UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year endedDecember 31, |
| or |
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________. |
Commission File Number 1-13796
GRAY TELEVISION, INC.
(Exact Name of Registrant as Specified in its Charter)
Georgia (State or Other Jurisdiction of Incorporation or Organization) | 58-0285030 (I.R.S. Employer Identification No.) |
4370 Peachtree Road, NE Atlanta, GA (Address of Principal Executive Offices) | 30319 (Zip Code) |
Registrant’s telephone number, including area code:(404) 504-9828
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock (no par value) | GTN.A | New York Stock Exchange |
| Common Stock (no par value) | GTN | New York Stock Exchange
|
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐☒ No ☒☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one).
Large accelerated filer ☒ | Accelerated filer ☐ | |||
Non-accelerated filer ☐ | Smaller reporting | |||
| Emerging growth company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting stock (based upon the closing sales prices quoted on the New York Stock Exchange) held by non-affiliates of the registrant (solely for purposes of this calculation, all directors, executive officers and 10% or greater stockholders of the registrant are considered to be “affiliates”) as of June 30, 2016:2019: Class A Common Stock and Common Stock; no par value –$698,178,8821,500,331,986.
TheIndicate the number of shares outstanding of each of the registrant’sissuer's classes of common stock, as of February 21, 2017:Class A Common Stock; no parvalue –6,606,173 shares; Common Stock, no par value –66,238,529 shares.the latest practicable date.
Common Stock (No Par Value) | Class A Common Stock (No Par Value) | |
92,819,689 shares outstanding as of February 21, 2020 | 7,048,006 shares outstanding as of February 21, 2020 |
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for the 2020 annual meeting of stockholders, to be filed within 120 days of the registrant’s fiscal year end, pursuant to Regulation 14A are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 hereof.
Gray Television Inc. | ||
INDEX | ||
PART OR ITEM | DESCRIPTION | PAGE |
PART I | ||
Item 1. | Business. | 3 |
Item 1A. | Risk Factors. |
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Item 1B. | Unresolved Staff Comments. |
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Item 2. | Properties. |
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Item 3. | Legal Proceedings. | 31 |
Item 4. | Mine Safety Disclosures. | 31 |
Information about our Executive | 31 | |
PART II | ||
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
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Item 6. | Selected Financial Data. |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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Item 7A. | Quantitative and Qualitative Disclosures about Market Risk. |
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Item 8. | Financial Statements and Supplementary Data. |
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
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Item 9A. | Controls and Procedures. |
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Item 9B. | Other Information. |
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PART III | ||
Item 10. | Directors, Executive Officers and Corporate Governance. |
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Item 11. | Executive Compensation. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
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Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
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Item 14. | Principal Accountant Fees and Services. |
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PART IV | ||
Item 15. | Exhibits, Financial Statement Schedules. |
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Item 16. | Form 10-K Summary. |
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SIGNATURES |
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PART 1
Item 1. Business.
| Item 1. | Business. |
In this annual report on Form 10-K (the “Annual Report”), unless otherwise indicated or the context otherwise requires, the words “Gray,” the “Company,” “we,” “us,” and “our” refer to Gray Television, Inc. and its consolidated subsidiaries. For more information on variable interest entities, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The discussion herein of the television (or “TV”) stations that we own and operate does not include our interest in the television and radio stations owned by Sarkes Tarzian, Inc.
Our common stock and our Class A common stock are listed on The New York Stock Exchange (the “NYSE”) under the symbols “GTN” and “GTN.A.”
Unless otherwise indicated, all station rank, in-market share and television household data herein are derived from reports prepared by Nielsen Media Research CompanyComscore, Inc. (“Nielsen”Comscore”), a national audience measuring service.. While we believe this data to be accurate and reliable, we have not independently verified such data nor have we ascertained the underlying economic assumptions relied upon therein, and cannot guarantee the accuracy or completeness of such data.
General
We are a television broadcast company headquartered in Atlanta, Georgia, that ownsis the largest owner of top-rated local television (“television” or “TV”) stations and operatesdigital assets in the United States. We currently own and/or operate television stations and leading digital assetsproperties in markets throughout the United States. As of February 21, 2017, we owned and/or operated television stations in 5493 television markets broadcasting over 200 separate programming streams,that collectively reach approximately 24% of US television households. Over calendar year 2019, our stations were ranked first in 68 markets, and first and/or second in 86 markets, as calculated by Comscore’s audience measurement service. We also own video program production, marketing, and digital businesses including 37 affiliatesRaycom Sports, Tupelo-Raycom, and RTM Studios, the producer of PowerNation programs and content, which we refer to collectively as our “production companies.”
Our operating revenues are derived primarily from broadcast and internet advertising and from retransmission consent fees. For the CBS Network (“CBS”), 29 affiliatesyears ended December 31, 2019, 2018 and 2017 our total revenues were $2.1 billion, $1.1 billion and $883 million, respectively.
Markets and Stations
We believe a key driver for our strong market position both in the past and in the future is our focus on strong local news and information programming. We believe that our market position and our strong local teams have enabled us to maintain more stable revenues compared to many of our peers.
We are diversified across our markets and network affiliations. In 2019 and 2018, our largest market by revenue was Cleveland, Ohio, which contributed approximately 4% of our revenue in 2019. Our top 10 markets by revenue contributed approximately 24% and 32% of our revenue for the NBC Network (“NBC”), 20 affiliatesyears ended December 31, 2019 and 2018, respectively. For the year ended December 31, 2019, our CBS-affiliated channels accounted for approximately 34% of the ABC Network (“ABC”)our revenue; our NBC-affiliated channels accounted for approximately 32% of our revenue; our ABC-affiliated channels accounted for approximately 15% of our revenue; and 15 affiliatesour FOX-affiliated channels accounted for approximately 11% of the FOX Network (“FOX”).our revenue. We refer to thesemajor broadcast networksCBS,CBS, NBC, ABC and FOX collectively as the “Big Four” networks.Four.”
In addition to a primary broadcast channel, each of our markets, we own and operate at least one television station broadcasting a primary channel affiliated with one of the Big Four networks. We also own additional stations canin some markets, some of which also broadcast additionalprimary channels affiliated with one of the Big Four networks. Nearly all of our stations also broadcast secondary digital channels within a market by utilizing the same bandwidth, but with different programming from the primary channel. In addition to affiliations with ABC, CBS and FOX, our secondary channelsthat are affiliated with numerous smallervarious networks, and program services including, among others, the CW Network or the CW Plus Network (collectively, “CW”), MY Network (“MY” or “My Network”), the MeTV Network (“MeTV”), This TV Network (“This TV”), Antenna TV (“Ant.”), Telemundo (“Tel.”), Cozi, Heroes and Icons (“H&I”) and MOVIES! Network (“Movies”). Certainare independent of any network. The terms of our secondary digital channelsaffiliations with broadcast networks are governed by network affiliation agreements. Each network affiliation agreement provides the affiliated station with more than onethe right to broadcast all programs transmitted by the affiliated network. Our network simultaneously. We alsoaffiliation agreements with the Big Four broadcast local news/weather channels in some markets (“News”). Our combined TV station group reaches approximately 10.1% of total United States television households.networks currently expire at various dates through December 2023.
Television Industry Background
The Federal Communications Commission (the “FCC”(“FCC”) grants broadcast licenses to television stations. There are only a limited number of broadcast licenses available in any one geographic area.
Each commercial television station in the United States is assigned by Nielsen to one of 210 geographic television markets or designated market areas (“DMAs”). These markets are ranked in size according to their number of television households, with the market having the largest number of television households ranked number one.one (New York City). Each DMA is an exclusive geographic area consisting of all counties (and in some cases, portions of counties) in which the home-market commercial television stations receive the greatest percentage of total viewing hours. Nielsen periodically publishes data on estimated audiences for the television stations in each DMA.
Television station revenue is derived primarily from local, regional and national advertising revenue and retransmission consent fees. Television station revenue is also derived to a much lesser extent from studio and tower space rental fees and commercial production activities. For the years ended December 31, 2016, 2015 and 2014, we generated revenue of $812.5 million, $597.4 million and $508.1 million, respectively.“Advertising”“Advertising” refers primarily to advertisements broadcast by television stations, but it also includes advertisements placed on a television station’s website and sponsorships of television programming and off-line content (such as email messages, mobile applications, and other electronic content distributed by stations). Advertising rates are generally based upon: (i) the size of a station’s market, (ii) a station’s overall ratings, (iii) a program’s popularity among targeted viewers, (iv) the number of advertisers competing for available time, (v) the demographic makeup of the station’s market, (vi) the availability of alternative advertising media in the market, (vii) the presence of effective sales forces and (viii) the development of projects, features and programs that tie advertiser messages to programming and/or digital content on a station’s website or mobile applications.
Advertising rates can also be determined in part by a station’s overall ratings and in-market share, as well as the station’s ratings and market share among particular demographic groups that an advertiser may be targeting. Because broadcast stations rely on advertising revenues, they are sensitive to cyclical changes in the economy. The sizes of advertisers’ budgets, which can be affected by broad economic trends, can affect the broadcast industry in general and the revenues of individual broadcast television stations.
Strategy
Our success is based on the following strategies:
Further strengthen our balance sheet
During the last several years, we have leveraged our strong cash flow and efficient operating model to grow our diverse national footprint. During 2016, we acted aggressively to improve the components of our debt, refinancing our long term investments with long term debt, while locking-in more attractive terms and new historically low rates.
Returncapital to our shareholders
In the fourth quarter of 2016, our Board of Directors (the “Board”) authorized the repurchase of up to $75.0 million of our outstanding common stock (the “2016 Repurchase Authorization”) through December 31, 2019, and we acquired 192,183 shares of our common stock for an average price of $10.38 per share. We plan to use the 2016 Repurchase Authorization to continue to return capital to our shareholders by repurchasing our common stock from time to time for the duration of the authorization. Future repurchases will depend on general market conditions, regulatory requirements, alternative investment opportunities and other considerations. We are not required to purchase a minimum number of shares and the authorization may be modified, suspended or terminated at any time without prior notice.
Grow by leveragingLeveraging our diverse national footprintDiverse National Footprint.
We serve a diverse and national footprint of television stations in 54 television markets that cover approximately 10.1% of United States television households.stations. We currently operate in DMAs ranked between 6212 and 209, of which many are markets with universities and/or state capitals.209. We believe markets with universities and state capitals provide significant advantages as they generally offer more favorable advertising demographics, more stable economics and a stronger affinity between local stations and university sports teams than other markets. We also seek to operate in many markets that we believe have the potential for significant political advertising revenue in periods leading up to elections. We are also diversified across our programming, broadcasting over 200 separate programming streams, including 37affiliates of CBS, 29affiliates of NBC, 20affiliates of ABC and 15affiliates of FOX.broadcast programming.
Maintain and growGrow our market leadership positionsMarket Leadership
Based on the consolidated results of the four Nielsen “sweeps” periods in 2016,Position. According to Comscore, Inc., during calendar year 2019, our owned and/orand operated televisionstations (including those acquired in January 2017)television stations achieved the #1 ranking in overallaudience in 4068 of our 54 markets and the #1 ranking in local news audience in 39 of our93 markets. In addition, our stations achieved the #1 and/or #2 ranking in both overall audience and news audience in52 86 of our 5493 markets.
We believe there are significant advantages in operating the #1 or #2 television broadcasting stations in a local market. Strong audience and market share allowsallow us to enhance our advertising revenue through price discipline and leadership. We believe a top-rated news platform is critical to capturing incremental sponsorship and political advertising revenue. Our high-quality station group allows us to generate higher operating margins, which allows us additional opportunities to reinvest in our business to further strengthen our network and news ratings. Furthermore, we believe operating the top ranked stations in our various markets allows us to attract and retain top talent.
We also believe that our local market leadership positions help us in negotiating more beneficial terms in our major network affiliation agreements, which expire onat various dates through August 2022,December 2023, and in our syndicated programming agreements.
We These leadership positions also believe that our leadership position in the markets in which we operate givesgive us additional leverage to negotiate retransmission contracts with cable system operators, telephone video distributors, direct broadcast satellite (“DBS”(or “DBS”) operators, and other multichannel video programming distributors (collectively,(or “MVPDs”). These MVPDs pay us for the right to retransmit our television stations’ program content.
We intend to maintain our market leadership position through continued prudent investment in our news and syndicated programs, as well as continued technological advances and workflow improvements. We expect to continue to invest in technological upgrades in the future. We believe the foregoing will help us maintain and grow our market leadership; thereby enhancing our ability to grow and further diversify our revenues and cash flows.
Continue to monetize digital spectrum
We currently broadcast approximately 100 secondary channels. Certain of our secondary channels are affiliated with more than one network simultaneously. Our strategy includes expanding upon our digital offerings. We also evaluate opportunities to use spectrum for future delivery of television broadcasts to mobile devices.
Maintain prudent cost management
Historically, we have closely managed our costs to maintainPursue Strategic Growth and improve our margins. We believe that our market leadership position also gives us additional negotiating leverage to enable us to lower our syndicated programming costs. We have increased the efficiency of our stations by automating video production and back office processes. We believe that we will be able to further benefit from our cost and operational efficiencies as we continue to grow.
Continue to pursue strategic growth and accretive acquisition opportunitiesAccretive Acquisition Opportunities.
Over the last several years, the television broadcasting industry has been characterized by a high level of acquisition activity. We believe that there are a number of television stations, and a few station groups, that have attractive operating profiles and characteristics, and that share our commitment to local news coverage in the communities in which they operate and to creating high-quality and locally-driven content. On a highly selective basis, we may pursue opportunities for the acquisition of additional television stations or station groups primarily in markets below the top 50 DMAs that fit our strategic and operational objectives, and where we believe that we can improve revenue, efficiencies and cash flow through active management and cost controls. As we consider potential acquisitions, we primarily evaluate potential station audience and revenue shares and the extent to which the acquisition target would positively impact our existing station operations. Consistent with this strategy, betweenfrom October 31, 2013 andthrough December 31, 2016,2019, we completed 19several acquisition and divestiture transactions, including some that had a material impact on our results of operations. For more information on these transactions, see Note 3 “Acquisitions and three divestiture transactions. These transactions added a net totalDivestitures” of 43 televisionour audited consolidated financial statements included elsewhere herein. This note also describes the stations we acquired in 25 television markets, including 20 new television markets,each of 2019 and 2017, which we may also refer to collectively as our operations.“acquisitions,” our “recent acquisitions” or “the acquisitions.”
On February 16, 2016,Continue to Monetize Digital Spectrum. In addition to each of our stations’ primary channel, we also broadcast a number of secondary channels. Certain of our secondary channels are affiliated with more than one network simultaneously. Our strategy includes expanding upon our digital offerings and sales. We also evaluate opportunities to use spectrum for future delivery of data to mobile devices using a new transmission standard.
Continue to Maintain Prudent Cost Management. Historically, we have closely managed our costs to maintain and improve our margins. We believe that our market leadership position provides us additional negotiating leverage to enable us to lower, on a relative basis, our syndicated programming costs. We have increased the efficiency of our stations by automating video production and back office processes. We believe that we will be able to further benefit from our cost and operational efficiencies as we continue to grow.
Further Strengthen our Balance Sheet. During the last several years, we have leveraged our strong cash flow and efficient operating model to grow our diverse national footprint. In recent years, we acted to improve the terms of our debt by amending or replacing our long-term debt in order to lock in more attractive terms while interest rates are at historically low levels. During 2017, we completed an underwritten public offering of 17.25 million shares of our common stock at a price to the public of $14.50 per share. The net proceeds of the offering were $239 million, after deducting underwriting discounts and expenses. During 2019 we completed the acquisition of all the television and radio broadcast assetsequity interests of Schurz Communications,Raycom Media, Inc. (“Schurz”Raycom”) for an adjusted purchase price of $443.1 million (the “Schurz Acquisition”). To facilitate the regulatory approval of the Schurz Acquisition, we (i) exchanged the assets of KAKE-TV (ABC) (and its satellite stations) for the assets of Lockwood Broadcasting, Inc.’s television station WBXX-TV (CW) and $11.2 million of cash, on February 1, 2016; (ii) exchanged the assets of WSBT-TV for the assets of Sinclair Broadcast Group, Inc.’s television station WLUC-TV (NBC/FOX) on February 16, 2016; and (iii) sold the Schurz radio broadcast assets to three separate radio broadcasters on February 16, 2016 (collectively with the Schurz Acquisition, the “Schurz Acquisition and Related Transactions”).
On May 13, 2016 we announced that we agreed to acquire television stations WDTV-TV (CBS) and WVFX-TV (FOX, CW), a legal duopoly in the Clarksburg-Weston, West Virginia television market (the “Clarksburg Acquisition”) from Withers Broadcasting Company of West Virginia and Withers Broadcasting Company of Clarksburg, LLC (collectively “Withers”) for a maximum total purchase price of $26.5 million in cash. On June 1, 2016, we made a partial payment of $16.5 million to Withers and acquired the non-license assets of these stations. Also, on that date we began to provide services to Withers under a local programming and marketing agreement (an “LMA”). Subject to regulatory approval, we currently expect to complete this acquisition later in the first quarter or in the second quarter of 2017.
On June 27, 2016, we completed the acquisition of KYES-TV (MY, Ant.), in the Anchorage, Alaska television market, from Fireweed Communications, LLC (the “KYES-TV Acquisition”) for a purchase price of $0.5 million.
Collectively, we refer to the stations acquired and retained in 2016, as well as those which we began operating under an LMA in 2016, as the “2016 Acquired Stations.”
During 2015, we completed six acquisitions, which collectively added seven television stations in six markets (four new markets) to our operations, and we refer to those stations as the “2015 Acquired Stations.” During 2014, we completed seven acquisitions, which transactions collectively added 22 television stations and 12 markets (10 new markets) to our operations, and we refer to those stations as the “2014 Acquired Stations.” Unless the context requires otherwise, we refer to the 2016 Acquired Stations, the 2015 Acquired Stations and the 2014 Acquired Stations, collectively, as the “Acquired Stations.”
On January 13, 2017, we acquired KTVF-TV (NBC), KXDF-TV (CBS), and KFXF-TV (FOX) in the Fairbanks, Alaska television market, from Tanana Valley Television Company and Tanana Valley Holdings, LLC for $8.0 million (the “Fairbanks Acquisition”). We completed the Fairbanks Acquisition with cash on hand.
On January 17, 2017, we acquired two television stations that were divested by Nextstar Broadcasting, Inc. (“Nexstar”) upon its merger with Media General, Inc. (“Media General”): WBAY-TV (ABC), in the Green Bay, Wisconsin television market (the “Green Bay Acquisition”), and KWQC-TV (NBC), in the Davenport, Iowa, Rock Island, Illinois, and Moline, Illinois (or “Quad Cities”) television market (the “Davenport Acquisition”), for an adjusted purchase price of $269.9 million. We completed these acquisitions with cash on hand. The Green Bay Acquisition and the Davenport Acquisition were completed, in part, through a transaction with Gray Midwest EAT, LLC (“GME”), pursuant to which, we loaned GME $106.0 million which GME in turn used to acquire the broadcast licenses of the stations. GME is a variable interest entity (“VIE”) for which we are the primary beneficiary. As a result, we will include the assets, liabilities and results of operations of GME in our consolidated financial statements beginning in January 2017 and continuing for so long as we remain the primary beneficiary.
On February 16, 2017, we announced that we had reached an agreement with Diversified Communications, Inc. (“Diversified”) to acquire two television stations: WABI-TV (CBS/CW) in the Bangor, Maine television market (DMA 156) and WCJB-TV (ABC/CW) in the Gainesville, Florida television market (DMA 161) for $85.0 million. Subject to receipt of regulatory and other approvals, we expect this transaction will close in the second quarterrelated transactions (the “Raycom Merger”) using a financing plan composed of 2017, withour cash on hand, common stock, preferred stock, attractively priced fixed rate debt and if necessary, borrowings underan amended term loan facility. We continually evaluate opportunities to improve our senior credit facility.
balance sheet. For more information on our acquisitions, refer to our Markets and Stations table later in this Item 1 andregarding the Raycom Merger, see Note 23 “Acquisitions and Dispositions” and Note 11 “Subsequent Events”Divestitures” of our audited consolidated financial statements included elsewhere herein.
Stations
The following table provides information about our television stations as of February 21, 2020:
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| Primary | Primary | |||||||
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| Broadcast | Channel | |||||||
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| Station | Network | License | Station | ||||||||
DMA | Designated Market Area | Call | Affiliation | Expiration | Rank in | ||||||||
Rank (a) | ("DMA") | Letters | (b) | Date (c) | DMA (d) | ||||||||
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12 | Tampa-St. Petersburg (Sarasota), FL | WWSB |
| ABC | 2/1/2021 |
| 12 | ||||||
19 | Cleveland-Akron (Canton) | WOIO |
| CBS | 10/1/2021 |
| 3 | ||||||
19 | Cleveland-Akron (Canton) | WUAB |
| CW | 10/1/2021 |
| 6 | ||||||
21 | Charlotte, NC | WBTV |
| CBS | 12/1/2020 |
| 1 | ||||||
36 | West Palm Beach-Ft. Pierce, FL | WFLX |
| FOX | 2/1/2021 |
| 4 | ||||||
37 | Cincinnati, OH | WXIX |
| FOX | 8/1/2021 |
| 4 | ||||||
44 | Birmingham (Ann and Tusc) | WBRC |
| FOX | 4/1/2021 |
| 1 | ||||||
48 | Louisville, KY | WAVE |
| NBC | 8/1/2021 |
| 2 | ||||||
50 | New Orleans, LA | WVUE |
| FOX | 6/1/2021 |
| 1 | ||||||
51 | Memphis, TN | WMC |
| NBC | 8/1/2021 |
| 2 | ||||||
54 | Richmond- Petersburg, VA | WWBT |
| NBC | 10/1/2020 |
| 2 | ||||||
54 | Richmond- Petersburg, VA | WUPV |
| CW | 10/1/2020 |
| 5 | ||||||
61 | Knoxville, TN | WVLT |
| CBS | 8/1/2021 |
| 2 | ||||||
61 | Knoxville, TN | WBXX |
| CW | 8/1/2021 |
| 6 | ||||||
64 | Lexington, KY | WKYT |
| CBS | 8/1/2021 |
| 1 | ||||||
64 | (Hazard, KY) | WYMT | (e) | CBS | 8/1/2021 |
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65 | Tucson (Nogales), AZ | KOLD |
| CBS | 10/1/2022 |
| 1 | ||||||
66 | Honolulu, HI | KHNL |
| NBC | 2/1/2023 |
| 4 | ||||||
66 | Honolulu, HI | KGMB |
| CBS | 2/1/2023 |
| 1 | ||||||
66 | Honolulu, HI | KHBC | (e) | NBC/CBS | 2/1/2023 |
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66 | Honolulu, HI | KOGG | (e) | NBC/CBS | 2/1/2023 |
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67 | Green Bay/Appleton | WBAY |
| ABC | 12/1/2021 |
| 1 | ||||||
69 | Roanoke/Lynchburg, VA | WDBJ |
| CBS | 10/1/2020 |
| 1 | ||||||
69 | Roanoke/Lynchburg, VA | WZBJ |
| MY | 10/1/2020 |
| 6 | ||||||
69 | Roanoke/Lynchburg, VA | WZBJ-CD |
| MY | 10/1/2020 |
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71 | Omaha, NE | WOWT |
| NBC | 6/1/2022 |
| 2 | ||||||
72 | Wichita/Hutchinson, KS | KWCH |
| CBS | 6/1/2022 |
| 1 | ||||||
72 | Wichita/Hutchinson, KS | KSCW |
| CW | 6/1/2022 |
| 5 | ||||||
72 | (Ensign, KS) | KBSD | (e) | CBS | 6/1/2022 |
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72 | (Goodland, KS) | KBSL | (e) | CBS | 6/1/2022 |
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72 | (Hays, KS) | KBSH | (e) | CBS | 6/1/2022 |
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73 | Springfield, MO | KYTV |
| NBC | 2/1/2022 |
| 1 | ||||||
73 | Springfield, MO | KYCW |
| CW | 2/1/2022 |
| 4 | ||||||
73 | Springfield, MO | KSPR |
| ABC | 2/1/2022 |
| 3 | ||||||
74 | Charleston/Huntington, WV | WSAZ |
| NBC | 10/1/2020 |
| 1 | ||||||
74 | Charleston/Huntington, WV | WQCW |
| CW | 10/1/2021 |
| 6 | ||||||
75 | Columbia, SC | WIS |
| NBC | 12/1/2020 |
| 1 | ||||||
77 | Flint/Saginaw/Bay City, MI | WJRT |
| ABC | 10/1/2021 |
| 2 | ||||||
78 | Huntsville- Decatur (Florence), AL | WAFF |
| NBC | 4/1/2021 |
| 2 | ||||||
80 | Toledo, OH | WTVG |
| ABC | 10/1/2021 |
| 1 | ||||||
81 | Madison, WI | WMTV |
| NBC | 12/1/2021 |
| 1 | ||||||
Our television stations (continued):
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| Station | Network | License | Station | ||||||||
DMA | Designated Market Area | Call | Affiliation | Expiration | Rank in | ||||||||
Rank (a) | ("DMA") | Letters | (b) | Date (c) | DMA (d) | ||||||||
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82 | Waco/Temple/Bryan, TX | KWTX |
| CBS | 8/1/2022 |
| 1 | ||||||
82 | Waco/Temple/Bryan, TX | KBTX | (e) | CBS | 8/1/2022 |
| 4 | ||||||
82 | Waco/Temple/Bryan, TX | KNCT |
| CW | 8/1/2022 |
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84 | Paducah, KY/Cape Girardeau, MO/Harrisburg, IL | KFVS |
| CBS | 2/1/2022 |
| 1 | ||||||
84 | Paducah, KY/Cape Girardeau, MO/Harrisburg, IL | WQWQ |
| CW/ME | 8/1/2021 |
| 5 | ||||||
85 | Colorado Springs/Pueblo, CO | KKTV |
| CBS | 4/1/2022 |
| 1 | ||||||
86 | Shreveport, LA | KSLA |
| CBS | 6/1/2021 |
| 2 | ||||||
89 | Savannah, GA | WTOC |
| CBS | 4/1/2021 |
| 1 | ||||||
90 | Cedar Rapids, IA | KCRG |
| ABC | 2/1/2022 |
| 1 | ||||||
91 | Charleston, SC | WCSC |
| CBS | 12/1/2020 |
| 1 | ||||||
94 | Baton Rouge, LA | WAFB |
| CBS | 6/1/2021 |
| 1 | ||||||
94 | Baton Rouge, LA | WBXH |
| MY | 6/1/2021 |
| 8 | ||||||
95 | Jackson, MS | WLBT |
| NBC | 6/1/2021 |
| 1 | ||||||
96 | Burlington, VT - Plattsburgh, NY | WCAX |
| CBS | 4/1/2023 |
| 1 | ||||||
96 | Burlington, VT - Plattsburgh, NY | WYCI |
| H&I | 6/1/2023 |
|
| ||||||
97 | Myrtle Beach-Florence | WMBF |
| NBC | 12/1/2020 |
| 3 | ||||||
98 | South Bend/Elkhart, IN | WNDU |
| NBC | 8/1/2021 |
| 2 | ||||||
100 | Greenville/New Bern/Washington, NC | WITN |
| NBC | 12/1/2020 |
| 1 | ||||||
102 | Boise, ID | KNIN |
| FOX | 10/1/2022 |
| 4 | ||||||
103 | Davenport, IA (Quad Cities) | KWQC |
| NBC | 2/1/2022 |
| 1 | ||||||
104 | Reno, NV | KOLO |
| ABC | 10/1/2022 |
| 2 | ||||||
105 | Evansville, IN | WFIE |
| NBC | 8/1/2021 |
| 1 | ||||||
107 | Lincoln/Hastings/Kearney, NE | KOLN |
| CBS | 6/1/2022 |
| 1 | ||||||
107 | (Grand Island, NE) | KGIN | (e) | CBS | 6/1/2022 |
|
| ||||||
107 | Lincoln/Hastings/Kearney, NE | KSNB |
| NBC | 6/1/2022 |
| 4 | ||||||
107 | Lincoln/Hastings/Kearney, NE | KCWH |
| CW | 6/1/2022 |
|
| ||||||
107 | (Hastings, NE) | KNHL |
| ME/MY | 6/1/2022 |
|
| ||||||
108 | Augusta, GA/Aiken, SC | WRDW |
| CBS | 4/1/2021 |
| 2 | ||||||
108 | Augusta, GA/Aiken, SC | WAGT |
| NBC | 4/1/2021 |
| 4 | ||||||
109 | Tallahassee, FL/Thomasville, GA | WCTV |
| CBS | 4/1/2021 |
| 1 | ||||||
109 | Tallahassee, FL/Thomasville, GA | WFXU |
| MY | 2/1/2021 |
|
| ||||||
112 | Lansing, MI | WILX |
| NBC | 10/1/2021 |
| 2 | ||||||
113 | Sioux Falls, SD | KSFY |
| ABC | 4/1/2022 |
| 2 | ||||||
113 | (Pierre, SD) | KPRY | (e) | ABC | 4/1/2022 |
|
| ||||||
113 | Sioux Falls, SD | KDLT |
| NBC | 4/1/2022 |
| 3 | ||||||
113 | (Sioux Falls, SD) | KDLV | (e) | NBC | 4/1/2022 |
|
| ||||||
114 | Tyler-Longview, TX | KLTV |
| ABC | 8/1/2022 |
| 1 | ||||||
114 | Tyler-Longview, TX | KTRE | (e) | ABC | 8/1/2022 |
| 4 | ||||||
116 | Fargo/Valley City, ND | KVLY |
| NBC | 4/1/2022 |
| 1 | ||||||
116 | Fargo/Valley City, ND | KXJB |
| CBS | 4/1/2022 |
| 2 | ||||||
122 | Montgomery, AL | WSFA |
| NBC | 4/1/2021 |
| 1 | ||||||
127 | Wilmington, NC | WECT |
| NBC | 12/1/2020 |
| 1 | ||||||
129 | La Crosse/Eau Claire, WI | WEAU |
| NBC | 12/1/2021 |
| 2 | ||||||
130 | Columbus, GA (Opelika, AL) | WTVM |
| ABC | 4/1/2021 |
| 1 | ||||||
132 | Amarillo, TX | KFDA |
| CBS | 8/1/2022 |
| 1 | ||||||
132 | (Amarillo, TX) | KZBZ | (e) | CBS | 10/1/2022 |
|
| ||||||
132 | Amarillo, TX | KEYU |
| TEL | 8/1/2022 |
| 7 | ||||||
134 | Wausau/Rhinelander, WI | WSAW |
| CBS | 12/1/2021 |
| 2 | ||||||
134 | Wausau/Rhinelander, WI | WZAW |
| FOX | 12/1/2021 |
| 4 | ||||||
138 | Rockford, IL | WIFR |
| CBS | 12/1/2021 |
| 1 | ||||||
140 | Monroe/El Dorado, LA | KNOE |
| CBS/ABC | 6/1/2021 |
| 1 | ||||||
142 | Lubbock, TX | KCBD |
| NBC | 8/1/2022 |
| 1 | ||||||
Our television stations (continued):
|
|
|
|
| Primary | Primary | |||||||
|
|
|
|
| Broadcast | Channel | |||||||
|
| Station | Network | License | Station | ||||||||
DMA | Designated Market Area | Call | Affiliation | Expiration | Rank in | ||||||||
Rank (a) | ("DMA") | Letters | (b) | Date (c) | DMA (d) | ||||||||
|
|
|
|
|
|
|
| ||||||
144 | Topeka, KS | WIBW |
| CBS | 6/1/2022 |
| 1 | ||||||
145 | Odessa/Midland, TX | KOSA |
| CBS | 8/1/2022 |
| 1 | ||||||
145 | (Big Springs) | KCWO | (e) | CW | 8/1/2022 |
|
| ||||||
145 | Odessa/Midland, TX | KTLE |
| TEL | 8/1/2022 |
|
| ||||||
146 | Minot/Bismarck/Dickinson, ND | KFYR |
| NBC/FOX | 4/1/2022 |
| 1 | ||||||
146 | (Minot, ND) | KMOT | (e) | NBC/FOX | 4/1/2022 |
|
| ||||||
146 | (Williston, ND) | KUMV | (e) | NBC/FOX | 4/1/2022 |
|
| ||||||
146 | (Dickinson, ND) | KQCD | (e) | NBC/FOX | 4/1/2022 |
|
| ||||||
147 | Wichita Falls, TX & Lawton, OK | KSWO |
| ABC | 6/1/2022 |
| 2 | ||||||
147 | Wichita Falls, TX & Lawton, OK | KKTM |
| TEL | 6/1/2022 |
| 7 | ||||||
149 | Panama City, FL | WJHG |
| NBC | 2/1/2021 |
| 1 | ||||||
149 | Panama City, FL | WECP |
| CBS | 2/1/2021 |
| 3 | ||||||
151 | Anchorage, AK | KTUU |
| NBC | 2/1/2023 |
| 1 | ||||||
151 | Anchorage, AK | KYES |
| MY | 2/1/2023 |
| 6 | ||||||
154 | Albany, GA | WALB |
| NBC/ABC | 4/1/2021 |
| 1 | ||||||
154 | Albany, GA | WGCW |
| CW | 4/1/2021 |
| 6 | ||||||
155 | Biloxi-Gulfport, MS | WLOX |
| ABC/CBS | 6/1/2021 |
| 1 | ||||||
156 | Gainesville, FL | WCJB |
| ABC | 2/1/2021 |
| 1 | ||||||
158 | Sherman, TX/Ada, OK | KXII |
| CBS/FOX | 8/1/2022 |
| 1 | ||||||
158 | (Paris, TX) | KXIP | (e) | CBS | 8/1/2022 |
|
| ||||||
159 | Bangor, ME | WABI |
| CBS | 4/1/2023 |
| 1 | ||||||
167 | Hattiesburg/Laurel, MS | WDAM |
| NBC/ABC | 6/1/2021 |
| 1 | ||||||
169 | Rapid City, SD | KOTA |
| ABC | 4/1/2022 |
| 1 | ||||||
169 | Rapid City, SD | KEVN |
| FOX | 4/1/2022 |
| 4 | ||||||
169 | (Lead, SD) | KHSD | (e) | ABC/FOX | 4/1/2022 |
|
| ||||||
169 | (Sheridan, WY) | KSGW | (e) | ABC | 10/1/2022 |
|
| ||||||
170 | Lake Charles, LA | KPLC |
| NBC | 6/1/2021 |
| 1 | ||||||
171 | Dothan, AL | WTVY |
| CBS | 4/1/2021 |
| 1 | ||||||
171 | Dothan, AL | WRGX |
| NBC | 4/1/2021 |
| 3 | ||||||
173 | Clarksburg/Weston, WV | WDTV |
| CBS | 10/1/2020 |
| 2 | ||||||
173 | Clarksburg/Weston, WV | WVFX |
| FOX | 10/1/2020 |
| 4 | ||||||
175 | Harrisonburg, VA | WHSV |
| ABC | 10/1/2020 |
| 1 | ||||||
175 | Harrisonburg, VA | WSVF |
| FOX/CBS | 10/1/2020 |
| 3 | ||||||
175 | Harrisonburg, VA | WSVW |
| NBC |
|
|
| ||||||
177 | Bowling Green, KY | WBKO |
| ABC/FOX | 8/1/2021 |
| 1 | ||||||
178 | Alexandria, LA | KALB |
| NBC/CBS | 6/1/2021 |
| 1 | ||||||
180 | Marquette, MI | WLUC |
| NBC/FOX | 10/1/2021 |
| 1 | ||||||
181 | Watertown, NY | WWNY |
| CBS | 6/1/2023 |
| 1 | ||||||
181 | Watertown, NY | WNYF |
| FOX | 6/1/2023 |
| 2 | ||||||
182 | Charlottesville, VA | WVIR |
| NBC | 10/1/2020 |
| 1 | ||||||
183 | Jonesboro, AR | KAIT |
| ABC/NBC | 6/1/2021 |
| 1 | ||||||
Our television stations (continued):
|
|
|
|
| Primary | Primary | |||||||
|
|
|
|
| Broadcast | Channel | |||||||
|
| Station | Network | License | Station | ||||||||
DMA | Designated Market Area | Call | Affiliation | Expiration | Rank in | ||||||||
Rank (a) | ("DMA") | Letters | (b) | Date (c) | DMA (d) | ||||||||
|
|
|
|
|
|
|
| ||||||
184 | Laredo, TX | KGNS |
| NBC/ABC | 8/1/2022 |
| 2 | ||||||
184 | Laredo, TX | KYLX |
| CBS | 8/1/2022 |
| 4 | ||||||
184 | Laredo, TX | KXNU |
| TEL | 8/1/2022 |
| 5 | ||||||
188 | Grand Junction/Montrose, CO | KKCO |
| NBC | 4/1/2022 |
| 1 | ||||||
188 | Grand Junction/Montrose, CO | KJCT |
| ABC | 4/1/2022 |
| 3 | ||||||
190 | Meridian, MS | WTOK |
| ABC | 6/1/2021 |
| 1 | ||||||
191 | Twin Falls, ID | KMVT |
| CBS | 10/1/2022 |
| 1 | ||||||
191 | Twin Falls, ID | KSVT |
| FOX | 10/1/2022 |
| 4 | ||||||
193 | Parkersburg, WV | WTAP |
| NBC | 10/1/2020 |
| 1 | ||||||
193 | Parkersburg, WV | WIYE |
| CBS | 10/1/2020 |
| 2 | ||||||
193 | Parkersburg, WV | WOVA |
| FOX | 10/1/2020 |
| 3 | ||||||
196 | Cheyenne, WY/Scottsbluff, NE | KGWN |
| CBS | 10/1/2022 |
| 1 | ||||||
196 | (Scottsbluff, NE) | KSTF | (e) | CBS | 6/1/2022 |
|
| ||||||
196 | (Cheyenne, WY/Scottsbluff, NE) | KCHY | (e) | NBC | 10/1/2022 |
|
| ||||||
198 | Mankato, MN | KEYC |
| CBS/FOX | 4/1/2022 |
| 1 | ||||||
198 | Mankato, MN | KMNF |
| NBC | 4/1/2022 |
|
| ||||||
199 | Casper/Riverton, WY | KCWY |
| NBC | 10/1/2022 |
| 1 | ||||||
201 | Ottumwa, IA/Kirksville, MO | KYOU |
| FOX/NBC | 2/1/2022 |
| 3 | ||||||
203 | Fairbanks, AK | KXDF |
| CBS | 2/1/2023 |
| 2 | ||||||
203 | Fairbanks, AK | KTVF |
| NBC | 2/1/2023 |
| 1 | ||||||
203 | Fairbanks, AK | KFXF |
| MY | 2/1/2023 |
| 5 | ||||||
206 | Presque Isle, ME | WAGM |
| CBS/FOX | 4/1/2023 |
| 1 | ||||||
206 | Presque Isle, ME | WWPI |
| NBC |
|
|
| ||||||
209 | North Platte, NE | KNOP |
| NBC | 6/1/2022 |
| 1 | ||||||
209 | (Scottsbluff, NE) | KNEP | (e) | NBC | 6/1/2022 |
|
| ||||||
209 | North Platte, NE | KNPL |
| CBS | 6/1/2022 |
| 2 | ||||||
209 | North Platte, NE | KIIT |
| FOX | 6/1/2022 |
| 3 | ||||||
(a) | DMA rank for the 2019-2020 television season based on information published by Comscore. |
(b) | Indicates primary network affiliations. All primary channels and nearly all of our secondary channels broadcast by the stations are affiliated with at least one broadcast network. |
(c) | Indicates expiration dates of primary FCC broadcast licenses. |
(d) | Based on Comscore data for 2019. |
(e) | This station is a satellite station under FCC rules and simulcasts the programming of our primary channel in its market. This station may offer some locally originated programming, such as local news. |
Cyclicality, Seasonality and Revenue Concentrations
Broadcast stations like ours rely on advertising revenue and are therefore sensitive to cyclical changes in the economy. As a result, our non-political advertising revenue has improved along with the general economic environment since 2010. Our political advertising revenue is generally not as significantly affected by economic slowdowns or recessions as our non-political advertising revenue.
Broadcast advertising revenue is generally highest in the second and fourth quarters each year. This seasonality results partly from increases in consumer advertising in the spring and retail advertising in the period leading up to and including the Christmas holiday season. Broadcast advertising revenue is also typically higher in even-numbered years due to spending by political candidates, political parties and special interest groups during the “on year” of the two-year political advertisingelection cycle. This political advertising spending typically is heaviest during the fourth quarter. In addition, the broadcast of Olympic Games by our NBC-affiliated stations during even-numbered years generally leads to increased viewership and revenue during those years.
Our broadcast advertising revenue is earned from the sale of advertisements broadcast by our stations. Although no single customer represented more than 5% of our broadcast advertising revenue for the years ended December 31, 2016, 20152019, 2018 or 2014,2017, we derived a material portion of our non-political broadcast advertising revenue from advertisers in a limited number of industries, particularly the automotive industry. For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, we derived approximately 22%25%, 24% and 21%, respectively, of our total broadcast advertising revenue from our customers in the automotive industry. Revenue from this industry representsmay represent a higher percentage of total revenue in odd-numbered years due to, among other things, the increased availability of advertising time, as a result of such years being the “off year” of the two year political advertisingtwo-year election cycle. Our results of operations and financial condition could be materially adversely affected if broadcast advertising revenue from the automotive industry, or certain other industries, such as the medical, restaurant, communications and furniture and appliance industries, were to decline.
Markets and Stations
We operate in markets below the top 50 DMAsStation Network Affiliations. In addition to affiliations with ABC, CBS, NBC and have significant operations in markets with universities and state capitals. Our markets include 36 universities, representing enrollment of approximately 784,000 students, and 11 state capitals. We believe markets with universities and state capitals provide significant advantages, as they generally offer more favorable advertising demographics, more stable economics and a stronger affinity between local stations and university sports teams.
We have strong, market leading positions inFOX, our markets. We believe a key driver for our strong market position is the strength of our local news and information programs. We believe that our market position and our strong local revenue streams have enabled us to maintain more stable revenues compared to many of our peers.
Wesecondary channels are diversified across our markets and network affiliations. In 2016, our largest market by revenue was Springfield, Missouri, which contributed approximately 5% of our revenue for 2016. In 2015, our largest market by revenue was Charleston/Huntington, West Virginia, which contributed approximately 6% of our revenue for 2015. Our top 10 markets by Company revenue contributed approximately 36% and 38% of our revenue for each of the years ended December 31, 2016 and 2015, respectively. For the years ended December 31, 2016 and 2015, our NBC-affiliated channels accounted for 36% and 34%, respectively, of our revenue; our CBS-affiliated channels accounted for 35% and 36%, respectively, of our revenue; our ABC-affiliated channels accounted for 18% and 20%, respectively, of our revenue; and our FOX-affiliated channels accounted for approximately 1% and 2%, respectively, of our revenue.
In each of our markets, we own and/or operate at least one station broadcasting a primary channel affiliated with numerous smaller networks and program services including, among others, the Big Four networks. We also own additional stations in some markets, some of which also broadcast primary channels affiliated with one ofCW Network or the Big Four networks. The majorityCW Plus Network (collectively, “CW”), MY Network (“MY” or “My Network”), the MeTV Network, Justice, Circle, This TV Network, Antenna TV, Telemundo (“Tel.”), Cozi, Heroes and Icons (“H&I”) and MOVIES! Network. Certain of our stations also broadcast secondary digital channels that are affiliated with more than one network simultaneously. We also broadcast independent and local news/weather channels in some markets.
On January 1, 2020, Circle Media, LLC (“Circle”), a Nashville, Tennessee based joint venture between Opry Entertainment Group, a subsidiary of Ryman Hospitality Properties, and Gray launched a new country music and lifestyle television network on the secondary channels of numerous television stations. Circle offers various networks. The terms of our affiliations with these networks are governed by network affiliation agreements. Each network affiliation agreement provides the affiliated station with the right to broadcast all programs transmitted by the affiliated network. Our network affiliationcontent including entertainment news, documentaries, movies, archival, new and licensed programming, Grand Ole Opry performances, and more. Circle has now launched on Gray Television stations in 56 markets as well as on stations in markets such as New York, Los Angeles, Philadelphia, Dallas-Ft. Worth, Atlanta, Nashville, and many others through separate distribution agreements with the Big Four broadcast networks currently expire at various dates through December 2020.
The following table provides information about our owned and/or operatedCBS television stations as of February 21, 2017:and other broadcasters.
Primary | ||||||||||||||||
Broadcast | Primary Channel | |||||||||||||||
Station | Network | License | Station | News | ||||||||||||
DMA | Designated Market Area | Call | Affiliation | Expiration | Rank in | Rank in | ||||||||||
Rank (a) | ("DMA") | Letters | (b) | Date (c) | DMA (d) | DMA (e) | ||||||||||
| 62 | Knoxville, TN | WVLT | CBS | 8/1/2021 | 3 | 3 | ||||||||||
| 62 | Knoxville, TN | WBXX | CW | 8/1/2021 | 5 | 5 | ||||||||||
| 63 | Lexington, KY | WKYT | CBS | 8/1/2021 | 1 | 1 | ||||||||||
(f) | Hazard, KY | WYMT | CBS | 8/1/2021 | 1 | 1 | ||||||||||
| 66 | Wichita/Huthcinson, KS | KWCH | CBS | 6/1/2022 | 1 | 1 | ||||||||||
| 66 | Wichita/Huthcinson, KS | KSCW | CW | 6/1/2022 | 5 | 4 | ||||||||||
| 66 | Wichita/Huthcinson, KS | KDCU | (g) | UNI | 6/1/2022 | 6 | 6 | |||||||||
| 66 | (Ensign, KS) | KBSD | (h) | CBS | 6/1/2022 | |||||||||||
| 66 | (Goodland, KS) | KBSL | (h) | CBS | 6/1/2022 | |||||||||||
| 66 | (Hays, KS) | KBSH | (h) | CBS | 6/1/2022 | |||||||||||
| 67 | Roanoke/Lynchburg, VA | WDBJ | CBS | 10/1/2020 | 1 | 1 | ||||||||||
| 68 | Green Bay/Appleton | WBAY | ABC | 12/1/2021 | 2 | 2 | ||||||||||
| 70 | Charleston/Huntington, WV | WSAZ | NBC | 10/1/2020 | 1 | 1 | ||||||||||
| 70 | Charleston/Huntington, WV | WQCW | CW | 10/1/2021 | 6 | 5 | ||||||||||
| 72 | Flint/Saginaw/Bay City, MI | WJRT | ABC | 10/1/2021 | 2 | 2 | ||||||||||
| 74 | Omaha, NE | WOWT | NBC | 6/1/2022 | 2 | 2 | ||||||||||
| 75 | Springfield, MO | KYTV | NBC | 2/1/2022 | 1 | 1 | ||||||||||
| 75 | Springfield, MO | KYCW | CW | 2/1/2022 | 4 | 4 | ||||||||||
| 75 | Springfield, MO | KSPR | ABC | 2/1/2022 | 3 | 2 | ||||||||||
| 75 | Springfield, MO | KGHZ | (i) | Ant. | 2/1/2022 | (i) | (j) | |||||||||
| 78 | Toledo, OH | WTVG | ABC | 10/1/2021 | 2 | 1 | ||||||||||
| 80 | Madison, WI | WMTV | NBC | 12/1/2021 | 2 | 1 | ||||||||||
| 87 | Waco/Temple/Bryan, TX | KWTX | CBS | 8/1/2022 | 1 | 1 | ||||||||||
| 87 | Waco/Temple/Bryan, TX | KBTX | CBS | 8/1/2022 | 4 | 3 | ||||||||||
| 88 | Colorado Springs/Pueblo, CO | KKTV | CBS | 4/1/2022 | 1 | 2 | ||||||||||
| 90 | Cedar Rapids, IA | KCRG | ABC | 2/1/2022 | 1 | 1 | ||||||||||
| 96 | South Bend/Elkhart, IN | WNDU | NBC | 8/1/2021 | 2 | 2 | ||||||||||
| 100 | Greenville/New Bern/ | WITN | NBC | 12/1/2020 | 1 | 1 | ||||||||||
Washington, NC | ||||||||||||||||
| 101 | Davenport, IA (Quad Cities) | KWQC | NBC | 2/1/2022 | 1 | 1 | ||||||||||
| 105 | Lincoln/Hastings/Kearney, NE | KOLN | CBS | 6/1/2022 | 1 | 1 | ||||||||||
| 105 | (Grand Island, NE) | KGIN | (h) | CBS | 6/1/2022 | |||||||||||
| 105 | Lincoln/Hastings/Kearney, NE | KSNB | NBC | 6/1/2022 | 4 | 4 | ||||||||||
| 107 | Tallahassee, FL/Thomasville, GA | WCTV | CBS | 4/1/2021 | 1 | 1 | ||||||||||
| 109 | Sioux Falls, SD | KSFY | ABC | 4/1/2022 | 2 | 2 | ||||||||||
| 109 | (Aberdeen, SD) | KABY | (h) | ABC | 4/1/2022 | |||||||||||
| 109 | (Pierre, SD) | KPRY | (h) | ABC | 4/1/2022 | |||||||||||
| 111 | Augusta, GA/Aiken, SC | WRDW | CBS | 4/1/2021 | 2 | 2 | ||||||||||
| 111 | Augusta, GA/Aiken, SC | WAGT | NBC | 4/1/2021 | 3 | 3 | ||||||||||
| 112 | Reno, NV | KOLO | ABC | 10/1/2022 | 2 | 3 | ||||||||||
| 113 | Lansing, MI | WILX | NBC | 10/1/2021 | 2 | 2 | ||||||||||
| 116 | Fargo/Valley City, ND | KVLY | NBC/CBS | 4/1/2022 | 1 | 2 | ||||||||||
| 116 | Fargo/Valley City, ND | KXJB | CBS | 4/1/2022 | 3 | 5 | ||||||||||
| 129 | La Crosse/Eau Claire, WI | WEAU | NBC | 12/1/2021 | 1 | 1 | ||||||||||
| 134 | Wausau/Rhinelander, WI | WSAW | CBS | 12/1/2021 | 1 | 2 | ||||||||||
| 134 | Wausau/Rhinelander, WI | WZAW | FOX | 12/1/2021 | 4 | 4 | ||||||||||
| 135 | Topeka, KS | WIBW | CBS | 6/1/2022 | 1 | 1 | ||||||||||
| 137 | Monroe/El Dorado, LA | KNOE | CBS/ABC | 6/1/2021 | 1 | 1 | ||||||||||
| 138 | Rockford, IL | WIFR | CBS | 12/1/2021 | 1 | 1 | ||||||||||
Stations owned and/or operated by Gray Television, Inc. (continued):
Primary | ||||||||||||||||
Broadcast | Primary Channel | |||||||||||||||
Station | Network | License | Station | News | ||||||||||||
DMA | Designated Market Area | Call | Affiliation | Expiration | Rank in | Rank in | ||||||||||
Rank (a) | ("DMA") | Letters | (b) | Date (c) | DMA (d) | DMA (e) | ||||||||||
| 140 | Minot/Bismarck/Dickinson, ND | KFYR | NBC | 4/1/2022 | 1 | 1 | ||||||||||
| 140 | (Minot, ND) | KMOT | (h) | NBC | 4/1/2022 | |||||||||||
| 140 | (Williston, ND) | KUMV | (h) | NBC | 4/1/2022 | |||||||||||
| 140 | (Dickinson, ND) | KQCD | (h) | NBC | 4/1/2022 | |||||||||||
| 140 | Minot/Bismarck/Dickinson, ND | KNDX | FOX | 4/1/2022 | 3 | 3 | ||||||||||
| 140 | (Minot, ND) | KXND | (h) | FOX | 4/1/2022 | |||||||||||
| 143 | Odessa/Midland, TX | KOSA | CBS | 8/1/2022 | 1 | 1 | ||||||||||
| 147 | Anchorage, AK | KTUU | NBC | 2/1/2023 | 1 | 1 | ||||||||||
| 147 | Anchorage, AK | KYES | MY | 2/1/2023 | 6 | (j) | ||||||||||
| 152 | Albany, GA | WSWG | CBS | 4/1/2021 | 3 | (j) | ||||||||||
| 154 | Panama City, FL | WJHG | NBC | 2/1/2021 | 1 | 1 | ||||||||||
| 154 | Panama City, FL | WECP | CBS | 2/1/2021 | 3 | 4 | ||||||||||
| 162 | Sherman, TX/Ada, OK | KXII | CBS/FOX | 8/1/2022 | 1 | 1 | ||||||||||
| 162 | (Paris, TX) | KXIP | (h) | CBS | 8/1/2022 | |||||||||||
| 169 | Clarksburg/Weston, WV | WDTV | (g) | CBS | 10/1/2020 | 2 | 2 | |||||||||
| 169 | Clarksburg/Weston, WV | WVFX | (g) | FOX | 10/1/2020 | 4 | 4 | |||||||||
| 172 | Rapid City, SD | KOTA | ABC | 4/1/2022 | 1 | 1 | ||||||||||
| 172 | Rapid City, SD | KEVN | FOX | 4/1/2022 | 4 | 3 | ||||||||||
| 172 | (Lead, SD) | KHSD | (h) | ABC/FOX | 4/1/2022 | |||||||||||
| 172 | (Sheridan, WY) | KSGW | (h) | ABC | 4/1/2022 | |||||||||||
| 173 | Dothan, AL | WTVY | CBS | 4/1/2021 | 1 | 1 | ||||||||||
| 173 | Dothan, AL | WRGX | NBC | 4/1/2021 | 4 | 5 | ||||||||||
| 177 | Harrisonburg, VA | WHSV | ABC | 10/1/2020 | 1 | 1 | ||||||||||
| 177 | Harrisonburg, VA | WSVF | FOX/CBS | 10/1/2020 | 4 | 3 | ||||||||||
| 179 | Alexandria, LA | KALB | NBC/CBS | 6/1/2021 | 1 | 1 | ||||||||||
| 180 | Marquette, MI | WLUC | NBC/FOX | 10/1/2021 | 1 | 1 | ||||||||||
| 181 | Bowling Green, KY | WBKO | ABC/FOX | 8/1/2021 | 1 | 1 | ||||||||||
| 183 | Charlottesville, VA | WCAV | CBS | 10/1/2020 | 2 | 2 | ||||||||||
| 183 | Charlottesville, VA | WVAW | ABC | 10/1/2020 | 3 | 7 | ||||||||||
| 183 | Charlottesville, VA | WAHU | FOX | 10/1/2020 | 4 | 3 | ||||||||||
| 184 | Laredo, TX | KGNS | NBC/ABC | 8/1/2022 | 1 | 1 | ||||||||||
| 184 | Laredo, TX | KYLX | CBS | 8/1/2022 | 2 | 5 | ||||||||||
| 186 | Grand Junction/Montrose, CO | KKCO | NBC | 4/1/2022 | 2 | 1 | ||||||||||
| 186 | Grand Junction/Montrose, CO | KJCT | ABC | 4/1/2022 | 3 | 3 | ||||||||||
| 190 | Meridian, MS | WTOK | ABC | 6/1/2021 | 1 | 1 | ||||||||||
| 191 | Twin Falls, ID | KMVT | CBS | 10/1/2022 | 1 | 1 | ||||||||||
| 191 | Twin Falls, ID | KSVT | FOX | 10/1/2022 | 5 | 4 | ||||||||||
| 194 | Parkersburg, WV | WTAP | NBC | 10/1/2020 | 1 | 1 | ||||||||||
| 194 | Parkersburg, WV | WIYE | CBS | 10/1/2020 | 2 | (j) | ||||||||||
| 194 | Parkersburg, WV | WOVA | FOX | 10/1/2020 | 4 | 2 | ||||||||||
| 197 | Casper/Riverton, WY | KCWY | NBC | 10/1/2022 | 1 | 1 | ||||||||||
| 198 | Cheyenne, WY/Scottsbluff, NE | KGWN | CBS | 10/1/2022 | 1 | 1 | ||||||||||
| 198 | (Scottsbluff, NE) | KSTF | (h) | CBS | 6/1/2022 | |||||||||||
| 198 | Cheyenne, WY/Scottsbluff, NE | KCHY | NBC | 10/1/2022 | 2 | 2 | ||||||||||
| 202 | Fairbanks, AK | KXDF | CBS | 2/1/2023 | 1 | 2 | ||||||||||
| 202 | Fairbanks, AK | KTVF | NBC | 2/1/2023 | 2 | 1 | ||||||||||
| 202 | Fairbanks, AK | KFXF | FOX | 2/1/2023 | 3 | (j) | ||||||||||
| 206 | Presque Isle, ME | WAGM | CBS/FOX | 4/1/2023 | 1 | 1 | ||||||||||
| 209 | North Platte, NE | KNOP | NBC | 6/1/2022 | 1 | 1 | ||||||||||
| 209 | (Scottsbluff, NE) | KNEP | (h) | ABC/NBC | 6/1/2022 | |||||||||||
| 209 | North Platte, NE | KNPL | CBS | 6/1/2022 | 2 | 3 | ||||||||||
| 209 | North Platte, NE | KIIT | FOX | 6/1/2022 | 3 | 6 | ||||||||||
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Station Network Affiliations
The Big Four major broadcast networks dominate broadcast television in terms of the amount of viewership that their original programming attracts. The “Big Three” major broadcast networks of ABC,CBS, NBC, and CBSABC provide their respective network affiliates with a majority of the programming broadcast each day. FOX CW and My NetworkCW provide their affiliates with a smaller portion of each day’s programming compared to the Big Three networks. The CW Plus Network generally provides programming for the entire broadcast day for CW affiliates in markets smaller than the top 100 DMAs.
We believe most successful commercial television stations obtain their brand identity from locally produced news programs. Notwithstanding this, however, the affiliation of a station’s channels with one of the Big Four major networks can have a significant impact on the station’s programming, revenues, expenses and operations. A typical network provides an affiliate with network programming in exchange for a substantial majority of the advertising time available for sale during the airing of the network programs. The network then sells this advertising time and retains the revenue. The affiliate sells the remaining advertising time available within the network programming and non-network programming, and the affiliate retains most or all of such revenue from these sales. In seeking to acquire programming to supplement network-supplied programming, which we believe is critical to maximizing affiliate revenue, affiliates compete primarily with other affiliates and independent stations in their markets as well as, in certain cases, various national non-broadcast networks (“cable networks”) and various video streaming services that present competitive programming. The Big Four networks and CW charge fees to their affiliates for receiving network programming.
A television station may also acquire programming through barter arrangements. Under a programming barter arrangement, a national program distributor retains a fixed amount of advertising time within the program in exchange for the programming it supplies. The television station may pay a fixed fee for such programming.
We record revenue and expense for trade transactions involving the exchange of tangible goods or services with our customers. The revenue is recorded at the time the advertisement is broadcast and the expense is recorded at the time the goods or services are used. The revenue and expense associated with these transactions are based on the fair value of the assets or services received.
We do not account for barter revenue and related barter expense generated from network or syndicated programming as such amounts are not material. Furthermore, any such barter revenue recognized would then require the recognition of an equal amount of barter expense. The recognition of these amounts would not have a material effect upon net income.
Affiliates of FOX CW and MY NetworkCW must purchase or produce a greater amount of programming for their non-network time periods, generally resulting in higher programming costs. However, affiliates of FOX CW and My NetworkCW retain a larger portion of their advertising time inventory and the related revenues compared to Big Three affiliates.
Competition
Television stations compete for audiences, certain programming (including news) and advertisers. Cable network programming is a significant competitor of broadcast television programming. However, noNo single cable network regularly attains audience levels of those of any major broadcast network. Cable networks’ advertising share has increased due to the growth in the number of homes that subscribe to a pay-TV service from MVPDs. Despite increasing competition from cable channels, digital platforms, social media, and internet-delivered video channels, television broadcasting remains the dominant distribution system for mass-market television advertising. Signal coverage and carriage on MVPD systems also materially affect a television station’s competitive position.
AudienceAudience.
Stations compete for audience based on broadcast program popularity, which has a direct effect on advertising rates. Networks supply a substantial portion of our affiliated stations’ daily programming. Affiliated stations depend on the performance of the network programs to attract viewers. There can be no assurance that any such current or future programming created by our affiliated networks will achieve or maintain satisfactory viewership levels. Stations program non-network time periods with a combination of locally produced news, public affairs and entertainment programming, including national news or syndicated programs purchased for cash, cash and barter, or barter only.
MVPD systems have significantly altered the competitive landscape for audience in the television industry. Specifically, MVPD systems can increase a broadcasting station’s competition for viewers by bringing into the market both cable networks and distant television station signals not otherwise available to the station’s audience.
Other sources of competition for audiences, programming and advertisers include internet websites, mobile applications and wireless carriers, direct-to-consumer video distribution systems, and home entertainment systems.
Recent developments by many companies, including internet service providers and internet website operators have expanded, and are continuing to expand, the variety and quality of broadcast and non-broadcast video programming available to consumers via the internet. Internet companies have developed business relationships with companies that have traditionally provided syndicated programming, network television and other content. As a result, additional programming has, and is expected to further become, available through non-traditional methods, which can directly impact the number of TV viewers, and thus indirectly impact station rankings, popularity and revenue possibilities of our stations.
ProgrammingProgramming.
Competition for non-network programming involves negotiating with national program distributors, or syndicators, that sell “first run” and “off network” or rerun programming packages. Each station competes against the other broadcast stations in its market for exclusive access to first run programming (such asWheel of Fortune) and off network reruns (such asSeinfeld). Broadcast stations also compete also for exclusive news stories and features. While cableCable networks orand internet service providers generally do not compete with local stations for programming, some national cable networks or internet service providers from time to time have acquired programs that would have been offered to, or otherwise might have been broadcast by, local television stations.programming.
AdvertisingAdvertising.
Advertising revenues comprise the primary source of revenues for our stations. Our stations compete with other television stations for advertising revenues in their respective markets. Our stations also compete for advertising revenuemarkets with other media, suchtelevision stations, digital platforms including Google and Facebook, local cable and other MVPD systems, as well as local newspapers, radio stations, magazines, outdoor advertising, transit advertising, yellow page directories and direct mail, internet websites, and local cable and other MVPD systems. In the broadcast industry, advertising revenue competition occurs primarily within individual markets.mail.
Federal Regulation of the Television Broadcast Industry
General
. Under the Communications Act of 1934 (the “Communications Act”), television broadcast operations such as ours are subject to the jurisdiction of the FCC. Among other things, the Communications Act empowers the FCC to: (i) issue, revoke and modify broadcasting licenses; (ii) regulate stations’ operations and equipment; and (iii) impose penalties for violations of the Communications Act or FCC regulations. The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior FCC approval.
License Grant and RenewalRenewal.
The FCC grants broadcast licenses to television stations for terms of up to eight years. Broadcast licenses are of paramount importance to the operations of television stations. The Communications Act requires the FCC to renew a licensee’s broadcast license if the FCC finds that: (i) the station has served the public interest, convenience and necessity; (ii) there have been no serious violations of either the Communications Act or the FCC’s rules and regulations; and (iii) there have been no other violations which, taken together, would constitute a pattern of abuse. Historically the FCC has renewed broadcast licenses in substantially all cases. While we are not currently aware of any facts or circumstances that might prevent the renewal of our stations’ licenses at the end of their respective license terms, we cannot provide any assurances that any license will be renewed. Our failure to renew any licenses upon the expiration of any license term could have a material adverse effect on our business. Under the Communications Act, the term of a broadcast license is automatically extended pending the FCC’s processing of a renewal application. For further information regarding the expiration dates of our stations’ current licenses and renewal application status, see the table under the heading “Markets and Stations.”
Media Ownership Restrictions and FCC ProceedingsProceedings.
The FCC’s broadcast ownership rules affect the number, type and location of broadcast and newspaper properties that we may hold or acquire. The FCC adopted significant changes to its ownership rules, nowwhich took effect in effectFebruary 2018. However, in November 2019, the U.S. Court of Appeals for the Third Circuit issued a mandate that vacated the FCC’s changes and reinstated the prior ownership rules. The reinstated rules limit the common ownership, operation or control of, and “attributable” interests or voting power in: (i) television stations serving the same area; (ii) television stations and daily newspapersradio stations serving the same area;area, and (iii) daily newspapers and television stations andor radio stations serving the same area. The rules also limit the aggregate national audience reach of television stations that may be under common ownership, operation and control, or in which a single person or entity may hold an official position or have more than a specified interest or percentage of voting power. The FCC’s rules also define the types of positions and interests that are considered attributable for purposes of the ownership limits, and thus also apply to our principals and certain investors.
The FCC is required by statute to review all of its broadcast ownership rules every four years to determine if such rules remain necessary in the public interest. In August 2016,December 2018, the FCC released an Order that retained, with only a minor technical modification,began the new quadrennial review of its local television ownership rules. In that Order,its Notice of Proposed Rulemaking (“NPRM”), the FCC also reinstatedis seeking comments on competition in the local television marketplace, including: (i) whether its previous decisioncurrent two-stations to treata market limit should be relaxed or tightened, (ii) whether it should modify its general prohibition on owning two stations ranked among the top-four in a market, (iii) if the FCC’s television Joint Sales Agreements (“JSAs”) as an attributable ownership interestwhenmarket analysis should consider the brokering station sells more than 15% offactors the advertising time ofDOJ applies to local television issues, and (iv) how the brokered station. The National Association of Broadcasters has filed an appeal challenging this Order.FCC should evaluate competition among television stations.
Local TV Ownership RulesRules.
The FCC’s current television ownership rules allow one entity to own two commercial television stations in a DMA as long as the specified service contours of the stations do not overlap or, if they do, no more thanat least one of thosethe stations is not ranked among the top four stations in the DMA and eight independently owned, full-power stations will remain in the DMA. Waivers of this rule may be available if at least one of the stations in a proposed combination qualifies, pursuant to specific criteria set forth in the FCC’s rules, as failed, failing, or unbuilt.
Cross-Media LimitsLimits.
The newspaper/broadcast cross-ownership rule generally prohibits one entity from owning both a commercial broadcast station and a daily newspaper in the same community. The radio/television cross-ownership rule allows a party to own one or two TV stations and a varying number of radio stations within a single market.
National Television Station Ownership RuleRule.
The maximum percentage of U.S. households that a single owner can reach through commonly owned television stations is 39 percent. This limit was specified by Congress in 2004. The FCC applies a 50 percent “discount” for ultra-high frequency (“UHF”) stations. In September 2016,December 2017, the FCC adoptedCommission issued an Order that eliminatedNPRM seeking comment on whether it should modify or eliminate the national cap, including the UHF discount but grandfathered existing combinations that exceed the 39 percent cap. A Petition for Reconsideration of this rule change is pending.
Conclusiondiscount.
Conclusion. The FCC’s media ownership proceedings are on-going and, in many cases, are or will be subject to further judicial and potentially Congressional review. We cannot predict the outcome of any of these current or potential proceedings.
Attribution RulesRules.
Under the FCC’s ownership rules, a direct or indirect purchaser of certain types of our securities could violate FCC regulations if that purchaser owned or acquired an “attributable” interest in other mediabroadcast and daily newspaper properties in the same areas as one or more of our stations. Pursuant to FCC rules, the following relationships and interests are generally considered attributable for purposes of broadcastmedia ownership restrictions: (i) all officers and directors of a corporate licensee and its direct or indirect parent(s); (ii) voting stock interests of at least five percent; (iii) voting stock interests of at least 20 percent, if the holder is a passive institutional investor (such as an investment company, as defined in 15 U.S.C. 80a-3, bank, or insurance company); (iv) any equity interest in a limited partnership or limited liability company, unless properly “insulated” from management activities; (v) equity and/or debt interests that in the aggregate exceed 33 percent of a licensee’s total assets, if the interest holder supplies more than 15 percent of the station’s total weekly programming or is a same-market television broadcast company or daily newspaper publisher;company; and (vi) time brokerage of a television broadcast station by a same-market television broadcast company providing more than 15 percent of the station’s weekly programming; and (vii) same-market television and radio joint sales agreements, wherein the broker provides more than 15 percent of the station’s weekly advertising time.programming.
Management services agreements and other types of shared services arrangements between same-market stations that do not include attributable time brokerage or joint sales components generally are not deemed attributable under the FCC’s current rules and policies. However, the FCC previously requested comment on whether local news service agreements and/or shared services agreements should be considered attributable for purposes of applying the media ownership rules. In a December 2013 Memorandum Opinion and Order granting a transfer of control application that included shared services arrangements, the Media Bureau cautioned broadcasters that it must consider the economic effects of, and incentives created by, each transaction on a case-by-case basis to determine whether the transaction serves the public interest, as well as complying with the FCC’s rules and prior decisions. The Department of Justice has taken steps under the antitrust laws to block certain transactions involving joint sales or other services agreements.
To our knowledge, no officer, director or five percent or greater shareholder currently holds an attributable interest in another television station radio station or daily newspaper that is inconsistent with the FCC’s ownership rules and policies or with our ownership of our stations.
Alien Ownership RestrictionsRestrictions.
The Communications Act restricts the ability of foreign entities or individuals to own or hold interests in broadcast licenses. The Communications Act bars the following from holding broadcast licenses: foreign governments, representatives of foreign governments, non-citizens, representatives of non-citizens, and corporations or partnerships organized under the laws of a foreign nation. Foreign individuals or entities, collectively, may directly or indirectly own or vote no more than 20 percent of the capital stock of a licensee or 25 percent of the capital stock of a corporation that directly or indirectly controls a licensee. The 20 percent limit on foreign ownership of a licensee may not be waived. Currently,In September 2016, the Commission has separate review standards for foreign ownership in the broadcast and common carrier contests. In November 2013, the FCC issued a Declaratory Ruling clarifyingadopted an Order that it would consider, on a case-by-case basis, proposals for foreign investment in the parent company of a broadcast licensee in excess of 25 percent. Prior to this ruling, the FCC applied ade facto 25 percent cap on such investments. Subsequently, in October 2015, the FCC issued a Notice of Proposed Rulemaking (“Foreign Ownership NPRM”) seeking comment on whether it should simplify the foreign ownership approval process forallows broadcast licensees by extending theto use streamlined rules and procedures that applywhen filing a petition for declaratory ruling seeking FCC approval to common carrier licensees to the broadcast industry. The Foreign Ownership NPRM asks whether and how to revise the methodology a licensee should use to assess its compliance withexceed the 25 percent foreign ownership benchmarks.benchmark for a parent company. The Commission also clarified the methodology for publicly traded broadcasters to assess compliance with the foreign ownership limits.
We serve as a holding company for our subsidiaries, including subsidiaries that hold station licenses. Therefore, absent a grant of a declaratory ruling, we may be restricted from having more than one-fourth of our stock owned or voted directly or indirectly by non-citizens, foreign governments, representatives of non-citizens or foreign governments, or foreign corporations.
Programming and OperationsOperations.
Rules and policies of the FCC and other federal agencies regulate certain programming practices and other areas affecting the business or operations of broadcast stations.
The Children’s Television Act of 1990 limits commercial matter in children’s television programs and requires stations to present educational and informational children’s programming. Broadcasters are effectively required through license renewal processing guidelines to provide at least three hoursa certain amount of children’s educational programming per week on their primary channels and on each secondary channel.channels. In October 2009,July 2019, the FCC issued a Notice of Inquiry (“NOI”) seeking comment on a broad range of issues relatedan Order that adopted sweeping changes to children’s usage of electronic media and the current regulatory landscape that governschildren’s programming rules giving broadcasters increased flexibility in how they choose to serve the availabilityeducational and informational needs of electronic media to children. The NOI remains pending, and we cannot predict what recommendations or further action, if any, will result from it.
Over the past several years, the FCC has increased its enforcement efforts regarding broadcast indecency and profanity and the statutory maximum fine for broadcasting indecent material is currently $325,000$414,454 per incident. In June 2012, the Supreme Court decided a challenge to the FCC’s indecency enforcement without resolving the scope of the FCC’s ability to regulate broadcast content. In August 2013, theThe FCC issued a Public Notice seekinghas sought comment on whether it should modify its indecency policies. The FCCpolicies, but has not yet issued a decision in this proceeding, and the courts remain free to review the FCC’s current policy or any modifications thereto.proceeding. The outcomesoutcome of these proceedingsthis proceeding could affect future FCC policies in this area, and we are unable to predict the outcome of any such judicial proceeding, which could have a material adverse effect on our business.
EEO Rules
Rules. The FCC’s Equal Employment Opportunity (“EEO”) rules impose job information dissemination, recruitment, documentation and reporting requirements on broadcast station licensees. Broadcasters are subject to random audits to ensure compliance with the EEO rules and may be sanctioned for noncompliance.
MVPDRetransmission of Local Television SignalsSignals.
Under the Communications Act and FCC regulations, each television station generally has a so-called “must-carry” right to carriage of its primary channels on all MVPD systems serving their market. Each commercial television station may elect between invoking its “must carry” right or invoking a right to prevent an MVPD system from retransmitting the station’s signal without its consent (“retransmission consent”). Stations must make this election by October 1 every three years, and stations most recently made such elections by October 1, 2014.years. Such elections are binding throughout the three-year cycle that commences on the subsequent January 1. The current carriageelection cycle commenced on January 1, 2015,2018 and ends on December 31, 2017.2020. Our stations have elected retransmission consent and have entered into retransmission consent contracts with virtually all MVPD systems serving their markets.markets.Elections for the three-year cycle beginning January 1, 2021 need to be made by October 1, 2020.
On March 31, 2014,In accordance with STELAR, the FCC amended itshas promulgated rules governing “good faith”that (i) grant DBS providers the right to seek market modifications based on factors similar to those used in the cable industry, (ii) broadened the FCC’s prohibition against joint retransmission consent negotiations to provide that it is a per se violation of the statutory duty to negotiate in good faith for a television broadcast station that is ranked among the top-fourby prohibiting joint retransmission negotiations by any stations in a market (as measured by audience share) to negotiate retransmission consent jointly with another top-four station in the same market if the stations areDMA not commonly owned. As part of the STELA Reauthorization Act of 2014 (“STELAR”), Congress further tightened the restriction tounder common control, (iii) prohibit joint negotiation with anya television station infrom limiting the sameability of an MVPD to carry into its local market unlesstelevision signals that are deemed significantly viewed, and (iv) eliminated the “sweeps prohibition,” which had precluded cable operators from deleting or repositioning local commercial television stations are under commonde jure control. during “sweeps” ratings periods.
We currently are not a party to any agreements that delegate our authority to negotiate retransmission consent for any of our television stations or grant us authority to negotiate retransmission consent for any other television station. Nevertheless, we cannot predict how thisthe FCC’s restriction on joint negotiation might impact future opportunities.
The FCC also has sought comment on whether it should modify or eliminate the network non-duplication and syndicated exclusivity rules. We cannot predict the outcome of this proceeding. If, however, the FCC eliminates or relaxes its rules enforcing our program exclusivity rights, it could affect our ability to negotiate future retransmission consent agreements, and it could harm our ratings and advertising revenue if cable and satellite operators import duplicative programming.
In June 2014, the Supreme Court issued a ruling finding that theCertain online video distributors (“OVDs”) have explored streaming of broadcast programming over the internet without the consent of the copyright owner of the programming. The majority of federal courts have sided with broadcasters and enjoined OVDs from streaming broadcast programming. Recently, a new OVD, organized as a non-profit, began offering free access to broadcast programming wasin select cities over the Internet. This OVD argues that its retransmission of broadcast signals via the Internet is covered by an exemption from copyright liability applicable to non-profit entities. In July 2019, the major broadcast networks and certain affiliated entities filed a public performance that infringed uponcopyright suit in the copyright owners’ rights. BroadcastersUnited States District Court for the Southern District of New York challenging this OVD’s operations. That suit remains pending and other copyright owners had aggressively pursued injunctions against the companies offering these services in multiple jurisdictions. OVD has continued its operations.
On December 19, 2014, the FCC issued a Notice of Proposed Rulemaking (“NPRM”)an NPRM seeking comment on its proposal to modernize the term “MVPD” to be technology neutral. If the NPRM proposal is adopted, an entity that uses the internet to distribute multiple streams of linear programming would be considered an MVPD and would have the same retransmission consent rights and obligations as other MVPDs, including the right to negotiate with television stations to carry their broadcast signals. The FCC also asked about the possible copyright implications of this proposal. We cannot predict the outcome of the FCC’s interpretive proceedings.
STELAR wasIn December 2019, the Satellite Television Community Protection and Promotion Act of 2019 and the Television Viewer Protection Act of 2019 (the “TVPA of 2019”) were signed into law on December 4, 2014. STELAR extendslaw. Among other things, these acts (i) made permanent the rightcopyright license set out in Section 119 of satellite TV operatorsthe Copyright Act; (ii) limited eligibility for use of the Section 119 license to retransmit the signalsignals of network television broadcast stations for an additional five years and grants an extension of their compulsory copyright license for the carriage of distant TV signals. In accordance with STELAR, the FCC has promulgated rules that (i) grant DBS providers the right to seek market modifications based on factors similarunserved households to those usedsatellite operators who provide local-into-local service to all DMAs; and (iii) modified the definition of unserved households to those households located in a “short market” (which, in turn, was defined as a local market in which programming of one or more of the cable industry and cable operatorstop four networks is not offered on either the right to deleteprimary or reposition channels during “sweeps,” (ii) broadened the FCC’s prohibition against joint retransmission negotiations by directing the FCC to prohibit joint retransmission negotiationsmulticast stream by any stationsnetwork station in that market). The TVPA of 2019 also made permanent the same DMA not under common control, (iii) prohibit a television station from limiting the ability of an MVPD to carry into its local market television signalsrequirement that are deemed significantly viewed, and (iv) eliminated the “sweeps prohibition,” which had precluded cable operators from deleting or repositioning local commercial television stations during “sweeps” ratings periods.
In September 2015, the FCC, in accordance with STELAR, issued a notice of proposed rulemaking to review the “totality of the circumstances test” used to evaluate whether broadcast stationsbroadcasters and MVPDs are negotiating for retransmission consentnegotiate in good faith. We cannot predict the outcome of this proceeding. If, however, the FCC revises the totality of the circumstances test, it could affect our abilityfaith and adds a provision that will (i) allow MVPDs to designate a buying group to negotiate retransmission consent agreements includingon their behalf and (ii) require large stations groups, such as the rates that we obtain from MVPDs.Company, to negotiate in good faith with a qualified MVPD buying group.
Broadcast Spectrum
In February 2012, Congress passed legislation that grantsThe Incentive Auction concluded in 2017 requiring the FCC authority to conduct an auctionreallocate 84 MHz of certain spectrum currently used by television broadcasters. On May 15, 2014, the FCC adopted a Report and Order (the “2014 Report”) establishing the framework for an incentive auction of broadcast television spectrum. The 2014 Report created a two part incentive auction framework (the “Incentive Auction”). First, the FCC would conduct a reverse auction by which a television broadcaster may volunteer, in return for payment, to relinquish all or a part of its station’s spectrum by (i) surrendering its license, (ii) relinquishing a portion of its spectrum and thereafter sharing spectrum with another station, or (iii) modifying a UHF channel license to a VHF channel license. Second, the FCC would conduct a forward auction of the relinquished spectrum to new users. Applications to participate in the Incentive Auction were due by January 12, 2016 and bidding in the reverse broadcast auction began on March 29, 2016. Broadcaster bidding in the reverse auction closed on January 13, 2017. Bidding in the forward auction remains ongoing but is anticipated to end in the first halfAs part of 2017.
When the bidding in the forward auction closes, the FCC will begin thethis reallocation process, of repurposing 84 MHz of broadcast spectrum for wireless use. To accommodate the spectrum reallocation to new users, the FCC may require thatcertain television stations that did not sell their spectrum in the reverse auction were required to change channels and modify their transmission facilities.facilities (the “Repack”). The FCC iswas required to use “reasonable efforts” to preserve a station’s coverage area and population served and it prevents the FCC from requiringcannot require that a station involuntarily move from the UHF band to the VHF band or from the high VHF band to the low VHF band. The underlying legislation authorizes the FCC to reimburse stations for reasonable relocation costs up to a total across all stations of $1.75 billion. If some or all of our television stations choose to channel share or are required to change frequencies they use, our stations could incur conversion costs thatThese changes may not be fully reimbursed, orconstrain our ability to provide high definition programming and additional program streams, including mobile video services, couldservices. The underlying legislation authorizes the FCC to reimburse stations for reasonable relocation costs. In March 2018, Congress adopted the Reimbursement Expansion Act (“REA”) to expand the list of entities eligible to be constrained.reimbursed for Repack expenses to include LPTV and TV translator stations. The REA also increased the funds available to reimbursement full power and Class A stations.
The FCC interpreted the implementing legislation to allowprotected only full power and Class A television stations to participate induring the auction and receive contour protection during any post-auction repacking of the broadcast spectrum.Repack. In certain markets, our low power television stations may bewere displaced by this process. Moreover,process requiring us to locate alternate channels for ongoing operations. In an NPRM released on June 16, 2015, the FCC issued a notice of proposed rulemaking proposing to reserve one vacant channel in each market (and up to two channels in certain markets) for use by unlicensed “white spaces” devices and wireless microphones (the “Vacant Channel NPRM”). The FCC further modified the Vacant Channel NPRM on August 11, 2015 by proposing to reserve up to two channels in certain markets after the Incentive Auction is complete. Under the Vacant Channel NPRM,microphones. If the FCC would refuse to grant an application to modifyadopts this proposal, it could limit the facilitiesability of aour low power television stationstations to locate an alternate channel if the applicant could not demonstrate that a sufficient number of vacant channels would remaindisplaced in the service area of the low power station after the applicant implements the modification – thus, reducing the likelihood that a low power television station would be able to locate a new channel after the Incentive Auction. These stations could incur substantial costs to locate and build a replacement facility on a new channel. If a low power television station is unable to locate a new channel on which to operate, it could lose its license.future.
We cannot predict the likelihood, timing or outcome of any court, Congressional or FCC regulatory action with respect to the Incentive Auction, or repacking of broadcast television spectrum, nor the impact of any such changes upon our business.
The foregoing does not purport to be a complete summary of the Communications Act, other applicable statutes, or the FCC’s rules, regulations or policies. Proposals for additional or revised regulations and requirements are pending before, are being considered by, and may in the future be considered by, Congress and federal regulatory agencies from time to time. We cannot predict the effect of any existing or proposed federal legislation, regulations or policies on our business. Also, several of the foregoing matters are now, or may become, the subject of litigation, and we cannot predict the outcome of any such litigation or the effect on our business.
Employees
As of February 21, 2017,2020, we had 3,7006,912 full-time employees and 2961,106 part-time employees, of which 86217 full-time and 4seven part-time employees at threefour stations were represented by various unions. We consider our relations with our employees to be good.
Corporate Information
Gray Television, Inc. is a Georgia corporation, incorporated in 1897 initially to publish the Albany Herald in Albany, Georgia. We entered the broadcast industry in 1953. Our executive offices are located at 4370 Peachtree Road, NE, Atlanta, Georgia 30319, and our telephone number at that location is(404)is (404) 504-9828. Our website address is http://www.gray.tv. The information on our website is not incorporated by reference or part of this or any other report we file with or furnish to the SEC.Securities and Exchange Commission (the “SEC”). We make the following reports filed or furnished, as applicable, with the Securities and Exchange Commission (the “SEC”)SEC available, free of charge, on our website under the heading “SEC Filings” as soon as practicable after they are filed with, or furnished to, the SEC: our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and amendments to any of the foregoing.
We have adopted a Code of Ethics (the “Code”) that applies to all of our directors, executive officers and employees. The Code is available on our website in the About UsInvestor Relations section under the subheading Governance Documents. If any waivers of the Code are granted to an executive officer or director, the waivers will be disclosed in an SEC filing on Form 8-K.
Item 1A. Risk Factors.
Risk Factors. |
In addition to the other information contained in, incorporated by reference into or otherwise referred to in this annual report on Form 10-K, you should consider carefully the following factors when evaluating our business. Any of these risks, or the occurrence of any of the events described in these risk factors, could materially adversely affect our business, financial condition or results of operations. In addition, other risks or uncertainties not presently known to us or that we currently do not deem material could arise, any of which could also materially adversely affect us. This annual report on Form 10-K also contains and incorporates by reference forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors, including the occurrence of one or more of the following risk factors.
RisksRelatedtoOurIndebtedness
We have substantial debt and have the ability to incur significant additional debt. The principal and interest payment obligations on such debt may restrict our future operations and impair our abilityability to meet our long-term obligations.
At December 31, 2016,Currently we hadhave approximately $1.8$3.8 billion in aggregate principal amount of outstanding indebtedness, excluding intercompany debt and before deducting deferred financing costs. Subject to our ability to meet certain borrowing conditions under our senior credit facility (the “2019 Senior Credit Facility”), we currently have the ability to incur significant additional debt, including secured debt under our senior credit facility (the “2017 Senior Credit Facility”),including under our un-drawn $100.0$200 million revolving credit facility. The terms of the indenture (the “2027 Notes Indenture”) governing our outstanding 7.0% senior notes due 2027 (the “2027 Notes”), the indenture (the “2026 Notes Indenture”) governing our outstanding 5.875% senior notes due 2026 (the “2026 Notes”) and the indenture (the “2024 Notes Indenture”) governing our 5.125% senior notes due 2024 (the “2024 Notes”) also permit us to incur additional indebtedness, subject to our ability to meet certain borrowing conditions.
Our substantial debt may have important consequences. For instance, it could:
● | require us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due under our debt, which would reduce funds available for other business purposes, including capital expenditures and acquisitions; |
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● | make it more difficult for us to satisfy our financial obligations. |
Our ability to service our significant financial obligations depends on our ability to generate significant cash flow. This is partially subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, that future borrowings will be available to us under our 20172019 Senior Credit Facility or any other credit facilities, or that we will be able to complete any necessary financings, in amounts sufficient to enable us to fund our operations or pay our debts and other obligations, or to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. Additional debt or equity financing may not be available in sufficient amounts, at times or on terms acceptable to us, or at all. Specifically, volatility in the capital markets may also impact our ability to obtain additional financing, or to refinance our existing debt, on terms or at times favorable to us. If we are unable to implement one or more of these alternatives, we may not be able to service our debt or other obligations, which could result in us being in default thereon, in which circumstances our lenders could cease making loans to us, and lenders or other holders of our debt could accelerate and declare due all outstanding obligations due under the respective agreements, which could have a material adverse effect on us.
Theagreementsgoverningourvariousdebtobligationsimposerestrictionsonouroperationsand limitourabilitytoundertakecertaincorporateactions.
The agreements governing our various debt obligations, including our 2019 Senior Credit Facility, the 2027 Notes Indenture, the 2026 Notes Indenture and the 2024 Notes Indenture and our 2017 Senior Credit Facility,(together, the “existing indentures” or the “indentures”), include covenants imposing significant restrictions on our operations. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. These covenants place, or will place, restrictions on our ability to, among other things:
● | incur additional debt, subject to certain limitations; |
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Any of these restrictions and limitations could make it more difficult for us to execute our business strategy.
OurThe existing indentures and our 20172019Senior Credit Facilityrequiresustocomplywithcertainfinancialratiosandorother covenants;ourfailure todosowouldresultinadefaultthereunder,whichwouldhaveamaterialadverseeffectonus.
We are required to comply with certain financial or other covenants under the existing indentures and our 20172019 Senior Credit Facility. Our ability to comply with these requirements may be affected by events affecting our business, but beyond our control, including prevailing general economic, financial and industry conditions. These covenants could have an adverse effect on us by limiting our ability to take advantage of financing, investment, acquisition or other corporate opportunities. The breach of any of these covenants or restrictions could result in a default under the existing indentures or our 20172019 Senior Credit Facility.
Upon a default under any of our debt agreements, the lenders or debtholders thereunder could have the right to declare all amounts outstanding, together with accrued and unpaid interest, to be immediately due and payable, which could, in turn, trigger defaults under other debt obligations and could result in the termination of commitments of the lenders to make further extensions of credit under our 20172019 Senior Credit Facility. If we were unable to repay our secured debt to our lenders, or were otherwise in default under any provision governing our outstanding secured debt obligations, our secured lenders could proceed against us and theour subsidiary guarantors and against the collateral securing that debt. Any default resulting in an acceleration of outstanding indebtedness, a termination of commitments under our financing arrangements or lenders proceeding against the collateral securing such indebtedness would likely result in a material adverse effect on our business, financial condition and results of operations.
Ourvariablerateindebtednesssubjectsustointerestraterisk,whichcouldcauseourannualdebtserviceobligations toincrease significantly.
Borrowings under our 20172019 Senior Credit Facility are at variable rates of interest and expose us to interest rate risk. If the London Interbank Offered Rate (“LIBOR”) or the base rate, as defined in the 2017 Senior Credit Facility,rates on which our borrowings are based were to increase from current levels, our debt service obligations on our variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash available to service our other obligations including making payments on the notes, would decrease.
RisksRelatedtoOurBusiness
TheThesuccessofsuccessourbusinessisdependentuponadvertisingrevenues,whichareseasonalandcyclical,andalsofluctuateasaresultofanumberoffactors,someofwhicharebeyondourcontrol.businessisdependentuponadvertisingrevenues,whichareseasonalandcyclical,andalsofluctuateasaresultofanumberoffactors,someofwhicharebeyondourcontrol.
Our main source of revenue is the sale of advertising time and space. Our ability to sell advertising time and space depends on, among other things:
● | economic conditions in the areas where our stations are located and in the nation as a whole; |
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● | changes in the population demographics in the areas where our stations are located; |
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local and national advertising price fluctuations, which can be affected by the availability of programming, the popularity of programming, and the relative supply of and demand for commercial advertising; |
● | our competitors’ activities, including increased competition from other advertising-based mediums, particularly digital platforms, cable networks, MVPDs and |
● | the duration and extent of any network preemption of regularly scheduled programming for any reason; |
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| labor disputes or other disruptions at major national advertisers, programming providers or networks; and |
● | other factors beyond our control. |
Our results are also subject to seasonal and cyclical fluctuations. Seasonal fluctuations typically result in higher revenue and broadcast operating income in the second and fourth quarters rather than in the first and third quarters of each year. This seasonality is primarily attributable to advertisers’ increased expenditures in the spring and in anticipation of holiday season spending in the fourth quarter and an increase in television viewership during this period. In addition, we typically experience fluctuations in our revenue and broadcast operating income between even-numbered and odd- numbered years. In years in which there are impending elections for various state and national offices, which primarily occur in even-numbered years, political advertising revenue tends to increase, often significantly, and particularly during presidential election years. We consider political broadcast advertising revenue to be revenue earned from the sale of advertising to political candidates, political parties and special interest groups of advertisements broadcast by our stations that contain messages primarily focused on elections and/or public policy issues. In even-numbered years, we typically derive a material portion of our broadcast advertising revenue from political broadcast advertisers. For the years ended December 31, 20162019 and 2015,2018, we derived approximately 11%3% and 3%14%, respectively, of our total revenue from political broadcast advertisers. If political broadcast advertising revenues declined, especially in an even-numbered year, our results of operations and financial condition could also be materially adversely affected. Also, our stations affiliated with the NBC Network broadcast Olympic Games and typically experience increased viewership and revenue during those broadcasts, which also occur in even-numbered years. As a result of the seasonality and cyclicality of our revenue and broadcast operating income, and the historically significant increase in our revenue and broadcast operating income during even-numbered years, potential investors are cautioned that it has been, and is expected to remain, difficult to engage in period-over-period comparisons of our revenue and results of operations.
ContinuedContinueduncertainfinancialuncertainandeconomicfinancialconditionsmayandhaveaneconomicadverseimpactconditionsonourmayhaveanadverseimpactonourbusiness, resultsofofoperationsoroperationsfinancialcondition.orfinancialcondition.
Financial and economic conditions continue to be uncertain over the longer term and the continuation or worsening of such conditions could reduce consumer confidence and have an adverse effect on our business, results of operations and/or financial condition. If consumer confidence were to decline, this decline could negatively affect our advertising customers’ businesses and their advertising budgets. In addition, volatile economic conditions could have a negative impact on our industry or the industries of our customers who advertise on our stations, resulting in reduced advertising sales. Furthermore, it may be possible that actions taken by any governmental or regulatory body for the purpose of stabilizing the economy or financial markets will not achieve their intended effect. In addition to any negative direct consequences to our business or results of operations arising from these financial and economic developments, some of these actions may adversely affect financial institutions, capital providers, advertisers or other consumers on whom we rely, including for access to future capital or financing arrangements necessary to support our business. Our inability to obtain financing in amounts and at times necessary could make it more difficult or impossible to meet our obligations or otherwise take actions in our best interests.
OurOurdependenceupondependencealimiteduponnumberofaadvertisingcategorieslimitedcouldadverselynumberaffectourofbusiness.advertisingcategoriescouldadverselyaffectourbusiness.
We consider broadcast advertising revenue to be revenue earned primarily from the sale of advertisements broadcast by our stations. Although no single customer represented more than 5% of our broadcast advertising revenue for the years ended December 31, 20162019 or 2015,2018, we derived a material portion of non-political broadcast advertising revenue from advertisers in a limited number of industries, particularly the automotive industry. For each ofDuring the years ended December 31, 20162019 and 2015, respectively,2018 we derived approximately 22% and 24%25% of our total broadcast advertising revenue from our advertisers in the automotive industry. Our results of operations and financial condition could be materially adversely affected if broadcast advertising revenue from the automotive, or certain other industries, such as the medical, restaurant, communications, or furniture and appliances industries, declined.
In addition, in even-numbered years, we typically derive a material portion of our broadcast advertising revenue from political broadcast advertisers, as described above. If political broadcast advertising revenue declined, especially in Weintendtocontinuetoevaluategrowthopportunitiesthroughstrategicacquisitions,andtherearesignificantrisksassociatedwithan even-numbered year, our results of operations and financial condition could also be materially adversely affected.
Weacquisitionstrategy.intendtocontinuetoevaluategrowthopportunitiesthroughstrategicacquisitions,andtherearesignificantrisksassociatedwithanacquisitionstrategy.
We intend to continue to evaluate opportunities for growth through selective acquisitions of television stations or station groups. There can be no assurances that we will be able to identify any suitable acquisition candidates, and we cannot predict whether we will be successful in pursuing or completing any acquisitions, or what the consequences of not completing any acquisitions would be. Consummation of any proposed acquisition at any time may also be subject to various conditions such as compliance with FCC rules and policies. Consummation of acquisitions may also be subject to antitrust or other regulatory requirements. In addition, as we operate in a highly regulated industry, we could be subject to litigation, government investigations and enforcement actions on a variety of matters, the result of which could limit our acquisition strategy.
An acquisition strategy involves numerous other risks, including risks associated with:
● | identifying suitable acquisition candidates and negotiating definitive purchase agreements on satisfactory terms; |
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● | potential changes in the regulatory approval process that may make it materially more expensive, or materially delay our ability, to consummate any proposed acquisitions. |
Our failure to identify suitable acquisition candidates, or to complete any acquisitions and integrate any acquired business, or to obtain the expected benefits therefrom, could materially adversely affect our business, financial condition and results of operations.
WeWemayfailmaytorealizefailanybenefitstoandincurrealizeanybenefitsandincurunanticipated lossesrelatedrelatedtoanytoacquisition.anyacquisition.
The success of any strategic acquisition depends, in part, on our ability to successfully combine the acquired business and assets with our business and our ability to successfully manage the assets so acquired. It is possible that the integration process could result in the loss of key employees, the disruption of ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, customers and employees or to achieve the anticipated benefits of thean acquisition. Successful integration may also be hampered by any differences between the operations and corporate culture of the two organizations. Additionally, general market and economic conditions may inhibit our successful integration of any business. If we experience difficulties with the integration process, the anticipated benefits of thean acquisition may not be realized fully, or at all, or may take longer to realize than expected. Finally, any cost savings that are realized may be offset by losses in revenues from the acquired business, any assets or operations disposed of in connection therewith or otherwise, or charges to earnings in connection with such acquisitions.
WeWemustpurchasemusttelevisionprogrammingpurchaseinadvancetelevisionofknowingprogrammingwhetherainparticularshowadvancewillbeofpopularenoughknowingforuswhethertorecoupaourparticularcosts.showwillbepopularenoughforustorecoupourcosts.
One of our most significant costs is for the purchase of television programming. If a particular program is not sufficiently popular among audiences in relation to the cost we pay for such program, we may not be able to sell enough related advertising time for us to recouprecover the costs we pay to broadcast the program. We also must usually purchase programming several years in advance, and we may have to commit to purchase more than one year’s worth of programming, resulting in the incurrence of significant costs in advance of our receipt of any related revenue. We may also replace programs that are performing poorly before we have recaptured any significant portion of the costs we incurred in obtaining such programming or fully expensed the costs for financial reporting purposes. Any of these factors could reduce our revenues, result in the incurrence of impairment charges or otherwise cause our costs to escalate relative to revenues.
WeWearehighlyaredependentuponhighlyournetworkdependentaffiliations,anduponourbusinessourandresultsofoperationsmaybemateriallyaffectedifanetwork(i)affiliations,terminatesitsaffiliationwithus,(ii)significantlychangestheeconomictermsandconditionsourofanybusinessfutureaffiliationandagreementswithresultsusor(iii)significantlychangesthetype,qualityorquantityofprogrammingoperationsprovidedtomayusunderbeanaffiliationmateriallyagreement.affectedifanetwork(i)terminatesitsaffiliationwithus,(ii)significantlychangestheeconomictermsandconditionsofanyfutureaffiliationagreementswithusor(iii)significantlychangesthetype,qualityorquantityofprogrammingprovidedtousunderanaffiliationagreement.
Our business depends in large part on the success of our network affiliations. Nearly all of our stations are directly or indirectly affiliated with at least one of the four major broadcast networks pursuant to a separate affiliation agreement. Each affiliation agreement provides the affiliated station with the right to broadcast all programs transmitted by the affiliated network during the term of the related agreement. Our affiliation agreements generally expire at various dates through August 2022.December 2023.
If we cannot enter into affiliation agreements to replace any agreements in advance of their expiration, we would no longer be able to carry the affiliated network’s programming. This loss of programming would require us to seek to obtain replacement programming. Such replacement programming may involve higher costs and may not be as attractive to our target audiences, thereby reducing our ability to generate advertising revenue. Furthermore, our concentration of CBS and/or NBC affiliates makes us particularly sensitive to adverse changes in our business relationship with, and the general success of, CBS and/or NBC.
We can give no assurance that any future affiliation agreements will have economic terms or conditions equivalent to or more advantageous to us than our current agreements. If in the future a network or networks imposedimpose more adverse economic terms upon us, such event or events could have a material adverse effect on our business and results of operations.
In addition, if we are unable to renew or replace any existing affiliation agreements, we may be unable to satisfy certain obligations under our existing or any future retransmission consent agreements with MVPDs and/or secure payment of retransmission consent fees under such agreements. Furthermore, if in the future a network limited or removed our ability to retransmit network programming to MVPDs, we may be unable to satisfy certain obligations or criteria for fees under any existing or any future retransmission consent agreements. In either case, such an event could have a material adverse effect on our business and results of operations.
WearealsodependentuponourretransmissionconsentagreementswithMVPDs,andwecannotpredicttheoutcomeofpotentialregulatorychangestotheretransmissionconsentregime.
We are also dependent, in significant part, on our retransmission consent agreements. Our current retransmission consent agreements expire at various times over the next several years. No assurances can be provided that we will be able to renegotiate all of such agreements on favorable terms, on a timely basis, or at all. The failure to renegotiate such agreements could have a material adverse effect on our business and results of operations.
Our ability to successfully negotiate future retransmission consent agreements may be hindered by potential legislative or regulatory charges to the framework under which these agreements are negotiated.
For example, on March 31, 2014,The FCC has taken actions to implement various provisions of STELAR affecting the FCC amendedcarriage of television stations, including (i) adopting rules that allow for the modification of satellite television markets in order to ensure that satellite operators carry the broadcast stations of most interest to their communities, (ii) tightening its rules governing “good faith”on joint retransmission consent negotiations to provide that it is a per se violation of the statutory duty to negotiate in good faith for a television broadcast station that is ranked among the top-four stations in a market (as measured by audience share) to negotiate retransmission consent jointly with another top-four station in the same market if the stations are not commonly owned. As part of the STELA Reauthorization Act of 2014 (“STELAR”), Congress further tightened the restriction to prohibit joint negotiation with any television stationnegotiations by stations in the same market unless thethose stations are under common de jure control. commonly controlled, (iii) prohibiting a television station from limiting the ability of an MVPD to carry into its local market television signals that are deemed significantly viewed; and (iv) eliminating the “sweeps prohibition,” which had precluded cable operators from deleting or repositioning local commercial television stations during “sweeps” ratings periods.
We currently are not a party to any agreements that delegate our authority to negotiate retransmission consent for any of our television stations or grant us authority to negotiate retransmission consent for any other television station. Nevertheless, we cannot predict how this restrictionthe FCC’s restrictions on joint negotiations might impact future opportunities.
The FCC also has sought comment on whether it should modify or eliminate the network non- duplication and syndicated exclusivity rules. We cannot predict the outcome of this proceeding. If, however, the FCC eliminates or relaxes its rules enforcing our program exclusivity rights, it could affect our ability to negotiate future retransmission consent agreements, and it could harm our ratings and advertising revenue if cable and satellite operators import duplicative programming.
In addition, certain online video distributors (“OVDs”) have explored streaming broadcast programming over the internet without approval from or payments to the broadcaster. The majority of federal courts have issued preliminary injunctions enjoining these OVDs from streaming broadcast programmingprogramming. Recently, a new OVD, organized as a non- profit began operating, claiming that its operations are exempt from copyright liability because of its non- profit status. In July 2019, the courts have generally concluded that OVDs are unlikelymajor broadcast networks and certain affiliated entities filed a copyright lawsuit against this OVD. The OVD continues to demonstrate that they are eligible foroperate while the statutory copyright license that provides cable operators with the requisite copyrights to retransmit broadcast programming, although in July 2015 a district court concluded that OVDs should be eligible for the statutory copyright license. That case currentlylawsuit is on appeal.pending. We cannot predict the outcome of that appeal or whether the courts will continue to issue similar injunctions against future OVDs.this lawsuit. Separately, on December 19, 2014, the FCC issued an NPRM proposing to classify certain OVDs as MVPDs for purposes of certain FCC carriage rules. If the FCC adopts its proposal, OVDs would need to negotiate for consent from broadcasters before they retransmit broadcast signals. We cannot predict whether the FCC will adopt its proposal or other modified rules that might weaken our rights to negotiate with OVDs.
In September 2015,December 2019, Congress adopted the FCC,Satellite Television Community Protection and Promotion Act of 2019 and the Television Viewer Protection Act of 2019 (the “TVPA of 2019”). Among other things, these acts (i) made permanent the copyright license set out in accordance with STELAR, issued a notice of proposed rulemaking to review the “totalitySection 119 of the circumstances test” usedCopyright Act; (ii) limited eligibility for use of the Section 119 license to evaluate whetherretransmit the signals of network television broadcast stations to unserved households to those satellite operators who provide local-into-local service to all DMAs; and (iii) modified the definition of unserved households to those households located in a “short market” (which, in turn, was defined as a local market in which programming of one or more of the top four networks is not offered on either the primary or multicast stream by any network station in that market). The TVPA of 2019 also made permanent the requirement that broadcasters and MVPDs are negotiating for retransmission consentnegotiate in good faith. Infaith and adds a July 14, 2016 blog post, the Chairman of the FCC announcedprovision that the FCC will not be adopting additional rules governing the retransmission consent process as(i) allow MVPDs to designate a part of this proceeding. Instead, the FCC will monitor retransmission consent negotiations and rule on good-faith-negotiation complaints on a case-by-case basis. We cannot predict whether this approach will affect our abilitybuying group to negotiate retransmission consent agreements on their behalf and (ii) require large stations groups, including the rates that we obtain from MVPDs, nor can we predict whether the FCC might reopen this proceedingours, to negotiate in the future. The FCC also has taken other actions to implement various provisions of STELAR affecting the carriage of television stations, including (i) adopting rules that allow for the modification of satellite television markets in order to ensure that satellite operators carry the broadcast stations of most interest to their communities, (ii) prohibitinggood faith with a television station from limiting the ability of anqualified MVPD to carry into its local market television signals that are deemed significantly viewed; and (iii) eliminating the “sweeps prohibition,” which had precluded cable operators from deleting or repositioning local commercial television stations during “sweeps” ratings periods.buying group.
Congress also continues to consider various changes to the statutory scheme governing retransmission of broadcast programming. Some of the proposed bills would make it more difficult to negotiate retransmission consent agreements with large MVPDs and would weaken our leverage to seek market-based compensation for our programming. We cannot predict whether any of these proposals will become law, and, if any do, we cannot determine the effect that any statutory changes would have on our business.
WeWeoperateinoperateahighlyincompetitiveenvironment.aCompetitionoccurshighlyonmultiplecompetitivelevelsenvironment.Competitionoccursonmultiplelevels(foraudiences,programmingandadvertisers)andisbasedonavarietyudiences,offactors.programmingIfweandarenotadvertisers)abletoandsuccessfullycompeteisinallbasedrelevantaspects,onourrevenuesawillbevarietymateriallyadverselyofaffected.factors.Ifwearenotabletosuccessfullycompeteinallrelevantaspects,ourrevenueswillbemateriallyadverselyaffected.
Television stations compete for audiences, certain programming (including news) and advertisers. Signal coverage and carriage on MVPD systems also materially affect a television station’s competitive position. With respect to audiences, stations compete primarily based on broadcast program popularity. We cannot provide any assurances as to the acceptability by audiences of any of the programs we broadcast. Further, because we compete with other broadcast stations for certain programming, we cannot provide any assurances that we will be able to obtain any desired programming at costs that we believe are reasonable. Cable-network programming, combined with increased access to cable, and satellite TV, and internet video streaming services, has become a significant competitor for broadcast television programming viewers. Cable networks’ viewership and advertising share have increased due to the growth in MVPD and internet video streaming services, penetration (the percentage of television households that are connected to aan MVPD or internet video system) and increased investments in programming by cable networks.networks or internet video. Further increases in the advertising share of cable networks and internet video streaming services could materially adversely affect the advertising revenue of our television stations.
In addition, technological innovation and the resulting proliferation of programming alternatives, such as internet websites, mobile apps and wireless carriers, direct-to-consumer video distribution systems, and home entertainment systems have further fractionalized television viewing audiences and resulted in additional challenges to revenue generation. New technologies and methods of buying advertising also present an additional competitive challenge, as competitors may offer products and services such as the ability to purchase advertising programmatically or bundled offline and online advertising, aimed at more efficiently capturing advertising spend.
Our inability or failure to broadcast popular programs, or otherwise maintain viewership for any reason, including as a result of increases in programming alternatives, or our loss of advertising due to technological changes, could result in a lack of advertisers, or a reduction in the amount advertisers are willing to pay us to advertise, which could have a material adverse effect on our business, financial condition and results of operations.
OurOurdefined benefit pensionpensionplanobligation isplancurrentlyunderfunded,obligationsand,ifarecertainfactorscurrentlyworsen,weunderfunded,mayhaveand,tomakeifsignificantcashcertainpayments,whichfactorscouldreduceworsen,thecashwemayhavetomakesignificantcashpaymentstosomeoralloftheseplans,whichcouldreducethecashavailable forourourbusiness.business.
We have underfunded obligations under our defined benefit pension plan. Notwithstanding that our pension plan is frozen with regard to any future benefit accruals, the funded status of our pension plan is dependent upon many factors, including returns on invested assets, the level of certain market interest rates and the discount rate used to determine pension obligations. Unfavorable returns on the plan’s assets or unfavorable changes in applicable laws or regulations may materially change the timing and amount of required plan funding, which could reduce the cash available for our business. In addition, any future decreases in the discount rate used to determine pension obligations could result in an increase in the valuation of pension obligations, which could affect the reported funding status of our pension plan and future contributions.
WeWemaybemayunabletobemaintainorunableincreaseourtodigitaladvertisingmaintainrevenue,whichorcouldhaveincreaseamaterialadverseeffectonourbusinessinternetandoperatingadvertisingresults.revenue,whichcouldhaveamaterialadverseeffectonourbusinessandoperatingresults.
We generate a portion of our advertising revenue from the sale of advertisements on our internetdigital sites. Our ability to maintain and increase this advertising revenue is largely dependent upon the number of users actively visiting our internet sites.sites and using our digital apps. As a result, we must increase user engagement with our internet sites in order to increase our advertising revenue. Because internetdigital advertising techniques are evolving, if our content, technology and advertisement serving techniques do not evolve to meet the changing needs of advertisers, our advertising revenue could also decline. Changes in our business model, advertising inventory or initiatives could also cause a decrease in our internet advertising revenue.
We do not have long-term agreements with most of our internetdigital advertisers. Any termination, change or decrease in our relationships with our largest digital advertising clients could have a material adverse effect on our revenue and profitability. If we do not maintain or increase our digital advertising revenue, our business, results of operations and financial condition could be materially adversely affected.
WeWehave,inhave,thepast,inincurredimpairmentthechargesonpast,ourgoodwillincurredimpairmentchargesonourgoodwilland/orbroadcastbroadcastlicenses,andlicenses,anysuchandfuturechargesanymayhavesuchamaterialfutureeffectonchargesthevaluemayofourhavetotalassets.amaterialeffectonthevalueofourtotalassets.
As of December 31, 2016,2019, the book value of our broadcast licenses was $1.3$3.6 billion and the book value of our goodwill was $485.3 million,$1.4 billion, in comparison to total assets of $2.8$7.0 billion. Not less than annually, and more frequently if necessary, we are required to evaluate our goodwill and broadcast licenses to determine if the estimated fair value of these intangible assets is less than book value. If the estimated fair value of these intangible assets is less than book value, we will be required to record a non-cash expense to write down the book value of the intangible asset to the estimated fair value. We cannot make any assurances that any required impairment charges will not have a material adverse effect on our total assets.
Recently enacted changes to the United States tax laws may have a material impact on our business or financial condition.
On December 22, 2017, United States tax reform legislation known as the Tax Cuts and Jobs Act (the “TCJA”) was signed into law. The TCJA made substantial changes to United States tax law, including a reduction in the corporate tax rate, a limitation on deductibility of interest expense, a limitation on the use of net operating losses to offset future taxable income and the allowance of immediate expensing of capital expenditures. The TCJA will continue to have, significant effects on us, some of which may be adverse. The extent of the impact remains uncertain at this time and is subject to any other regulatory or administrative developments, including any further regulations or other guidance yet to be promulgated by the United States Internal Revenue Service. The TCJA contains numerous, complex provisions that could affect us.
Cybersecurityrisksriskscouldaffectcouldouroperatingaffecteffectiveness.ouroperatingeffectiveness.
We use computers in substantially all aspects of our business operations. Our revenues are increasingly dependent on digital products. Such use exposes us to potential cyber incidents resulting from deliberate attacks or unintentional events. These incidents could include, but are not limited to, unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, data corruption or operational disruption. The results of these incidents could include, but are not limited to, business interruption, disclosure of nonpublic information, decreased advertising revenues, misstated financial data, liability for stolen assets or information, increased cybersecurity protection costs, litigation, financial consequences and reputational damage adversely affecting customer or investor confidence, any or all of which could adversely affect our business. Although we have systems and processes in place to protect against risks associated with cyber incidents, depending on the nature of an incident, these protections may not be fully sufficient.
CertainCertainstockholdersorgroupsofstockholdershaveortheabilitygroupstoexertofsignificantinfluencestockholdersoverus.havetheabilitytoexertsignificantinfluenceoverus.
Hilton H. Howell, Jr., our Executive Chairman President and Chief Executive Officer, is the son-in-law of Mrs. Harriett J. Robinson, a member of our Board of Directors, as well as the husband of Mrs. Robin R. Howell, a member of our Board of Directors (collectively with other members of their family, the “Howell-Robinson Family”). As of February 21, 2017, collectively, the Howell-Robinson Family directly or indirectly beneficially owned shares representing approximately 43% of the outstanding combined voting power of our common stock and Class A common stock.
As a result of thesetheir significant stockholdings and positions on the Board of Directors, the Howell- RobinsonHowell-Robinson Family is able to exert significant influence over our policies and management, potentially in a manner thatwhich may not be consistent with the interests of our other stockholders.
WeWeareaareholdingcompanyawithnoholdingmaterialindependentcompanyassetsorwithoperationsandnowedependmaterialonourindependentsubsidiariesforassetscash.oroperationsandwedependonoursubsidiariesforcash.
We are a holding company with no material independent assets or operations, other than our investments in our subsidiaries. Because we are a holding company, we are dependent upon the payment of dividends, distributions, loans or advances to us by our subsidiaries to fund our obligations. These payments could be or become subject to dividend or other restrictions under applicable laws in the jurisdictions in which our subsidiaries operate. Payments by our subsidiaries are also contingent upon the subsidiaries’ earnings. If we are unable to obtain sufficient funds from our subsidiaries to fund our obligations, our financial condition and ability to meet our obligations may be adversely affected.
RisksRelatedtoRegulatoryMatters
Federal broadcasting industry regulations limit our operating flexibility.broadcastingindustryregulationslimitouroperatingflexibility.
The FCC regulates all television broadcasters, including us. We must obtain FCC approval whenever we (i) apply for a new license, (ii) seek to renew, modify or assign a license, (iii) purchase a broadcast station and/or (iv) transfer the control of one of our subsidiaries that holds a license. Our FCC licenses are critical to our operations, and we cannot operate without them. We cannot be certain that the FCC will renew these licenses in the future or approve new acquisitions, mergers, divestitures or other business activities. Our failure to renew any licenses upon the expiration of any license term could have a material adverse effect on our business.
Federal legislation and FCC rules have changed significantly in recent years and may continue to change. These changes may limit our ability to conduct our business in ways that we believe would be advantageous and may affect our operating results.
The FCC can sanction us for programming broadcast on our stations that it finds to be indecent.FCCcansanctionusforprogrammingbroadcastonourstationsthatitfindstobeindecent.
Over the past several years, the FCC has increased its enforcement efforts regarding broadcast indecency and profanity and the statutory maximum fine for broadcasting indecent material is currently $325,000$414,454 per incident. In June 2012, the Supreme Court decided a challenge to the FCC’s indecency enforcement policies without resolving the scope of the FCC’s ability to regulate broadcast content. In August 2013, the FCC issued a Public Notice seeking comment on whether it should modify its indecency policies. The FCC has not yet issued a decision in this proceeding and the courts remain free to review the FCC’s current policy or any modifications thereto. The outcomes of these proceedings could affect future FCC policies in this area, and we are unable to predict the outcome of any such judicial proceeding, which could have a material adverse effect on our business.
The FCC’s duopoly restrictions limit our ability to own and operate multiple television stations in the same market.FCC’sduopolyrestrictionslimitourabilitytoownandoperatemultipletelevisionstationsinthesamemarket.
The FCC’s ownership rules generally prohibit us from owning or having “attributable interests” in two television stations that are located in the same markets in which ourmarket when one of the stations are licensed and areis ranked among the top-four stations in the market. On August 25, 2016,market unless eight independently owned, full-power stations will remain in the market”). In November 2017, the FCC released an Order (“Quadrennial Order”)order that eliminated or relaxed several long-standing media ownership rules. However, in which it decided to retain, with only a minor technical modification, its duopoly restrictions.November 2019, the United States Court of Appeals for the Third Circuit vacated these rule changes and reinstated the prior, more restrictive, ownership rules. In that Order,December 2018, the FCC also reinstated its previous decisionlaunched a new proceeding to consider television Joint Sales Agreements (“JSAs”) (which are agreements under which a television station sells more than 15 percent ofwhether further changes in the weekly advertising time on another same-market television station) as “attributable interests.” The National Association of Broadcasters has filed an appeal challenging the Quadrennial Order.media ownership rules were necessary. The FCC also considers television Local Marketing Agreements (“LMAs”) (which are agreements under which a television station sells or provides more than 15 percent15% of the programming on another same-market television station) as “attributable interests.” Accordingly, thoseWith the previous ownership rules constrainin effect, our ability to expand in our present markets through additional station acquisitions JSAs, or LMAs.LMAs may be constrained.
The FCC’s National Television Station Ownership Rule limits the maximum number of households we can reach.FCC’sNationalTelevisionStationOwnershipRulelimitsthemaximumnumberofhouseholdswecanreach.
Under the FCC’s National Television Station Ownership Rule, a single television station owner may not reach more than 39 percent39% of U.S.United States households through commonly owned television stations, subject to a 50 percent50% discount of the number of television households attributable to UHF stations (the “UHF Discount”). In September 2016,December 2017, the FCC adoptedCommission issued an Order that eliminatedNPRM seeking comment on whether it should modify or eliminate the national cap, including the UHF Discount but grandfathered existing combinations that exceed the 39 percent cap. A Petition for Reconsideration of this rule change is pending.Discount. This rule may constrain our ability to expand through additional station acquisitions. Currently our station portfolio reaches approximately 24% of total United States television households, or approximately 17% of total United States television households, after applying the UHF discount.
The FCC’sIncentiveAuctionandCompany is subject to governmental oversight regarding compliance with antitrust law as well as related proceedingscivil litigation.couldresultinthereallocationofbroadcastspectrumforwirelessbroadbandorothernon-broadcastuse,whichcouldmateriallyimpairourabilitytoprovidecompetitiveservices.
In February 2012, Congress passed legislation that grantsVarious governmental agencies, including the FCCDOJ, have authority to conduct an auctionenforce the antitrust laws of certain spectrum currently used by television broadcasters. On May 15, 2014, the FCC adopted a Report and Order (the “2014 Report”) establishingUnited States in the framework for an incentive auction of broadcast television spectrum.industry. The 2014 Report createdDOJ has increased its enforcement activities within the industry. For example, in November 2018, the DOJ filed a two part incentive auction framework (the “Incentive Auction”). First,lawsuit in the FCC would conductUnited States District Court for the District of Columbia against six broadcasters, including Raycom, alleging an agreement to exchange competitively sensitive information. The broadcasters and the DOJ entered into a reverse auction bysettlement agreement, which, among other things, prohibits the defendant broadcasters from exchanging competitively sensitive information and impose certain compliance requirements. No party to the settlement agreement, including Raycom, admitted to any wrongdoing. In addition, following the public disclosure of the DOJ’s investigation, several putative class action lawsuits were filed against various broadcasters, including Gray, asserting claims related to those reflected in the DOJ settlement. These lawsuits have been consolidated in the United States District Court for the Northern District of Illinois for the purpose of coordinated and consolidated pretrial proceedings. We are unable to predict the outcome of these proceedings.
Risks Related to the Ownership of Our Equity Securities
The price and trading volume of our equity securities may be volatile.
The price and trading volume of our equity securities may be volatile and subject to fluctuations. Some of the factors that could cause fluctuation in the stock price or trading volume of our equity securities include:
● | general market and economic conditions and market trends, including in the television broadcast industry and the financial markets generally; |
● | the political, economic and social situation in the United States; |
● | actual or anticipated variations in operating results, including audience share ratings and financial results; |
● | inability to meet projections in revenue; |
● | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, capital commitments or other business developments; |
● | technological innovations in the television broadcast industry; |
● | adoption of new accounting standards affecting our industry; |
● | operations of competitors and the performance of competitors’ common stock; |
● | litigation or governmental action involving or affecting us or our subsidiaries; |
● | changes in financial estimates and recommendations by securities analysts; |
● | recruitment or departure of key personnel; |
● | purchases or sales of blocks of our common stock; and |
● | operating and stock performance of the companies that investors may consider to be comparable. |
There can be no assurance that the price of our equity securities will not fluctuate or decline significantly. The stock market in recent years has experienced considerable price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies and that could adversely affect the price of our equity securities, regardless of our operating performance. Stock price volatility might be worse if the trading volume of shares of our equity securities is low. Furthermore, stockholders may initiate securities class action lawsuits if the market price of our equity securities were to decline significantly, which may cause us to incur substantial costs and could divert the time and attention of our management.
We do not currently pay cash dividends on our common stock or Class A common stock. To the extent a television broadcaster may volunteer, in return for payment, to relinquish all or a part of its station’s spectrum by (i) surrendering its license, (ii) relinquishing a portion of its spectrum and thereafter sharing spectrum with another station, or (iii) modifying a UHF channel licensepotential investor ascribes value to a VHF channel license. Second,dividend paying stock, the FCCvalue of our stock may be correspondingly reduced.
Our Board of Directors has not declared a cash or stock dividend on either class of our common stock since 2008. The timing and amount of any future dividend is at the discretion of our Board of Directors, and they may be subject to limitations or restrictions in our 2019 Senior Credit Facility and other financing agreements we may be, or become, party to. We can provide no assurance when or if any future dividends will be declared on our common stock or Class A common stock.
As a result, if and to the extent an investor ascribes value to a dividend-paying stock, the value of our common stock or Class A common stock may be correspondingly reduced.
Additional issuances of equity securities would conductdilute the ownership of our existing stockholders and could reduce our earnings per share.
We may issue additional equity securities in the future in connection with capital raises, acquisitions, strategic transactions or for other purposes. To the extent we issue substantial additional equity securities, the ownership of our existing stockholders would be diluted and our earnings per share could be reduced.
Anti-takeover provisions contained in our Restated Articles of Incorporation (“Articles”) and our Bylaws, as amended (“Bylaws”), as well as provisions of Georgia law, could impair a forward auctiontakeover attempt.
Our Articles and Bylaws may have the effect of delaying, deferring or discouraging a prospective acquirer from making a tender offer for our shares of common stock or otherwise attempting to obtain control of us. To the extent that these provisions discourage takeover attempts, they could deprive stockholders of opportunities to realize takeover premiums for their shares. Moreover, these provisions could discourage accumulations of large blocks of common stock, thus depriving stockholders of any advantages which large accumulations of stock might provide.
As a Georgia corporation, we are also subject to provisions of Georgia law, including Section 14-2-1132 of the relinquished spectrum to new users. Applications to participateGeorgia Business Corporation Code. Section 14-2-1132 prevents some stockholders holding more than 10% of our outstanding common stock from engaging in certain business combinations unless the business combination was approved in advance by our Board of Directors or results in the Incentive Auction were due by January 12, 2016 and bidding in the reverse broadcast auction began on March 29, 2016. Broadcaster bidding in the reverse auction closed on January 13, 2017. Bidding in the forward auction remains ongoing but is anticipated to end in the first halfstockholder holding more than 90% of 2017.our outstanding common stock.
WhenAny provision of our Articles, our Bylaws or Georgia law that has the biddingeffect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.
We have the ability to issue additional preferred stock, which could affect the rights of holders of our common stock and Class A common stock.
Including the shares of preferred stock issued in the forward auction closes,Raycom Merger, our Articles allow our Board of Directors to issue up to 20 million shares of preferred stock and set forth the FCC will beginterms of such preferred stock. The terms of any such preferred stock, if issued, may adversely affect the processdividend and liquidation rights of repurposing 84 MHzholders of broadcast spectrum for wireless use. To accommodateour common stock.
Holders of our Class A common stock have the spectrum reallocationright to new users,10 votes per share on all matters to be voted on by our stockholders and, consequently, the FCCability to exert significant influence over us.
As a result of the 10 to 1 voting rights of holders of our Class A common stock, these stockholders are expected to be able to exert significant influence over all matters requiring stockholder approval, including mergers and other material transactions, and may require that television stations that did not sell their stationsbe able to cause or prevent a change in the reverse auction to modify their transmission facilities. The FCC is required to use “reasonable efforts” to preserve a station’s coverage area and population served, and it prevents the FCC from requiring that a station involuntarily move from the UHF band to the VHF band or from the high VHF band to the low VHF band. The underlying legislation authorizes the FCC to reimburse stations for reasonable relocation costs up to a total across all stations of $1.75 billion. If some or allcomposition of our television stations chooseBoard of Directors or a change in control of our Company that could deprive our stockholders of an opportunity to channel sharereceive a premium for their common stock as part of a sale of the Company and might ultimately affect the market price of our common stock.
If securities analysts do not continue to publish research or are requiredreports about our business, or if they publish negative evaluations of our stock, the price of our stock could decline.
We expect that the trading price of our equity securities may be affected by research or reports that industry or financial analysts publish about our business. If one or more of the analysts who cover us downgrade their evaluations, the price of our equity securities could decline. If one or more of these analysts cease coverage of our Company, we could lose visibility in the market for our equity securities, which in turn could cause our stock prices to change frequencies they use,decline.
Future sales of our stationsCommon Stock by the selling stockholders in connection with the Raycom Merger, or the perception in the public markets that such sales may occur, could incur conversion costs that may not be fully reimbursed, orcause the trading price of our abilityCommon Stock to provide high definition programming and additional program streams, including mobile video services, could be constrained.decline.
The FCC interpretedissuance of our Common Stock to the implementing legislationselling stockholders in connection with the Raycom Merger could have the effect of depressing the market price for our Common Stock. The Company has filed a registration statement to allow only full power and Class A television stations to participate in the auction and receive contour protection during any post-auction repackingregister all of the broadcast spectrum. In certain markets,shares of Common Stock issued to the selling stockholders in connection with the Raycom Merger. Sales of substantial amounts of our low power television stations may be displacedCommon Stock, including sales by this process. Moreover, on June 16, 2015, the FCC issued a noticeselling stockholders from time to time, or the perception that these sales could occur, could adversely affect the price of proposed rulemaking proposing to reserve one vacant channel in each market for use by unlicensed “white spaces” devices and wireless microphones (the “Vacant Channel NPRM”). The FCC further modified the Vacant Channel NPRM on August 11, 2015 by proposing to reserve up to two channels in certain markets after the Incentive Auction is complete. Under the Vacant Channel NPRM, the FCC would refuse to grant an application to modify the facilities of a low power television station if the applicant could not demonstrate that a sufficient number of vacant channels would remain in the service area of the low power station after the applicant implements the modification – thus, reducing the likelihood that a low power television station would be able to locate a new channel after the Incentive Auction. These stations could incur substantial costs to locate and build a replacement facility on a new channel. If a low power television station is unable to locate a new channel on which to operate, it could lose its license.our Common Stock.
We cannot predict the likelihood, timing or outcome of any court, Congressional or FCC regulatory action with respect to the Incentive Auction, or repacking of broadcast television spectrum, nor the impact of any such changes upon our business.
Item 1B. Unresolved Staff Comments.
| Item 1B. | Unresolved Staff Comments. |
None.
Item 2. Properties.
| Item 2. | Properties. |
We lease our principal executive offices in a building located at 4370 Peachtree Road, NE, Atlanta, Georgia, 30319. We also lease various other offices that support our operations. See “Business – Markets and Stations” elsewhere in this Annual Report on Form 10-K for a listing of our significant television stations and their locations.
The types of properties required to support television stations include offices, studios, transmitter sites and antenna sites. A station’s studios are generally housed within its offices in each respective market. The transmitter sites and antenna sites are generally located in elevated areas to provide optimal signal strength and coverage. We own or lease land, offices, studios, transmitters and antennas in each of our markets necessary to support our operations in that market area. In some market areas, we also own or lease multiple properties, such as towers and/or signal repeaters (translators), to optimize our broadcast capabilities. To the extent that our properties are leased and those leases contain expiration dates, we believe that those leases can be renewed, or that alternative facilities can be leased or acquired, on terms that are comparable, in all material respects, to our existing properties.
We generally believe all of our owned and leased properties are in good condition, and suitable for the conduct of our present business.
Item 3. Legal Proceedings.
| Item 3. | Legal Proceedings. |
We are, from time to time, subject to legal proceedings and claims in the normal course of our business. Based on our current knowledge, we do not believe that any known legal proceedings or claims are likely to have a material adverse effect on our financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosures.
| Item 4. | Mine Safety Disclosures. |
Not applicable.
Information about our Executive Officers of theRegistrant..
Set forth below is certain information with respect to our executive officers as of February 21, 2017:22, 2019:
Hilton H. Howell, Jr., age 54,57, has served as our Executive Chairman and Chief Executive Officer since August 2008 and has alsoJanuary 2, 2019. Prior to that, Mr. Howell served as our Chairman, Chief Executive Officer and President since June 2013. Mr. Howell who is a member of the Executive Committee of the Board, has been a director since 1993 and served as the Vice Chairman of the Board from 2002 until April 2016 when he was appointed as Chairman. He served as our Executive Vice President from September 2002 to August 2008. He has served as President and Chief Executive Officer of Atlantic American Corporation, an insurance holding company, since 1995, and as Chairman of that company since February 2009. He has been Executive Vice President and General Counsel of Delta Life Insurance Company and Delta Fire & Casualty Insurance Company since 1991. Mr. Howell also serves as a director of Atlantic American Corporation and of each of its subsidiaries, American Southern Insurance Company, American Safety Insurance Company and Bankers Fidelity Life Insurance Company, as well as a director of Delta Life Insurance Company and Delta Fire & Casualty Insurance Company. He is the son-in-law of Mrs. Harriett J. Robinson and the husband of Mrs. Robin R. Howell, both of whom are memberswho is a member of our Board of Directors. Additionally, Mr. Howell has, until recently, served as a board member of the National Association of Broadcasters and the NBC Affiliate Board.
Donald P. (“Pat”)LaPlatney. Mr. LaPlatney, age 60, has served as our President and Co-Chief Executive Officer since January 2, 2019. Before that he had been Chief Executive Officer and President of Raycom, from July 2016, and as a member of the board of directors of Raycom from July 2016, until the closing of the Raycom Merger. Before that, he served as Chief Operating Officer of Raycom from April 2014 to July 2016, as Senior Vice President from April 2012 until April 2014 and as Vice President, Digital Media from August 2007 to April 2012. Before joining Raycom in 2007, Mr. LaPlatney held various executive positions at The Tube Media Corp., Westwood One and Raycom Sports. Additionally, Mr. LaPlatney currently serves as a board member of Circle, the National Association of Broadcasters and Chairman of the NBC Affiliate Board.
James C. (“Jim”) Ryan, age 56,59, has served as our Chief Financial Officer since October 1998 and as Executive Vice President since February 2016. Before that, he had been our Senior Vice President since September 2002 and our Vice President since October 1998.
Kevin P. Latek, age 46,49, has served as our Executive Vice President and Chief Legal and Development Officer since February 2016. Before that, he served as our Senior Vice President, Business Affairs, since July 2013 and as our Vice President for Law and Development since March 2012. Prior to joining us, Mr. Latek represented television and radio broadcasters as well as financial institutions in FCC regulatory and transactional matters with the law firm of Dow Lohnes, PLLC, in Washington, DC. He is a member of the Board of Directors of the National Association of Broadcasters Educational Foundation and, the CBS Affiliates Board, the American Bar Association and the Federal Communications Bar Association.Board. He is a past member of the FOX Affiliates Board of Governors.
Robert L. (“Bob”) Smith, age 57, has served as our Chief Operating Officer since January 2019. Before that, he served as our Co-Chief Operating Officer since February 2016 and as our Senior Vice President since July 2013. He is a past member of the Wisconsin Broadcaster’s Board, the Madison Chamber of Commerce and the Rockford Chamber of Commerce.
PART II
Item 5. Market for Registrant’s Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities.
| Item5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Our common stock, no par value, and our Class A common stock, no par value, have been listed and traded on the NYSE since September 24, 1996 and June 30, 1995, respectively, under the symbols “GTN” and “GTN.A,” respectively.
The following table sets forth the high and low sale prices of the common stock and the Class A common stock for the periods indicated, as reported by the NYSE.
Common Stock | Class A Common Stock | |||||||||||||||
High | Low | High | Low | |||||||||||||
2016: | ||||||||||||||||
First Quarter | $ | 16.26 | $ | 9.95 | $ | 13.39 | $ | 9.22 | ||||||||
Second Quarter | 14.77 | 10.43 | 12.42 | 9.51 | ||||||||||||
Third Quarter | 11.90 | 9.15 | 11.13 | 8.91 | ||||||||||||
Fourth Quarter | 11.40 | 7.00 | 11.06 | 7.05 | ||||||||||||
2015: | ||||||||||||||||
First Quarter | $ | 14.80 | $ | 9.17 | $ | 12.35 | $ | 7.50 | ||||||||
Second Quarter | 16.67 | 13.18 | 14.01 | 11.43 | ||||||||||||
Third Quarter | 18.07 | 10.38 | 15.40 | 9.05 | ||||||||||||
Fourth Quarter | 17.70 | 12.46 | 16.12 | 11.93 | ||||||||||||
As of February 21, 2017,2020, we had 66,238,52992,819,689 outstanding shares of common stock held by approximately 8,32025,986 stockholders and 6,606,1737,048,006 outstanding shares of Class A common stock held by approximately 345357 stockholders. The number of stockholders consists of stockholders of record and individual participants in security position listings as furnished to us pursuant to Rule 17Ad-8 under the Securities Exchange Act of 1934 (the “Exchange Act”).
Our restated articles of incorporation provide that each share of common stock is entitled to one vote, and each share of Class A common stock is entitled to 10 votes, on each matter submitted to a vote of stockholders. Our restated articles of incorporation require that our common stock and our Class A common stock receive dividends on apari passu basis when declared.
We have not paid dividends on either class of our common stock since October 15, 2008. The 20172019 Senior Credit Facility containsand our indentures contain covenants that restrict our ability to pay cash dividends on our capital stock.
In addition, the declaration and payment of any dividends on our common stock or Class A common stock are subject to the discretion of our Board of Directors. Any future payments of dividends will depend on our earnings and financial position and such other factors as our Board of Directors deems relevant. See Note 34 “Long-term Debt” of our audited consolidated financial statements included elsewhere herein for a further discussion of restrictions on our ability to pay dividends.
On January 2, 2019, we issued 650,000 shares of Series A Perpetual Preferred Stock (the “Preferred Stock”), with a stated face value of $1,000 per share, as a portion of the consideration paid in the Raycom Merger. No placement or underwriting fees were paid in connection with the issuance of the Preferred Stock. The Preferred Stock was issued to legacy Raycom shareholders in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, as specified by the Rule 144A safe harbor, as the Preferred Stock was issued to Raycom shareholders in a privately negotiated transaction not involving any public offering or solicitation. Shares of the Preferred Stock accrue dividends on the face value of such shares (A) in cash at a rate of 8% per annum or, (B) at the Company’s option, in-kind at a rate of 8.5% per annum. The holders of the Preferred Stock do not have any right to exchange or convert such shares into any of our other securities. In addition, on January 2, 2019, we issued 11.5 million shares of our common stock at a price of $14.74 per share, the closing price of our common stock on the last trading day preceding the Raycom Merger. No placement or underwriting fees were paid in connection with the issuance of these shares of common stock. These shares were issued to legacy Raycom shareholders in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act as specified by the Rule 144A safe harbor, as the common stock was issued to Raycom shareholders in a privately negotiated transaction not involving any public offering or solicitation. The shares of our common stock issued to certain legacy Raycom shareholders, upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, have been registered for resale with the SEC on a selling stockholder shelf registration statement on Form S-3, file no. 333-229162.
Stock Performance Graph
The following stock performance graphs and related disclosures do not constitute soliciting material and should not be deemed filed or incorporated by reference into any other filing by us under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate them by reference therein.
The following graphs compare the cumulative total return of the common stock and the Class A common stock from December 31, 2011January 1, 2015 to December 31, 2016,2019, as compared to the stock market total return indexes for (i) The New York Stock Exchange Composite Index (the “NYSE Composite Index”) and (ii) The New York Stock Exchange Television Broadcasting Stations Index (the “TV Broadcasting Stations Index”).
The graphs assume the investment of $100 in each of our common stock and the Class A common stock, respectively, the NYSE Composite Index and the TV Broadcasting Stations Index on December 31, 2011.January 1, 2015. Any dividends are assumed to have been reinvested as paid.
|
* $100 invested on 12/31/11 in stock index, including reinvestment of dividends. Year ending December 31.
| Asof | ||||||||||||||||||||||||
Company/Index/Market | 12/31/2011 | 12/31/2012 | 12/31/2013 | 12/31/2014 | 12/31/2015 | 12/31/2016 | ||||||||||||||||||
Gray Television, Inc. common stock | $ | 100 | $ | 136 | $ | 919 | $ | 691 | $ | 1,006 | $ | 670 | ||||||||||||
NYSE Composite Index | $ | 100 | $ | 116 | $ | 146 | $ | 156 | $ | 150 | $ | 168 | ||||||||||||
TV Broadcasting Stations Index | $ | 100 | $ | 136 | $ | 217 | $ | 248 | $ | 271 | $ | 284 | ||||||||||||
* $100 invested on 1/1/2015 in stock index, including reinvestment of dividends. Year ending December 31. |
As of | ||||||||||||||||||||||||
Company/Index/Market | 1/1/2015 | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | ||||||||||||||||||
Gray Television, Inc. common stock | $ | 100 | $ | 146 | $ | 97 | $ | 150 | $ | 132 | $ | 191 | ||||||||||||
NYSE Composite Index | $ | 100 | $ | 96 | $ | 107 | $ | 127 | $ | 116 | $ | 146 | ||||||||||||
TV Broadcasting Stations Index | $ | 100 | $ | 110 | $ | 115 | $ | 120 | $ | 119 | $ | 157 | ||||||||||||
|
* $100 invested on 12/31/11 in stock index, including reinvestment of dividends. Year ending December 31.
| Asof | As of | |||||||||||||||||||||||||||||||||||||||||||||||
Company/Index/Market | 12/31/2011 | 12/31/2012 | 12/31/2013 | 12/31/2014 | 12/31/2015 | 12/31/2016 | 1/1/2015 | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | ||||||||||||||||||||||||||||||||||||
Gray Television, Inc. Class A common stock | $ | 100 | $ | 129 | $ | 956 | $ | 678 | $ | 1,013 | $ | 770 | $ | 100 | $ | 149 | $ | 114 | $ | 157 | $ | 145 | $ | 217 | ||||||||||||||||||||||||
NYSE Composite Index | $ | 100 | $ | 116 | $ | 146 | $ | 156 | $ | 150 | $ | 168 | $ | 100 | $ | 96 | $ | 107 | $ | 127 | $ | 116 | $ | 146 | ||||||||||||||||||||||||
TV Broadcasting Stations Index | $ | 100 | $ | 136 | $ | 217 | $ | 248 | $ | 271 | $ | 284 | $ | 100 | $ | 109 | $ | 115 | $ | 120 | $ | 119 | $ | 157 | ||||||||||||||||||||||||
Issuer Purchases of Common Stock and Class A Common Stock
In each of March and November 2004, the Board of Directors of the Company authorized the Company to repurchase up to 2.0 million shares of the Company's common stock or Class A common stock. In March 2006, this authorization was increased to an aggregate of 5.0 million shares (the “2004-2006 Repurchase Authorization”). As of December 31, 2016, 279,200 shares remain available for repurchase under this authorization, which has no expiration date.
On November 6, 2016, the5, 2019, our Board of Directors of the Company authorized the Company to purchaserepurchase of up to an additional $75.0$150 million of our outstanding common stock and/or our Class A common stock prior to December 31, 20192022 (the “2016“2019 Repurchase Authorization”). The 2019 Repurchase Authorization superseded all prior repurchase authorizations. The 2019 Repurchase Authorization prohibits the Company from purchasing shares directly from the Company’s officers, directors, or the Gray Television, Inc. Capital Accumulation Plan (the “401k Plan”).
On December 15, 2019, we entered into an Issuer Repurchase Plan (the “2019 IRP”), under Rules 10B-18 and 10b5-1 of the Exchange Act. The extent to which2019 IRP facilitates the Companyorderly repurchase of our common stock through the establishment of the parameters for repurchases any of its shares, theour shares. The number of shares and the timing of any repurchases will depend on generalthe market conditions, regulatory requirements, alternative investment opportunitiesprice of our common stock and certain other considerations. The Company is notlimits established in the 2019 IRP, none of which we have disclosed. We are required to repurchase a minimum numberfund repurchases under the 2019 IRP from the remaining balance of shares thereunder, and the repurchase authorizations may be modified, suspended or terminated at any time without prior notice.2019 Repurchase Authorization.
The following table summarizes repurchases of our common stock in the three-months ended December 31, 2016,2019, all of which were pursuant to the 20162019 Repurchase Authorization:
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share (2) | Total Number of Shares Purchased as Part of Publicly Announced Plans | Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs (3) | ||||||||||||
October 1, 2016 through | ||||||||||||||||
October 31, 2016: | - | $ | - | - | $ | 2,752,912 | ||||||||||
November 1, 2016 through | ||||||||||||||||
November 30, 2016: | 62,518 | $ | 9.55 | 62,518 | $ | 76,795,515 | ||||||||||
December 1, 2016 through | ||||||||||||||||
December 31, 2016: | 129,665 | $ | 10.77 | 129,665 | $ | 75,962,495 | ||||||||||
Total | 192,183 | $ | 10.38 | 192,183 | ||||||||||||
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share (2) | Total Number of Shares Purchased as Part of Publicly Announced Plans | Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs (3) | ||||||||||||
October 1, 2019 through October 31, 2019: | - | $ | - | - | $ | 43,460,633 | ||||||||||
November 1, 2019 through November 30, 2019: | - | $ | - | - | $ | 150,000,000 | ||||||||||
December 1, 2019 through December 31, 2019: | 1,008,091 | $ | 20.86 | 1,008,091 | $ | 129,002,327 | ||||||||||
Total | 1,008,091 | $ | 20.86 | 1,008,091 | ||||||||||||
(1) | All shares purchased were shares of common stock. |
(2) | Amount excludes standard brokerage commissions. |
(3) | The amounts presented at each respective month-end include the |
Item 6. Selected Financial Data.
| Item 6. | Selected Financial Data. |
CertainSet forth below is selected historical consolidated financial data is set forth below. This information with respect tofor Gray for, and as of the end of, each of the years ended December 31, 2016, 2015 and 2014, and as of December 31,2019, 2018, 2017, 2016 and 2015,2015. The selected historical consolidated financial information presented below does not contain all of the information you should consider when evaluating Gray, and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes thereto included elsewhere herein. Various factors are expected to have an effect on our financial condition and results of operations in the future, including the ongoing integration of any acquired businesses. You should also read this selected historical consolidated financial information in conjunction with the information under “Risk Factors” included elsewhere in this Annual Report on Form 10-K.
| YearEndedDecember 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||
(in thousands, except net income per share data) | (in millions, except net income per share data) | ||||||||||||||||||||||||||||||||||||||||
Statements of Operations Data (1): | |||||||||||||||||||||||||||||||||||||||||
Revenue (less agency commissions) | $ | 812,465 | $ | 597,356 | $ | 508,134 | $ | 346,298 | $ | 404,831 | $ | 2,122 | $ | 1,084 | $ | 883 | $ | 812 | $ | 597 | |||||||||||||||||||||
Operating income | 234,139 | 140,057 | 153,773 | 83,880 | 153,441 | 478 | 389 | 290 | 234 | 141 | |||||||||||||||||||||||||||||||
Loss from early extinguishment of debt | (31,987 | ) | - | (5,086 | ) | - | (46,683 | ) | - | - | (3 | ) | (32 | ) | - | ||||||||||||||||||||||||||
Net income | 62,273 | 39,301 | 48,061 | 18,288 | 28,129 | ||||||||||||||||||||||||||||||||||||
Net income attributable to commonstockholders (3) | 62,273 | 39,301 | 48,061 | 18,288 | 24,034 | ||||||||||||||||||||||||||||||||||||
Net income attributable to commonstockholders per common share (3): | |||||||||||||||||||||||||||||||||||||||||
Net income available to common stockholders (4) | 127 | 211 | 262 | 62 | 39 | ||||||||||||||||||||||||||||||||||||
Net income available to common stockholders (4), per common share: | |||||||||||||||||||||||||||||||||||||||||
Basic | 0.87 | 0.58 | 0.83 | 0.32 | 0.42 | 1.28 | 2.39 | 3.59 | 0.87 | 0.58 | |||||||||||||||||||||||||||||||
Diluted | 0.86 | 0.57 | 0.82 | 0.32 | 0.42 | 1.27 | 2.37 | 3.55 | 0.86 | 0.57 | |||||||||||||||||||||||||||||||
Balance Sheet Data (at end of period): | |||||||||||||||||||||||||||||||||||||||||
Total assets (4) | $ | 2,783,331 | $ | 2,127,708 | $ | 1,852,929 | $ | 1,317,131 | $ | 1,238,096 | |||||||||||||||||||||||||||||||
Long-term debt (including currentportion) (4) | 1,756,747 | 1,220,084 | 1,217,750 | 825,581 | 821,175 | ||||||||||||||||||||||||||||||||||||
Total assets (5) | $ | 6,972 | $ | 4,213 | $ | 3,261 | $ | 2,753 | $ | 2,078 | |||||||||||||||||||||||||||||||
Long-term debt, including current portion (5) | 3,697 | 2,549 | 1,837 | 1,757 | 1,220 | ||||||||||||||||||||||||||||||||||||
Total stockholders’ equity | 492,861 | 429,274 | 216,192 | 174,010 | 143,935 | 1,464 | 1,187 | 993 | 493 | 429 | |||||||||||||||||||||||||||||||
(1) | Our operating results fluctuate significantly between years, as a result of, among other things, our |
(2) | Amounts in 2017, 2016 and 2015 have been reclassified to give effect to the implementation of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2017-07, Compensation—Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. We adopted these standards as of January 1, 2018. Upon the adoption of this standard, except for service costs of $3 million in 2015, we reclassified our net pension expense (benefit) from our operating expenses to our miscellaneous income, net. The amount was not material. |
(3) | In |
|
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(4) |
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(5) | Amounts in 2015 have been reclassified to give effect to the |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Executive Overview
Executive Overview
Introduction
. The following discussion and analysis of the financial condition and results of operations of Gray Television, Inc. and its consolidated subsidiaries (except as the context otherwise provides, “Gray,” the “Company,” “we,” “us” or “our”) should be read in conjunction with our audited consolidated financial statements and notes thereto included elsewhere herein.
BusinessOverviewThis section of this Annual Report on Form 10-K generally discusses 2019 and 2018 items and year-over-year comparisons between 2019 and 2018. A detailed discussion of 2017 items and year-over-year comparisons between 2018 and 2017 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018.
Business Overview. We are a television broadcast company headquartered in Atlanta, Georgia, that ownsis the largest owner of top-rated local television stations and digital assets in the United States. We currently own and/or operatesoperate television stations and leading digital assetsproperties in markets throughout the United States. As of February 21, 2017, we owned and/or operated television stations in 5493 television markets broadcasting over 200 separate programming streams, including 37 affiliatesthat collectively reach approximately 24% of the CBS Network (“CBS”), 29 affiliates of the NBC Network (“NBC”), 20 affiliates of the ABC Network (“ABC”) and 15 affiliates of the FOX Network (“FOX”). The following discussion and analysis includes the revenues, expenses, liquidity and capital resources attributable to all of our owned stations and to those we operate under an LMA during the specified periods.
In addition to a primary broadcast channel, each ofUS television households. Over calendar year 2019, our stations can also broadcast additional secondary digital channels within a marketwere ranked first in 68 markets, and first and/or second in 86 markets, as calculated by utilizing the same bandwidth, but with different programming from the primary channel. In addition to affiliations with ABC, CBS and FOX, our secondary channels are affiliated with numerous smaller networks and program services including, among others, the CW Network or the CW Plus Network (collectively, “CW”), MY Network (“MY” or “My Network”), the MeTV Network (“MeTV”), This TV Network (“This TV”), Antenna TV (“Ant.”), Telemundo (“Tel.”), Cozi, Heroes and Icons (“H&I”) and MOVIES! Network (“Movies”). Certain of our secondary digital channels are affiliated with more than one network simultaneously.Comscore’s audience measurement service. We also broadcast local news/weather channels in some markets (“News”). Our combined TV station group reaches approximately 10.1%own video program production, marketing, and digital businesses including Raycom Sports, Tupelo-Raycom, and RTM Studios, the producer of total United States television households.
Based on the consolidated results of the four Nielsen “sweeps” periods in 2016, our television stations (including those acquired in January 2017) achieved the #1 ranking in overallaudience in 40 of our 54 marketsPowerNation programs and the #1 ranking in local news audience in 39 of our markets. In addition, our stations achieved the #1 or #2 ranking in both overall audience and news audience in 52of our 54 markets.For further information please refer to our Markets and Stations table in Item 1.
Recent Acquisitions and Divestitures
On February 16, 2016, we completed the acquisition of the television and radio broadcast assets of Schurz Communications, Inc. (“Schurz”) for an adjusted purchase price of $443.1 million plus transaction related expenses (the “Schurz Acquisition”). To facilitate the regulatory approval of the Schurz Acquisition, we (i) exchanged the assets of KAKE-TV (ABC) (and its satellite stations) for the assets of Lockwood Broadcasting, Inc.’s television station WBXX-TV (CW) and $11.2 million of cash, on February 1, 2016; (ii) exchanged the assets of WSBT-TV for the assets of Sinclair Broadcast Group, Inc.’s television station WLUC-TV (NBC/FOX) on February 16, 2016; and (iii) sold the Schurz radio broadcast assets to three separate radio broadcasters on February 16, 2016 (collectively with the Schurz Acquisition, the “Schurz Acquisition and Related Transactions”).
On May 13, 2016, we announced that we agreed to acquire television stations WDTV-TV (CBS) and WVFX-TV (FOX, CW), a legal duopoly in the Clarksburg-Weston, West Virginia television market (the “Clarksburg Acquisition”) from Withers Broadcasting Company of West Virginia and Withers Broadcasting Company of Clarksburg, LLC (collectively “Withers”) for a maximum total purchase price of $26.5 million in cash. On June 1, 2016, we made a partial payment of $16.5 million to Withers and acquired the non-license assets of these stations. Also, on that date we began to provide services to Withers under a local programming and marketing agreement (an “LMA”). Subject to regulatory approval, we currently expect to complete this acquisition later in the first quarter or in the second quarter of 2017.
On June 27, 2016, we completed the acquisition of KYES-TV (MY, Ant.), in the Anchorage, Alaska television market, from Fireweed Communications, LLC (the “KYES-TV Acquisition”) for a purchase price of $0.5 million, plus transaction related expenses.
Collectively,content, which we refer to the stations acquired and retained in 2016, as well as those which we began operating under an LMA in 2016, as the “2016 Acquired Stations.” For a more detailed discussion of the 2016 Acquired Stations, including the consideration paid to complete such transactions and their impact on our operations since the respective acquisition dates, see Note 2 “Acquisitions and Dispositions.”
During 2015, we completed six acquisitions which collectively added seven television stations in six markets (four new markets) to our operations, and we refer to those stations as the “2015 Acquired Stations.”During 2014, we completed seven acquisitions which collectively added 22 television stations in 12 markets (10 new markets) to our operations, and we refer to those stations as the “2014 Acquired Stations.” Unless the context requires otherwise, we refer to the 2016 Acquired Stations, the 2015 Acquired Stations and the 2014 Acquired Stations, collectively as the “Acquired Stations.”
On January 13, 2017, we acquired KTVF-TV (NBC), KXDF-TV (CBS), and KFXF-TV (FOX) in the Fairbanks, Alaska television market, from Tanana Valley Television Company and Tanana Valley Holdings, LLC for $8.0 million (the “Fairbanks Acquisition”). We completed the Fairbanks Acquisition with cash on hand.
On January 17, 2017, we acquired two television stations that were divested by Nextstar Broadcasting Group, Inc. (“Nexstar”) upon its merger with Media General, Inc. (“Media General”): WBAY-TV (ABC), in the Green Bay, Wisconsin television market (the “Green Bay Acquisition”), and KWQC-TV (NBC), in the Davenport, Iowa, Rock Island, Illinois, and Moline, Illinois (or “Quad Cities”) television market (the “Davenport Acquisition”), for an adjusted purchase price of $269.9 million. We completed these acquisitions with cash on hand. The Green Bay Acquisition and the Davenport Acquisition were completed, in part, through a transaction with Gray Midwest EAT, LLC (“GME”), pursuant to which, we loaned GME $106.0 million which GME in turn used to acquire the broadcast licenses of the stations. GME is a variable interest entity (“VIE”) for which we are the primary beneficiary. As a result, we will include the assets, liabilities and results of operations of GME in our consolidated financial statements beginning in January 2017 and continuing for so long as we remain the primary beneficiary.
On February 16, 2017, we announced that we had reached an agreement with Diversified Communications, Inc. (“Diversified”) to acquire two television stations: WABI-TV (CBS/CW) in the Bangor, Maine television market (DMA 156) and WCJB-TV (ABC/CW) in the Gainesville, Florida television market (DMA 161) for $85.0 million. Subject to receipt of regulatory and other approvals, we expect this transaction will close in the second quarter of 2017, with cash on hand and, if necessary, borrowings under our senior credit facility.
Recent Financing Transactions
In connection with the consummation of the Schurz Acquisition and Related Transactions, effective February 16, 2016, we entered into the Second Amendment and Incremental Facility Agreement (the “Second Amendment”) to our then-existing senior credit facility (the “2014 Senior Credit Facility”). Pursuant to this Second Amendment, we borrowed $425.0 million under a term loan (the “2016 Term Loan”) to fund a portion of the purchase price of the Schurz Acquisition. The Second Amendment also increased our availability under a revolving credit facility by $10.0 million to a total of $60.0 million.
On June 14, 2016, we completed the private placement of $500.0 million of our 2026 Notes (the “Original 2026 Notes”), at par. We used a portion of the proceeds of the Original 2026 Notes to repay the outstanding balance of the 2016 Term Loan, accrued interest thereon, and transaction related fees and expenses. On September 14, 2016, we completed the private placement of an additional $200.0 million of our 2026 Notes (the “Additional 2026 Notes”). The Additional 2026 Notes were issued at a price of 103.0%, resulting in aggregate gross proceeds of approximately $206.0 million, plus accrued and unpaid interest from and including June 14, 2016. The Additional 2026 Notes are an additional issuance of, rank equally with and form a single series with the Original 2026 Notes. The 2026 Notes mature on July 15, 2026. Interest is payable semiannually, on January 15 and July 15 of each year commencing on January 15, 2017.
Also on September 14, 2016, we completed the private placement of $525.0 million of our 2024 Notes, at par. The 2024 Notes mature on October 15, 2024. Interest is payable semiannually, on April 15 and October 15 of each year commencing on April 15, 2017.
We used a portion of the proceeds from the sale of the 2026 Additional Notes and the 2024 Notes to complete the Tender Offer (discussed below). We used the remaining proceeds and cash on hand to redeem the 2020 Notes that remained outstanding after the completion of the Tender Offer.
On September 14, 2016, we purchased approximately $431.2 million in aggregate principal amount of our 7½% senior notes due 2020 (the “2020 Notes”) validly tendered in connection with a cash tender offer (the “Tender Offer”) for any and all of our outstanding $675.0 million aggregate principal amount of 2020 Notes.
On September 14, 2016, we satisfied and discharged our obligations under the indenture governing the remaining 2020 Notes outstanding by depositing with the trustee thereunder the redemption price of 103.750% of the principal amount thereunder, plus accrued and unpaid interest to, but not including, the date of redemption (the “Redemption”).
OnFebruary 7, 2017, we amended and restated the 2014 Senior Credit Facility.See Note 3 “Long-term Debt” and Note 11 “Subsequent Events” for further information regarding our financing activities.
Revenues, Operations, Cyclicality and Seasonality“production companies.”
Our operating revenues are derived primarily from broadcast and internet advertising, and retransmission consent fees and, to a lesser extent, from other sources such as production of television and event programming, television commercials, tower rentals and management fees. For the years ended December 31, 2019, 2018 and 2017 we generated revenue of $2.1 billion, $1.1 billion and $883 million, respectively.
Recent Acquisitions and Divestitures. On January 2, 2019, we completed the Raycom Merger. Net of station divestitures due to market overlaps, this transaction added television stations in 34 new markets. In addition to the high-quality television stations acquired as part of the Raycom Merger, we also acquired businesses that provide sports marketing and production services that we believe have resulted in us becoming a more diversified media company. The Raycom Merger completed our transformation from a small, regional broadcaster to a leading media company with nationwide scale based on high-quality stations with exceptional talent in attractive markets. By combining these two companies, we now own and operate television stations and leading digital properties in television markets from Alaska and Hawaii to Maine and Florida.
Upon consummation of the Raycom Merger, all outstanding shares of Raycom capital stock, and options and warrants to purchase Raycom capital stock, were cancelled, and all outstanding indebtedness was repaid, in exchange for aggregate consideration consisting of: (i) 11.5 million shares of the Company’s common stock then valued at $170 million, for which we filed a registration statement in January 2019, covering the resale of the shares issued; (ii) $2.84 billion in cash; and (iii) 650,000 shares of Series A Preferred Stock of the Company, with a stated face value of $1,000 per share or $650 million, issued to holders of warrants to purchase shares of Raycom. The Series A Preferred Stock accrues dividends at 8% per annum payable in cash or 8.5% per annum payable in the form of additional Series A Preferred Stock, at the election of Gray. The holders of Series A Preferred Stock are not entitled to vote on any matter submitted to the stockholders of the Company for a vote, except as required by Georgia law. Upon a liquidation of the Company, holders of the Series A Preferred Stock will be entitled to receive a liquidation preference equal to $1,000 per share plus all accrued and unpaid dividends.
On May 1, 2019, we acquired the assets of WWNY-TV (CBS) and WNYF-CD (FOX) in Watertown, New York (DMA 181) and KEYC-TV (CBS/FOX) in Mankato, Minnesota (DMA 198) from United Communications Corporation (the “United Acquisition”) for an adjusted purchase price of $48 million. We began operating those stations on March 1, 2019 under a local programming and marketing agreement and increased the total number of our markets to 93.
On September 25, 2019, we acquired the assets of KDLT-TV (NBC), in the Sioux Falls, South Dakota market (DMA 113), for $33 million, using cash on hand (the “Sioux Falls Acquisition”).
On October 1, 2019, we acquired the assets of WVIR-TV (NBC) in the Charlottesville, Virginia market (DMA 182) from Waterman Broadcasting Corporation for $13 million using cash on hand (the “Charlottesville Acquisition”). Also, on October 1, 2019, in order to meet regulatory requirements, we divested our legacy stations in that market, WCAV-TV (CBS/FOX) and WVAW-TV (ABC). The divestiture resulted in a gain of approximately $20 million.
Collectively we refer to the Raycom Merger, the United Acquisition, the Sioux Falls Acquisition and the Charlottesville Acquisition as the “2019 Acquisitions”. The 2019 Acquisitions have materially affected our operations, liquidity and capital expenditures. In addition to the effects on our balance sheet from the financing transactions described below, our results of operations and cash flows have increased substantially. We also expect that the 2019 Acquisitions will create opportunities to reduce or eliminate redundancies in our combined operations, and that these synergies will be implemented in phases over several years. Please see Note 3 “Acquisitions and Divestitures” and Note 4 “Long-term Debt” of our audited consolidated financial statements included elsewhere herein for additional information on the Raycom Merger including on the financing transaction completed in connection therewith.
Transaction Related Expenses. We incur incremental expenses to complete acquisition and divestiture transactions that we refer to collectively as “Transaction Related Expenses.” These incremental expenses include but are not limited to: legal, consulting, other professional fees, incentive compensation, severance costs and termination costs of sales representation and other contractual relationships.
Revenues, Operations, Cyclicality and Seasonality. Broadcast advertising is sold for placement eithergenerally preceding or following a television station’s network programming and within local and syndicated programming. Broadcast advertising is sold in time increments and is priced primarily on the basis of a program’s popularity among the specific audience an advertiser desires to reach, as measured by Nielsen.reach. In addition, broadcast advertising rates are affected by the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. Broadcast advertising rates are generally the highest during the most desirable viewing hours, with corresponding reductions during other hours. The ratings of a local station affiliated with a major network can be affected by ratings of network programming.
We also sell internet advertising on our stations’ websites. These advertisements may be sold as banner advertisements, pre-roll advertisements or video and other types of advertisements or sponsorships.
Most advertising contracts are short-term, and generally run only for a few weeks. Approximately 61% of the net revenues of our television stations for the year ended December 31, 2016 were generated from local advertising (including political advertising revenues), which is sold primarily by a station’s sales staff directly to local accounts. Approximately 12% of the net revenues of our television stations for the year ended December 31, 2016 were generated from national advertising, which is also sold by a station’s sales staff to national accounts. At the beginning of 2016, we terminated substantially all of our national sales representation agreements. In 2015 and 2014, these firms also contributed to the sales of advertising contracts to national accounts.
We also sell internet advertising on our stations’ websites and mobile apps. These advertisements may be sold as banner advertisements, video advertisements and other types of advertisements or sponsorships.
Our broadcast and internet advertising revenues are affected by several factors that we consider to be seasonal in nature. These factors include:
● | Spending by political candidates, political parties and special interest groups increases during the even-numbered “on-year” of the two-year election cycle. This political spending typically is heaviest during the fourth quarter of such years; |
● | Broadcast advertising revenue is generally highest in the second and fourth quarters each year. This seasonality results partly from increases in advertising in the spring and in the period leading up to and including the holiday season; |
Broadcast advertising revenue is generally highest in the second and fourth quarters each year. This seasonality results partly from increases in advertising in the spring and in the period leading up to and including the holiday season. Broadcast advertising revenue is also generally higher in even-numbered years, due to spending by political candidates, political parties and special interest groups during the “on year” of the two-year political advertising cycle. This political spending typically is heaviest during the fourth quarter of such years.
● | Local and national advertising revenue on our NBC-affiliated stations increases in even numbered years as a result of broadcasts of the Olympic Games; and |
Our primary broadcasting operating expenses are employee compensation, related benefits and programming costs. In addition, the broadcasting operations incur overhead expenses, such as maintenance, supplies, insurance, rent and utilities. A large portion of the operating expenses of our broadcasting operations is fixed.
Our total revenue for 2016 increased from 2015 primarily as a result of the impact from our 2016 Acquired Stations and 2015 Acquired Stations. Our retransmission consent revenue increased in 2016 compared to 2015 due to increased subscriber rates and the impact from our Acquired Stations. Local and national advertising revenue also included approximately $8.2 million of advertising revenue related to our broadcasts of the 2016 Olympic Games in 2016. Local and national advertising revenue included approximately $1.6 million of revenue from the broadcast of the 2016 Super Bowl on our CBS channels, an increase of approximately $0.1 million compared to the $1.5 million of revenue from the broadcast of the 2015 Super Bowl on our NBC channels.
● | Because our stations and markets are not evenly divided among the Big Four broadcast networks, our local and national advertising revenue can fluctuate between years related to which network broadcasts the Super Bowl. |
Automotive advertisers have traditionally accounted for a significant portion of our revenue. ForDuring the years ended December 31, 20162019 and 2015,2018, we derived approximately 22% and 24%, respectively,25% of our total broadcast advertising revenue from customers in the automotive industry. Strong demand for our advertising inventory from political advertisers can require significant use of available inventory, which in turn can lower our advertising revenue from our non-political advertising revenue categories in the even numbered “on-year” of the two year political advertisingtwo-year election cycle. These temporary declines would beare expected to reverse themselves in the odd numberedfollowing “off-year” of the two year political advertisingtwo-year election cycle.
While our total revenues have increased in recent years as a result of our acquisitions, they have also experienced a gradual improvement as a result of improvements in general economic conditions in recent years,conditions. However, revenue remains under pressure from the internet as a competitor for advertising spending. We continue to enhance and market our internet websites in an effort to generate additional revenue. Our aggregate internet revenue is derived from both advertising and sponsorship opportunities directly on our websites.
Our primary broadcasting operating expenses are employee compensation, related benefits and programming costs. In addition, the broadcasting operations incur overhead expenses, such as maintenance, supplies, insurance, rent and utilities. A large portion of the operating expenses of our broadcasting operations is fixed. We continue to monitor our operating expenses and seek opportunities to reduce them where possible. Our total operating expenses for the year ended December 31, 2016 increased over 2015 amounts primarily due to the addition of the 2016 Acquired Stations and the 2015 Acquired Stations, as well as to increases in salaries, transaction expenses, non-cash compensation, severance, healthcare expense, and payroll taxes.
Reclassification of Revenue
Through 2015, we reported our local television advertising revenues and our internet advertising revenues (internet/digital/mobile) separately. In 2016, we began reporting a single line item identified as “Local (including internet/digital/mobile)” that combines both our local television advertising revenues and our internet/digital/mobile advertising revenues. Because this revenue primarily originates within each local market in which we operate and is sold by the same local sales force, we believe this classification is more consistent and more representative of our operating focus, to maximize all aspects of local revenue. Prior period amounts presented herein have been reclassified to reflect our current presentation.
Please see our “Results of Operations” and “Liquidity and Capital Resources” sections below for further discussion of our operating results.
Risk Factors. The broadcast television industry relies primarily on advertising revenue and faces significant competition. For a discussion of certain other presently known, significant factors that may affect our business, see “Item 1A. Risk Factors” included elsewhere herein.
Revenue
Set forth below are the principal types of revenue, less agency commissions, earned by us for the periods indicated and the percentage contribution of each to our total revenue (dollars in thousands)millions):
| YearEndedDecember 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||
2016 | 2015 | 2014 | 2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||||||||||||
Percent | Percent | Percent | Percent | Percent | Percent | ||||||||||||||||||||||||||||||||||||||||||||||
Amount | of Total | Amount | of Total | Amount | of Total | Amount | of Total | Amount | of Total | Amount | of Total | ||||||||||||||||||||||||||||||||||||||||
Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||||||
Local (including internet/digital/mobile) | $ | 403,336 | 49.6% | $ | 336,471 | 56.3% | $ | 274,013 | 54.0% | ||||||||||||||||||||||||||||||||||||||||||
Local (including internet /digital/mobile) | $ | 898 | 42.3 | % | $ | 443 | 40.9 | % | $ | 451 | 51.1 | % | |||||||||||||||||||||||||||||||||||||||
National | 98,351 | 12.1% | 81,110 | 13.6% | 64,958 | 12.8% | 229 | 10.8 | % | 114 | 10.5 | % | 119 | 13.5 | % | ||||||||||||||||||||||||||||||||||||
Political | 90,095 | 11.1% | 17,163 | 2.9% | 81,975 | 16.1% | 68 | 3.2 | % | 155 | 14.3 | % | 16 | 1.8 | % | ||||||||||||||||||||||||||||||||||||
Retransmission consent | 200,879 | 24.7% | 151,957 | 25.4% | 74,894 | 14.7% | 796 | 37.5 | % | 355 | 32.7 | % | 277 | 31.4 | % | ||||||||||||||||||||||||||||||||||||
Production companies | 87 | 4.1 | % | - | 0.0 | % | - | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||||
Other | 19,804 | 2.5% | 10,655 | 1.8% | 12,294 | 2.4% | 44 | 2.1 | % | 17 | 1.6 | % | 20 | 2.2 | % | ||||||||||||||||||||||||||||||||||||
Total | $ | 812,465 | 100.0% | $ | 597,356 | 100.0% | $ | 508,134 | 100.0% | $ | 2,122 | 100.0 | % | $ | 1,084 | 100.0 | % | $ | 883 | 100.0 | % | ||||||||||||||||||||||||||||||
Risk FactorsResults of Operations
The broadcast television industry is reliant primarily on advertising revenue and faces significant competition. For a discussion of certain other presently known, significant factors that may affect our business, see “Item 1A. Risk Factors” included herein.
Results of Operations
Year EndedDecember 31, 20162019 (“2019 (“2016”) Compared to Year EndedDecember 31, 20152018 (“2018 (“2015”)
Revenue
.
Total revenue increased $215.1 million,approximately $1.0 billion, or 36%96%, to $812.5 million$2.1 billion for 20162019 compared to 2015.2018 primarily due to the 2019 Acquisitions offset in-part by decreased political advertising revenue. Local advertising revenue increased approximately $66.9$455 million, or 20%103%, to $403.3$898 million. National advertising revenue increased approximately $17.2$115 million, or 21%101%, to $98.4$229 million. Political advertising revenue decreased approximately $87 million, or 56% to $68 million due to 2019 being the “off-year” of the two-year election cycle. Retransmission consent revenue increased by approximately $441 million or 124% to $796 million primarily due to the 2019 Acquisitions but also due to higher retransmission consent rates. The 2016 Acquired Stationsstations and production companies acquired in the 2015 Acquired Stations had a significant impact on our revenues together accounting2019 Acquisitions accounted for approximately $187.8 million and $23.2 million$1.1 billion of the increase in our total revenue in 2016 and 2015, respectively. Local and national advertising revenue in 2016 benefited from approximately $8.2 million earned from the broadcast of the 2016 Summer Olympic Games on our NBC channels. There was no corresponding Olympic Games advertising revenue during 2015. In 2016, local and national advertising revenue included approximately $1.6 million of revenue from the broadcast of the 2016 Super Bowl on our CBS channels, an increase of approximately $0.1 million from the $1.5 million of revenue from the broadcast of the 2015 Super Bowl on our NBC channels.
2019. Excluding the impact ofrevenue attributable to the 2016 Acquired Stations and the 2015 Acquired Stations: local2019 Acquisitions, revenue decreased by $6.7$95 million and national revenue decreased $6.2 milliondue primarily to decreases in 2016 compared to 2015, in part, as a result of inventory displacement resulting from increased political advertising revenue; retransmission consent revenue increased $12.8 million in 2016 compared to 2015, primarily due to increased subscriber rates; and political advertising revenue, increased $50.1 million, in 2016 compared to 2015, reflecting increased advertisingresulting primarily from political candidates and special interest groups during the “on year”2019 being an “off-year” of the two-year political advertising cycle.
Excludingcycle, partially offset by increases in retransmission consent revenue attributable to the 2016 Acquired Stations, the 2015 Acquired Stations and political advertisers, our five largest advertising categories on a combined local and national basis by customer type exhibited the following approximate changes during 2016 compared to 2015: automotive increased 2%; medical decreased 1%; restaurant decreased 9%; furniture and appliances increased 1%; and home improvement increased 6%.resulting from increases in rates.
Broadcast operating expenses
. Broadcast operating expenses (before depreciation, amortization and lossgain on disposal of assets) increased $100.9$729 million, or 27%122%, to $475.1 million$1.3 billion for 20162019 compared to 2015,2018 primarily due to increasesthe 2019 Acquisitions. Broadcast operating expenses included $45 million of Transaction Related Expenses in compensation expense of $50.42019, compared to $3 million and non-compensation expense of $50.5 million.in 2018. The 2016 Acquired Stations and the 2015 Acquired Stations2019 Acquisitions accounted for approximately $103.9 million and $12.5$713 million of our totalthe increase in broadcast operating expenses in 2016 and 2015, respectively.
Compensation expense increased2019. Excluding the broadcast operating expenses of the stations included in the 2019 Acquisitions, payroll costs decreased by $50.4approximately $17 million, in 2016 compared to 2015, primarily as a result of $49.1 milliondecreases in additionalincentive compensation costs resulting primarily from the addition of employees at the 2016 Acquired Stations and 2015 Acquired Stations.benefit costs. Non-cash share basedstock-based compensation expenses were $1.2$5 million in 2016 compared to $0.92019 and $2 million in 2015.2018.
The 2016 Acquired StationsProduction Company Operating Expenses. Production company operating expenses (before depreciation, amortization and 2015 Acquired Stations contributed $42.3gain on disposal of assets) were $74 million in 2019, and represent the video and event production costs related to the increaseproduction companies acquired in non-compensation expense. Excluding the impact of the 2016 Acquired Stations and the 2015 Acquired Stations: network affiliation fees increased by $12.5 million related to our increased retransmission consent revenue under our affiliation agreements; national sales representation fees decreased $10.2 million as a result of the termination of our national advertising sales representation agreements effective January 1, 2016; business and professional services fees increased by $2.3 million; service, repair and maintenance expenses increased by $1.3 million; syndicated programming expenses increased by $1.2 million; and software licensing fees increased by $1.1 million.2019 Acquisitions.
Corporate and administrative expenses
. Corporate and administrative expenses (before depreciation, amortization and lossgain on disposal of assets) increased $6.0$63 million, or 17%154%, to $40.3$104 million for 20162019 compared to 2015.2018. The increase was due primarily to $5.1$34 million in increasedof Transaction Related Expenses associated with the 2019 Acquisitions such as legal and other professional fees associated with our acquisitions. We recordedand $11 million of severance and incentive compensation. Excluding the 2019 Acquisitions and the related transaction expenses, corporate and administrative expenses increased by approximately $16 million due to increases in non-cash stock-based compensation, expense during 2016corporate staffing and 2015 of $3.9base compensation. Non-cash stock-based compensation expenses were $11 million in 2019 and $3.1$5 million respectively.in 2018.
DepreciationDepreciation.
Depreciation of property and equipment totaled $45.9$80 million and $36.7$54 million for 20162019 and 2015,2018, respectively. Depreciation expense increased due to the 2019 Acquisitions and purchases of property and equipment at our existing stations and additional property and equipment placed in service related to the 2016 Acquired Stations and the 2015 Acquired Stations.stations.
Amortization of intangible assetsassets.
Amortization of intangible assets totaled $16.6$115 million and $12.0$21 million for 20162019 and 2015,2018, respectively. Amortization expense increased in 2016 compared to 2015primarily due to the amortization expense associated withfinite-lived intangible assets acquired in the 2019 Acquisitions.
Gain or loss on disposal of assets, net. We reported gains on disposals of assets of $54 million in 2019 and $17 million in 2018. During 2019, we recorded a gain of $19 million related to the divestiture of television stations, primarily WCAV-TV and WVAW-TV in the Charlottesville, Virginia market, to facilitate regulatory approval of the acquisition of finite-lived intangibleWVIR-TV. Also in 2019, we reported gains of $38 million related to assets disposed as required by the FCC’s Repack process. During 2018, we recorded a gain of $5 million related to the divestiture of WSWG-TV to facilitate regulatory approval of the 2016 Acquired Stations andRaycom Merger. Also in 2018, we reported gains of $14 million related to assets disposed as required by the 2015 Acquired Stations.FCC’s Repack process.
Interest expense
. Interest expense increased $22.8$120 million, or 31%112%, to $97.2$227 million for 20162019 compared to 2015.2018 due to additional debt used to fund the Raycom Merger. Interest expense increased dueby $53 million resulting from our 2027 Notes and by $67 million related to an increase inadditional term loan borrowing under our average principal outstanding, partially offset by a decrease in our average interest rates. Our average debt balance was $1.6 billion and $1.2 billion during 2016 and 2015, respectively. Our average debt balance increased as a result of increased borrowings used to finance our acquisitions. The2019 Senior Credit Facility. During 2019 the average interest rate on our debt balances was 5.5% and 5.8% for 2016 and 2015, respectively.senior credit facility increased slightly to 4.7% from 4.2%.
Loss from early extinguishment of debt
In connection with the completion of the Tender Offer and the Redemption, we recorded a loss from early extinguishment of debt of approximately $32.0 million ($19.5 million net of tax) in 2016, consisting of Tender Offer premiums of $18.2 million, premiums related to the Redemption of $9.1 million, the write off of unamortized deferred financing costs of $8.0 million and the payment of approximately $0.2 million in legal and other professional fees; reduced by the recognition of un-accreted net premium of $3.5 million.
Income tax expense
. Our effective income tax rate increased to 41.1%a net provision of 30% for 20162019 from 40.2%27% for 2015.2018. Our effective income tax rates differed from the statutory rate due to the following items:
| Year EndedDecember31, | ||||||||
2016 | 2015 | |||||||
Statutory federal income tax rate | 35.0% | 35.0% | ||||||
Current year permanent items | 1.7% | 1.8% | ||||||
State and local taxes, net of federal taxes | 4.8% | 4.3% | ||||||
Change in valuation allowance | (0.1)% | (0.6)% | ||||||
Reserve for uncertain tax positions | (0.7)% | (0.9)% | ||||||
Other items, net | 0.4% | 0.6% | ||||||
Effective income tax rate | 41.1% | 40.2% | ||||||
Year EndedDecember 31, 2015 Compared to Year EndedDecember 31, 2014 (“2014”)
Revenue
Total revenue increased$89.2 million, or18%, to$597.4 million for 2015 compared to 2014. Local advertising revenue increased approximately$62.5 million, or23%, to$336.5 million. National advertising revenue increased approximately $16.2 million, or 25%, to $81.1 million. The 2015 Acquired Stations and the 2014 Acquired Stations had a significant impact on our revenues. Together, the stations acquired in those years accounted for approximately $163.4 million and $72.1 million of our total revenue in 2015 and 2014, respectively. Local and national advertising revenue in 2014 benefited from approximately $3.8 million earned from the broadcast of the 2014 Winter Olympic Games on our NBC channels. There were no corresponding Olympic Games advertising revenue during 2015. In 2015, local and national advertising revenue included approximately $1.5 million of revenue from the broadcast of the 2015 Super Bowl on our then 24 NBC channels, an increase of approximately $1.3 million compared to the $0.2 million of revenue from the broadcast of the 2014 Super Bowl on our then five FOX channels. Retransmission consent revenue increased $77.1 million, or 103%, to $152.0 million in 2015 compared to 2014, primarily due to increased subscriber rates. Political advertising revenue decreased $64.8 million, or 79%, to $17.2 million, reflecting decreased advertising from political candidates and special interest groups during the “off year” of the two-year political advertising cycle. Other revenue decreased $1.6 million, or 13%, to $10.7 million in 2015 compared to 2014.
Year Ended December 31, | ||||||||||
2019 | 2018 | |||||||||
Statutory federal income tax rate | 21 | % | 21 | % | ||||||
Current year permanent items | 5 | % | 1 | % | ||||||
State and local taxes, net of federal taxes | 5 | % | 5 | % | ||||||
Change in valuation allowance | (1 | )% | 0 | % | ||||||
Effective income tax expense rate | 30 | % | 27 | % | ||||||
Excluding revenue attributable to the 2015 Acquired Stations, the 2014 Acquired Stations and political advertisers, our five largest advertising categories on a combined local and national basis by customer type demonstrated the following changes during 2015 compared to 2014: automotive increased 3%; medical increased 9%; restaurant increased less than 1%; communications decreased 1%; and furniture and appliances increased 13%.
Broadcast operating expenses
Broadcast operating expenses (before depreciation, amortization and loss on disposal of assets) increased $88.2 million, or 31%, to $374.2 million for 2015 compared to 2014, due primarily to increases in compensation expense of $27.9 million and non-compensation expense of $60.3 million.The 2015 Acquired Stations and the 2014 Acquired Stations accounted for approximately $91.4 million and $34.8 million of our total broadcast operating expenses in 2015 and 2014, respectively.
Compensation expense increased by $27.9 million in 2015 compared to 2014, primarily as a result of $25.5 million in additional compensation related costs, resulting primarily from the addition of employees at the 2015 Acquired Stations and 2014 Acquired Stations. In addition, expenses related to matching contributions and discretionary profit sharing contributions to our defined contribution 401(k) plan increased by $3.4 million. These added employee benefit costs were offset, in part, by a decrease of $1.6 million in expenses related to our defined benefit pension plan. Non-compensation expense increased primarily due to an increase in network affiliation fees of $50.6 million related to our increased retransmission consent revenue under our affiliation agreements, as well as the commencement in the first quarter of 2015 of network program fees payable to CBS. Our national sales representation fees increased $3.0 million as a result of a $6.3 million one-time charge resulting from the previously disclosed termination of our national advertising sales representation agreements effective January 1, 2016. This one-time charge was partially offset by decreased commissions resulting from reduced political advertising revenues in 2015 compared to 2014 reflecting the off-year of the political advertising cycle.Non-cash share based compensation expenses were $0.9 million in 2015 compared to $1.5 million in 2014.
Corporate and administrative expenses
Corporate and administrative expenses (before depreciation, amortization and loss on disposal of assets) increased $5.1 million, or 18%, to $34.3 million for 2015 compared to 2014. The increase was due primarily to increases in compensation expense of $2.8 million and non-compensation expense of $2.4 million.Compensation expense increased primarily due to increases in incentive compensation and relocation expenses. We recorded non-cash stock-based compensation expense during 2015 and 2014 of $3.1 million and $3.5 million, respectively. Non-compensation expense increased primarily due to increased legal and other professional fees associated with our acquisitions.
Depreciation
Depreciation of property and equipment totaled $36.7 million and $30.2 million for 2015 and 2014, respectively. Depreciation expense increased in 2015 compared to 2014 due to purchases of property and equipment at our existing stations and additional property and equipment placed in service related to the 2015 Acquired Stations and the 2014 Acquired Stations.
Amortization of intangible assets
Amortization of intangible assets totaled $12.0 million and $8.3 million for 2015 and 2014, respectively. Amortization expense increased in 2015 compared to 2014 due to the amortization expense associated with the acquisition of finite-lived intangible assets of the 2015 Acquired Stations and the 2014 Acquired Stations.
Interest expense
Interest expense increased $5.5 million, or 8%, to $74.4 million for 2015 compared to 2014. Interest expense increased due to an increase in our average principal outstanding. Our average debt balance was $1.2 billion and $1.1 billion during the 2015 and 2014, respectively. Our average debt balance increased as a result of increased borrowings used to finance, in part, the acquisition of certain of the 2014 Acquired Stations. The average interest rates on our total debt balances were 5.8% and 6.2% for 2015 and 2014, respectively.
Income tax expense
Our effective income tax rate increased to 40.2% for 2015 from 39.8% for 2014. Our effective income tax rates differed from the statutory rate due to the following items:
YearEndedDecember 31, | ||||||||
2015 | 2014 | |||||||
Statutory federal income tax rate | 35.0% | 35.0% | ||||||
Current year permanent items | 1.8% | 1.1% | ||||||
State and local taxes, net of federal taxes | 4.3% | 5.1% | ||||||
Change in valuation allowance | (0.6)% | (0.9)% | ||||||
Reserve for uncertain tax positions | (0.9)% | (0.2)% | ||||||
Other items, net | 0.6% | (0.3)% | ||||||
Effective income tax rate | 40.2% | 39.8% | ||||||
Liquidity and Capital Resources
GeneralGeneral.
The following tables present data that we believe is helpful in evaluating our liquidity and capital resources (dollars in thousands)millions):
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2019 | 2018 | 2017 | |||||||||||||||||||
Net cash provided by operating activities | $ | 206,633 | $ | 105,614 | $ | 134,219 | $ | 385 | $ | 323 | $ | 180 | ||||||||||||
Net cash used in investing activities | (479,334 | ) | (206,382 | ) | (501,892 | ) | (2,656 | ) | (47 | ) | (350 | ) | ||||||||||||
Net cash provided by financing activities | 500,572 | 167,317 | 384,964 | 1,064 | 681 | 307 | ||||||||||||||||||
Net increase in cash | $ | 227,871 | $ | 66,549 | $ | 17,291 | ||||||||||||||||||
Net increase in cash and restricted cash | $ | (1,207 | ) | $ | 957 | $ | 137 | |||||||||||||||||
December 31, | ||||||||||||
2016 | 2015 | |||||||||||
Cash | $ | 325,189 | $ | 97,318 | ||||||||
Long-term debt including current portion | $ | 1,756,747 | $ | 1,220,084 | ||||||||
Borrowing availability under 2014 Senior Credit Facility | $ | 60,000 | $ | 50,000 | ||||||||
December 31, | |||||||||
2019 | 2018 | ||||||||
Cash | $ | 212 | $ | 667 | |||||
Restricted cash | $ | - | $ | 752 | |||||
Long-term debt, including current portion | $ | 3,697 | $ | 2,549 | |||||
Borrowing availability under senior credit facility | $ | 200 | $ | 100 | |||||
On February 7,Financing Transactions. In connection with the consummation of our recent acquisitions and our efforts to strengthen our balance sheet, we undertook several financing transactions between 2017 Gray amended and restatedearly 2019. These transactions have included an underwritten offering of our common stock in December 2017; the 2014 Senior Credit Facilityissuance of senior notes in 2018; the formissuance of the Preferred Stock in 2019 and the refinancing of our senior credit facilities in 2017 Senior Credit Facility to, among other things, reduce our interest rate under the term loan facility to LIBOR plus 2.50%, increase our availability under the revolving credit facility from $60.0 million to $100.0 million, and extend the maturity2019. For a detailed description of the revolving credit facilitythese transactions please see Note 4 “Long-term Debt,” Note 6 “Stockholders’ Equity” and term loan facility to 2022 and 2024, respectively. See Note 11 “Subsequent Events” to7 “Preferred Stock” of our audited consolidated financial statements included elsewhere herein for more information on the 2017 Senior Credit Facility.herein.
Prior to entry intoIn connection with the 2017 SeniorRaycom Merger, on January 2, 2019, we completed the following debt transactions: (1) replaced our existing $100 million revolving credit facility with the 2019 Revolving Credit Facility, the 2014 Senior Credit Facility consistedterms of a revolving loanwhich provide for up to $200 million in available borrowings and a term loan. Excluding accrued interest,maturity date extended until January 1, 2024; (2) incurred the $1.4 billion 2019 Term Loan, which has a maturity date of January 1, 2026; (3) because the Raycom Merger was not completed by December 15, 2018, we incured a ticking fee of $1 million at a rate of 1.25% of the 2019 Term Loan commitment amount, outstanding underfrom December 16, 2018 to January 1, 2019; and (4) we assumed $750 million of the 7.0% 2027 Notes, which were issued on November 16, 2018 by Gray Escrow, Inc., a wholly owned subsidiary. The proceeds of the 2019 Term Loan and 2027 Notes were used to fund a portion of the cash consideration payable in the Raycom Merger.
In connection with the Raycom Merger, on January 2, 2019, we completed the following equity transactions: (1) a portion of the consideration to complete the Raycom Merger included 11.5 million shares of our 2014 Senior Credit Facility as ofcommon stock valued at $170 million based upon our closing stock price on December 31, 20162018; (2) filed a registration statement, following the effective time of the Raycom Merger, covering the resale of the shares of the common stock issuable in the Raycom Merger; and 2015 consisted solely of a term loan balance of $556.4 million.
As of December 31, 2016, we had $700.0 million(3) issued 650,000 shares of our 2026 NotesPreferred Stock to holders of warrants to purchase the shares of Raycom’s capital stock outstanding and$525.0 million of our 2024 Notes outstanding.
As of December 31, 2016 and 2015, the interest rate on the balance outstanding under the 2014 Senior Credit Facility was 3.9% and 3.8%, respectively. As of December 31, 2016, the interest rate and yield on the Original 2026 Notes were each 5.875%; the interest rate and yield on the Additional 2026 Notes were 5.875% and 5.398%, respectively; and the interest rate and yield on the 2024 Notes were each 5.125%.
As of December 31, 2016 and 2015, we had a deferred loan cost balance, net of accumulated amortization, of $12.2 million and $6.1 million, respectively, relatedimmediately prior to the Senior Credit Facility. AsRaycom Merger. The Preferred Stock accrues dividends at 8% per annum payable in cash or 8.5% per annum payable in the form of December 31, 2016, we had a deferred loan cost balance, netadditional Preferred Stock, at the election of accumulated amortization,Gray. The holders of $10.6 million relatedPreferred Stock are not entitled to our 2026 Notes and $7.7 million relatedvote on any matter submitted to our 2024 Notes.
Our obligations under the 2017 Senior Credit Facility are secured by substantially allstockholders of the assetsCompany for a vote, except as required by Georgia law. Upon a liquidation of Graythe Company, holders of the Preferred Stock will be entitled to receive a liquidation preference equal to $1,000 per share plus all accrued and substantially all of our subsidiaries, excluding real estate. In addition, substantially all of our subsidiaries are joint and several guarantors of, and our ownership interests in those subsidiaries are pledged to collateralize, our obligations under the 2017 Senior Credit Facility.unpaid dividends.
The 2017 Senior Credit Facility contains affirmative and restrictive covenants that we must comply with, including (a) limitations on additional indebtedness, (b) limitations on liens, (c) limitations on the sale of assets, (d) limitations on guarantees, (e) limitations on investments and acquisitions, (f) limitations on the payment of dividends and share repurchases, (g) limitations on mergers, and (h) maintenance of a first lien leverage ratio not to exceed certain maximum limits while any amount is outstanding under the revolving credit facility as well as other customary covenants for credit facilities of this type. The 2026 Notes and 2024 Notes each include covenants with which we must comply and are typical for borrowing transactions of their nature. As of December 31, 2016 and 2015, we were in compliance with all required covenants under all our debt obligations.
For further information concerning our debt obligations, see Note 3 “Long-term Debt” and Note 11 “Subsequent Events” to our audited consolidated financial statements included elsewhere herein. For estimates of future principal and interest payments under our debt obligations, see “Tabular Disclosure of Contractual Obligations as of December 31, 2016” included elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Income TaxesTaxes.
We file a consolidated federal income tax return and such state or local tax returns as are required Basedbased on our current forecasts, we expect to make minimal federal and stateforecasts. We estimate that these income tax payments in 2017 and expectwill be within a range of approximately $79 million to begin paying significant federal and state income taxes in 2018.
Liquidity
Giving effect to the the amendment and restatement of our credit facility, as of February 7, 2017, we have $5.6$81 million in debt principal repayments due during the remainder of 2017. We estimate that we will make approximately $122.4 million in debt interest payments, including accrued interest of $32.5 million as of December 31, 2016, and we will pay approximately $35.0 million for capital expenditures during the twelve months immediately following December 31, 2016. Although our cash flows from operations are subject to a number of risks and uncertainties, we anticipate that our cash on hand, future cash expected to be generated from operations, borrowings from time to time under the 2017 Senior Credit Facility (or any such other credit facility as may be in place at the appropriate time) and, potentially, external equity or debt financing, will be sufficient to fund these debt service obligations and estimated capital expenditures. Any potential equity or debt financing would depend upon, among other things, the costs and availability of such financing at the appropriate time. We also presently believe that our future cash expected to be generated from operations and borrowing availabity under the 2017 Senior Credit Facility (or any such other credit facility) will be sufficient to fund our future capital expenditures and long-term debt service obligations until at least February 7, 2024, which is the maturity date of the term loan under the 2017 Senior Credit Facility.2020.
Net Cash ProvidedBy (Used In)(Used In) Operating, Investing and Financing Activities - Year Ended December 31, 2016 –2019Compared to Year Ended December 31, 20152018
Net cash provided by operating activities increased $101.0$62 million to $206.6$385 million in 20162019 compared to net cash provided by operating activities of $105.6$323 million in 2015.2018. The increase in cash provided by operating activities was due primarily to the net impact of several factors including an increaseincluding: a decrease in net income of $23.0 million, and an$32 million; a net increase of $65.1$155 million in non-cash expenses and an increasea decrease of $12.9$61 million due to changes in working capital balances. The primary changes in our non-cash expenses were an increase in our depreciation expense of $26 million and amortization of intangible assets of $94 million, each as a result of increases in the underlying assets related to the 2019 Acquisitions. Our deferred income taxes also increased by approximately $43 million related to the 2019 Acquisitions. These increases in non-cash expenses were partially offset by an increase in gain on disposal of assets of approximately $37 million primarily as a result of divestitures required to meet regulatory requirements to complete the 2019 Acquisitions.
Net cash used in investing activities increased $272.9 million$2.6 billion to $479.3$2.7 billion for 2019 compared to $47 million for 2016 compared to $206.4 million for 20152018. The net increase was due primarily to increased$2.8 billion of cash used for the 2019 Acquisitions. In 2018, we did not complete any acquisition transactions. Other significant changes in 2019 compared to acquire2018 included the receipt in 2019 of $253 million in proceeds from the divestiture of television businessesstations to facilitate regulatory approval of the 2019 Acquisitions and licenses.the receipt in 2019 of $41 million in proceeds from the FCC’s Repack process; an increase of $27 million compared to 2018.
Net cash provided by financing activities was $500.6$1.1 billion in 2019 compared to $681 million in 2016 compared to net cash provided by financing activities2018. This increase of $167.3 million in 2015. This change of $333.3$383 million was due primarily to our refinancing activitiesthe borrowings of $1.4 billion in 2016. Cash provided byterm loan financing activitiesto finance a portion of the cash consideration of the Raycom Merger in 2016 was primarily from: $425.02019, compared to issuance of $750 million of borrowings under the 2016 Term Loan, net of $8.7 million of deferred loan costs; the issuanceour 7% 2027 Notes, also to finance a portion of the $500.0 millioncash consideration of Original 2026 Notes, net of $7.8the Raycom Merger in 2018. During 2019, we paid $50 million of deferred loan costs a portion of which was usedrelated to repay the outstanding balance of the 2016 Term Loan;2019 Senior Credit Facility and the issuance2027 Notes. During 2019, we made total payments of $211 million to reduce the Additional 2026 Notes at 103%balance outstanding of par, resultingour 2019 Term Loan. Also during 2019, we used $32 million of cash to repurchase shares of our common stock, paid $39 million of dividends on our preferred stock and $4 million in payments for taxes related to net proceedsshare settlements of $206.0 million, net of $3.3equity awards. During 2018, we paid $5 million of deferred loan costs andrelated to the issuance2027 Notes. During 2018, we made total payments of $525.0$40 million to reduce the balance outstanding of our 2017 Term Loan. Also during 2018, we used $19 million of 2024 notes at par, net of $8.1 million of deferred loan costs. The net proceeds of the offering of the Additional 2026 Notes and the 2024 Notes and cash from operations were used to fund the Tender Offer and Redemption of the 2020 Notes, which included $27.5 million in premiums. During 2015, we completed an underwritten public offering of 13.5 millionrepurchase shares of our common stock at a priceand $5 million in payments for taxes related to the publicnet share settlements of $13.00 per share. The net proceeds of the offering were $167.3 million, after deducting underwriting discounts and expenses.equity awards.
Net Cash Provided By (Used In) Operating, Investing and Financing Activities - Year Ended December 31, 2015 Compared to Year Ended December 31, 2014Retirement Plans
Net cash provided by operating activities decreased $28.6 million to $105.6 million in 2015 compared to net cash provided by operating activities of $134.2 million in 2014. The decrease in cash provided by operating activities was due primarily to several factors, including a decrease in net income of $8.8 million and a decrease of $19.2 million due to changes in working capital balances.
Net cash used in investing activities decreased $295.5 million to $206.4 million for 2015 compared to $501.9 million for 2014 due primarily to decreased cash used to acquire television businesses and licenses.
Net cash provided by financing activities was $167.3 million in 2015 compared to net cash provided by financing activities of $385.0 million in 2014. This change of $217.7 million was due primarily to refinancing activities. Cash provided by financing activities in 2015 was primarily due to our March 31, 2015 underwritten public offering of 13.5 million shares of our common stock at a price to the public of $13.00 per share. During 2014, we borrowed $394.4 million more in long-term debt than we repaid, which was partially offset by our payment of $9.4 million in costs primarily associated with the refinancing of our prior senior credit facility.
Retirement Plans
We sponsor and contribute to defined benefit and defined contribution retirement plans. Our defined benefit pension plans in 2016 wereplan is the Gray Television, Inc. Retirement Plan (the “Gray Pension Plan”) as well as two plans assumed (the “Assumed Plans”) when we acquired the related businesses in prior years. On December 31, 2016, the two Assumed Plans were merged into. Monthly plan benefits under the Gray Pension Plan. Effective December 31, 2016,Plan are frozen and can no longer increase, and no new participants can be added to the Assumed Plans had combined plan assets of $5.8 million and combined projected benefit obligations of $8.3 million. Our defined benefit pension plan is a frozen plan. Gray Pension Plan.
Our funding policy is consistent with the funding requirements of existing federal laws and regulations under the Employee Retirement Income Security Act of 1974. A discount rate is selected annually to measure the present value of the benefit obligations. In determining the selection of a discount rate, we estimated the timing and amounts of expected future benefit payments and applied a yield curve developed to reflect yields available on high-quality bonds. The yield curve is based on an externally published index specifically designed to meet the criteria of United States Generally Accepted Accounting Principles (“U.S. GAAP”). The discount rate selected for determining benefit obligations as of December 31, 20162019 was 4.11%3.14%, which reflects the results of this yield curve analysis. The discount rate used for determining benefit obligations as of December 31, 20152018 was 4.31%4.16%. Our assumptions regarding expected return on plan assets reflects asset allocations, the investment strategy and the views of investment managers, as well as historical experience. We use an assumed rate of return of 7.00%6.50% for our assets invested in the Gray pension plans. In 2016,Pension Plan. The estimated asset returns for this plan, calculated on a mean market value assuming mid-year contributions and benefit payments, were a gain of 7.4%,17.6% for the year ended December 31, 2019, and in 2015 were a loss of 1.5%.6.3% for the year ended December 31, 2018. Other significant assumptions relate to inflation, retirement and mortality rates. Our inflation assumption is based on an evaluation of external market indicators. Retirement rates are based on actual plan experience and mortality rates are based on actual plan experience.the Pri-2012 mortality table and the MP-2019 projection scale published by the Society of Actuaries.
During each of the years ended December 31, 20162019 and 2015,2018, we contributed an aggregate of $3.0$3 million and $5.4million, respectively, to our pension plans,the Gray Pension Plan, and we anticipate making an aggregate contribution of approximately $3.0$3 million to our pension planthe Gray Pension Plan in 2017.2020. The use of significantly different assumptions, or if actual experienced results differ significantly from those assumed, could result in our funding obligations being materially different.
See Note 8 “Retirement Plans” of our audited consolidated financial statements included elsewhere herein for further information concerning the retirement plans.
The Gray Television, Inc. Capital Accumulation Plan (“the Capital(the “Capital Accumulation Plan”) is a defined contribution plan intended to meet the requirements of section 401(k) of the Internal Revenue Code. Effective July 1, 2015,Beginning in 2019, employer contributions under the Capital Accumulation Plan include matching cash contributions at a rate of 100% of the first 3%1% of each employee’s salary deferral, and 50% of the next 2%5% of each employee’s salary deferral. In addition, the Company, at its discretion, may make an additional profit sharing contribution, based on annual Company performance, to those employees who meet certain criteria. During the years ended December 31, 20162019 and 2015,2018, we contributed an aggregate of $8.8$16 million and $3.4$11 million, respectively, to the Capital Accumulation Plan.
See Note 11 “Retirement Plans” of our audited consolidated financial statements included elsewhere herein for further information concerning the retirement plans.
Capital Expenditures
In April 2017, the FCC began the process of requiring certain television stations to change channels and/or modify their transmission facilities (“Repack”). Congress passed legislation which provides the FCC with a $1.7 billion fund to reimburse all reasonable costs incurred by stations operating under a full power license and a portion of the costs incurred by stations operating under a low power license that are reassigned to new channels. Subsequent legislation in March 2018 appropriated an additional $1.0 billion for the Repack fund, of which up to $750 million may be made available to reimburse the Repack costs of full power and Class A television stations and multichannel video programming distributors. Other funds are earmarked to assist low power television stations and for other transition costs. The sufficiency of the FCC’s fund to reimburse for Repack costs is dependent upon a number of factors including the amounts to be reimbursed to other industry participants for Repack costs. Therefore, we cannot predict whether the fund will be sufficient to reimburse our Repack costs to the extent authorized under the legislation. The Repack affects 48 of our full power stations and 39 of our current low power stations. The Repack process should be substantially completed in 2020. We anticipate that the majority of our costs associated with Repack will qualify for capitalization, rather than expense. Upon receipt of funds reimbursing us for our Repack costs, we record those proceeds as a component of our (gain) loss on disposal of assets, net.
Capital expenditures, including Repack, for the years ended December 31, 20162019 and 20152018 were $43.6$110 million and $24.2$70 million, respectively. WeExcluding Repack, our capital expenditures were $89 million and $41 million, respectively. Our capitalized Repack costs and associated reimbursements for the years ended December 31, 2019 and 2018 were $20 million and $27 million, respectively. As of December 31, 2019, the amount requested from the FCC for Repack, but not yet received, was approximately $9 million. Excluding Repack, but including Repack related expenditures, we expect that our capital expenditures will be approximately $35.0$80 million in the year ending December 31, 2017. We expect to fund futureduring 2020. In addition, capital expenditures with cash from operations, borrowings or other financing proceeds.for Repack during 2020 are expected to range between approximately $27 million and $32 million and we anticipate being reimbursed for the majority of these Repack costs. However, reimbursement may be received in periods subsequent to those in which they were expended.
Off-Balance Sheet Arrangements
Operating Commitments
. We have various operating lease commitments for equipment, land and office space. We also have commitments for various syndicated television programs.
We have two types of syndicated television program contracts: first run programs and off network reruns. First run programs are programs such asWheel of Fortune and off network reruns are programs such asSeinfeld.Seinfeld. First run programs have not been produced at the time the contract to air such programming is signed, and off network reruns have already been produced. For all syndicated television contracts, we record an asset and corresponding liability for payments to be made only for the current year of the first run programming and for the entire contract period for off network programming. Only an estimate of the payments anticipated to be made in the year following the balance sheet date of the first run contracts are recorded on the current balance sheet, because the programs for the later years of the contract period have not been produced or delivered.
The total license fee payable under a program license agreement allowing us to broadcast programs is recorded at the beginning of the license period and is charged to operating expense over the period that the programs are broadcast. The portion of the unamortized balance expected to be charged to operating expense in the succeeding year is classified as a current asset, with the remainder classified as a non-current asset. The liability for license fees payable under program license agreements is classified as current or long-term, in accordance with the payment terms of the various license agreements.
Tabular Disclosure of Contractual Obligations as ofDecember 31, 20162019
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The following table aggregates our material expected contractual obligations and commitments as of December 31, 20162019 (in thousands)millions):
Payment Due By Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Contractual Obligations | Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
Contractual obligationsrecorded on our balancesheet as of December 31, 2016: | ||||||||||||||||||||
Long-term debt obligations (1) | $ | 1,781,438 | $ | - | $ | - | $ | 556,438 | $ | 1,225,000 | ||||||||||
Accrued interest (2) | 32,453 | 32,453 | - | - | - | |||||||||||||||
Programming obligationscurrently accrued (3) | 18,919 | 13,924 | 4,995 | - | - | |||||||||||||||
Off-balance sheet arrangementsas of December 31, 2016: | ||||||||||||||||||||
Long term debt obligations (4): | ||||||||||||||||||||
Cash interest on 2014 SeniorCredit Facility | 98,594 | 21,910 | 43,819 | 32,865 | - | |||||||||||||||
Cash interest on 2026 Notes | 390,688 | 41,125 | 82,250 | 82,250 | 185,063 | |||||||||||||||
Cash interest on 2024 Notes | 201,801 | 26,909 | 53,813 | 53,813 | 67,266 | |||||||||||||||
Operating lease obligations (5) | 13,187 | 2,905 | 4,085 | 2,517 | 3,680 | |||||||||||||||
Purchase obligations not currentlyaccrued (6) | 5,467 | 5,467 | - | - | - | |||||||||||||||
Programming obligationsnot currently accrued (7) | 26,068 | 5,702 | 16,641 | 3,435 | 290 | |||||||||||||||
Network affiliation agreements (8) | 382,197 | 129,260 | 215,489 | 35,311 | 2,137 | |||||||||||||||
Acquisition commitments (9) | 287,097 | 287,097 | - | - | - | |||||||||||||||
Service and other agreements (10) | 6,461 | 2,856 | 3,605 | - | - | |||||||||||||||
Total | $ | 3,244,370 | $ | 569,608 | $ | 424,697 | $ | 766,629 | $ | 1,483,436 | ||||||||||
Payment Due By Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Contractual Obligations | Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
Contractual obligations recorded on our balance sheet as of December 31, 2019: | ||||||||||||||||||||
Long-term debt obligations (1) | $ | 3,760 | $ | - | $ | - | $ | 1,120 | $ | 2,640 | ||||||||||
Accrued interest (2) | 37 | 37 | - | - | - | |||||||||||||||
Accrued Preferred Stock dividends (3) | 13 | 13 | - | - | - | |||||||||||||||
Programming obligations currently accrued (4) | 35 | 28 | 7 | - | - | |||||||||||||||
Operating lease obligations (5) | 69 | 9 | 17 | 14 | 29 | |||||||||||||||
Off-balance sheet arrangements as of December 31, 2019: | ||||||||||||||||||||
Cash interest on long term debt obligations (6): | ||||||||||||||||||||
Cash interest on 2019 Senior Credit Facility | 397 | 73 | 147 | 127 | 50 | |||||||||||||||
Cash interest on 2027 Notes | 388 | 53 | 105 | 105 | 125 | |||||||||||||||
Cash interest on 2026 Notes | 268 | 41 | 82 | 82 | 63 | |||||||||||||||
Cash interest on 2024 Notes | 129 | 27 | 54 | 48 | - | |||||||||||||||
Preferred Stock dividends (7) | 260 | 52 | 104 | 104 | - | |||||||||||||||
Programming obligations not currently accrued (8) | 84 | 10 | 55 | 19 | - | |||||||||||||||
Network affiliation agreements (9) | 1,147 | 366 | 655 | 126 | - | |||||||||||||||
Service and other agreements (10) | 3 | 2 | 1 | - | - | |||||||||||||||
Total | $ | 6,590 | $ | 711 | $ | 1,227 | $ | 1,745 | $ | 2,907 | ||||||||||
(1) | “Long-term debt obligations” represent current and long-term principal payment obligations under the |
(2) | “Accrued interest” represents interest on long-term debt obligations accrued as of December 31, |
(3) | “ |
(4) | “Programming obligations currently accrued” represents obligations for syndicated television programming whose license period has begun and the product is available. These amounts are recorded as liabilities as of the current balance sheet date. |
(5) | “Operating lease obligations” represents the gross accrued current and long-term lease payment obligations due under non-cancellable leases, including amounts representing imputed interest. Please refer to Note 9 “Leases” of our audited consolidated financial statements included elsewhere herein for further information. |
| (6) | “Cash interest on long-term debt obligations” consists of estimated interest expense on long-term debt excluding interest expense accrued as of December 31, |
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(7) | “Preferred Stock dividends” represents estimated future dividends payable on our Preferred Stock, that will be payable in future periods. For the column headed “More than 5 Years” we cannot estimate an amount, due to the perpetual nature of the preferred stock. Please refer to Note 7 “Preferred Stock” for further information. |
| (8) | “Programming obligations not currently accrued” represent obligations for syndicated television programming whose license period has not yet begun or the product is not yet available. These amounts are not recorded as liabilities as of the current balance sheet date. |
| “Network affiliation agreements” represent the fixed obligations under our current agreements with broadcast networks. Our network affiliation agreements expire at various dates primarily through |
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| (10) | “Service and other agreements” represents minimum amounts payable for various non-cancelable contractual agreements for maintenance services and other professional services. |
Estimates of the amount, timing and future funding obligations under our pension plansplan include assumptions concerning, among other things, actual and projected market performance of plan assets, investment yields, statutory requirements and demographic data for pension plan participants. Pension plan funding estimates are therefore not included in the table above because the timing and amounts of funding obligations for all future periods cannot be reasonably determined. We expect to contribute approximately $3.0$3 million in total to our defined benefit pension plansplan during 2017.2020.
Inflation
The impact of inflation on operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse effect on operating results, particularly since amounts outstanding under the 2019 Senior Credit Facility incur interest at a variable rate.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. GAAP requires us to make judgments and estimations that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those reported amounts. We consider our accounting policies relating to intangible assets and income taxes to be critical policies that require judgments or estimations in their application where variances in those judgments or estimations could make a significant difference to future reported results. Our policies concerning intangible assets and income taxes are disclosed below.
Annual Impairment Testing of Broadcast Licenses and GoodwillGoodwill.
We have determined that ourevaluate broadcast licenses are indefinite-lived intangible assets in accordance with the accounting guidance forand goodwill and other intangible assets, which require such assets to be tested for impairment on an annual basis, or more often when certain triggering events occur. For goodwill,Goodwill is evaluated at the reporting unit level.
In the performance of our annual broadcast license and reporting unit impairment assessments, we have elected to bypass the option of performing a qualitative assessment provisions and to performdetermine if it is more likely than not that the prescribed testing stepsrespective asset has been impaired. In 2019, we performed a qualitative assessment for goodwill on an annual basis.Neither55 of these asset types is amortized.
We test for impairment ofour 93 broadcast licenses and goodwill on an annual basis on the last day51 of each fiscal year. We also testour 96 reporting units. In 2018, we performed a qualitative assessment for impairment during any reporting period if certain triggering events occur. The two most recent impairment testing dates were December 31, 2016 and 2015.
Our annual impairment testing49 of our 55 broadcast licenses and goodwill34 of our 47 reporting units. We performed a quantitative assessment for each individual television station requires an estimationall broadcast licenses and reporting units in our annual tests in 2017.
As part of this qualitative assessment we evaluate the fair valuerelative impact of each broadcast licensefactors that are specific to the reporting units as well as industry, regulatory, and macroeconomic factors that could affect the significant inputs used to determine the fair value of the entire television station,assets. We also consider the significance of the excess fair value over the carrying value reflected in prior quantitative assessments and the changes to the reporting units’ carrying value since the last impairment test.
If we conclude that it is more likely than not that a broadcast license or reporting unit is impaired, or if we elect not to perform the optional qualitative assessment, we perform the quantitative assessment which involves comparing the estimated fair value of the broadcast license or reporting unit to its respective carrying value.
For our annual broadcast licenses impairment test in 2019, we considerconcluded that it was more likely than not that all 55 of our broadcast licenses that were evaluated were not impaired based upon our qualitative assessments. We elected to perform a reporting unit. Such estimates generally rely on analysesquantitative assessment for our remaining broadcast licenses and concluded that their fair values significantly exceeded their carrying values. To estimate the fair value of public and private comparative sales data as well asour broadcast licenses, we utilize a discounted cash flow analyses that inherently require multiple assumptions relatingmodel assuming an initial hypothetical start-up operation maturing into an average performing station in a specific television market and giving consideration to other relevant factors such as the future prospectstechnical qualities of each individual television station including, but not limited to (i) expected long-term market growth characteristics; (ii) estimations regarding a station’s future expected viewing audience; (iii) station revenue shares within a market; (iv) future expected operating expenses; (v) coststhe broadcast license and the number of capital; and (vi) appropriate discount rates. We believe that the assumptions we utilize in analyzing potential impairment ofcompeting broadcast licenses and/orwithin that market.
For our annual goodwill impairment test in 2019, we concluded that it was more likely than not that goodwill was not impaired based upon our qualitative assessments for each51 of our television stations are reasonable individuallyreporting units. We elected to perform a quantitative assessment for our remaining 45 reporting units and in the aggregate. However, these assumptions are highly subjective and changes in any one assumption, or a combination of assumptions, could produce significant differences in the calculated outcomes.
concluded that their fair values exceeded their carrying values. To estimate the fair value of our reporting units, we utilize a discounted cash flow model supported by a market multiple approach. We believe that a discounted cash flow analysis is the most appropriate methodology to test the recorded value of long-term assets with a demonstrated long-lived/enduring franchise value. We believe the results of the discounted cash flow and market multiple approaches provide reasonable estimates of the fair value of our reporting units because these approaches are based on our actual results and reasonable estimates of future performance, and also take into consideration a number of other factors deemed relevant by us including, but not limited to, expected future market revenue growth, market revenue shares and operating profit margins. We have consistentlyhistorically used these approaches in determining the fair value of our reporting units. We also consider a market multiple approach utilizing market multiples to corroborate our discounted cash flow analysis. We believe that this methodology is consistent with the approach that anya strategic market participant would utilize if they were to value one of our television stations.
We believe we have made reasonable estimates and utilized appropriate assumptions to evaluate whether the fair values of our broadcast licenses and reporting units were less than their carrying values. If future results are not consistent with our assumptions and estimates, including future events such as a deterioration of market conditions or significant increases in discount rates, we could be exposed to impairment charges in the future. Any resulting impairment loss could have a material adverse impact on our consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows.
As of December 31, 20162019 and 2015,2018, the recorded value of our broadcastlicensesbroadcast licenses was $1.3$3.6 billion and $1.1$1.5 billion, respectively. As of December 31, 20162019 and 2015,2018, the recorded value of our goodwill was $485.3 million$1.4 billion and $423.2$612 million, respectively. We did not record anSee Note 13 “Goodwill and Intangible Assets” of our audited consolidated financial statements included elsewhere herein, for the results of our annual impairment expense related to our broadcast licenses or goodwill during 2016, 2015 or 2014.tests for the years ended December 31, 2019, 2018 and 2017.
Prior to January 1, 2002, acquired broadcast licenses were valued at the date of acquisition using a residual method. The recorded value of these broadcast licenses as of December 31, 2016 and 2015 was approximately $341.0 million. Broadcast licenses acquired after December 31, 2001 were valued at the date of acquisition using an income method that assumes an initial hypothetical start-up operation. This change in methodology was due to a change in accounting requirements. The book value of these broadcast licenses as of December 31, 2016 and 2015 was approximately $999.3 million and $773.6 million, respectively. Regardless of whether we initially recorded the value of our broadcast licenses using the residual or the income method, for purposes of testing for potential impairment we use the income method to estimate the fair value of our broadcast licenses.
Valuation of Network Affiliation Agreements
. We believe that the value of a television station is derived primarily from the attributes of its broadcast license rather than its network affiliation agreement. These attributes have a significant impact on the audience for network programming in a local television market compared to the national viewing patterns of the same network programming.
Certain other broadcasting companies have valued their stations on the basis that it is the network affiliation and not the other attributes of the station, including its broadcast license, which contributes to the operational performance of that station. As a result, we believe that these broadcasting companies allocate a significant portion of the purchase price for any station that they may acquire to the network affiliation relationship and include in their network affiliation valuation amounts related to attributes which we believe are more appropriately reflected in the value of the broadcast license or reporting units.
The methodology we used to value these stations was based on our evaluation of the broadcast licenses acquired and the characteristics of the markets in which they operated. Given our assumptions and the specific attributes of the stations we acquired from 2002 through December 31, 2016,2019, we ascribedgenerally ascribe no incremental value to the incumbent network affiliation relationship in each market beyond the cost of negotiating a new agreement with another network and the value of any terms of the affiliation agreement that were more favorable or unfavorable than those generally prevailing in the market. Due to certain characteristics of a small number of the stations acquired in the Raycom Merger, we ascribed approximately $50 million of the value of that transaction to network affiliations in 2019.
Some broadcast companies may use methods to value acquired network affiliations different than those that we use. These different methods may result in significant variances in the amount of purchase price allocated to these assets among broadcast companies.
If we were to assign higher values to all of our network affiliations and less value to our broadcast licenses or goodwill and if it is further assumed that such higher values of the network affiliations are finite-lived intangible assets, this reallocation of value might have a significant impact on our operating results. There is diversity of practice within the industry, and some broadcast companies have considered such network affiliation intangible assets to have a life ranging from 15 to 40 years depending on the specific assumptions utilized by those broadcast companies.
The following table reflects the hypothetical impact of the reassignment of value from broadcast licenses to network affiliations for our historical acquisitions (the first acquisition being in 1994) and the resulting increase in amortization expense assuming a hypothetical 15-year amortization period as of our most recent impairment testing date of December 31, 20162019 (in thousands,millions, except per share data):
Percentage of Total | Percentage of Total | |||||||||||||||||||||||
Value Reassigned to | Value Reassigned to | |||||||||||||||||||||||
Network | Network | |||||||||||||||||||||||
As | Affiliation Agreements | As | Affiliation Agreements | |||||||||||||||||||||
Reported | 50% | 25% | Reported | 50% | 25% | |||||||||||||||||||
Balance Sheet (As of December 31, 2016): | ||||||||||||||||||||||||
Balance Sheet (As of December 31, 2019): | ||||||||||||||||||||||||
Broadcast licenses | $ | 1,340,305 | $ | 649,931 | $ | 995,118 | $ | 3,573 | $ | 1,837 | $ | 2,705 | ||||||||||||
Other intangible assets, net (including networkaffiliation agreements) | 56,250 | 218,550 | 137,400 | |||||||||||||||||||||
Other intangible assets, net (including network affiliation agreements) | 460 | 1,644 | 1,052 | |||||||||||||||||||||
Statement of Operations(For the year ended December 31, 2016): | ||||||||||||||||||||||||
Statement of Operations (For the year ended December 31, 2019): | ||||||||||||||||||||||||
Amortization of intangible assets | 16,596 | 44,842 | 30,869 | 115 | 208 | 161 | ||||||||||||||||||
Operating income | 234,139 | 205,893 | 219,866 | 478 | 385 | 432 | ||||||||||||||||||
Net income | 62,273 | 45,043 | 53,566 | |||||||||||||||||||||
Net income attributable to common stockholders | 127 | 58 | 93 | |||||||||||||||||||||
per share - basic | $ | 0.87 | $ | 0.63 | $ | 0.75 | $ | 1.28 | $ | 0.59 | $ | 0.94 | ||||||||||||
per share - diluted | $ | 0.86 | $ | 0.62 | $ | 0.74 | $ | 1.27 | $ | 0.58 | $ | 0.93 | ||||||||||||
For future acquisitions, if any, the valuation of the network affiliations may differ from the values of previous acquisitions due to the different characteristics of each station and the market in which it operates.
Income Taxes
We have approximately $61.5 million in federal operating loss carryforwards, which expire during the years 2029 through 2031. Additionally,. As of December 31, 2019, we have an aggregate of approximately $122.4$438 million of various statefederal operating loss carryforwards. We project to have federal taxable income in the carryforward periods. Therefore, we believe that it is more likely than not that all of the federal net operating loss carryforwards will be fully utilized.
A valuation allowance has been provided for a portion We have an aggregate of theapproximately $677 million of various state net operating loss carryforwards. We project to have state taxable income in the carryforward periods. Therefore, we believe that we will not meet theit is more likely than not threshold in certain states due to the uncertaintythat approximately half of generating sufficient income. Therefore, the state valuation allowance at December 31, 2016 and 2015 was $1.5 million and $1.7 million, respectively.operating loss carryforwards will be utilized.
The TCJA reduced the value of our deferred tax liabilities resulting in the recognition of a tax benefit of approximately $146 million in the fourth quarter of 2017 with a credit to earnings for a reduction of those liabilities. In addition, the TCJA contains significant changes to corporate taxes that materially affected the taxes owed by us in 2019, 2018 and subsequent years. Among other things, the new law reduced the maximum federal corporate income tax rate from 35% to 21%, which should have a positive effect on our net earnings and earnings per share. It also includes an option to claim accelerated depreciation deductions on qualified property but limits or eliminates certain deductions to which we have been entitled in past years.
Recent Accounting PronouncementsPronouncements.
See Note 1“1“Description of Business and Summary of Significant Accounting Policies” of our audited consolidated financial statements as of and for the year ended December 31, 2016 included in Item 8,elsewhere herein for more information.
Cautionary Statements for Purposes of the “Safe Harbor” Provisions of the Federal Securities Laws
This annual report on Form 10-K contains and incorporates by reference “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.Act. Forward-looking statements are all statements other than those of historical fact. When used in this annual report, the words “believes,” “expects,” “anticipates,” “estimates,” “will,” “may,” “should” and similar words and expressions are generally intended to identify forward-looking statements. These forward-looking statements reflect our then-current expectations and are based upon data available to us at the time the statements are made. Forward-looking statements may relate to, among other things, statements about our strategies, expected results of operations, general and industry-specific economic conditions, future pension plan contributions, future capital expenditures, future income tax payments, future payments of interest and principal on our long-term debt, assumptions underlying various estimates and estimates of future obligations.obligations and commitments and should be considered in context with the various other disclosures made by us about our business. Readers are cautioned that any forward-looking statements, including those regarding the intent, belief or current expectations of our management, are not guarantees of future performance, results or events and involve significant risks and uncertainties, and that actual results and events may differ materially from those contained in the forward-looking statements as a result of various factors including, but not limited to, those listed in Item 1A. of this Annual Report and the other factors described from time to time in our SEC filings. The forward-looking statements included in this annual report on Form 10-KAnnual Report are made only as of the date hereof. We undertake no obligation to update such forward-looking statements to reflect subsequent events or circumstances.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk. |
We are exposed to certain risks arising from business operations and economic conditions. We attempt to manage our exposure to a wide variety of business and operational risks principally through management of our core business activities. We attempt to manage economic risk, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources and duration of our debt funding and, at times, the use of interest rate swap agreements. From time to time, we may enter into interest rate swap agreements to manage interest rate exposure with the following objectives:
● | managing current and forecasted interest rate risk while maintaining financial flexibility and solvency; |
● | proactively managing |
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| complying with covenant requirements in our financing agreements. |
As of December 31, 2016, we had $556.4 million outstanding underUnder the 20142019 Senior Credit Facility, $700.0 million, at liquidation value, in 2026 Notes outstanding and $525.0 million, at liquidation value, in 2024 Notes outstanding. We paidwe pay interest based on a floating interest rate on balances outstanding under the 2014 Senior Credit Facility, subject to a minimum LIBOR floor of 0.75% plus applicable margins.outstanding. We pay a fixed rate of interest on the 2027 Notes, 2026 Notes and the 2024 Notes. As of December 31, 2016,2019, the majority of our outstanding debt bearsbore interest at a fixed interest rate, which reduces our risk of potential increases in interest rates, but would not allow us to benefit from any reduction in market interest rates such as LIBOR or the prime rate. Also, as of that date, we were not a party to any interest rate swap agreements. See Note 4 “Long-term Debt” to our audited consolidated financial statements included elsewhere herein for more information on our long-term debt and associated interest rates.
Based on our floating rate debt outstanding at December 31, 2016,2019, a 100 basis point increase or decrease in market interest rates would have increased or decreased our interest expense and decreased or increased our income before income taxes for the year ended December 31, 20162019 by approximately $5.6$18 million. However, a 100 basis point decrease in market interest rates would not have affected our interest expense or our income before income taxes for the year ended
At December 31, 2016, because2019 and 2018, the interest rate on amounts outstanding under the 2014 Senior Credit Facility had a minimum LIBOR floor of 0.75%.
The recorded amount of our long-term debt, including current portion, was $1.8$3.7 billion and $1.2$2.5 billion, respectively, and the fair value of our long-term debt, including current portion, was $1.8$3.9 billion and $1.2$2.4 billion, respectively, as of December 31, 20162019 and 2015.2018. Fair value of our long-term debt is based on estimates provided by third-party financial professionals as of the respective dates.
Item 8. Financial Statements and Supplementary Data.
| Item 8. | Financial Statements and Supplementary Data. |
Page | |
Management’s Report on Internal Control Over Financial Reporting |
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Report of Independent Registered Public Accounting Firm |
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Consolidated Balance Sheets at December 31, |
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Consolidated Statements of Operations for the years ended December 31, |
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Consolidated Statements of Comprehensive Income for the years ended December 31, |
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Consolidated Statements of Stockholders’ Equity for the years ended December 31, |
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Consolidated Statements of Cash Flows for the years ended December 31, |
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Notes to Consolidated Financial Statements |
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Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the U.S.United States Securities and Exchange Commission (the “SEC”), internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
In connection with the preparation of our annual consolidated financial statements, management has undertaken an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016,2019, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO 2013 framework”). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2016.2019.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management excluded the operations of all of the television stations, KWCH-TVproduction companies and related general and administrative operations acquired in Wichita-Hutchinson, Kansas, WDBJ-TV in Roanoke, Virginia, KYTV-DTthe Raycom Merger, the United Acquisition, the Sioux Falls Acquisition and KCZ in Springfield, Missouri, WAGT-TV in Augusta, Georgia, KTUU-TV in Anchorage, Alaska, and KOTA-TV in Rapid City, South Dakota, each purchased from Schurz Communications, Inc., WLUC-TV in Marquette, Michigan purchased from Sinclair Broadcasting Group, Inc., WBXX-TV in Knoxville, Tennessee purchased from Knoxville TV, LLC and KYES-TV in Anchorage, Alaska purchased from Fireweed Communications, LLC,the Charlottesville Acquisition (together the “2019 Acquisitions”) from the assessment of internal control over financial reporting as of December 31, 2016.2019. These operations were excluded in accordance with the SEC’s general guidance because they and the related entities were acquired in purchase business combinations in 2016.2019. Collectively, these operations accounted for approximately 16%60% of both our total assets and 53% of our total revenues, as reported in our consolidated financial statements as of and for the year ended December 31, 2016.2019.
The effectiveness of our internal control over financial reporting as of December 31, 20162019 has been audited by RSM US LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors and Stockholders
of Gray Television, Inc.
Opinions on the Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Gray Television, Inc. and subsidiaries (the Company) as of December 31, 20162019 and 2015,2018, and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2016,2019, and the related notes and schedule (collectively, the financial statement schedule of Gray Television, Inc. listed in Item 15(a)statements). We also have audited Gray Television, Inc.'sthe Company’s internal control over financial reporting as of December 31, 2016,2019, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Gray Television, Inc.'s
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
As described in Management’s Report on Internal Control Over Financial Reporting, management excluded the operations of the television stations, production companies and related general and administrative operations acquired in the Raycom Merger, the United Acquisition, the Sioux Falls Acquisition, and the Charlottesville Acquisition (collectively, the “2019 Acquisitions” as defined in Note 3), from its assessment of internal control over financial reporting as of December 31, 2019, because they were acquired by the Company in a purchase business combinations in 2019. We have also excluded the Acquired Stations from our audit of internal control over financial reporting. The Acquired Stations total assets and revenues represent approximately 60% and 53%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2019.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases in fiscal year 2019 due to the adoption of the new lease standard.
Basis for Opinions
The Company's management is responsible for these financial statements, and the financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on thesethe Company's financial statements and schedule and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report onDefinition and Limitations of Internal Control Over Financial Reporting management excluded the operations of the television stations KWCH-TV in Wichita-Hutchinson, Kansas, WDBJ-TV in Roanoke, Virginia, KYTV-DT and KCZ in Springfield, Missouri, WAGT-TV in Augusta, Georgia, KTUU-TV in Anchorage, Alaska, and KOTA-TV in Rapid City, South Dakota, each purchased from Schurz Communications, Inc., WLUC-TV in Marquette, Michigan purchased from Sinclair Broadcasting Group, Inc., WBXX-TV in Knoxville, Tennessee purchased from Knoxville TV, LLC and KYES-TV in Anchorage, Alaska purchased from Fireweed Communications, LLC, from the assessment of internal control over financial reporting as of December 31, 2016. These operations were excluded because they and the related entities were acquired in purchase business combinations in 2016. Collectively, these operations accounted for approximately 16% of both Gray Television, Inc.’s total assets and revenues, as reported in Gray Television, Inc.’s consolidated financial statements as of and for the year ended December 31, 2016.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that(a) (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;(b) (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and(c) (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
InCritical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gray Television, Inc. as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America, and in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements, taken as a whole, presents fairlyand we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Indefinite-Lived Intangible Asset and Goodwill Impairment Assessment
As described in all material respectsNotes 1 and 13 to the information set forth therein. Also in our opinion, Gray Television, Inc. maintained, in all material respects, effective internal control overconsolidated financial reportingstatements, the Company’s consolidated broadcast licenses and goodwill balances were $3.6 billion and $1.4 billion as of December 31, 2016,2019, respectively. Goodwill is allocated to the Company’s reporting units, which the Company identifies as each of its individual television markets and production companies. Goodwill, at the reporting unit level, and each broadcast license is tested for impairment at least annually. In the Company’s assessment of impairment, management identified those broadcast licenses and reporting units for which a qualitative assessment would be performed to determine whether it is more likely than not that the broadcast license or reporting unit is impaired. For those broadcast licenses and reporting units for which the Company did not elect to perform a qualitative analysis, the Company performed a quantitative analysis. To estimate the fair value of the reporting units using a quantitative assessment, the Company used a discounted cash flow model supported by a market multiple approach. The impairment assessment of each broadcast license and reporting unit requires management to make significant estimates and assumptions related to a number of factors under both the qualitative and quantitative assessments. The Company considered the relative impact of factors that are specific to the broadcast license and reporting unit such as industry, regulatory and macroeconomic factors as well as forecasts of future revenues, operating margins and discount rates. Management also utilized industry data such as third party market reports which project trends related to the growth of the industry. The Company has grown significantly through acquisition and as a result, many broadcast licenses and reporting units lack substantial historical operating performance data upon which to evaluate management’s forecasts.
We identified the broadcast license and goodwill impairment assessment as a critical audit matter because of the significant assumptions management used in the impairment analysis. Auditing management’s judgments used in the impairment assessment regarding industry, regulatory, and microeconomic factors as well as forecasts of future revenue, operating margin, discount rate and its application of third party data related to industry growth involved a high degree of auditor judgment and increased audit effort, including the use of our valuation specialist.
Our audit procedures related to the Company’s broadcast license and goodwill impairment assessment included the following, among others:
● | We obtained an understanding of the relevant controls related to the Company’s goodwill and broadcast license impairment assessments, and tested such controls for design and operating effectiveness, including controls related to management’s review of the significant assumptions noted above. |
● | We tested management’s determination of which broadcast licenses and reporting units were subject to the qualitative impairment assessment versus those subject to a quantitative impairment assessment, including comparison of actual results to management’s historical forecasts. |
● | We tested management’s process for evaluating factors specific to the broadcast licenses and reporting units subject to qualitative goodwill impairment assessment. This included comparing the third party industry data utilized by management to other sources of independently obtained industry data. |
● | We tested management’s process for determining the fair value of the broadcast licenses and reporting units. Due to the lack of historical experience available for broadcast licenses and reporting units acquired in the current year, we compared management’s forecasts of future revenue and operating margin to historical operating results for the Company’s similar existing reporting units, as well as third party, market specific industry data. |
● | We utilized our valuation specialist to assist in testing the discount rates for broadcast licenses and reporting units subject to a quantitative impairment assessment. |
Valuation of Broadcast Licenses Acquired in a Business Combination
As described in Note 3 to the consolidated financial statements, the Company completed a significant business combination that added $2.0 billion in broadcast licenses, which management considers to be indefinite-lived intangible assets, for the year ended December 31, 2019. Management used an income approach when valuing the broadcast licenses. Under this approach, a broadcast license is recorded based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizationsestimated fair value, which is based on the estimated after-tax discounted future cash flows of the Treadway Commissionacquired station, assuming an initial hypothetical start-up operation maturing into an average performing station in 2013.a specific television market and giving consideration to other relevant factors such as the technical qualities of the broadcast license and the number of competing broadcast licenses within that market. The assumptions considered by management in the analysis reflect historical market and station growth trends, third party, market specific, industry data, as well as the anticipated performance of the stations. The valuation technique used by management included theoretical assumptions of the costs that would be incurred to construct a station when the only owned asset is the broadcast license and the associated revenues, operating margins and capital expenditures expected to be incurred in the start-up years, which are inherently judgmental.
We identified the valuation of broadcast licenses acquired in a business combination as a critical audit matter because of the significant estimates and assumptions used by management in estimating the fair value of the acquired licenses. Auditing management’s judgments regarding forecasts of future revenue, operating margins, capital expenditures, and the discount rate to be applied involved a high degree auditor judgment and increased audit effort, including the use of our valuation specialist.
Our audit procedures related to the Company’s broadcast license and goodwill impairment assessment included the following, among others:
● | We obtained an understanding of the relevant controls related to the Company’s valuation of the broadcast license and tested such controls for design and operating effectiveness, including controls relating to management’s review and approval of the assumptions included in the valuation specialist’s report. |
● | We compared management’s forecasts of future revenue and operating margin to historical operating results for the Company’s similar existing owned broadcast licenses, as well as third-party market specific, industry data. We tested the assumptions related to the start-up years in the discounted cash flow model where there is no historical or third-party market data available to support those assumptions by comparing estimated capital expenditures to acquired capital assets of the acquired station, as well as ensuring that management’s build-up of revenues and operating margins were reasonable over the start-up period. |
● | We utilized our valuation specialist to assist in testing the Company’s discounted cash flow models and certain significant assumptions, including the discount rate. We evaluated whether the assumptions used were reasonable by considering the past performance of similar assets and third party, market specific, industry data, and whether such assumptions were consistent with evidence obtained in other areas of the audit. |
/s/ RSM US LLP
We have served as the Company's auditor since 2006.
Atlanta, Georgia
March 1, 2017February 27, 2020
GRAY TELEVISION, INC.
| |||||||
CONSOLIDATED BALANCE SHEETS | |||||||
(in millions) |
December 31, | December 31, | |||||||||||||||
2016 | 2015 | 2019 | 2018 | |||||||||||||
Assets: | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash | $ | 325,189 | $ | 97,318 | $ | 212 | $ | 667 | ||||||||
Accounts receivable, less allowance for doubtful accountsof $3,163 and $1,794, respectively | 146,811 | 121,473 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $11 and $5, respectively | 411 | 184 | ||||||||||||||
Current portion of program broadcast rights, net | 13,735 | 10,511 | 25 | 15 | ||||||||||||
Deferred tax asset | 30,826 | 49,690 | ||||||||||||||
Prepaid taxes | 14,641 | - | ||||||||||||||
Prepaid and other current assets | 5,109 | 6,462 | 24 | 7 | ||||||||||||
Total current assets | 536,311 | 285,454 | 672 | 873 | ||||||||||||
Property and equipment, net | 326,093 | 234,475 | 725 | 363 | ||||||||||||
Operating leases right of use asset | 50 | - | ||||||||||||||
Broadcast licenses | 1,340,305 | 1,114,626 | 3,573 | 1,530 | ||||||||||||
Goodwill | 485,318 | 423,236 | 1,446 | 612 | ||||||||||||
Other intangible assets, net | 56,250 | 53,280 | 460 | 53 | ||||||||||||
Investments in broadcasting and technology companies | 16,599 | 13,599 | 17 | 17 | ||||||||||||
Restricted cash | - | 752 | ||||||||||||||
Other | 22,455 | 3,038 | 29 | 13 | ||||||||||||
Total assets | $ | 2,783,331 | $ | 2,127,708 | $ | 6,972 | $ | 4,213 | ||||||||
See accompanying notes.
GRAY TELEVISION, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands
GRAY TELEVISION, INC. | |||||||
CONSOLIDATED BALANCE SHEETS | |||||||
(in millions, except for share data) |
December 31, | December 31, | |||||||||||||||
2016 | 2015 | 2019 | 2018 | |||||||||||||
Liabilities and stockholders’ equity: | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 5,257 | $ | 4,532 | $ | 11 | $ | 8 | ||||||||
Employee compensation and benefits | 31,367 | 28,983 | 67 | 35 | ||||||||||||
Accrued interest | 32,453 | 12,717 | 37 | 34 | ||||||||||||
Accrued network programming fees | 14,982 | 11,945 | 30 | 22 | ||||||||||||
Other accrued expenses | 13,802 | 14,370 | 32 | 18 | ||||||||||||
Federal and state income taxes | 2,916 | 771 | 13 | 14 | ||||||||||||
Current portion of program broadcast obligations | 13,924 | 10,785 | 28 | 15 | ||||||||||||
Deferred revenue | 4,706 | 3,514 | 9 | 4 | ||||||||||||
Dividends payable | 13 | - | ||||||||||||||
Current portion of operating lease liabilities | 6 | - | ||||||||||||||
Total current liabilities | 119,407 | 87,617 | 246 | 150 | ||||||||||||
Long-term debt, less current portion | 1,756,747 | 1,220,084 | ||||||||||||||
Long-term debt, less current portion and deferred financing costs | 3,697 | 2,549 | ||||||||||||||
Program broadcast obligations, less current portion | 4,995 | 2,171 | 7 | 5 | ||||||||||||
Deferred income taxes | 373,837 | 351,546 | 810 | 285 | ||||||||||||
Accrued pension costs | 34,047 | 36,337 | 38 | 33 | ||||||||||||
Operating lease liabilities, less current portion | 45 | - | ||||||||||||||
Other | 1,437 | 679 | 15 | 4 | ||||||||||||
Total liabilities | 2,290,470 | 1,698,434 | 4,858 | 3,026 | ||||||||||||
Commitments and contingencies (Note 9) | ||||||||||||||||
Commitments and contingencies (Note 12) | ||||||||||||||||
Series A Perpetual Preferred Stock, no par value; cumulative; redeemable; designated 1,500,000 shares, issued and outstanding 650,000 shares and 0 shares, ($650 and $0 aggregate liquidation value, respectively) | 650 | - | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock, no par value; authorized 100,000,000 shares,issued 71,229,497 shares and 70,989,426 shares, respectively | 658,135 | 655,446 | ||||||||||||||
Class A common stock, no par value; authorized 15,000,000 shares,issued 8,073,993 shares and 7,855,381 shares, respectively | 21,764 | 19,325 | ||||||||||||||
Accumulated deficit | (101,365 | ) | (163,638 | ) | ||||||||||||
Common stock, no par value; authorized 200,000,000 shares issued 101,746,860 shares and 89,298,943 shares, respectively outstanding 92,658,362 shares and 82,022,500 shares, respectively | 1,093 | 907 | ||||||||||||||
Class A common stock, no par value; authorized 25,000,000 shares, issued 8,768,959 shares and 8,569,149 shares, respectively outstanding 6,881,192 shares and 6,729,035 shares, respectively | 31 | 27 | ||||||||||||||
Retained earnings | 504 | 372 | ||||||||||||||
Accumulated other comprehensive loss, net of income tax benefit | (17,645 | ) | (17,284 | ) | (31 | ) | (21 | ) | ||||||||
| 560,889 | 493,849 | 1,597 | 1,285 | |||||||||||||
Treasury stock at cost, common stock, 5,135,406 shares and4,882,705 shares, respectively | (44,688 | ) | (41,890 | ) | ||||||||||||
Treasury stock at cost, Class A common stock, 1,669,131 shares and1,611,371 shares, respectively | (23,340 | ) | (22,685 | ) | ||||||||||||
Treasury stock at cost, common stock, 9,088,498 shares and 7,276,443 shares, respectively | (107 | ) | (72 | ) | ||||||||||||
Treasury stock at cost, Class A common stock, 1,887,767 shares and 1,840,114 shares, respectively | (26 | ) | (26 | ) | ||||||||||||
Total stockholders’ equity | 492,861 | 429,274 | 1,464 | 1,187 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 2,783,331 | $ | 2,127,708 | $ | 6,972 | $ | 4,213 | ||||||||
See accompanying notes.
GRAY TELEVISION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands,
GRAY TELEVISION, INC. | |||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||
(in millions, except for net income per share data) |
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2019 | 2018 | 2017 | |||||||||||||||||||
Revenue (less agency commissions) | $ | 812,465 | $ | 597,356 | $ | 508,134 | ||||||||||||||||||
Operating expenses before depreciation, amortization,and loss on disposals of assets, net: | ||||||||||||||||||||||||
Revenue (less agency commissions): | ||||||||||||||||||||||||
Broadcasting | $ | 2,035 | $ | 1,084 | $ | 883 | ||||||||||||||||||
Production companies | 87 | - | - | |||||||||||||||||||||
Total revenue (less agency commissions) | 2,122 | 1,084 | 883 | |||||||||||||||||||||
Operating expenses before depreciation, amortization, and gain on disposals of assets, net: | ||||||||||||||||||||||||
Broadcast | 475,131 | 374,182 | 285,990 | 1,325 | 596 | 558 | ||||||||||||||||||
Production companies | 74 | - | - | |||||||||||||||||||||
Corporate and administrative | 40,347 | 34,343 | 29,203 | 104 | 41 | 32 | ||||||||||||||||||
Depreciation | 45,923 | 36,712 | 30,248 | 80 | 54 | 52 | ||||||||||||||||||
Amortization of intangible assets | 16,596 | 11,982 | 8,297 | 115 | 21 | 25 | ||||||||||||||||||
Loss on disposals of assets, net | 329 | 80 | 623 | |||||||||||||||||||||
Gain on disposals of assets, net | (54 | ) | (17 | ) | (74 | ) | ||||||||||||||||||
Operating expenses | 578,326 | 457,299 | 354,361 | 1,644 | 695 | 593 | ||||||||||||||||||
Operating income | 234,139 | 140,057 | 153,773 | 478 | 389 | 290 | ||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Miscellaneous income, net | 775 | 103 | 23 | 4 | 6 | 1 | ||||||||||||||||||
Interest expense | (97,236 | ) | (74,411 | ) | (68,913 | ) | (227 | ) | (107 | ) | (95 | ) | ||||||||||||
Loss from early extinguishment of debt | (31,987 | ) | - | (5,086 | ) | - | - | (3 | ) | |||||||||||||||
Income before income taxes | 105,691 | 65,749 | 79,797 | 255 | 288 | 193 | ||||||||||||||||||
Income tax expense | 43,418 | 26,448 | 31,736 | |||||||||||||||||||||
Income tax expense (benefit) | 76 | 77 | (69 | ) | ||||||||||||||||||||
Net income | 62,273 | 39,301 | 48,061 | 179 | 211 | 262 | ||||||||||||||||||
Preferred stock dividends | 52 | - | - | |||||||||||||||||||||
Net income attributable to common stockholders | $ | 127 | $ | 211 | $ | 262 | ||||||||||||||||||
Basic per share information: | ||||||||||||||||||||||||
Net income | $ | 0.87 | $ | 0.58 | $ | 0.83 | ||||||||||||||||||
Net income attributable to common stockholders | $ | 1.28 | $ | 2.39 | $ | 3.59 | ||||||||||||||||||
Weighted average shares outstanding | 71,848 | 68,330 | 57,862 | 99 | 88 | 73 | ||||||||||||||||||
Diluted per share information: | ||||||||||||||||||||||||
Net income | $ | 0.86 | $ | 0.57 | $ | 0.82 | ||||||||||||||||||
Net income attributable to common stockholders | $ | 1.27 | $ | 2.37 | $ | 3.55 | ||||||||||||||||||
Weighted average shares outstanding | 72,764 | 68,987 | 58,364 | 100 | 89 | 74 | ||||||||||||||||||
Dividends declared per common share | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
See accompanying notes.
GRAY TELEVISION, INC.
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||||
(in millions) |
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2019 | 2018 | 2017 | |||||||||||||||||||
Net income | $ | 62,273 | $ | 39,301 | $ | 48,061 | $ | 179 | $ | 211 | $ | 262 | ||||||||||||
Other comprehensive (loss) income: | ||||||||||||||||||||||||
Other comprehensive (loss) income : | ||||||||||||||||||||||||
Adjustment to pension liability | (592 | ) | 5,783 | (17,053 | ) | (7 | ) | 1 | (7 | ) | ||||||||||||||
Income tax (benefit) expense | (231 | ) | 2,255 | (6,650 | ) | (2 | ) | - | (3 | ) | ||||||||||||||
Adoption of ASU 2018-02 | (5 | ) | - | - | ||||||||||||||||||||
Other comprehensive (loss) income | (361 | ) | 3,528 | (10,403 | ) | (10 | ) | 1 | (4 | ) | ||||||||||||||
Comprehensive income | $ | 61,912 | $ | 42,829 | $ | 37,658 | $ | 169 | $ | 212 | $ | 258 | ||||||||||||
See accompanying notes.
GRAY TELEVISION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands,
GRAY TELEVISION, INC. |
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY |
(in millions, except for number of shares) |
Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class A | Class A | Common | Other | Class A | Retained | Class A | Common | Other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Common Stock | Accumulated | Treasury Stock | Treasury Stock | Comprehensive | Common Stock | Common Stock | Earnings | Treasury Stock | Treasury Stock | Comprehensive | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Deficit | Shares | Amount | Shares | Amount | (Loss) Income | Total | Shares | Amount | Shares | Amount | (Deficit) | Shares | Amount | Shares | Amount | (Loss) Income | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2013 | 7,331,574 | $ | 15,321 | 57,010,878 | $ | 483,055 | $ | (251,000 | ) | (1,578,554 | ) | $ | (22,398 | ) | (4,768,925 | ) | $ | (40,559 | ) | $ | (10,409 | ) | $ | 174,010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2016 | 8,073,993 | $ | 22 | 71,229,497 | $ | 658 | $ | (101 | ) | (1,669,131 | ) | $ | (23 | ) | (5,135,406 | ) | $ | (45 | ) | $ | (18 | ) | $ | 493 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adoption of ASU 2016-09 excess tax benefit for stock-based compensation | - | - | - | - | 1 | - | - | - | - | - | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | 48,061 | - | - | - | - | - | 48,061 | - | - | - | - | 262 | - | - | - | - | - | 262 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment to pension liability,net of income tax | - | - | - | - | - | - | - | - | - | (10,403 | ) | (10,403 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
401(k) plan | - | - | 2,341 | 25 | - | - | - | - | - | - | 25 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2007 Long Term Incentive Plan: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock awards | 236,294 | - | 312,961 | - | - | - | - | (45,791 | ) | (513 | ) | - | (513 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | - | 1,775 | - | 3,237 | - | - | - | - | - | - | 5,012 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2014 | 7,567,868 | $ | 17,096 | 57,326,180 | $ | 486,317 | $ | (202,939 | ) | (1,578,554 | ) | $ | (22,398 | ) | (4,814,716 | ) | $ | (41,072 | ) | $ | (20,812 | ) | $ | 216,192 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | 39,301 | - | - | - | - | - | 39,301 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment to pension liability,net of income tax | - | - | - | - | - | - | - | - | - | 3,528 | 3,528 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment to pension liability, net of income tax | - | - | - | - | - | - | - | - | - | (4 | ) | (4 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Underwritten public offering | - | - | 13,511,040 | 167,313 | - | - | - | - | - | - | 167,313 | - | - | 17,250,000 | 239 | - | - | - | - | - | - | 239 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
401(k) plan | - | - | 1,898 | 26 | - | - | - | - | - | - | 26 | - | - | 1,224 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2007 Long Term Incentive Plan: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2007 Long Term Incentive Plan - restricted stock awards | 198,220 | - | 307,943 | - | - | (81,561 | ) | (1 | ) | (77,632 | ) | (1 | ) | - | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 Equity and Incentive Compensation Plan - restricted stock awards | 76,856 | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | - | - | - | - | - | - | - | (322,038 | ) | (4 | ) | - | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | 3 | - | 6 | - | - | - | - | - | - | 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2017 | 8,349,069 | $ | 25 | 88,788,664 | $ | 903 | $ | 162 | (1,750,692 | ) | $ | (24 | ) | (5,535,076 | ) | $ | (50 | ) | $ | (22 | ) | $ | 994 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | 210 | - | - | - | - | - | 210 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment to pension liability, net of income tax | - | - | - | - | - | - | - | - | - | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock awards | 287,513 | - | 150,308 | - | - | (32,817 | ) | (287 | ) | (67,989 | ) | (818 | ) | - | (1,105 | ) | 220,080 | - | 391,836 | - | - | (89,422 | ) | (2 | ) | (107,456 | ) | (2 | ) | - | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock unit awards | - | - | 209,500 | - | - | - | - | (82,201 | ) | (1 | ) | - | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | - | 2,229 | - | 1,790 | - | - | - | - | - | - | 4,019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forfeiture of restricted stock awards | - | - | (91,057 | ) | (1 | ) | - | - | - | - | - | - | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2015 | 7,855,381 | $ | 19,325 | 70,989,426 | $ | 655,446 | $ | (163,638 | ) | (1,611,371 | ) | $ | (22,685 | ) | (4,882,705 | ) | $ | (41,890 | ) | $ | (17,284 | ) | $ | 429,274 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | - | - | - | - | - | - | - | (1,551,710 | ) | (19 | ) | - | (19 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | 2 | - | 5 | - | - | - | - | - | - | 7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2018 | 8,569,149 | $ | 27 | 89,298,943 | $ | 907 | $ | 372 | (1,840,114 | ) | $ | (26 | ) | (7,276,443 | ) | $ | (72 | ) | $ | (21 | ) | $ | 1,187 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes.
GRAY TELEVISION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands,
GRAY TELEVISION, INC. | |||||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY | |||||||||||||||||||||||||||||||||||||||||||
(in millions, except for number of shares) |
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
Class A | Class A | Common | Other | |||||||||||||||||||||||||||||||||||||||||
Common Stock | Common Stock | Accumulated | Treasury Stock | Treasury Stock | Comprehensive | |||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Deficit | Shares | Amount | Shares | Amount | (Loss) Income | Total | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2015 | 7,855,381 | $ | 19,325 | 70,989,426 | $ | 655,446 | $ | (163,638 | ) | (1,611,371 | ) | $ | (22,685 | ) | (4,882,705 | ) | $ | (41,890 | ) | $ | (17,284 | ) | $ | 429,274 | ||||||||||||||||||||
Net income | - | - | - | - | 62,273 | - | - | - | - | - | 62,273 | |||||||||||||||||||||||||||||||||
Adjustment to pension liability,net of income tax | - | - | - | - | - | - | - | - | - | (361 | ) | (361 | ) | |||||||||||||||||||||||||||||||
Issuance of common stock: | ||||||||||||||||||||||||||||||||||||||||||||
401(k) plan | - | - | 2,571 | 29 | - | - | - | - | - | - | 29 | |||||||||||||||||||||||||||||||||
2007 Long Term Incentive Plan: | ||||||||||||||||||||||||||||||||||||||||||||
Restricted stock awards | 218,612 | - | 237,500 | - | - | (57,760 | ) | (655 | ) | (60,518 | ) | (798 | ) | - | (1,453 | ) | ||||||||||||||||||||||||||||
Repurchase of common stock | - | - | - | - | - | - | - | (192,183 | ) | (2,000 | ) | - | (2,000 | ) | ||||||||||||||||||||||||||||||
Share-based compensation | - | 2,439 | - | 2,660 | - | - | - | - | - | - | 5,099 | |||||||||||||||||||||||||||||||||
Balance at December 31, 2016 | 8,073,993 | $ | 21,764 | 71,229,497 | $ | 658,135 | $ | (101,365 | ) | (1,669,131 | ) | $ | (23,340 | ) | (5,135,406 | ) | $ | (44,688 | ) | $ | (17,645 | ) | $ | 492,861 | ||||||||||||||||||||
See accompanying notes.
GRAY TELEVISION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Operating activities | ||||||||||||
Net income | $ | 62,273 | $ | 39,301 | $ | 48,061 | ||||||
Adjustments to reconcile net income to net cashprovided by operating activities: | ||||||||||||
Depreciation | 45,923 | 36,712 | 30,248 | |||||||||
Amortization of intangible assets | 16,596 | 11,982 | 8,297 | |||||||||
Amortization of deferred loan costs | 4,884 | 3,194 | 2,970 | |||||||||
Amortization of original issue discount and premiumrelated to long-term debt, net | (779 | ) | (863 | ) | (863 | ) | ||||||
Amortization of restricted stock and stock option awards | 5,099 | 4,019 | 5,012 | |||||||||
Loss from early extinguishment of debt | 31,987 | - | 5,086 | |||||||||
Amortization of program broadcast rights | 19,001 | 14,960 | 12,871 | |||||||||
Payments on program broadcast obligations | (18,786 | ) | (14,576 | ) | (15,087 | ) | ||||||
Common stock contributed to 401(k) plan | 29 | 26 | 25 | |||||||||
Deferred income taxes | 41,386 | 25,770 | 30,938 | |||||||||
Loss on disposals of assets, net | 329 | 80 | 623 | |||||||||
Other | (1,817 | ) | (2,568 | ) | (778 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (6,107 | ) | (14,787 | ) | (17,442 | ) | ||||||
Prepaid taxes | (14,642 | ) | - | - | ||||||||
Other current assets | 2,032 | (3,705 | ) | 4,898 | ||||||||
Accounts payable | 518 | (141 | ) | 2,197 | ||||||||
Employee compensation, benefits and pension costs | 871 | 3,528 | 6,964 | |||||||||
Accrued network fees and other expenses | (5,175 | ) | 12,684 | 1,685 | ||||||||
Accrued interest | 19,736 | (4,907 | ) | 4,920 | ||||||||
Income taxes payable | 2,145 | (1,123 | ) | 345 | ||||||||
Deferred revenue, current portion | 1,130 | (3,972 | ) | 3,249 | ||||||||
Net cash provided by operating activities | 206,633 | 105,614 | 134,219 | |||||||||
Investing activities | ||||||||||||
Acquisitions of television businesses and licenses | (431,846 | ) | (185,126 | ) | (461,185 | ) | ||||||
Proceeds from sale of television station | 11,200 | - | - | |||||||||
Purchases of property and equipment | (43,604 | ) | (24,222 | ) | (32,215 | ) | ||||||
Proceeds from asset sales | 2,979 | 3,115 | 1,508 | |||||||||
Payments of acquisition related liabilities | - | (91 | ) | (10,000 | ) | |||||||
Acquisition prepayments and other | (18,063 | ) | (58 | ) | - | |||||||
Net cash used in investing activities | (479,334 | ) | (206,382 | ) | (501,892 | ) | ||||||
Financing activities | ||||||||||||
Proceeds from borrowings on long-term debt | 1,656,000 | - | 644,000 | |||||||||
Repayments of borrowings on long-term debt | (1,100,000 | ) | - | (249,623 | ) | |||||||
Tender and redemption premiums for 2020 Notes | (27,502 | ) | - | - | ||||||||
Proceeds from issuance of common stock | - | 167,313 | - | |||||||||
Deferred and other loan costs | (27,926 | ) | 4 | (9,413 | ) | |||||||
Net cash provided by financing activities | 500,572 | 167,317 | 384,964 | |||||||||
Net increase in cash | 227,871 | 66,549 | 17,291 | |||||||||
Cash at beginning of period | 97,318 | 30,769 | 13,478 | |||||||||
Cash at end of period | $ | 325,189 | $ | 97,318 | $ | 30,769 | ||||||
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
Class A | Retained | Class A | Common | Other | ||||||||||||||||||||||||||||||||||||||||
Common Stock | Common Stock | Earnings | Treasury Stock | Treasury Stock | Comprehensive | |||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | (Deficit) | Shares | Amount | Shares | Amount | (Loss) Income | Total | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2018 | 8,569,149 | $ | 27 | 89,298,943 | $ | 907 | $ | 372 | (1,840,114 | ) | $ | (26 | ) | (7,276,443 | ) | $ | (72 | ) | $ | (21 | ) | 1,187 | ||||||||||||||||||||||
Net income | - | - | - | - | 179 | - | - | - | - | - | 179 | |||||||||||||||||||||||||||||||||
Preferred stock dividends | - | - | - | - | (52 | ) | - | - | - | - | - | (52 | ) | |||||||||||||||||||||||||||||||
Adjustment to pension liability, net of income tax | - | - | - | - | - | - | - | - | - | (5 | ) | (5 | ) | |||||||||||||||||||||||||||||||
Issuance of common stock: | ||||||||||||||||||||||||||||||||||||||||||||
Acquisitions of television businesses and licenses | - | - | 11,499,945 | 170 | - | - | - | - | - | - | 170 | |||||||||||||||||||||||||||||||||
401(k) Plan | - | - | 196,509 | 4 | - | - | - | - | - | - | 4 | |||||||||||||||||||||||||||||||||
2017 Equity and Incentive Compensation Plan: | ||||||||||||||||||||||||||||||||||||||||||||
Restricted stock awards | 199,810 | - | 751,463 | - | - | (47,653 | ) | - | (152,371 | ) | (3 | ) | - | (3 | ) | |||||||||||||||||||||||||||||
Repurchase of common stock | - | - | - | - | - | - | - | (1,659,684 | ) | (32 | ) | - | (32 | ) | ||||||||||||||||||||||||||||||
Stock-based compensation | - | 4 | - | 12 | - | - | - | - | - | - | 16 | |||||||||||||||||||||||||||||||||
Adoption of ASU 2018-02 | - | - | - | - | 5 | - | - | - | - | (5 | ) | - | ||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | 8,768,959 | $ | 31 | 101,746,860 | $ | 1,093 | $ | 504 | (1,887,767 | ) | $ | (26 | ) | (9,088,498 | ) | $ | (107 | ) | $ | (31 | ) | $ | 1,464 | |||||||||||||||||||||
See accompanying notes.
GRAY TELEVISION, INC. | |||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
(in millions) |
Year Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Operating activities | ||||||||||||
Net income | $ | 179 | $ | 211 | $ | 262 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation | 80 | 54 | 52 | |||||||||
Amortization of intangible assets | 115 | 21 | 25 | |||||||||
Amortization of deferred loan costs | 12 | 5 | 5 | |||||||||
Accretion of original issue discount and premium related to long-term debt, net | (1 | ) | (1 | ) | (1 | ) | ||||||
Amortization of restricted stock and stock option awards | 16 | 7 | 9 | |||||||||
Amortization of program broadcast rights | 39 | 21 | 21 | |||||||||
Payments on program broadcast obligations | (43 | ) | (22 | ) | (21 | ) | ||||||
Deferred income taxes | 55 | 23 | (78 | ) | ||||||||
Gain on disposals of assets, net | (54 | ) | (17 | ) | (74 | ) | ||||||
Loss from early extinguishment of debt | - | - | 3 | |||||||||
Other | 11 | (5 | ) | (3 | ) | |||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | 22 | (12 | ) | (24 | ) | |||||||
Prepaid income taxes | - | 14 | 1 | |||||||||
Other current assets | (7 | ) | (3 | ) | 1 | |||||||
Accounts payable | (1 | ) | 1 | 2 | ||||||||
Employee compensation, benefits and pension costs | 3 | 5 | (2 | ) | ||||||||
Accrued network fees and other expenses | (41 | ) | 7 | 3 | ||||||||
Accrued interest | 3 | 8 | (6 | ) | ||||||||
Income taxes payable | (6 | ) | 6 | 6 | ||||||||
Deferred revenue | 3 | - | (1 | ) | ||||||||
Net cash provided by operating activities | 385 | 323 | 180 | |||||||||
Investing activities | ||||||||||||
Acquisitions of television businesses and licenses | (2,837 | ) | - | (416 | ) | |||||||
Proceeds from sale of television stations | 253 | 9 | - | |||||||||
Proceeds from FCC spectrum auction | - | - | 91 | |||||||||
Purchases of property and equipment | (110 | ) | (70 | ) | (35 | ) | ||||||
Proceeds from Repack (Note 1) | 41 | 14 | - | |||||||||
Proceeds from other asset sales | 3 | - | - | |||||||||
Net (increase) decrease in acquisition prepayments and other | (6 | ) | - | 10 | ||||||||
Net cash used in investing activities | (2,656 | ) | (47 | ) | (350 | ) | ||||||
Financing activities | ||||||||||||
Proceeds from borrowings on long-term debt | 1,400 | 750 | 642 | |||||||||
Repayments of borrowings on long-term debt | (211 | ) | (40 | ) | (563 | ) | ||||||
Payments for the repurchase of common stock | (32 | ) | (19 | ) | (4 | ) | ||||||
Proceeds from issuance of common stock | - | - | 239 | |||||||||
Payment of preferred stock dividends | (39 | ) | - | - | ||||||||
Deferred and other loan costs | (50 | ) | (5 | ) | (5 | ) | ||||||
Payments for taxes related to net share settlement of equity awards | (4 | ) | (5 | ) | (2 | ) | ||||||
Net cash provided by financing activities | 1,064 | 681 | 307 | |||||||||
Net (decrease) increase in cash | (1,207 | ) | 205 | 137 | ||||||||
Net increase in restricted cash, included in non-current assets | - | 752 | - | |||||||||
Cash and restricted cash at beginning of period | 1,419 | 462 | 325 | |||||||||
Cash and restricted cash at end of period | $ | 212 | $ | 1,419 | $ | 462 | ||||||
See accompanying notes.
GRAY TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | Description of Business and Summary of Significant Accounting Policies |
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
.
Gray Television, Inc. (and its consolidated subsidiaries, except as the context otherwise provides, “Gray,” the “Company,” “we,” “us” or “our”) isWe are a television broadcast company headquartered in Atlanta, Georgia, that is the largest owner of top-rated local television (“television” or “TV”) stations and digital assets in the United States. Gray currently owns and/or operates television stations and leading digital properties in the United States.
As93 television markets that collectively reach approximately 24% of February 21, 2017, we ownedUS television households. Over calendar year 2019, Gray’s stations were ranked first in 68 markets, and first and/or operated television stationssecond in 54 television86 markets, broadcasting a totalas calculated by Comscore’s audience measurement service. We also own video program production, marketing, and digital businesses including Raycom Sports, Tupelo-Raycom, and RTM Studios, the producer of over 200 programming streams, including 37 affiliates of the CBS Network (“CBS”), 29 affiliates of the NBC Network (“NBC”), 20 affiliates of the ABC Network (“ABC”)PowerNation programs and 15 affiliates of the FOX Network (“FOX”).content, which we refer to collectively as our “production companies.”
In addition to
Restricted Cash. As of December 31, 2018 our primary broadcast channels, eachwholly owned subsidiary, Gray Escrow, Inc., held the cash proceeds from and interest earned on the proceeds of our stations can also broadcast secondary digital channels within a market. Our secondary digital channels are generally affiliated with networks different2027 Notes offering in escrow. We presented this escrow account as restricted cash on our balance sheet. On January 2, 2019, these proceeds were released from those affiliated with our primary broadcast channels,escrow and they are operated by usused to make better use of our broadcast spectrum by providing supplemental and/or alternative programming in addition to our primary channels. Certain of our secondary digital channels are affiliated with more than one network simultaneously. In addition to affiliations with ABC, CBS and FOX, our secondary channels are affiliated with numerous smaller networks and program services including, among others, the CW Network or the CW Plus Network, MY Network, the MeTV Network, This TV Network, Antenna TV, Telemundo, Cozi, Heroes and Icons and MOVIES! Network.We also broadcast local news/weather channels in certain of our existing markets. Our combined TV station group reaches approximately 10.1% of total United States television households.
Principles of Consolidation
Gray’s consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries.Duringfund a portion of the year ended December 31, 2014, our financial statements includedcash consideration paid to complete the accounts of a variable interest entity (“VIE”) for which we were the primary beneficiary.All intercompany accounts and transactions have been eliminated in consolidation.Raycom Merger.
InvestmentInvestments in Broadcasting, CompanyProduction and Technology Companies.
We have an investmentinvestments in Sarkes Tarzian, Inc. (“Tarzian”) whose principal business isseveral television, production and technology companies. Each of these equity investments do not have readily determinable fair values. We have applied the ownership and operation of two television stations. As of June 30, 2016, the most recent period for which we have Tarzian’s financial statements, our investment represented 32.4% of the total outstanding common stock of Tarzian (both in terms of the number of shares of common stock outstanding and in terms of voting rights), but such investment represented 67.9% of the equity of Tarzian for purposes of dividends, if paid,measurement alternative as well as distributionsdefined in the eventFASB’s ASU 2016-01 – Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of any liquidation, dissolution or other sale of Tarzian. This investment is accounted for under the cost method of accountingFinancial Assets and reflectedFinancial Liabilities. These investments are reported together as a non-current asset on our balance sheet. We have no commitment to fund the operations of Tarzian nor do we have any representation on Tarzian’s board of directors or any other influence over Tarzian’s management. We believe the cost method is appropriate to account for this investment given the existence of a single majority voting stockholder and our lack of management influence or any obligation to fund the operations of Tarzian.sheets.
Revenue Recognition
Broadcast advertising revenue is generated primarily from the sale of television advertising time to local, national and political advertisers. Internet advertising revenue is generated from the sale of advertisements associated with our stations’ websites. Advertising revenue is billed to the customer and recognized when the advertisement is broadcast or appears on our stations’ websites. Retransmission consent revenue consists of payments to us from cable, satellite and other multiple video program distribution systems for their retransmission of our broadcast signals. Retransmission consent revenue is recognized as earned over the life of the retransmission consent contract. Other revenue consists primarily of revenue earned from the production of programming and payments from tower space rent. Revenue from the production of programming is recognized as the programming is produced. Tower rent is recognized over the life of the rental agreements.
Cash received that has not yet been recognized as revenue is presented as deferred revenue. Revenue that has been earned but not yet received is recognized as revenue and presented as a receivable.
Tradeand Barter Transactions
.
We account for trade transactions involving the exchange of tangible goods or services with our customers as revenue. The revenue is recorded at the time the advertisement is broadcast and the expense is recorded at the time the goods or services are used. The revenue and expense associated with these transactions areis based on the fair value of the assets or services involved in the transaction. Trade revenue and expense recognized for each of the years ended December 31, 2016, 20152019, 2018 and 20142017 were as follows (amounts in thousands)millions):
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2019 | 2018 | 2017 | |||||||||||||||||||
Trade revenue | $ | 2,069 | $ | 2,299 | $ | 2,174 | $ | 8 | $ | 3 | $ | 2 | ||||||||||||
Trade expense | (1,997 | ) | (2,188 | ) | (2,287 | ) | (8 | ) | (3 | ) | (2 | ) | ||||||||||||
Net trade income (loss) | $ | 72 | $ | 111 | $ | (113 | ) | |||||||||||||||||
Net trade (loss) income | $ | - | $ | - | $ | - | ||||||||||||||||||
We do not account for barter revenue and related barter expense generated from network or syndicated programming as such amounts are not material. Furthermore, any such barter revenue recognized would then require the recognition of an equal amount of barter expense. The recognition of these amounts would not have a material effect upon net income.
Advertising Expense
.
Our advertising expense was $1.5$2 million, $1.0$1 million and $1.1$2 million for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, respectively. We record as expense all advertising expenditures as they are incurred.
Use of Estimates
. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.UNITED STATES GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Our actual results could differ materially from these estimated amounts. Our most significant estimates are used for our allowance for doubtful accounts in receivables, valuation of goodwill and intangible assets, amortization of program rights and intangible assets, pension costs, income taxes, employee medical insurance claims, useful lives of property and equipment and contingencies.
Allowance for Doubtful AccountsDou
btful Accounts.
Our allowance for doubtful accounts is equal to a portion of our receivable balances that are 120 days old or older. We may provide allowances for certain receivable balances that are less than 120 days old when warranted by specific facts and circumstances. We recorded expenses for this allowance of $1.9$11 million, $0.6$2 million and $1.3$2 million for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, respectively. We generally write off accounts receivable balances when the customer files for bankruptcy or when all commonly used methods of collection have been exhausted.
Program Broadcast Rights
. We have two types of syndicated television program contracts: first run programs and off network reruns. First run programs are programs such asWheel of Fortune and off network reruns are programs such asSeinfeld. First run programs have not been produced at the time the contract to air such programming is signed, and off network rerun programs have already been produced. We record an asset and corresponding liability for payments to be made only for the current year of the first run programming and for the entire contract period for off network programming. Only an estimate of the payments anticipated to be made in the year following the balance sheet date of the first run program contracts are recorded on the current balance sheet, because the programs for the later years of the contract period have not been produced or delivered.
The total license fee payable under a program license agreement allowing us to broadcast programs is recorded at the beginning of the license period and is charged to operating expense over the period that the programs are broadcast. The portion of the unamortized balance expected to be charged to operating expense in the succeeding year is classified as a current asset, with the remainder classified as a non-current asset. The liability for license fees payable under program license agreements is classified as current or long-term, in accordance with the payment terms of the various license agreements.
Property and Equipment
. Property and equipment are carried at cost. Depreciation is computed principally by the straight-line method. The following table lists the components of property and equipment by major category (dollars in millions):
Estimated | ||||||||||||
December 31, | Useful Lives | |||||||||||
2019 | 2018 | (in years) | ||||||||||
Property and equipment: | ||||||||||||
Land | $ | 119 | $ | 52 | ||||||||
Buildings and improvements | 291 | 166 | 7 | to | 40 | |||||||
Equipment | 776 | 548 | 3 | to | 20 | |||||||
| 1,186 | 766 | |||||||||||
Accumulated depreciation | (461 | ) | (403 | ) | ||||||||
Total property and equipment, net | $ | 725 | $ | 363 | ||||||||
Maintenance, repairs and minor replacements are charged to operations as incurred; the purchase of new assets, major replacements and betterments are capitalized. The cost of any assets divested, sold or retired and the related accumulated depreciation are removed from the accounts at the time of disposition, and any resulting profitgain or loss is reflected in income or expense for the period.
In April 2017, the Federal Communications Commission (“FCC”) began the process of requiring certain television stations to change channels and/or modify their transmission facilities (“Repack”). Congress passed legislation which provided the FCC with a $1.7 billion fund to reimburse all reasonable costs incurred by stations operating under a full power license and a portion of the costs incurred by stations operating under a low power license that are reassigned to new channels. Subsequent legislation in March 2018 appropriated an additional $1.0 billion for the Repack fund, of which up to $750 million may be made available to reimburse the Repack costs of full power and Class A television stations and multichannel video programming distributors. Other funds are earmarked to assist low power television stations and for other transition costs. The sufficiency of the FCC’s fund to reimburse for Repack costs is dependent upon a number of factors including the amounts to be reimbursed to other industry participants for Repack costs. Therefore, we cannot predict whether the fund will be sufficient to reimburse our Repack costs to the extent authorized under the legislation. The Repack affects 48 of our full power stations and 39 of our current low power stations. The Repack process should be substantially completed in 2020. We anticipate that the majority of our costs associated with Repack will qualify for capitalization, rather than expense. Upon receipt of funds reimbursing us for our Repack costs, we record those proceeds as a component of our (gain) loss on disposal of assets, net.
The following table lists the componentstables provide additional information related to gain on disposal of assets, net included in our consolidated statements of operations and purchases of property and equipment by major category (dollarsincluded in thousands)our consolidated statements of cash flows (in millions):
Estimated | ||||||||||||||
December 31, | Useful Lives | |||||||||||||
2016 | 2015 | (in years) | ||||||||||||
Property and equipment: | ||||||||||||||
Land | $ | 44,611 | $ | 36,529 | ||||||||||
Buildings and improvements | 139,078 | 85,626 | 7 | to | 40 | |||||||||
Equipment | 471,798 | 420,380 | 3 | to | 20 | |||||||||
| 655,487 | 542,535 | |||||||||||||
Accumulated depreciation | (329,394 | ) | (308,060 | ) | ||||||||||
Total property and equipment, net | $ | 326,093 | $ | 234,475 | ||||||||||
Year ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Gain (loss) on disposal of assets, net: | ||||||||||||
Proceeds from sale of assets | $ | 253 | $ | 9 | $ | 91 | ||||||
Proceeds from Repack | 41 | 14 | - | |||||||||
Net book value of assets disposed | (240 | ) | (6 | ) | (17 | ) | ||||||
Total | $ | 54 | $ | 17 | $ | 74 | ||||||
Purchase of property and equipment: | ||||||||||||
Recurring purchases - operations | $ | 89 | $ | 41 | $ | 32 | ||||||
Repack | 20 | 27 | 3 | |||||||||
Repack related | 1 | 2 | - | |||||||||
Total | $ | 110 | $ | 70 | $ | 35 | ||||||
For the year ended December 31, 2016, our total property and equipment balance, before accumulated depreciation, increased approximately $102.7 million primarily as the net result of acquisitions and dispositions. The remaining change in the balances between December 31, 2015 and December 31, 2016 was due to routine purchases of equipment, less retirements.
Deferred Loan Costs
.
Loan acquisition costs are amortized over the life of the applicable indebtedness using a straight-line method that approximates the effective interest method. In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30) -Simplifying the Presentation of Debt Issuance Costs.ASU 2015-03 amended previous guidance to require thatThese debt issuance costs related to a recognized debt liability beare presented in theour balance sheetsheets as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debtDebt issuance costs were not affected by the amendments in this ASU. In August 2015, the FASB issued ASU No. 2015-15, Interest - Imputation of Interest (Subtopic 835-30) -Presentation and Subsequent Measurement of Debt Issuance Costs Associatedassociated with Line-of-Credit Arrangements- Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting. ASU 2015-15 amended previous guidance to codify the June 18, 2015 Staff Announcement that the SEC staff would not object to the deferral and presentationline-of-credit arrangements are presented as an asset, and subsequent amortizationamortized over the life of such asset, of deferred debt issuance costs related to line of credit arrangements. We adopted these standards as of January 1, 2016. In accordance with these standards, we have reclassified our deferred loan costs to be presented as a reduction in the balance of our long-term debt, less current portion, in our balance sheets as of December 31, 2016 and 2015. Our deferred loan costs were previously presented as a non-current asset.line-of-credit arrangement.
Asset Retirement Obligations
.
We own office equipment, broadcasting equipment, leasehold improvements and transmission towers, some of which are located on, or are housed in, leased property or facilities. At the conclusion of several of these leases we are obligated to dismantle, remove and otherwise properly dispose of and remediate the facility or property. We estimate our asset retirement obligations based upon the net present value of the cash flows of the costs expected to be incurred. Asset retirement obligations are recognized as a non-current liability and as a component of the cost of the related asset. Changes to our asset retirement obligations resulting from revisions to the timing or the amount of the original undiscounted cash flow estimates are recognized as an increase or decrease in the carrying amount of the asset retirement obligation and the related asset retirement cost is capitalized as part of the related property, plant or equipment. Changes in asset retirement obligations resulting from accretion of the net present value of the estimated cash flows are recognized as operating expenses. We recognize depreciation expense of the capitalized cost over the estimated life of the lease. Our estimated obligations are due at varying times through 2062. The liability recognized for our asset retirement obligations was approximately $793,000$2 million and $701,000$1 million as of December 31, 2016 2019 and 2015,2018, respectively. During the years ended December 31, 2016, 20152019, 2018 and 2014, we recorded2017, expenses of $15,000, $34,000 and $6,000, respectively, related to our asset retirement obligations.obligations were not material.
Concentration of Credit Risk
.
We sell advertising air-time on our broadcasts and advertising space on our websites to national and local advertisers within the geographic areas in which we operate. Credit is extended based on an evaluation of the customer’s financial condition, and generally advance payment is not required, except for political advertising. Credit losses are provided for in the financial statements and consistently have been within our expectations that are based upon our prior experience.
Excluding political advertising revenue, which is cyclical based on election cycles, forour most significant category of customer is automotive. During the yearyears ended December 31, 2016,2019, 2018 and 2017 approximately 22%, 10% and 7%25% of our broadcast advertising revenue was obtained from advertising sales to advertising customers in the automotive medical and restaurant industries, respectively. We experienced similar industry-based concentrations of revenue in the years ended December 31, 2015 and 2014.customers. Although our revenues can be affected by changes within these industries,our customer base, we believe this risk is in part mitigated due to the fact that noone customer accounted for in excess of 5% of our broadcast advertising revenue in any of these periods. Furthermore, we believe that our large geographic operating area partially mitigates the potential effect of regional economic impacts.
EarningsEarnings Per Share
. We compute basic earnings per share by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the relevant period. The weighted-average number of common shares outstanding does not include restricted shares. These shares, although classified as issued and outstanding, are considered contingently returnable until the restrictions lapse and, in accordance with U.S.United States GAAP, are not included in the basic earnings per share calculation until the shares vest. Diluted earnings per share is computed by including all potentially dilutive common shares, including restricted shares and shares underlying stock options, in the diluted weighted-average shares outstanding calculation, unless their inclusion would be antidilutive.
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding for the years ended December 31, 2016, 20152019, 2018 and 20142017 (in thousands)millions):
Year Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Weighted-average shares outstanding – basic | 71,848 | 68,330 | 57,862 | |||||||||
Weighted-average shares underlying stockoptions and restricted shares | 916 | 657 | 502 | |||||||||
Weighted-average shares outstanding - diluted | 72,764 | 68,987 | 58,364 | |||||||||
Year Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Weighted-average shares outstanding, basic | 99 | 88 | 73 | |||||||||
Weighted-average shares underlying stock options and restricted shares | 1 | 1 | 1 | |||||||||
Weighted-average shares outstanding, diluted | 100 | 89 | 74 | |||||||||
Valuation of Broadcast Licenses, Goodwill and Other Intangible Assets
.
We have acquired a significant portion of our assets in acquisition transactions. Among the assets acquired in these transactions were broadcast licenses issued by the FCC, goodwill and other intangible assets.
For broadcast licenses acquired prior to January 1, 2002, we recorded their respective values using a residual method (analogous to “goodwill”) where the excess of the purchase price paid in the acquisition over the fair value of all identified tangible and intangible assets acquired was attributed to the broadcast license. This residual basis approach generally produces higher valuations of broadcast licenses when compared to applying an income method as discussed below.
For broadcast licenses acquired after December 31, 2001, we record their respective values using an income approach. Under this approach, a broadcast license is valued based on analyzing the estimated after-tax discounted future cash flows of the acquired station, assuming an initial hypothetical start-up operation maturing into an average performing station in a specific television market and giving consideration to other relevant factors such as the technical qualities of the broadcast license and the number of competing broadcast licenses within that market. For television stations acquired after December 31, 2001, we allocate the residual value of the station to goodwill.
When renewing broadcast licenses, we incur regulatory filing fees and legal fees. We expense these fees as they are incurred.
Goodwill represents the excess of acquisition cost over the fair value of assets acquired, identifiable intangible assets, less liabilities assumed. Goodwill is tested for impairment on an annual basis (at year end) or between annual tests if events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount.
Other intangible assets that we have acquired include network affiliation agreements, retransmission agreements, advertising contracts, client lists, talent contracts and leases. Although each of our stations is affiliated with at least one broadcast network, we believe that the value of a television station is derived primarily from the attributes of its broadcast license rather than its network affiliation agreement. As a result, we allocate only minimal values to our network affiliation agreements. We classify our other intangible assets as finite-lived intangible assets. The amortization period of our other intangible assets is equal to the shorter of their estimated useful life or contract period, including expected extensions thereof. When renewing other intangible asset contracts, we incur legal fees that are expensed as incurred.
Impairment Testing of Indefinite-Lived Intangible AssetsAssets.
We test for impairment of our indefinite-lived intangible assets on an annual basis on the last day of each fiscal year. December 31. However, if certain triggering events occur, we test for impairment during the relevant reporting period. For goodwill, we have elected to bypass the qualitative assessment provisions and to perform the prescribed testing steps for goodwill on an annual basis.when such events occur.
For purposes of testing goodwill for impairment, each of our individual television markets or production companies is considered a separate reporting unit. We review each television marketIn the performance of our annual assessment of goodwill for possible goodwill impairment, by comparingwe have the estimatedoption to qualitatively assess whether it is more likely than not a reporting unit has been impaired. As part of this qualitative assessment we evaluate the relative impact of factors that are specific to the reporting units as well as industry, regulatory, and macroeconomic factors that could affect the significant inputs used to determine the fair value of each respectivethe assets. We also consider the significance of the excess fair value over the carrying value reflected in prior quantitative assessments and the changes to the reporting units’ carrying value since the last impairment test.
If we conclude that it is more likely than not that a reporting unit is impaired, or if we elect notto perform the recorded value of that reporting unit’s net assets. Ifoptional qualitative assessment, we will determine the estimated fair value exceeds the recorded net asset value, no goodwill impairment is deemed to exist. If the estimated fair value of the reporting unit does not exceedand compare to the recordednet book value of that reporting unit’s net assets, we then perform, on a notional basis, a purchase price allocation by allocating the reporting unit’s fair value tounit. If the fair value of all tangible and identifiable intangible assets with residual fairis less than the net book value, representing the implied fair value of goodwill of that reporting unit. The recorded value ofwe will record an impairment to goodwill for the reporting unit is written down to this implied value.amount of the difference.
To estimate the fair value of our reporting units for a quantitative assessment, we utilize a discounted cash flow model supported by a market multiple approach. We believe that a discounted cash flow analysis is the most appropriate methodology to test the recorded value of long-term assets with a demonstrated long-lived/enduring franchise value. We believe the results of the discounted cash flow and market multiple approaches provide reasonable estimates of the fair value of our reporting units because these approaches are based on our actual results and reasonable estimates of future performance, and also take into consideration a number of other factors deemed relevant by us including, but not limited to, expected future market revenue growth, market revenue shares and operating profit margins. We have historically used these approaches in determining the value of our reporting units. We also consider a market multiple approach utilizing market multiples to corroborate our discounted cash flow analysis. We believe that this methodology is consistent with the approach that a strategic market participant would utilize if they were to value one of our television stations.reporting units.
For testingIn the performance of our annual assessment of broadcast licenses for impairment we have the option to qualitatively assess whether it is more likely than not that these assets are impaired. When evaluating our broadcast licenses for impairment, the qualitative assessment is done at the individual television station level. If we conclude that it is more likely than not that one of our broadcast licenses for potential impairment of their recorded asset values,is impaired, we compare their estimatedwill perform a quantitative assessment by comparing the fair value of the broadcast license to the respective asset’s recordedits carrying value. If the fair value is greater than the asset’s recorded value, no impairment expense is recorded. If the fair value does not exceed the asset’s recorded value, we record an impairment expense equal to the amount that the asset’s recorded value exceeded the asset’s fair value. We use the income method to estimate the fair value of all broadcast licenses irrespective of whether they were initially recorded using the residual or income methods.
For further discussion of our goodwill, broadcast licenses and other intangible assets, see Note 1013 “Goodwill and Intangible Assets.”
Accumulated Other Comprehensive LossLoss.
Our accumulated other comprehensive loss balances as of December 31, 2016 2019 and 20152018 consist of adjustments to our pension liabilities net of related income tax benefits as follows (in thousands)millions):
December 31, | December 31, | |||||||||||||||
2016 | 2015 | 2019 | 2018 | |||||||||||||
Accumulated balances of items included in accumulatedother comprehensive loss: | ||||||||||||||||
Accumulated balances of items included in accumulated other comprehensive loss: | ||||||||||||||||
Increase in pension liability | $ | (28,926 | ) | $ | (28,334 | ) | $ | (42 | ) | $ | (35 | ) | ||||
Income tax benefit | (11,281 | ) | (11,050 | ) | (11 | ) | (14 | ) | ||||||||
Accumulated other comprehensive loss | $ | (17,645 | ) | $ | (17,284 | ) | $ | (31 | ) | $ | (21 | ) | ||||
Recent Accounting Pronouncements
.
In May 2014, June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”ASU No.2016-13,Financial Instruments - Credit Losses (Topic 326) No. 2014-09, Revenue. The standard requires entities to estimate loss of financial assets measured at amortized cost, including trade receivables, debt securities and loans, using an expected credit loss model. The expected credit loss model differs from Contracts with Customers (Topic 606). ASU 2014-09 provides new guidance on revenuethe previous incurred losses model primarily in that the loss recognition for revenue from contracts with customersthreshold of “probable” has been eliminated and will replace most existing revenue recognition guidance when it becomes effective. Thisthat expected loss should consider reasonable and supportable forecasts in addition to the previously considered past events and current conditions. Additionally, the guidance requires an entityadditional disclosures related to recognize the amountfurther disaggregation of revenueinformation related to which it expects to be entitledthe credit quality of financial assets by year of the asset’s origination for the transfer of promised goods or services to customers. The standard is intended to improve comparability of revenue recognition practices across entities and provide more useful information through improved financial statement disclosures.as many as five years. In August 2015, November 2018, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606):Deferral of the Effective Date. ASU 2015-14 deferred the effective date of ASU 2014-09 by one year to interim and annual reporting periods beginning after December 15, 2017, and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606):Identifying Performance Obligations and Licensing. This ASU amends the guidance of ASU 2014-09No.2018-19 to clarify the identificationscope of performance obligations and to provide additional licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606):Narrow Scope Improvements and Practical Expedients. This ASU was issued to provide guidance in assessing collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition, in order to reduce the potential for diversity in practice at initial application, and to reduce the cost and complexity of applying the standard. In December 2016, the FASB issued ASU 2016-20, Revenue from Contracts with Customers (Topic 606):Technical Corrections and Improvements. This ASU was issued to clarify the standard and to correct unintended application of guidance. We have prepared an analyses of the effects of these standards on our financial statements and preliminarily determined that they will not have a material effect on our balance sheets and statements of operations. We have not yet determined if we will apply the new standard using the retroactive or prospective method. We are evaluating our footnote disclosure obligations and expect that the standards will have an effect on these disclosures. We will continue to develop these disclosures and the related tasks of, gathering data to be disclosed, assessing our internal controls and availing ourselves of broadcasting industry related guidance.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) –Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires a “noncurrent” presentation of all deferred income taxes. Entities with publicly traded securities are required to apply the new guidance beginning in the annual reporting period beginning after December 15, 2016, and interim periods thereafter. We expect that the affected amounts on our balance sheets will be reclassified within our balance sheets to conform to this standard beginning in the first quarter of 2017.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) -Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 amends the guidance in U.S. GAAP regarding the classification and measurementamendments in ASU 2016-13. Entities must apply the standard provision as a cumulative-effect adjustment to retained earnings as of financial instruments. The new standard significantly revises an entity’s accounting related to the classification and measurementbeginning of investmentsthe first reporting period in equity securities andwhich the presentation of certain fair value changes for financial liabilities measured at fair value.guidance is effective. The standard is effective for fiscal years beginning after December 15, 2017, including2019, and interim periods within those fiscal years. We do not expect that theEarly adoption is permitted for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. The adoption of this standard willguidance requires a change in disclosures related to our accounts receivable and allowance for doubtful accounts only and is not expected to have a material impact on our financial statements.
In February 2016, August 2018, the FASB issued ASU 2016-02, 2018-14,Compensation Retirement Benefits Defined Benefit Plans General (Subtopic 715-20) - Disclosure Framework Changes to the Disclosure Requirements for Defined Benefit Plans, ASU 2018-14 adds, removes, and modifies disclosure requirements related to defined benefit pension and other postretirement plans. The update amends only annual disclosure requirements. The standard is effective for fiscal years ending after December 15, 2020. The standard allows for early adoption, but we have not yet made a determination as to whether to early-adopt this standard. The adoption of this guidance requires a change in disclosures only and is not expected to have a material impact on our financial statements.
Adoption of Accounting Standards and Reclassifications. In February 2016, the FASB issued ASU 2016-02 – Leases (Topic 842)842). ASU 2016-02 will supersede2016-02 superseded Topic 840,Leases,, and thus will supersedesuperseded nearly all existing lease guidance by requiring the reclassification of lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. The standard will be effective for fiscal years beginning after December 15, 2018. We have prepared an analyses of the effects of this standard on our financial statements and preliminarily determined that it will not have a material effect on our statements of operations. However, this standard is expected to have a material effect on our balance sheets. Specifically, we expect that, once adopted we will record a right of use asset and lease obligation liability. Based on our current portfolio of lease obligations we expect that this asset and liability would each total approximately $13.2 million. We are also evaluating our footnote disclosure obligations and expect that this standard will have an effect on these disclosures. We will continue to develop these disclosures and the related tasks of gathering data to be disclosed, assessing our internal controls and availing ourselves of broadcasting industry related guidance.
In March 2016, July 2018, the FASB issued ASU 2016-09, Compensation 2018- Stock Compensation11, Leases (Topic 718) -842) – Targeted Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 amends, which provided the guidance in U.S. GAAP withoption of applying the intent of simplifying several aspectsrequirements of the accountingnew lease standard in the period of adoption using the modified retrospective approach with no restatement of comparative periods. We adopted the standard effective January 1, 2019, using the modified retrospective approach provided in ASU 2018-11. The transition guidance allowed for share-based payment transactions, including the income tax consequences,election of a number of practical expedients. We elected the package of practical expedients and the short-term lease practical expedient. The package of practical expedients allowed us to carryforward our classification of awards,existing leases. With the election of the short-term practical expedient, we are not required to recognize on our consolidated balance sheet, the present value of leases with an initial term of twelve months or less. We also implemented internal controls and classificationkey system functionality to enable the preparation of financial information on the statement of cash flows.adoption. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We do not expect that the adoption of this ASU will havehad a material impact on our financialconsolidated balance sheets but did not have an impact on our consolidated income statements. We expect to conform to this standard beginning in the first quarter of 2017.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) –Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 amends the guidance of U.S. GAAP with the intent of addressing eight specific cash flow issues with the objective of reducing the existing diversity in practice. One or more of these eight issues are applicable to our financial statements. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We do not expect thatUpon the adoption of this standard, will havewe recorded a material impactright of use (“ROU”) asset and a lease obligation liability of approximately $21 million. In addition, upon the completion of the Raycom Merger on our financial statements.January 2, 2019, we implemented these standards to the leases acquired in the Raycom Merger and recorded a ROU asset and a lease obligation liability of approximately $52 million for each. Please refer to Note 3 “Acquisitions and Divestitures” and Note 9 “Leases” for further information.
In October 2016, January 2017, the FASB issued ASU 2016-17, Consolidation2017-01,Business Combinations (Topic 810)805) – Interests Held through Related Parties That Are under Common Control. ASU 2016-17 amends the guidance of U.S. GAAP on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We do not expect that the adoption of this standard will have a material impact on our financial statements. As explained more fully in Note 11 “Subsequent Events,” we have recently entered into a transaction with Gray Midwest EAT, LLC (“GME”). GME is a VIE and as a result of this transaction, we have determined that we are the primary beneficiary of this VIE. We will include the assets, liabilities and results of operations of GME in our consolidated financial statements beginning in 2017.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) –Clarifying the Definition of a Business. ASU 2017-01 amends the guidance of U.S. GAAP with the intent of clarifying the definition of a business with the objective of adding2017-01 adds guidance to assist entities with evaluatingin the determination of whether transactions should be accounted for as acquisitionsan acquisition (or disposals) ofdisposal) represents assets or businesses.a business. The standardupdate provides a test to determine whether or not an acquisition is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Wea business. If substantially all of the fair value of the assets acquired is concentrated in a single asset or a group of similar identifiable assets, the acquired assets do not expect that represent a business. If this test is not met, the update provides further guidance to evaluate if the acquisition represents a business. The Company adopted the guidance on January 1, 2019. The adoption of this standard willdid not have a materialan impact on our financial statements.
In January 2017, the FASB issued ASU 2017-04, 2017-04,Intangibles – Goodwill and Other (Topic 350)350) –Simplifying the Test for Goodwill Impairment. ASU 2017-042017-04 amends the guidance of U.S.United States GAAP with the intent of simplifying how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The standard allows for early adoption, but we have not yet made that determination.We do not expect that theAfter adoption of thisthe standard, the annual, or interim, goodwill impairment test will be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized will not exceed the total amount of goodwill allocated to that reporting unit. The Company adopted the guidance on January 1, 2019. The adoption did nothave a materialan impact on our financial statements.
Reclassifications
In February 2018, the FASB issued ASU 2018-02,Income Statement - Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 allows a reclassification from accumulated other currentcomprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and non-current liabilitiesJobs Act of 2017 (“TCJA”). Consequently, the amendments eliminate the stranded tax effects resulting from the TCJA and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the TCJA, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. We have adopted this standard effective on January 1, 2019 and have recorded an adjustment of $5 million to increase our retained earnings and accumulated other comprehensive loss.
In addition to the reclassification of our net pension expense (benefit) in our consolidated statement of operations as described above, certain amounts in the condensed consolidated statement of cash flows have also been reclassified to conform to the current year presentation.
2. | Revenue |
Revenue Recognition. We recognize revenue when we have completed a specified service and effectively transferred the control of that service to a customer in return for an amount of consideration we expect to be entitled to receive. The amount of revenue recognized is determined by the amount of consideration specified in a contract with our customers. We have elected to exclude taxes assessed by a governmental authority on transactions with our customers from our revenue. Any unremitted balance is included in current liabilities on our balance sheet.
Advertising Revenue. Broadcast advertising revenue is generated primarily from the broadcast of television advertising time to local, national and political advertisers. Most advertising contracts are short-term, and generally run only for a few weeks. Our performance obligation is satisfied when the advertisement is broadcast or appears on our stations’ websites or mobile applications. Advertising revenue is recognized when the performance obligation is satisfied and then billed to the customer in the period the revenue is recognized. We have an unconditional right to receive payment of the amount billed generally within 30 days of the invoice date. Payment terms are expressly stated in our standard terms and conditions. The invoiced amount to be received is recorded in accounts receivable on our balance sheet.
We broadcast the customer’s advertisement either preceding or following a television station’s network programming and within local and syndicated programming. Broadcast advertising is sold in time increments and is priced primarily on the basis of a program’s popularity among the specific audience an advertiser desires to reach. In addition, broadcast advertising rates are affected by the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. Broadcast advertising rates are generally the highest during the most desirable viewing hours, with corresponding reductions during other hours. The ratings of a local station affiliated with a major network can be affected by ratings of network programming. Internet advertising is placed on our stations’ websites and mobile applications. These advertisements may be in the form of banner advertisements, pre-roll advertisements or video and other types of advertisements or sponsorships.
We generate advertising revenue either by the efforts of our direct sales employees or through third party advertising agency intermediaries. Third party advertising intermediaries represent the customer and contract with us to deliver broadcast or internet advertising for the customer.
Retransmission Consent Revenue. We enter into license agreements with cable, satellite, multichannel video programming distributors and digital delivery system (or “OTT”) customers (collectively “MVPD”) that provide them the right to use our broadcast signal for retransmission across the MVPD system for an agreed period of time. These agreements represent a sales and usage based functional intellectual property license based on the number of subscribers to the licensee’s delivery systems. Our performance obligation is to provide the licensee with access to our intellectual property when it is broadcast. The duration of the typical retransmission consent contract is three years. Retransmission consent revenue is recognized continuously during the period of the contract as we transmit our broadcast signal to the MVPD. The amount of revenue recognized is determined based upon a fixed rate per subscriber multiplied by the number of active subscribers to our MVPD customer systems for the given month. We bill our MVPD customers monthly over the life of the retransmission consent contract. We have an unconditional right to receive payment of the amount billed generally within 30 days from the invoice date. Payment terms are expressly stated in our retransmission consent contracts as well as in the standard terms and conditions. The invoiced amount to be received is recorded in accounts receivable on our balance sheets.
Subscriber data necessary to calculate the amount of retransmission consent revenue to be recognized for the current month is not received until subsequent to that month. We estimate the current month retransmission consent revenue based upon the subscriber data from the most recent subscriber report by the MVPD. We record the estimate in the current month as retransmission consent revenue and then adjust the amount recorded in that month when we receive the actual subscriber data. We typically have monthly adjustments to our revenue to account for changes in MVPD subscribers on a monthly basis, however, the number of MVPD subscribers does not change materially on a monthly basis and this adjustment does not materially impact our recorded retransmission consent revenue on a quarterly or annual basis.
Production Company Revenue. Our production company revenues include sports marketing, production and event management, sports and entertainment production services and automotive programming production and marketing solutions. We recognize revenue of marketing, production and events at the time the events are aired or delivered. We recognize advertising revenues related to the events when the advertisements are aired. Sponsorship revenue is recognized ratably over the contractual period of the sponsorship.
Other Revenues. Other revenues consist of production, tower rental and other miscellaneous items. Production revenue is derived from the production of programming. Production revenue is recognized as the programming is produced. Tower rental income is recognized monthly over the life of the lease. All of our leases under which we are lessor are considered operating leases. Other revenue is comprised of one-time or infrequently occurring special projects, dubbing, fees and other miscellaneous items. Other revenue is recognized as the services are performed. Other revenue is generated by our direct sales employees.
Expedients. We expense direct and agency commissions when incurred because our advertising contracts are one year or less in duration and the amortization period for capitalized expenses would be less than one year. Direct commissions are included in broadcast operating expense and agency commissions are netted against gross revenue in our consolidated statements of operations.
The nature of our contracts with advertising customers is such that our performance obligations arise and are satisfied concurrent with the broadcast or web placement of the advertisement. We did not have incomplete or unsatisfied performance obligations at the end of any period presented.
We record a deposit liability for cash deposits received from our customers that are to be applied as payment once the performance obligation arises and is satisfied in the manner stated above. These deposits are recorded as deposit liabilities on our balance sheet. When we invoice our customers for completed performance obligations, we are unconditionally entitled to receive payment of the invoiced amounts. Therefore, we record invoiced amounts in accounts receivable on our balance sheet. We require amounts payable under advertising contracts with our political advertising customers to be paid for in advance. We record the receipt of this cash as a deposit liability. Once the advertisement has been broadcast, the revenue is earned, and we record the revenue and reduce the balance in this deposit liability account. We recorded $3 million of revenue in the year ended December 31, 2019 that was included in the deposit liability balance as of December 31, 2018. The deposit liability balance is included in deferred revenue on our consolidated balance sheets. The deposit liability balance was $9 million and $3 million as of December 31, 2019 and 2018, respectively.
Disaggregation of Revenue. Revenue from our broadcast and other segment is generated through both our direct and advertising agency intermediary sales channels. Revenue from our production companies segment is generated through our direct sales channel. The following table presents our revenue from contracts with customers disaggregated by type of service and sales channel (in millions):
Year Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Market and service type: | ||||||||||||
Advertising: | ||||||||||||
Local | $ | 898 | $ | 443 | $ | 451 | ||||||
National | 229 | 114 | 119 | |||||||||
Political | 68 | 155 | 16 | |||||||||
Total advertising | 1,195 | 712 | 586 | |||||||||
Retransmission consent | 796 | 355 | 277 | |||||||||
Production companies | 87 | - | - | |||||||||
Other | 44 | 17 | 20 | |||||||||
Total revenue | $ | 2,122 | $ | 1,084 | $ | 883 | ||||||
Sales channel: | ||||||||||||
Direct | $ | 1,270 | $ | 552 | $ | 474 | ||||||
Advertising agency intermediary | 852 | 532 | 409 | |||||||||
Total revenue | $ | 2,122 | $ | 1,084 | $ | 883 | ||||||
2. Acquisitions and Dispositions
3. | Acquisitionsand Divestitures |
During 2016, 20152019,2018 and 2014,2017, we entered intocompleted a number of acquisition and dispositiondivestiture transactions. The acquisition transactions were and are expected to, among other things, increase our revenues and cash flows from operating activities, and allow us to operate more efficiently and effectively by increasing our scale and providing us, among other things, with the ability to negotiate more favorable terms in our agreements with third parties.
During 2016, 2019 Acquisitions and Divestitures.
Raycom Merger. On January 2, 2019, we completed threean acquisition of all the equity interests of Raycom Media, Inc. (“Raycom”). In connection with the acquisition of Raycom and on the same date, Gray assumed and completed Raycom’s pending acquisitions which added 13of WUPV-DT in the Richmond, Virginia market and KYOU-TV in the Ottumwa, Iowa market. To facilitate regulatory approval of the acquisition of Raycom and to satisfy the conditions placed on the acquisition by the Antitrust Division of the United States Department of Justice (the “DOJ”) and the FCC, we completed the divestiture of nine television stations in overlapping markets. We refer to our operationsthe acquisition of Raycom, WUPV-DT and one disposition, that divested one television station from our operations. In addition, at December 31, 2016, we had several pending transactions certain of which were completed in January 2017. For a discussionKYOU-TV and the divestiture of the completed transactions see Note 11 “Subsequent Events.stations in the nine overlapping markets collectively as the “Raycom Merger.”
The Raycom Merger completed our transformation from a small, regional broadcaster to a leading media company with nationwide scale based on high-quality stations with exceptional talent in attractive markets. The following table lists the stations acquired and retained, net of divestitures:
2016
Station | ||||||
DMA | Designated Market Area | Call | Network | |||
Rank | ("DMA") | Letters | Affiliation | |||
| 12 | Tampa-St. Petersburg (Sarasota), FL | WWSB | ABC | |||
| 19 | Cleveland-Akron (Canton) | WOIO | CBS | |||
| 19 | Cleveland-Akron (Canton) | WUAB | CW | |||
| 21 | Charlotte, NC | WBTV | CBS | |||
| 36 | West Palm Beach-Ft. Pierce, FL | WFLX | FOX | |||
| 37 | Cincinnati, OH | WXIX | FOX | |||
| 44 | Birmingham (Ann and Tusc) | WBRC | FOX | |||
| 48 | Louisville, KY | WAVE | NBC | |||
| 50 | New Orleans, LA | WVUE | FOX | |||
| 51 | Memphis, TN | WMC | NBC | |||
| 54 | Richmond- Petersburg, VA | WWBT | NBC | |||
| 54 | Richmond- Petersburg, VA | WUPV | CW | |||
| 65 | Tucson (Nogales), AZ | KOLD | CBS | |||
| 66 | Honolulu, HI | KHNL | NBC | |||
| 66 | Honolulu, HI | KGMB | CBS | |||
| 66 | Honolulu, HI | KHBC | NBC/CBS | |||
| 66 | Honolulu, HI | KOGG | NBC/CBS | |||
| 75 | Columbia, SC | WIS | NBC | |||
| 78 | Huntsville- Decatur (Florence), AL | WAFF | NBC | |||
| 84 | Paducah, KY/Cape Girardeau, MO/ Harrisburg, IL | KFVS | CBS | |||
| 86 | Shreveport, LA | KSLA | CBS | |||
| 89 | Savannah, GA | WTOC | CBS | |||
| 91 | Charleston, SC | WCSC | CBS | |||
| 94 | Baton Rouge, LA | WAFB | CBS | |||
| 94 | Baton Rouge, LA | WBXH | MY | |||
| 95 | Jackson, MS | WLBT | NBC | |||
| 97 | Myrtle Beach-Florence | WMBF | NBC | |||
| 102 | Boise, ID | KNIN | FOX | |||
| 105 | Evansville, IN | WFIE | NBC | |||
| 114 | Tyler-Longview, TX | KLTV | ABC | |||
| 114 | Tyler-Longview, TX | KTRE | ABC | |||
| 122 | Montgomery, AL | WSFA | NBC | |||
| 127 | Wilmington, NC | WECT | NBC | |||
| 130 | Columbus, GA (Opelika, AL) | WTVM | ABC | |||
| 132 | Amarillo, TX | KFDA | CBS | |||
| 132 | Amarillo, TX | KEYU | TEL | |||
| 142 | Lubbock, TX | KCBD | NBC | |||
| 145 | Odessa/Midland, TX | KWAB | CW | |||
| 145 | Odessa/Midland, TX | KTLE | TEL | |||
| 147 | Wichita Falls, TX & Lawton, OK | KSWO | ABC | |||
| 147 | Wichita Falls, TX & Lawton, OK | KKTM | TEL | |||
| 154 | Albany, GA | WALB | NBC/ABC | |||
| 155 | Biloxi-Gulfport, MS | WLOX | ABC/CBS | |||
| 167 | Hattiesburg/Laurel, MS | WDAM | NBC/ABC | |||
| 183 | Jonesboro, AR | KAIT | ABC/NBC | |||
| 201 | Ottumwa, IA/Kirksville, MO | KYOU | FOX/NBC |
On January 2, 2019, the following stations were acquired from Raycom and their assets were immediately divested in eight markets as follows (dollars in millions):
Total | ||||||||||
Cash | ||||||||||
Consideration | Television | |||||||||
Purchaser | Received | Station | Location | DMA | ||||||
Lockwood Broadcasting, Inc. | $ | 67 | WTNZ | Knoxville, TN | 61 | |||||
WFXG | Augusta, GA | 108 | ||||||||
WPGX | Panama City, FL | 149 | ||||||||
WDFX | Dothan, AL | 171 | ||||||||
Scripps Media, Inc. | 55 | KXXV | Waco-Temple-Bryan, TX | 82 | ||||||
KRHD | Waco-Temple-Bryan, TX | 82 | ||||||||
WTXL | Tallahassee, FL | 109 | ||||||||
TEGNA, Inc. | 109 | WTOL | Toledo, OH | 80 | ||||||
KWES | Odessa - Midland, TX | 145 | ||||||||
Total | $ | 231 | ||||||||
The allocated portion of net consideration paid for the assets and liabilities divested for the stations in these eight overlap markets was approximately $234 million.
The net consideration paid to acquire Raycom consisted of $2.84 billion of cash, 11.5 million shares of our common stock, valued at $170 million (a non-cash financing transaction), and $650 million of a new series of preferred stock (a non-cash financing transaction), for a total of $3.66 billion. Please refer to Note 6 “Stockholders Equity” and Note 7 “Preferred Stock” for further information. The cash consideration paid to acquire the two stations that Raycom had previously agreed to acquire (KYOU-TV and WUPV-TV listed above) was $17 million. The following table summarizes the consideration paid related to the Raycom Merger and the amount representing the net assets acquired and liabilities assumed (in millions):
KYOU | ||||||||||||
and | Net | |||||||||||
Raycom | WUPV | Consideration | ||||||||||
Purchase Price | $ | 3,660 | $ | 17 | $ | 3,677 | ||||||
Less - consideration allocated to all assets acquired and net of liabilites assumed for the Raycom overlap market stations which were also divested on January 2, 2019 | (234 | ) | - | (234 | ) | |||||||
Purchase consideration for assets acquired and liabilities assumed net of divestitures | $ | 3,426 | $ | 17 | $ | 3,443 | ||||||
United Acquisition. On May 1, 2019, we acquired the assets of WWNY-TV (CBS) and WNYF-CD (FOX) in Watertown, New York (DMA 181) and KEYC-TV (CBS/FOX) in Mankato, Minnesota (DMA 198) from United Communications Corporation (the “United Acquisition”) for an adjusted purchase price of $48 million of cash, excluding Transaction Related Expenses. We began operating those stations on March 1, 2019 under a local programming and marketing agreement, which increased the total number of our markets from 91 to 93.
Sioux Falls Acquisition. On September 25, 2019, we acquired KDLT-TV (NBC), in the Sioux Falls, South Dakota market (DMA 113), for $33 million, using cash on hand (the “Sioux Falls Acquisition”).
Charlottesville Acquisition and Divestiture. On October 1, 2019, we acquired the assets of WVIR-TV (NBC) in the Charlottesville, Virginia market (DMA 182) from Waterman Broadcasting Corporation for $13 million using cash on hand (the “Charlottesville Acquisition”). Also, on October 1, 2019, in order to meet regulatory requirements, we divested our legacy stations in that market, WCAV-TV (CBS/FOX) and WVAW-TV (ABC). The divestitures resulted in a gain of approximately $19 million.
The following table summarizes the values of the assets acquired, liabilities assumed and resulting goodwill of the Raycom Merger, the United Acquisition, The Sioux Falls Acquisition and the Charlottesville Acquisition (together, the “2019 Acquisitions”) (in millions):
2019 Acquisitions | ||||||||||||||||||||
Raycom | United | Sioux Falls | Charlottesville | Total | ||||||||||||||||
Cash | $ | 115 | $ | - | $ | - | $ | - | $ | 115 | ||||||||||
Accounts receivable, net | 243 | 3 | 1 | 1 | 248 | |||||||||||||||
Program broadcast rights | 12 | - | - | - | 12 | |||||||||||||||
Other current assets | 10 | - | - | - | 10 | |||||||||||||||
Property and equipment | 311 | 10 | 10 | 7 | 338 | |||||||||||||||
Operating lease right of use asset | 52 | - | - | - | 52 | |||||||||||||||
Goodwill | 829 | 3 | 2 | - | 834 | |||||||||||||||
Broadcast licenses | 2,004 | 24 | 14 | 2 | 2,044 | |||||||||||||||
Other intangible assets | 504 | 8 | 7 | 3 | 522 | |||||||||||||||
Other non-current assets | 20 | - | - | - | 20 | |||||||||||||||
Accrued compensation and benefits | (29 | ) | - | - | - | (29 | ) | |||||||||||||
Program broadcast obligations | (16 | ) | - | - | - | (16 | ) | |||||||||||||
Other current liabilities | (60 | ) | - | (1 | ) | - | (61 | ) | ||||||||||||
Income taxes payable | (3 | ) | - | - | - | (3 | ) | |||||||||||||
Deferred income taxes | (472 | ) | - | - | - | (472 | ) | |||||||||||||
Operating lease liabilities | (52 | ) | - | - | - | (52 | ) | |||||||||||||
Other long-term liabilities | (25 | ) | - | - | - | (25 | ) | |||||||||||||
Total | $ | 3,443 | $ | 48 | $ | 33 | $ | 13 | $ | 3,537 | ||||||||||
Because of the magnitude and complexity of the calculations involved and the inherent issues related to the integration of our operations, the valuation of the assets acquired, liabilities assumed and resulting goodwill of the United Acquisition, Sioux Falls Acquisition and the Charlottesville Acquisition are not yet final. However, we expect that any adjustments to these amounts reported in subsequent periods will not be material to our financial statements as a whole. These amounts are based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In determining the fair value of the acquired assets and assumed liabilities, the fair values were determined based on, among other factors, expected future revenue and cash flows, expected future growth rates, and estimated discount rates.
Accounts receivable are recorded at their fair value representing the amount we expect to collect. Gross contractual amounts receivable are approximately $2 million more than their recorded fair value.
Property and equipment are recorded at their fair value and are being depreciated over their estimated useful lives ranging from three years to 40 years.
Amounts related to other intangible assets represent primarily the estimated fair values of retransmission agreements of $322 million, shared services agreements of $98 million, and network affiliation agreements of $50 million. These intangible assets are being amortized over their estimated useful lives of approximately 4.1 years for retransmission agreements, approximately 7.7 years for shared services agreements, and approximately 3.7 years for network affiliation agreements.
Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, as well as future synergies that we expect to generate from each acquisition. We recorded $829 million of goodwill related to stations acquired and retained in the Raycom Merger: $3 million of goodwill related to the stations acquired in the United Acquisition; $2 million of goodwill related to the stations acquired in the Sioux Falls Acquisition; and goodwill related to the stations acquired in the Charlottesville Acquisition was not material. A portion of the goodwill acquired in the Raycom Merger, in the amount of approximately $150 million, will be deductible by us for income tax purposes.
The Company’s consolidated results of operations for year ended December 31, 2019 includes the results of the Raycom Merger beginning on January 2, 2019, the United Acquisition beginning on March 1, 2019, the Sioux Falls Acquisition beginning on September 25, 2019, and the Charlottesville Acquisition beginning on October 1, 2019. Revenues attributable to the 2019 Acquisitions and included in our consolidated statement of operations for the year ended December 31, 2019 was $1.1 billion. Operating income attributable to the 2019 Acquisitions and included in our consolidated statement of operations for the year ended December 31, 2019 was $198 million.
The following table summarizes the approximate Transaction Related Expenses incurred in connection with the 2019 Acquisitions, during the years ended December 31, 2019 and 2018, by type and by financial statement line item (in millions):
Year Ended | ||||||||
December 31, | ||||||||
2019 | 2018 | |||||||
Transaction Related Expenses by type: | ||||||||
Legal, consulting and other professional fees | $ | 24 | $ | 8 | ||||
Incentive compensation and other severance costs | 21 | 3 | ||||||
Termination of sales representation and other agreements | 34 | - | ||||||
Total Transaction Related Expenses | $ | 79 | $ | 11 | ||||
Transaction Related Expenses by financial statement line item: | ||||||||
Operating expenses before depreciation, amortization and loss (gain) on disposal of assets, net: | ||||||||
Broadcast | $ | 45 | $ | 3 | ||||
Corporate and administrative | 34 | 8 | ||||||
Total Transaction Related Expenses | $ | 79 | $ | 11 | ||||
Unaudited Pro Forma Financial Information – 2019 Acquisitions. The following table sets forth certain unaudited pro forma information for the years ended December 31, 2019 and 2018 assuming that the 2019 Acquistions occurred on January 1,2018 (in millions, except per share data):
Year Ended | ||||||||
December 31, | ||||||||
2019 | 2018 | |||||||
Revenue (less agency commissions) | $ | 2,139 | $ | 2,212 | ||||
Net income | $ | 241 | $ | 286 | ||||
Net income attributable to common stockholders | $ | 189 | $ | 234 | ||||
Basic net income per share | $ | 2.43 | $ | 3.25 | ||||
Diluted net income per share | $ | 2.41 | $ | 3.21 | ||||
This pro forma financial information is based on Gray’s historical results of operations and the historical results of operations of the television stations acquired, net of divestitures, included in the 2019 Acquisitions, adjusted for the effect of fair value estimates and other acquisition accounting adjustments, and is not necessarily indicative of what our results would have been had we completed the 2019 Acquisitions on January 1,2018 or on any other historical date, nor is it reflective of our expected results of operations for any future period. The pro forma adjustments for the years ended December 31, 2019 and 2018 reflect depreciation expense and amortization of finite-lived intangible assets related to the fair value of the assets acquired, Transaction Related Expenses and related tax effects of the adjustments. This pro forma financial information has been prepared based on estimates and assumptions that we believe are reasonable as of the date hereof, and are subject to change based on, among other things, changes in the fair value estimates or underlying assumptions.
2018 Divestiture. On December 31, 2018, in order to facilitate regulatory approval of the Raycom Merger, we sold the assets of WSWG-TV (DMA 154) in the Albany, Georgia television market for $9 million, excluding Transaction Related Expenses, to Marquee Broadcasting, Inc. and Marquee Broadcasting Georgia, Inc. In connection with the divestiture of the assets of WSWG-TV, we recorded a gain of approximately $5 million in the fourth quarter of 2018.
2017Acquisitions. On January 13, 2017, we acquired the assets of KTVF-TV (NBC), KXDF-TV (CBS), and DispositionsKFXF-TV (FOX) in the Fairbanks, Alaska television market (DMA 203), from Tanana Valley Television Company and Tanana Valley Holdings, LLC for an adjusted purchase price of $8 million (the “Fairbanks Acquisition”), using cash on hand.
On February 16, 2016, January 17, 2017, we acquired the assets of two television stations that were divested by Nexstar Broadcasting, Inc. upon its merger with Media General, Inc. (“Media General”): WBAY-TV (ABC), in the Green Bay, Wisconsin television market (DMA 67), and KWQC-TV (NBC), in the Davenport, Iowa, Rock Island, Illinois, and Moline, Illinois or “Quad Cities” television market (DMA 103), for an adjusted purchase price of $270 million (the “Media General Acquisition”) using cash on hand. The Media General Acquisition was completed, in part, through a transaction with a VIE known as Gray Midwest EAT, LLC (“GME”), pursuant to which GME acquired the broadcast licenses of the stations. On May 30, 2017, we exercised an option to acquire the licenses held by GME pending receipt of proceeds from the FCC’s reverse auction for broadcast spectrum (the “FCC Spectrum Auction”). Upon receipt of the auction proceeds from the FCC on August 7, 2017, we completed the acquisition of the television and radio broadcast assets of Schurz Communications, Inc. (“Schurz”) for an adjustedpurchase price of $443.1 million plus transaction related expenses (the “Schurz Acquisition”).
To facilitate regulatory approval for the Schurz Acquistion, on February 1, 2016, we exchanged the assets of KAKE-TV (ABC) (and its satellite stations) in the Wichita, Kansas television market, for the assets of Lockwood Broadcasting, Inc.’s television station WBXX-TV (CW) in the Knoxville, Tennessee television market and $11.2 million of cash (the “WBXX Acquisition”). In connection with the divestiture of KAKE-TV’s assets, we recorded a gain of approximately $2.0 million, excluding transaction related expenses.
To further faciliate regulatory approvals for the Schurz Acquisition, on February 16, 2016, we exchanged the assets of WSBT-TV for the assets of Sinclair Broadcast Group, Inc.’s television station WLUC-TV (NBC/FOX) in the Marquette, Michigan television market (the “WLUC Acquisition”), and we sold the Schurz radio broadcast assets (the “Schurz Radio Stations”) for $16.0 million to three third-party radio broadcasters. We did not record a gain or loss related to the WLUC Acquisition or related to the divestiture of the Schurz Radio Stations because the fair value of the assets given were determined to be equal to the assets received.
The Schurz Acquisition, the WBXX Acquisition, the WLUC Acquisition, and the sale of the Schurz Radio Stations are referred to collectively as the “Schurz Acquisition and Related Transactions.” We used borrowings of $425.0 million (the “2016 Term Loan”) under our then-existing senior credit facility, as amended (the “2014 Senior Credit Facility”), to fund a portion of the purchase price to complete the Schurz Acquisition and to pay a portion of the related fees and expenses, the remainder of which were paidlicenses from cash on hand. See Note 3 “Long-term Debt” for further information regarding our financing activities.GME.
The net consideration
During the period that GME held those broadcast licenses we believe we were the primary beneficiary of GME because, subject to complete the Schurz Acquisitionultimate control of the licensees, we had the power to direct the activities that significantly impact the economic performance of GME through the services we provided, and Related Transactions was as follows (in thousands):
Schurz | ||||||||||||||||
Acquisition | ||||||||||||||||
and the | ||||||||||||||||
Divestiture | Acquisition | Acquisition | ||||||||||||||
of KAKE-TV | of WBXX-TV | of WLUC-TV | Total | |||||||||||||
Base purchase price | $ | - | $ | 30,000 | $ | 442,500 | $ | 472,500 | ||||||||
Purchase price adjustment | - | - | 574 | 574 | ||||||||||||
Adjusted purchase price | - | 30,000 | 443,074 | 473,074 | ||||||||||||
Cash consideration received from sale ofSchurz Radio Stations | - | - | (16,000 | ) | (16,000 | ) | ||||||||||
Net adjusted purchase price allocated toassets acquired and liabilities assumed | - | 30,000 | 427,074 | 457,074 | ||||||||||||
Non-cash consideration received | (30,000 | ) | - | - | (30,000 | ) | ||||||||||
Cash consideration received | (11,200 | ) | - | - | (11,200 | ) | ||||||||||
Net consideration - the Schurz Acquisitionand Related Transactions | $ | (41,200 | ) | $ | 30,000 | $ | 427,074 | $ | 415,874 | |||||||
On June 27, 2016,our obligation to absorb losses and right to earn returns that would be considered significant to GME. As a result, we completedincluded the acquisitionassets, liabilities and results of KYES-TV (MY, Ant.), a television station serving operations of GME in our consolidated financial statements beginning on January 17, 2017 and continuing through August 7, 2017, the Anchorage, Alaska television market, from Fireweed Communications, LLC (the “KYES-TV Acquisition”). The purchase pricedate that we were no longer deemed to be the primary beneficiary of $0.5 million, plus transaction related expenses, was paid with cash on hand.GME.
On May 13, 2016, 1, 2017, we announced that we agreed to acquire television stationsacquired the assets of WDTV-TV (CBS) and WVFX-TV (FOX, (FOX/CW), a legal duopoly in the Clarksburg-Weston, West Virginia television market (the “Clarksburg Acquisition”(DMA 173) from Withers Broadcasting Company of West Virginia and Withers Broadcasting Company of Clarksburg, LLC (collectively “Withers”(the “Clarksburg Acquisition”) for a maximum total purchase price of $26.5$26 million in cash.with cash on hand. On May 13, 2016, we announced that we agreed to enter into the Clarksburg Acquisition. On June 1, 2016, we made a partial payment of $16.5$16 million to Withers and acquired the non-license assets of these stations. Also, on that date we began operating these stations, subject to provide services to Withersthe control of the seller, under a local programming and marketing agreement (an “LMA”(“LMA”). Subject to regulatory approval, we currently expect to complete this acquisition later in that terminated upon completion of the first quarter or in the second quarter of 2017.acquisition.
Collectively, On May 1, 2017, we acquired the assets of WABI-TV (CBS/CW) in the Bangor, Maine television market (DMA 159) and WCJB-TV (ABC/CW) in the Gainesville, Florida television market (DMA 156) from Community Broadcasting Service and Diversified Broadcasting, Inc. (collectively, the “Diversified Acquisition”) for a total purchase price of $85 million with cash on hand. On April 1, 2017, we began operating these stations, subject to the control of the seller, under an LMA that terminated upon completion of the acquisition.
On August 1, 2017, we acquired the assets of WCAX-TV (CBS) in the Burlington, Vermont – Plattsburgh, New York television markets (DMA 96) from Mt. Mansfield Television, Inc., for an adjusted purchase price of $29 million in cash (the “Vermont Acquisition”). On June 1, 2017, we advanced $23 million of the purchase price to the seller and began to operate the station under an LMA, subject to the control of the seller. At closing, we paid the remaining $6 million of the purchase price with cash on hand and the LMA was terminated.
We refer to the eight stations that we began operating and acquired (excluding the stations acquired and retained in 2016, as well as thosethe Clarksburg Acquisition, which we began operating under an LMA in 2016) during 2017as the “2016 Acquired Stations.“2017 Acquisitions.”
The following table summarizes fair valuesvalue estimates of the assets acquired, liabilities assumed and resulting goodwill of the television station acquisitions we completed in 2016, are summarized as follows2017 Acquisitions and the Clarksburg Acquisition (in thousands)millions):
Schurz | 2017 Acquisitions | |||||||||||||||||||||||||||||||||||||||
Acquisition | Fairbanks | Media General | Clarksburg | Diversified | Vermont | Total | ||||||||||||||||||||||||||||||||||
and the | ||||||||||||||||||||||||||||||||||||||||
Acquisition | Acquisition | Acquisition | ||||||||||||||||||||||||||||||||||||||
of KYES-TV | of WBXX-TV | of WLUC-TV | Total | |||||||||||||||||||||||||||||||||||||
Accounts receivable | $ | - | $ | - | $ | 19,226 | $ | 19,226 | ||||||||||||||||||||||||||||||||
Other current assets | - | 429 | 4,606 | 5,035 | ||||||||||||||||||||||||||||||||||||
Current assets | $ | - | $ | 1 | $ | 1 | $ | - | $ | - | $ | 2 | ||||||||||||||||||||||||||||
Property and equipment | 176 | 1,633 | 97,814 | 99,623 | 3 | 20 | 4 | 12 | 10 | 49 | ||||||||||||||||||||||||||||||
Goodwill | 28 | 10,288 | 61,981 | 72,297 | - | 86 | 3 | 36 | 3 | 128 | ||||||||||||||||||||||||||||||
Broadcast licenses | 254 | 18,199 | 231,391 | 249,844 | 2 | 150 | 17 | 26 | 8 | 203 | ||||||||||||||||||||||||||||||
Other intangible assets | 42 | - | 19,523 | 19,565 | 3 | 13 | 2 | 11 | 5 | 34 | ||||||||||||||||||||||||||||||
Other non-current assets | - | 408 | 3,028 | 3,436 | - | 1 | - | - | 3 | 4 | ||||||||||||||||||||||||||||||
Current liabilities | - | (460 | ) | (8,903 | ) | (9,363 | ) | - | (1 | ) | (1 | ) | - | - | (2 | ) | ||||||||||||||||||||||||
Other long-term liabilities | - | (497 | ) | (1,592 | ) | (2,089 | ) | |||||||||||||||||||||||||||||||||
Total | $ | 500 | $ | 30,000 | $ | 427,074 | $ | 457,574 | $ | 8 | $ | 270 | $ | 26 | $ | 85 | $ | 29 | $ | 418 | ||||||||||||||||||||
These amounts are based upon management’s determination of the fair values using valuation techniques including income, cost and market approaches. In determining the fair value of the acquired assets and assumed liabilities, the fair values were determined based on, among other factors, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. Actual results may differ materially from these estimates.
Accounts receivable are recorded at their fair value representing the amount we expect to collect. Gross contractual amounts receivable are approximately $0.2 million more than their recorded fair value.
Property and equipment are recorded at their fair value and are being depreciated over their estimated useful lives ranging from three years to 40 years.
Amounts related to other intangible assets represent primarily the estimated fair values of retransmission agreements of $14.9$28 million; advertising client relationships of $1.6$5 million; and favorable income leases of $2.6$3 million. These intangible assets are being amortized over their estimated useful lives of approximately 4.95.1 years for retransmission agreements;agreements: approximately 5.510.7 years for advertising client relationships;relationships and approximately 9.511.9 years for favorable income leases.
Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, as well as future synergies that we expect to generate from each acquisition. We have recorded $72.3$128 million of goodwill related to stations acquired in 2016.2017. The goodwill recognized related to these acquisitions is deductible for income tax purposes.
The Company’s consolidated results of operations for year ended December 31, 2016 2017 include the results of the 2016 Acquired Stations2017 Acquisitions from the date of each transaction. Revenues attributable thereto and included in our consolidated statementsstatement of operations for the year ended December 31, 2016 2017 were $130.4$80 million. Operating income attributable thereto and included in our consolidated statementsstatement of operations for year ended December 31, 2016 were $55.82017 was $34 million.
In connection with acquiring the 2016 Acquired Stations,2017 Acquisitions, we incurred a total of $7.4$1 million of transaction related costsTransaction Related Expenses during the year ended December 31, 2016, 2017, primarily related to legal, consulting and other professional services.
2015 Acquisitions:
Cedar Rapids Acquisition
On September 1, 2015, we entered into an asset purchase agreement with The Cedar Rapids Television Company and The Gazette Company to acquire the assets of KCRG-TV, which is affiliated with the ABC Network and serves the Cedar Rapids, Iowa television market (the “Cedar Rapids Acquisition”). Also on September 1, 2015, we acquired certain non-license operating assets of this station and entered into an LMA with the licensee. Under the terms of the LMA, we operated the station subject to the control of the seller and its obligations under the station’s FCC license. As a result of the terms of the LMA, we included the operating results of the station in our financial statements beginning on September 1, 2015. On October 1, 2015, we acquired the non-license related real estate assets of KCRG-TV. The acquisition was completed on November 1, 2015, with the acquisition of the FCC license and license related assets. The total purchase price for the station assets was $100.0 million, and was funded with cash on hand.
Odessa Acquisition
On July 1, 2015, we acquired from ICA Broadcasting I, LTD, the assets of KOSA-TV, whose digital channels are affiliated with the CBS and MY Networks and which station serves the Odessa-Midland, Texas television market (the “Odessa Acquisition”). The total purchase price paid was $33.6 million and was funded with cash on hand.
Twin Falls Acquisition
On July 1, 2015, we acquired from Neuhoff Media Twin Falls, LLC the assets of KMVT-TV, whose digital channels are affiliated with the CBS and CW Networks, as well as KSVT-LD, whose digital channel is affiliated jointly with the FOX and MY Networks. These stations serve the Twin Falls, Idaho television market (the “Twin Falls Acquisition”). The total purchase price paid was $17.5 million, and was funded with cash on hand.
Wausau Acquisition
On July 1, 2015, we acquired from Davis Television Wausau, LLC certain non-license assets of WFXS-TV, which had served as the FOX affiliate for the Wausau-Rhinelander, Wisconsin television market (the “Wausau Acquisition”). On that date WFXS-TV ceased operating, and we began broadcasting its former program streams on our digital low power television station in Wausau, WZAW-LD. The total purchase price paid was $14.0 million, and was funded with cash on hand.
Presque Isle Acquisition
On July 1, 2015, we acquired from NEPSK, Inc. the assets of WAGM-TV, whose digital channels are affiliated with the CBS and FOX Networks and which station serves the Presque Isle, Maine television market (the Presque Isle Acquisition”). The total purchase price paid was $10.3 million, and was funded with cash on hand.
Laredo Acquisition
On July 1, 2015, we acquired from Eagle Creek Broadcasting of Laredo, LLC certain non-license assets of KVTV-TV, which had served as the CBS affiliate for the Laredo, Texas television market (the “Laredo Acquisition”). On that date KVTV-TV ceased operating, and we began broadcasting its former program streams on our digital low power television station in Laredo, KYLX-LD. The total purchase price paid was $9.0 million, and was funded with cash on hand.
The fair values of the acquired assets, assumed liabilities and the resulting goodwill from the 2015 Acquired Stations are summarized as follows (in thousands):
Acquisition | ||||||||||||||||||||||||
Cedar Rapids | Odessa | Twin Falls | Wausau | Presque Isle | Laredo | |||||||||||||||||||
Other current assets | $ | 503 | $ | 87 | $ | 93 | $ | 87 | $ | 45 | $ | 22 | ||||||||||||
Property and equipment | 13,754 | 4,629 | 5,172 | 1,985 | 2,822 | 1,411 | ||||||||||||||||||
Goodwill | 25,006 | 3,719 | 2,587 | 11,616 | 245 | 5,154 | ||||||||||||||||||
Broadcast licenses | 55,676 | 22,253 | 6,333 | - | 6,150 | - | ||||||||||||||||||
Other intangible assets | 5,849 | 3,067 | 3,485 | 397 | 1,039 | 2,435 | ||||||||||||||||||
Other non-current assets | 13 | 13 | 32 | 87 | - | 13 | ||||||||||||||||||
Current liabilities | (792 | ) | (155 | ) | (170 | ) | (85 | ) | (51 | ) | (22 | ) | ||||||||||||
Other long-term liabilities | (13 | ) | (13 | ) | (32 | ) | (87 | ) | - | (13 | ) | |||||||||||||
Total | $ | 99,996 | $ | 33,600 | $ | 17,500 | $ | 14,000 | $ | 10,250 | $ | 9,000 | ||||||||||||
These amounts are based upon management’s determination of the fair values using valuation techniques including income, cost and market approaches. In determining the fair value of the acquired assets and assumed liabilities, the fair values were determined based on, among other factors, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. Actual results may differ materially from these estimates.
Property and equipment are recorded at their fair value and are being depreciated over their estimated useful lives ranging from three years to 40 years.
The amount related to other intangible assets primarily represents the estimated fair values of retransmission agreements of $9.7 million; advertising client relationships of $1.0 million; and income leases of $5.4 million. These intangible assets are being amortized over the estimated remaining useful lives of 5.3 years for retransmission agreements; 9.6 years for advertising client relationships; and 16.9 years for income leases. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, as well as expected future synergies. We expect that goodwill of $48.3 million will be deductible for tax purposes. We believe that the value of a television station is derived primarily from the attributes of its broadcast license rather than its network affiliation. Consistent with that determination, no fair value was separately allocated to the acquired network affiliation agreements.
Collectively, we refer to the stations acquired and retained in 2015as the “2015 Acquired Stations.” In connection with acquiring the 2015 Acquired Stations, we incurred transaction costs totaling $6.5 million that are included in our corporate and administrative expenses in the year ended December 31, 2015.
MontanaDispositions
On September 1, 2015, we donated the FCC license and certain other assets of KMTF-TV in Helena, Montana, which formerly simulcast the CW channel broadcast by our KTVH-D2, to Montana State University (“MSU”). This donation allowed MSU to operate a full power PBS affiliated television station in the state’s capital for the first time, augmenting the statewide PBS network that MSU operates. We recorded a loss on disposal of approximately $0.1 million related to this donation.
On November 1, 2015, we sold to Cordillera Communications, LLC television station KBGF-TV, the NBC affiliate for the Great Falls, Montana television market, and television station KTVH-TV, the NBC and CW affiliate for the Helena, Montana television market. Total consideration received was $3.0 million, and we recorded a gain on disposal of approximately $0.9 million related to this disposition in 2015.
2014 Acquisitions:
Hoak Acquisition
On June 13, 2014, we completed the acquisition of 100% of the capital stock of certain wholly owned subsidiaries of Hoak Media, LLC (“Hoak”) for total purchase price of approximately $299.9 million (the “Hoak Acquisition”). The following stations were acquired in the Hoak Acquisition:
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The Hoak Acquisition also included our assumption of Hoak’s interest in certain operating agreements, and the acquisition of certain non-license assets of KHAS-TV, which served the Lincoln-Hastings, Nebraska market. On June 13, 2014, we transferred the programing of KHAS-TV to KSNB-TV, a station owned by Gray that also serves the Lincoln-Hastings, Nebraska, market. We used borrowings under the 2014 Senior Credit Facility, to fund the purchase price to complete the Hoak Acquisition.
As a component of the Hoak Acquisition, Gray assumed Hoak’s rights under certain agreements with Parker Broadcasting, Inc. (“Parker”) to provide back-office services, sales support and limited programming to KXJB-TV and KAQY-TV (each, a “Parker Agreement”). The Parker Agreements terminated upon the completion of the Parker Acquisition (defined below).
The Hoak Acquisition also included two subsidiaries with television stations located in the Panama City, Florida (KREX) and Grand Junction, Colorado (WMBB) markets. On June 13, 2014, in conection with the Hoak Acquisition, we divested those subsidiaries in exchange for $33.5 million. This amount is not included in our total purchase price for Hoak.
SJL Acquisition
On September 15, 2014, we acquired from SJL Holdings, LLC and SJL Holdings II, LLC, 100% of the capital stock of the entities that own and operate WJRT-TV and WTVG-TV, respectively, which are the ABC-affiliated television stations serving the Flint-Saginaw-Bay City, Michigan, and Toledo, Ohio, television markets, respectively, for total purchase price of $131.5 million (the “SJL Acquisition”). We funded the SJL Acquisition with a combination of cash from operations and borrowings under our 2014 Senior Credit Facility.
KEVN Acquisition
On May 1, 2014, we acquired from Mission TV, LLC 100% of the capital stock of the entity that operates KEVN-TV and its satellite station, KIVV-TV (collectively, the “KEVN Stations”) The KEVN Stations are affiliated with FOX and serve the Rapid City, South Dakota television market. The total purchase price to complete the KEVN Acquisition was approximately $8.8 million (the “KEVN Acquisition”). The purchase price to complete the KEVN Acquisition was funded with a combination of cash from operations and borrowings under our prior senior credit facility.
KNDX Acquisition
On May 1, 2014, we acquired from Prime Cities Broadcasting, Inc. (“Prime Cities”) certain assets of KNDX-TV and its satellite station KXND-TV, as well as certain non-license assets of low power stations KNDX-LP and KXND-LP. These four stations served as FOX affiliates for the Minot-Bismarck, North Dakota television market. On June 13, 2014, we transferred the programing of KNDX-TV and KXND-TV to the television stations that we acquired from Hoak in the Minot-Bismarck, North Dakota television market. On June 27, 2014, we acquired the low power FCC licenses of KNDX-LP and KXND-LP from Prime Cities. We refer to the acquisition of these assets from Prime Cities as the “KNDX Acquisition.” The total purchase price was $7.5 million, which was funded with a combination of cash from operations and borrowings under our prior senior credit facility.
Parker Acquisition
Also in 2014, we acquired 100% of the capital stock of two of Parker’s subsidiaries, Parker Broadcasting of Dakota, LLC and Parker Broadcasting of Louisiana, LLC (collectively, the “Parker Acquisition”). Parker Broadcasting of Dakota, LLC owned certain non-license assets of KXJB-TV, which was affiliated with the CBS network and served the Fargo, North Dakota television market. Parker Broadcasting of Louisiana LLC owned certain non-license assets of KAQY-TV, which was affiliated with the ABC network and served the Monroe, Louisiana television market. On September 25, 2014, we completed the acquisition of the outstanding capital stock of Parker Broadcasting of Louisiana LLC and transferred the programing of KAQY-TV to KNOE-TV, a station owned by Gray that also serves the Monroe, Louisiana, television market. On December 1, 2014, we completed the acquisition of Parker Broadcasting of Dakota, LLC and transferred the programming of KXJB-TV to KVLY-TV, a station owned by us that also serves the Fargo, North Dakota television market. Upon the completion of the Parker Acquisition, the Parker Agreements were terminated.
The purchase price to complete the Parker Acquisition was $6.7 million, of which approximately $1.7 million was allocated to the Parker Broadcasting of Louisiana transaction and $5.0 million was allocated to the Parker Broadcasting of Dakota transaction. The purchase price to complete the Parker Acquisition was funded with a combination of cash from operations and borrowings under our 2014 Senior Credit Facility.
WQCW Acquisition
On April 1, 2014, we acquired the assets of WQCW-TV, Portsmouth, Ohio from Lockwood Broadcast Group (the "WQCW Acquisition"). WQCW-TV serves as the CW affiliate for the Charleston/ Huntington, West Virginia television market, where we own and operate WSAZ-TV, the market's NBC affiliate. The purchase price to complete the WQCW Acquisition was approximately $5.5 million, which was funded with cash from operations.
Helena Acquisition
On November 1, 2014, we acquired from Beartooth Communications Company the assets of KTVH-TV and KBGF-LD, which are NBC affiliates in the Helena, Montana and Great Falls, Montana television markets, respectively; and on December 1, 2014, we acquired from Rocky Mountain Broadcasting Company the assets of KMTF-TV the CW affiliate for the Helena, Montana market (together, the “Helena Acquisition”). Total purchase price for both acquisitions was approximately $1.9 million, which was funded with cash from operations.
Collectively, we refer to the stations acquired and retained in 2014as the “2014 Acquired Stations.”
The fair values of the acquired assets, assumed liabilities and the resulting goodwill from the 2014 Acquired Stations are summarized as follows (in thousands):
Acquisition | ||||||||||||||||||||||||||||
Hoak | SJL | KEVN | KNDX | Parker | WQCW | Helena | ||||||||||||||||||||||
Cash | $ | - | $ | - | $ | 615 | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
Accounts receivable | 10,722 | 7,132 | 569 | - | 765 | - | 14 | |||||||||||||||||||||
Other current assets | 509 | 1,946 | 96 | 39 | 964 | 45 | 49 | |||||||||||||||||||||
Property and equipment | 45,382 | 23,508 | 3,888 | 2,576 | 722 | 991 | 1,230 | |||||||||||||||||||||
Goodwill | 131,632 | 50,941 | 2,717 | 1,839 | 1,932 | 802 | 70 | |||||||||||||||||||||
Broadcast licenses | 91,958 | 86,685 | 1,675 | 500 | - | 3,691 | 146 | |||||||||||||||||||||
Other intangible assets | 35,386 | 10,091 | 1,786 | 2,584 | 3,163 | 15 | 431 | |||||||||||||||||||||
Other non-current assets | - | 253 | 29 | 15 | 16 | - | - | |||||||||||||||||||||
Current liabilities | (3,544 | ) | (4,936 | ) | (211 | ) | (36 | ) | (826 | ) | (45 | ) | (90 | ) | ||||||||||||||
Other long-term liabilities | - | (379 | ) | (38 | ) | (17 | ) | (5 | ) | - | - | |||||||||||||||||
Deferred income tax liabilities | (12,188 | ) | (43,712 | ) | (2,341 | ) | - | - | - | - | ||||||||||||||||||
Total | $ | 299,857 | $ | 131,529 | $ | 8,785 | $ | 7,500 | $ | 6,731 | $ | 5,499 | $ | 1,850 | ||||||||||||||
These amounts are based upon management’s 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, among other factors, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. Actual results may differ materially from these estimates.
Accounts receivable are recorded at their fair value that represents the amount we expect to collect. Gross contractual amounts receivable are approximately $0.3 million more than their recorded fair value.
Property and equipment are recorded at their fair value and are being depreciated over their estimated useful lives ranging from three years to 40 years.
The amount related to other intangible assets primarily represents the estimated fair values of retransmission agreements of $34.2 million; advertising client relationships of $13.1 million; and income leases of $4.1 million. These intangible assets are being amortized over the estimated remaining useful lives of 4.4 years for retransmission agreements; 5.5 years for advertising client relationships; and 8.3 years for income leases. We expect that goodwill of $88.6 million related to asset acquisitions and stock acquisitions that are treated as asset acquisitions based on the tax elections made relating to the 2014 Acquired Stations will be deductible for tax purposes. As described above, no fair value was separately allocated to the acquired network affiliation agreements in our 2014 Acquired Stations.
In connection with acquiring the 2014 Acquired Stations, we incurred transaction costs totaling $6.2 million that are included in our corporate and administrative expenses in the year ended December 31, 2014.
Unaudited Pro Forma Financial Information
Pro Forma Data – 2017Acquisitions Completed in 2016.
The following table sets forth certain unaudited pro forma information for the yearsyear ended December 31, 2016 and 2015 2017 assuming that the acquisitions completed in 20162017 occurred on January 1, 20152017 (in thousands,millions, except per share data):
Years Ended | Years Ended | |||||||||||
December 31, | December 31, | |||||||||||
2016 | 2015 | 2017 | ||||||||||
Revenue (less agency commissions) | $ | 825,787 | $ | 701,550 | $ | 895 | ||||||
Net income | $ | 57,795 | $ | 39,360 | $ | 261 | ||||||
Basic net income per share | $ | 0.80 | $ | 0.58 | $ | 3.57 | ||||||
Diluted net income per share | $ | 0.79 | $ | 0.57 | $ | 3.53 | ||||||
This pro forma financial information is based on Gray’s historical results of operations and the historical results of operations of the stations acquiredacquisitions completed in 2016,2017, adjusted for the effect of fair value estimates and other acquisition accounting adjustments, and is not necessarily indicative of what our results would have been had we acquired each of the stations acquired in 20162017 on January 1, 20152017 or on any other historical date, nor is it reflective of our expected results of operations for any future period. The pro forma adjustments for the yearsyear ended December 31, 2016 and 2015 reflect depreciation expense and amortization of finite-lived intangible assets related to the fair value of the assets acquired, and the related tax effects of the adjustments. This pro forma financial information has been prepared based on estimates and assumptions that we believe are reasonable as of the date hereof, and are subject to change based on, among other things, changes in the fair value estimates or underlying assumptions.
Pro Forma Data -2015 Acquisitions
The following table sets forth certain unaudited pro forma information for the years ended December 31, 2015 and 2014 assuming that the 2015 Acquisitions occurred on January 1, 2014 (in thousands, except per share data):
Years Ended | ||||||||
December 31, | ||||||||
2015 | 2014 | |||||||
Revenue (less agency commissions) | $ | 621,530 | $ | 559,538 | ||||
Net income | $ | 46,181 | $ | 59,342 | ||||
Basic net income per share | $ | 0.68 | $ | 1.03 | ||||
Diluted net income per share | $ | 0.67 | $ | 1.02 | ||||
This pro forma financial information is based on Gray’s historical results of operations and the 2015 Acquisitions’ historical results of operations, adjusted for the effect of fair value estimates and other acquisition accounting adjustments, and is not necessarily indicative of what our results would have been had we completed each of the 2015 Acquisitions on January 1, 2014 or on any other historical date, nor is it reflective of our expected results of operations for any future period. The pro forma adjustments for the years ended December 31, 2015 and 2014 2017 reflect depreciation expense and amortization of finite-lived intangible assets related to the fair value of the assets acquired, and the related tax effects of the adjustments. This pro forma financial information has been prepared based on estimates and assumptions that we believe are reasonable as of the date hereof, and are subject to change based on, among other things, changes in the fair value estimates or underlying assumptions.
In connection with completing the 2015 Acquisitions, we incurred a total of $6.5 million of transaction related costs in 2015, primarily related to legal, consulting and other professional services.
Net revenues and operating income of the businesses acquired in the 2015 Acquisitions included in our audited consolidated statements of operations for the year ended December 31, 2015 were $23.2 million and $8.6 million, respectively.
Pro Forma Data - Hoak Acquisition and SJL Acquisition
The following table sets forth certain unaudited pro forma results of operations of the Company for the year ended December 31, 2014 assuming that the Hoak Acquisition and the SJL Acquisition, along with transactions necessary to finance the Hoak Acquisition and the SJL Acquisition, occurred on January 1, 2013 (in thousands, except per share data):
Year Ended December 31, 2014 | ||||
Revenue (less agency commissions) | $ | 565,251 | ||
Net income | $ | 50,771 | ||
Basic net income per share | $ | 0.88 | ||
Diluted net income per share | $ | 0.87 | ||
This pro forma financial information is based on each of Gray’s, Hoak’s and SJL’s historical results of operations, adjusted for the effect of fair value estimates and other acquisition accounting adjustments, and is not necessarily indicative of what our results would have been had we completed each of the Hoak Acquisition, the SJL Acquisition and the related financing transactions on January 1, 2013 or on any other historical date, nor is it reflective of our expected results of operations for any future period. The pro forma adjustments for the year ended December 31, 2014 reflect depreciation expense and amortization of finite-lived intangible assets related to the fair value of the assets acquired, additional interest expense related to the financing of each of the Hoak Acquisition and the SJL Acquisition and the related tax effects of the adjustments. This pro forma financial information has been prepared based on estimates and assumptions that we believe are reasonable as of the date hereof, and are subject to change based on, among other things, changes in the fair value estimates or underlying assumptions.
In connection with completing the Hoak Acquisition and SJL Acquisition, in 2014 we incurred a total of $5.1 million of transaction related costs, primarily related to legal, consulting and other professional services.
Net revenues and operating income of the businesses acquired in the Hoak Acquisition and the SJL Acquisition included in our audited consolidated statements of operations for the year ended December 31, 2014 were $64.7 million and $25.8 million, respectively.
Pro forma financial information for the following stations acquired in 2014 is not included as such information is not material to our financial statements : the KEVN Acquisition; the KNDX Acquisition; the Parker Acquisition; the WQCW Acquisition and the Helena Acquisition.
3. Long-term Debt
4. | Long-term Debt |
As of December 31, 2016 and 2015, as applicable, 2019, long-term debt consisted of obligations under our 20142019 Senior Credit Facility our 7½% senior notes due 2020 (the “2020 Notes”)(as defined below), our 5.125% senior notes due 2024 (the “2024“2024 Notes”) and our 5.875% senior notes due 2026 (the “2026“2026 Notes”) and our 7.0% senior notes due 2027 (the “2027 Notes”). As of December 31, 2018, long-term debt primarily consisted of obligations under our 2017 Senior Credit Facility (as defined below), our 2024 Notes, our 2026 Notes and our 2027 Notes as follows (in thousands)millions):
December 31, | December 31, | |||||||||||||||
2016 | 2015 | 2019 | 2018 | |||||||||||||
Long-term debt including current portion: | ||||||||||||||||
2014 Senior Credit Facility | $ | 556,438 | $ | 556,438 | ||||||||||||
2020 Notes | - | 675,000 | ||||||||||||||
2017 Term Loan | $ | 595 | $ | 595 | ||||||||||||
2019 Term Loan | 1,190 | - | ||||||||||||||
2024 Notes | 525,000 | - | 525 | 525 | ||||||||||||
2026 Notes | 700,000 | - | 700 | 700 | ||||||||||||
2027 Notes | 750 | 750 | ||||||||||||||
Total outstanding principal | 1,781,438 | 1,231,438 | 3,760 | 2,570 | ||||||||||||
Unamortized deferred loan costs - 2014 Senior Credit Facility | (12,158 | ) | (6,136 | ) | ||||||||||||
Unamortized deferred loan costs - 2020 Notes | - | (9,317 | ) | |||||||||||||
Unamortized deferred loan costs - 2017 Term Loan | - | (9 | ) | |||||||||||||
Unamortized deferred loan costs - 2019 Term Loan | (44 | ) | - | |||||||||||||
Unamortized deferred loan costs - 2024 Notes | (7,742 | ) | - | (5 | ) | (6 | ) | |||||||||
Unamortized deferred loan costs - 2026 Notes | (10,588 | ) | - | (7 | ) | (8 | ) | |||||||||
Unamortized premium - 2020 Notes | - | 4,099 | ||||||||||||||
Unamortized deferred loan costs - 2027 Notes | (11 | ) | (2 | ) | ||||||||||||
Unamortized premium - 2026 Notes | 5,797 | - | 4 | 4 | ||||||||||||
Long-term debt, less deferred financing costs | 3,697 | 2,549 | ||||||||||||||
Less current portion | - | - | ||||||||||||||
Net carrying value | $ | 1,756,747 | $ | 1,220,084 | $ | 3,697 | $ | 2,549 | ||||||||
Borrowing availability under the Revolving Credit Facility | $ | 60,000 | $ | 50,000 | ||||||||||||
Borrowing availability under Revolving Credit Facility | $ | 200 | $ | 100 | ||||||||||||
On February 7, 2017, GrayIn connection with the Raycom Merger, on January 2, 2019, we amended our senior credit facility (the “2017 Credit Facility” and, restatedas amended, the 2014 Senior Credit Facility (the “2017“2019 Senior Credit Facility”) to, among other things, reduceas follows: (1) we replaced our interest rate under the term loan to LIBOR plus 2.50%, increase our availability under theexisting $100 million revolving credit facility from $60.0 million to $100.0 million, and extend the maturity of theunder our prior senior credit facility with a new five year revolving credit facility (the “2019 Revolving Credit Facility”), the terms of which provide for up to $200 million in available borrowings and a maturity date of January 2, 2024; (2) we incurred a $1.4 billion term loan (the “2019 Term Loan”), which matures on January 2, 2026; and (3) assumed the outstanding $556 million term loan facility (the “2017 Initial Term Loan”) and $85 million incremental term loan (the “2017 Incremental Term Loan” and, together with the 2017 Initial Term Loan, the “2017 Term Loan”) which mature on February 7, 2024. Since the Raycom Merger was not completed by December 15, 2018, we incurred a ticking fee of $1 million at a rate of 1.25% of the 2019 Term Loan amount, from December 16, 2018 to 2022January 2, 2019. In addition, we assumed $750 million of the 2027 Notes, which were issued by our special purpose, wholly-owned subsidiary on November 16, 2018. The proceeds of the 2019 Term Loan and 2024, respectively. See Note 11 “Subsequent Events” for more information on the 2017 Senior Credit Facility.2027 Notes were used to fund a portion of the cash consideration payable in the Raycom Merger.
Prior to
Borrowings under the entry2019 Term Loan bear interest, at our option, at either the London Interbank Offered Rate (“LIBOR”) or the Base Rate, in to the 2017 Senior Credit Facility, the 2014 Senior Credit Facility consistedeach case, plus an applicable margin of a revolving loan2.5% for LIBOR borrowings and a term loan. Excluding accrued interest, the amount outstanding under our 2014 Senior Credit Facility as1.5% for Base Rate borrowings. As of December 31, 2016 and 2015 consisted solely of a term loan balance of $556.4 million. As of December 31, 2016 and 2015, 2019, the interest rate on the balance outstanding under the 2014 Senior Credit Facility2019 Term Loan was 3.9% and 3.8%, respectively.4.2%. The 2019 Term Loan matures on January 2, 2026.
In connection withBorrowings under the consummation of2017 Term Loan bear interest, at our option, at either the Schurz AcquisitionLIBOR or the Base Rate (as defined below), in each case, plus an applicable margin. Currently, the applicable margin is 2.25% for LIBOR borrowings and Related Transactions, effective February 16, 2016, we entered into1.25% for Base Rate borrowings. The applicable margin is determined quarterly based on our leverage ratio as set forth in the Second Amendment and Incremental Facility Agreement to our 20142019 Senior Credit Facility (the “Second Amendment”“Leverage Ratio”). PursuantIf our Leverage Ratio is less than or equal to this Second Amendment, we borrowed $425.0 million5.25 to 1.00, the applicable margin is 2.25% for all LIBOR borrowings and 1.25% for all Base Rate borrowings, and if the Leverage Ratio is greater than 5.25 to 1.00, the applicable margin is 2.5% for all LIBOR borrowings and 1.5% for all Base Rate borrowings. As of December 31, 2019, the interest rate on the balance outstanding under the 20162017 Term Loan was 3.95%. The 2017 Term Loan matures on February 7, 2024.
Borrowings under the 2019 Revolving Credit Facility currently bear interest, at our option, at either LIBOR plus the applicable margin or Base Rate plus the applicable margin, in each case based on a first lien leverage ratio test as set forth in the 2019 Senior Credit Facility (the “First Lien Leverage Ratio”). Base Rate is defined as the greatest of (i) the administrative agent’s prime rate, (ii) the overnight federal funds rate plus 0.50% or (iii) LIBOR plus 1.50%. We are required to fundpay a commitment fee on the average daily unused portion of the purchase price2019 Revolving Credit Facility, which may range from 0.375% to 0.50% on an annual basis, based on the First Lien Leverage Ratio. The 2019 Revolving Credit Facility matures on January 2, 2024.
We incurred $43 million of transaction fees and expenses related to the Schurz Acquisition. The Second Amendment also increased our availability under the 20142019 Senior Credit Facility by $10.0 million toFacility. At December 31, 2019, these were recorded as a totalreduction of $60.0 million.
On June 14, 2016, we completed the private placement of $500.0 million of our 2026 Notes (the “Original 2026 Notes”), at par. We used a portion of the proceeds of the Original 2026 Notes to repay the outstanding balance of the 2016 Term Loan, accrued interest thereon,outstanding debt and transaction related fees and expenses. On September 14, 2016, we completedare amortized over the private placement of an additional $200.0 million of our 2026 Notes (the “Additional 2026 Notes”). The Additional 2026 Notes were issued at a price of 103.0%, resulting in aggregate gross proceeds of approximately $206.0 million, plus accrued and unpaid interest from and including June 14, 2016. The Additional 2026 Notes are an additional issuance of, rank equally with and form a single series with the Original 2026 Notes. The 2026 Notes mature on July 15, 2026. Interest is payable semiannually, on January 15 and July 15 of each year.
Also on September 14, 2016, we completed the private placement of $525.0 million of our 2024 Notes, at par. The 2024 Notes mature on October 15, 2024. Interest is payable semiannually, on April 15 and October 15 of each year, commencing on April 15, 2017.
We used a portionlife of the proceeds from the sale2019 Senior Credit Facility. The amortization of the 2026 Additional Notes and the 2024 Notes to complete the Tender Offer (discussed below). We used the remaining proceeds and cash on hand to redeem the 2020 Notes that remained outstanding after the completion of the Tender Offer.these fees is included in our interest expense.
As of December 31, 2016, we had $700.0 million2019, the aggregate minimum principal maturities of 2026 Notes outstanding and $525.0 million of 2024 Notes outstanding. The interest rate and yield on the Original 2026 Notesour long term debt were each 5.875%. The interest rate and yield on the Additional 2026 Notes were 5.875% and 5.398%, respectively. The interest rate and yield on the 2024 Notes were 5.125%.as follows (in millions):
In September 2016, we purchased approximately $431.2 million in aggregate principal amount of the 2020 Notes validly tendered in connection with a previously announced cash tender offer (the “Tender Offer”).
Minimum Principal Maturities | ||||||||||||||||||||
2019 Senior | 2024 | 2026 | 2027 | |||||||||||||||||
Year | Credit Facility | Notes | Notes | Notes | Total | |||||||||||||||
2020 | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
2021 | - | - | - | - | - | |||||||||||||||
2022 | - | - | - | - | - | |||||||||||||||
2023 | - | - | - | - | - | |||||||||||||||
2024 | 595 | 525 | - | - | 1,120 | |||||||||||||||
Thereafter | 1,190 | - | 700 | 750 | 2,640 | |||||||||||||||
Total | $ | 1,785 | $ | 525 | $ | 700 | $ | 750 | $ | 3,760 | ||||||||||
Also in September 2016, and following the completion of the Tender Offer, we satisfied and discharged our obligations under the indenture governing the remaining 2020 Notes outstanding by depositing with the trustee thereunder the redemption price of 103.75% of the principal amount thereunder, plus accrued and unpaid interest to, but not including, the date of redemption (the “Redemption”).
In connection with the completion of the Tender Offer and the Redemption, we recorded a loss from early extinguishment of debt of approximately $32.0 million ($19.5 million net of tax) in year ended December 31, 2016 consisting of Tender Offer premiums of $18.2 million, redemption premiums of $9.1 million, the write off of unamortized deferred financing costs of $8.0 million and the payment of approximately $0.2 million in legal and other professional fees; partially offset by the recognition of un-accreted net premium of $3.5 million.
Collateral, Covenants and RestrictionsRestrictions.
Our obligations under the 20172019 Senior Credit Facility are secured by substantially all of theour consolidated assets, of Gray and substantially all of our subsidiaries, excluding real estate. In addition, substantially all of our subsidiaries are joint and several guarantors of, and our ownership interests in those subsidiaries are pledged to collateralize, our obligations under the 20172019 Senior Credit Facility. Gray Television, Inc. is a holding company, with and has no material independent assets or operations. For all applicable periods, the 2024 Notes, 2026 Notes and 20242027 Notes have been fully and unconditionally guaranteed, on a joint and several, senior unsecured basis, by substantially all of Gray Television, Inc.'s’s subsidiaries. Any subsidiaries of Gray Television, Inc. that do not guarantee the 2024 Notes, 2026 Notes and 2027 Notes are minor. As of December 31, 2016, 2019, there were no significant restrictions on the ability of Gray Television, Inc.'s subsidiaries to distribute cash to Gray or to the guarantor subsidiaries.
The 20172019 Senior Credit Facility contains affirmative and restrictive covenants with which we must comply, including: (a) limitations on additional indebtedness;indebtedness, (b) limitations on liens;liens, (c) limitations on the sale of assets;assets, (d) limitations on guarantees;guarantees, (e) limitations on investments and acquisitions;acquisitions, (f) limitations on the payment of dividends and share repurchases;repurchases, (g) limitations on mergers;mergers and (h) maintenance of a first lien leverage ratio not to exceed certain maximum limitsthe First Lien Leverage Ratio while any amount is outstanding under the revolving credit facility, as well as other customary covenants for credit facilities of this type. The 2024 Notes, 2026 Notes and 20242027 Notes include covenants with which we must comply which are typical for borrowing transactions of their nature. As of December 31, 2016 2019 and 2015,2018, we were in compliance with all required covenants under all our debt obligations.
We may redeem some or all of the 2026 Notes at any time after July 15, 2021 at specified redemption prices. We may also redeem up to 35% of the aggregate principal amount of the 2026 Notes using the proceeds from certain equity offerings completed before July 15, 2019. In addition, we may redeem some or all of the 2026 Notes at any time prior to July 15, 2021 at a price equal to 100% of the principal amount thereof plus a make whole premium, and accrued but unpaid interest. If we sell certain of our assets or experience specific kinds of changes of control, we must offer to repurchase the 2026 Notes.
We may redeem some or all of the 2024 Notes at any time after October 15, 2019 at specified redemption prices. We may also redeem up to 35% of the aggregate principal amount of the 2024 Notes using the proceeds from certain equity offerings completed before October 15, 2019. In addition, we may redeem some or all of the 2024 Notes at any time prior to October 15, 2019 at a price equal to 100% of the principal amount thereof plus a make whole premium, and accrued and unpaid interest. If we sell certain of our assets or experience specific kinds of changes of control, we must offer to repurchase the 2024 Notes.
Maturities
Aggregate minimum principal maturities on long-term debt as of December 31, 2016 were as follows (in thousands):
Minimum Principal Maturities | ||||||||||||||||
2014 Senior | 2024 | 2026 | ||||||||||||||
Year | Credit Facility (1) | Notes | Notes | Total | ||||||||||||
2017 | $ | - | $ | - | $ | - | $ | - | ||||||||
2018 | - | - | - | - | ||||||||||||
2019 | - | - | - | - | ||||||||||||
2020 | - | - | - | - | ||||||||||||
2021 | 556,438 | - | - | 556,438 | ||||||||||||
Thereafter | - | 525,000 | 700,000 | 1,225,000 | ||||||||||||
Total | $ | 556,438 | $ | 525,000 | $ | 700,000 | $ | 1,781,438 | ||||||||
|
|
Interest Payments
. For all of our interest bearinginterest-bearing obligations, we made interest payments of approximately $76.2$212 million, $76.9$95 million and $61.9$97 million during 2016, 20152019,2018 and 2014,2017, respectively. We did not capitalize any interest payments during the years ended December 31, 2016, 20152019, 2018 or 2014.
2017.
4. Fair Value Measurement
5. | Fair Value Measurement |
For purposes of determining a fair value measurement, we utilize market data or assumptions that market participants would use in pricing an asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized into a hierarchy that gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (“Level 1”) and the lowest priority to unobservable inputs that require assumptions to measure fair value (“Level 3”). Level 2 inputs are those that are other than quoted prices on national exchanges included within Level 1 that are observable for the asset or liability either directly or indirectly (“Level 2”).
Fair Value of Financial Instruments
.
The estimated fair value of financial instruments is determined using market information and appropriate valuation methodologies. Interpreting market data to develop fair value estimates involves considerable judgment. The use of different market assumptions or methodologies could have a material effect on the estimated fair value amounts. Accordingly, the estimates presented are not necessarily indicative of the amounts that we could realize in a current market exchange, or the value that ultimately will be realized upon maturity or disposition.
The carrying amounts of the following instruments approximate fair value due to their short term to maturity: (i) accounts receivable, (ii) prepaid and other current assets, (iii) accounts payable, (iv) accrued employee compensation and benefits, (v) accrued interest, (vi) other accrued expenses (vii) acquisition-related liabilities and (viii)(vii) deferred revenue.
TheAs of December 31, 2019, the carrying amount of our long-term debt was $3.7 billion and the fair value was $3.9 billion. As of December 31, 2018, the carrying amount of our long-term debt was $2.5 billion and the fair value was $2.4 billion. Fair value of our long-term debt were each $1.8 billionis based on observable estimates provided by third-party financial professionals and as December 31, 2016 and $1.2 billion as of December 31, 2015. We classify our long-term debtsuch is classified within Level 2 of the fair value hierarchy.
5. Stockholders’ Equity
6. | Stockholders’ Equity |
We are authorized to issue 135245 million shares of all classes of stock, of which 1525 million shares are designated Class A common stock, 100200 million shares are designated common stock, and 20 million shares are designated “blank check” preferred stock for which our Board of Directors has the authority to determine the rights, powers, limitations and restrictions. The rights of our common stock and Class A common stock are identical, except that our Class A common stock has 10 votes per share and our common stock has one1 vote per share. Our common stock and Class A common stock are entitled to receive cash dividends if declared, on an equal per-share basis. For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, we did not declare or pay any common stock or Class A common stock dividends.
On March 31, 2015, In December 2017, we completed an underwritten public offering of 13.517.25 million shares of our common stock at a price to the public of $13.00$14.50 per share pursuant to an effective shelf registration statement.share. The net proceeds from the offering were $167.3$239 million, after deducting underwriting discounts of $7.5$11 million and expenses of $0.9million.We used$1 million.
On January 2, 2019, we issued 11.5 million shares of our common stock at a price of $14.74 per share, the net proceeds fromclosing price for our common stock on the offeringlast trading day preceding the transaction, to pay a significant portioncertain former shareholders of Raycom as part of the total consideration to acquirepaid for the 2015 Acquired Stations.Raycom Merger.
In each of March and On November 2004, the5, 2019, our Board of Directors of the Company authorized the Company to2019 Repurchase Authorization. The 2019 Repurchase Authorization superseded all prior repurchase up to 2.0 million shares of the Company's common stock and Class A common stock. In March 2006, this authorization was increased to an aggregate of 5.0 million shares (the “2004-2006authorizations. The 2019 Repurchase Authorization”). As of December 31, 2016, 279,200 shares remain available for repurchase under this authorization, which has no expiration date.
On November 6, 2016, the Board of Directors of the Company authorized the Company to purchase up to an additional $75.0 million of our outstanding common stock prior to December 31, 2019 (the “2016 Repurchase Authorization”).
The extent to which the Company repurchases any of its shares, the number of shares and the timing of any repurchases will depend on general market conditions, regulatory requirements, alternative investment opportunities and other considerations. The Company is not required to repurchase a minimum number of shares thereunder, and the repurchase authorizations may be modified, suspended or terminated at any time without prior notice.
The 2016 Repurchase Authorization also prohibits the Company from purchasing shares directly from the Company’s officers, directors, or the Gray Television, Inc. Capital Accumulation Plan (401K plan)(the “401k Plan”). During the fourth quarter of 2016, under the 2016 Repurchase Authorization, year ended December 31, 2019, we purchased192,183purchased 1,659,684 shares of our common stock at an average purchase price of$10.38of $19.10 per share orunder the 2019 Repurchase Authorization and our prior repurchase authorizations, for a total cost of $2.0approximately $32 million. As of December 31, 2016, $73.02019, approximately $129 million remains available to purchaserepurchase shares of our common stock and/or Class A common stock under the 20162019 Repurchase Authorization.
On December 15, 2019, we entered into an Issuer Repurchase Plan (the “2019 IRP”), under Rules 10B-18 and 10b5-1 of the Securities Exchange Act of 1934. The purpose of the 2019 IRP is to facilitate the orderly repurchase of our common stock through the establishment of the parameters for repurchases of our shares. The number of shares and the timing of repurchases will depend on the market price of our common stock and certain other limits established in the 2019 IRP. The Company is required to fund the repurchases under the 2019 IRP from the remaining balance of the 2019 Repurchase Authorization.
Under our various employee benefit plans, we may, at our discretion, issue authorized and unissued shares, or previously issued shares held in treasury, of our Class A common stock or common stock. As of December 31, 2016, 2019, we had reserved 5,449,1486,130,944 shares and 257,5811,503,254 shares of our common stock and Class A common stock, respectively, for future issuance under various employee benefit plans. As of December 31, 2015, 2018, we had reserved 5,689,2197,078,916 shares and 476,1931,703,064 shares of our common stock and Class A common stock, respectively, for future issuance under various employee benefit plans.
7. | Preferred Stock |
In connection with the Raycom Merger, on January 2, 2019, we issued 650,000 shares of our Series A Perpetual Preferred Stock, with a stated face value and liquidation value of $1,000 per share (the “Series A Preferred Stock”). Holders of shares of the Series A Preferred Stock are entitled to receive mandatory and cumulative dividends paid quarterly in cash or, at the Company’s option, paid quarterly in kind by issuance of additional shares of Series A Preferred Stock. The per-share amount of such quarterly mandatory and cumulative dividends will be calculated by multiplying the face value by 8% per annum if the dividends are to be paid in cash or 8.5% per annum if such dividends are to be paid in additional shares of Series A Preferred Stock (“PIK Election Dividends”). If the Company elects to pay any portion of accrued dividends with PIK Election Dividends, it will be prohibited from repurchasing, redeeming or paying dividends on any stock that is junior to the Series A Preferred Stock through the end of that quarter and the subsequent two quarters, subject to certain exceptions.
With respect to the payment of dividends, the Series A Preferred Stock will rank senior to all classes and series of our common stock and all other equity securities designated as ranking junior to the Series A Preferred Stock, and no new issuances of common or preferred stock will rank on a parity with, nor senior to, the Series A Preferred Stock.
All or any portion of the outstanding Series A Preferred Stock may be redeemed at the Company’s option at any time, upon written notice to the holders of Series A Preferred Stock at least 30 and not more than 60 days prior to the date of such optional redemption. The per-share redemption price for Series A Preferred Stock will be equal to the sum of the liquidation value and the per-share amount of any unpaid dividends for the current quarterly dividend period, up to and including the date of redemption. Holders of shares of Series A Preferred Stock redeemed will be paid in cash.
The Series A Preferred Stock is also subject to mandatory redemption upon the occurrence of certain change of control transactions or upon the sale or other disposition of all or substantially all of our assets. The holders of Series A Preferred Stock do not have any right to exchange or convert the shares into any other securities.
In general, the holders of the Series A Preferred Stock do not have any voting rights except as set forth in the terms of the Series A Preferred Stock or as otherwise required by law, in which case, each share of Series A Preferred Stock will be entitled to one vote.
The approval of the holders of the Series A Preferred Stock, voting separately as a class, is required in order to authorize, create or issue new shares of Series A Perpetual Preferred stock (other than to pay dividends), or alter the rights of any other shares that are or would be equal to or senior to the Series A Preferred Stock, or to amend, alter or repeal the Company’s Restated Articles of Incorporation as amended from time to time if such amendment, alteration or repeal adversely affects the powers, preferences or special rights of the Series A Preferred Stock.
The Series A Preferred Stock does not have preemptive rights as to any of our other securities, or any warrants, rights, or options to acquire any of our securities.
In the event that the Company voluntarily or involuntarily liquidates, dissolves or winds up its affairs, holders of Series A Preferred Stock will be entitled to receive for each share of Series A Preferred Stock, out of the Company’s assets or proceeds thereof available for distribution to shareholders, subject to the rights of any creditors, payment in full in an amount equal to the liquidation value and the per-share amount of any unpaid dividends for the current quarterly dividend period. Holders of Series A Preferred Stock would be entitled to receive this amount before any distribution of assets or proceeds to holders of our common stock and any other stock whose rights are junior to the Series A Preferred Stock. If in any distribution described above, our assets are not sufficient to pay in full the amounts payable with respect to the outstanding shares of Series A Preferred Stock or any stock whose rights are equal to the Series A Preferred Stock, holders of the Series A Preferred Stock would share ratably in any such distribution in proportion to the full respective distributions to which they are entitled. Shareholders are not subject to further assessments on their shares of the New Preferred Stock.
6. Stock-Based Compensation
8. | Stock-Based Compensation |
We recognize compensation expense for stock-based payment awards made to our employees, consultants and directors, including stock optionsdirectors. Our active stock-based compensation plans include our 2017 Equity and restricted shares underIncentive Compensation Plan (the “2017 EICP”); our 2007 Long Term Long-Term Incentive Plan, as amended (the “2007“2007 Incentive Plan”),; and our Directors’ Restricted Stock Plan (as defined below).Plan. The following table presents our stock-based compensation expense and related income tax benefits for the years ended December 31, 2016, 20152019, 2018 and 20142017 (in thousands)millions):
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2019 | 2018 | 2017 | |||||||||||||||||||
Stock-based compensation expense, gross | $ | 5,099 | $ | 4,019 | $ | 5,012 | $ | 16 | $ | 7 | $ | 8 | ||||||||||||
Income tax benefit at our statutory rate associatedwith stock-based compensation | (1,989 | ) | (1,567 | ) | (1,955 | ) | ||||||||||||||||||
Income tax benefit at our statutory rate associated with stock-based compensation | (4 | ) | (2 | ) | (3 | ) | ||||||||||||||||||
Stock-based compensation expense, net | $ | 3,110 | $ | 2,452 | $ | 3,057 | $ | 12 | $ | 5 | $ | 5 | ||||||||||||
Currently, the 2017 EICP provides for, and, while awards were available for grant thereunder the 2007Long Term Incentive Plan
The 2007 Incentive Plan provides provided for, the grant of incentive stock options, nonqualified stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, and performance awards to acquire shares of our Class A common stock or common stock, or other awards based on our performance. Under the Directors’ Restricted Stock Plan, each director can be awarded up to 10,000 shares of restricted common stock or Class A common stock oreach calendar year. During the receipt of other awards based on our performance, to our employees and non-employee directors.
We recognize the fair value of stock options granted on the date of grant as compensation expense, and such expense is amortized over the vesting period of the stock option. The 2007 Incentive Plan allows us to grant share-based awards for up to 6.0 million shares of stock, with not more than 1.0 million out of that 6.0 million being Class A common stock and the remaining shares being common stock. As of years ended December 31, 2016, 3.9 million shares of our common stock2019, 2018 and 0.3 million shares of our Class A common stock were available for issuance2017, we did not grant any awards under the 2007 IncentiveDirectors’ Restricted Stock Plan. SharesAll shares of common stock and Class A common stock underlying outstanding options, restricted stock units and performance awards are counted as issued under the 2007 Incentive Plan. Under2017 EICP, the 2007 Incentive Plan and the Directors’ Restricted Stock Plan for purposes of determining the number of shares available for future issuance.
During 2019, we granted under the 2017 EICP:
● | 99,905 shares of restricted Class A common stock with a grant date fair value per share of $15.36 to an employee, of which 33,302 shares will vest on each of January 31, 2020 and 2021 and 33,301 shares will vest on January 31, 2022; |
● | 99,905 shares of restricted Class A common stock with a grant date fair value per share of $15.36 to an employee, subject to the achievement of certain performance measures, which will vest on January 31, 2022; |
● | 340,993 shares of restricted common stock with a grant date fair value per share of $14.85 to certain employees that will vest on January 2, 2021; |
● | 277,048 shares of restricted common stock with a grant date fair value of $16.55 to certain employees, of which 92,349 shares will vest on each of January 31, 2020 and 2021, and 92,350 shares will vest on January 31, 2022; |
● | 48,338 shares of restricted common stock with a grant date fair value per share of $16.55 to an employee, subject to the achievement of certain performance measures, which will vest on January 31, 2022; |
● | 11,223 shares of restricted common stock with a grant date fair value per share of $17.83 to an employee that will vest on February 15, 2020; |
● | 32,680 shares of restricted common stock with a grant date fair value per share of $15.92 to an employee that will vest on September 1, 2020; |
● | 41,181 shares of restricted common stock with a grant date fair value per share of $22.10 to our non-employee directors that will vest on April 30, 2020; and |
● | Restricted stock units representing 398,000 shares of our common stock with a grant date fair value per share of $18.21 that will vest on June 1, 2020. |
During 2018, we granted under the 2017 EICP:
● | 110,040 shares of restricted Class A common stock with a grant date fair value per share of $12.65 to an employee, of which 36,680 shares vested on February 28, 2019, and 36,680 shares will vest on each of February 28, 2020 and 2021; |
● | 110,040 shares of restricted Class A common stock with a grant date fair value per share of $12.65 to an employee, subject to the achievement of certain performance measures, which will vest on February 28, 2021; |
● | 318,196 shares of restricted common stock with a grant date fair value per share of $15.25 to certain employees; net of forfeitures, 131,106 shares vested on February 28, 2019; 69,651 shares will vest on February 28, 2020; and 69,652 shares will vest on February 28, 2021; and |
● | 73,640 shares of restricted common stock to our non-employee directors, all of which will vest on May 31, 2019. |
During 2017, we granted:
● | Under the 2007 Incentive Plan, 307,943 shares of restricted common stock to certain employees, of which 102,648 shares vested on January 31, 2018; 102,648 shares vested on January 31, 2019; and 102,647 shares vested on January 31, 2020; |
● | Under the 2007 Incentive Plan, 198,220 shares of restricted Class A common stock to an employee, of which 66,073 shares vested on January 31, 2018; 66,073 shares vested on of January 31, 2019; and 66,074 shares vested on January 31, 2020; |
● | Under the 2017 EICP, 76,856 shares of restricted Class A common stock to our non-employee directors, all of which vested on January 31, 2018; and |
● | Under the 2017 EICP, restricted stock units representing 215,500 shares of our common stock, of which 209,500 shares vested on January 31, 2018. |
As of December 31, 2019, we had 3.7 million shares of our common stock and 1.5 million shares of our Class A common stock available for issuance under the 2017 EICP.
As of December 31, 2019 and 2018, we had outstanding options granted typically vest after a two to four-year periodacquire 274,746 shares of our common stock, all of which were vested and expire three to eight years after vesting. However, options will vest immediately upon a “change in control” as such term is defined inexercisable under the 2007 Incentive Plan. All outstanding options have beenwere granted with purchaseexercise prices that equal to the market value of the underlying stock at the close of business on the date of the grant.
During the year ended December 31, 2016, we granted 218,452 shares of restricted common stock to certain employees, of which 72,816 shares vested on January 31, 2017; 72,816 shares will vest on January 31, 2018; and 72,820 shares will vest on January 31, 2019. Also during the year ended December 31, 2016, we granted 166,677 shares of restricted Class A common stock to one employee, of which 55,559 shares vested on January 31, 2017, with the remainder to vest in equal amounts on each of January 31, 2018 and 2019. During the year ended December 31, 2016, we also granted 19,048 shares of restricted common stock to certain non-employee directors, which shares vested on January 31, 2017. Also the year ended December 31, 2016, we granted 51,935 shares of restricted Class A common stock to certain non-employee directors, which shares vested on January 31, 2017.
During the year ended December 31, 2015, we granted 150,308 shares of restricted common stock to our employees, of which 50,102 shares vested on January 31, 2016; 50,100 shares vested on January 31, 2017; and 50,106 shares will vest on January 31, 2018. Also during the year ended December 31, 2015, we granted 229,322 shares of restricted Class A common stock to our employees, of which 76,442 shares vested on each of January 31, 2016 and 2017; and 76,438 shares will vest on January 31, 2018. Also during the year ended December 31, 2015, we granted 58,191 shares of restricted Class A common stock to our non-employee directors, all of which vested on January 31, 2016.
During the year ended December 31, 2014, we granted 312,961 shares of restricted common stock to our employees, of which 68,991 shares vested on the date of grant; 127,316 shares vested on January 17, 2015; and 58,327 shares vested on each of January 17, 2016 and 2017. Also during the year ended December 31, 2014, we granted 194,413 shares of restricted Class A common stock to an employee, of which 31,821 shares vested on the date of grant; 75,412 shares vested on January 17, 2015; and 43,590 shares vested on each of January 17, 2016 and 2017. Also during the year ended December 31, 2014, we granted 41,881 shares of restricted Class A common stock to our non-employee directors, all of which vested on January 1, 2015.
A summary of restricted common stock activity for the years ended December 31, 2016, 2015 and 2014 under our 2007 Incentive Plan is as follows:
Year Ended December 31, | ||||||||||||||||||||||||
2016 | 2015 | 2014 | ||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Number | Grant Date | Number | Grant Date | Number | Grant Date | |||||||||||||||||||
of | Fair Value | of | Fair Value | of | Fair Value | |||||||||||||||||||
Shares | Per Share | Shares | Per Share | Shares | Per Share | |||||||||||||||||||
Restricted stock - common: | ||||||||||||||||||||||||
Outstanding - beginningof period | 337,506 | $ | 9.57 | 385,056 | $ | 9.09 | 274,838 | $ | 4.43 | |||||||||||||||
Granted | 237,500 | 12.88 | 150,308 | 10.27 | 312,961 | 11.78 | ||||||||||||||||||
Vested | (178,973 | ) | 8.46 | (197,858 | ) | 9.16 | (202,743 | ) | 6.93 | |||||||||||||||
Outstanding - end of period | 396,033 | $ | 12.06 | 337,506 | $ | 9.57 | 385,056 | $ | 9.09 | |||||||||||||||
A summary of restricted Class A common stock activity for the years ended December 31, 2016, 2015 and 2014 under our 2007 Incentive Plan is as follows:
Year Ended December 31, | ||||||||||||||||||||||||
2016 | 2015 | 2014 | ||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Number | Grant Date | Number | Grant Date | Number | Grant Date | |||||||||||||||||||
of | Fair Value | of | Fair Value | of | Fair Value | |||||||||||||||||||
Shares | Per Share | Shares | Per Share | Shares | Per Share | |||||||||||||||||||
Restricted stock - Class A common: | ||||||||||||||||||||||||
Outstanding - beginningof period | 374,693 | $ | 9.46 | 204,473 | $ | 9.81 | - | $ | - | |||||||||||||||
Granted | 218,612 | 11.25 | 287,513 | 9.37 | 236,294 | 9.80 | ||||||||||||||||||
Vested | (178,223 | ) | 10.04 | (117,293 | ) | 9.85 | (31,821 | ) | 9.75 | |||||||||||||||
Outstanding - end of period | 415,082 | $ | 10.15 | 374,693 | $ | 9.46 | 204,473 | $ | 9.81 | |||||||||||||||
At December 31, 2016, 2015 and 2014, we had 274,746 stock options outstanding. At December 31, 2016, 2015 and 2014, the number of stock options that were exercisable were 274,746, 206,604 and 137,376, respectively. The exercise price of all our outstanding stock options is $1.99 per share. All of our outstanding options expire on April 1, 2021. The aggregate intrinsic value of our outstanding stock options was $2.2approximately $5 million based on the closing market price of our common stock on December 31, 2016.2019. There are no shares available for future awards under this plan.
Directors’As of December 31, 2019, under the Directors Restricted Stock Plan
On May 14, 2003, our stockholders approved a restricted stock equity incentive plan for our Board of Directors (the “Directors’ Restricted Stock Plan”). We have reserved 1.0 million shares of our common stock for issuance under this plan and, as of December 31, 2016, there were 770,000 shares available for future award. Under the Directors’ Restricted Stock Plan, each director can be awarded up to 10,000 shares of restricted stock each calendar year. During the years ended December 31, 2016, 2015 and 2014, we did not grant any restricted stock awards under the Directors’ Restricted Stock Plan.
As of December 31, 2016, 2019, we had $2.3$11 million of total unrecognized compensation expense related to all non-vested share based compensation arrangements. TheThis expense is expected to be recognized over a period of 1.41.6 years.
A summary of activity for the years ended December 31, 2019, 2018 and 2017 under our stock based compensation plans is as follows:
Year Ended December 31, | ||||||||||||||||||||||||
2019 | 2018 | 2017 | ||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Number | Grant Date | Number | Grant Date | Number | Grant Date | |||||||||||||||||||
of | Fair Value | of | Fair Value | of | Fair Value | |||||||||||||||||||
Shares | Per Share | Shares | Per Share | Shares | Per Share | |||||||||||||||||||
Restricted stock - common: | ||||||||||||||||||||||||
Outstanding - beginning of period | 578,894 | $ | 13.14 | 503,685 | $ | 11.14 | 396,033 | $ | 12.06 | |||||||||||||||
Granted | 751,463 | 16.07 | 391,836 | 14.63 | 307,943 | 10.40 | ||||||||||||||||||
Vested | (352,810 | ) | 12.98 | (225,570 | ) | 11.21 | (200,291 | ) | 11.82 | |||||||||||||||
Forfeited | - | - | (91,057 | ) | 13.27 | - | - | |||||||||||||||||
Outstanding - end of period | 977,547 | $ | 15.45 | 578,894 | $ | 13.14 | 503,685 | $ | 11.14 | |||||||||||||||
Restricted stock - Class A common: | ||||||||||||||||||||||||
Outstanding - beginning of period | 407,786 | $ | 11.82 | 462,632 | $ | 10.63 | 415,082 | $ | 10.15 | |||||||||||||||
Granted | 199,810 | 15.36 | 220,080 | 12.65 | 275,076 | 10.84 | ||||||||||||||||||
Vested | (158,312 | ) | 11.38 | (274,926 | ) | 10.48 | (227,526 | ) | 10.00 | |||||||||||||||
Outstanding - end of period | 449,284 | $ | 13.55 | 407,786 | $ | 11.82 | 462,632 | $ | 10.63 | |||||||||||||||
Restricted stock units - common: | ||||||||||||||||||||||||
Outstanding - beginning of period | - | $ | - | 209,500 | $ | 15.70 | - | $ | - | |||||||||||||||
Granted | 398,000 | 18.21 | - | - | 215,500 | 15.70 | ||||||||||||||||||
Vested | - | - | (209,500 | ) | 15.70 | - | - | |||||||||||||||||
Forfeited | - | - | - | - | (6,000 | ) | 15.70 | |||||||||||||||||
Outstanding - end of period | 398,000 | $ | 18.21 | - | $ | - | 209,500 | $ | 15.70 | |||||||||||||||
9. | Leases |
7. Income Taxes
Operating Leases. We lease various assets with non-cancellable lease terms that range between one and 99 years. Many of these leases have optional renewal periods ranging between one and 20 years. We define the lease term as the original lease base period plus optional renewal periods that we reasonably expect to be exercised. We do not include renewal periods exercisable more than 10 years from the commencement date in the lease term as we cannot reasonably expect to exercise an option that far into the future. Some of our leases have free rent periods, tenant allowances and/or fixed or variable rent escalators. We record operating lease expense on a straight-line basis over the lease term. Operating lease expense is included in operating expenses in our statements of operations.
We lease land, buildings, transmission towers, right of way easements, and equipment through operating leases. We generally lease land for the purpose of erecting transmission towers for our broadcast operations. Our building leases consist of office space and broadcast studios. For transmission towers we do not own, we lease space for our transmission equipment on third-party towers. We lease right of ways for various purposes, including ingress and egress for tower locations and guyed wire space. Our equipment leases consist of office, transmission and production equipment.
We allocate consideration paid in the contract to lease and non-lease components based upon the contract or associated invoice received if applicable. Lease components include base rent, fixed rate escalators and in-substance fixed payments associated with the leased asset. Non-lease components include common area maintenance and operating expenses associated with the leased asset. We have not elected the practical expedient to combine lease and non-lease components. As such, we only include the lease component in the calculation of ROU asset and lease liability. The incremental borrowing rate we use for the calculation is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term based upon our borrower risk profile.
Variable lease payments are not significant and are included in operating lease expense as a component of operating expense in our statement of operations. Variable lease payments are generally associated with usage-based leases and variable payment escalators such as consumer price index increases (CPI) incurred after the date of the adoption of ASC 842. Some of our land leases require us to pay a percentage of the revenue earned from leasing space on the towers we erect on the leased land. We included the payment level of CPI and percentage rent amounts at the time of the adoption of ASC 842 in the base rent for calculating the ROU asset and lease liability. CPI adjustments and percentage rent amounts that differ from the amount included in ASC 842 calculation are included in variable lease payments.
We recognize leases with an initial term of 12 months or less as short-term leases. Lease payments associated with short-term leases are expensed as incurred in our operating lease expense and are not included in our calculation of ROU assets or lease liabilities. Short-term leases generally consist of rentals of production or broadcast equipment for short periods of time.
Our operating lease costs, including variable lease costs, for the year ended December 31, 2019 were $11 million. Our short-term lease costs for the year ended December 31, 2019 were $3 million. Cash flows from operations included cash paid for operating leases of $14 million for the year ended December 31, 2019. Additional ROU assets recognized in the year ended December 31, 2019 were not material. As of December 31, 2019, the weighted average remaining term of our operating leases was 8.9 years. The weighted average discount rate used to calculate the values associated with our operating leases was 6.7%.
The maturities of operating lease liabilities as of December 31, 2019, for the succeeding five years were as follows (in millions):
Year ending December 31, | Operating Leases | |||
2020 | $ | 9 | ||
2021 | 9 | |||
2022 | 8 | |||
2023 | 7 | |||
2024 | 7 | |||
Thereafter | 29 | |||
Total lease payments | 69 | |||
Less: Imputed interest | (18 | ) | ||
Present value of lease liabilties | $ | 51 | ||
We had no material capital leases as of December 31, 2018. Our aggregate minimum lease payments under operating leases as of December 31, 2018 were as follows (in millions):
Year ending December 31, | Operating Leases | |||
2019 | $ | 3 | ||
2020 | 3 | |||
2021 | 3 | |||
2022 | 3 | |||
2023 | 2 | |||
Thereafter | 12 | |||
Total | $ | 26 | ||
Our aggregate lease payments under operating leases as of December 31, 2018 are based on ASC 840that was superseded upon the adoption of ASC 842on January 1, 2019. Our maturities of operating lease liabilities as of December 31, 2019 was significantly higher than our aggregate lease payments under operating leases as of December 31, 2018 due primarily to our completion of the Raycom Merger on January 2, 2019.
Financing Leases. We lease certain vehicles through a financing master lease. The weighted average remaining lease term of the vehicles under this lease is 2.0 years. The interest rate for each vehicle leased is 3.5%. We recorded a ROU asset and lease liability of $2 million, respectively, upon the adoption of ASC 842 related to these financing leases. The ROU asset is recorded in other noncurrent assets in our balance sheets. The current portion of the lease liability is recorded in the balance of other accrued expenses in current liabilities and the long-term portion is recorded in the balance of other liabilities in non-current liabilities in our balance sheets.
Amortization expense associated with this lease is included in amortization expense as a component of operating expense, and interest expense is included in interest expense in our statement of operations. Amortization and interest expenses were not material for the year ended December 31, 2019. Cash paid for financing leases is included in our cash flows from financing activities and cash paid for interest on financing leases is included in our cash flow from operating activities.
For the year ended December 31, 2019, cash paid for amounts included in the measurement of liabilities for operating cash flows from finance leases and financing cash flows from finance leases, as well as ROU assets obtained in exchange for lease liabilities was not material.
10. | Income Taxes |
We recognize deferred tax assets and liabilities for future tax consequences attributable to differences between our financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. We recognize the effect on deferred tax assets and liabilities resulting from a change in tax rates in income in the period that includes the date of the change.
Under certain circumstances, we recognize liabilities in our financial statements for positions taken on uncertain tax issues.Whenissues.When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others may be subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-notmore-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits on the balance sheetsheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits are classified as income tax expense in the statement of operations.
Federal and state and local income tax expense (benefit) is summarized as follows (in thousands)millions):
Year Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Current: | ||||||||||||
Federal | $ | 8 | $ | 43 | $ | 5 | ||||||
State and local | 13 | 11 | 3 | |||||||||
State and local - reserve for uncertain tax positions | - | - | 1 | |||||||||
Current income tax expense | 21 | 54 | 9 | |||||||||
Deferred: | ||||||||||||
Federal(1) | 54 | 17 | (82 | ) | ||||||||
State and local | 1 | 6 | 4 | |||||||||
Deferred income tax expense (benefit) | 55 | 23 | (78 | ) | ||||||||
Total income tax expense (benefit) | $ | 76 | $ | 77 | $ | (69 | ) | |||||
(1) | Includes a federal tax benefit of $146.0 million in 2017 from the restatement of deferred taxes resulting from the reduction of the corporate tax rate due to the enactment of the TCJA. |
Year Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Current: | ||||||||||||
Federal | $ | - | $ | - | $ | - | ||||||
State and local | 2,730 | 1,259 | 996 | |||||||||
State and local - reserve for uncertain tax positions | (698 | ) | (581 | ) | (198 | ) | ||||||
Current income tax expense (benefit) | 2,032 | 678 | 798 | |||||||||
Deferred: | ||||||||||||
Federal | 38,214 | 24,067 | 28,231 | |||||||||
State and local | 3,172 | 1,703 | 2,707 | |||||||||
Deferred income tax expense | 41,386 | 25,770 | 30,938 | |||||||||
Total income tax expense | $ | 43,418 | $ | 26,448 | $ | 31,736 | ||||||
Significant components of our deferred tax liabilities and assets are as follows (in thousands)millions):
December 31, | December 31, | |||||||||||||||
2016 | 2015 | 2019 | 2018 | |||||||||||||
Deferred tax liabilities: | ||||||||||||||||
Net book value of property and equipment | $ | 26,620 | $ | 20,986 | $ | 83 | $ | 21 | ||||||||
Broadcast licenses, goodwill and other intangibles | 369,275 | 350,647 | 869 | 286 | ||||||||||||
Total deferred tax liabilities | 395,895 | 371,633 | 952 | 307 | ||||||||||||
Deferred tax assets: | ||||||||||||||||
Liability for accrued vacation | 2,232 | 2,172 | 3 | 2 | ||||||||||||
Liability for accrued bonus | 5,483 | 4,786 | 7 | 4 | ||||||||||||
Loan acquisition costs | 336 | 391 | ||||||||||||||
Allowance for doubtful accounts | 1,168 | 700 | 3 | 1 | ||||||||||||
Liability under health and welfare plan | 1,201 | 1,108 | - | 1 | ||||||||||||
Liability for pension plan | 13,278 | 14,172 | 10 | 8 | ||||||||||||
Federal operating loss carryforwards | 20,401 | 38,466 | 87 | - | ||||||||||||
State and local operating loss carryforwards | 4,555 | 5,867 | 31 | 2 | ||||||||||||
Alternative minimum tax carryforwards | 386 | 386 | ||||||||||||||
Unearned income | 3 | 73 | ||||||||||||||
Stock options | 174 | 163 | ||||||||||||||
Acquisition costs | 3,140 | 1,129 | 2 | 2 | ||||||||||||
Restricted stock | 1,950 | 1,875 | 4 | 2 | ||||||||||||
Investments | 4 | - | ||||||||||||||
Interest expense limitation | 4 | - | ||||||||||||||
Other | 109 | 172 | 1 | - | ||||||||||||
Total deferred tax assets | 54,416 | 71,460 | 156 | 22 | ||||||||||||
Valuation allowance for deferred tax assets | (1,532 | ) | (1,683 | ) | (14 | ) | - | |||||||||
Net deferred tax assets | 52,884 | 69,777 | 142 | 22 | ||||||||||||
Deferred tax liabilities, net of deferred tax assets | $ | 343,011 | $ | 301,856 | $ | 810 | $ | 285 | ||||||||
WeAs of December 31, 2019, we have approximately $61.5$438 million inof federal operating loss carryforwards, which expire during the years 20292023 through 2031. Additionally, we2037. We expect to have an aggregate of approximately $122.4 million of various state operating loss carryforwards. We project to havefederal taxable income in the carryforward periods. Therefore,periods, therefore we believe that it is more likely than not that thethese federal net operating loss carryforwards will be fully utilized.
A valuation allowance has been provided for a portion Additionally, we have an aggregate of the state net operating loss carryforwards. We believe that we will not meet the more likely than not threshold in certain states due to the uncertaintyapproximately $677 million of generating sufficient income. Therefore, the state valuation allowance at December 31, 2016 and 2015 was $1.5 million and $1.7 million, respectively.
Our total valuation allowance provided for deferred income tax assets decreased $0.2 million for the year ended December 31, 2016 due to changes in estimated utilization ofvarious state operating loss carryforwards. Our total valuation allowance provided for deferred income tax assets decreased $0.4 million for the year ended December 31, 2015 due to changes in estimated utilizationcarryforwards, of state operating loss carryforwards.which we expect that approximately half will be utilized.
A reconciliation of income tax expense at the statutory federal income tax rate and income taxes as reflected in the consolidated financial statements for the years ended December 31, 2016, 20152019, 2018 and 20142017 is as follows (in thousands)millions):
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2019 | 2018 | 2017 | |||||||||||||||||||
Statutory federal rate applied to income beforeincome tax expense | $ | 36,992 | $ | 23,012 | $ | 27,929 | ||||||||||||||||||
Statutory federal rate applied to income before income tax expense | $ | 53 | $ | 60 | $ | 68 | ||||||||||||||||||
Current year permanent items | 1,830 | 1,192 | 849 | 13 | 3 | 2 | ||||||||||||||||||
State and local taxes, net of federal tax benefit | 5,056 | 2,831 | 4,050 | 13 | 14 | 8 | ||||||||||||||||||
Change in valuation allowance | (151 | ) | (369 | ) | (696 | ) | (2 | ) | - | (2 | ) | |||||||||||||
Reserve for uncertain tax positions | (698 | ) | (581 | ) | (198 | ) | - | - | 1 | |||||||||||||||
Rate change due to enactment of tax reform | - | - | (146 | ) | ||||||||||||||||||||
Other items, net | 389 | 363 | (198 | ) | (1 | ) | - | - | ||||||||||||||||
Income tax expense as recorded | $ | 43,418 | $ | 26,448 | $ | 31,736 | ||||||||||||||||||
Income tax expense (benefit) as recorded | $ | 76 | $ | 77 | $ | (69 | ) | |||||||||||||||||
Effective income tax rate | 41.1 | % | 40.2 | % | 39.8 | % | 30 | % | 27 | % | (36 | )% | ||||||||||||
As of each year end, we are required to adjust our pension liability to an amount equal to the funded status of our pension plans with a corresponding adjustment to other comprehensive income on a net of tax basis. During 2016,2019, we increased our recorded non-current pension liability by $7 million and recognized other comprehensive income of $5 million, net of a $2 million tax expense. During 2018, we decreased our recorded non-current pension liability by $0.6$1 million and recognized other comprehensive income of $0.4 million, net of a $0.2 million tax expense.$1 million. During 2015, we decreased our recorded non-current pension liability by $5.8 million and recognized other comprehensive income of $3.5 million, net of a $2.3 million tax expense. During 2014,2017, we increased our recorded non-current pension liability by $17.1$7 million and recognized other comprehensive loss of $10.4$4 million, net of a $6.7$3 million tax benefit.
In 2016, 20152019,2018 and 2014,2017, we made income tax payments (net of refunds) of $14.6$23 million, $1.8$34 million and $0.4$2 million, respectively. At December 31, 2016, we had current prepaid income taxes of approximately $14.6 million and at December 31, 2015, we had current income taxes payable of approximately $0.8 million.
We prescribe a recognition threshold and measurement attribution for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.
As of December 31, 2019, we had approximately $15 million of unrecognized tax benefits. These unrecognized tax benefits would impact our effective tax rate if recognized. The liability for unrecognized tax benefits is recorded net of any federal tax benefit that would result from payment. We have accrued estimates of interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2019, we had recorded a liability for potential penalties and interest of approximately $1 million related to uncertain tax positions. While it is difficult to calculate with any certainty, we estimate no change, exclusive of interest and penalties, will be recorded for uncertain tax positions over the next twelve months.
We file income tax returns in the U.S.United States federal and multiple state jurisdictions. With few exceptions, we are no longer subject to U.S. federal, or stateWe have net operating losses (historic and local tax examinations by tax authorities for years prior to 2007. This extendedacquired, through recent business combinations) that extend our open adjustment period is duerelated to material amounts of net operating loss carryforwards, which exist at the federal level and in multiple-state jurisdictions arisingstate tax audits from the 20092000 through 2018. The open years vary by entity and 2011 tax years.jurisdiction.
8. Retirement Plans
11. | Retirement Plans |
We sponsor and contribute to defined benefit and defined contribution retirement plans. During 2016, ourOur defined benefit pension plans wereplan is the Gray Television, Inc. Retirement Plan (the “Gray Pension Plan”) as well as two plans assumed (the “Assumed Plans”) when we acquired the related businesses in prior years, both of which were frozen plans. On December 31, 2016, the two Assumed Plans were merged into the Gray Pension Plan. Effective December 31, 2016, the Assumed Plans had combined plan assets of $5.8 million and combined projected benefit obligations of $8.3 million.. Monthly plan benefits under the Gray Pension Plan are frozen and can no longer increase, and no new participants can be added to the Gray Pension Plan.
The Gray Pension Plan’s funding policy is consistent with the funding requirements of existing federal laws and regulations under the Employee Retirement Income Security Act of 1974. The measurement dates used to determine the benefit information for the Gray Pension Plan were December 31, 2016 2019 and 2015,2018, respectively. The following summarizes the Gray Pension Plan’s funded status and amounts recognized on our consolidated balance sheets at December 31, 2016 2019 and 2015,2018, respectively (dollars in thousands)millions):
December 31, | December 31, | |||||||||||||||
2016 | 2015 | 2019 | 2018 | |||||||||||||
Change in projected benefit obligation: | ||||||||||||||||
Projected benefit obligation at beginning of year | $ | 103,199 | $ | 108,006 | $ | 117 | $ | 126 | ||||||||
Service cost | - | 3,130 | ||||||||||||||
Interest cost | 4,398 | 4,159 | 5 | 5 | ||||||||||||
Actuarial losses | 1,839 | 420 | ||||||||||||||
Actuarial loss (gain) | 17 | (11 | ) | |||||||||||||
Benefits paid | (2,790 | ) | (1,683 | ) | (4 | ) | (3 | ) | ||||||||
Effect of pension curtailment | - | (10,833 | ) | |||||||||||||
Merger of the Assumed Plans | 8,330 | - | ||||||||||||||
Projected benefit obligation at end of year | $ | 114,976 | $ | 103,199 | $ | 135 | $ | 117 | ||||||||
Change in plan assets: | ||||||||||||||||
Fair value of pension plan assets at beginning of year | $ | 69,246 | $ | 66,813 | $ | 84 | $ | 88 | ||||||||
Actual return on plan assets | 5,918 | (1,034 | ) | 14 | (4 | ) | ||||||||||
Company contributions | 2,775 | 5,150 | 3 | 3 | ||||||||||||
Benefits paid | (2,790 | ) | (1,683 | ) | (4 | ) | (3 | ) | ||||||||
Merger of the Assumed Plans | 5,780 | - | ||||||||||||||
Fair value of pension plan assets at end of year | 80,929 | 69,246 | 97 | 84 | ||||||||||||
Funded status of pension plan | $ | (34,047 | ) | $ | (33,953 | ) | $ | (38 | ) | $ | (33 | ) | ||||
Amounts recognized in our balance sheets consist of: | ||||||||||||||||
Amounts recognized on our balance sheets consist of: | ||||||||||||||||
Accrued benefit cost | $ | (5,121 | ) | $ | (8,994 | ) | $ | 5 | $ | 2 | ||||||
Accumulated other comprehensive loss | (28,926 | ) | (24,959 | ) | (43 | ) | (35 | ) | ||||||||
Net liability recognized | $ | (34,047 | ) | $ | (33,953 | ) | $ | (38 | ) | $ | (33 | ) | ||||
Because the Gray Pension Plan is a frozen plan, the projected benefit obligation and the accumulated benefit obligation are the same. The accumulated benefit obligation amounts of the Gray Pension Plan are frozen and were $115.0was $135 million and $103.2$117 million at December 31, 2016 2019 and 2015,2018, respectively. The long-term rate of return on assets assumption was chosen from a best estimate range based upon the anticipated long-term returns for asset categories in which the Gray Pension Plan is invested. The estimatedAn estimate of the rate of increase in compensation levels used to calculate the net periodic benefit cost for the year ended December 31, 2015 applied only to the period prior to the Gray Pension Plan becoming frozen. This factor was is not applicable after that time in the determination required because of the benefit obligation as of December 31, 2016 and 2015:Plan’s frozen status:
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||
2016 | 2015 | 2019 | 2018 | |||||||||||||||
Weighted-average assumptions used to determine net periodicbenefit cost for the Gray pension plan: | ||||||||||||||||||
Weighted-average assumptions used to determine net periodic benefit cost for the Gray Pension Plan: | ||||||||||||||||||
Discount rate | 4.31% | 4.00% | 4.16 | % | 3.55 | % | ||||||||||||
Expected long-term rate of return on pension plan assets | 7.00% | 7.00% | 6.50 | % | 7.00 | % | ||||||||||||
Estimated rate of increase in compensation levels | N/A | 5.63% | N/A | N/A | ||||||||||||||
As of December 31, | As of December 31, | |||||||||||||||||
2016 | 2015 | 2019 | 2018 | |||||||||||||||
Weighted-average assumptions used to determine benefit obligations: | ||||||||||||||||||
Discount rate | 4.11% | 4.31% | 3.14 | % | 4.16 | % | ||||||||||||
Pension expense is computed using the projected unit credit actuarial cost method. The net periodic pension cost for the Gray Pension Plan includes the following components (in thousands)millions):
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2019 | 2018 | 2017 | |||||||||||||||||||
Components of net periodic pension cost: | ||||||||||||||||||||||||
Service cost | $ | - | $ | 3,130 | $ | 5,162 | ||||||||||||||||||
Interest cost | 4,398 | 4,159 | 4,106 | 5 | 5 | 5 | ||||||||||||||||||
Expected return on plan assets | (4,836 | ) | (4,782 | ) | (4,200 | ) | (5 | ) | (6 | ) | (6 | ) | ||||||||||||
Recognized net actuarial loss | 406 | 1,580 | 969 | �� | - | - | 1 | |||||||||||||||||
Net periodic pension (benefit) cost | $ | (32 | ) | $ | 4,087 | $ | 6,037 | |||||||||||||||||
Net periodic pension benefit | $ | - | $ | (1 | ) | $ | - | |||||||||||||||||
For the Gray Pension Plan, the estimated future benefit payments are as follows (in thousands):
Years | Years | Amount | Years | Amount | |||||||||
| 2017 | $ | 2,722 | 2020 | 4 | ||||||||
| 2018 | 2,933 | 2021 | 4 | |||||||||
| 2019 | 3,299 | 2022 | 4 | |||||||||
| 2020 | 3,790 | 2023 | 5 | |||||||||
| 2021 | 4,090 | 2024 | 5 | |||||||||
2022 | - | 2026 | 25,216 | ||||||||||
2025 | - | 2029 | 30 | ||||||||||
The Gray Pension Plan’s weighted-average asset allocations by asset category were as follows:follows
As of December 31, | As of December 31, | |||||||||||||
2016 | 2015 | 2019 | 2018 | |||||||||||
Asset category: | ||||||||||||||
Insurance general account | 23% | 26% | 17% | 19% | ||||||||||
Cash management accounts | 6% | 2% | 2% | 1% | ||||||||||
Equity accounts | 39% | 54% | 47% | 47% | ||||||||||
Fixed income accounts | 28% | 14% | 32% | 31% | ||||||||||
Real estate accounts | 4% | 4% | 2% | 2% | ||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||
The investment objective is to achieve a consistent total rate of return (income, appreciation, and reinvested funds) that will equal or exceed the actuarial assumption with aversion to significant volatility. The following is the target asset allocation:
Target Range | ||||||||||||
Asset class: | Strategic Allocation | Lower Limit | Upper Limit | |||||||||
Equities: | ||||||||||||
Large cap value | 5% | 0% | 50% | |||||||||
Large cap blend | 5% | 0% | 50% | |||||||||
Large cap growth | 5% | 0% | 50% | |||||||||
Mid cap blend | 15% | 0% | 40% | |||||||||
Small cap core | 5% | 0% | 25% | |||||||||
Foreign large blend | 10% | 0% | 40% | |||||||||
Emerging markets | 10% | 0% | 25% | |||||||||
Real estate | 5% | 0% | 20% | |||||||||
Fixed Income: | ||||||||||||
U.S. Treasury inflation protected | 5% | 0% | 25% | |||||||||
Intermediate term bond | 10% | 0% | 50% | |||||||||
Long term government bond | 5% | 0% | 40% | |||||||||
High yield bond | 10% | 0% | 25% | |||||||||
Emerging markets bond | 10% | 0% | 20% | |||||||||
Money market taxable | 0% | 0% | 100% | |||||||||
Target Range | |||||||||
| Strategic Allocation | Lower Limit | Upper Limit | ||||||
| Asset class: | |||||||||
Equities: | |||||||||
Large cap value | 5% | 0% | 50% | ||||||
Large cap blend | 5% | 0% | 50% | ||||||
Large cap growth | 5% | 0% | 50% | ||||||
Mid cap blend | 15% | 0% | 40% | ||||||
Small cap core | 5% | 0% | 25% | ||||||
Foreign large blend | 10% | 0% | 40% | ||||||
Emerging markets | 10% | 0% | 25% | ||||||
Real estate | 5% | 0% | 20% | ||||||
Fixed Income: | |||||||||
U.S. Treasury inflation protected | 5% | 0% | 25% | ||||||
Intermediate term bond | 10% | 0% | 50% | ||||||
Long term government bond | 5% | 0% | 40% | ||||||
High yield bond | 10% | 0% | 25% | ||||||
Emerging markets bond | 10% | 0% | 20% | ||||||
Money market taxable | 0% | 0% | 100% | ||||||
Our equity portfolio contains securities of companies necessary to build a diversified portfolio, and that we believe are financially sound. Our fixed income portfolio contains obligations generally rated A or better with no maturity restrictions and an actively managed duration. The cash equivalents strategy uses securities of the highest credit quality.
Fair Value of Gray Pension Plan Assets
. We calculate the fair value of the Gray Pension Plan’s assets based upon the observable and unobservable net asset value of its underlying investments. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized by the fair value hierarchy proscribed by Accounting Standards CodificationASU Topic 820, described in Note 45 “Fair Value Measurement.”
The following table presents the fair value of the Gray Pension Plan’s assets and classifies them by level within the fair value hierarchy as of December 31, 2016 2019 and 2015,2018, respectively (in thousands)millions):
Gray Pension Plan Fair Value Measurements |
As of December 31, 2016 | As of December 31, 2019 | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Insurance general account | $ | - | $ | 18,357 | $ | - | $ | 18,357 | $ | - | $ | 16 | $ | - | $ | 16 | ||||||||||||||||
Cash management accounts | 5,089 | - | - | 5,089 | 2 | - | - | 2 | ||||||||||||||||||||||||
Equity accounts | 31,963 | - | - | 31,963 | 46 | - | - | 46 | ||||||||||||||||||||||||
Fixed income accounts | 22,544 | - | - | 22,544 | 31 | - | - | 31 | ||||||||||||||||||||||||
Real estate accounts | 2,976 | - | - | 2,976 | 2 | - | - | 2 | ||||||||||||||||||||||||
Total | $ | 62,572 | $ | 18,357 | $ | - | $ | 80,929 | $ | 81 | $ | 16 | $ | - | $ | 97 | ||||||||||||||||
As of December 31, 2015 | As of December 31, 2018 | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Insurance general account | $ | - | $ | 17,918 | $ | - | $ | 17,918 | $ | - | $ | 17 | $ | - | $ | 17 | ||||||||||||||||
Cash management accounts | 1,273 | - | - | 1,273 | 1 | - | - | 1 | ||||||||||||||||||||||||
Equity accounts | 37,621 | - | - | 37,621 | 39 | - | - | 39 | ||||||||||||||||||||||||
Fixed income account | 9,924 | - | - | 9,924 | 26 | - | - | 26 | ||||||||||||||||||||||||
Real estate accounts | 2,510 | - | - | 2,510 | 1 | - | - | 1 | ||||||||||||||||||||||||
Total | $ | 51,328 | $ | 17,918 | $ | - | $ | 69,246 | $ | 67 | $ | 17 | $ | - | $ | 84 | ||||||||||||||||
Expected PensionContributions
. We expect to contribute a combined total of approximately $3.0$3 million to our frozen defined benefit pension plan during the year ending December 31, 2017.2020.
Capital Accumulation Plan
. The Gray Television, Inc. Capital Accumulation Plan (the “Capital Accumulation Plan”) is a defined contribution plan intended to meet the requirements of Section 401(k)401(k) of the Internal Revenue Code. Effective beginning on July 1, 2015,In 2019, employer contributions under the Capital Accumulation Plan include matching cash contributions at a rate of 100% of the first 3% 1% of each employee’s salary deferral, and 50% of the next 2%5% of each employee’s salary deferral. For the years ended December 31, 20162019, 2018 and 2015,2017, our matching cash contributions to our Capital Accumulation Plan were $8.8approximately $11 million, $6 million and $1.8$7 million, respectively. As ofFebruary 21, 2017, weWe estimate that our matching cash contributions to the Capital Accumulation Plan for year ending December 31, 2017 2020 will be approximately$8.6million.approximately $12 million.
In addition, the Company, at its discretion, may make an additional profit sharingprofit-sharing contribution, based on annual Company performance, to those employees who meet certain criteria. InFor the years ended December 31, 20162019, 2018 and 2015,2017, the Company has accrued contributions of approximately $5 million, $4 million and $4 million, respectively, as discretionary profit sharing contributions.
We may also make matching and discretionary contributions of $3.4 million and $1.6 million, respectively, as profit sharing contributions. Also during the years ended December 31, 2016, 2015 and 2014, we made other matching contributions of our Common Stock tocommon stock under the Capital Accumulation Plan as follows (dollars in thousands):Plan. As of December 31, 2019, we had 1,391,210 shares of common stock reserved for issuance under this plan.
Year Ended December 31, | ||||||||||||||||||||||||
2016 | 2015 | 2014 | ||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
Matching contributions to theCapital Accumulation Plan | 2,571 | $ | 29 | 1,898 | $ | 26 | 2,341 | $ | 25 | |||||||||||||||
9. Commitments and Contingencies
12. | Commitments and Contingencies |
We From time to time we may have various contractual and other commitments requiring future payments. These commitments may include amounts required to be paid forfor: the acquisition of television stations; for the purchase of property and equipment; for service and other agreements; for operating lease commitments for equipment, land and office space; for commitments for various syndicated television programs; and for commitments under affiliation agreements with networks. Future minimum payments for these commitments, as of December 31, 2016were as follows (in thousands):
Property | Service and | Syndicated | Network | |||||||||||||||||||||||||
Pending | and | Other | Operating | Television | Affiliation | |||||||||||||||||||||||
Year | Acquisitions | Equipment | Agreements | Leases | Programming | Agreements | Total | |||||||||||||||||||||
2017 | $ | 287,097 | $ | 5,467 | $ | 2,856 | $ | 2,905 | $ | 5,702 | $ | 129,260 | $ | 433,287 | ||||||||||||||
2018 | - | - | 2,856 | 2,178 | 12,550 | 137,228 | 154,812 | |||||||||||||||||||||
2019 | - | - | 749 | 1,907 | 4,091 | 78,261 | 85,008 | |||||||||||||||||||||
2020 | - | - | - | 1,362 | 2,872 | 31,370 | 35,604 | |||||||||||||||||||||
2021 | - | - | - | 1,155 | 563 | 3,941 | 5,659 | |||||||||||||||||||||
Thereafter | - | - | - | 3,680 | 290 | 2,137 | 6,107 | |||||||||||||||||||||
Total | $ | 287,097 | $ | 5,467 | $ | 6,461 | $ | 13,187 | $ | 26,068 | $ | 382,197 | $ | 720,477 | ||||||||||||||
The amounts in the table above are estimates of commitments that are in addition to the liabilities accrued for on our consolidated balance sheetsheets as of December 31, 2016. The amount presented for pending acquisitions represents our net obligations under our pending acquisitions2019,were as of December 31, 2016. Certain of these transactions were completed in January 2017. For additional information on these transactions see Note 2 “Acquisitions and Dispositions” and Note 11 “Subsequent Events.”
Leasesfollows (in millions):
Service and | Syndicated | Network | ||||||||||||||
Other | Television | Affiliation | ||||||||||||||
Year | Agreements | Programming | Agreements | Total | ||||||||||||
2020 | $ | 2 | $ | 10 | $ | 366 | $ | 378 | ||||||||
2021 | 1 | 29 | 431 | 461 | ||||||||||||
2022 | - | 26 | 224 | 250 | ||||||||||||
2023 | - | 18 | 126 | 144 | ||||||||||||
2024 | - | 1 | - | 1 | ||||||||||||
Thereafter | - | - | - | �� | - | |||||||||||
Total | $ | 3 | $ | 84 | $ | 1,147 | $ | 1,234 | ||||||||
We have no material capital leases. Where leases include rent holidays, rent escalations, rent concessions and leasehold improvement incentives, the value of these incentives are amortized over the lease term including anticipated renewal periods. Leasehold improvements are depreciated over the associated lease term including anticipated renewal periods. Rent expense resulting from operating leases for the years ended December 31, 2016, 2015 and 2014 were $3.5 million, $2.8 million and $2.2 million, respectively.
Legal Proceedings and Claims
. We are and expect to continue to be subject to legal actions, proceedings and claims that arise in the normal course of our business. In the opinion of management, the amount of ultimate liability, if any, with respect to these known actions, proceedings and claims will not materially affect our financial position, results of operations or cash flows, although legal proceedings are subject to inherent uncertainties, and unfavorable rulings or events could occur that could negatively affect us, possibly materially.
13. | Goodwill and Intangible Assets |
During the years ended December 31, 2016 2019 and 2015,2018, we acquired, adjusted and disposed of various television broadcast stations and broadcast licenses. As a result of these transactions, our goodwill and intangible balances increasedchanged during each of these years. See Note 23 “Acquisitions and Dispositions”Divestitures” for more information regarding these transactions. A summary of changes in our goodwill and other intangible assets, on a net basis, for the years ended December 31, 2016 2019 and 20152018 is as follows (in thousands)millions):
Net Balance at | Net Balance at | Net Balance at | Acquisitions | Net Balance at | ||||||||||||||||||||||||||||||||||||||||
December 31, | December 31, | December 31, | And | December 31, | ||||||||||||||||||||||||||||||||||||||||
2015 | Acquisitions | Dispositions | Impairment | Amortization | 2016 | 2018 | Adjustments | Impairment | Amortization | 2019 | ||||||||||||||||||||||||||||||||||
Goodwill | $ | 423,236 | $ | 72,296 | $ | (10,214 | ) | $ | - | $ | - | $ | 485,318 | $ | 612 | $ | 834 | $ | - | $ | - | $ | 1,446 | |||||||||||||||||||||
Broadcast licenses | 1,114,626 | 251,035 | (25,356 | ) | - | - | 1,340,305 | 1,530 | $ | 2,043 | - | - | 3,573 | |||||||||||||||||||||||||||||||
Finite-livedintangible assets | 53,280 | 19,566 | - | - | (16,596 | ) | 56,250 | |||||||||||||||||||||||||||||||||||||
Total intangible assetsnet of accumulatedamortization | $ | 1,591,142 | $ | 342,897 | $ | (35,570 | ) | $ | - | $ | (16,596 | ) | $ | 1,881,873 | ||||||||||||||||||||||||||||||
Finite-lived intangible assets | 53 | 522 | - | (115 | ) | 460 | ||||||||||||||||||||||||||||||||||||||
Total intangible assets net of accumulated amortization | $ | 2,195 | $ | 3,399 | $ | - | $ | (115 | ) | $ | 5,479 | |||||||||||||||||||||||||||||||||
Net Balance at | Net Balance at | |||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||
2014 | Acquisitions | Dispositions | Impairment | Amortization | 2015 | |||||||||||||||||||
Goodwill | $ | 374,390 | $ | 48,916 | $ | (70 | ) | $ | - | $ | - | $ | 423,236 | |||||||||||
Broadcast licenses | 1,023,580 | 91,192 | (146 | ) | - | - | 1,114,626 | |||||||||||||||||
Finite-livedintangible assets | 47,802 | 17,845 | (385 | ) | - | (11,982 | ) | 53,280 | ||||||||||||||||
Total intangible assetsnet of accumulatedamortization | $ | 1,445,772 | $ | 157,953 | $ | (601 | ) | $ | - | $ | (11,982 | ) | $ | 1,591,142 | ||||||||||
Net Balance at | Acquisitions | Net Balance at | ||||||||||||||||||
December 31, | And | December 31, | ||||||||||||||||||
2017 | Adjustments | Impairment | Amortization | 2018 | ||||||||||||||||
Goodwill | $ | 611 | $ | 1 | $ | - | $ | - | $ | 612 | ||||||||||
Broadcast licenses | 1,531 | $ | (1 | ) | - | - | 1,530 | |||||||||||||
Finite-lived intangible assets | 74 | - | - | (21 | ) | 53 | ||||||||||||||
Total intangible assets net of accumulated amortization | $ | 2,216 | $ | - | $ | - | $ | (21 | ) | $ | 2,195 | |||||||||
A summary of changes in our goodwill, on a gross basis, for the years ended December 31, 2016 2019 and 20152018 is as follows (in thousands)millions):
Acquisitions | ||||||||||||||||
As of | And | As of | ||||||||||||||
December 31, 2018 | Adjustments | Impairment | December 31, 2019 | |||||||||||||
Goodwill, gross | $ | 711 | $ | 834 | $ | - | $ | 1,545 | ||||||||
Accumulated goodwill impairment | (99 | ) | - | - | (99 | ) | ||||||||||
Goodwill, net | $ | 612 | $ | 834 | $ | - | $ | 1,446 | ||||||||
Acquisitions | ||||||||||||||||
As of | And | As of | ||||||||||||||
December 31, 2017 | Adjustments | Impairment | December 31, 2018 | |||||||||||||
Goodwill, gross | $ | 710 | $ | 1 | $ | - | $ | 711 | ||||||||
Accumulated goodwill impairment | (99 | ) | - | - | (99 | ) | ||||||||||
Goodwill, net | $ | 611 | $ | 1 | $ | - | $ | 612 | ||||||||
As of | As of | |||||||||||||||||||
December 31, 2015 | Acquisitions | Dispositions | Impairment | December 31, 2016 | ||||||||||||||||
Goodwill, gross | $ | 521,832 | $ | 72,296 | $ | (10,214 | ) | $ | - | $ | 583,914 | |||||||||
Accumulated goodwill impairment | (98,596 | ) | - | - | - | (98,596 | ) | |||||||||||||
Goodwill, net | $ | 423,236 | $ | 72,296 | $ | (10,214 | ) | $ | - | $ | 485,318 | |||||||||
As of | As of | |||||||||||||||||||
December 31, 2014 | Acquisitions | Dispositions | Impairment | December 31, 2015 | ||||||||||||||||
Goodwill, gross | $ | 472,986 | $ | 48,916 | $ | (70 | ) | $ | - | $ | 521,832 | |||||||||
Accumulated goodwill impairment | (98,596 | ) | - | - | - | (98,596 | ) | |||||||||||||
Goodwill, net | $ | 374,390 | $ | 48,916 | $ | (70 | ) | $ | - | $ | 423,236 | |||||||||
As of December 31, 2016 2019 and 2015,2018, our intangible assets and related accumulated amortization consisted of the following (in thousands)millions):
As of December 31, 2016 | As of December 31, 2015 | |||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||
Gross | Amortization | Net | Gross | Amortization | Net | |||||||||||||||||||
Intangible assets not currentlysubject to amortization: | ||||||||||||||||||||||||
Broadcast licenses | $ | 1,394,004 | $ | (53,699 | ) | $ | 1,340,305 | $ | 1,168,325 | $ | (53,699 | ) | $ | 1,114,626 | ||||||||||
Goodwill | 485,318 | - | 485,318 | 423,236 | - | 423,236 | ||||||||||||||||||
| $ | 1,879,322 | $ | (53,699 | ) | $ | 1,825,623 | $ | 1,591,561 | $ | (53,699 | ) | $ | 1,537,862 | |||||||||||
Intangible assets subjectto amortization: | ||||||||||||||||||||||||
Network affiliationagreements | $ | 1,264 | $ | (1,264 | ) | $ | - | $ | 1,264 | $ | (1,264 | ) | $ | - | ||||||||||
Other finite-livedintangible assets | 105,792 | (49,542 | ) | 56,250 | 86,696 | (33,416 | ) | 53,280 | ||||||||||||||||
| $ | 107,056 | $ | (50,806 | ) | $ | 56,250 | $ | 87,960 | $ | (34,680 | ) | $ | 53,280 | |||||||||||
Total intangibles | $ | 1,986,378 | $ | (104,505 | ) | $ | 1,881,873 | $ | 1,679,521 | $ | (88,379 | ) | $ | 1,591,142 | ||||||||||
As of December 31, 2019 | As of December 31, 2018 | |||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||
Gross | Amortization | Net | Gross | Amortization | Net | |||||||||||||||||||
Intangible assets not currently subject to amortization: | ||||||||||||||||||||||||
Broadcast licenses | $ | 3,627 | $ | (54 | ) | $ | 3,573 | $ | 1,583 | $ | (53 | ) | $ | 1,530 | ||||||||||
Goodwill | 1,446 | - | 1,446 | 612 | - | 612 | ||||||||||||||||||
| $ | 5,073 | $ | (54 | ) | $ | 5,019 | $ | 2,195 | $ | (53 | ) | $ | 2,142 | |||||||||||
Intangible assets subject to amortization: | ||||||||||||||||||||||||
Network affiliation agreements | $ | 56 | $ | (17 | ) | $ | 39 | $ | 6 | $ | (6 | ) | $ | - | ||||||||||
Other finite-lived intangible assets | 615 | (194 | ) | 421 | 143 | (90 | ) | 53 | ||||||||||||||||
| $ | 671 | $ | (211 | ) | $ | 460 | $ | 149 | $ | (96 | ) | $ | 53 | |||||||||||
Total intangibles | $ | 5,744 | $ | (265 | ) | $ | 5,479 | $ | 2,344 | $ | (149 | ) | $ | 2,195 | ||||||||||
Amortization expense for the years ended December 31, 2016, 20152019, 2018 and 20142017 was $16.6approximately $115 million, $12.0$21 million and $8.3$25 million, respectively. Based on the our intangible assets subject to amortization as of December 31, 2016, 2019, we expect that amortization expense for the succeeding five years will be as follows: 2017, $16.32020, $103 million; 2018, $11.52021, $98 million; 2019, $9.02022, $94 million; 2020, $6.12023, $88 million; and 2021, $3.22024, $24 million. If and when acquisitions and dispositions occur in the future, actual amounts may vary from these estimates.
Impairment of goodwill and broadcast license
. As of December 31, 2016 2019 and 2015,2018, we tested our goodwill, broadcast licenses and other intangible asset recorded values for potential impairment and concluded that the balances were reasonably stated. As a result, we did not record an impairment expense for our goodwill, broadcast licenses or other intangible assets during 2016, 20152019,2018 or 2014.2017.
Completion of FCC Spectrum Auction. On August 7, 2017, we received approximately $91 million resulting from our relinquishment of two licenses in the FCC’s Spectrum Auction. In connection with this transaction we tendered two of our broadcast licenses and made other modifications to our broadcast spectrum related to our participation in the FCC Spectrum Auction. The cost of the assets disposed of was approximately $13 million. The income tax obligations related to this gain have been deferred on a long-term basis.
See Note 1 “Description of Business and Summary of Significant Accounting Policies” for further discussion of our accounting policies regarding goodwill, broadcast licenses and other intangible assets.
11. Subsequent Events
2017 Acquisitions
On January 13, 2017, we acquired KTVF-TV (NBC), KXDF-TV (CBS), and KFXF-TV (FOX) in the Fairbanks, Alaska television market, from Tanana Valley Television Company and Tanana Valley Holdings, LLC for $8.0 million (the “Fairbanks Acquisition”). We completed the Fairbanks Acquisition with cash on hand.
On January 17, 2017, we acquired two television stations that were divested by Nextstar Broadcasting, Inc. (“Nexstar”) upon its merger with Media General, Inc. (“Media General”): WBAY-TV (ABC), in the Green Bay, Wisconsin television market (the “Green Bay Acquisition”), and KWQC-TV (NBC), in the Davenport, Iowa, Rock Island, Illinois, and Moline, Illinois (or “Quad Cities”) television market (the “Davenport Acquisition”), for an adjusted purchase price of $269.9 million. We completed these acquisitions with cash on hand. The Green Bay Acquisition and the Davenport Acquisition were completed, in part, through a transaction with Gray Midwest EAT, LLC (“GME”), pursuant to which, we loaned GME $106.0 million which GME in turn used to acquire the broadcast licenses of the stations. GME is a variable interest entity (“VIE”) for which we are the primary beneficiary. As a result, we will include the assets, liabilities and results of operations of GME in our consolidated financial statements beginning in January 2017 and continuing for so long as we remain the primary beneficiary.
The preliminary fair value estimates of the assets acquired, liabilities assumed and resulting goodwill of our acquisitions completed in 2017 are summarized as follows (in thousands):
Acquisition | ||||||||||||
Fairbanks | Green Bay | Davenport | ||||||||||
Other current assets | $ | 176 | $ | 238 | $ | 301 | ||||||
Property and equipment | 2,868 | 10,133 | 10,276 | |||||||||
Goodwill | 251 | 44,055 | 45,305 | |||||||||
Broadcast licenses | 2,228 | 82,845 | 63,683 | |||||||||
Other intangible assets | 2,653 | 7,767 | 5,936 | |||||||||
Current liabilities | (176 | ) | (238 | ) | (301 | ) | ||||||
Total | $ | 8,000 | $ | 144,800 | $ | 125,200 | ||||||
Amounts in the table above are 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.
Property and equipment are recorded at their fair value and are being depreciated over their estimated useful lives ranging from three years to 40 years.
Amounts related to other intangible assets represent primarily the estimated fair values of retransmission agreements of $14.0 million and favorable income leases of $1.5 million. These intangible assets are being amortized over their estimated useful lives.
Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, as well as future synergies that we expect to generate from each acquisition. We have preliminarily recorded $89.6 million of goodwill related to 2017 Acquisitions. The goodwill recognized related to these acquisitions is deductible for income tax purposes.
On February 16, 2017, we announced that we had reached an agreement with Diversified Communications, Inc. to acquire two television stations: WABI-TV (CBS/CW) in the Bangor, Maine television market (DMA 156) and WCJB-TV (ABC/CW) in the Gainesville, Florida television market (DMA 161) for $85.0 million. Subject to receipt of regulatory and other approvals, we expect this transaction will close in the second quarter of 2017 and will be completed with cash on hand and, if necessary, borrowings under our 2017 Senior Credit Facility.
Amendment and Restatement of Senior Credit Facility
On February 7, 2017, we entered into the 2017 Senior Credit Facility. The 2017 Senior Credit Facility provides total commitments of $656.4 million, consisting of a $556.4 million term loan facility (the “2017 Term Loan”) and a $100.0 million revolving credit facility (the “2017 Revolving Credit Facility”). Amounts outstanding under the 2017 Term Loan were used to repay our prior term loan.
14. | Segment Information |
The 2017 Term Loan borrowings bear interest, at our option, of either LIBOR plus an applicable margin or the Base Rate (as defined below) plus an applicable margin. Until our results of operations for the quarter ending September 30, 2017 have been certified, the applicable margin will be 2.50% for all LIBOR borrowingsCompany operates in 2 business segments: broadcasting and 1.50% for all Base Rate borrowings (the “Initial Applicable Margin”). Thereafter, (i) if the leverage ratio as set forthproduction companies. The broadcasting segment operates television stations located across 93 local markets in the 2017 Senior Credit Facility (the “Leverage Ratio”) is less than or equal to 5.25 to 1.00,United States. The production companies segment includes the applicable margin will be 2.25% for all LIBOR borrowingsproduction of television and 1.25% for all Base Rate borrowingsevent content. Costs identified as other are primarily corporate and (ii) ifadministrative expenses. The following tables present certain financial information concerning the Leverage Ratio is greater than 5.25 to 1.00, the Initial Applicable Margin will apply. The current interest rate on the 2017 Term Loan borrowings is LIBOR plus 2.50%. The term loan also requires us to make quarterly principal reductions of $1.4 million beginning March 31, 2017.Company’s operating segments (in millions):
Borrowings under the 2017 Revolving Credit Facility bear interest, at our option, based on LIBOR plus 1.50%-2.00% or the Base Rate plus 0.50%-1.00%, in each case based on a first lien leverage ratio test as set forth in the 2017 Senior Credit Facility (the “First Lien Leverage Ratio”). Base Rate is defined as the greatest of (i) the administrative agent’s prime rate, (ii) the overnight federal funds rate plus 0.50% and (iii) LIBOR plus 1.00%. We are required to pay a commitment fee on the average daily unused portion of the 2017 Revolving Credit Facility, which rate may range from 0.375% to 0.50% on an annual basis, based on the First Lien Leverage Ratio.
Production | ||||||||||||||||
As of and for the Year ended December 31, 2019: | Broadcast | Companies | Other | Consolidated | ||||||||||||
Revenue (less agency commissions) | $ | 2,035 | $ | 87 | $ | - | $ | 2,122 | ||||||||
Operating expenses before depreciation, amortization and (gain) loss on disposal of assets, net: | 1,325 | 74 | 104 | 1,503 | ||||||||||||
Depreciation and amortization | 180 | 13 | 2 | 195 | ||||||||||||
(Gain) loss on disposal of assets, net | (54 | ) | - | - | (54 | ) | ||||||||||
Operating expenses | 1,451 | 87 | 106 | 1,644 | ||||||||||||
Operating income | $ | 584 | $ | - | $ | (106 | ) | $ | 478 | |||||||
Interest expense | $ | - | $ | - | $ | 227 | $ | 227 | ||||||||
Capital expenditures (excluding business combinations) | $ | 104 | $ | 1 | $ | 5 | $ | 110 | ||||||||
Goodwill | $ | 1,405 | $ | 41 | $ | - | $ | 1,446 | ||||||||
Total Assets | $ | 6,530 | $ | 153 | $ | 289 | $ | 6,972 | ||||||||
As of and for the Year ended December 31, 2018: | ||||||||||||||||
Revenue (less agency commissions) | $ | 1,084 | $ | - | $ | - | $ | 1,084 | ||||||||
Operating expenses before depreciation, amortization and (gain) loss on disposal of assets, net: | 596 | - | 41 | 637 | ||||||||||||
Depreciation and amortization | 74 | - | 1 | 75 | ||||||||||||
(Gain) loss on disposal of assets, net | (17 | ) | - | - | (17 | ) | ||||||||||
Operating expenses | 653 | - | 42 | 695 | ||||||||||||
Operating income | $ | 431 | $ | - | $ | (42 | ) | $ | 389 | |||||||
Interest expense | $ | - | $ | - | $ | 107 | $ | 107 | ||||||||
Capital expenditures (excluding business combinations) | $ | 68 | $ | - | $ | 2 | $ | 70 | ||||||||
Goodwill | $ | 612 | $ | - | $ | - | $ | 612 | ||||||||
Total Assets | $ | 2,763 | $ | - | $ | 1,450 | $ | 4,213 | ||||||||
The 2017 Revolving Credit Facility matures on February 7, 2022, and the 2017 Term Loan matures on February 7, 2024.
15. | Selected Quarterly Financial Data (Unaudited) |
As a result of this amendment and restatement of our senior credit facility we expect to record a loss on extinguishment of debt of approximately $4.5 million in the first quarter of 2017. In connection with the amendment and restatement we incurred approximately $3.0 million in deferred financing costs that will be amortized over the life of the 2017 Senior Credit Facility.
Results of FCC Spectrum Auction
On February 6, 2017, we announced that we anticipate receiving $ 90.8 million in proceeds from the FCC’s recently completed reverse auction for broadcast spectrum.
The anticipated proceeds reflect the FCC’s acceptance of one or more bids placed by us during the auction to modify and/or surrender spectrum used by certain of our television stations. We do not expect any material change in operations for us or for any individual market in which we operate.
We anticipate that the auction proceeds will be received in the second or third quarter of 2017. Due to prior planning in connection with our recently completed acquisitions, we anticipate that we will be able to defer any related income tax payments on a long-term basis.
12. Selected Quarterly Financial Data (Unaudited)
Fiscal Quarter | Fiscal Quarter | |||||||||||||||||||||||||||||||
First | Second | Third | Fourth | First | Second | Third | Fourth | |||||||||||||||||||||||||
(In thousands, except for per share data) | (In millions, except for per share data) | |||||||||||||||||||||||||||||||
Year Ended December 31, 2016: | ||||||||||||||||||||||||||||||||
Year Ended December 31, 2019: | ||||||||||||||||||||||||||||||||
Revenue (less agency commissions) | $ | 518 | $ | 508 | $ | 517 | $ | 579 | ||||||||||||||||||||||||
Operating income | 40 | 119 | 139 | 180 | ||||||||||||||||||||||||||||
Net (loss) income available to common stockholders | (31 | ) | 31 | 46 | 81 | |||||||||||||||||||||||||||
Basic net (loss) income available to common stockholders per share | $ | (0.31 | ) | $ | 0.31 | $ | 0.46 | $ | 0.82 | |||||||||||||||||||||||
Diluted net (loss) income available to common stockholders per share | $ | (0.31 | ) | $ | 0.31 | $ | 0.46 | $ | 0.81 | |||||||||||||||||||||||
Year Ended December 31, 2018: | ||||||||||||||||||||||||||||||||
Revenue (less agency commissions) | $ | 173,723 | $ | 196,633 | $ | 204,490 | $ | 237,619 | $ | 226 | $ | 250 | $ | 279 | $ | 329 | ||||||||||||||||
Operating income | 36,111 | �� | 53,687 | 60,467 | 83,874 | 50 | 80 | 108 | 151 | |||||||||||||||||||||||
Net income | 8,990 | 17,662 | (213 | ) | 35,834 | 20 | 41 | 62 | 88 | |||||||||||||||||||||||
Basic net income per share | $ | 0.13 | $ | 0.25 | $ | - | $ | 0.50 | $ | 0.22 | $ | 0.46 | $ | 0.71 | $ | 1.01 | ||||||||||||||||
Diluted net income per share | $ | 0.12 | $ | 0.24 | $ | - | $ | 0.49 | $ | 0.22 | $ | 0.46 | $ | 0.70 | $ | 1.00 | ||||||||||||||||
Year Ended December 31, 2015: | ||||||||||||||||||||||||||||||||
Revenue (less agency commissions) | $ | 133,303 | $ | 143,464 | $ | 151,102 | $ | 169,487 | ||||||||||||||||||||||||
Operating income | 28,058 | 38,758 | 29,344 | 43,897 | ||||||||||||||||||||||||||||
Net income | 5,595 | 12,110 | 6,609 | 14,987 | ||||||||||||||||||||||||||||
Basic net income per share | $ | 0.10 | $ | 0.17 | $ | 0.09 | $ | 0.21 | ||||||||||||||||||||||||
Diluted net income per share | $ | 0.10 | $ | 0.17 | $ | 0.09 | $ | 0.21 | ||||||||||||||||||||||||
Because of the method used in calculating per share data, the sum of the quarterly per share data will not necessarily equal the per share data as computed for the year.
Item 9.Item9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, an evaluation was carried out under the supervision and with the participation of management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on that evaluation, the CEO and the CFO have concluded that as of the end of such period our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that we file or furnish under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and to ensure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.
Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives. The Company’s management, including the CEO and the CFO, does not expect that our disclosure controls and procedures can prevent all possible errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. Judgments in decision-making can be faulty and breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of one or more persons. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to possible errors or fraud may occur and not be detected.
During the year ended December 31, 2019, we implemented changes in our internal control over financial reporting in connection with the adoption of ASU 2016-02 – Leases (Topic 842). These changes included controls related to the collection of data for the amounts that we disclose in the footnotes to our financial statements. Our evaluation included controls that may have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
During the year ended December 31, 2019, we began implementing changes in our internal control over financial reporting in connection with the Raycom Merger.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 20162019 identified in connection with this evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report on Internal Control Over Financial Reporting
Our report, “Management’s Report on Internal Control Over Financial Reporting” and the attestation report of our independent registered public accounting firm, included in “Report of Independent Registered Public Accounting Firm,” are set forth in Item 8 of this Annual Report on Form 10-K.
Item 9B. 9B. Other Information.
None.
PART III
Item 10. Item10. Directors, Executive Officers and Corporate Governance.
The information to be set forth under the headings “Election of Directors,” “Corporate Governance - Board Committees and Membership,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for the 20172020 Annual Meeting of Stockholders (to be filed within 120 days after December 31, 2016)2019) is incorporated herein by reference. In addition, the information set forth under "Executive Officers of the Registrant""Information about our Executive Officers" in Part I of this Report is incorporated herein by reference.
Item 11. 11. Executive Compensation.
The information to be set forth under the headings “Executive Compensation,” “Report of Compensation Committee” and “Compensation Committee Interlocks and Insider Participation” in our definitive Proxy Statement for the 20172020 Annual Meeting of Stockholders is incorporated herein by reference.
Item 12. 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information to be set forth under the heading "Stock Ownership"“Stock Ownership” in our definitive Proxy Statement for the 20172020 Annual Meeting of Stockholders is incorporated herein by reference.
Equity Compensation Plan Information
The following table gives information about the common stock and Class A common stock that may be issued upon the exercise of options, warrants and rights under all existing equity compensation plans as of December 31, 2016.
Equity Compensation Plan Information
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in 1st column) | |||||||||
Common Stock: | ||||||||||||
Equity compensationplans approved bysecurity holders | 274,746 | (1) | $ | 1.99 | 4,117,786 | (1)(2) | ||||||
Equity compensationplans not approvedby security holders | - | $ | - | - | ||||||||
Total | 274,746 | 4,117,786 | ||||||||||
Class A Common Stock: | ||||||||||||
Equity compensationplans approved bysecurity holders | - | (1) | $ | - | 257,581 | (1) | ||||||
Equity compensationplans not approvedby security holders | - | $ | - | - | ||||||||
Total | - | 257,581 | ||||||||||
2019:
Equity Compensation Plan Information |
Number of securities remaining | |||||||||||||
Number of securities to | Weighted-average | available for future issuance | |||||||||||
be issued upon exercise | exercise price of | under equity compensation | |||||||||||
of outstanding options, | outstanding options, | plans (excluding securities | |||||||||||
Plan Category | warrants and rights | warrants and rights | reflected in 1st column) | ||||||||||
Common Stock: | |||||||||||||
Equity compensation plans approved by security holders | 274,746 | (1) | $ | 1.99 | 4,464,988 | (2) | |||||||
Equity compensation plans not approved by security holders | - | $ | - | - | |||||||||
Total | 274,746 | 4,464,988 | |||||||||||
Class A Common Stock: | |||||||||||||
Equity compensation plans approved by security holders | - | $ | - | 1,503,254 | (3) | ||||||||
Equity compensation plans not approved by security holders | - | $ | - | - | |||||||||
Total | - | 1,503,254 | |||||||||||
(1) |
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(2) | Consists of 3,694,988 shares of |
(3) | Consists of shares of our Class A common stock |
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Item 13. 13. Certain Relationships and Related Transactions, and Director Independence.
The information to be set forth under the headings "Certain“Certain Relationships and Related Party Transactions"Transactions” and "Corporate Governance"“Corporate Governance” in our definitive Proxy Statement for the 20172020 Annual Meeting of StockholdersShareholders is incorporated herein by reference.
Item 14. 14. Principal Accountant Fees and Services.
The information to be set forth under the heading “Ratification of the Company’s Independent Registered Public Accounting Firm for 2017”2020” in our definitive Proxy Statement for the 20172020 Annual Meeting of StockholdersShareholders concerning principal accountant fees and services is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules.Schedules.
(a) | List of Financial Statements and Financial Statement Schedules: |
(1) | Financial Statements. See Part II, Item 8 for the index |
(2) | Financial statement schedules: The following financial statement schedule of Gray Television, Inc. is included in Item 15(c): Schedule II – Valuation and qualifying accounts. |
All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the related instructions or are inapplicable and therefore have been omitted.
(b) | Exhibits: |
Exhibit Number | Description of Documents | |
3.1 | ||
3.2 | ||
4.1 |
Exhibit Number | Description of Documents | |
4.2 |
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4.5 | ||
4.6 | ||
4.7 | ||
4.8 | ||
4.9 | ||
4.10 | ||
| 4.11 | Description of securities registered under Section 12 of the Exchange Act |
Exhibit Number | Description of Documents | |
10.1 | ||
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| Director Restricted Stock Plan (incorporated by reference to Exhibit 10.12 to our Annual Report on Form 10-K (File No. 001-13796) for the year ended December 31, 2002)* | ||
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10.10 |
Exhibit Number | Description of Documents | |
10.11 | ||
10.12 | ||
21.1 | ||
23.1 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| The cover page from Gray Television, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 has been formatted in Inline XBRL. | |
* | Management contract or compensatory plan or arrangement. |
(c) | Financial Statement Schedules –The response to this section is submitted as a part of Item 15 (a) (1) and (2). |
GRAY TELEVISION, INC.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
(in thousands)millions)
Col. A | Col. B | Col. C | Col. D | Col. E | ||||||||||||||||
Additions | ||||||||||||||||||||
| (1) | (2) | |||||||||||||||||||
Balance at | Charged to | Charged to | Balance at | |||||||||||||||||
Beginning | Costs and | Other | Deductions | End of | ||||||||||||||||
Description | of Period | Expenses | Accounts (a) | (b) | Period | |||||||||||||||
Year Ended December 31, 2016: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 1,794 | $ | 1,917 | $ | 167 | $ | (715 | ) | $ | 3,163 | |||||||||
Valuation allowance for deferredtax assets | $ | 1,683 | $ | - | $ | - | $ | (151 | ) | $ | 1,532 | |||||||||
Year Ended December 31, 2015: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 1,667 | $ | 606 | $ | - | $ | (479 | ) | $ | 1,794 | |||||||||
Valuation allowance for deferredtax assets | $ | 2,052 | $ | - | $ | - | $ | (369 | ) | $ | 1,683 | |||||||||
Year Ended December 31, 2014: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 730 | $ | 1,356 | $ | 290 | $ | (709 | ) | $ | 1,667 | |||||||||
Valuation allowance for deferredtax assets | $ | 2,748 | $ | 3 | $ | - | $ | (699 | ) | $ | 2,052 | |||||||||
Col. A | Col. B | Col. C | Col. D | Col. E | ||||||||||||||||
Additions | ||||||||||||||||||||
| (1) | (2) | |||||||||||||||||||
Balance at | Charged to | Charged to | Balance at | |||||||||||||||||
Beginning | Costs and | Other | Deductions | End of | ||||||||||||||||
Description | of Period | Expenses | Accounts | (a) | Period | |||||||||||||||
Year Ended December 31, 2019: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 5 | $ | 11 | $ | - | $ | (5 | ) | $ | 11 | |||||||||
Valuation allowance for deferred tax assets | $ | - | $ | 14 | $ | - | $ | - | $ | 14 | ||||||||||
Year Ended December 31, 2018: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 5 | $ | 2 | $ | - | $ | (2 | ) | $ | 5 | |||||||||
Valuation allowance for deferred tax assets | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Year Ended December 31, 2017: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 3 | $ | 3 | $ | - | $ | (1 | ) | $ | 5 | |||||||||
Valuation allowance for deferred tax assets | $ | 1 | $ | (1 | ) | $ | - | $ | - | $ | - | |||||||||
(a) |
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| Deductions from allowance for doubtful accounts represent write-offs of receivable balances not considered collectible. The deduction from the valuation allowance for deferred tax assets represents changes in estimates of our future taxable income and our estimated future usage of certain net operating loss carryforwards, as well as expiration of certain net operating loss |
Item 16. 16. Form 10-K Summary.
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Gray Television, Inc. | ||
Date: | By: | /s/Hilton H. Howell, Jr. |
Hilton H. Howell, Jr., | ||
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date: | By: | /s/Hilton H. Howell, Jr. |
Hilton H. Howell, Jr.,Executive Chairman Chief Executive Officer | ||
Date: |
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Co-Chief Executive Officer | ||
Date: | By: | /s/ |
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James C. Ryan, Executive Vice President and | ||
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Jackson S. Cowart, IV,Vice President and Chief Accounting Officer |
EXHIBIT INDEX
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116
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