Note 2 - Mergers, Acquisitions, and Dispositions

12 Months Ended

Dec. 31, 2014

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Note 2: Mergers, Acquisitions, and Dispositions

LIN Merger

As described in Note 1, Old Media General and LIN were combined under New Media General, a newly formed holding company, that has been renamed Media General. This combination increased the scale of the combined entity enabling the Company to continue to participate in industry consolidation. In connection with the LIN Merger, former shareholders of LIN Media had the option to make an election to receive either $25.97 in cash or 1.4714 shares of voting common stock of Media General, subject to pro-ration in accordance with the terms of the LIN Merger Agreement, in exchange for their shares of LIN Media. Based on the final results of the elections made by LIN Media’s shareholders, the Company issued a total of approximately 41,239,715 shares of voting common stock and paid approximately $763 million in cash to the former LIN Media shareholders. The total purchase price of the LIN Merger was approximately $2.4 billion. The LIN Merger was financed using proceeds from the Company’s borrowings more fully described in Note 8.

As part of the LIN Merger, the Company sold WJAR-TV in Providence, RI, WLUK-TV and WCWF-TV in Green Bay-Appleton, WI, WTGS-TV in Savannah, GA, WVTM-TV in Birmingham, AL, WJCL-TV in Savannah, GA and WALA-TV in Mobile, AL for approximately $360 million and purchased KXRM-TV and KXTU-LD in Colorado Springs, CO and WTTA-TV in Tampa, FL for approximately $93 million. At December 31, 2014, the Company had restricted cash in the amount of $120 million in a qualified intermediary (a consolidated entity) relating to the sale of WJAR-TV. The sales of these stations resulted in a gain on sale of approximately $43 million and included in the assets sold was goodwill of approximately $86 million.

The Company incurred $33 million of investment banking, legal and accounting fees and expenses during the year ended December 31, 2014 related to the LIN Merger.

Following the LIN Merger and the divestitures and acquisitions discussed above, the Company now owns or operates 71 stations across 48 markets.

The initial allocated fair value of the acquired assets and assumed liabilities of LIN (including the acquisitions of the stations in Colorado Springs and Tampa discussed above) is as follows:

(In thousands)
Current assets acquired	$	218,516
Property and equipment		280,124
Other assets acquired		12,812
FCC broadcast licenses		614,942
Definite lived intangible assets		740,065
Goodwill		1,132,538
Deferred income tax liabilities recorded in conjunction with the acquisition		(330,647	)
Current liabilities assumed		(111,517	)
Other liabilities assumed		(79,185	)
Total	$	2,477,648

Current assets acquired included cash and cash equivalents of $26 million and trade accounts receivable of $162 million.

The amount allocated to definite-lived intangible assets represents the estimated fair values of network affiliations of $457.2 million, advertiser and publisher relationships of $211.4 million, $36.5 million of LMA agreements, $16.5 million of technology and trade names and favorable lease assets of $18.5 million. These intangible assets will be amortized over their weighted-average estimated remaining useful lives of 15 years for network affiliations, 5-7 years for the advertiser relationships, 20 years for LMA agreements, 5 years for technology and trade names and 10 years for favorable lease assets. Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives.

None of the goodwill recognized in connection with the LIN Merger is expected to be tax deductible.

The LIN Merger closed shortly before year end. The initial allocation presented above is based upon management’s preliminary estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates and estimated discount rates. Network affiliations and advertiser relationships were primarily valued using an excess earnings income approach. The broadcast licenses represent the estimated fair value of the FCC license using a “Greenfield” income approach. Under this approach, the broadcast license is valued by analyzing the estimated after-tax discounted future cash flows of an average market participant. Property and equipment was primarily valued using a cost approach. Acquired program license rights will be amortized to operating expense over the estimated broadcast period in an amount equal to the relative benefit that is expected to be derived from the airing of the program, or on a straight line basis over the life of the program where the expected useful life is one year or less.

The results of operations for the year ended December 31, 2014 include the results of LIN from December 19, 2014 through December 31, 2014. Net operating revenues and operating loss of LIN included in the consolidated statements of comprehensive income, were $25 million and $1.2 million, respectively, for the year ended December 31, 2014.

Legacy Media General Merger

Legacy Media General and Young were combined in an all-stock merger transaction on November 12, 2013. The merger was accounted for as a reverse acquisition with Young as the acquirer solely for financial accounting purposes. Accordingly, Young’s cost to acquire Legacy Media General has been allocated to the acquired assets, liabilities and commitments based upon their estimated fair values. The pre-merger operations of Legacy Media General consisted of 18 network-affiliated broadcast television stations (and associated websites) primarily located in the southeastern United States. The purchase price of Legacy Media General was calculated based on the number of unrestricted Class A and B common shares outstanding (27,985,795 in aggregate) immediately prior to the merger multiplied by the closing price on November 11, 2013 of $15.06. In addition, the purchase price included the portion of performance accelerated restricted stock and stock options earned prior to the merger ($12.7 million in aggregate). The allocated fair value of acquired assets and assumed liabilities is summarized as follows:

(In thousands)
Current assets acquired	$	89,425
Property and equipment		183,362
Other assets acquired		24,563
FCC broadcast licenses		359,400
Definite lived intangible assets		214,080
Goodwill		487,223
Deferred income tax assets recorded in conjunction with the acquisition		49,725
Current liabilities assumed		(66,372	)
Long-term debt assumed		(701,408	)
Pension and postretirement liabilities assumed		(165,904	)
Other liabilities assumed		(39,908	)
Total	$	434,186

Current assets acquired included cash and cash equivalents of $17.3 million and trade accounts receivable of $64.4 million.

The amount allocated to definite-lived intangible assets represents the estimated fair values of network affiliations of $154.7 million, advertiser relationships of $58 million and favorable lease assets of $1.4 million. These intangible assets will be amortized over their weighted-average estimated remaining useful lives of 15 years for network affiliations, seven years for the advertiser relationships and 10 years for favorable lease assets. Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives.

The allocation presented above was determined using similar techniques and methodologies as described for the LIN Merger. Approximately $164 million of the goodwill recognized is expected to be tax deductible.

The Company incurred $4 million and $17 million of legal, accounting and other professional fees and expenses during the years ended December 31, 2014 and 2013, respectively, related to the Legacy Media General merger.

The results of operations for the year ended December 31, 2013 include the results of Legacy Media General from November 12, 2013 through December 31, 2013. Net operating revenues and operating income of Legacy Media General included in the consolidated statements of comprehensive income, were $48.3 million and $1 million, respectively, for the year ended December 31, 2013.

The following table sets forth unaudited pro forma results of operations, assuming that the LIN Merger, the acquisition of WHTM, the merger with Young, the consolidation of the VIEs described in Note 4 and the refinancing described in Note 8, occurred at the beginning of the year preceding the year of acquisition. The 2012 period does not include the pro forma effects of the LIN Merger, and as such, will not provide comparability to the 2013 and 2014 pro forma periods presented in the following table:

(In thousands, except per share amounts)	2014			2013		2012
Net operating revenue	$	1,345,275		$	1,173,140	$	602,335
Net (loss) income		(41,901	)		38,863		34,554
Net (loss) income attributable to Media General		(47,767	)		38,464		32,265
Earnings (loss) per share - basic and diluted		(0.53	)		0.30		0.36

The pro forma financial information presented above is based on historical results of operations, adjusted for the allocation of the purchase price and other acquisition accounting adjustments, and is not necessarily indicative of what the combined company’s results would have been had the transactions occurred as of January 1^st of the applicable year. The 2014 results include $60 million in pretax impairment charges and similar amount of stock-based compensation most of which related to the merger and will not recur. The pro forma adjustments include adjustments to depreciation and amortization expense due to the increased value assigned to property and equipment and intangible assets, adjustments to stock-based compensation expense due to the revaluation of stock options and PARS and the issuance of deferred stock units to certain executive officers, adjustments to interest expense to reflect the refinancing of the Company’s debt and the related tax effects of the adjustments.

Pro forma results for 2014 presented above, exclude $75 million of merger-related expenses recognized on the consolidated statement of comprehensive income. Additionally, results for 2014 also exclude $3.5 million of debt modification and extinguishment costs. These costs were not included in the pro forma amounts above as they are non-recurring in nature.

Pro forma results for 2013 presented above, exclude the $13.1 million of merger-related expenses recognized on the consolidated statement of comprehensive income and $16.3 million of merger-related expenses incurred by Legacy Media General prior to the Young merger. Additionally, results for 2013 also exclude $4.5 million of debt modification and extinguishment costs. These costs were not included in the pro forma amounts above as they are non-recurring in nature.

Acquisition of WHTM

On September 1, 2014, the Company completed the acquisition of WHTM, a television station located in Harrisburg, Pennsylvania for approximately $83.5 million, including assumed liabilities. This transaction was accounted for as a purchase and has been included in the Company’s consolidated results of operations since the date of acquisition.

The initial allocated fair value of acquired assets and assumed liabilities is summarized as follows:

(In thousands)
Property and equipment	$	3,515
Broadcast licenses		27,900
Definite lived intangible assets		31,700
Goodwill		20,357
Other assets		380
Other liabilities		(354	)
Total	$	83,498

The amount allocated to definite-lived intangible assets represents the estimated fair values of network affiliations of approximately $24.7 million and advertiser relationships of $7.0 million. These intangible assets will be amortized over their weighted-average estimated remaining useful lives of 15 years for network affiliations and seven years for the advertiser relationships. Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives.

The allocation presented above was determined using similar techniques and methodologies as described for the LIN Merger. None of the goodwill recognized is expected to be tax deductible.

Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed.

The initial purchase price allocation is based upon all information available to the Company at the present time and is subject to change, and such changes could be material.

The results of operations for the year ended December 31, 2014 include the results of WHTM from September 1, 2014 through December 31, 2014. Net operating revenues and operating income of WHTM included in the consolidated statements of comprehensive income, were $8.7 million and $3.2 million, respectively, for the year ended December 31, 2014.

During the year ended December 31, 2014, the Company incurred approximately $0.2 million of transition related expenses related to the WHTM acquisition.