.  Ouroperating results for the third quarter of 2007 included a $0.5 million lossfrom the sale of KSCW-TV, net of an income tax benefit of $0.4 million.

 

InMarch 2008, Banks Broadcasting sold certain of its 700 MHz spectrumlicenses for $2.0 million in cash with a related gain of $1.4 million. In June 2008,Banks Broadcasting signed a purchase agreement to sell KNIN-TV, a CW affiliatein Boise, for $8.0 million to Journal Broadcasting Corporation, subject to FCCapproval. The sale of KNIN-TV is expected to close in 2008 and we expect torecord a gain of approximately $0.1 million. Following the completion of thissale, we expect that Banks Broadcasting will be liquidated.

 

11

----

Table of Contents

 

**LIN TV Corp.Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

BanksBroadcasting distributed $2.5 million to us for the nine months ended September 30,2008, and distributed no cash to us for nine months ended September 30,2007. We provided no capital contributions to Banks Broadcasting for the ninemonths ended September 30, 2008 or 2007.

 

Thecarrying amounts of the assets and liabilities of Banks Broadcasting segregatedon our balance sheet as held for sale are as follows (in thousands):

 
| ** **                  | ** **   | **September 30, 2008** | ** **   | **December 31, 2007** | ** **   |
|-----------------------------|--------------|----------------------------------|--------------|---------------------------------|--------------|
| *** ***                | *** *** | *** ***                     | *** *** | *** ***                    | *** *** |
| Program rights              |         | $                                | 263          |                            | $            | 271 |   |
| Other current assets        |         | 238                              |         | 18                              |         |
| Total current assets        |         | 501                              |         | 289                             |         |
| Property and equipment, net |         | 789                              |         | 748                             |         |
| Program rights              |         | 34                               |         | 189                             |         |
| Intangible assets, net      |         | 7,744                            |         | 8,243                           |         |
| Total assets                |         | $                                | 9,068        |                            | $            | 9,469 |   |
|                        |         |                             |         |                            |         |
| Accounts payable            |         | $                                | 28           |                            | $            | 6 |   |
| Other accrued expenses      |         | 290                              |         | 308                             |         |
| Program obligations         |         | 245                              |         | 235                             |         |
| Total current liabilities   |         | 563                              |         | 549                             |         |
| Program obligations         |         | 41                               |         | 198                             |         |
| Total liabilities           |         | $                                | 604          |                            | $            | 747 |   |

 

Thefollowing presents summarized information for the discontinued operations (inthousands):

 
| ** **              | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|-------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **              | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **              | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Puerto Rico:            |       |                             |       |                            |       |   |   |   |   |
| Net revenues            |       | $                                | —     |                            | $          | — |   | $ | — |   | $ | 9,868 |   |
| Operating loss          |       | —                           |       | —                          |       | — |   | (1,094 | ) |
| Net loss                |       | —                           |       | —                          |       | — |   | (368 | ) |
|                    |       |                             |       |                            |       |   |   |   |   |
| Banks Broadcasting:     |       |                             |       |                            |       |   |   |   |   |
| Net revenues            |       | $                                | 680        |                            | $          | 841 |   | $ | 2,247 |   | $ | 3,671 |   |
| Operating (loss) income |       | (190                             | )          | (408                            | )          | 919 |   | (834 | ) |
| Net (loss) income       |       | (196                             | )          | (324                            | )          | 184 |   | (888 | ) |
|                    |       |                             |       |                            |       |   |   |   |   |
| Total:                  |       |                             |       |                            |       |   |   |   |   |
| Net revenues            |       | $                                | 680        |                            | $          | 841 |   | $ | 2,247 |   | $ | 13,539 |   |
| Operating (loss) income |       | (190                             | )          | (408                            | )          | 919 |   | (1,928 | ) |
| Net (loss) income       |       | (196                             | )          | (324                            | )          | 184 |   | (1,256 | ) |

 

12

----

Table of Contents

 

**LIN TV Corp.Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

**Note 4 – Equity Investments**

 

*Joint Venture with NBC Universal*

 

We own a 20.38% interest in Station Venture Holdings, LLC, a jointventure with NBC Universal, and account for our interest using the equitymethod as we do not have a controlling interest. The following presents thesummarized financial information of the NBC Universal joint venture (inthousands):

 
| ** **                                                    | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                    | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                    | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                          |       |                             |       |                            |       |   |   |   |   |
| Cash distributions from equity investment  (1)                |       | $                                | 23,940     |                            | $          | 20,948 |   | $ | 62,888 |   | $ | 64,838 |   |
| Income from equity investment                                 |       | 19,922                           |       | 18,738                          |       | 53,879 |   | 55,984 |   |
| Other expense, net (primarily interest on  the GECC Note) (2) |       | (16,672                          | )          | (16,310                         | )          | (49,655 | ) | (49,292 | ) |
| Net income                                                    |       | 3,250                            |       | 2,428                           |       | 4,224 |   | 6,692 |   |
| Cash distributed to LIN Television                            |       | 1,630                            |       | 611                             |       | 2,649 |   | 2,038 |   |
|                                                               |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |

 

----

| (1)    |   | Cash  distributions from equity investments include proceeds of $12.6 million from  the sale of broadcast towers for the nine months ended September 30,  2008.                                     |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                     |
| (2)    |   | See  Note 9 – “Commitments and Contingencies” for further description of the  General Electric Capital Corporation (“GECC”) Note and LIN TV’s guarantee of  the GECC Note. |

 

**Note 5 – Intangible Assets**

 

Thefollowing table summarizes the carrying amount of intangible assets (inthousands):

 
| ** **                                    | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | **Gross carrying  amount**  | ** ** | **Accumulated  Amortization**   | ** ** | **Gross carrying  amount** | ** ** | **Accumulated  Amortization** | ** ** |
| Goodwill                                      |       | $                                | 424,122    |                            | $          | — |   | $ | 535,418 |   | $ | — |   |
| Broadcast licenses                            |       | 834,231                          |       | —                          |       | 1,019,908 |   | — |   |
| Intangible assets subject to amortization (1) |       | 7,796                            |       | (6,642                          | )          | 7,796 |   | (6,414 | ) |
| Total intangible assets                       |       | $                                | 1,266,149  |                            | $          | (6,642 | ) | $ | 1,563,122 |   | $ | (6,414 | ) |

----

| (1) |   | Intangibles  subject to amortization are amortized on a straight-line basis and include  the following categories of intangible assets: acquired advertising  contracts, advertiser lists, advertiser relationships, favorable operating  leases, tower rental income leases, local marketing agreements, purchase  options and network affiliation contracts and relationships. |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Werecorded an impairment charge of $297.0 million during the second quarter of2008 that included an impairment to the carrying values of our broadcastlicenses of $185.7 million, related to 19 of our television stations; and animpairment to the carrying values of our goodwill of $111.3 million, related to8 of our television stations. As required by SFAS 142, “Goodwill and OtherIntangible Assets” (“SFAS 142”), we tested our unamortized intangible assets forimpairment at June 30, 2008, between the required annual tests, because webelieved events had occurred and circumstances changed that would more likelythan not reduce the fair value of our broadcast licenses and goodwill belowtheir carrying amounts. These events included: (a) the continued declineof the price of our Class A common stock; (b) the decline in thecurrent selling prices of television stations; (c) the lower growth inadvertising revenues; and (d) the decline in the operating profit marginsof some of our stations.

 

13

----

Tableof Contents

 

**LIN TV Corp.Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

Weused the income approach to test our broadcast licenses for impairments as of June 30,2008 and we used the same assumptions as disclosed in our Annual Report on Form 10-Kfor the year ended December 31, 2007, except for the followingadjustments: (a) the discount rate was adjusted from 8% to 9%; (b) marketgrowth rates were adjusted from a range of 1.0% - 2.7% to a range of 0.1% to2.1%; and (c) operating profit margins were adjusted from a range of 8.5%to 40.9% to a range of 8.5% to 39.8%.  Theincrease in the discount rate reflected the volatility of stock prices ofpublic companies within the media sector. The changes in the market growthrates and operating profit margins reflected the current general economicpressures impacting both the national and a number of local economies, andspecifically, national and local advertising revenues in the markets where ourstations operate.

 

Weused the income approach to test goodwill for impairments as of June 30,2008 and we used the same assumptions as disclosed in our Annual Report on Form 10-Kfor the year ended December 31, 2007, except for the followingadjustments: (a) the discount rate was adjusted from 10% to 11.5%; (b) marketgrowth rates were adjusted from a range of 1.0% to 2.7% to a range of 0.1% to2.1%; and (c) operating profit margins were adjusted from a range of 29.2%to 57.6% to a range of 22.4% to 62.1%. These assumptions are based on: (a) theactual historical performance of our stations; (b) management’s estimatesof future performance of our stations; and (c) the same market growthassumptions used in the calculation of the fair value of our broadcastlicenses.  The increase in the discountrate reflected the volatility of our Class A common stock. The changes inthe market growth rates and operating profit margins reflected the currentgeneral economic pressures impacting both the national and a number of localeconomies, and specifically, national and local advertising revenues in themarkets where our stations operate.

 

Determiningthe fair value of our television stations requires our management to make anumber of judgments about assumptions and estimates that are highly subjectiveand that are based on unobservable inputs. The actual results may differ fromthese assumptions and estimates; and it is possible that such differences couldhave a material impact on our financial statements. In addition to the variousinputs (i.e. market growth, operating profit margins, discount rates) that weuse to calculate the fair value of our broadcast licenses and reporting units,we evaluate the reasonableness of our assumptions by comparing the total fairvalue of all our reporting units to our total market capitalization; and bycomparing the fair value of our reporting units or television stations, andbroadcast licenses to recent television station sale transactions.

 

AtSeptember 30, 2008, our total market capitalization was $191.8 millionless than our equity book value.  Webelieve that this difference can be attributed to the recent volatility of ourstock price in the current economic environment and to the control premium thata market participant may pay to acquire us. We determined that there were no triggering events in the third quarterof 2008 that required us to test our broadcast licenses and goodwill forimpairment.

 

Asnoted above, we are required under SFAS 142 to test our indefinite-livedintangible assets on an annual basis or whenever events or changes incircumstances indicate that these assets might be impaired.  As a result, if the current economic

 

14

----

Table of Contents

 

**LIN TV Corp.Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

trendscontinue and the credit and capital markets continue to be disrupted, it ispossible that we may record further impairments in the fourth quarter of 2008.

 

Thefollowing table summarizes the estimated amortization expense for ourintangible assets subject to amortization for the remainder of 2008 and for thenext five years and thereafter (in thousands):

 
| ** **                     | ** ** | **October 1, to  December 31,** | ** ** | **Year ending December 31,** | ** ** | **There-** | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------------------------------------------|------------|---------------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2008**                                       | ** ** | **2009**                                    | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012** | ** ** | **2013** | ** ** | **after** | ** ** | **Total** | ** ** |
| Estimated amortization expense |       | $                                              | 35         |                                        | $          | 80         |       | $          | 74         |   | $ | 68 |   | $ | 61 |   | $ | 59 |   | $ | 777 |   | $ | 1,154 |   |
|                                |            |                                                |            |                                             |            |            |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

15

----

Table of Contents

 

**LIN TV Corp.Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

**Note 6 – Debt**

 

Debtconsisted of the following (in thousands):

 
| ** **                                                                                                                                                                       | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                       | ** ** | **2008**               | ** ** | **2007**              | ** ** |
| Credit facility                                                                                                                                                                  |       | $                      | 204,850    |                  | $          | 154,875 |   |
| 6 1/2% Senior Subordinated Notes  due 2013                                                                                                                                       |       | 375,000                |       | 375,000               |       |
| $190,000, 6 1/2% Senior Subordinated Notes  due 2013 - Class B (net of discount of $9,087 and $10,519 at  September 30, 2008 and December 31, 2007, respectively) |       | 180,913                |       | 179,481               |       |
| $125,000, 2.50% Exchangeable Senior  Subordinated Debentures due 2033 (net of discount of $1,580 at  December 31, 2007)                                                     |       | —                 |       | 123,420               |       |
|                                                                                                                                                                             |       |                   |       |                  |       |
| Total debt                                                                                                                                                                       |       | 760,763                |       | 832,776               |       |
| Less current portion                                                                                                                                                             |       | 21,600                 |       | 24,300                |       |
| Total long-term debt                                                                                                                                                             |       | $                      | 739,163    |                  | $          | 808,476 |   |

 

Duringthe nine months ended September 30, 2008, we repaid $35.0 million of theterm loans under our credit facility using available cash balances, including$17.0 million related to mandatory quarterly payments and $18.0 million relatedto additional payments required because we did not reinvest the remainingproceeds from certain of the 2007 asset sales.

 

OnMay 16, 2008, we purchased $125.0 million of our 2.50% Exchangeable SeniorSubordinated Debentures, all of which were tendered to us, using $115.0 millionavailable under our revolving credit facility and $10.0 million of ouravailable cash balances. We subsequently repaid $30.0 million of ouroutstanding revolving credit loans through September 30, 2008.

 

AtSeptember 30, 2008, we were in compliance with all of the covenants underour credit facility as amended. See Note 7 – “Long-term Debt” included in Item15 of our Annual Report on Form 10-K for the year ended December 31,2007 for a full description of our credit facility, subject to the terms of theAmendment described below.

 

16

----

Table of Contents

 

**LIN TV Corp.Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

OnAugust 25, 2008, we entered into a Third Amendment (the “Amendment”) to ourcredit facility.  We incurred costs of$1.2 million related to the Amendment which were recorded to deferred financingfees on our balance sheet and will be amortized over the remaining life of thecredit facility agreement.  We accountedfor the Amendment as a modification to the existing credit facility andrecorded a charge to earnings of $0.5 million related to the portion of therevolving credit facility commitment that was reduced with the Amendment. TheAmendment permanently reduces the aggregate revolving credit commitments from $275million to $225 million and revises certain financial condition covenants asfollows:

** **
| ** **                                       | ** ** | **Prior** | ** ** | **As Amended** | ** ** |
|--------------------------------------------------|------------|-----------|------------|---------------------|------------|
| **Consolidated Leverage Ratio:**                 |       |      |       |                |       |
| October 1, 2008 to December 31,  2009  |       | 6.00      | x          | 7.00                | x          |
| January 1, 2010 through June 30,  2010 |       | 6.00      | x          | 6.50                | x          |
| July 1, 2010 and thereafter                 |       | 6.00      | x          | 6.00                | x          |
|                                             |       |      |       |                |       |
| **Consolidated Interest Coverage Ratio:**        |       |      |       |                |       |
| October 1, 2008 to December 31,  2009  |       | 2.25      | x          | 2.00                | x          |
| January 1, 2010 and thereafter              |       | 2.25      | x          | 2.25                | x          |
|                                             |       |      |       |                |       |
| **Consolidated Senior Leverage Ratio:**          |       |      |       |                |       |
| October 1, 2008 and thereafter              |       | 4.50      | x          | 3.50                | x          |

 

**Note 7 – Retirement Plans**

 

Thefollowing table shows the components of the net periodic pension benefit costand the contributions to the 401(k) Plan and to the retirement plans (inthousands):

 
| ** **                               | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                               | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                               | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| ***Net periodic pension benefit cost:*** |       |                             |       |                            |       |   |   |   |   |
| Service cost                             |       | $                                | 538        |                            | $          | 575 |   | $ | 1,614 |   | $ | 1,675 |   |
| Interest cost                            |       | 1,592                            |       | 1,500                           |       | 4,776 |   | 4,500 |   |
| Expected return on plan assets           |       | (1,705                           | )          | (1,550                          | )          | (5,115 | ) | (4,650 | ) |
| Amortization of prior service cost       |       | 30                               |       | 25                              |       | 90 |   | 75 |   |
| Amortization of net loss                 |       | 48                               |       | 288                             |       | 144 |   | 929 |   |
| Net periodic benefit cost                |       | $                                | 503        |                            | $          | 838 |   | $ | 1,509 |   | $ | 2,529 |   |
|                                     |       |                             |       |                            |       |   |   |   |   |
| ***Contributions:***                     |       |                             |       |                            |       |   |   |   |   |
| 401(k) Plan                         |       | $                                | 532        |                            | $          | 684 |   | $ | 1,206 |   | $ | 2,209 |   |
| Pension plans                            |       | —                           |       | 1,500                           |       | 2,250 |   | 3,000 |   |
| Total contributions                      |       | $                                | 532        |                            | $          | 2,184 |   | $ | 3,456 |   | $ | 5,209 |   |

 

Weexpect to make contributions of $0.8 million to our defined benefit retirementplans during the remainder of 2008.

 

17

----

Table of Contents

 

**LIN TV Corp.Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

**Note 8 – Fair Value Measurement**

 

Werecord certain financial assets and liabilities at fair value on a recurringbasis consistent with SFAS 157. The following table summarizes the financialassets and liabilities measured at fair value in the accompanying condensedconsolidated balance sheet, using the three-level fair value hierarchyestablished by SFAS 157 (in thousands):

 
| ** **                                | ** ** | **September 30, 2008**                    | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                | ** ** | **Quoted prices in  active markets** | ** ** | **Significant  observable  inputs** | ** ** | **Signficant  unobservable  inputs** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **(Level 1)**                                  | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** | **Total** | ** ** |
|                                      |       |                                                |       |   |   |   |   |   |   |
| Assets:                                   |       |                                                |       |   |   |   |   |   |   |
| Deferred compensation related investments |       | $                                                   | 4,630      |   | $ | — |   | $ | — |   | $ | 4,630 |   |
|                                      |       |                                                |       |   |   |   |   |   |   |
| Liabilities:                              |       |                                                |       |   |   |   |   |   |   |
| Interest rate swaps                       |       | —                                              |       | 3,219 |   | — |   | 3,219 |   |
| Deferred compensation related liabilities |       | 4,630                                               |       | — |   | — |   | 4,630 |   |
|                                           |            |                                                     |            |  |  |  |  |  |  |  |  |  |  |

 

Thefair value of interest rate swaps is determined based on the present value offuture cash flows using observable inputs, including interest rates associatedwith a similar financial instrument using a series of three-month LIBOR-basedloans through November 4, 2011. With respect to the deferred compensationplan, the fair value of deferred compensation is determined based on the fairvalue of the investments selected by employees.

 

18

----

Table of Contents

 

**LIN TV Corp.Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

**Note 9 – Commitments and Contingencies**

 

Inconnection with the formation of the joint venture with NBC Universal, GECCprovided an $815.5 million, 25-year, non-amortizing senior secured note bearingan initial interest rate of 8.0% per annum until March 2, 2013 and 9.0%per annum thereafter (“GECC Note”). The joint venture has historically producedcash flows to support the interest payments and to maintain minimum levels ofrequired cash balances of $15.0 million. In addition, the joint venture hasmade cash distributions to us and to NBC Universal from the excess cash generatedby the joint venture of $22.0 million, $24.0 million and $11.5 million for theyears ended December 31, 2005, 2006 and 2007 and $13.0 million for thenine months ended September 30, 2008. The cash distributions for the ninemonths ended September 30, 2008 include nonrecurring cash proceeds of$12.6 million from the sale of broadcast towers.  Based on these historical cash distributions,we expect that the interest payments on the GECC Note will be serviced solelyby the cash flow of the joint venture. The GECC Note is not an obligation ofours, but has recourse to the joint venture, our equity interests therein andto LIN TV pursuant to a guarantee. If the joint venture were to default on itsobligations and became unable to pay principal or interest on the GECC Note andGECC could not otherwise be repaid its money from the joint venture, GECC couldrequire us to pay the shortfall of any outstanding amounts under the GECC Note.If this happened, LIN TV could experience material adverse consequences, including:

 

·**        **GECC could force LIN TV to sell the stock ofLIN Television held by LIN TV to satisfy outstanding amounts under the GECCNote;

 

·**        **if more than 50% of the ownership of LINTelevision had to be sold to satisfy the GECC Note, it could cause anacceleration of our credit facility and other outstanding indebtedness; or

 

·**        **if the GECC Note is prepaid because of anacceleration or on default or otherwise, or if the GECC Note is repaid atmaturity, we may incur a substantial tax liability.

 

Thejoint venture is approximately 80% owned by NBC Universal. NBC Universalcontrols the operations of the stations through a management contract.Therefore, the operation and profitability of those stations and the likelihoodof a default under the GECC Note are primarily within NBC Universal’s control.

 

**Note 10 – Subsequent Event**

 

OnOctober 28, 2008, LIN Television Corporation signed a new retransmissionconsent agreement with Time Warner Cable, which grants to Time Warner and itsaffiliated entities (“Time Warner”) the right to carry the analog and highdefinition signals of certain of our television stations on the Time Warnercable systems. When our previous retransmission consent agreement with TimeWarner expired on October 2, 2008, Time Warner removed from their cable systemsour television signals covered by that agreement.  Time Warner resumed carrying our televisionchannels on October 29, 2008 that are covered under this agreement. TimeWarner represents approximately 2.7 million or 19% of our total duplicatedtelevision households.

 

19

----

Table of Contents

 

**LIN TV Corp. Management’s Discussion and Analysis**

 

**Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

** **

**Special Note about Forward-Looking Statements**

 

Thisreport contains certain forward-looking statements with respect to ourfinancial condition, results of operations and business, including statementsunder this caption “Item 2. Management’s Discussion and Analysis of FinancialCondition and Results of Operations”. All of these forward-looking statementsare based on estimates and assumptions made by our management, which, althoughwe believe them to be reasonable, are inherently uncertain. Therefore, youshould not place undue reliance upon such estimates and statements. We cannotassure you that any of such estimates or statements will be realized and actualresults may differ materially from those contemplated by such forward-lookingstatements. Factors that may cause such differences include those discussedunder the caption “Item 1A. Risk Factors” of our Annual Report on Form 10-Kfor the year ended December 31, 2007. Many of these factors are beyond ourcontrol. Forward-looking statements contained herein speak only as of the datehereof. We undertake no obligation to update these forward-looking statements,to reflect events or circumstances after the date hereof or to reflect theoccurrence of unanticipated events.

 

**Executive Summary**

 

Weown and operate and/or program 29 television stations in 17 mid-sized marketsin the United States. Our operating revenues are derived primarily from thesale of advertising time to local, national and political advertisers and to alesser extent from digital revenues, network compensation, barter and otherrevenues.

 

Werecorded net income of $10.0 million and net loss of $204.5 million for thethree and nine months ended September 30, 2008, respectively; and we recordednet income of $1.7 million and $26.0 million for the three and nine monthsended September 30, 2007, respectively. The following are some of the keydevelopments in our operations for the three months ended September 30,2008:

 

·**        **Net revenues increased 5% for the thirdquarter of 2008 compared to the same quarter last year, primarily due toincreased political and digital revenues, offset by reduced national and localadvertising revenues.

 

·**        **Our gross local advertising revenuesdecreased by 3% for the third quarter of 2008 compared to the same quarter lastyear. The decrease is due to the television advertising marketplace decline inour local markets resulting from general economic pressures.  Local advertising revenues represented 60%and 63% of total advertising revenues for the third quarter of 2008 and 2007,respectively.

 

·**        **Our gross national advertising revenuesdecreased 15% for the third quarter of 2008 compared to the same quarter lastyear. The decrease is due to the national television advertising marketplacedecline in our markets resulting from general economic pressures. Nationaladvertising revenues represented 29% and 35% of total advertising revenues forthe third quarter of 2008 and 2007, respectively.

 

20

----

Table of Contents

 

·**        **Advertising categories for which local andnational advertising sales decreased for the third quarter of 2008, compared tothe same quarter last year, were automotive, restaurants,media/telecommunications, services, financial services and entertainment.Advertising categories for which revenues increased for the third quarter of2008 included political, medical and education.** **The automotivecategory, which represented 25% of our local and national advertising sales forthe third quarter of 2008, decreased 20% compared to the same quarter lastyear.

 

·**        **Our gross political advertising revenues were$11.4 million for the three months ended September 30, 2008 compared to $1.3million for the three months ended September 30, 2007. Political electionsgenerally occur in even years resulting in significant changes in politicaladvertising revenues between odd years (2005 and 2007) and even years (2006 and2008). Political advertising revenues represented 11% and 1% of totaladvertising revenues for the three months ended September 30, 2008 and2007, respectively.

 

·**        **Our digital revenues, which include revenuesgenerated by our retransmission consent agreements and Internet web sites,increased 88% compared to the same period in the prior year. During the thirdquarter of 2008, total page views for our web sites were 134.5 million,compared to 99.3 million in the third quarter of 2007, representing a 35%increase. Unique visitors for our web sites were 16.0 million in the thirdquarter of 2008, compared to 11.6 million in the third quarter of 2007,representing a 38% increase.

 

·         We repaid $7.5 million of the term loans and$15.0 million of the revolving loans under our credit facility during the thirdquarter of 2008. As a result, our cash balances at September 30, 2008 were$16.3 million and our total debt outstanding at September 30, 2008 was $760.8million, or $72.0 million less than our total debt at December 31, 2007.

 

**Subsequent Event**

 

OnOctober 28, 2008, LIN Television Corporation signed a new retransmissionconsent agreement with Time Warner Cable, which grants to Time Warner and itsaffiliated entities (“Time Warner”) the right to carry the analog and highdefinition signals of certain of our television stations on the Time Warnercable systems. When our previous retransmission consent agreement with TimeWarner expired on October 2, 2008, Time Warner removed from their cablesystems our television signals covered by that agreement.  Time Warner resumed carrying our televisionchannels on October 29, 2008 that are covered under this agreement. TimeWarner represents approximately 2.7 million or 19% of our total duplicatedtelevision households.

 

**Critical Accounting Policies and Estimates and RecentlyIssued Accounting****Pronouncements**

 

Certainof our accounting policies, as well as estimates that we make, are critical tothe presentation of our financial condition and results of operations sincethey are particularly sensitive to our judgment. Some of these policies andestimates relate to matters that are inherently uncertain. The estimates andjudgments we make affect the reported amounts of assets, liabilities, revenuesand expenses, and related

 

21

----

Table of Contents

 

disclosuresof contingent liabilities. On an on-going basis, we evaluate our estimates,including those related to intangible assets and goodwill, equity investments,bad debts, program rights, income taxes, stock-based compensation, employeemedical insurance claims, pensions, useful lives of property, equipment, andindefinite-lived intangible assets, contingencies, barter transactions,acquired asset valuations and litigation. We base our estimates on historicalexperience and on various other assumptions that we believe to be reasonable underthe circumstances, the results of which form the basis for making judgmentsabout the carrying values of assets and liabilities that are not readilyapparent from other sources. Actual results may differ from these estimatesunder different assumptions or conditions, and it is possible that suchdifferences could have a material impact on our consolidated financialstatements. For a more detailed explanation of the judgments made in theseareas and a discussion of our accounting policies, refer to “CriticalAccounting Policies, Estimates and Recently Issued Accounting Pronouncements”included in Item 7, and Note 1 - “Summary of Significant Accounting Policies”included in Item 15 of our Annual Report on Form 10-K for the year ended December 31,2007.

 

*Fair Value Estimates*

 

Werecord certain financial assets and liabilities at fair value on a recurringbasis consistent with SFAS 157. The following table summarizes the financialassets and liabilities measured at fair value in the accompanying condensed consolidatedbalance sheet, using the three-level fair value hierarchy established by SFAS157 (in thousands):

 
| ** **                                | ** ** | **September 30, 2008**                    | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                | ** ** | **Quoted prices in  active markets** | ** ** | **Significant  observable  inputs** | ** ** | **Signficant  unobservable  inputs** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **(Level 1)**                                  | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** | **Total** | ** ** |
|                                      |       |                                                |       |   |   |   |   |   |   |
| Assets:                                   |       |                                                |       |   |   |   |   |   |   |
| Deferred compensation related investments |       | $                                                   | 4,630      |   | $ | — |   | $ | — |   | $ | 4,630 |   |
|                                      |       |                                                |       |   |   |   |   |   |   |
| Liabilities:                              |       |                                                |       |   |   |   |   |   |   |
| Interest rate swaps                       |       | —                                              |       | 3,219 |   | — |   | 3,219 |   |
| Deferred compensation related liabilities |       | 4,630                                               |       | — |   | — |   | 4,630 |   |
|                                           |            |                                                     |            |  |  |  |  |  |  |  |  |  |  |

 

Thefair value of interest rate swaps is determined based on the present value offuture cash flows using observable inputs, including interest rates associatedwith a similar financial instrument using a series of three-month LIBOR-basedloans through November 4, 2011. With respect to the deferred compensationplan, the fair value of deferred compensation is determined based on the fairvalue of the investments selected by employees.

 

**Accounting Pronouncements**

 

InSeptember 2008, the FASB issued FASB Staff Position (“FSP”) FSP SFAS 133-1and FIN 45-4 “Disclosures about Credit Derivatives and Certain Guarantees: AnAmendment of SFAS 133 and FIN 45; and Clarification of the Effective Date ofSFAS 161” (“FSP SFAS 133-1 and FIN 45-4”), which is effective for reportingperiods, both annual and interim, ending after November 15, 2008.  FSP SFAS 133-1 and FIN 45-4 applies to creditderivatives within the scope of SFAS 133 “Accounting for Derivative Instrumentsand Hedging Activities” (“SFAS 133”), hybrid instruments that have embeddedcredit derivatives, and guarantees within the scope of FIN 45, “Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others–an interpretation of FASB

 

22

----

Table of Contents

 

StatementsNo. 5, 57, and 107 and rescission of FASB Interpretation No. 34”.This FSP requires additional financial statement disclosures relative to thecurrent status of the payment/performance risk of the credit derivative orguarantee to enable users of financial statements to assess their potentialeffect on the financial position, financial performance and cash flows.  FSP SFAS 133-1 and FIN 45-4 impacts only ourdisclosure requirements and therefore will not have a material impact on ourfinancial position, financial performance or cash flows.  We plan to adopt FSP SFAS 133-1 and FIN 45-4and include the additional disclosures with our Annual Report on Form 10-Kfor year ending December 31, 2008.

 

InJune 2008, the FASB issued FSP SFAS 142-3 “Determination of the UsefulLife of Intangible Assets” (“FSP SFAS 142-3”), which is effective for financialstatements issued for fiscal years beginning after December 31, 2008, andinterim periods within those fiscal years. Early adoption is prohibited. FSP SFAS142-3 provides guidance for determining the useful life of a recognizedintangible asset and will be applied prospectively to intangible assetsacquired after the effective date. We plan to adopt FSP SFAS 142-3 effective January 1,2009, and its effects on future periods will depend on the nature andsignificance of any acquisitions subject to SFAS 141R “Business Combinations” (“SFAS141R”).

 

InMarch 2008, the FASB issued SFAS 161 “Disclosures about DerivativeInstruments and Hedging Activities, an amendment of FASB Statement No. 133”(“SFAS 161”), which is effective for fiscal years and interim periods beginningafter November 15, 2008, with earlier adoption encouraged. This statementis intended to improve transparency in financial reporting by requiringenhanced disclosures of an entity’s derivative instruments and hedgingactivities and their effects on the entity’s financial position, financialperformance, and cash flows. SFAS 161 applies to all derivative instrumentswithin the scope of SFAS 133, as well as related hedged items, bifurcatedderivatives, and nonderivative instruments that are designated and qualify ashedging instruments. SFAS 161 impacts only our disclosure requirements andtherefore will not have a material impact on our financial position, financialperformance or cash flows.  We plan to adoptSFAS 161 effective January 1, 2009.

 

InDecember 2007, the FASB issued SFAS 141R, which is effective prospectivelyfor all business combinations with acquisition dates on or after the beginningof the first fiscal year beginning after December 15, 2008, with theexception of the accounting for valuation allowances on deferred taxes andacquired tax contingencies. SFAS 141R replaces SFAS 141 “Business Combinations”(“SFAS 141”), but it retains the underlying concepts of SFAS 141 in that allbusiness combinations are required to be accounted for at fair value under theacquisition method of accounting. However, SFAS 141R changed the method ofapplying the acquisition method in a number of significant ways. Acquisitioncosts will generally be expensed as incurred; non-controlling interests will bevalued at fair value at the acquisition date; in-process research anddevelopment will be recorded at fair value at the acquisition date as anindefinite-lived intangible asset; restructuring costs associated with abusiness combination will generally be expensed subsequent to the acquisitiondate; and changes in deferred tax asset valuation allowances and income taxuncertainties after the acquisition date generally will affect income taxexpense. We plan to adopt SFAS 141R effective January 1, 2009, and itseffects on future periods will depend on the nature and significance of anyacquisitions subject to SFAS 141R.

 

23

----

Table of Contents

 

InDecember 2007, the FASB issued SFAS 160 “Non-controlling Interests inConsolidated Financial Statements” (“SFAS 160”), which amends AccountingResearch Bulletin (“ARB”) 51, “Consolidated Financial Statements” (“ARB 51”).SFAS 160 is effective for quarterly and annual reporting periods that beginafter December 15, 2008. SFAS 160 establishes accounting and reportingstandards with respect to non-controlling interests (also called minorityinterests) in an effort to improve the relevance, comparability andtransparency of financial information that a company provides with respect toits non-controlling interests. The significant requirements under SFAS 160 arethe reporting of the non-controlling interests separately in the equity sectionof the balance sheet and the reporting of the net income or loss of thecontrolling and non-controlling interests separately on the face of thestatement of operations. We plan to adopt SFAS 160 effective January 1,2009, and we do not expect it to have a material impact on our consolidatedfinancial statements.

 

InSeptember 2006, the FASB issued SFAS 157, “Fair Value Measurements” (“SFAS157”). SFAS 157 defines fair value, establishes a framework for measuring fairvalue in accordance with GAAP, and expands disclosures about fair valuemeasurements. For all of our financial assets and liabilities that arerecognized and disclosed at fair value on a recurring basis, we adopted theprovisions of SFAS 157 effective January 1, 2008.  The adoption of SFAS 157, relating tofinancial assets and liabilities that are recognized and disclosed at fairvalue on a recurring basis, did not have a material impact on our consolidatedfinancial statements. For all assets and liabilities that are non-financialthat are recognized or disclosed at fair value in the financial statements on anon-recurring basis, we plan to adopt the provisions of SFAS 157 effective January 1,2009. This partial deferral was a result of FSP SFAS 157-2 “Effective Date ofFASB Statement No. 157” (“FSP SFAS 157-2”) issued on February 12,2008, which delayed the adoption of SFAS 157 for non-financial assets andliabilities that are recognized or disclosed at fair value on a non-recurringbasis. We are currently evaluating the impact of SFAS 157 on our financial statementsrelative to non-financial assets and liabilities. In October 2008, theFASB issued FSP SFAS 157-3 “Determining the Fair Value of a Financial AssetWhen the Market for That Asset is Not Active” (“FSP SFAS 157-3”), which iseffective upon issuance for all financial statements that have not beenissued.  FSP SFAS 157-3 clarifies theapplication of SFAS 157, in a market that is not active.  We have adopted FSP SFAS 157-3 effective withthis filing.  FSP SFAS 157-3 does nothave a material impact on our financial position, financial performance or cashflows.

 

24

----

Table of Contents

 

**Results of Operations**

 

Ourcondensed consolidated financial statements reflect the operations, assets andliabilities of our Puerto Rico operations and of Banks Broadcasting asdiscontinued for all periods presented. Set forth below are key components thatcontributed to our operating results (in thousands):

 
| ** **                                     | ** ** | **Three months ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                     | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **% change** | ** ** | **2008** | ** ** | **2007** | ** ** | **% change** | ** ** |
|                                           |       |                                                     |       |                                                    |       |   |   |   |   |   |   |   |   |
| Revenues:                                      |       |                                                     |       |                                                    |       |   |   |   |   |   |   |   |   |
| Local advertising sales                        |       | $                                                        | 60,629     |                                                    | $          | 62,650 |   | -3% |   | $ | 191,704 |   | $ | 199,332 |   | -4% |   |
| National advertisng sales                      |       | 29,646                                                   |       | 35,012                                                  |       | -15% |   | 94,542 |   | 105,020 |   | -10% |   |
| Political advertising sales                    |       | 11,357                                                   |       | 1,305                                                   |       | 770% |   | 22,678 |   | 2,876 |   | 689% |   |
| Digital revenues                               |       | 8,114                                                    |       | 4,317                                                   |       | 88% |   | 19,737 |   | 10,133 |   | 95% |   |
| Network compensation                           |       | 913                                                      |       | 919                                                     |       | -1% |   | 2,838 |   | 2,756 |   | 3% |   |
| Barter revenues                                |       | 1,088                                                    |       | 2,030                                                   |       | -46% |   | 3,754 |   | 6,162 |   | -39% |   |
| Other revenues                                 |       | 1,152                                                    |       | 999                                                     |       | 15% |   | 2,986 |   | 2,806 |   | 6% |   |
| Agency commissions                             |       | (14,095                                                  | )          | (13,492                                                 | )          | 4% |   | (42,668 | ) | (41,788 | ) | 2% |   |
| Net revenues                                   |       | 98,804                                                   |       | 93,740                                                  |       | 5% |   | 295,571 |   | 287,297 |   | 3% |   |
|                                           |       |                                                     |       |                                                    |       | % |   |   |   |   |   |   |   |
| Operating costs and expenses:                  |       |                                                     |       |                                                    |       | % |   |   |   |   |   |   |   |
| Direct operating                               |       | 28,977                                                   |       | 29,016                                                  |       | 0% |   | 88,666 |   | 86,353 |   | 3% |   |
| Selling, general and administrative            |       | 28,321                                                   |       | 26,928                                                  |       | 5% |   | 85,157 |   | 84,188 |   | 1% |   |
| Amortization of program rights                 |       | 5,856                                                    |       | 6,382                                                   |       | -8% |   | 17,620 |   | 18,523 |   | -5% |   |
| Corporate                                      |       | 3,683                                                    |       | 5,844                                                   |       | -37% |   | 14,922 |   | 16,374 |   | -9% |   |
| Depreciation                                   |       | 7,308                                                    |       | 6,876                                                   |       | 6% |   | 22,125 |   | 23,088 |   | -4% |   |
| Amortization of intangible assets              |       | 44                                                       |       | 523                                                     |       | -92% |   | 228 |   | 1,669 |   | -86% |   |
| Impairment of goodwill and broadcast  licenses |       | —                                                   |       | —                                                  |       | 0% |   | 296,972 |   | — |   |   |   |
| Restructuring benefit                          |       | —                                                   |       | (165                                                    | )          | -100% |   | — |   | (74 | ) | -100% |   |
| Loss (gain) from asset sales                   |       | 74                                                       |       | 679                                                     |       | -89% |   | (296 | ) | 1,382 |   | -121% |   |
| Total operating costs and expenses             |       | 74,263                                                   |       | 76,083                                                  |       | -2% |   | 525,394 |   | 231,503 |   | 127% |   |
|                                           |       |                                                     |       |                                                    |       |   |   |   |   |   |   |   |   |
| Operating income                               |       | $                                                        | 24,541     |                                                    | $          | 17,657 |   | 39% |   | $ | (229,823 | ) | $ | 55,794 |   | -512% |   |

 

**Period Comparison**

 

**Revenues**

 

***Net revenues***consist primarily of national, local andpolitical advertising sales, net of sales adjustments and agency commissions.Additional amounts are generated from Internet revenues and retransmissionconsent fees (collectively, “digital revenues”), barter revenues, networkcompensation, production revenues and tower rental income.

 

Netrevenues increased $5.1 million, or 5%, for the three months ended September 30,2008, compared with the three months ended September 30, 2007. Theincrease was primarily due to: (a) an increase in political advertisingsales of $10.1 million; and (b) an increase in digital revenue of $3.8million. These increases were partially offset by (a) a decrease in localadvertising sales of $2.0 million; (b) a decrease in national advertisingsales of $5.4 million; and (c) the collective decrease in barter and allother revenue categories of $1.4 million.

 

Netrevenues increased $8.3 million, or 3%, for the nine months ended September 30,2008, compared with the nine months ended September 30, 2007. The increasewas primarily due to: (a) an increase in political advertising sales of $19.8million; and (b) an increase in digital revenue of $9.6 million. Theseincreases were partially offset by (a) a decrease in local advertisingsales of $7.6 million; (b) a decrease in national advertising sales of $10.5million; and (c) the collective decrease in barter and all other revenuecategories of $3.0 million.

 

25

----

Table ofContents

 

Theincrease in political advertising sales during the three and nine months ended September 30,2008, compared to the same period last year, is a result of the upcomingPresidential, Congressional, state and local elections. We expect higherpolitical advertising sales in the fourth quarter of 2008 compared to theaverage of the first three quarters of 2008.

 

The increase in digitalrevenues for the three and nine months ended September 30, 2008 over thecomparable periods last year is primarily due to several new retransmissionconsent agreements reached with cable, satellite and telecommunicationoperators during 2007 and 2008, and an increase in Internet revenues. We expecthigher digital revenues in the fourth quarter of 2008 compared to the averageof the first three quarters of 2008.

 

The decrease in localadvertising sales is due to general economic pressure now impacting a number oflocal economies, primarily in the housing, automobile and retail segments. Thedecrease in national time sales is due to the same general economic factors,which has impacted most national advertising categories, particularlyautomotive spending. We expect this trend to continue for local and nationaladvertising in the fourth quarter of 2008 and into 2009.

 

**OperatingCosts and Expenses**

 

***Operating costs and expenses***decreased $1.8 million or 2% to $74.3million for the three months ended September 30, 2008 compared to $76.1million for the same period in 2007. This variance was primarily due to: (a) fairvalue or mark-to-market adjustment of $1.2 million in executive deferredcompensation investment accounts; (b) reduction of $0.8 million instock-based compensation expense; (c) lower barter expenses of $0.8million; (d) lower amortization expense related to intangible assets of$0.5 million; and (e) a decrease from losses from the sale or disposal ofassets of $0.6 million.  These decreaseswere partially offset by (a) higher legal and professional fees of $1.3million; (b) higher depreciation expense of $0.4 million; (c) abenefit of $0.2 million in restructuring charges in the third quarter of 2007compared to no benefit in the third quarter of 2008; and (d) other costincreases of $0.2 million.

 

Operating costs andexpenses increased $293.9 million to $525.4 million for the nine months ended September 30,2008 compared to $231.5 million for the same period in 2007. This increase wasprimarily due to: (a) an impairment charge of $297.0 million relating toour broadcast licenses and goodwill (described below); (b) higher legaland professional fees of $2.7 million; (c) higher contract costs of $1.3million; and (d) other cost increases of $1.1 million.   These increases were partially offset by (a) lowerbenefit costs of $2.2 million; (b) lower barter costs of $1.9 million; (c) loweramortization of intangible assets of $1.4 million; (d) lower (gain) lossof sales of assets of $1.7 million; and (e) lower depreciation costs of$1.0 million.

 

*Impairment of broadcast licensesand goodwill*

 

Werecorded an impairment charge of $297.0 million during the second quarter of2008 that included an impairment to the carrying values of our broadcastlicenses of $185.7 million, related to 19 of our television stations; and animpairment to the carrying values of our goodwill of $111.3 million, related to8 of our television 

 

26

----

Table ofContents

 

stations.As required by SFAS 142, “Goodwill and Other Intangible Assets” (“SFAS 142”),we tested our unamortized intangible assets for impairment at June 30, 2008,between the required annual tests, because we believed events had occurred andcircumstances changed that would more likely than not reduce the fair value ofour broadcast licenses and goodwill below their carrying amounts. These eventsincluded: (a) the continued decline of the price of our Class A common stock;(b) the decline in the current selling prices of television stations; (c) thelower growth in advertising revenues; and (d) the decline in the operatingprofit margins of some of our stations.

 

Weused the income approach to test our broadcast licenses for impairments as ofJune 30, 2008 and we used the same assumptions as disclosed in our AnnualReport on Form 10-K for the year ended December 31, 2007, except for thefollowing adjustments: (a) the discount rate was adjusted from 8% to 9%; (b)market growth rates were adjusted from a range of 1.0% - 2.7% to a range of0.1% to 2.1%; and (c) operating profit margins were adjusted from a range of8.5% to 40.9% to a range of 8.5% to 39.8%. The increase in the discount rate reflected the volatility of stockprices of public companies within the media sector. The changes in the marketgrowth rates and operating profit margins reflected the current generaleconomic pressures impacting both the national and a number of local economies,and specifically, national and local advertising revenues in the markets whereour stations operate.

 

Weused the income approach to test goodwill for impairments as of June 30, 2008and we used the same assumptions as disclosed in our Annual Report on Form 10-Kfor the year ended December 31, 2007, except for the following adjustments: (a)the discount rate was adjusted from 10% to 11.5%; (b) market growth rates wereadjusted from a range of 1.0% to 2.7% to a range of 0.1% to 2.1%; and (c)operating profit margins were adjusted from a range of 29.2% to 57.6% to arange of 22.4% to 62.1%. These assumptions are based on: (a) the actualhistorical performance of our stations; (b) management’s estimates of futureperformance of our stations; and (c) the same market growth assumptions used inthe calculation of the fair value of our broadcast licenses.  The increase in the discount rate reflectedthe volatility of our Class A common stock. The changes in the market growthrates and operating profit margins reflected the current general economicpressures impacting both the national and a number of local economies, andspecifically, national and local advertising revenues in the markets where ourstations operate.

 

Determiningthe fair value of our television stations requires our management to make a numberof judgments about assumptions and estimates that are highly subjective andthat are based on unobservable inputs. The actual results may differ from theseassumptions and estimates; and it is possible that such differences could havea material impact on our financial statements. In addition to the variousinputs (i.e. market growth, operating profit margins, discount rates) that weuse to calculate the fair value of our broadcast licenses and reporting units,we evaluate the reasonableness of our assumptions by comparing the total fairvalue of all our reporting units to our total market capitalization; and bycomparing the fair value of our reporting units or television stations, andbroadcast licenses to recent television station sale transactions.

 

AtSeptember 30, 2008, our total market capitalization was $191.8 million lessthan our equity book value.  We believethat this difference can be attributed to the 

 

27

----

Table ofContents

 

recentvolatility of our stock price in the current economic environment and to thecontrol premium that a market participant may pay to acquire us.  We determined that there were no triggeringevents in the third quarter of 2008 that required us to test our broadcastlicenses and goodwill for impairment.

 

Asnoted above, we are required under SFAS 142 to test our indefinite-livedintangible assets on an annual basis or whenever events or changes in circumstancesindicate that these assets might be impaired. As a result, if the current economic trends continue and the credit andcapital markets continue to be disrupted, it is possible that we may recordfurther impairments in the fourth quarter of 2008.

 

 

**OtherExpense (Income)**

* *

***Other expense (income)***increased $0.2 million for the three months ended September 30,2008 compared to the same period in 2007, due primarily to lower interestexpense of $2.3 million, offset by a $1.4 million gain on derivativeinstruments in the prior year and other net expenses of $0.7 million. Otherexpense (income) decreased $2.1 million for the nine months ended September 30,2008 compared to the same period in 2007, due primarily to lower interestexpense of $7.7 million, offset by a $3.6 million write-off of deferredfinancing fees related to the purchase of our debentures, partial repayment ofour term loans and reduction of our revolving credit loan commitment and othernet expenses of $2.0 million. The following summarizes the components of ournet interest expense (in thousands):

 
| ** **                                               | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|----------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                               | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                               | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Credit facility                                          |       | $                                | 2,717      |                            | $          | 3,952 |   | $ | 8,159 |   | $ | 13,450 |   |
| $375,000, 6 1/2% Senior  Subordinated Notes              |       | 6,337                            |       | 6,337                           |       | 19,078 |   | 19,087 |   |
| $190,000, 6 1/2% Senior  Subordinated Notes-Class B |       | 3,691                            |       | 3,686                           |       | 11,110 |   | 11,090 |   |
| $125,000, 2.50% Exchangeable Senior                      |       |                             |       |                            |       |   |   |   |   |
| Subordinated Debentures                                  |       | —                           |       | 1,897                           |       | 2,803 |   | 5,639 |   |
| Total interest expense                                   |       | $                                | 12,745     |                            | $          | 15,872 |   | $ | 41,150 |   | $ | 49,266 |   |
| Interest (income) and other interest costs               |       | 496                              |       | (305                            | )          | 404 |   | (53 | ) |
| Total interest expense, net                              |       | $                                | 13,241     |                            | $          | 15,567 |   | $ | 41,554 |   | $ | 49,213 |   |

 

**Provisionfor (Benefit from) Income Taxes**

* *

***Provision for income taxes***for the three months ended September 30,2008 was $0.2 million and the benefit from income taxes for the nine monthsended September 30, 2008 was $70.7 million, compared to a provision forincome taxes of $1.2 million and $3.2 million for the three and nine monthsended September 30, 2007. The change was primarily due to the impairmentof our broadcast licenses and goodwill, and our estimated annual loss fromcontinuing operations before benefit from income taxes. We estimated an annualeffective tax rate of 25.7% and 44.4% as of September 30, 2008 and 2007,respectively.

 

**Resultsof Discontinued Operations**

 

Our consolidatedfinancial statements reflect the operations of our Puerto Rico stations andBanks Broadcasting as discontinued for all periods presented. Loss fromdiscontinued operations was $0.2 million and $0.3 million for the three monthsended September 30, 2008 and 2007, respectively. Income from discontinued 

 

28

----

Tableof Contents

 

operations was $0.2million for the nine months ended September 30, 2008 compared to a lossfrom discontinued operations of $1.3 million for the nine months ended September 30,2007. Loss from the sale of discontinued operations was $0.5 million for thethree months ended September 30, 2007 and gain from the sale ofdiscontinued operations was $22.2 million for the nine months ended September 30,2007.

 

*PuertoRico Operations*

 

We completed the sale ofour Puerto Rico operations to InterMedia Partners VII, L.P. for $131.9 millionin cash and recognized a related gain of $22.7 million after benefit of incometaxes in the first quarter of 2007. The stations sold included WAPA-TV, afull-power independent station, and WJPX-TV, an independent station branded asMTV Puerto Rico, as well as WAPA America, a U.S. Spanish-language cablechannel. The proceeds from the sale of our Puerto Rico operations, net oftransaction fees, were used to pay-down $70.0 million of our term loans underour credit facility and to repay borrowings incurred to fund the purchase ofKASA-TV.

 

*BanksBroadcasting*

 

Weown preferred stock that represents a 50% non-voting interest in BanksBroadcasting, which owns KNIN-TV, a CW affiliate in Boise. We consolidate BanksBroadcasting under FIN 46R.

 

InJuly 2007, Banks Broadcasting sold the operating assets, including thebroadcast licenses, of KSCW-TV, a CW affiliate in Wichita, to SunflowerBroadcasting, Inc. for $6.8 million, of which $5.4 million was paid in cash atthe closing and the remaining $1.4 million was held in escrow and released inJuly 2008.  Our operating results for thethird quarter of 2007 included a $0.5 million loss from the sale of KSCW-TV,net of an income tax benefit of $0.4 million.

 

InMarch 2008, Banks Broadcasting sold certain of its 700 MHz spectrum licensesfor $2.0 million in cash with a related gain of $1.4 million. In June 2008,Banks Broadcasting signed a purchase agreement to sell KNIN-TV, a CW affiliatein Boise, for $8.0 million to Journal Broadcasting Corporation, subject to FCCapproval. The sale of KNIN-TV is expected to close in 2008 and we expect torecord a gain of approximately $0.1 million. Following the completion of thissale, we expect that Banks Broadcasting will be liquidated.

 

BanksBroadcasting distributed $2.5 million to us for the nine months ended September30, 2008, and distributed no cash to us for nine months ended September 30,2007. We provided no capital contributions to Banks Broadcasting for the ninemonths ended September 30, 2008 or 2007.

 

29

----

Table ofContents

 

The following tablepresents summarized information for our Puerto Rico operations and BanksBroadcasting that were previously included in historical operating results (inthousands):

 
| ** **              | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|-------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **              | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **              | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Puerto Rico:            |       |                             |       |                            |       |   |   |   |   |
| Net revenues            |       | $                                | —     |                            | $          | — |   | $ | — |   | $ | 9,868 |   |
| Operating loss          |       | —                           |       | —                          |       | — |   | (1,094 | ) |
| Net loss                |       | —                           |       | —                          |       | — |   | (368 | ) |
|                    |       |                             |       |                            |       |   |   |   |   |
| Banks Broadcasting:     |       |                             |       |                            |       |   |   |   |   |
| Net revenues            |       | $                                | 680        |                            | $          | 841 |   | $ | 2,247 |   | $ | 3,671 |   |
| Operating (loss) income |       | (190                             | )          | (408                            | )          | 919 |   | (834 | ) |
| Net (loss) income       |       | (196                             | )          | (324                            | )          | 184 |   | (888 | ) |
|                    |       |                             |       |                            |       |   |   |   |   |
| Total:                  |       |                             |       |                            |       |   |   |   |   |
| Net revenues            |       | $                                | 680        |                            | $          | 841 |   | $ | 2,247 |   | $ | 13,539 |   |
| Operating (loss) income |       | (190                             | )          | (408                            | )          | 919 |   | (1,928 | ) |
| Net (loss) income       |       | (196                             | )          | (324                            | )          | 184 |   | (1,256 | ) |

 

**Liquidityand Capital Resources**

 

Our principal sources offunds for working capital have historically been cash from operations andborrowings under our credit facility. At September 30, 2008, we had cashof $16.3 million and a $225.0 million revolving credit facility, of which $85.0million was outstanding and $140.0 million was available.

 

We believe that ourcurrent levels of cash flows from our operations, together with availableborrowings under our credit facility, will be sufficient to meet our anticipatedcash requirements for the next 12 months. These cash requirements includeworking capital, capital expenditures, interest and scheduled principalpayments on our credit facility term loans and interest payments on the seniorsubordinated notes.

 

None of our long-termdebt matures within the next two years. Our credit facility has a maturity date of November 4, 2011 and oursenior subordinated notes have a maturity date of May 15, 2013.

 

Our credit facilitycontains certain financial covenants which are measured, in part, by the levelof cash we generate from operations.  Ourability to generate sufficient cash flows to maintain our compliance with thesefinancial covenants and to meet the cash requirements needed to operate ourcompany could be adversely affected by a number of risks, including:

 

·                  The continued economic slowdown in theUnited States has adversely affected local and national advertising revenuesacross all of our stations.  Localadvertising revenues decreased 4% for the nine months ended September 30,2008 compared to the prior year; and national advertising revenues decreased10% for the nine months ended September 30, 2008 compared to the prioryear.  Approximately 83% and 92% of ournet revenues for the nine months ended September 30, 2008 and 2007,respectively, was derived from local and national advertising revenues.  We cannot predict the severity or duration ofthis economic slowdown.

 

·                  The lower demand for local and nationaladvertising revenues has been offset in 2008 by strong demand for politicaladvertising in the first three quarters of 2008 and we expect this demand willcontinue to be strong through Election 

 

30

----

Tableof Contents

 

Day.  Political advertising revenues were $22.7million and $2.9 million for the nine months ended September 30, 2008 and2007, respectively.  Political electionsgenerally occur in even years resulting in significant changes in politicaladvertising between odd years (2005 and 2007) and even years (2006 and 2008).We anticipate a significant decrease in political advertising revenues in 2009.

 

·                  We have experienced an improvement indays sales outstanding this year as a result of our centralization ofcredit/collection functions in 2007 and 2008. However, the effects of acontinued economic slowdown and the current financial credit crisis couldsignificantly impact our customers’ ability to pay, which could increase ourbad debt expense and increase our days sales outstanding, which in turn wouldincrease our working capital requirements and reduce our cash flow fromoperations.

 

·                  As discussed in Note 7 - “RetirementPlans”, we provide a defined benefit retirement plan to certain of ouremployees. The fair value of our pension plan assets was $71.8 million and$86.0 million as of September 30, 2008 and December 31, 2007,respectively.  We contributed $2.3million and $3.0 million to our pension plans for nine months ended September 30,2008 and 2007, respectively.  Thecontinuing economic downturn and disruptions in the financial markets couldsignificantly increase the cash funding requirements of our pension plan andour pension expense in 2009 and thereafter, which would reduce our cash flowfrom operations.

 

·                  As discussed in Note 5 - “IntangibleAssets”, the current general economic pressures now impacting both the nationaland a number of our local economies may result in further non-cash impairmentsin the fourth quarter of 2008. More specifically, the following could adverselyimpact the current carrying value of our broadcast licenses and goodwill: (a) sustaineddecline in the price of our Class A common stock; (b) continueddecline in our forecasted operating profit margins; (c) continued declinein our industry operating profit margins; (d) continued decline inadvertising market revenues within the markets we operate stations; or (e) thesustained decline in the selling prices of television stations.

 

·                  The current general economic pressuresare also affecting the two television stations in our joint venture with NBCUniversal. As a result, we do not anticipate receiving cash distributions fromthe NBC Universal joint venture in the fourth quarter of 2008. Additionally, tothe extent we conclude there is an other than temporary decline in the value ofour NBC Universal joint venture investment as a result of continued declines inoperating profit and in turn an absence of the ability to recover our carryingamount of the investment, we would recognize a loss on investment. The jointventure has not provided us with their 2009 operating plan. We cannot predictat this time if or how much the cash contributions from the joint venture willbe for 2009 or whether there has been an other than temporary decline in thevalue of our investment.  Lastly, the NBCUniversal joint venture has continued through September 30, 2008 and isforecasted through December 31, 2008 to generate sufficient cash flows tomeet its debt service requirements.  Tothe extent the NBC joint venture does not generate sufficient cash flows, GECCcould under certain circumstances require us to pay the shortfall of anyoutstanding amounts under the GECC Note pursuant to our guarantee as describedin Note 9 — “Commitments and Contingencies.”

 

31

----

Tableof Contents

 

In view of thesechallenges, we are taking several actions to minimize the adverse impact thatthe current economic slowdown has on our cash flows.  The following describes some of the actionsthat we are undertaking:

 

·                  We are using our strong local televisionstation brands and considerable news, sports, weather, traffic and other localvideo content to develop new revenue streams. These new revenues are generated from reaching new retransmissionconsent agreements with pay television companies, developing our televisionstation websites and launching other new digital services. Our digital revenuesincreased 95% or $9.6 million for the nine months ended September 30, 2008versus the similar period in 2007.  Weexpect this trend to continue into 2009.

 

·                  We are currently evaluating the costs ateach of our television stations as a part of our overall strategic businessreview process to realign our costs as we transition from analog to anall-digital and new media company.  Weanticipate taking a restructuring charge in the fourth quarter 2008 relating tothis transition, although the amount of this charge cannot be estimated at thistime.

 

·                  On August 25, 2008, we entered intoa Third Amendment (the “Amendment”) to our credit facility.  The Amendment permanently reduces theaggregate revolving credit commitments from $275 million to $225 million andrevises certain financial condition covenants as follows:

 
| ** **                                      | ** ** | **Prior** | ** ** | **As Amended** | ** ** |
|-------------------------------------------------|------------|-----------|------------|---------------------|------------|
| **Consolidated Leverage Ratio:**                |       |      |       |                |       |
| October 1, 2008 to December 31, 2009  |       | 6.00      | x          | 7.00                | x          |
| January 1, 2010 through June 30, 2010 |       | 6.00      | x          | 6.50                | x          |
| July 1, 2010 and thereafter                |       | 6.00      | x          | 6.00                | x          |
|                                            |       |      |       |                |       |
| **Consolidated Interest Coverage Ratio:**       |       |      |       |                |       |
| October 1, 2008 to December 31, 2009  |       | 2.25      | x          | 2.00                | x          |
| January 1, 2010 and thereafter             |       | 2.25      | x          | 2.25                | x          |
|                                            |       |      |       |                |       |
| **Consolidated Senior Leverage Ratio:**         |       |      |       |                |       |
| October 1, 2008 and thereafter             |       | 4.50      | x          | 3.50                | x          |

 

·                  We have also assessed the impact thecurrent market conditions could have on third parties with whom we do business,specifically as it relates to our interest rate swap and insurance contracts.Management performs a quarterly assessment of the critical terms of theinterest rate swap including, among other matters, an assessment of thecounterparties’ creditworthiness. Based on our assessment at September 30,2008, we do not believe there is a significant risk associated with the creditworthiness of our interest rate swap counterparty. Given current economicconditions, management also reviewed the insurance contracts associated withour facilities and business continuity insurance providers and noted nomaterial credit risks.

 

32

----

Table ofContents

 

**Summaryof Cash Flows**

 

The followingpresents summarized cash flow information (in thousands):

 
| ** **                                           | ** ** | **Nine months ended** | ** ** | ** **                   | ** ** |
|------------------------------------------------------|------------|---------------------------------|------------|------------------------------|------------|
| ** **                                           | ** ** | **September 30,**          | ** ** | **Increase (Decrease)** | ** ** |
| ** **                                           | ** ** | **2008**                        | ** ** | **2007**                     | ** ** | **$** | ** ** | **%** | ** ** |
|                                                 |       |                            |       |                         |       |   |   |   |   |
| Cash provided by (used in) operating activities:     |       |                            |       |                         |       |   |   |   |   |
| Continuing operations                                |       | $                               | 66,412     |                         | $          | 43,912 |   | 22,500 |   | 51 | % |
| Discontinued operations                              |       | (1,142                          | )          | (16,966                      | )          | 15,824 |   | -93 | % |
| Cash (used in) provided by investing activites       |       | (13,957                         | )          | 76,653                       |       | (90,610 | ) | -118 | % |
| Cash (used in) financing activites                   |       | (75,074                         | )          | (83,251                      | )          | 8,177 |   | 10 | % |
|                                                 |       |                            |       |                         |       |   |   |   |   |
| Net (decrease) increase in cash and cash equivalents |       | $                               | (23,761    | )                            | $          | 20,348 |   | $ | (44,109 | ) | -217 | % |
|                                                      |            |                                 |            |                              |            |  |  |  |  |  |  |  |

 

***Net cash provided by operating activities from continuingoperations***increased$22.5 million for the nine months ended September 30, 2008, compared tothe same period last year. This increase was primarily due to: (a) improvedaccounts receivable management of $11.9 million; (b) improvements inoperations principally from increased political advertising and digitalrevenues of $4.4 million; (c) restructuring and severance paymentspaid-out during the first two quarters of 2007 of $4.6 million; and (d) othercash provided by operating activities of $1.6 million.

 

***Net cash used by operating activities from discontinuedoperations***decreased$15.8 million for the nine months ended September 30, 2008, compared tothe same period last year. This decrease was primarily due to the sale of ourPuerto Rico operations in the first quarter of 2007 and the sale of KSCW-TV, aBanks Broadcasting station, in the third quarter of 2007.

 

***Net cash (used in) provided by investing activities***decreased $90.6 million for the ninemonths ended September 30, 2008, compared to the same period last year.The change was primarily due to the net proceeds of $131.9 million we receivedfrom the sale of our Puerto Rico operations less the $52.3 million we paidtoward the balance of the purchase price for the acquisition of KASA-TV in thefirst quarter of 2007, and to the net proceeds of $5.4 million from the sale ofKSCW-TV, a Banks Broadcasting station, in the third quarter of 2007.

 

***Net cash used in financing activities***decreased $8.2 million to $75.1 millionfor the nine months ended September 30, 2008, compared to $83.3 millionfor the same period last year. In 2008, net cash used in financing activitieswas primarily due to: (a) the purchase of $125.0 million of our 2.50%Exchangeable Senior Subordinated Debentures, all of which were tendered to uson May 15, 2008; (b) the repayment of $35.0 million of our term loansunder the credit facility; and (c) the repayment of $30.0 million of ourrevolving credit facility at the end of the third quarter; offset by borrowingsof $115.0 million under our revolving credit facility that were used, inaddition to our cash balances, to purchase the debentures. In 2007, net cashused in financing activities was primarily due to the pay-down of the termloans under our credit facility from proceeds from the sale of our Puerto Ricooperations.

 

33

----

Table ofContents

 

**Descriptionof Indebtedness**

 

The following is asummary of our outstanding indebtedness (in thousands):

 
| ** **                                                                                                                                                                       | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                       | ** ** | **2008**               | ** ** | **2007**              | ** ** |
| Credit facility                                                                                                                                                                  |       | $                      | 204,850    |                  | $          | 154,875 |   |
| 6 1/2% Senior Subordinated Notes due 2013                                                                                                                                        |       | 375,000                |       | 375,000               |       |
| $190,000, 6 1/2% Senior  Subordinated Notes due 2013 - Class B (net of discount of $9,087 and  $10,519 at September 30, 2008 and December 31, 2007, respectively) |       | 180,913                |       | 179,481               |       |
| $125,000, 2.50% Exchangeable Senior Subordinated Debentures due 2033  (net of discount of $1,580 at December 31, 2007)                                                      |       | —                 |       | 123,420               |       |
|                                                                                                                                                                             |       |                   |       |                  |       |
| Total debt                                                                                                                                                                       |       | 760,763                |       | 832,776               |       |
| Less current portion                                                                                                                                                             |       | 21,600                 |       | 24,300                |       |
| Total long-term debt                                                                                                                                                             |       | $                      | 739,163    |                  | $          | 808,476 |   |

 

During the nine monthsended September 30, 2008, we repaid $35.0 million of the term loans underour credit facility using available cash balances, including $17.0 millionrelated to mandatory quarterly payments and $18.0 million related to additionalpayments required because we did not reinvest the remaining proceeds fromcertain of the 2007 asset sales.

 

On May 16, 2008, wepurchased $125.0 million of our 2.50% Exchangeable Senior SubordinatedDebentures, all of which were tendered to us, using $115.0 million availableunder our revolving credit facility and $10.0 million of our available cashbalances. We subsequently repaid $30.0 million of our outstanding revolvingcredit loans through September 30, 2008.

 

At September 30,2008, we were in compliance with all of the covenants under our credit facilityas amended. See Note 7 — “Long-term Debt” included in Item 15 of our AnnualReport on Form 10-K for the year ended December 31, 2007 for a fulldescription of our credit facility, subject to the terms of the Amendmentdescribed above.

 

**ContractualObligations**

 

As of September 30,2008, there had been no material changes in our contractual obligations fromthose disclosed in our Annual Report on Form 10-K for the year ended December 31,2007 except for the items described below.

 

We purchased $125.0million of our 2.50% Exchangeable Senior Subordinated Debentures in May 2008,all of which were tendered to us, using $115.0 million under our revolvingcredit facility and $10.0 million of available cash balances. The terms of ourcredit facility requires that the term loans and the revolving credit loans berepaid on or before November 4, 2011.

 

On August 25, 2008,we entered into a Third Amendment to our Credit Agreement dated November 4,2005 as described above.

 

34

----

Table ofContents

 

**Off-BalanceSheet Arrangements**

 

As of September 30,2008, there had been no material changes in our off-balance sheet arrangementsfrom those disclosed in our Annual Report on Form 10-K for the year ended December 31,2007. See Note 9 — “Commitments and Contingencies” regarding LIN TV’s guaranteeof the GECC Note and see Note 4 — “Equity Investments” regarding our jointventure with NBC that holds the GECC Note.

 

35

----

Table ofContents

 

**Item 3. Quantitative and Qualitative Disclosures about Market Risk**

 

We are exposed to marketrisk related to interest rates on borrowings under our credit facility debt. Weuse derivative financial instruments to mitigate our exposure to market risksfrom fluctuations in interest rates. In accordance with our policy, we do notuse derivative instruments unless there is an underlying exposure and we do nothold or enter into derivative financial instruments for speculative tradingpurposes.

 

*InterestRate Risk*

 

Our total debtoutstanding at September 30, 2008 was $760.8 million. Our seniorsubordinated notes in the principal amount of $565 million bear a fixed interestrate. Amounts borrowed under the credit facility bear interest at a rate basedon, at our option, either (a) the LIBOR interest rate, or (b) an interest ratethat is equal to the greater of the Prime Rate or the Federal Funds EffectiveRate plus 0.5%. In addition, the rate we select also bears an applicable marginrate of 0.625% to 1.500% depending on the achievement of certain financialratios. The outstanding balance under our credit facility was $204.9 million atSeptember 30, 2008.

 

Accordingly, we areexposed to potential losses related to increases in interest rates. Ahypothetical 1% increase in the floating rate used as the basis for theinterest charged on the credit facility as of September 30, 2008 wouldresult in an estimated $1.0 million increase in annualized interest expenseassuming a constant balance outstanding of $204.9 million, less the notionalamount of $100.0 million covered with an interest rate swap agreement. If weincur additional indebtedness or amend or replace our current indebtedness, thecurrent liquidity levels in the general credit markets may impact our abilityto refinance our debt or to refinance our debt on terms similar to our existingdebt agreements.

 

During the second quarterof 2006, we entered into a contract to hedge a notional $100 million of ourcredit facility. The interest payments under our credit facility term loans arebased on LIBOR plus an applicable margin rate. To mitigate changes in our cashflows resulting from fluctuations in interest rates, we entered into the 2006interest rate hedge that effectively converted the floating LIBORrate-based-payments to fixed payments at 5.33% plus the applicable margin ratecalculated under our credit facility, which expires in November 2011. Wedesignated the 2006 interest rate hedge as a cash flow hedge. The fair value ofthe 2006 interest rate hedge was a liability of $3.2 million at September 30,2008. This amount will be released into earnings over the life of the 2006interest rate hedge through periodic interest payments.

 

**Item 4.Controls and Procedures**

 

a) Evaluation ofdisclosure controls and procedures. Our management, with the participation ofour Chief Executive Officer and Chief Financial Officer, evaluated theeffectiveness of our disclosure controls and procedures as of September 30,2008. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, means controls and other procedures of acompany that are designed to ensure that information required to be disclosedby a company in the reports that it files or submits under the Exchange Act isrecorded, 

 

36

----

Table ofContents

 

processed, summarized andreported, within the time periods specified in the SEC’s rules and forms.Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed by a companyin the reports that it files or submits under the Exchange Act is accumulatedand communicated to the company’s management, including its principal executiveand principal financial officers, as appropriate to allow timely decisionsregarding required disclosure. Management recognizes that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving its objectives and management necessarilyapplies its judgment in evaluating the cost-benefit relationship of possiblecontrols and procedures. Based on the evaluation of our disclosure controls andprocedures as of September 30, 2008, the Company’s Chief Executive Officerand Chief Financial Officer concluded that, as of such date, our disclosurecontrols and procedures were effective at the reasonable assurance level.

 

b) Changes in internalcontrols. There were no changes in our internal control over financialreporting identified in connection with the evaluation that occurred during thequarter ended September 30, 2008 that have materially affected or arereasonably likely to materially affect our internal control over financialreporting.

 

**Part II.Other Information**

** **

**Item 1.Legal Proceedings**

 

We are involved invarious claims and lawsuits that are generally incidental to our business. Weare vigorously contesting all of these matters and believe that their ultimateresolution will not have a material adverse effect on us.

 

In November 2007, weassigned our option to acquire the outstanding shares of the entity holding theFCC license of KNVA-TV to a third party, Vaughan Media, LLC (“Vaughan Media”),as permitted by the terms of the option agreement. We program KNVA-TV pursuantto a local marketing agreement with the entity holding KNVA-TV’s FCC license.Vaughan Media subsequently exercised the option to acquire the shares of thelicensee. In response, on December 10, 2007, the licensee, 54 Broadcasting, Inc.,filed a complaint against us and Vaughan Media in the 53rd Judicial DistrictCourt of Travis County, Austin, Texas alleging that our assignment and thesubsequent option exercise were not valid. The action was subsequently removedto the United States District Court, Western District of Texas, and AustinDivision. We believe these claims are without merit and are vigorouslydefending the action.

** **

**Item 1A.Risk Factors**

 

In addition to the otherinformation in this report, you should carefully consider the factors discussedin Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-Kfor the year ended December 31, 2007, which could materially affect ourbusiness, financial condition or future results.

 

At September 30,2008, we updated the risk factors in our 2007 Annual Report on Form 10-Kas described below.

** **

**Thecontinued economic slowdown in the United States and the national andworld-wide financial crisis may adversely affect our results of operations,cash flows and financial condition. Among other things, these negative economic trends could adverselyaffect demand for television advertising, reduce the availability, and increasethe cost, of short-term funds for**

 

37

----

Table ofContents

 

**liquidityrequirements, and adversely affect our ability to meet long-term commitments.**

 

The continued economicslowdown in the United States is likely to adversely affect our results ofoperations and cash flows by, among other things, reducing demand for local andnational television advertising and making it more difficult for customers topay their accounts.  Our ability toaccess funds under our credit facility depends, in part, on our compliance withcertain financial covenants in the credit facility, including covenants basedon our operating cash flow.  If ouroperating cash flow is not sufficient to ensure compliance with thesecovenants, we might not be able to draw down funds under our revolving creditfacility.

 

Disruptions in thecapital and credit markets, as have been experienced during 2008, couldadversely affect our ability to draw on our bank revolving credit facilities.Our access to funds under the revolving credit facilities is dependent on theability of the banks that are parties to the facilities to meet their fundingcommitments. Those banks may not be able to meet their funding commitments tous if they experience shortages of capital and liquidity or if they experienceexcessive volumes of borrowing requests from us and other borrowers within ashort period of time.

 

Longer term disruptionsin the capital and credit markets as a result of uncertainty, changing orincreased regulation, reduced alternatives or failures of significant financialinstitutions could adversely affect the our access to liquidity needed for ourbusiness. Any disruption could require us to take measures to conserve cashuntil the markets stabilize or until alternative credit arrangements or otherfunding for our business needs can be arranged. Such measures could includedeferring capital expenditures and other discretionary uses of cash.

 

The disruption in thecapital markets and its actual or perceived effects on particular businessesand the greater economy may also adversely affect the value of the investmentsheld within our employee benefit plan trusts. A significant long-term declinein the value of these investments may require us to increase contributions tothose trusts to meet future funding requirements. In addition, a significantdecline in the market value of our employee benefit plan trusts may adverselyimpact our results of operations, cash flows and financial position.

 

**Item 2.Unregistered Sales of Equity Securities and Use of Proceeds**

 

On August 23, 2005,our Board approved our repurchase of up to $200.0 million of our Class Acommon stock (the “Program”). Share repurchases under the Program may be madefrom time-to-time in the open market or in privately negotiated transactions.The Program may be suspended or discontinued at any time. During the threemonths ended September 30, 2008 no purchases of Class A common stockwere made under the Program or otherwise.

 

**Item 3.Defaults upon Senior Securities**

 

None.

 

**Item 4.Submission of Matters to a Vote of Security Holders**

 

None.

 

38

----

Table ofContents

 

**Item 5.Other Information**

 

None.

 

39

----

Table ofContents

 

**Item 6.Exhibits**

 
| 3.1    |   | Second Amended and Restated Certificate of  Incorporation of LIN TV Corp., as amended (filed as Exhibit 3.1 to our  Quarterly Report on Form 10-Q filed as of August 9, 2004 (File Nos.  001-31311 and 000-25206) and incorporated by reference herein)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.2    |   | Third Amended and Restated Bylaws of LIN TV Corp.,  filed as Exhibit 3.2 (filed as Exhibit 3.2 to our Report on  Form 10-K filed as of March 14, 2008 (File Nos. 001-31311 and  000-25206) and incorporated by reference herein).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.3    |   | Restated Certificate of Incorporation of LIN  Television Corporation (filed as Exhibit 3.1 to the Quarterly Report on  Form 10-Q of LIN TV Corp. and LIN Television Corporation for the fiscal  quarter ended June 30, 2003 (File No. 000-25206) and incorporated  by reference herein)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.1    |   | Specimen of stock certificate representing LIN TV  Corp. Class A Common stock, par value $.01 per share (filed as  Exhibit 4.1 to LIN TV Corp.’s Registration Statement on Form S-1  (Registration No. 333-83068) and incorporated by reference herein).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.1   |   | Third Amendment, dated as of August 25, 2008,  to the Credit Agreement dated as of November 4, 2005 (as amended) among  LIN Television Corporation, as the borrower, the several banks and other  institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as  administrative agent, an issuing lender and as swingline lender, Deutsche  Bank Trust Company Americas, as syndication agent and as an issuing lender,  Goldman Sachs Credit Partners, L.P., Bank of America, N.A. and Wachovia Bank,  National Association as documentation agents, and The Bank of Nova Scotia and  Suntrust Bank, as co-documentation agents, and J.P. Morgan Securities Inc.  and Deutsche Bank Securities Inc., as joint lead arrangers and joint  bookrunners (filed as Exhibit 99.1 to our Form 8-K filed as of  August 8, 2008 (File Nos. 000-25206 and 001-31311) and incorporated by  reference herein). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.1   |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 of the Chief Executive Officer of LIN TV Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.2   |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 of the Chief Financial Officer of LIN TV Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.3   |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 of the Chief Executive Officer of LIN Television  Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.4   |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 of the Chief Financial Officer of LIN Television  Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 32.1   |   | Certification pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 of the Chief Executive Officer and Chief Financial Officer of LIN  TV Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

40

----

Table ofContents

 

**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, each of LIN TV Corp. and LIN Television Corporation, has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
| *** ***                  | *** *** | ***LIN TV CORP.***               |
|-------------------------------|--------------|----------------------------------|
| *** ***                  | *** *** | ***LIN TELEVISION CORPORATION*** |
|                          |         |                             |
|                          |         |                             |
| Dated:  October 31, 2008 | By:          | /s/  Richard J. Schmaeling       |
|                          |         | Richard  J. Schmaeling           |
|                          |         |                             |
|                          |         | Senior  Vice President,          |
|                          |         | Chief  Financial Officer         |
|                          |         | (Principal  Financial Officer)   |
|                          |         |                             |
|                          |         |                             |
|                          | By:          | /s/  William A. Cunningham       |
|                          |         | William  A. Cunningham           |
|                          |         |                             |
|                          |         | Vice  President, Controller      |
|                          |         | (Principal  Accounting Officer)  |

 

41

----

Table ofContents

 

Tableof Contents

 
| Item 1.    | Unaudited  Condensed Financial Statements of LIN Television Corporation |       |
|------------|-------------------------------------------------------------------------|------------|
| ** ** | ** **                                                              | ** ** |
|       | Condensed  Consolidated Balance Sheets                                  | 43         |
|       | Condensed  Consolidated Statements of Operations                        | 44         |
|       | Condensed  Consolidated Statements of Cash Flows                        | 45         |
|       | Notes  to Unaudited Condensed Consolidated Financial Statements         | 46         |

 

42

----

Tableof Contents

 

**LIN Television Corporation**

**Condensed Consolidated Balance Sheets**

**(unaudited)**

 
| ** **                                                                                                                                                       | ** ** | **September 30,**                                    | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                       | ** ** | **2008**                                                  | ** ** | **2007**              | ** ** |
| ** **                                                                                                                                                       | ** ** | **(in thousands, except share data)** | ** ** |
|                                                                                                                                                             |       |                                                      |       |                  |       |
| **ASSETS**                                                                                                                                                       | ** ** | ** **                                                | ** ** | ** **            | ** ** |
| Current assets:                                                                                                                                                  |       |                                                      |       |                  |       |
| Cash and cash equivalents                                                                                                                                        |       | $                                                         | 16,270     |                  | $          | 40,031 |   |
| Accounts receivable, less allowance for doubtful accounts (2008 -  $1,723; 2007 - $1,640)                                                                        |       | 76,040                                                    |       | 87,301                |       |
| Program rights                                                                                                                                                   |       | 3,751                                                     |       | 4,360                 |       |
| Assets held for sale                                                                                                                                             |       | 501                                                       |       | 289                   |       |
| Other current assets                                                                                                                                             |       | 6,647                                                     |       | 4,857                 |       |
| Total current assets                                                                                                                                             |       | 103,209                                                   |       | 136,838               |       |
| Property and equipment, net                                                                                                                                      |       | 187,549                                                   |       | 191,250               |       |
| Deferred financing costs                                                                                                                                         |       | 9,673                                                     |       | 14,406                |       |
| Equity investments                                                                                                                                               |       | 53,693                                                    |       | 55,480                |       |
| Program rights                                                                                                                                                   |       | 4,144                                                     |       | 6,776                 |       |
| Goodwill                                                                                                                                                         |       | 424,122                                                   |       | 535,418               |       |
| Broadcast licenses and other intangible assets, net                                                                                                              |       | 835,385                                                   |       | 1,021,290             |       |
| Assets held for sale                                                                                                                                             |       | 8,567                                                     |       | 9,180                 |       |
| Other assets                                                                                                                                                     |       | 7,936                                                     |       | 11,330                |       |
| Total assets                                                                                                                                                     |       | $                                                         | 1,634,278  |                  | $          | 1,981,968 |   |
|                                                                                                                                                             |       |                                                      |       |                  |       |
| **LIABILITIES, PREFERRED STOCK  AND STOCKHOLDERS’ EQUITY**                                                                                                  | ** ** | ** **                                                | ** ** | ** **            | ** ** |
| Current liabilities:                                                                                                                                             |       |                                                      |       |                  |       |
| Current portion of long-term debt                                                                                                                                |       | $                                                         | 21,600     |                  | $          | 24,300 |   |
| Accounts payable                                                                                                                                                 |       | 4,593                                                     |       | 11,415                |       |
| Accrued compensation                                                                                                                                             |       | 8,495                                                     |       | 6,754                 |       |
| Accrued interest expense                                                                                                                                         |       | 13,907                                                    |       | 5,018                 |       |
| Accrued contract costs                                                                                                                                           |       | 6,360                                                     |       | 6,934                 |       |
| Other accrued expenses                                                                                                                                           |       | 18,532                                                    |       | 13,573                |       |
| Program obligations                                                                                                                                              |       | 11,302                                                    |       | 11,944                |       |
| Liabilities held for sale                                                                                                                                        |       | 563                                                       |       | 549                   |       |
| Total current liabilities                                                                                                                                        |       | 85,352                                                    |       | 80,487                |       |
| Long-term debt, excluding current portion                                                                                                                        |       | 739,163                                                   |       | 808,476               |       |
| Deferred income taxes, net                                                                                                                                       |       | 303,680                                                   |       | 374,548               |       |
| Program obligations                                                                                                                                              |       | 6,626                                                     |       | 11,551                |       |
| Liabilities held for sale                                                                                                                                        |       | 41                                                        |       | 198                   |       |
| Other liabilities                                                                                                                                                |       | 35,481                                                    |       | 41,564                |       |
| Total liabilities                                                                                                                                                |       | 1,170,343                                                 |       | 1,316,824             |       |
|                                                                                                                                                             |       |                                                      |       |                  |       |
| Preferred stock of Banks Broadcasting, Inc., $0.01 par value,  173,822 shares issued and outstanding at September 30, 2008 and  December 31, 2007 |       | 7,095                                                     |       | 9,046                 |       |
| Stockholders’ equity:                                                                                                                                       |       |                                                      |       |                  |       |
| Investment in parent’s stock, at cost                                                                                                                       |       | (18,005                                                   | )          | (18,005               | )          |
| Additional paid-in capital                                                                                                                                       |       | 1,101,882                                                 |       | 1,096,982             |       |
| Accumulated deficit                                                                                                                                              |       | (613,209                                                  | )          | (408,726              | )          |
| Accumulated other comprehensive loss                                                                                                                             |       | (13,828                                                   | )          | (14,153               | )          |
| Total stockholders’ equity                                                                                                                                  |       | 456,840                                                   |       | 656,098               |       |
| Total liabilities, preferred stock and stockholders’ equity                                                                                                 |       | $                                                         | 1,634,278  |                  | $          | 1,981,968 |   |

 

The accompanying notes are an integral part ofthe unaudited condensed consolidated financial statements.

 

43

----

Table ofContents

 

**LIN Television Corporation**

**CondensedConsolidated Statements of Operations**

**(unaudited)**

 
| ** **                                                                                                                                                                                                                                                                                                                                  | ** ** | **Three months ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                  | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                                                                                                                                                                                                                                                                                                  | ** ** | **(in thousands)**                                  | ** ** |
| Net revenues                                                                                                                                                                                                                                                                                                                                |       | $                                                        | 98,804     |                                                    | $          | 93,740 |   | $ | 295,571 |   | $ | 287,297 |   |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                     |       |                                                    |       |   |   |   |   |
| Operating costs and expenses:                                                                                                                                                                                                                                                                                                               |       |                                                     |       |                                                    |       |   |   |   |   |
| Direct operating                                                                                                                                                                                                                                                                                                                            |       | 28,977                                                   |       | 29,016                                                  |       | 88,666 |   | 86,353 |   |
| Selling, general and administrative                                                                                                                                                                                                                                                                                                         |       | 28,321                                                   |       | 26,928                                                  |       | 85,157 |   | 84,188 |   |
| Amortization of program rights                                                                                                                                                                                                                                                                                                              |       | 5,856                                                    |       | 6,382                                                   |       | 17,620 |   | 18,523 |   |
| Corporate                                                                                                                                                                                                                                                                                                                                   |       | 3,683                                                    |       | 5,844                                                   |       | 14,922 |   | 16,374 |   |
| Depreciation                                                                                                                                                                                                                                                                                                                                |       | 7,308                                                    |       | 6,876                                                   |       | 22,125 |   | 23,088 |   |
| Amortization of intangible assets                                                                                                                                                                                                                                                                                                           |       | 44                                                       |       | 523                                                     |       | 228 |   | 1,669 |   |
| Impairment of goodwill and broadcast licenses                                                                                                                                                                                                                                                                                               |       | —                                                   |       | —                                                  |       | 296,972 |   | — |   |
| Restructuring benefit                                                                                                                                                                                                                                                                                                                       |       | —                                                   |       | (165                                                    | )          | — |   | (74 | ) |
| Loss (gain) from asset dispositions                                                                                                                                                                                                                                                                                                         |       | 74                                                       |       | 679                                                     |       | (296 | ) | 1,382 |   |
| Operating income (loss)                                                                                                                                                                                                                                                                                                                     |       | 24,541                                                   |       | 17,657                                                  |       | (229,823 | ) | 55,794 |   |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                     |       |                                                    |       |   |   |   |   |
| Other expense (income):                                                                                                                                                                                                                                                                                                                     |       |                                                     |       |                                                    |       |   |   |   |   |
| Interest expense, net                                                                                                                                                                                                                                                                                                                       |       | 13,241                                                   |       | 15,567                                                  |       | 41,554 |   | 49,213 |   |
| Share of expense (income) in equity investments                                                                                                                                                                                                                                                                                             |       | (662                                                     | )          | (420                                                    | )          | (861 | ) | (1,172 | ) |
| Gain on derivative instruments                                                                                                                                                                                                                                                                                                              |       | —                                                   |       | (1,384                                                  | )          | (375 | ) | (918 | ) |
| Loss on extinguishment of debt                                                                                                                                                                                                                                                                                                              |       | 491                                                      |       | —                                                  |       | 4,195 |   | 551 |   |
| Other, net                                                                                                                                                                                                                                                                                                                                  |       | 1,036                                                    |       | 159                                                     |       | 997 |   | (104 | ) |
| Total other expense, net                                                                                                                                                                                                                                                                                                                    |       | 14,106                                                   |       | 13,922                                                  |       | 45,510 |   | 47,570 |   |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                     |       |                                                    |       |   |   |   |   |
| Income (loss) from continuing operations before provision for (benefit  from) income taxes                                                                                                                                                                                                                                                  |       | 10,435                                                   |       | 3,735                                                   |       | (275,333 | ) | 8,224 |   |
| Provision for (benefit from) income taxes                                                                                                                                                                                                                                                                                                   |       | 218                                                      |       | 1,177                                                   |       | (70,666 | ) | 3,155 |   |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                     |       |                                                    |       |   |   |   |   |
| Income (loss) from continuing operations                                                                                                                                                                                                                                                                                                    |       | 10,217                                                   |       | 2,558                                                   |       | (204,667 | ) | 5,069 |   |
| Discontinued operations:                                                                                                                                                                                                                                                                                                                    |       |                                                     |       |                                                    |       |   |   |   |   |
| (Loss) income from discontinued operations, net of (benefit from)  provision for income taxes of $74 and $93 for the three months ended September 30,  2008 and 2007, respectively, and net of (benefit from) provision for income  taxes of $215 and $(338) for the nine months ended September 30, 2008  and 2007, respectively |       | (196                                                     | )          | (324                                                    | )          | 184 |   | (1,256 | ) |
|                                                                                                                                                                                                                                                                                                                                        |       |                                                     |       |                                                    |       |   |   |   |   |
| (Loss) gain from the sale of discontinued operations, net of benefit  from income taxes of $355 and $2,620 for the three and nine months ended  September 30, 2007                                                                                                                                                                     |       | —                                                   |       | (501                                                    | )          | — |   | 22,166 |   |
| Net income (loss)                                                                                                                                                                                                                                                                                                                           |       | $                                                        | 10,021     |                                                    | $          | 1,733 |   | $ | (204,483 | ) | $ | 25,979 |   |

 

The accompanying notes are an integral part of the unaudited condensedconsolidated financial statements.

 

44

----

Table ofContents

 

**LIN Television Corporation**

**CondensedConsolidated Statements of Cash Flows**

**(unaudited)**

 
| ** **                                                                               | ** ** | **Nine months ended September 30,** | ** ** |
|------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                               | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| ** **                                                                               | ** ** | **(in thousands)**                                 | ** ** |
| **OPERATING ACTIVITIES:**                                                                |       |                                                    |       |   |   |
| Net (loss) income                                                                        |       | $                                                       | (204,483   | ) | $ | 25,979 |   |
| (Income) loss from discontinued operations                                               |       | (184                                                    | )          | 1,256 |   |
| Gain from sale of discontinued operations                                                |       | —                                                  |       | (22,166 | ) |
| Adjustment to reconcile net (loss) income to net cash provided by  operating activities: |       |                                                    |       |   |   |
| Depreciation                                                                             |       | 22,125                                                  |       | 23,088 |   |
| Amortization of intangible assets                                                        |       | 228                                                     |       | 1,669 |   |
| Impairment of goodwill and intangible assets                                             |       | 296,972                                                 |       | — |   |
| Amortization of financing costs and note discounts                                       |       | 4,782                                                   |       | 6,468 |   |
| Amortization of program rights                                                           |       | 17,620                                                  |       | 18,523 |   |
| Program payments                                                                         |       | (19,909                                                 | )          | (20,745 | ) |
| Loss on extinguishment of debt                                                           |       | 4,195                                                   |       | 551 |   |
| Gain on derivative instruments                                                           |       | (375                                                    | )          | (918 | ) |
| Share of income in equity investments                                                    |       | (861                                                    | )          | (1,172 | ) |
| Deferred income taxes, net                                                               |       | (71,082                                                 | )          | 11,215 |   |
| Stock-based compensation                                                                 |       | 3,583                                                   |       | 4,452 |   |
| (Gain) loss from asset dispositions                                                      |       | (296                                                    | )          | 1,382 |   |
| Other, net                                                                               |       | 400                                                     |       | (1,290 | ) |
| Changes in operating assets and liabilities, net of acquisitions and  disposals:         |       |                                                    |       |   |   |
| Accounts receivable                                                                      |       | 11,602                                                  |       | 2,575 |   |
| Other assets                                                                             |       | 2,104                                                   |       | 271 |   |
| Accounts payable                                                                         |       | (6,822                                                  | )          | (2,547 | ) |
| Accrued interest expense                                                                 |       | 8,889                                                   |       | 10,031 |   |
| Other accrued expenses                                                                   |       | (2,076                                                  | )          | (14,710 | ) |
| **Net cash provided by operating activities,  continuing operations**                    |       | 66,412                                                  |       | 43,912 |   |
| **Net cash used in operating activities,  discontinued operations**                      |       | (1,142                                                  | )          | (16,966 | ) |
| **Net cash provided by operating activities**                                            |       | 65,270                                                  |       | 26,946 |   |
|                                                                                     |       |                                                    |       |   |   |
| **INVESTING ACTIVITIES:**                                                                |       |                                                    |       |   |   |
| Capital expenditures                                                                     |       | (16,314                                                 | )          | (9,074 | ) |
| Distributions from equity investments                                                    |       | 2,649                                                   |       | 2,806 |   |
| Payments for business combinations                                                       |       | —                                                  |       | (52,250 | ) |
| Other investments, net                                                                   |       | 401                                                     |       | (620 | ) |
| **Net cash used in investing activities,  continuing operations**                        |       | (13,264                                                 | )          | (59,138 | ) |
| **Net cash (used in) provided by investing  activities, discontinued operations**        |       | (693                                                    | )          | 135,791 |   |
| **Net cash (used in) provided by investing  activities**                                 |       | (13,957                                                 | )          | 76,653 |   |
|                                                                                     |       |                                                    |       |   |   |
| **FINANCING ACTIVITIES:**                                                                |       |                                                    |       |   |   |
| Net proceeds on exercises of employee stock options and phantom stock  units and         |       |                                                    |       |   |   |
| employee stock purchase plan issuances                                                   |       | 1,183                                                   |       | 1,749 |   |
| Proceeds from borrowings on long-term debt                                               |       | 115,000                                                 |       | 60,000 |   |
| Principal payments on long-term debt                                                     |       | (190,025                                                | )          | (145,000 | ) |
| Payment of long-term debt financing costs                                                |       | (1,232                                                  | )          | — |   |
| **Net cash used in financing activities,  continuing operations**                        |       | (75,074                                                 | )          | (83,251 | ) |
| **Net cash used in financing activities**                                                |       | (75,074                                                 | )          | (83,251 | ) |
|                                                                                     |       |                                                    |       |   |   |
| Net (decrease) increase in cash and cash equivalents                                     |       | (23,761                                                 | )          | 20,348 |   |
| Cash and cash equivalents at the beginning of the period                                 |       | 40,031                                                  |       | 12,329 |   |
| Cash and cash equivalents at the end of the period                                       |       | $                                                       | 16,270     |   | $ | 32,677 |   |

 

The accompanying notes are an integral part of the unaudited condensedconsolidated financial statements

 

45

----

Table ofContents

 

**LIN Television Corporation**

**Notes to Unaudited CondensedConsolidated Financial Statements**

 

**Note 1 —Summary of Significant Accounting Policies**

* *

*Descriptionof Business*

 

LIN TelevisionCorporation (“LIN Television”), together with its subsidiaries, is a televisionstation group operator in the United States. LIN Television and itssubsidiaries are affiliates of HM Capital Partners LLC (“HMC”). In these notes,the terms “Company,” “LIN Television,” “we,” “us” or “our” mean LIN TelevisionCorporation and all subsidiaries included in our condensed consolidatedfinancial statements.  LIN Television isa wholly-owned subsidiary of LIN TV Corp. (“LIN TV”).

 

LIN TV fully andunconditionally guarantees all of our debt. All of the consolidatedwholly-owned subsidiaries of LIN Television fully and unconditionally guaranteeall of our debt on a joint-and-several basis.

 

*Changesin Classifications*

 

Certain changes inclassifications have been made to the prior period financial statements toconform to the current financial statement presentation. Our condensedconsolidated financial statements reflect the operations, assets andliabilities of our Puerto Rico operations and of Banks Broadcasting, Inc.(“Banks Broadcasting”) as discontinued under the provisions of Statement ofFinancial Accounting Standards (“SFAS”) 144 “Accounting for the Impairment orDisposal of Long-Lived Assets,” (“SFAS 144”) for all periods presented (seeNote 3 — “Discontinued Operations” for further discussion of our discontinuedoperations).

 

*Basisof Presentation*

 

Our condensedconsolidated financial statements have been prepared without audit, pursuant tothe rules and regulations of the Securities and Exchange Commission (“SEC”).Certain information and footnote disclosures normally included in financialstatements prepared in accordance with generally accepted accounting principlesin the United States (“GAAP”) have been condensed or omitted pursuant to such rules andregulations, including the year-end condensed balance sheet data, which wasderived from audited financial statements, but does not include all disclosuresrequired by GAAP. We included audited consolidated financial statements for theyear ended December 31, 2007 in our Annual Report on Form 10-K, whichwas filed with the SEC on March 14, 2008.

 

In the opinion ofmanagement, the accompanying unaudited interim financial statements contain alladjustments necessary to state fairly our financial position, results ofoperations and cash flows for the periods presented. The interim results ofoperations are not necessarily indicative of the results to be expected for thefull year.

 

We consolidate BanksBroadcasting in accordance with Financial Accounting Standards Board (“FASB”)Interpretation 46 “Consolidation of Variable Interest Entities — anInterpretation of ARB No. 51 Revised,” (“FIN 46R”). The creditors of BanksBroadcasting have no recourse to us except for our interest in the preferredstock of Banks Broadcasting.

 

46

----

Tableof Contents

 

**LIN Television Corporation**

**Notes to Unaudited Condensed ConsolidatedFinancial Statements – (Continued)**

 

*Use of Estimates*

 

Thepreparation of financial statements in conformity with GAAP requires ourmanagement to make estimates and assumptions that affect the amounts reportedin the unaudited condensed consolidated financial statements and the notes tothe unaudited condensed consolidated financial statements. Our actual resultscould differ from these estimates. Estimates are used for the allowance fordoubtful accounts related to accounts receivables, fair value of goodwill,intangible assets and equity investments, amortization of program rights andintangible assets, stock-based compensation, pension costs, bartertransactions, income taxes, employee medical insurance claims, useful lives ofproperty, equipment and definite-lived intangible assets, contingencies,litigation and net assets of businesses acquired.

 

*Comprehensive Income (Loss)*

 

Ourtotal comprehensive income includes net income (loss) and other comprehensiveincome (loss) items listed in the table below (in thousands):

 
| ** **                                                                                                                                                                                                                                        | ** ** | **Three months ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                        | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                                                                                                                                                                                              |       |                                                     |       |                                                    |       |   |   |   |   |
| Net income (loss)                                                                                                                                                                                                                                 |       | $                                                        | 10,021     |                                                    | $          | 1,733 |   | $ | (204,483 | ) | $ | 25,979 |   |
| Other comprehensive income (loss), net of  tax:                                                                                                                                                                                                   |       |                                                     |       |                                                    |       |   |   |   |   |
| Amortization of prior period costs, net of  tax of $12 and $8 for the three months ended September 30, 2008 and  2007, respectively, and net of tax of $36 and $28 for the nine months ended  September 30, 2008 and 2007               |       | 18                                                       |       | 17                                                      |       | 54 |   | 47 |   |
| Amortization of net actuarial losses, net  of tax of $19 and $98 for the three months ended September 30, 2008 and  2007, respectively, and net of tax of $57 and $346 for the nine months ended  September 30, 2008 and 2007           |       | 29                                                       |       | 190                                                     |       | 87 |   | 583 |   |
| Change in fair value of cash flow hedges,  net of tax of $22 and ($709) for the three months ended September 30,  2008 and 2007, respectively, and net of tax of $123 and ($304) for the nine  months ended September 30, 2008 and 2007 |       | 32                                                       |       | (1,068                                                  | )          | 184 |   | (447 | ) |
| Recognition of accumulative benefit  obligation, discontinued operations                                                                                                                                                                          |       | —                                                   |       | —                                                  |       | — |   | 419 |   |
|                                                                                                                                                                                                                                              |       |                                                     |       |                                                    |       |   |   |   |   |
| Total comprehensive income (loss)                                                                                                                                                                                                                 |       | $                                                        | 10,100     |                                                    | $          | 872 |   | $ | (204,158 | ) | $ | 26,581 |   |
|                                                                                                                                                                                                                                                   |            |                                                          |            |                                                         |            |  |  |  |  |  |  |  |  |  |  |  |

 

*Effective Tax Rate*

 

Weestimated an annual effective tax rate of 25.7% and 44.4% as of September 30,2008 and 2007, respectively.The change was primarily due to the impairment of our broadcast licensesand goodwill, and our estimated annual loss from continuing operations beforebenefit from income taxes.

 

47

----

Tableof Contents

 

**LIN Television Corporation**

**Notes to Unaudited Condensed ConsolidatedFinancial Statements – (Continued)**

 

*Recently Issued Accounting Pronouncements*

 

In September 2008, the FASB issued FASB StaffPosition (“FSP”) FSP SFAS 133-1 and FIN 45-4 “Disclosures about CreditDerivatives and Certain Guarantees: An Amendment of SFAS 133 and FIN 45; andClarification of the Effective Date of SFAS 161” (“FSP SFAS 133-1 and FIN 45-4”),which is effective for reporting periods, both annual and interim, ending afterNovember 15, 2008.  FSP SFAS 133-1 andFIN 45-4 applies to credit derivatives within the scope of SFAS 133"Accounting for Derivative Instruments and Hedging Activities" (“SFAS133”), hybrid instruments that have embedded credit derivatives, and guaranteeswithin the scope of FIN 45, "Guarantor's Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness ofOthers—an interpretation of FASB Statements No. 5, 57, and 107 and rescissionof FASB Interpretation No. 34". This FSP requires additional financialstatement disclosures relative to the current status of the payment/performancerisk of the credit derivative or guarantee to enable users of financialstatements to assess their potential effect on the financial position,financial performance and cash flows.  FSPSFAS 133-1 and FIN 45-4 impacts only our disclosure requirements and thereforewill not have a material impact on our financial position, financialperformance or cash flows.  We plan toadopt FSP SFAS 133-1 and FIN 45-4 and include the additional disclosures withour Annual Report on Form 10-K for year ending December 31, 2008.

 

In June 2008, the FASB issued FSP FAS 142-3“Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”),which is effective for financial statements issued for fiscal years beginningafter December 31, 2008, and interim periods within those fiscal years. Earlyadoption is prohibited. FSP FAS 142-3 provides guidance for determining theuseful life of a recognized intangible asset and will be applied prospectivelyto intangible assets acquired after the effective date. We plan to adopt FSPFAS 142-3 effective January 1, 2009, and its effects on future periods willdepend on the nature and significance of any acquisitions subject to SFAS 141R“Business Combinations” (“SFAS 141R”).

 

In March 2008, the FASB issued SFAS 161“Disclosures about Derivative Instruments and Hedging Activities, an amendmentof FASB Statement No. 133” (“SFAS 161”), which is effective for fiscal yearsand interim periods beginning after November 15, 2008, with earlier adoptionencouraged. This statement is intended to improve transparency in financialreporting by requiring enhanced disclosures of an entity’s derivativeinstruments and hedging activities and their effects on the entity’s financialposition, financial performance, and cash flows. SFAS 161 applies to allderivative instruments within the scope of SFAS 133, as well as related hedgeditems, bifurcated derivatives, and nonderivative instruments that aredesignated and qualify as hedging instruments. SFAS 161 impacts only ourdisclosure requirements and therefore will not have a material impact on ourfinancial position, financial performance or cash flows.  We plan to adopt SFAS 161 effective January1, 2009.

 

In December 2007, the FASB issued SFAS 141R,which is effective prospectively for all business combinations with acquisitiondates on or after the beginning of the first fiscal year beginning afterDecember 15, 2008, with the exception of the accounting for valuationallowances on deferred taxes and acquired tax contingencies. SFAS 141R replacesSFAS 141 “Business Combinations” (“SFAS 141”), but it retains the underlyingconcepts of SFAS 141 in that all business combinations are required to be 

 

48

----

Tableof Contents

 

**LIN Television Corporation**

**Notes to Unaudited Condensed Consolidated Financial Statements –(Continued)**

 

accounted for at fair value under theacquisition method of accounting. However, SFAS 141R changed the method ofapplying the acquisition method in a number of significant ways. Acquisitioncosts will generally be expensed as incurred; non-controlling interests will bevalued at fair value at the acquisition date; in-process research anddevelopment will be recorded at fair value at the acquisition date as anindefinite-lived intangible asset; restructuring costs associated with abusiness combination will generally be expensed subsequent to the acquisitiondate; and changes in deferred tax asset valuation allowances and income taxuncertainties after the acquisition date generally will affect income taxexpense. We plan to adopt SFAS 141R effective January 1, 2009, and its effectson future periods will depend on the nature and significance of anyacquisitions subject to SFAS 141R.

 

In December 2007, the FASB issued SFAS 160“Non-controlling Interests in Consolidated Financial Statements” (“SFAS 160”),which amends Accounting Research Bulletin (“ARB”) 51, “Consolidated FinancialStatements” (“ARB 51”). SFAS 160 is effective for quarterly and annualreporting periods that begin after December 15, 2008. SFAS 160 establishesaccounting and reporting standards with respect to non-controlling interests(also called minority interests) in an effort to improve the relevance,comparability and transparency of financial information that a company provideswith respect to its non-controlling interests. The significant requirementsunder SFAS 160 are the reporting of the non-controlling interests separately inthe equity section of the balance sheet and the reporting of the net income orloss of the controlling and non-controlling interests separately on the face ofthe statement of operations. We plan to adopt SFAS 160 effective January 1,2009, and we do not expect it to have a material impact on our consolidatedfinancial statements.

 

InSeptember 2006, the FASB issued SFAS 157, “Fair Value Measurements” (“SFAS157”). SFAS 157 defines fair value, establishes a framework for measuring fairvalue in accordance with GAAP, and expands disclosures about fair valuemeasurements. For all of our financial assets and liabilities that arerecognized and disclosed at fair value on a recurring basis, we adopted theprovisions of SFAS 157 effective January 1, 2008.  The adoption of SFAS 157, relating to financialassets and liabilities that are recognized and disclosed at fair value on arecurring basis, did not have a material impact on our consolidated financialstatements. For all assets and liabilities that are non-financial that arerecognized or disclosed at fair value in the financial statements on anon-recurring basis, we plan to adopt the provisions of SFAS 157 effective January1, 2009. This partial deferral was a result of FSP SFAS 157-2 “Effective Dateof FASB Statement No. 157” (“FSP SFAS 157-2”) issued on February 12, 2008,which delayed the adoption of SFAS 157 for non-financial assets and liabilitiesthat are recognized or disclosed at fair value on a non-recurring basis. We arecurrently evaluating the impact of SFAS 157 on our financial statementsrelative to non-financial assets and liabilities. In October 2008, the FASB issued FSP SFAS157-3 “Determining the Fair Value of a Financial Asset When the Market for ThatAsset is Not Active” (“FSP SFAS 157-3”), which is effective upon issuance forall financial statements that have not been issued.  FSP SFAS 157-3 clarifies the application ofSFAS 157, in a market that is not active. We have adopted FSP SFAS 157-3 effective with this filing.  FSP SFAS 157-3 does not have a materialimpact on our financial position, financial performance or cash flows.

 

49

----

Tableof Contents

 

**LIN Television Corporation****Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

**Note 2 – Acquisitions**

 

*Acquisition Reserves*

 

Inconnection with the acquisitions of television stations, we recorded certainliabilities relating to employee severance costs, buy-outs of operatingagreements and other transaction costs. The following summarizes the activityrelated to our acquisition reserves (in thousands):

 
| ** **                              | ** ** | ** **                | ** ** | **Balance as of  December 31,** | ** ** | ** **   | ** ** | ** **      | ** ** | **Balance as of  September 30,** | ** ** |
|-----------------------------------------|------------|---------------------------|------------|------------------------------------------------|------------|--------------|------------|-----------------|------------|-------------------------------------------------|------------|
| ** **                              | ** ** | **Acquisition Date** | ** ** | **2007**                                       | ** ** | **Payments** | ** ** | **Adjustments** | ** ** | **2008**                                        | ** ** |
|                                    |       |                      |       |                                           |       |         |       |            |       |                                            |       |
| Acquisition of Sunrise Television Corp. |       | May 2, 2002          |       | $                                              | 40         |         | $          | 17              |       | $                                               | —     |   | $ | 23 |   |
| Stations acquired from Viacom           |       | March 31, 2005       |       | 86                                             |       | 86           |       | —          |       | —                                          |       |
| Stations acquired from Emmis            |       | November 30, 2005    |       | 4,644                                          |       | 785          |       | —          |       | 3,859                                           |       |
| Station acquired from Raycom            |       | February 22, 2007    |       | 446                                            |       | 357          |       | (89             | )(1)       | —                                          |       |
|                                    |       |                      |       | $                                              | 5,216      |         | $          | 1,245           |       | $                                               | (89        | ) | $ | 3,882 |   |

 

----

(1)     Represents an adjustment to an operatingagreement contract for a discontinued computer system.

 

**Note 3 – Discontinued Operations**

 

Ourcondensed consolidated financial statements reflect the operations, assets andliabilities of our Puerto Rico operations and of Banks Broadcasting asdiscontinued for all periods presented.

 

*Puerto Rico Operations (WAPA-TV, WJPX-TV and WAPA America)*

 

OnMarch 30, 2007, we sold our Puerto Rico operations to InterMedia PartnersVII, L.P. for $131.9 million in cash and, as a result, we recorded a gain onthe sale of $22.7 million, net of income tax benefit.

 

*Banks Broadcasting*

 

Weown preferred stock that represents a 50% non-voting interest in BanksBroadcasting, which owns KNIN-TV, a CW affiliate in Boise. We consolidate BanksBroadcasting under FIN 46R.

 

InJuly 2007, Banks Broadcasting sold the operating assets, including thebroadcast licenses, of KSCW-TV, a CW affiliate in Wichita, to SunflowerBroadcasting, Inc. for $6.8 million, of which $5.4 million was paid incash at the closing and the remaining $1.4 million was held in escrow andreleased in July 2008.  Ouroperating results for the third quarter of 2007 included a $0.5 million lossfrom the sale of KSCW-TV, net of an income tax benefit of $0.4 million.

 

InMarch 2008, Banks Broadcasting sold certain of its 700 MHz spectrumlicenses for $2.0 million in cash with a related gain of $1.4 million. In June 2008,Banks Broadcasting signed a purchase agreement to sell KNIN-TV, a CW affiliatein Boise, for $8.0 million to Journal Broadcasting Corporation, subject to FCCapproval. The sale of KNIN-TV is expected to close in 2008 and we expect torecord a gain of approximately $0.1 million. Following the completion of thissale, we expect that Banks Broadcasting will be liquidated.

 

50

----

Tableof Contents

 

**LIN Television Corporation****Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

BanksBroadcasting distributed $2.5 million to us for the nine months ended September 30,2008, and distributed no cash to us for nine months ended September 30,2007. We provided no capital contributions to Banks Broadcasting for the ninemonths ended September 30, 2008 or 2007.

 

Thecarrying amounts of the assets and liabilities of Banks Broadcasting segregatedon our balance sheet as held for sale are as follows (in thousands):

 
| ** **                  | ** **   | **September 30, 2008** | ** **   | **December 31, 2007** | ** **   |
|-----------------------------|--------------|----------------------------------|--------------|---------------------------------|--------------|
| *** ***                | *** *** | *** ***                     | *** *** | *** ***                    | *** *** |
| Program rights              |         | $                                | 263          |                            | $            | 271 |   |
| Other current assets        |         | 238                              |         | 18                              |         |
| Total current assets        |         | 501                              |         | 289                             |         |
| Property and equipment, net |         | 789                              |         | 748                             |         |
| Program rights              |         | 34                               |         | 189                             |         |
| Intangible assets, net      |         | 7,744                            |         | 8,243                           |         |
| Total assets                |         | $                                | 9,068        |                            | $            | 9,469 |   |
|                        |         |                             |         |                            |         |
| Accounts payable            |         | $                                | 28           |                            | $            | 6 |   |
| Other accrued expenses      |         | 290                              |         | 308                             |         |
| Program obligations         |         | 245                              |         | 235                             |         |
| Total current liabilities   |         | 563                              |         | 549                             |         |
| Program obligations         |         | 41                               |         | 198                             |         |
| Total liabilities           |         | $                                | 604          |                            | $            | 747 |   |

 

Thefollowing presents summarized information for the discontinued operations (inthousands):

 
| ** **              | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|-------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **              | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **              | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Puerto Rico:            |       |                             |       |                            |       |   |   |   |   |
| Net revenues            |       | $                                | —     |                            | $          | — |   | $ | — |   | $ | 9,868 |   |
| Operating loss          |       | —                           |       | —                          |       | — |   | (1,094 | ) |
| Net loss                |       | —                           |       | —                          |       | — |   | (368 | ) |
|                    |       |                             |       |                            |       |   |   |   |   |
| Banks Broadcasting:     |       |                             |       |                            |       |   |   |   |   |
| Net revenues            |       | $                                | 680        |                            | $          | 841 |   | $ | 2,247 |   | $ | 3,671 |   |
| Operating (loss) income |       | (190                             | )          | (408                            | )          | 919 |   | (834 | ) |
| Net (loss) income       |       | (196                             | )          | (324                            | )          | 184 |   | (888 | ) |
|                    |       |                             |       |                            |       |   |   |   |   |
| Total:                  |       |                             |       |                            |       |   |   |   |   |
| Net revenues            |       | $                                | 680        |                            | $          | 841 |   | $ | 2,247 |   | $ | 13,539 |   |
| Operating (loss) income |       | (190                             | )          | (408                            | )          | 919 |   | (1,928 | ) |
| Net (loss) income       |       | (196                             | )          | (324                            | )          | 184 |   | (1,256 | ) |

 

51

----

Tableof Contents

 

**LIN Television Corporation****Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)**

 

**Note 4 – Equity Investments**

 

*Joint Venture with NBC Universal*

 

We own a 20.38% interest in Station Venture Holdings, LLC, a jointventure with NBC Universal, and account for our interest using the equitymethod as we do not have a controlling interest. The following presents thesummarized financial information of the NBC Universal joint venture (inthousands):

 
| ** **                                                    | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                    | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                    | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                          |       |                             |       |                            |       |   |   |   |   |
| Cash distributions from equity investment (1)                 |       | $                                | 23,940     |                            | $          | 20,948 |   | $ | 62,888 |   | $ | 64,838 |   |
| Income from equity investment                                 |       | 19,922                           |       | 18,738                          |       | 53,879 |   | 55,984 |   |
| Other expense, net (primarily interest on  the GECC Note) (2) |       | (16,672                          | )          | (16,310                         | )          | (49,655 | ) | (49,292 | ) |
| Net income                                                    |       | 3,250                            |       | 2,428                           |       | 4,224 |   | 6,692 |   |
| Cash distributed to LIN Television                            |       | 1,630                            |       | 611                             |       | 2,649 |   | 2,038 |   |
|                                                               |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |

 

----

| (1) |   | Cash  distributions from equity investments include proceeds of $12.6 million from  the sale of broadcast towers for the nine months ended September 30,  2008.                                     |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | See  Note 9 – “Commitments and Contingencies” for further description of the  General Electric Capital Corporation (“GECC”) Note and LIN TV’s guarantee of  the GECC Note. |

 

**Note 5 – Intangible Assets**

Thefollowing table summarizes the carrying amount of intangible assets (inthousands):

 
| ** **                                     | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                     | ** ** | **Gross carrying  amount**  | ** ** | **Accumulated  Amortization**   | ** ** | **Gross carrying  amount** | ** ** | **Accumulated  Amortization** | ** ** |
| Goodwill                                       |       | $                                | 424,122    |                            | $          | — |   | $ | 535,418 |   | $ | — |   |
| Broadcast licenses                             |       | 834,231                          |       | —                          |       | 1,019,908 |   | — |   |
| Intangible  assets subject to amortization (1) |       | 7,796                            |       | (6,642                          | )          | 7,796 |   | (6,414 | ) |
| Total intangible assets                        |       | $                                | 1,266,149  |                            | $          | (6,642 | ) | $ | 1,563,122 |   | $ | (6,414 | ) |

 

----

(1)                                  Intangibles subject to amortization areamortized on a straight-line basis and include the following categories ofintangible assets: acquired advertising contracts, advertiser lists, advertiserrelationships, favorable operating leases, tower rental income leases, localmarketing agreements, purchase options and network affiliation contracts andrelationships.

 

Werecorded an impairment charge of $297.0 million during the second quarter of2008 that included an impairment to the carrying values of our broadcastlicenses of $185.7 million, related to 19 of our television stations; and animpairment to the carrying values of our goodwill of $111.3 million, related to8 of our television stations. As required by SFAS 142, “Goodwill and OtherIntangible Assets” (“SFAS 142”), we tested our unamortized intangible assetsfor impairment at June 30, 2008, between the required annual tests,because we believed events had occurred and circumstances changed that wouldmore likely than not reduce the fair value of our broadcast licenses andgoodwill below their carrying amounts. These events included: (a) thecontinued decline of the price of our Class A common stock; (b) thedecline in the current selling prices of television stations; (c) thelower growth in advertising revenues; and (d) the decline in the operatingprofit margins of some of our stations.

 

52

----

Table ofContents

 

**LINTelevision Corporation**

**Notes to Unaudited Condensed Consolidated Financial Statements –(Continued)**

 

We used the incomeapproach to test our broadcast licenses for impairments as of June 30,2008 and we used the same assumptions as disclosed in our Annual Report on Form 10-Kfor the year ended December 31, 2007, except for the followingadjustments: (a) the discount rate was adjusted from 8% to 9%; (b) marketgrowth rates were adjusted from a range of 1.0% - 2.7% to a range of 0.1% to2.1%; and (c) operating profit margins were adjusted from a range of 8.5%to 40.9% to a range of 8.5% to 39.8%. The increase in the discount rate reflected the volatility of stockprices of public companies within the media sector. The changes in the marketgrowth rates and operating profit margins reflected the current generaleconomic pressures impacting both the national and a number of local economies,and specifically, national and local advertising revenues in the markets whereour stations operate.

 

We used the incomeapproach to test goodwill for impairments as of June 30, 2008 and we usedthe same assumptions as disclosed in our Annual Report on Form 10-K forthe year ended December 31, 2007, except for the following adjustments: (a) thediscount rate was adjusted from 10% to 11.5%; (b) market growth rates wereadjusted from a range of 1.0% to 2.7% to a range of 0.1% to 2.1%; and (c) operatingprofit margins were adjusted from a range of 29.2% to 57.6% to a range of 22.4%to 62.1%. These assumptions are based on: (a) the actual historicalperformance of our stations; (b) management’s estimates of futureperformance of our stations; and (c) the same market growth assumptions usedin the calculation of the fair value of our broadcast licenses.  The increase in the discount rate reflectedthe volatility of our Class A common stock. The changes in the marketgrowth rates and operating profit margins reflected the current general economicpressures impacting both the national and a number of local economies, andspecifically, national and local advertising revenues in the markets where ourstations operate.

 

Determining the fairvalue of our television stations requires our management to make a number ofjudgments about assumptions and estimates that are highly subjective and thatare based on unobservable inputs. The actual results may differ from theseassumptions and estimates; and it is possible that such differences could havea material impact on our financial statements. In addition to the variousinputs (i.e. market growth, operating profit margins, discount rates) that weuse to calculate the fair value of our broadcast licenses and reporting units,we evaluate the reasonableness of our assumptions by comparing the total fairvalue of all our reporting units to our total market capitalization; and bycomparing the fair value of our reporting units or television stations, andbroadcast licenses to recent television station sale transactions.

 

At September 30,2008, our total market capitalization was $191.8 million less than our equitybook value.  We believe that thisdifference can be attributed to the recent volatility of our stock price in thecurrent economic environment and to the control premium that a marketparticipant may pay to acquire us.  Wedetermined that there were no triggering events in the third quarter of 2008that required us to test our broadcast licenses and goodwill for impairment.

 

As noted above, we are requiredunder SFAS 142 to test our indefinite-lived intangible assets on an annualbasis or whenever events or changes in circumstances indicate that these assetsmight be impaired.  As a result, if thecurrent economic trends continue and the credit and capital markets continue tobe disrupted, it is possible that we may record further impairments in thefourth quarter of 2008.

 

53

----

Table ofContents

 

**LINTelevision Corporation**

**Notes to Unaudited Condensed Consolidated Financial Statements –(Continued)**

 

The following tablesummarizes the estimated amortization expense for our intangible assets subjectto amortization for the remainder of 2008 and for the next five years andthereafter (in thousands):

 
| ** **                     | ** ** | **October 1, to  December 31,** | ** ** | **Year ending December 31,** | ** ** | **There-** | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------------------------------------------|------------|---------------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2008**                                       | ** ** | **2009**                                    | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012** | ** ** | **2013** | ** ** | **after** | ** ** | **Total** | ** ** |
| Estimated amortization expense |       | $                                              | 35         |                                        | $          | 80         |       | $          | 74         |   | $ | 68 |   | $ | 61 |   | $ | 59 |   | $ | 777 |   | $ | 1,154 |   |
|                                |            |                                                |            |                                             |            |            |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

54

----

Table ofContents

 

**LINTelevision Corporation**

**Notes to Unaudited Condensed Consolidated Financial Statements –(Continued)**

 

**Note 6 –Debt**

 

Debt consisted of thefollowing (in thousands):

 
| ** **                                                                                                                                                                       | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                       | ** ** | **2008**               | ** ** | **2007**              | ** ** |
| Credit facility                                                                                                                                                                  |       | $                      | 204,850    |                  | $          | 154,875 |   |
| 6 1/2% Senior Subordinated Notes due 2013                                                                                                                                        |       | 375,000                |       | 375,000               |       |
| $190,000, 6 1/2% Senior  Subordinated Notes due 2013 - Class B (net of discount of $9,087 and  $10,519 at September 30, 2008 and December 31, 2007, respectively) |       | 180,913                |       | 179,481               |       |
| $125,000, 2.50% Exchangeable Senior Subordinated Debentures due 2033  (net of discount of $1,580 at December 31, 2007)                                                      |       | —                 |       | 123,420               |       |
|                                                                                                                                                                             |       |                   |       |                  |       |
| Total debt                                                                                                                                                                       |       | 760,763                |       | 832,776               |       |
| Less current portion                                                                                                                                                             |       | 21,600                 |       | 24,300                |       |
| Total long-term debt                                                                                                                                                             |       | $                      | 739,163    |                  | $          | 808,476 |   |

 

During the nine monthsended September 30, 2008, we repaid $35.0 million of the term loans underour credit facility using available cash balances, including $17.0 millionrelated to mandatory quarterly payments and $18.0 million related to additionalpayments required because we did not reinvest the remaining proceeds from certainof the 2007 asset sales.

 

On May 16, 2008, wepurchased $125.0 million of our 2.50% Exchangeable Senior SubordinatedDebentures, all of which were tendered to us, using $115.0 million availableunder our revolving credit facility and $10.0 million of our available cashbalances. We subsequently repaid $30.0 million of our outstanding revolvingcredit loans through September 30, 2008.

 

At September 30,2008, we were in compliance with all of the covenants under our credit facilityas amended. See Note 7 – “Long-term Debt” included in Item 15 of our AnnualReport on Form 10-K for the year ended December 31, 2007 for a fulldescription of our credit facility, subject to the terms of the Amendmentdescribed below.

 

55

----

Table ofContents

 

**LINTelevision Corporation**

**Notes to Unaudited Condensed Consolidated Financial Statements –(Continued)**

 

On August 25, 2008,we entered into a Third Amendment (the “Amendment”) to our creditfacility.  We incurred costs of $1.2million related to the Amendment which were recorded to deferred financing feeson our balance sheet and will be amortized over the remaining life of thecredit facility agreement.  We accountedfor the Amendment as a modification to the existing credit facility andrecorded a charge to earnings of $0.5 million related to the portion of therevolving credit facility commitment that was reduced with the Amendment. TheAmendment permanently reduces the aggregate revolving credit commitments from$275 million to $225 million and revises certain financial condition covenantsas follows:

 
| ** **                                      | ** ** | **Prior** | ** ** | **As Amended** |   |
|-------------------------------------------------|------------|-----------|------------|---------------------|--------|
| **Consolidated Leverage Ratio:**                |       |      |       |                |   |
| October 1, 2008 to December 31, 2009  |       | 6.00      | x          | 7.00                | x      |
| January 1, 2010 through June 30, 2010 |       | 6.00      | x          | 6.50                | x      |
| July 1, 2010 and thereafter                |       | 6.00      | x          | 6.00                | x      |
|                                            |       |      |       |                |   |
| **Consolidated Interest Coverage Ratio:**       |       |      |       |                |   |
| October 1, 2008 to December 31, 2009  |       | 2.25      | x          | 2.00                | x      |
| January 1, 2010 and thereafter             |       | 2.25      | x          | 2.25                | x      |
|                                            |       |      |       |                |   |
| **Consolidated Senior Leverage Ratio:**         |       |      |       |                |   |
| October 1, 2008 and thereafter             |       | 4.50      | x     | 3.50                | x      |

 

**Note 7 –Retirement Plans**

 

The following table showsthe components of the net periodic pension benefit cost and the contributionsto the 401(k) Plan and to the retirement plans (in thousands):

 
| ** **                               | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                               | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                               | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| ***Net periodic pension benefit cost:*** |       |                             |       |                            |       |   |   |   |   |
| Service cost                             |       | $                                | 538        |                            | $          | 575 |   | $ | 1,614 |   | $ | 1,675 |   |
| Interest cost                            |       | 1,592                            |       | 1,500                           |       | 4,776 |   | 4,500 |   |
| Expected return on plan assets           |       | (1,705                           | )          | (1,550                          | )          | (5,115 | ) | (4,650 | ) |
| Amortization of prior service cost       |       | 30                               |       | 25                              |       | 90 |   | 75 |   |
| Amortization of net loss                 |       | 48                               |       | 288                             |       | 144 |   | 929 |   |
| Net periodic benefit cost                |       | $                                | 503        |                            | $          | 838 |   | $ | 1,509 |   | $ | 2,529 |   |
|                                     |       |                             |       |                            |       |   |   |   |   |
| ***Contributions:***                     |       |                             |       |                            |       |   |   |   |   |
| 401(k) Plan                         |       | $                                | 532        |                            | $          | 684 |   | $ | 1,206 |   | $ | 2,209 |   |
| Pension plans                            |       | —                           |       | 1,500                           |       | 2,250 |   | 3,000 |   |
| Total contributions                      |       | $                                | 532        |                            | $          | 2,184 |   | $ | 3,456 |   | $ | 5,209 |   |

 

We expect to makecontributions of $0.8 million to our defined benefit retirement plans duringthe remainder of 2008.

 

56

----

Table ofContents

 

**LINTelevision Corporation**

**Notes to Unaudited Condensed Consolidated Financial Statements –(Continued)**

 

**Note 8 –Fair Value Measurement**

 

We record certainfinancial assets and liabilities at fair value on a recurring basis consistentwith SFAS 157. The following table summarizes the financial assets andliabilities measured at fair value in the accompanying condensed consolidatedbalance sheet, using the three-level fair value hierarchy established by SFAS157 (in thousands):

 
| ** **                                | ** ** | **September 30, 2008**                    | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                | ** ** | **Quoted prices in  active markets** | ** ** | **Significant  observable  inputs** | ** ** | **Signficant  unobservable  inputs** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **(Level 1)**                                  | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** | **Total** | ** ** |
|                                      |       |                                                |       |   |   |   |   |   |   |
| Assets:                                   |       |                                                |       |   |   |   |   |   |   |
| Deferred compensation related investments |       | $                                                   | 4,630      |   | $ | — |   | $ | — |   | $ | 4,630 |   |
|                                      |       |                                                |       |   |   |   |   |   |   |
| Liabilities:                              |       |                                                |       |   |   |   |   |   |   |
| Interest rate swaps                       |       | —                                              |       | 3,219 |   | — |   | 3,219 |   |
| Deferred compensation related liabilities |       | 4,630                                               |       | — |   | — |   | 4,630 |   |
|                                           |            |                                                     |            |  |  |  |  |  |  |  |  |  |  |

 

The fair value ofinterest rate swaps is determined based on the present value of future cashflows using observable inputs, including interest rates associated with asimilar financial instrument using a series of three-month LIBOR-based loansthrough November 4, 2011. With respect to the deferred compensation plan,the fair value of deferred compensation is determined based on the fair valueof the investments selected by employees.

 

57

----

Table ofContents

 

**LINTelevision Corporation**

**Notes to Unaudited Condensed Consolidated Financial Statements –(Continued)**

 

**Note 9 –Commitments and Contingencies**

 

In connection with theformation of the joint venture with NBC Universal, GECC provided an $815.5million, 25-year, non-amortizing senior secured note bearing an initialinterest rate of 8.0% per annum until March 2, 2013 and 9.0% per annumthereafter (“GECC Note”). The joint venture has historically produced cashflows to support the interest payments and to maintain minimum levels ofrequired cash balances of $15.0 million. In addition, the joint venture hasmade cash distributions to us and to NBC Universal from the excess cashgenerated by the joint venture of $22.0 million, $24.0 million and $11.5million for the years ended December 31, 2005, 2006 and 2007 and $13.0million for the nine months ended September 30, 2008. The cashdistributions for the nine months ended September 30, 2008 includenonrecurring cash proceeds of $12.6 million from the sale of broadcasttowers.  Based on these historical cashdistributions, we expect that the interest payments on the GECC Note will beserviced solely by the cash flow of the joint venture. The GECC Note is not anobligation of ours, but has recourse to the joint venture, our equity intereststherein and to LIN TV pursuant to a guarantee. If the joint venture were todefault on its obligations and became unable to pay principal or interest onthe GECC Note and GECC could not otherwise be repaid its money from the jointventure, GECC could require us to pay the shortfall of any outstanding amountsunder the GECC Note. If this happened, LIN TV could experience material adverseconsequences, including:

 

·**        **GECC could force LIN TV to sell the stock of LIN Television held by LIN TV to satisfy outstanding amountsunder the GECC Note;

 

·**        **if more than 50% of the ownership of LIN Televisionhad to be sold to satisfy the GECC Note, it could cause an acceleration of ourcredit facility and other outstanding indebtedness; or

 

·**        **if the GECC Note is prepaid because of an accelerationor on default or otherwise, or if the GECC Note is repaid at maturity, we mayincur a substantial tax liability.

 

The joint venture isapproximately 80% owned by NBC Universal. NBC Universal controls the operationsof the stations through a management contract. Therefore, the operation andprofitability of those stations and the likelihood of a default under the GECCNote are primarily within NBC Universal’s control.

 

**Note 10– Subsequent Event**

 

OnOctober 28, 2008, LIN Television Corporation signed a new retransmissionconsent agreement with Time Warner Cable, which grants to Time Warner and itsaffiliated entities (“Time Warner”) the right to carry the analog and highdefinition signals of certain of our television stations on the Time Warnercable systems. When our previous retransmission consent agreement with TimeWarner expired on October 2, 2008, Time Warner removed from their cable systemsour television signals covered by that agreement.  Time Warner resumed carrying our televisionchannels on October 29, 2008 that are covered under this agreement. Time Warnerrepresents approximately 2.7 million or 19% of our total duplicated televisionhouseholds.

 

58

----