GRAY TELEVISION, INC.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the
fiscal year ended December 31, 2006
or
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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)
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Georgia
(State or Other Jurisdiction of
Incorporation or Organization)
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58-0285030
(I.R.S. Employer
Identification No.) |
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4370 Peachtree Road, NE |
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Atlanta, GA
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30319 |
(Address of Principal Executive Offices)
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(Zip Code) |
Registrants telephone number, including area code: (404) 504-9828
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
Class A Common Stock (no par value)
Common Stock (no par value)
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Name of each exchange on which registered
New York Stock Exchange
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 o No þ
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 o No þ
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 þ No o
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 registrants 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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one).
Large accelerated filer
o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
The aggregate market value of the voting stock (based upon the closing sales price
quoted on the New York Stock Exchange) held by non-affiliates as of June 30, 2006: Class A and
Common Stock; no par value $259,035,713.
The number of shares outstanding of the registrants classes of common stock as of February
27, 2006: Class A Common Stock; no par value 5,753,020 shares; Common Stock, no par value
42,044,065 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement for the annual meeting of shareholders
to be filed with the Commission pursuant to Regulation 14A is incorporated by reference into Part
III hereof.
Gray Television Inc.
INDEX
2
PART 1
Item 1. Business.
In this Annual Report, unless otherwise indicated, the words Gray, Company, our, us
and we refer to Gray Television, Inc. and its subsidiaries. Our discussion of the television
stations that we own and operate does not include our interest in the stations owned by Sarkes
Tarzian, Inc., which we refer to as Tarzian.
The Companys common stock, no par value, and its Class A common stock, no par value, have
been listed and traded on The New York Stock Exchange (the NYSE) since September 24, 1996 and
June 30, 1995, respectively. The ticker symbols are GTN for its common stock and GTN.A for its
Class A common stock.
Unless otherwise indicated, all station rank, in-market share and television household data
herein are derived from reports prepared by A.C. Nielsen Company (Nielsen).
General
As of the filing date of this Annual Report, the Company owns 36 television stations serving
30 television markets. 17 of the stations are affiliated with CBS Inc., or CBS, 10 are affiliated
with the National Broadcasting Company, Inc., or NBC, eight are affiliated with the American
Broadcasting Company, or ABC and one is affiliated with FOX Entertainment Group, Inc. or FOX.
The combined station group has 22 markets with stations ranked #1 in local news audience and 23
markets with stations ranked #1 in overall audience within their respective markets based on the
results of the average of the Nielsen November, July, May and February 2006 ratings reports. The
combined TV station group reaches approximately 6.3% of total U.S. TV households. In addition, Gray
currently operates 36 digital second channels including one affiliated with ABC, five affiliated
with FOX, seven affiliated with The CW Network, LLC (CW) and 15 affiliated with Twentieth
Television, Inc. (MyNetworkTV or MyNet.), plus six local news/weather channels and two
independent channels in certain of its existing markets. With seventeen CBS affiliated stations,
the Company is the largest independent owner of CBS affiliates in the country.
In 1993, the Company implemented a strategy to foster growth through strategic acquisitions
and certain select divestitures. Since January 1, 1994, the Companys significant acquisitions
have included 33 television stations.
2006 Acquisitions
On March 3, 2006, the Company completed the acquisition of the stock of Michiana Telecasting
Corp., owner of WNDU-TV, the NBC affiliate in South Bend, Indiana, from the University of Notre
Dame for $88.8 million, which included certain working capital adjustments and transaction fees.
The Company financed this acquisition with borrowings under the Companys senior credit facility.
3
The Companys Stations and Their Markets
The following is a list of all our owned and operated television stations. In markets where
we have satellite stations and stations that serve distant communities, certain figures relating to
in market share of household viewing and television households have been combined:
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Primary Network |
DMA |
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Primary |
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Secondary |
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Broadcast |
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Station |
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News |
Rank |
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Network |
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Network |
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License |
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Rank in |
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Rank in |
(a) |
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Market |
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Station |
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Affil. |
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Exp. |
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Affil. |
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Exp. |
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Expiration |
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DMA (b) |
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DMA (c) |
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60 |
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Knoxville, TN |
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WVLT |
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CBS |
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12/31/14 |
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MyNet. |
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12/31/08 |
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08/01/05 |
(g) |
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2 |
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2 |
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63 |
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Lexington, KY |
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WKYT |
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CBS |
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12/31/14 |
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CW |
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09/17/14 |
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08/01/05 |
(g) |
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1 |
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1 |
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65 |
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Charleston/Huntington, WV |
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WSAZ |
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NBC |
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01/01/09 |
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MyNet. |
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09/05/09 |
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10/01/12 |
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1 |
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1 |
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67 |
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Wichita/Hutchinson, KS |
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KAKE |
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ABC |
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12/31/13 |
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NA |
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NA |
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06/01/06 |
(g) |
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2 |
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2 |
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(Colby, KS) |
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KLBY (d) |
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ABC |
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12/31/13 |
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NA |
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NA |
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06/01/06 |
(g) |
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2 |
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2 |
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(Garden City, KS) |
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KUPK (d) |
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ABC |
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12/31/13 |
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NA |
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NA |
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06/01/06 |
(g) |
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2 |
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2 |
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75 |
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Omaha, NE |
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WOWT |
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NBC |
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01/01/12 |
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Indy |
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NA |
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06/01/06 |
(g) |
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1 |
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1 |
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85 |
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Madison, WI |
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WMTV |
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NBC |
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01/01/12 |
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News |
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NA |
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12/01/05 |
(g) |
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2 |
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2 |
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88 |
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South Bend, IN |
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WNDU |
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NBC |
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12/31/10 |
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NA |
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NA |
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08/01/13 |
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1 |
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1 |
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94 |
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Colorado Springs, CO |
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KKTV |
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CBS |
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12/31/14 |
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MyNet. |
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09/05/09 |
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04/01/06 |
(g) |
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1 |
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2 |
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95 |
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Waco-Temple-Bryan, TX |
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KWTX |
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CBS |
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12/31/14 |
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CW |
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12/31/14 |
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08/01/06 |
(g) |
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1 |
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1 |
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(Bryan, TX) |
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KBTX (e) |
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CBS |
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12/31/14 |
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CW |
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12/31/14 |
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08/01/06 |
(g) |
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1 |
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1 |
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104 |
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Lincoln/Hastings/Kearney, NE |
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KOLN |
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CBS |
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12/31/14 |
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MyNet. |
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09/05/09 |
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06/01/06 |
(g) |
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1 |
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1 |
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Grand Island, NE |
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KGIN (f) |
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CBS |
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12/31/14 |
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NA |
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NA |
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06/01/06 |
(g) |
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1 |
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1 |
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107 |
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Greenville/New Bern/ |
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WITN |
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NBC |
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01/01/12 |
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News |
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NA |
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12/01/04 |
(g) |
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2 |
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1 |
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Washington, NC |
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108 |
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Tallahassee, FL/ |
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WCTV |
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CBS |
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12/31/14 |
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MyNet. |
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09/05/09 |
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04/01/13 |
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1 |
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1 |
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Thomasville, GA |
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110 |
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Reno, NV |
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KOLO |
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ABC |
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12/31/13 |
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Indy. |
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NA |
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10/01/06 |
(g) |
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1 |
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1 |
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112 |
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Lansing, MI |
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WILX |
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NBC |
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01/01/12 |
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News |
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NA |
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10/31/05 |
(g) |
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1 |
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1 |
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114 |
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Augusta, GA |
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WRDW |
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CBS |
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12/31/14 |
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MyNet |
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12/31/14 |
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04/11/13 |
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1 |
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1 |
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Indy |
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NA |
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127 |
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La Crosse/Eau Claire, WI |
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WEAU |
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NBC |
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01/01/12 |
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News |
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NA |
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12/01/05 |
(g) |
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1 |
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1 |
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133 |
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Rockford, IL |
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WIFR |
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CBS |
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12/31/14 |
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NA |
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NA |
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12/01/05 |
(g) |
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2 |
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2 |
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134 |
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Wausau/Rhinelander, WI |
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WSAW |
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CBS |
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12/31/14 |
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MyNet. |
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09/05/09 |
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12/01/05 |
(g) |
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1 |
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2 |
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News |
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NA |
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138 |
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Topeka, KS |
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WIBW |
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CBS |
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12/31/14 |
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MyNet. |
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02/18/09 |
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06/01/06 |
(g) |
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1 |
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1 |
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145 |
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Albany, GA |
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WSWG |
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CBS |
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12/31/14 |
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MyNet. |
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09/05/09 |
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04/01/13 |
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3 |
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NA (h) |
156 |
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Panama City, FL |
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WJHG |
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NBC |
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01/01/12 |
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NA |
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NA |
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02/01/05 |
(g) |
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1 |
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1 |
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161 |
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Sherman,TX/Ada, OK |
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KXII |
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CBS |
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12/31/14 |
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FOX |
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06/30/08 |
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08/01/06 |
(g) |
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1 |
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1 |
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MyNet. |
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09/05/14 |
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172 |
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Dothan, AL |
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WTVY |
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CBS |
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12/31/14 |
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CW |
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09/01/08 |
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04/01/13 |
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1 |
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1 |
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MyNet. |
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09/05/09 |
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181 |
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Harrisonburg, VA |
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WHSV |
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ABC |
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12/31/13 |
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ABC |
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12/31/13 |
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10/01/12 |
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1 |
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1 |
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FOX |
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06/30/08 |
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MyNet. |
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09/05/09 |
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182 |
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Charlottesville, VA |
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WCAV |
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CBS |
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12/31/14 |
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NA |
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NA |
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10/01/12 |
(i) |
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2 |
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2 |
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WVAW |
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ABC |
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12/31/13 |
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NA |
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NA |
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10/01/12 |
(i) |
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3 |
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3 |
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WAHU |
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FOX |
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06/30/08 |
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MyNet. |
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09/05/09 |
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10/01/12 |
(i) |
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4 |
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4 |
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4
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Primary Network |
DMA |
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Primary |
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Secondary |
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Broadcast |
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Station |
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News |
Rank |
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Network |
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Network |
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License |
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Rank in |
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Rank in |
(a) |
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Market |
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Station |
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Affil. |
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Exp. |
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Affil. |
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Exp. |
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Expiration |
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DMA (b) |
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DMA (c) |
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183 |
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Bowling Green, KY |
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WBKO |
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ABC |
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12/31/13 |
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FOX |
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06/30/08 |
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08/01/05 |
(g) |
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1 |
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1 |
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CW |
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09/01/08 |
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185 |
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Meridian, MS |
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WTOK |
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ABC |
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12/31/13 |
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FOX |
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06/30/08 |
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06/01/05 |
(g) |
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1 |
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1 |
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CW |
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09/17/08 |
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MyNet. |
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09/05/09 |
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186 |
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Grand Junction, CO |
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KKCO |
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NBC |
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07/30/06 (k) |
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CW |
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09/01/08 |
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04/01/06 |
(g) |
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1 |
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1 |
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189 |
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Parkersburg, WV |
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WTAP |
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NBC |
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01/01/12 |
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FOX |
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06/30/08 |
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10/01/04 |
(g) |
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1 |
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1 |
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MyNet. |
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09/05/09 |
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(j) |
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Hazard, KY |
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WYMT |
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CBS |
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12/31/14 |
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NA |
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NA |
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08/01/05 |
(g) |
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1 |
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1 |
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(a) |
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Based on data published by Nielsen or other public sources for the 2006-2007 television
season for each DMA. |
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(b) |
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Based on the average of Nielsen data for November, July, May and February 2006 rating
periods, Sunday to Saturday, 6 a.m. to 2 a.m. |
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(c) |
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Based on managements review of Nielsen data for November, July, May and February 2006
rating periods for various news programs. |
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(d) |
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KLBY-TV and KUPK-TV are satellite stations of KAKE-TV under FCC rules and retransmit
the signal of the primary station and may offer some locally originated programming such as
local news. |
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(e) |
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KBTX-TV is a satellite station of KWTX-TV under FCC rules and retransmits the signal of
the primary station and may offer some locally originated programming such as local news. |
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(f) |
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KGIN-TV is a satellite station of KOLN-TV under FCC rules and retransmits the signal of
the primary station and may offer some locally originated programming such as local news. |
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(g) |
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License renewal application has been filed with the Federal Communication Commission
(the FCC) and renewal is pending. As of the date of filing this Annual Report, the
Company anticipates that all pending applications will be renewed in due course. |
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(h) |
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This station does not currently broadcast local news. |
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(i) |
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Original license application pending with the Federal Communications Commission. If
license is granted as expected, the expiration date of the license is expected to be
October 1, 2012. |
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(j) |
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The Company considers WYMT-TVs service area as a separate television market. This
area is a special 17 county trading area as defined by Nielsen and is part of the
Lexington, KY DMA. |
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(k) |
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The NBC affiliation agreement for KKCO-TV is currently being negotiated for renewal. |
Television Industry Background
Licenses to operate a television station are granted by the FCC. Historically, there have been
a limited number of channels available for broadcasting in any one geographic area.
Television station revenues are primarily derived from local, regional and national
advertising and, to a much lesser extent, from network compensation and revenues from studio and
tower space rental and commercial production activities. Advertising rates are based upon a
variety of factors, including a
5
programs popularity among the viewers an advertiser wishes to
attract, 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. Rates are also determined by a stations overall ratings and in-market share, as
well as the stations ratings and share among particular demographic groups, which 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 are affected by broad
economic trends, affect the broadcast industry in general and the revenues of individual broadcast
television stations.
All television stations in the country are grouped by Nielsen, a national audience measuring
service, into approximately 210 generally recognized television markets that are ranked in size
according to various formulae based upon actual or potential audience. Each Designated Market Area
(DMA) is an exclusive geographic area consisting of all counties in which the home-market
commercial stations receive the greatest percentage of total viewing hours. Nielsen periodically
publishes data on estimated audiences for the television stations in the various television markets
throughout the country.
Four major broadcast networks, ABC, NBC, CBS and FOX dominate broadcast television. FOX, the
CW Network, LLC (CW) and Twentieth Television, Inc. (MyNetworkTV) provide their affiliates with
a smaller portion of each days programming, compared to an affiliate of ABC, NBC and CBS.
Network Affiliation of the Stations
The affiliation of a station with ABC, NBC or CBS has a significant impact on the composition
of the stations programming, revenues, expenses and operations. A typical affiliate of these
networks receives the majority of each days programming from the network. This programming, along
with cash payments (network compensation) in certain instances, is provided to the affiliate by
the network in exchange for a substantial majority of the advertising time available for sale
during the airing of network programs. The network then sells this advertising time and retains
the revenues. The affiliate retains the revenues from time sold during breaks in and between
network programs and programs the affiliate produces or purchases from non-network sources. In
acquiring programming to supplement programming supplied by the affiliated network, the affiliates
compete primarily with other affiliates and independent stations in their markets. Cable systems
generally do not compete with local stations for programming, although various national cable
networks from time to time have acquired programs that would have otherwise been offered to local
television stations. In addition, a television station may acquire programming through barter
arrangements. Under barter arrangements, a national program distributor will retain a fixed amount
of advertising time within the program in exchange for the programming it supplies, with the
station paying a fixed fee (or in certain instances no fee) for such programming. Most successful
commercial television stations obtain their brand identity from locally produced news programs.
In contrast to a station affiliated with a network, a fully independent station purchases or
produces all of the programming that it broadcasts, resulting in generally higher programming
costs. An independent station, however, retains its entire inventory of advertising time and all
the revenues obtained therefrom. As a result of the smaller amount of programming provided by its
network, an affiliate of FOX, CW or MyNetworkTV must purchase or produce a greater amount of
programming, resulting in generally higher programming costs. These affiliate stations, however,
retain a larger portion of the
inventory of advertising time and the revenues obtained therefrom compared to stations affiliated
with the major networks.
Cable-originated programming is a significant competitor for viewers of broadcast television
programming, although no single cable programming network regularly attains audience levels
amounting to more than a small fraction of any single major broadcast network. The advertising
share of cable
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networks has increased as a result of the growth in cable penetration (the
percentage of television households which are connected to a cable system). Notwithstanding such
increases in cable viewership and advertising, over-the-air broadcasting remains the dominant
distribution system for mass-market television advertising.
The Company accounts for trade barter transactions involving the exchange of tangible goods or
services with its 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.
In accordance with the Financial Accounting Standards Boards Statement No. 63, Financial
Reporting by Broadcasters, the Company does not account for barter revenue and related barter
expense generated from network programming. The Company does not account for barter
revenue and related barter expense generated from syndicated programming. Management of the
Company believes that barter revenue and related expense generated from syndicated programming is
immaterial. Furthermore, any such barter revenue recognized would then require the recognition of
an equal amount of barter expense. The recognition of these amounts would have no effect upon net
income.
Seasonality
Broadcast advertising revenues are generally highest in the second and fourth quarters each
year, due in part to increases in consumer advertising in the spring and retail advertising in the
period leading up to and including the holiday season. In addition, broadcast advertising revenues
are generally higher during even numbered years due to spending by political candidates, political
parties and special interest groups and this spending typically is heaviest during the fourth
quarter.
Competition
Competition in the television industry exists on several levels: competition for audience,
competition for programming (including news) and competition for advertisers. Additional factors
that are material to a television stations competitive position include signal coverage and
assigned frequency.
Audience.
Stations compete for audience based on program popularity, which has a direct effect on
advertising rates. A substantial portion of the daily programming on each of the Companys
stations is supplied by the affiliated network. During those periods, the stations are dependent
upon the performance of the network programs to attract viewers. There can be no assurance that
such programming will achieve or maintain satisfactory viewership levels in the future.
Non-network time periods are programmed by the station with a combination of locally produced news,
public affairs and other entertainment programming, including news and syndicated programs
purchased for cash, cash and barter, or barter only.
In addition, the development of methods of television transmission of video programming other
than over-the-air broadcasting, and in particular cable and/or satellite television, has
significantly altered competition for audience in the television industry. These other
transmission methods can increase competition for a broadcasting station by bringing into its
market distant broadcasting signals not
otherwise available to the stations audience and also by serving as a distribution system for
non-broadcast programming.
Other sources of competition include home entertainment systems, wireless cable services,
satellite master antenna television systems, low power television stations, television translator
stations, direct broadcast satellite (DBS) video distribution services and the internet.
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Recent developments by many companies, including internet service providers, are expanding the
variety and quality of broadcast content on the internet. Internet companies have developed
business relationships with companies that have traditionally provided syndicated programming,
network television, production studios for news and live content, as well as motion picture
studios.
Programming.
Competition for programming involves negotiating with national program distributors or
syndicators that sell first-run and rerun packages of programming. Each station competes against
the broadcast station competitors in its market for exclusive access to off-network reruns (such as
Seinfeld) and first-run product (such as Oprah). Competition exists for exclusive news stories and
features as well. Cable systems generally do not compete with local stations for programming,
although various national cable networks from time to time have acquired programs that would have
otherwise been offered to local television stations.
Advertising.
Advertising rates are based upon the size of the market in which the station operates, a
stations overall ratings, a programs popularity among the viewers that an advertiser wishes to
attract, the number of advertisers competing for the available time, the demographic makeup of the
market served by the station, the availability of alternative advertising media in the market area,
aggressive and knowledgeable sales forces and the development of projects, features and programs
that tie advertiser messages to programming. Advertising revenues comprise the primary source of
revenues for the Companys stations. The Companys stations compete for such advertising revenues
with other television stations in their respective markets. The stations also compete for
advertising revenue with other media, such as newspapers, radio stations, magazines, outdoor
advertising, transit advertising, yellow page directories, direct mail, internet and local cable
systems. Competition for advertising dollars in the broadcasting industry occurs primarily within
individual markets.
Federal Regulation of the Companys Business
General
The Companys television broadcast operations are subject to the jurisdiction of the Federal
Communications Commission (FCC or Commission) under the Communications Act of 1934, as amended
(the Communications Act). Among other things, the Communications Act empowers the FCC to: (1)
issue, revoke and modify broadcasting licenses; (2) regulate stations technical operations and
equipment; and (3) 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 approval of the FCC.
License Grant and Renewal
The FCC grants television station licenses for terms of up to eight years. Broadcast licenses
are of paramount importance to the operations of the Companys television stations. The
Communications Act
requires a broadcast license to be renewed if the FCC finds that: (1) the station has served
the public interest, convenience and necessity; (2) there have been no serious violations of either
the Communications Act or the FCCs rules and regulations; and (3) there have been no other
violations which, taken together, would constitute a pattern of abuse. Although in substantially
all cases broadcast licenses are renewed by the FCC, there can be no assurance that the Companys
stations licenses will be renewed. The Company is not aware of any facts or circumstances that
could prevent the renewal of the
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licenses for its stations at the end of their respective license
terms. See the dates through which the current licenses are effective and the status of the
renewal applications in the Broadcasting Summary table included on page 4 of this Annual Report.
Under the Commission rules, a license expiration date is automatically extended pending review and
grant of the renewal application.
Ownership Rules
The FCCs broadcast ownership rules affect the number, type and location of broadcast and
newspaper properties that the Company may hold or acquire. The rules now in effect limit the
common ownership, operation or control of, as well as the attributable interests or voting power
in: (1) television stations serving the same area; (2) television stations and daily newspapers
serving the same area; and (3) television stations and 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 office or
have more than a specified interest or percentage of voting power. The FCCs rules also define the
types of positions and interests that are considered attributable for purposes of the ownership
limits, and thus also apply to the Companys principals and certain investors. Pursuant to the
Communications Act and recent appropriations legislation, the FCC must review all of its broadcast
ownership rules every four years to determine if they remain necessary in the public interest.
The FCC completed a comprehensive review of its ownership rules in 2003, significantly
relaxing restrictions on the common ownership of television stations, radio stations and daily
newspapers within the same local market. However, in 2004, the United States Court of Appeals for
the Third Circuit rejected many of the Commissions 2003 rule changes. The Court remanded the
rules to the Commission for further proceedings and extended a stay on the implementation of the
new rules. As a result, the ownership restrictions in place prior to the FCCs 2003 decision
generally continue to govern station ownership and media transactions, pending completion of the
remand proceedings and/or further judicial review.
In July 2006, the FCC issued a Further Notice of Proposed Rulemaking, which seeks comment on
the issues remanded by the Third Circuit and fulfills the Commissions obligation to review its
media ownership rules every four years. The discussion below reviews the changes contemplated in
the FCCs 2003 decision, the Third Circuits response to the FCCs rule revisions, and the issues
set forth in the Further Notice.
Local TV Ownership Rule
In its 2003 decision, the FCC relaxed the local television ownership regulation by eliminating
its eight voices test, which barred co-ownership of two TV stations in a local market unless at
least eight independently owned, full-power television stations, or voices, remained. The
modified rule would have permitted ownership of two commercial television facilities (a duopoly)
in markets with at least five stations and up to three stations in markets with at least 18
stations. In either case, no more than one of the co-owned stations could have been ranked among
the top four in audience ratings. The Third Circuit upheld the top-four restriction, but remanded
the other limits. Thus, the eight voices requirement of the pre-2003 rules remains in effect.
The Further Notice seeks comment on what limits the FCC should retain and whether any restrictions
should vary with market size.
Cross-Media Limits
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. The cross-media limits adopted in the Commissions 2003 decision
would have
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supplanted both rules with three categories of restrictions based on the number of
full-power television stations in the market. The Third Circuit remanded the new cross-media
limits to the Commission for further consideration, leaving the prior restrictions in place. The
Further Notice seeks comment on a number of issues relating to cross-media ownership, including
whether, and if so, how, the Commission should attempt to measure diversity in local markets and
what, if any, limitations the FCC should maintain.
National Television Station Ownership Rule
The maximum percentage (or cap) 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 and
superseded the 45 percent figure proposed in the FCCs 2003 decision. The Commission decided in
2003 to retain the 50 percent discount that it currently grants to ultra-high frequency (UHF)
stations, finding that the discount continues to be necessary to promote entry and competition
among broadcast networks. The Third Circuit subsequently ruled that challenges before it to the
national television ownership cap and UHF discount were moot. The national cap is not at issue in
the Further Notice, but the Commission seeks comment on whether the FCC should retain the UHF
discount, and if so for how long.
Attribution Rules
Under the FCCs ownership rules, a direct or indirect purchaser of certain types of securities
of the Company could violate FCC regulations if that purchaser owned or acquired an attributable
interest in other media properties in the same areas as stations owned by the Company. Pursuant to
FCC rules, the following relationships and interests generally are considered attributable for
purposes of broadcast ownership restrictions: (1) all officers and directors of a licensee and its
direct or indirect parent(s); (2) voting stock interests of at least five percent; (3) voting
stock interests of at least 20 percent, if the holder is a passive institutional investor
(investment companies, banks, insurance companies); (4) any equity interest in a limited
partnership or limited liability company, unless properly insulated from management activities;
(5) equity and/or debt interests which in the aggregate exceed 33 percent of a licensees total
assets, if the interest holder supplies more than 15 percent of the stations total weekly
programming, or is a same-market broadcast company or daily newspaper publisher, (6) time brokerage
of a broadcast station by a same-market broadcast company; and (7) same market radio joint sales
agreements (in addition, the Commission is considering making same-market television joint sales
agreements attributable.)
To the Companys knowledge, no officer, director or 5% stockholder of the Company currently
holds an attributable interest in another television station, radio station or daily newspaper that
is inconsistent with the FCCs ownership rules and policies or with ownership by the Company of its
stations.
Alien Ownership Restrictions.
The Communications Act restricts the ability of foreign entities or individuals to own or hold
interests in 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 are barred from holding broadcast licenses. Non-citizens, collectively,
may directly or
indirectly own or vote up to 20% of the capital stock of a licensee. In addition, a broadcast
license may not be granted to or held by any corporation that is controlled, directly or
indirectly, by any other corporation more than 25% of whose capital stock is owned or voted by
non-U.S. citizens if the FCC finds that the public interest will be served by the refusal or
revocation of such license. The Company, which serves as a holding company for wholly-owned
subsidiaries that are licensees for its stations, therefore may be restricted from having more than
one-fourth of its stock owned or voted directly or
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indirectly by non-citizens, foreign governments,
representatives of non-citizens or foreign governments, or foreign corporations.
Programming and Operation.
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 Childrens Television Act of 1990 limits commercial matter in childrens television
programs and requires stations to present educational and informational childrens programming.
Broadcasters have been required for several years to provide at least three hours of childrens
educational programming per week on their analog channels. The FCC has determined that the amount
of childrens educational programming a digital (DTV) broadcaster must air will increase
proportionately with the number of free video programming streams it broadcast simultaneously (or
multicasts).
In July 2004, the Commission released a Notice of Inquiry regarding broadcast localism to
evaluate whether additional regulation is necessary to ensure that licensees satisfy the needs and
interests of local audiences. The FCC will include a summary of comments filed in response to the
localism Notice in the recently-initiated media ownership proceeding (discussed above). The
Company cannot predict whether the FCC will impose specific localism requirements.
The FCC has increased its enforcement efforts regarding broadcast indecency and profanity over
the past few years. In June 2006, the statutory maximum fine for broadcasting indecent material
increased from $32,500 to $325,000. Litigation currently pending in the U.S. Courts of Appeal for
the Second and Third Circuits might affect the FCCs broadcast indecency policies, and the Company
cannot predict the outcome of that litigation.
EEO Rules
The FCCs 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 new EEO rules and could be sanctioned
for noncompliance.
Cable and Satellite Transmission of Local Television Signal.
Under FCC regulations, cable systems must devote a specified portion of their channel capacity
to the carriage of the signals of local television stations. Television stations may elect between
must carry rights or a right to restrict or prevent cable systems from carrying the stations
signal without the stations permission (retransmission consent). Each of Grays stations has
elected must carry status on certain cable systems in its DMA. On other cable systems, the
Companys stations are in the process of negotiating or have entered into retransmission consent
agreements. These elections and agreements will generally entitle the Companys stations to
carriage on those systems until at least December 31, 2008.
The FCC also has established a market-specific requirement for mandatory carriage of local
television stations by direct broadcast satellite (DBS) operators similar to that applicable to
cable systems, for those markets in which a DBS carrier provides any local signal. In addition,
the FCC has
adopted rules relating to station eligibility for DBS carriage and subscriber eligibility for
receiving signals. There are also specific statutory requirements relating to satellite
distribution of distant network signals to unserved households (i.e. households that do not
receive a Grade B signal from a local network affiliate). The Company cannot predict the impact of
DBS service upon the Companys business. It has, however, entered into retransmission consent
agreements with EchoStar through
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December 31, 2008 and DirectTV through December 31, 2009 for the
retransmission of its television stations signals into the local markets that they serve.
Digital Television Service.
In 1997, the FCC adopted rules for implementing DTV service, which will improve the technical
quality of television signals received by viewers and give broadcasters the ability to provide new
services including high definition television. With certain limited exceptions, broadcasters
holding licenses or construction permits for full-power television stations were temporarily
assigned a second channel in order to provide either separate DTV programming or a simulcast of
their analog programming. Currently, with one exception all full-power stations licensed to the
Company are broadcasting digitally. WCAV(TV), Charlottesville, Virginia did not commence operations
until 2005 and therefore was not assigned a second channel for digital operations. It will convert
to digital operations on its currently assigned channel at the end of the digital transition.
At the end of the DTV transition, currently scheduled for February 17, 2009, analog television
transmissions will cease, television broadcasters will surrender their analog spectrum to the
government, and DTV channels will be reassigned to a smaller segment of the broadcast spectrum.
Broadcasters may use their digital spectrum to either provide a single DTV signal or
multicast several program streams. Broadcasters also may use some of their digital spectrum to
offer non-broadcast ancillary services (i.e. subscription video, data transfer or audio signals),
provided such services do not interfere with mandatory free digital broadcasts, and subject to a
requirement that they pay the government a fee of 5 percent of gross revenues received from such
services. Under the FCCs rules relating to must carry rights of digital broadcasters, which
apply to cable and certain DBS systems: (1) broadcasters are not entitled to carriage of both their
analog and their digital streams during the transition; (2) digital-only television stations are
entitled to must-carry rights; and (3) a digital-only station asserting must carry rights is
entitled only to carriage of a single programming stream and other program-related content even
if it multicasts. In 2004, the Commission eliminated a requirement that broadcasters simulcast a
certain percentage of the video programming of their analog channel on their DTV channel. The FCC
noted, however, that it will continue to monitor the transitions progress and, if necessary,
re-impose the requirement at a later date.
The FCC has adopted rules and procedures regarding the digital conversion of Low Power
Television (LPTV) stations, TV translator stations and TV booster stations. Under these rules,
existing LPTV and TV translator stations may convert to digital operations on their current
channels. Alternatively, LPTV and translator licenses may seek a digital companion channel for
their analog station operations. At a later date, the FCC will determine the date by which those
stations obtaining a digital companion channel must surrender one of their channels.
Beginning December 31, 2006, DTV broadcasters must comply with Emergency Alert System (EAS)
rules and ensure that viewers of all programming streams can receive EAS messages.
As of the date of filing this Annual Report, the Company was in compliance with the FCCs
digital broadcasting requirements at all of its stations.
The foregoing does not purport to be a complete summary of the Communications Act, other
applicable statutes, or the FCCs rules, regulations or policies. Proposals for additional or
revised
regulations and requirements are pending before, and are considered by, Congress and federal
regulatory agencies from time to time. The Company cannot predict the effect of existing and
proposed federal legislation, regulations or policies on its business. Also, several of the
foregoing matters are now, or may become, the subject of litigation, and the Company cannot predict
the outcome of any such litigation or the effect on its business.
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Employees
As of February 28, 2007, the Company had 2,117 full-time employees, of which 2,091 were
employees of the Companys broadcast operations and 26 were corporate and administrative personnel.
The Company has 117 full time employees and 29 part time employees that are represented by unions.
The Company believes that its relations with its employees are satisfactory.
Available Information
The Companys Internet address is http://www.gray.tv. We make the following reports filed
with the Securities and Exchange Commission (the SEC) available, free of charge, on our website
under the heading SEC Filings:
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Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K and amendments to the foregoing reports filed or furnished pursuant to Section 13 (a)
or 15 (d) of the Exchange Act; |
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Our proxy statements; and |
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Initial Statements of Beneficial Ownership of Securities on Form 3, Statements of
Changes in Beneficial Ownership on Form 4 and Annual Statements of Beneficial Ownership on
Form 5, in each case as filed by certain of our officers, directors and large stockholders
pursuant to Section 16 of the Exchange Act. |
These filings are also available at the SECs website located at http://www.sec.gov. The
public may read and copy any materials filed with the SEC at the SECs public reference room at 100
F Street, N.E., Washington, DC 20549. The public may obtain information on the Company from the
SECs public reference room by calling the SEC at 1-800-SEC-0330.
The foregoing reports are made available on the Companys website as soon as practicable after
they are filed with, or furnished to, the SEC. The information found on our web site is not part
of this or any other report we file with or furnish to the SEC.
The Company has adopted a Code of Ethics that applies to all of its directors, executive
officers and employees. The Code is available on the Companys website at http://www.gray.tv under
the heading of Corporate Governance. If any waivers of the Code are granted, the waivers will be
disclosed in a SEC filing on Form 8-K. The Company has also filed the Code as an exhibit to the
Annual Report filed on Form 10-K for the year ended December 31, 2004 and is incorporated by
reference to this report.
The Companys website also includes the Companys Corporate Governance Principles, as well as
the Charter of the Audit Committee, the Nominating and Corporate Governance Committee and the
Compensation Committee.
All such information is also available to any shareholder upon request by telephone at (229)
888-9378.
Certification with the New York Stock Exchange and SOX Certification
On June 2, 2006, the Companys Chief Executive Officer filed with the New York Stock Exchange
the annual written affirmation certifying the Companys compliance with the New York Stock
Exchanges corporate governance listing standards as required by Listed Company Manual Rule
303A.12.
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The certifications of the Companys Chairman and Chief Executive Officer and the Companys
Senior Vice President and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act
of 2002 are filed as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K.
Item 1A. Risk Factors.
Risks Related to Our Business
We depend on advertising revenues, which fluctuate as a result of a number of factors and also
experience seasonal fluctuations.
Our main source of revenue is sales of advertising time and space. Our ability to sell
advertising time and space depends on:
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the health of the economy in the areas where our stations are located and in the nation
as a whole; |
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the popularity of our programming; |
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changes in the makeup of the population in the areas where our stations are located; |
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pricing fluctuations in local and national advertising; |
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the activities of our competitors, including increased competition from other forms of
advertising based mediums, particularly network, cable television, direct satellite
television and the Internet; |
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the outbreak and duration of hostilities or the occurrence of terrorist attacks and the
duration and extent of network preemption of regularly scheduled programming and decisions
by advertisers to withdraw or delay planned advertising expenditures as a result of
military action or terrorist attacks; and |
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other factors that may be beyond our control. |
For example, a labor dispute or other disruption at a major national advertiser, or a
recession in a particular market, would make it more difficult to sell advertising time and space
and could reduce our revenue.
In addition, our results are subject to seasonal fluctuations, which typically result in
second and fourth quarter broadcast operating income being greater than first and third quarter
broadcast operating income. This seasonality is primarily attributable to increased expenditures by
advertisers in the spring and in anticipation of holiday season spending and an increase in
viewership during this period. Furthermore, revenues from political advertising are significantly
higher in even-numbered years.
Our flexibility is limited by the terms of our senior secured credit facilities.
Our senior secured credit facility prevents us from taking certain actions and requires us to
meet certain tests. These limitations and tests include, without limitation, the following:
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limitations on liens; |
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limitations on additional debt; |
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limitations on dividends and distributions; |
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limitations on management and consulting fees; |
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limitations on stock repurchases; |
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limitations on transactions with affiliates; |
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limitations on guarantees; |
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limitations on asset sales; |
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limitations on sale-leaseback transactions; |
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limitations on acquisitions; |
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limitations on changes in our business; |
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limitations on mergers and other corporate reorganizations; |
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limitations on loans, investments and advances, including investments in joint ventures
and foreign subsidiaries; |
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financial ratio and condition tests; and |
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increases in our cost of borrowings or inability or unavailability of additional debt or
equity capital. |
These restrictions and tests may prevent us from taking action that could increase the value
of our securities, or may require actions that decrease the value of our securities. In addition,
we may fail to meet the tests and thereby default under such senior secured credit facility
(particularly if the industry continues to soften and thereby reduce our advertising revenues). If
we default on our obligations, creditors could require immediate payment of the obligations or
foreclose on collateral. If this happened, we could be forced to sell assets or take other action
that would reduce the value of our securities.
Servicing our debt will require a significant amount of cash, and our ability to generate
sufficient cash depends on many factors, some of which are beyond our control.
Our ability to service our debt depends on our ability to generate significant cash flow in
the future. This, to some extent, is subject to general economic, financial, competitive,
legislative and regulatory factors as well as other factors that are beyond our control. We cannot
assure you that our business will generate cash flow from operations, or that future borrowings
will be available to us under our senior secured credit facility, or otherwise, in an amount
sufficient to enable us to pay our debt or to fund other liquidity needs. If we are not able to
generate sufficient cash flow to service our debt 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 or on terms
acceptable to us, or at all. If we are unable to implement one or more of these alternatives, we
may not be able to service our debt obligations.
We may be required to take an impairment charge on our goodwill and FCC licenses, which may have a
material effect on the value of our total assets.
As of December 31, 2006, the book value of our FCC licenses was $1.1 billion and the book
value of our goodwill was $269.5 million in comparison to total assets of $1.6 billion. Not less
than annually, we are required to evaluate our goodwill and FCC 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 effect on our
total assets.
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We must purchase television programming in advance but cannot predict if a particular show will be
popular enough to cover its cost.
One of our most significant costs is television programming. If a particular program is not
popular in relation to its costs, we may not be able to sell enough advertising time to cover the
costs of the program. Since we purchase programming content from others, we also have little
control over the costs of programming. We usually must purchase programming several years in
advance, and may have to commit to purchase more than one years worth of programming. In addition,
we may replace programs that are doing poorly before we have recaptured any significant portion of
the costs we incurred, or fully expensed the costs for financial reporting purposes. Any of these
factors could reduce our revenues or otherwise cause our costs to escalate relative to revenues.
We may lose a large amount of television programming if a network terminates its affiliation with
us.
Our business depends in large part on the success of our network affiliations. Each of our
stations is affiliated with a major network pursuant to an affiliation agreement. Each affiliation
agreement provides the affiliated station with the right to broadcast all programs transmitted by
the network with which the station is affiliated. Our affiliation agreements expire at various
dates through December 31, 2014.
If we do not enter into affiliation agreements to replace our expiring agreements, we may no
longer be able to carry programming of the relevant network. This loss of programming would require
us to obtain replacement programming, which may involve higher costs and which may not be as
attractive to our target audiences. Furthermore, our concentration of CBS affiliates makes us
sensitive to adverse changes in our business relationship with, and the general success of, CBS.
Network compensation is expected to decrease in future periods.
Television station revenues are primarily derived from local, regional and national
advertising and, to a much lesser extent, from network compensation. Cash payments are provided to
us by certain networks in partial exchange for a substantial majority of the advertising time
available for sale during the airing of network programs. Our network compensation has declined in
recent years and will continue to decline in future years, reflecting an on-going phase-out by the
networks of network compensation under our affiliation agreements. Beginning in fiscal year 2007
network compensation will be less than $1 million per year and is considered immaterial by
management. Furthermore, our affiliation agreements with CW and MyNetworkTV require the Company to
make payments to those networks, rather than receiving payments from those networks. While these
payments are not currently significant, there can be no assurances that such costs will not
increase in the future.
Increases in cable and satellite viewership and advertising could result in a decrease in our
advertising revenues.
Cable-originated programming is a significant competitor for viewers of broadcast television
programming. The advertising share of cable networks has increased as a result of the growth in
cable/satellite penetration (the percentage of television households which are connected to a cable
or satellite system). Increases in the advertising share of cable and satellite networks could
result in a decrease in the advertising revenue at our television stations.
16
Competition from other broadcasters and other sources may cause our advertising sales to go down or
our costs to go up.
Competition in the television industry exists on several levels: competition for audience;
competition for programming, including news; and competition for advertisers. Additional factors
that are material to a television stations competitive position include signal coverage and
assigned frequency.
Audience
Stations compete for audience based on program popularity, which has a direct effect on
advertising rates. A substantial portion of the daily programming on each of our stations is
supplied by the network affiliate. During those periods, the stations are totally dependent upon
the performance of the network programs to attract viewers. There can be no assurance that this
programming will achieve or maintain satisfactory viewership levels in the future. Non-network time
periods are programmed by the station with a combination of self-produced news, public affairs and
other entertainment programming, including news and syndicated programs purchased for cash, cash
and barter, or barter only, and involve significant costs.
In addition, the development of methods of television transmission of video programming other
than over-the-air broadcasting and, in particular, cable television have significantly altered
competition for audiences in the television industry. These other transmission methods can increase
competition for a broadcasting station by bringing into its market distant broadcasting signals not
otherwise available to the stations audience and also by serving as a distribution system for
non-broadcasting programming.
Technological innovation and the resulting proliferation of programming alternatives, such as
home entertainment systems, wireless cable services, satellite master antenna television
systems, low power television stations, television translator stations, direct broadcast satellite,
video distribution services, pay-per-view and the Internet, have fractionalized television viewing
audiences and have subjected free over-the-air television broadcast stations to new types of
competition.
Recent developments by many companies, including internet service providers, are expanding the
variety and quality of broadcast content on the Internet. Internet companies have developed
business relationships with companies that have traditionally provided syndicated programming,
network television, production studios for news and live content, as well as motion picture
studios.
Programming
Competition for programming involves negotiating with national program distributors or
syndicators that sell first-run and rerun packages of programming. Each station competes against
the broadcast station competitors in its market for exclusive access to off-network reruns, such as
Seinfeld, and first-run product, such as Oprah. Cable systems generally do not compete with local
stations for programming, although various national cable networks from time to time have acquired
programs that would have otherwise been offered to local television stations. Competition exists
for exclusive news stories and features as well.
Advertising
Advertising rates are based upon the size of the market in which the station operates, a
stations overall ratings, a programs popularity among the viewers that an advertiser wishes to
attract, the number of advertisers competing for the available time, the demographic makeup of the
market served by the station, the availability of alternative advertising media in the market area,
aggressive and knowledgeable sales forces and the development of projects, features and programs
that tie advertiser messages to programming. Advertising revenues comprise the primary source of
revenues for our stations. Our
17
stations compete for advertising revenues with other television stations in their respective
markets. The stations also compete for advertising revenues with other media, such as newspapers,
radio stations, magazines, outdoor advertising, transit advertising, yellow page directories,
direct mail, Internet and local cable systems. Competition for advertising dollars in the
broadcasting industry occurs primarily within individual markets.
Materiality of a Single Advertising Category Could Adversely Affect Our Business
We derive a material portion of our ad revenue from the automotive industry. For
example, approximately 23% of total revenue came from the automotive category in 2006. If
automotive-related advertising revenue decreases, or if revenue from another ad category that
constitutes a material portion of our stations revenue in a particular period were to decrease,
our business and operating results could be adversely affected.
The phased-in introduction of digital television will continue to require us to incur capital and
operating costs and may expose us to increased competition.
The conversion from analog to digital television services in the United States may have the
following effects on us:
Capital and operating costs
We will incur costs to replace equipment in our stations in order to provide digital
television. Even with the flexible operating requirements, some of our stations will also incur
increased utilities costs as a result of converting to digital operations. We cannot be certain we
will be able to increase revenues to offset these additional costs.
Conversion and programming costs
In addition to incurring costs to convert our stations from the current analog format to
digital format, we also may incur additional costs to obtain programming for the additional
channels made available by digital technology. Increased revenues from the additional channels may
not make up for the conversion costs and additional programming expenses. Also, multiple channels
programmed by other stations could increase competition in our markets.
Our inability to integrate acquisitions successfully would adversely affect us.
We have acquired 33 television stations since January 1, 1994 and in the future we may make
additional acquisitions. In order to integrate successfully the businesses we acquire we will need
to coordinate the management and administrative functions and sales, marketing and development
efforts of each company. Combining companies presents a number of challenges, including integrating
the management of companies that may have different approaches to sales and service, and the
integration of a number of geographically separated facilities. In addition, integrating
acquisitions requires substantial management time and attention and may distract management from
our day-to-day business. If we cannot successfully integrate the businesses we have acquired and
any future acquisitions, our business and results of operations could be adversely affected.
18
Risks Related to Regulatory Matters
Federal regulation of the broadcasting industry limits our operating flexibility.
The FCC regulates our business, just as it does all other companies in the broadcasting
industry. We must request and obtain FCC approval whenever we need a new license, seek to renew or
assign a license, purchase a new station or transfer the control of one of our subsidiaries that
holds a license. Our FCC licenses are critical to our operations; we cannot operate without them.
We cannot be certain that the FCC will renew these licenses in the future or approve new
acquisitions.
Federal legislation and FCC rules have changed significantly in recent years and can be
expected to continue to change. These changes may limit our ability to conduct our business in ways
that we believe would be advantageous and may therefore affect our operating results.
The FCCs duopoly restrictions limit our ability to own and operate multiple television stations in
the same market and our ability to own and operate a television station and newspaper in the same
market.
The FCCs ownership rules generally prohibit us from owning or having attributable
interests in television stations located in the same markets in which our stations are licensed.
Accordingly, our ability to expand through acquisitions of additional stations in markets where we
presently are operating is constrained by those rules. Under current FCC cross-ownership rules, we
also are not allowed to own and operate a television station and a newspaper in the same market.
Any potential hostilities or terrorist attacks may affect our revenues and results of operations.
We expect that if the United States engages in additional foreign hostilities or there is a
terrorist attack against the United States, we may lose advertising revenue and incur increased
broadcasting expenses due to pre-emption, delay or cancellation of advertising campaigns and the
increased costs of providing coverage of such events. We cannot predict the extent and duration of
any future, disruption to our programming schedule, the amount of advertising revenue that would be
lost or delayed or the amount by which our broadcasting expenses would increase as a result. Any
such loss of revenue and increased expenses could negatively affect our future results of
operations.
Item 1B. Unresolved Staff Comments.
None.
19
Item 2. Properties.
The Companys principal executive offices are located at 4370 Peachtree Road, NE, Atlanta,
Georgia, 30319. The Companys administrative office is located at 126 North Washington St., Third
Floor, Albany, Georgia, 31701.
The types of properties required to support television stations include offices, studios,
transmitter sites and antenna sites. A stations studios are generally housed with its offices in
business districts. The transmitter sites and antenna are generally located in elevated areas to
provide optimal signal strength and coverage.
The following table sets forth certain information regarding the Companys television stations
and related properties as of February 28, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
Lease |
|
|
|
Owned or |
|
|
Size |
|
|
Height(ft.)/ |
|
|
Expiration |
|
Market Area, Station and Use |
|
Leased |
|
|
(sq. ft.)(a) |
|
|
Analog Power |
|
|
Date |
|
|
Knoxville, Tennessee, WVLT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio |
|
Owned |
|
|
18,000 |
|
|
|
|
|
|
|
|
|
Transmission tower site |
|
Leased |
|
Tower space |
|
|
1,078/316 kw |
|
|
|
6/1/2028 |
|
Lexington, Kentucky, WKYT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio |
|
Owned |
|
|
34,500 |
|
|
|
|
|
|
|
|
|
Transmission tower site |
|
Owned |
|
|
|
|
|
1,510/60 kw |
|
|
|
|
Hazard, Kentucky, WYMT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio |
|
Owned |
|
|
21,200 |
|
|
|
|
|
|
|
|
|
Transmission tower site |
|
Leased |
|
|
|
|
|
1,029/263 kw |
|
|
|
6/1/2010 |
|
Transmitter buildings and improvements |
|
Owned |
|
816 and 864 |
|
|
|
|
|
|
|
|
Waco, Texas, KWTX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio |
|
Owned |
|
|
34,000 |
|
|
|
|
|
|
|
|
|
Moody, Texas, KWTX |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission tower site |
|
Owned |
|
|
856 |
|
|
1,679/209 kw |
|
|
|
|
|
Killeen, Texas, KWTX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office Space |
|
Leased |
|
|
3,000 |
|
|
|
|
|
|
|
8/31/2011 |
|
Tower Relay |
|
Owned |
|
|
|
|
|
|
109 |
|
|
|
|
|
Bryan, Texas, KBTX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio |
|
Owned |
|
|
13,000 |
|
|
|
|
|
|
|
|
|
Transmission tower |
|
Owned |
|
|
|
|
|
|
374 |
|
|
|
|
|
Grimes County, Texas, KBTX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission tower site |
|
Leased |
|
|
1,300 |
|
|
1,705/70 kw |
|
|
|
4/1/2032 |
|
Calvert, Texas, KBTX |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission Tower |
|
Owned |
|
80 and 96 |
|
|
|
252 |
|
|
|
|
|
Falls County, Texas, KBTX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission Tower |
|
Owned |
|
|
128 |
|
|
|
200 |
|
|
|
|
|
Beaver Crossing, Nebraska, KOLN |
|
|
|
|
|
|
|
|
|
|
|
|
Transmission tower site |
|
Owned |
|
120 acres |
|
|
1,500/302 kw |
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
Lease |
|
|
|
Owned or |
|
|
Size |
|
|
Height(ft.)/ |
|
|
Expiration |
|
Market Area, Station and Use |
|
Leased |
|
|
(sq. ft.)(a) |
|
|
Analog Power |
|
|
Date |
|
|
Lincoln, Nebraska, KOLN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio |
|
Owned |
|
|
28,044 |
|
|
|
400 |
|
|
|
|
|
Grand Island, Nebraska, KGIN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio |
|
Leased |
|
|
3,616 |
|
|
|
|
|
|
|
12/1/2008 |
|
Transmission tower site |
|
Owned |
|
|
71 |
|
|
1069/316 kw |
|
|
|
|
|
Heartwell, Nebraska, KGIN |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission Tower site |
|
Owned |
|
|
71 |
|
|
1,069/316 kw |
|
|
|
|
|
Washington, North Carolina, WITN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio |
|
Owned |
|
|
19,600 |
|
|
|
198 |
|
|
|
|
|
Greenville, North Carolina, WITN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio |
|
Leased |
|
|
2,822 |
|
|
|
|
|
|
|
11/30/2007 |
|
Grifton, North Carolina, WITN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmitter building |
|
Owned |
|
|
4,190 |
|
|
|
2,000 |
|
|
|
|
|
Transmission tower site |
|
Leased |
|
9 acres |
|
|
316 kw |
|
|
|
1/1/2029 |
|
Tallahassee, Florida, WCTV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio (Halstead Blvd) |
|
Owned |
|
|
31,878 |
|
|
|
|
|
|
|
|
|
Transmission tower site (27 site) |
|
Owned |
|
10 acres |
|
|
|
400 |
|
|
|
|
|
Metcalf, Georgia, WCTV |
|
|
|
|
|
|
|
|
|
|
|
|
Transmission tower site |
|
Owned |
|
182 acres |
|
|
2,000/100 kw |
|
|
|
|
|
North Augusta, South Carolina, WRDW |
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio |
|
Owned |
|
|
17,000 |
|
|
501/20 kw |
|
|
|
|
|
Beech Island, South Carolina, WRDW |
|
|
|
|
|
|
|
|
|
|
|
|
Transmission tower site |
|
Owned |
|
143 acres |
|
|
1,454/750 kw |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,591/316 kw |
|
|
|
|
Eau Claire, Wisconsin, WEAU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio |
|
Owned |
|
|
16,116 |
|
|
|
961 |
|
|
|
|
|
Township of Fairchild, Wisconsin, WEAU |
|
Owned |
|
|
|
|
|
|
|
|
|
|
|
|
Transmitter building and transmission site |
|
With |
|
|
2,304 |
|
|
2,000/316 kw |
|
|
|
|
|
|
Easement |
|
|
|
|
|
|
|
|
|
|
|
|
Panama City, Florida, WJHG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio |
|
Owned |
|
|
14,000 |
|
|
|
413 |
|
|
|
|
|
Youngstown, Florida, WJHG |
|
|
|
|
|
|
|
|
|
|
|
|
Transmission tower site |
|
Owned |
|
17 acres |
|
|
867/316 kw |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/52 kw digital |
|
|
|
|
Sherman, Texas, KXII |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio |
|
Owned |
|
|
12,813 |
|
|
|
202 |
|
|
|
|
|
Madill, Oklahoma, KXII |
|
|
|
|
|
|
|
|
|
|
|
|
Transmission tower site |
|
Owned |
|
|
1,200 |
|
|
1,694/316 kw |
|
|
|
|
Ardmore, Oklahoma, KXII |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Studio and offices |
|
Owned |
|
|
3,000 |
|
|
|
60 |
|
|
|
|
|
Paris, Texas, KXII |
|
|
|
|
|
|
|
|
|
|
|
|
|
Translator Tower |
|
Owned |
|
|
60 |
|
|
300/10 kw |
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
Lease |
|
|
|
Owned or |
|
|
Size |
|
|
Height(ft.)/ |
|
|
Expiration |
|
Market Area, Station and Use |
|
Leased |
|
|
(sq. ft.)(a) |
|
|
Analog Power |
|
|
Date |
|
|
Wichita-Hutchinson, Kansas, KAKE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Owned |
|
|
46,762 |
|
|
|
|
|
|
|
|
|
Tower/Transmitter site |
|
Owned |
|
|
2,176 |
|
|
1,079/316 kw |
|
|
|
|
|
Colby, Kansas, KLBY-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tower/Transmitter site |
|
Leased |
|
|
1,000 |
|
|
768/100 kw |
|
|
|
4/1/2007 |
|
Garden City, Kansas, KUPK-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Owned |
|
|
1,831 |
|
|
|
|
|
|
|
|
|
Tower/Transmitter site |
|
Owned |
|
|
4,655 |
|
|
880/224 kw |
|
|
|
|
|
Omaha, Nebraska, WOWT-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Owned |
|
|
58,829 |
|
|
528/100 kw |
|
|
|
|
|
Tower/Transmitter site |
|
Owned |
|
|
2,500 |
|
|
1,342/100 kw |
|
|
|
|
|
Madison, Wisconsin, WMTV-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Owned |
|
|
16,485 |
(b) |
|
|
|
|
|
|
|
|
Tower |
|
Leased |
|
|
|
|
|
1299/891 kw |
|
|
|
5/1/2103 |
|
Transmitter site |
|
Owned |
|
|
|
|
|
|
|
|
|
|
|
|
South Bend, Indiana WNDU-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio building |
|
Owned |
|
|
39,800 |
|
|
|
|
|
|
|
|
|
Office and studio property |
|
Leased |
|
12.4 Acres |
|
|
|
|
|
|
|
|
|
Transmission tower site |
|
Owned |
|
56 Acres |
|
|
1,072/5000kw |
|
|
|
2021 |
|
Colorado Springs-Pueblo, Colorado, KKTV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Owned |
|
|
30,465 |
|
|
|
|
|
|
|
|
|
Tower/Transmitter site |
|
Leased |
|
|
800 |
|
|
350/234 kw |
|
|
|
2/1/2059 |
|
Lansing, Michigan, WILX-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Owned |
|
|
13,700 |
|
|
|
|
|
|
|
|
|
Tower/Transmitter site |
|
Leased |
|
|
5,000 |
|
|
994/309 kw |
|
|
|
10/1/2008 |
|
Rockford, Illinois, WIFR-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Owned |
|
|
15,858 |
(b) |
|
|
|
|
|
|
|
|
Tower/Transmitter site |
|
Owned |
|
|
|
|
|
729/562 kw |
|
|
|
|
|
Wausau-Rhinelander, WI WSAW-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Owned |
|
|
24,400 |
|
|
|
|
|
|
|
|
|
Tower/Transmitter site |
|
Leased |
|
|
1,440 |
|
|
650/316 kw |
|
|
|
8/1/2017 |
|
Translator Tower site Sayner, WI |
|
Owned |
|
|
144 |
|
|
495/1KW |
|
|
|
|
|
Topeka, Kansas, WIBW-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Owned |
|
|
19,800 |
|
|
|
|
|
|
|
|
|
Tower/Transmitter site |
|
Leased |
|
|
2,338 |
|
|
1,249/316 kw |
|
|
|
2/1/2062 |
|
Dothan, Alabama WTVY-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Leased |
|
|
20,440 |
|
|
|
|
|
|
|
12/1/2010 |
|
Bonifay, FL WTVY-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tower/Transmitter site |
|
Owned |
|
|
2,500 |
|
|
1,880/100 kw |
|
|
|
|
|
Harrisonburg, Virginia, WHSV-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Leased |
|
|
18,000 |
|
|
|
|
|
|
|
04/2018 |
(c) |
Tower/Transmitter site |
|
Leased |
|
|
2,016 |
|
|
337/8.32 kw |
|
|
|
12/2001 |
(d) |
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
Lease |
|
|
|
Owned or |
|
|
Size |
|
|
Height(ft.)/ |
|
|
Expiration |
|
Market Area, Station and Use |
|
Leased |
|
|
(sq. ft.)(a) |
|
|
Analog Power |
|
|
Date |
|
|
Winchester, Virginia, WHSV-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Leased |
|
|
4,093 |
|
|
|
|
|
|
|
11/1/2023 |
|
Staunton, Virginia, WHSV-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Leased |
|
|
3,000 |
|
|
|
|
|
|
|
12/1/2016 |
|
Bowling Green, Kentucky, WBKO-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Owned |
|
|
17,598 |
|
|
|
|
|
|
|
|
|
Tower/Transmitter site |
|
Owned |
|
|
1,175 |
|
|
603/316 kw |
|
|
|
|
|
Meridian, Mississippi, WTOK-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Owned |
|
|
34,061 |
|
|
|
|
|
|
|
|
|
Tower/Transmitter site |
|
Owned |
|
|
1,504 |
|
|
319/316 kw |
|
|
|
|
|
Parkersburg, West Virginia, WTAP-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Owned |
|
|
17,500 |
|
|
|
|
|
|
|
|
|
Tower/Transmitter site |
|
Owned |
|
|
3,600 |
|
|
460/216 kw |
|
|
|
|
|
Reno,
Nevada, KOLO-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and studio |
|
Owned |
|
|
20,600 |
|
|
|
|
|
|
|
|
|
Transmission tower site |
|
Leased |
|
|
|
|
|
80/20kw |
|
|
|
12/1/2030 |
|
Transmitter building and improvements |
|
Owned |
|
1018 and 864 |
|
|
|
|
|
|
|
|
Charlottesville, VA, WCAV-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Leased |
|
|
8,900 |
|
|
|
|
|
|
|
4/1/2009 |
|
Transmission Tower / 2 Antennas |
|
Leased |
|
|
1,000 |
|
|
|
198/34.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190/15.74 |
|
|
|
4/1/2009 |
|
Antennae for WAHU FOX |
|
Leased |
|
|
2,500 |
|
|
210/50 kw |
|
|
|
5/1/2009 |
|
Grand Junction, CO, KKCO-TV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Leased |
|
|
4,000 |
|
|
|
|
|
|
|
4/30/2007 |
|
Tower/Transmitter site |
|
Leased |
|
|
|
|
|
300/155kw |
|
|
|
12/31/2007 |
|
Transmitter building and improvements |
|
Owned |
|
|
800 |
|
|
|
|
|
|
|
|
|
Charleston, WV, WSAZ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio Charleston |
|
Owned |
|
|
6,468 |
|
|
|
|
|
|
|
|
|
Tower |
|
Owned |
|
|
|
|
|
180/1 kw |
|
|
|
|
|
Huntingdon, WV, WSAZ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and Studio |
|
Owned |
|
|
24,476 |
|
|
|
|
|
|
|
|
|
Tower |
|
Owned |
|
|
|
|
|
1061/42.7 kw |
|
|
|
|
|
Tower |
|
Owned |
|
|
|
|
|
1061/724 kw |
|
|
|
|
|
Moultrie,
GA, WSWG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office |
|
Owned |
|
|
6,000 |
|
|
|
|
|
|
|
|
|
Office |
|
Leased |
|
|
170 |
|
|
|
|
|
|
|
10/1/2009 |
|
Transmission Tower |
|
Leased |
|
|
|
|
|
960/1.7 mw |
|
|
|
10/1/2009 |
|
|
|
|
(a) |
|
Approximate size is for building space only and does not include the land on which the
facilities are located. |
|
(b) |
|
The tower/transmitter is located at and included within the size of the office and studio
premises. |
23
|
|
|
(c) |
|
The Company has an option to purchase this property during the term of the lease. The
purchase price is subject to adjustment depending upon the date the option is exercised. |
|
(d) |
|
The United States Department of Agriculture Forest Service granted us a Special Use Permit to
occupy this land. |
Item 3. Legal Proceedings.
The Company is subject to legal proceedings and claims in the normal course of its business.
The Company does not believe, based on current knowledge, that any legal proceedings or claims are
likely to have a material adverse effect on the Companys financial position, results of operations
or cash flows.
Item 4. Submission of Matters to a vote of Security Holders.
No matters were submitted to a vote of security holders of the Company during the fourth
quarter of the fiscal year covered.
Item 4A. Executive Officers of the Registrant.
Set forth below is certain information with respect to the executive officers of the Company
as of February 28, 2007:
J. Mack Robinson, age 83, has been our Chairman and Chief Executive Officer since September
2002. Prior to that, he was our President and Chief Executive Officer since 1996. He has served as
one of our directors since 1993. He is the Chairman of the Executive Committee of our board of
directors. Mr. Robinson has been Chairman Emeritus of Triple Crown Media, Inc. since December 30,
2005 and previously served as Chairman of the Board of Bull Run Corporation from 1994 through 2005,
Chairman of the Board and President of Delta Life Insurance Company and Delta Fire and Casualty
Insurance Company since 1958, President of Atlantic American Corporation, an insurance holding
company, from 1988 until 1995 and Chairman of the Board of Atlantic American Corporation since
1974. Mr. Robinson also serves as a director of the following companies: Bankers Fidelity Life
Insurance Company, American Independent Life Insurance Company, Georgia Casualty & Surety Company,
American Southern Insurance Company and American Safety Insurance Company. He is a director
emeritus of Wachovia Corporation. Mr. Robinson is the husband of Mrs. Harriett J. Robinson and the
father-in-law of Mr. Hilton H. Howell, Jr., both members of our board of directors.
Hilton H. Howell, Jr., age 44, has been our Vice Chairman since September 2002. Prior to that,
he was our Executive Vice President since September 2000. He has served as one of our directors
since 1993. He is a member of the Executive Committee of our board of directors. He has served as
President and Chief Executive Officer of Atlantic American Corporation, an insurance holding
company, since 1995 and Executive Vice President from 1992 to 1995. He has been Executive Vice
President and General Counsel of Delta Life Insurance Company and Delta Fire and Casualty Insurance
Company since 1991, and Vice Chairman of Bankers Fidelity Life Insurance Company and Georgia
Casualty & Surety Company since 1992. He has been a director of Triple Crown Media, Inc. since
December 30, 2005 and was previously a director, Vice President and Secretary of Bull Run
Corporation, from 1994 through 2005. Mr. Howell also serves as a director of the following
companies: Atlantic American Corporation, Bankers Fidelity Life Insurance Company, Delta Life
Insurance Company, Delta Fire and Casualty Insurance Company, Georgia Casualty & Surety Company,
American Southern Insurance Company, American Safety Insurance Company, Association Casualty
Insurance Company and Association Risk Management General Agency. He is the son-in-law of Mr. J.
Mack Robinson and Mrs. Harriett J. Robinson, both members of our board of directors.
24
Robert S. Prather, Jr., age 62, has served as our President and Chief Operating Officer since
September 2002. Prior to that, he served as our Executive Vice President Acquisitions since 1996.
He has served as one of our directors since 1993. He is a member of the Executive Committee of our
board of directors. He has served as Chairman of Triple Crown Media, Inc. since December 30, 2005
and was previously a director, Vice President and Secretary of Bull Run Corporation, from 1994
through 2005. He serves as an advisory director of Swiss Army Brands, Inc., and serves on the Board
of Trustees of the
Georgia World Congress Center Authority and also serves as a member of the Board of Directors
for Gabelli Asset Management and Victory Ventures, Inc.
James C. Ryan, age 46, has served as our Senior Vice President and Chief Financial Officer
since September 2002. Prior to that, he was our Vice President and Chief Financial Officer since
October 1998. He was the Chief Financial Officer of Busse Broadcasting Corporation from 1987 until
it was acquired by the Company in 1998.
Robert A. Beizer, age 67, has served as our Vice President for Law and Development and
Secretary since 1996. From June 1994 to February 1996 he was of counsel to Venable, Baetjer, Howard
& Civiletti, a law firm, in its regulatory and legislative practice group. From 1990 to 1994, Mr.
Beizer was a partner in the law firm of Sidley & Austin and was head of their communications
practice group in Washington, D.C. He is a past president of the Federal Communications Bar
Association and has served as a member of the American Bar Association House of Delegates. He is a
member of the ABA Forum Committee on Communications Law.
25
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
The Companys common stock, no par value, and its Class A common stock, no par value, have
been listed and traded on The New York Stock Exchange (the NYSE) since September 24, 1996 and
June 30, 1995, respectively. Prior to September 16, 2002, the common stock was named Class B
common stock.
The following table sets forth the high and low sale prices of the common stock and the Class
A common stock as well as the cash dividend declared for the periods indicated. The high and low
sales prices of the common stock and the Class A common stock are as reported by the NYSE.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Class A Common Stock |
|
|
|
|
|
|
|
|
|
|
Cash Dividends |
|
|
|
|
|
|
|
|
|
Cash Dividends |
|
|
|
|
|
|
|
|
|
|
Declared Per |
|
|
|
|
|
|
|
|
|
Declared Per |
|
|
High |
|
Low |
|
Share |
|
High |
|
Low |
|
Share |
2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
9.54 |
|
|
$ |
7.53 |
|
|
$ |
0.03 |
|
|
$ |
9.09 |
|
|
$ |
7.54 |
|
|
$ |
0.03 |
|
Second Quarter |
|
|
8.63 |
|
|
|
5.15 |
|
|
|
0.03 |
|
|
|
8.22 |
|
|
|
5.60 |
|
|
|
0.03 |
|
Third Quarter |
|
|
6.90 |
|
|
|
5.66 |
|
|
|
0.03 |
|
|
|
7.30 |
|
|
|
6.20 |
|
|
|
0.03 |
|
Fourth Quarter |
|
|
7.42 |
|
|
|
5.76 |
|
|
|
0.03 |
|
|
|
8.35 |
|
|
|
6.50 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
15.74 |
|
|
$ |
13.61 |
|
|
$ |
0.03 |
|
|
$ |
14.00 |
|
|
$ |
11.99 |
|
|
$ |
0.03 |
|
Second Quarter |
|
|
14.66 |
|
|
|
10.58 |
|
|
|
0.03 |
|
|
|
13.44 |
|
|
|
10.30 |
|
|
|
0.03 |
|
Third Quarter |
|
|
13.59 |
|
|
|
10.10 |
|
|
|
0.03 |
|
|
|
12.22 |
|
|
|
9.80 |
|
|
|
0.03 |
|
Fourth Quarter |
|
|
9.41 |
|
|
|
7.65 |
|
|
|
0.03 |
|
|
|
8.66 |
|
|
|
7.43 |
|
|
|
0.03 |
|
As of February 27, 2006, the Company had 42,044,065 outstanding shares of common stock held by
approximately 2,085 stockholders and 5,753,020 outstanding shares of Class A common stock held by
approximately 502 stockholders. The number of stockholders includes stockholders of record and
individual participants in security position listings as furnished to the Company pursuant to Rule
17Ad-8 under the Exchange Act.
The Company has paid a cash dividend on its common stock since its initial offering in 1996
and on its Class A common stock since 1967. The Companys 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. The Articles of Incorporation require that the common stock and the Class A
common stock receive dividends on a pari passu basis. There can be no assurance of the Companys
ability to continue to pay any dividends on either class of common stock.
The Companys senior credit facility and its 91/4% Notes due 2011 each contain covenants that
restrict the amount available to the Company to pay cash dividends on its capital stock. However,
the
Company does not believe that such covenants currently limit its ability to pay dividends at the
recent quarterly rate of $0.03 per share. In addition to the foregoing, the declaration and
payment of dividends on the common stock and the Class A common stock are subject to the discretion
of the Board of Directors. Any future payments of dividends will depend on the earnings and
financial position of the
26
Company and such other factors as the Board of Directors deems relevant.
See Note E. Long-term Debt to the Companys audited consolidated financial statements included
elsewhere herein for further discussion of restrictions on the Companys ability to pay dividends.
Stock Performance Graph
The following stock performance graphs do not constitute soliciting material and should not be
deemed filed or incorporated by reference into any other filing by Gray under the Securities Act of
1933, as amended or the Securities Exchange Act, except to the extent Gray specifically
incorporates these graphs by reference therein.
The following graphs compare the cumulative total return of the common stock and the Class A
common stock from December 31, 2001 to December 31, 2006 as compared to the stock market total
return indexes for (1) The New York Stock Exchange Market Index and (2) The New York Stock Exchange
Industry Index based upon the Television Broadcasting Stations Index on December 31, 2001.
The graphs assume the investment of $100 in the common stock and the Class A common stock, the
New York Stock Exchange Market Index and the NYSE Television Broadcasting Stations Index on
December 31, 2001. Dividends are assumed to have been reinvested as paid.
Common Stock
Comparison of Cumulative Total Return
of One or More Companies, Peer Groups, Industry Indexes and/or
Broad Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending |
|
|
Company/Index/Market |
|
|
12/31/2001 |
|
|
12/31/2002 |
|
|
12/31/2003 |
|
|
12/31/2004 |
|
|
12/31/2005 |
|
|
12/31/2006 |
|
|
Gray Television Inc. |
|
|
|
100.00 |
|
|
|
|
94.49 |
|
|
|
|
147.52 |
|
|
|
|
153.71 |
|
|
|
|
98.40 |
|
|
|
|
74.76 |
|
|
|
TV Broadcasting Stations |
|
|
|
100.00 |
|
|
|
|
82.07 |
|
|
|
|
109.03 |
|
|
|
|
109.20 |
|
|
|
|
105.60 |
|
|
|
|
130.47 |
|
|
|
NYSE Market Index |
|
|
|
100.00 |
|
|
|
|
81.69 |
|
|
|
|
105.82 |
|
|
|
|
119.50 |
|
|
|
|
129.37 |
|
|
|
|
151.57 |
|
|
|
27
Class A Common Stock
Comparison of Cumulative Total Return
of One or More Companies, Peer Groups, Industry Indexes and/or
Broad Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending |
|
|
Company/Index/Market |
|
|
12/31/2001 |
|
|
12/31/2002 |
|
|
12/31/2003 |
|
|
12/31/2004 |
|
|
12/31/2005 |
|
|
12/31/2006 |
|
|
Gray Television Cl A |
|
|
|
100.00 |
|
|
|
|
85.86 |
|
|
|
|
110.61 |
|
|
|
|
104.99 |
|
|
|
|
67.91 |
|
|
|
|
62.74 |
|
|
|
TV Broadcasting Stations |
|
|
|
100.00 |
|
|
|
|
82.07 |
|
|
|
|
109.03 |
|
|
|
|
109.20 |
|
|
|
|
105.60 |
|
|
|
|
130.47 |
|
|
|
NYSE Market Index |
|
|
|
100.00 |
|
|
|
|
81.69 |
|
|
|
|
105.82 |
|
|
|
|
119.50 |
|
|
|
|
129.37 |
|
|
|
|
151.57 |
|
|
|
28
Item 6. Selected Financial Data.
Set forth below is certain selected historical consolidated financial data of the Company.
This information should be read in conjunction with the Companys audited consolidated financial
statements and related notes thereto appearing elsewhere herein and Managements Discussion and
Analysis of Financial Condition and Results of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2006(1) |
|
2005(2) |
|
2004 |
|
2003 |
|
2002(3) |
|
|
(in thousands, except per share data) |
Statements of Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (4) |
|
$ |
332,137 |
|
|
$ |
261,553 |
|
|
$ |
293,273 |
|
|
$ |
243,061 |
|
|
$ |
146,714 |
|
Operating income |
|
|
87,991 |
|
|
|
60,861 |
|
|
|
100,415 |
|
|
|
62,543 |
|
|
|
43,354 |
|
Loss on early extinguishment of debt (5) |
|
|
(347 |
) |
|
|
(6,543 |
) |
|
|
|
|
|
|
|
|
|
|
(16,838 |
) |
Income (loss) from continuing operations |
|
|
11,711 |
|
|
|
4,604 |
|
|
|
36,517 |
|
|
|
7,538 |
|
|
|
(4,581 |
) |
Income (loss) from discontinued
publishing and wireless operations, net
of income tax of $0, $3,253,
$5,059, $5,672, and $4,664
respectively (6) |
|
|
|
|
|
|
(1,242 |
) |
|
|
7,768 |
|
|
|
6,486 |
|
|
|
(137 |
) |
Cumulative effect of accounting change,
net of income tax benefit of $8,674 (7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,223 |
) |
Net income (loss) |
|
|
11,711 |
|
|
|
3,362 |
|
|
|
44,285 |
|
|
|
14,024 |
|
|
|
(23,941 |
) |
Net income (loss) available to common
stockholders |
|
|
8,464 |
|
|
|
(2,286 |
) |
|
|
41,013 |
|
|
|
10,737 |
|
|
|
(30,371 |
) |
Net income (loss) from continuing
operations available to common
stockholders per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.17 |
|
|
|
(0.02 |
) |
|
|
0.67 |
|
|
|
0.08 |
|
|
|
(0.50 |
) |
Diluted |
|
|
0.17 |
|
|
|
(0.02 |
) |
|
|
0.66 |
|
|
|
0.08 |
|
|
|
(0.50 |
) |
Net income (loss) available to common
stockholders per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.17 |
|
|
|
(0.05 |
) |
|
|
0.83 |
|
|
|
0.21 |
|
|
|
(1.37 |
) |
Diluted |
|
|
0.17 |
|
|
|
(0.05 |
) |
|
|
0.82 |
|
|
|
0.21 |
|
|
|
(1.37 |
) |
Cash dividends declared per common
share (8) |
|
|
0.12 |
|
|
|
0.12 |
|
|
|
0.24 |
|
|
|
0.08 |
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at end of period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,628,287 |
|
|
$ |
1,525,054 |
|
|
$ |
1,374,466 |
|
|
$ |
1,325,329 |
|
|
$ |
1,332,048 |
|
Long-term debt (including current
portion) |
|
|
851,654 |
|
|
|
792,509 |
|
|
|
655,905 |
|
|
|
655,846 |
|
|
|
658,096 |
|
Redeemable serial preferred stock |
|
|
37,451 |
|
|
|
39,090 |
|
|
|
39,003 |
|
|
|
39,276 |
|
|
|
39,190 |
|
Total stockholders equity |
|
|
379,754 |
|
|
|
380,996 |
|
|
|
378,237 |
|
|
|
362,775 |
|
|
|
373,366 |
|
29
|
|
|
(1) |
|
Reflects the acquisition of WNDU-TV on March 3, 2006 as of the acquisition date. For
further information concerning this acquisition, see Part 1, Item 1. Business included
elsewhere herein. |
|
(2) |
|
Reflects the acquisitions of KKCO-TV on January 31, 2005, WSWG-TV on November 10, 2005
and WSAZ-TV on November 30, 2005 as of their respective acquisition dates. For further
information concerning these acquisitions, see Part 1, Item 1. Business included elsewhere
herein. |
|
(3) |
|
Reflects the acquisitions of Gray MidAmerica Television, completed October 25, 2002 and
KOLO-TV, completed December 18, 2002, as of their respective acquisition dates. For further
information concerning these acquisitions, see Part 1, Item 1. Business included elsewhere
herein. |
|
(4) |
|
The Companys revenues fluctuate significantly between years consistent with increased
advertising expenditures associated with political election years. |
|
(5) |
|
The Company recorded in 2006 a loss on early extinguishment of debt related to the
repurchase of a portion of its 91/4 % Senior Subordinated Notes, and recorded in 2005 losses
on early extinguishment of debt related to two amendments to its senior credit facility and
the repurchase of a portion of its 91/4 % Senior Subordinated Notes, and recorded in 2002 a
loss on early extinguishment of debt related to the amendment of its senior credit facility
and the redemption of its 10 5/8 % Senior Subordinated Notes due in 2006. |
|
(6) |
|
The Company completed (i) the contribution of all of its membership interests in Gray
Publishing, LLC, which included its Gray Publishing and Graylink Wireless businesses and
certain other assets to Triple Crown Media, Inc. and (ii) the spinoff of all the common
stock of Triple Crown Media, Inc. to Grays shareholders on December 30, 2005. The selected
financial information for all years presented reflect the reclassification of the results
of operations of those businesses as discontinued operations, net of income tax. See Note
B. Discontinued Operations to the Companys audited consolidated financial statements
included elsewhere herein. |
|
(7) |
|
Upon adoption of Statement of Financial Accounting Standard No. 142 Goodwill and Other
Intangible Assets, the Company recorded a non-cash charge of approximately $39.9 million
($26.6 million after income taxes) as a cumulative effect of accounting change. Of this
amount, $12.0 million ($7.4 million, net of income tax) was related to discontinued
operations and is included in the income (loss) from discontinued operations. |
|
(8) |
|
Cash dividends for 2006 include a cash dividend of $0.03 cents per share approved in
the fourth quarter of 2006 and paid in the first quarter of 2007, and cash dividends for
2004 include a Special Cash Dividend of 12 cents per share approved in the fourth quarter
of 2004 and paid in the first quarter of 2005. |
30
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Executive Overview
Introduction
The following analysis of the financial condition and results of operations of Gray
Television, Inc. (the Company) should be read in conjunction with the Companys audited
consolidated financial statements and notes thereto included elsewhere herein.
Overview
The Company owns 36 television stations serving 30 television markets. 17 of the stations are
affiliated with CBS, 10 are affiliated with the NBC, eight are affiliated with the ABC and one is
affiliated with FOX. The combined station group has 22 markets with stations ranked #1 in local
news audience and 23 markets with stations ranked #1 in overall audience within their respective
markets based on the results of the average of the Nielsen November, July, May and February 2006
ratings reports. The combined TV station group reaches approximately 6.3% of total U.S. TV
households. In addition, Gray currently operates 36 digital second channels including one
affiliated with ABC, five affiliated with FOX, seven affiliated with CW and 15 affiliated with
MyNetworkTV, plus six local news/weather channels and two independent channels in certain of its
existing markets. With seventeen CBS affiliated stations, the Company is the largest independent
owner of CBS affiliates in the country.
The operating revenues of the Companys television stations are derived primarily from
broadcast advertising revenues and, to a much lesser extent, from ancillary services such as
production of commercials and tower rentals as well as compensation paid by the networks to the
stations for broadcasting network programming.
Broadcast advertising is sold for placement either preceding or following a television
stations network programming and within local and syndicated programming. Broadcast advertising
is sold in time increments and is priced primarily on the basis of a programs popularity among the
specific audience an advertiser desires to reach, as measured by Nielsen. 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 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.
Most broadcast advertising contracts are short-term, and generally run only for a few weeks.
Approximately 73% of the net revenues of the Companys television stations for the year ended
December 31, 2006, were generated from local advertising (including political advertising
revenues), which is sold primarily by a stations sales staff directly to local accounts, and the
remainder represented primarily by national advertising, which is sold by a stations national
advertising sales representative. The stations generally pay commissions to advertising agencies
on local, regional and national advertising and the stations also pay commissions to the national
sales representative on national advertising.
Broadcast advertising revenues are generally highest in the second and fourth quarters each
year, due in part to increases in consumer advertising in the spring and retail advertising in the
period leading up to and including the holiday season. In addition, broadcast advertising revenues
are generally higher during even numbered years due to spending by political candidates, which
spending typically is heaviest during the fourth quarter.
31
The 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
the broadcasting operations is fixed.
Recent Acquisition Activity
On March 3, 2006, the Company completed the acquisition of the stock of Michiana Telecasting
Corp., owner of WNDU-TV, the NBC affiliate in South Bend, Indiana, from the University of Notre
Dame for $88.8 million, which included certain working capital adjustments and transaction fees.
The Company financed this acquisition with borrowings under the Companys senior credit facility.
Also during 2006, Gray launched or re-branded 36 digital second channels including one ABC,
five Fox, seven CW and 15 MyNetworkTV affiliates plus six local news/weather channels and two
independent channels in certain of its existing markets. Gray has launched these additional
secondary channels in order to develop additional revenue streams while incurring minimal
incremental expenses. The rebranding of Grays existing UPN stations was necessary due to the
merging of the UPN and WB networks into the CW network during 2006.
On November 30, 2005, the Company completed the acquisition of the assets of WSAZ-TV, Channel
3, the NBC affiliate serving the Charleston-Huntington, West Virginia market,
from
Emmis Communications Corp. for approximately $185.8 million. The Company used funds borrowed under
its senior credit facility and a portion of its cash on hand to fund this acquisition.
On November 10, 2005, the Company completed the acquisition of the assets of WSWG-TV, the CBS
affiliate serving Albany, Georgia from P.D. Communications, LLC for approximately $3.75 million
plus related transaction costs. The Company used a portion of its cash on hand to fund this
acquisition.
On July 1, 2005 the Company acquired a third FCC license to operate a second low power
television station, WAHU-TV, in the Charlottesville, Virginia television market. WAHU-TV is a FOX
network affiliate. Grays original cost to acquire and/or construct the combined broadcast
facilities for these three stations was approximately $8.5 million.
On January 31, 2005, the Company completed the acquisition of KKCO-TV for approximately $13.5
million. KKCO-TV, Channel 11 serves the Grand Junction, Colorado television market and is an NBC
affiliate. The Company used a portion of its cash on hand to fully fund this acquisition. Due to
the acquisitions of WNDU-TV occurring in 2006, and WSAZ-TV, WSWG-TV and KKCO-TV occurring in 2005,
the operating results of these stations are not reflected in the Companys Consolidated Financial
Statements as of and for the year ended December 31, 2004 included elsewhere herein. The results
for these stations are included in the results of operations for the years ended December 31, 2006
and 2005, respectively, beginning on their acquisition dates.
On August 17, 2004, the Company completed the acquisition of an FCC television license for
WCAV-TV, Channel 19, in Charlottesville, Virginia from Charlottesville Broadcasting Corporation.
Grays cost to acquire that FCC license was approximately $1.0 million. WCAV-TV is a CBS network
affiliate. Gray also has an FCC license to operate a low power television station, WVAW-TV, in the
Charlottesville, Virginia television market. WVAW-TV is an ABC network affiliate.
2005 Spinoff
On December 30, 2005, the Company completed the spinoff of all of the outstanding stock of
Triple Crown Media., Inc. (TCM). Immediately prior to the spinoff, the Company contributed all of
the
32
membership interests in Gray Publishing, LLC, which owned and operated the Companys Gray
Publishing and GrayLink Wireless businesses and certain other assets, to TCM. In the spinoff, each
of the holders of our common stock received one share of TCM common stock for every ten shares of
the Companys common stock and each holder of the Companys Class A common stock received one
share of TCM common stock for every ten shares of our Class A common stock. As part of the
spinoff, the Company received an approximate $44.0 million cash distribution from TCM, which Gray
used to reduce its outstanding indebtedness on December 30, 2005. TCM is now quoted on the Nasdaq
National Market under the symbol TCMI. The financial position and results of operations of the
publishing and wireless businesses are reported in the Companys consolidated balance sheet and
statement of operations as discontinued operations for all periods presented. Please refer to Note
B. Discontinued Operations to the Companys audited consolidated financial statements included
elsewhere herein.
Net Revenues
Set forth below are the principal types of revenues earned by the Companys broadcasting
operations for the periods indicated and the percentage contribution of each to total revenues
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year End December 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
Broadcasting net
revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local |
|
$ |
199,940 |
|
|
|
60.2 |
% |
|
$ |
174,568 |
|
|
|
66.7 |
% |
|
$ |
160,648 |
|
|
|
54.8 |
% |
National |
|
|
78,492 |
|
|
|
23.6 |
% |
|
|
70,825 |
|
|
|
27.1 |
% |
|
|
70,817 |
|
|
|
24.1 |
% |
Network compensation |
|
|
1,089 |
|
|
|
0.3 |
% |
|
|
5,095 |
|
|
|
2.0 |
% |
|
|
9,951 |
|
|
|
3.4 |
% |
Political |
|
|
42,682 |
|
|
|
12.9 |
% |
|
|
2,862 |
|
|
|
1.1 |
% |
|
|
41,706 |
|
|
|
14.2 |
% |
Production and other |
|
|
9,934 |
|
|
|
3.0 |
% |
|
|
8,203 |
|
|
|
3.1 |
% |
|
|
10,151 |
|
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
332,137 |
|
|
|
100.0 |
% |
|
$ |
261,553 |
|
|
|
100.0 |
% |
|
$ |
293,273 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Factors
The broadcast television industry is reliant primarily on advertising revenues and faces
increased competition. For a discussion of other factors that may affect our business, see Risk
Factorson page 14 of this Annual Report.
Results of Operations of the Company
Year Ended December 31, 2006 to Year Ended December 31, 2005
Revenues. Total revenues increased $70.5 million, or 27%, to $332.1 million reflecting, in
part, the acquisition of television stations and expansion of operations discussed above.
Political advertising revenues increased to $42.7 million from $2.9 million reflecting the cyclical
influence of the 2006 elections. Local advertising revenues, excluding political advertising
revenues, increased 14% or approximately $25.3 million. National advertising revenues, excluding
political advertising revenues, increased 11% or approximately $7.7 million. Local and national
advertising was influenced, in part, by the proportion of the total available advertising time
utilized by political announcements. Network compensation revenue decreased 78% to $1.1 million
from $5.1 million due to lower revenue from network affiliation agreements that were renewed in
recent years.
33
Operating expenses. Broadcast expenses (before depreciation, amortization and loss on
disposal of assets) increased $29.6 million, or 18%, to $191.5 million due primarily to the
acquisition of WNDU and WSAZ and due to the expansion of operations as discussed above. The
acquisitions of WNDU-TV and WSAZ-TV resulted in an increase in broadcast expenses of $17.4 million.
Excluding the acquisitions of WNDU-TV and WSAZ-TV, payroll related expenses increased approximately
4% or $4.6 million. This increase was due primarily to routine compensation increases at Grays
existing stations and approximately $1.3 million of payroll related expenses attributable to modest
staffing increases at each station to support the operation of the new digital second channels.
Excluding the acquisitions of WNDU-TV and WSAZ-TV, non-payroll related expenses increased
approximately 13% or $7.7 million. This increase was largely due to an incremental increase in
non-payroll expenses for the digital second channels of $1.7 million; increases in market research
expenses of $1.1 million; increases in national representation firm sales commissions of $1.5
million; increases in electric utilities of $651,000 and increases in the cost of syndicated
programming of $718,000.
Corporate and administrative expenses. Corporate and administrative expenses, before
depreciation, amortization and loss on disposal of assets increased 27% to $15.1 million from $11.9
million due, in part, to incremental increases in payroll expense of $807,000, incremental
increases in legal fees of $973,000 and incremental increases in consulting expense of $221,000.
The 2006 period also includes an aggregate of approximately $1.1 million of non-cash expenses
recorded in connection with restricted stock awards and the Companys adoption on January 1, 2006
of SFAS 123(R) which relates to the new accounting rules for expensing stock based compensation.
The corresponding period of 2005 contains $391,000 of non-cash expenses associated with restricted
stock awards.
Depreciation. Depreciation of property and equipment totaled $34.1 million and $24.5 million
for the years ended December 31, 2006 and 2005, respectively. The increase in depreciation was due
to acquired stations and newly acquired equipment.
Amortization of intangible assets. Amortization of intangible assets was $2.5 million for the
year ended December 31, 2006, as compared to $1.0 million for the year ended December 31, 2005. The
increase in amortization expense was due to definite lived intangible assets of stations acquired
in 2006 and 2005.
Interest expense. Interest expense increased $20.3 million to $66.8 million in the year ended
December 31, 2006 compared to $46.5 million in the year ended December 31, 2005. This increase is
primarily attributable to higher average interest rates in 2006 compared to 2005 and increases in
amounts borrowed under the Companys senior credit facility to fund acquisitions. The total
average debt balance was $814.8 million and $670.0 million for the years ended December 31, 2006
and 2005, respectively. The total average interest rates were 7.63% and 6.79% for the years ended
December 31, 2006 and 2005, respectively.
Loss on Early Extinguishment of Debt. The Company reported a loss on early extinguishment of
debt in the amount of $347,000, which related to the repurchase of $4.7 million, face amount, of
its 91/4% Senior Subordinated Notes (the 91/4% Notes) in the open market. The loss included a premium
of $246,000, the write off of unamortized deferred finance costs of $88,000 and an unaccreted
discount of $13,000.
Income tax expense. The effective tax rate increased to 45.6% for the year ended December 31,
2006 from 44.7% for the year ended December 31, 2005. Income tax expense for 2006 increased as a
percentage of pre-tax income primarily as a result of higher income tax valuation allowances
against state net operating loss carryforwards.
34
Year Ended December 31, 2005 to Year Ended December 31, 2004
Revenues. Total broadcasting revenues decreased 11% over the same period of the prior year to
$261.6 million. Local broadcasting advertising revenues, increased 9% to $174.6 million from
$160.6 million. Since January 1, 2004, the Company has launched digital second channels in six of
its existing television markets, built television station WCAV-TV in Charlottesville, VA, which
commenced broadcast operations in August, 2004, acquired television stations KKCO-TV, Grand
Junction, CO on January 31, 2005, WSWG-TV, Albany GA on November 10, 2005 and WSAZ-TV, Charleston -
Huntington, WV on November 30, 2005 and sold the Companys satellite uplink operations on December
31, 2004. These transactions account for approximately one-third, or $5.0 million of the Companys
overall increase in local broadcasting advertising revenues. For the stations continuously
operated since January 1, 2004 local broadcasting advertising revenues, excluding political
advertising revenues increased 6% or $9.0 million due to increased demand for commercial time by
local advertisers. National broadcasting advertising revenues of $70.8 million were consistent
between the years ended December 31, 2005 and 2004. The transactions discussed above account for
approximately $1.6 million of the total national broadcasting advertising. National advertising for
the stations and second channels continuously operated since January 1, 2004 decreased
approximately 2% or $1.6 million due to decreased demand for commercial time by national
advertisers. Political advertising revenues decreased to $2.9 million from $41.7 million reflecting
the cyclical influence of the 2004 Presidential election. In addition, in the 2004 period the
Company also recorded approximately $3.0 million of broadcast revenue associated with the broadcast
of the 2004 Summer Olympics. Network compensation revenue decreased 49% to $5.1 million from $10.0
million due to lower revenue from renewed network affiliation agreements. However, under the terms
of the affiliation agreements, the Companys cash payments received or receivable in excess of
revenue recognized in accordance with generally accepted accounting principles approximated $2.8
million for the year ended December 31, 2005. In the same period of the prior year, the network
compensation revenue were equal to the related cash payments received or receivable.
Operating expenses. Broadcasting expenses, before depreciation, amortization and loss on
disposal of assets increased 2% to $161.9 million from $158.3 million. For the stations
continuously operated since January 1, 2004, broadcast expenses decreased approximately 1%, or
$1.8 million. This decrease in existing broadcast expenses was due primarily to reduced payroll
expenses, including station incentive bonus expense, reduced commissions to national sales
representatives reflecting the lower political revenue discussed above and reduced legal and
consulting services. The six new digital second channels, WCAV-TV and the stations acquired in 2005
(KKCO-TV, WSWG-TV and WSAZ-TV) incurred approximately $8.5 million in operating expenses for the
year ended December 31, 2005.
Corporate and administrative expenses. Corporate and administrative expenses before
depreciation, amortization and loss on disposal of assets decreased 2% to $11.9 million from $12.2
million in the year ended December 31, 2005 as compared to the same period in 2004. The decrease
was due, in part, to the decrease in restricted stock. Amortization of restricted stock awards
decreased 24% to $391,000 for the year ended December 31, 2005 compared to $512,000 for the year
ended December 31, 2004. Amortization of restricted stock awards decreased due to the grant and
complete amortization of a 10,000 share restricted stock award in 2004. The Company awarded 5,000
and 15,000 shares of restricted stock in 2005 and 2004 respectively. These shares were awarded to
its board of directors and president.
Depreciation. Depreciation of property and equipment totaled $24.5 million and $22.0 million
for the years ended December 31, 2005 and 2004, respectively. The increase in depreciation was due
to equipment acquired in 2005.
Amortization of intangible assets. Amortization of intangible assets was $1.0 million for the
year ended December 31, 2005, as compared to $920,000 for the year ended December 31, 2004. The
increase in amortization expense was due to definite lived intangible assets that were acquired in
2005.
35
Loss on disposal of assets. A loss on disposal of assets of $1.4 million was recorded for the
year ended December 31, 2005, as opposed to a gain on disposal of assets of $496,000 for the year
ended December 31, 2004. These amounts reflect disposals of equipment during the respective
periods.
Miscellaneous income, net. Miscellaneous income, net decreased $421,000 to $558,000 in the
year ended December 31, 2005 compared to $1.0 million in the year ended December 31, 2004.
Included in miscellaneous income was interest income of $468,000 in the year ended December 31,
2005 and $818,000 in the year ended December 31, 2004. The majority of this interest income was
received from interest on the Companys cash and cash equivalents balances.
Interest expense. Interest expense increased $4.5 million to $46.5 million in the year ended
December 31, 2005 compared to $42.0 million in the year ended December 31, 2004. This increase is
primarily attributable to higher average interest rates in 2005 compared to 2004 and increases in
amounts borrowed under the Companys senior credit facility to fund recent acquisitions. The total
average debt balance was $670.0 million and $656.9 million for the years ended December 31, 2005
and 2004, respectively. The total average interest rates were 6.79% and 6.08% for the years ended
December 31, 2005 and 2004, respectively.
Loss on Early Extinguishment of Debt. The Company reported a loss on early extinguishment of
debt in the amount of $6.5 million, which related to four events: the repurchase by the Company of
a portion of its 91/4% Notes, two amendments of the Companys senior credit facility, first on June
28, 2005 and again on November 22, 2005, and other costs related to abandoned refinancing
activities:
|
|
|
The Company repurchased $21.5 million, face amount, of its 91/4% Notes in the open market.
Associated with this repurchase, Gray recorded a loss upon early extinguishment of debt
of $2.6 million, which included a premium of $2.0 million, the write off of unamortized
deferred finance costs of $485,000 and an unaccreted discount of $74,000. Upon repurchase
of the 91/4% Notes, the Company paid $749,000 in accrued interest. |
|
|
|
|
On June 28, 2005, the Company amended its senior credit facility. The Company paid out
approximately $1.6 million in cash for the amendment of the senior credit facility and of
this amount $1.2 million was capitalized as deferred financing costs which will be
amortized to interest expense over the remaining life of the agreement. The remaining
$370,000 was reported as a loss on early extinguishment of debt. Furthermore, the Company
wrote off deferred financing costs and recognized a loss on early extinguishment of debt in
the amount of $1.8 million. The total loss on early extinguishment of debt related to the
June 2005 amendment of the senior credit facility was $2.2 million. |
|
|
|
|
On November 22, 2005, the Company amended its senior credit facility. The Company paid
out approximately $5.6 million in cash for the amendment of the senior credit facility and
of this amount $5.5 million was capitalized as deferred financing costs which will be
amortized to interest expense over the remaining life of the agreement. The remaining
$81,000 was reported as a loss on early extinguishment of debt. $873,000 of previously
capitalized cost was also reported as a loss on early extinguishment of debt. The total
loss on early extinguishment of debt related to the November 2005 amendment was $954,000. |
|
|
|
|
During 2005 the Company incurred and subsequently wrote off approximately $817,000 in
professional and other costs incurred to explore other means of refinancing portions of its
indebtedness.
|
36
Income tax expense. The effective tax rate increased to 44.7% for the year ended December 31,
2005 from 38.5% for the year ended December 31, 2004. Income tax expense for 2005 increased as a
percentage of pre-tax income primarily as a result of higher income tax valuation allowances
against state net operating loss carryforwards.
Liquidity and Capital Resources
General
The following tables present data that the Company believes is helpful in evaluating the
Companys liquidity and capital resources (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
Net cash provided by operating activities |
|
$ |
79,860 |
|
|
$ |
50,482 |
|
Net cash used in investing activities |
|
|
(129,305 |
) |
|
|
(245,925 |
) |
Net cash provided by financing activities |
|
|
44,871 |
|
|
|
154,192 |
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
$ |
(4,574 |
) |
|
$ |
(41,251 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2006 |
|
2005 |
Cash and cash equivalents |
|
$ |
4,741 |
|
|
$ |
9,315 |
|
Long-term debt including current portion |
|
$ |
851,654 |
|
|
$ |
792,509 |
|
Preferred stock |
|
$ |
37,451 |
|
|
$ |
39,090 |
|
Available credit under senior credit agreement |
|
$ |
97,000 |
|
|
$ |
58,500 |
|
The Company and its subsidiaries file a consolidated federal income tax return and such state
or local tax returns as are required. Although the Company may earn taxable operating income, as
of December 31, 2006, the Company anticipates that through the use of its available loss
carryforwards it will not pay significant amounts of federal or state income taxes in the next
several years.
Management believes that current cash balances, cash flows from operations and available funds
under its senior revolving credit facility will be adequate to provide for the Companys capital
expenditures, debt service, cash dividends and working capital requirements for the foreseeable
future. However, the Company has chosen to refinance its outstanding indebtedness. See Note N.
Subsequent Event to the accompanying audited consolidated financial statements for further
information.
The Companys senior credit facility provides it with a $150.0 million term loan A facility; a
$350.0 million term loan B facility; and a $100.0 million revolving credit facility. The senior
credit facility also provides for up to $400.0 million in incremental credit facilities upon the
consent of the lenders. In order to fund the acquisition of WNDU-TV the Company, in January 2006,
requested and the lenders consented to provide $100.0 million under the incremental credit
facility. The Company used these funds to complete the acquisition of WNDU-TV on March 3, 2006 and
other corporate purposes.
The senior credit facility is collateralized by substantially all of the assets, excluding
real estate, of the Company and its subsidiaries. In addition, the Companys subsidiaries are
joint and several guarantors of the obligations and the Companys ownership interests in its
subsidiaries are pledged to collateralize the obligations. The credit agreement contains certain
restrictive provisions, which include but are not limited to, requiring the Company to maintain
certain financial ratios and limits upon the Companys ability to incur additional indebtedness,
make certain acquisitions or investments, sell assets
37
or make other restricted payments, including
dividends, (all as are defined in the credit agreement). The indenture under which the 91/4% Notes
were issued also contains similar restrictive provisions limiting the Companys ability to, among
other things, incur additional indebtedness, make certain acquisitions or investments, sell assets
or make certain restricted payments that include but are not limited to purchases or redemptions of
the Companys capital stock.
Management does not believe that inflation has had a significant impact on the Companys
results of operations nor is inflation expected to have a significant effect upon the Companys
business in the near future.
The Company generated $79.9 million of net cash from operations during 2006 compared to $50.5
million for 2005. The increase was due largely to the addition of WSAZ and WNDU as well as
additional advertising revenue at the Companys existing stations.
The Company used $129.3 in investing activities during 2006 compared to $245.9 million during
2005. The amount used decreased primarily due to the Companys use of $85.3 million primarily to
purchase WNDU-TV in 2006, compared to the use of $208.3 million to purchase KKCO-TV, WSWG-TV and
WSAZ-TV and the FCC license for WAHU-TV in 2005. Cash used to purchase property plant and equipment
totaled $41.1 million and $37.2 million during the years ended December 31, 2006 and 2005,
respectively.
Net cash provided by financing activities was $44.9 million in the year ended December 31,
2006. Proceeds from borrowings on long term debt primarily to finance the Companys acquisition of
WNDU-TV as well as for general operating purposes were $135.8 million in 2006. Partial repayments
of long term debt in 2006 totaled $76.7 million. Dividends paid in 2006 included $6.8 million in
regular quarterly dividends on the Companys common and preferred stocks. Net cash provided by
financing activities was $154.2 million in the year ended December 31, 2005. Proceeds from
borrowings on long term debt primarily to finance the Companys acquisitions of KKCO-TV, WSWG-TV
and WSAZ-TV as well as for general operating purposes were $229.4 million in 2005. Partial
repayments of long term debt in 2005 totaled $93.0 million. The two amendments of the Companys
senior credit facility caused the Company to incur $7.2 million of bank, legal, accounting and
other costs in 2005. Dividends paid in 2005 included $9.0 million in regular quarterly dividends on
the Companys common and preferred stocks as well as an additional $5.9 million special common
stock dividend which was declared in 2004 but not paid until 2005. The Company received a
distribution in connection with the spinoff of its publishing and wireless businesses on December
30, 2005 in the amount of $44.0 million.
During the year ended December 31, 2006, the Company purchased 902,200 shares of the Companys
common stock at an average price of $6.21 per share for cost of $5.6 million. During the year ended
December 31, 2005, the Company purchased 528,400 shares of the Companys common stock for an
average price of $12.89 per share and purchased 12,800 shares of the Companys Class A common stock
for $13.37 per share for a combined cost of $7.0 million.
Digital Television Conversion
The FCC required that all commercial stations begin broadcasting a digital signal. The
Company paid approximately $9.5 million and $9.6 million for digital transmission equipment capital
expenditures for the
years ending December 31, 2006 and 2005, respectively. As of December 31, 2006, the Company
has accrued $2.2 million in HDTV costs to be paid in 2007. The Company is in compliance with the
FCCs digital broadcasting requirements at all of its stations.
38
Retirement Plan
The Company has an active defined benefit pension plan that it considers its primary pension
plan and this plan covers substantially all full-time employees. Retirement benefits are based on
years of service and the employees highest average compensation for five consecutive years during
the last ten years of employment. The Companys 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 generally accepted accounting principals (GAAP). The discount rate
selected for determining benefit obligations as of December 31, 2006, was 6.00% which reflects the
results of this yield curve analysis. The discount rate used for determining benefit obligations
for the year ended December 31, 2005 was 5.75%. Our assumption regarding expected return on plan
assets reflects asset allocations, investment strategy and the views of investment managers, as
well as historical experience. We use an assumed return of 7.00% for our invested pension assets.
Actual asset returns for these trusts were approximately 9.20% in 2006 and 5.20% in 2005. Other
significant assumptions include inflation, salary growth, retirement rates, and mortality rates.
Our inflation assumption is based on an evaluation of external market indicators. The salary growth
assumptions reflect our long-term actual experience, the near-term outlook and assumed inflation.
Compensation increases over the latest five year period have been in line with assumptions.
Retirement and mortality rates are based on actual plan experience.
During the years ended December 31, 2006 and 2005, the Company contributed $3.1 million and
$5.0 million, respectively, to all three of its pension plans and anticipates making a contribution
of $3.0 million in the year ended December 31, 2007.
See Note J. Retirement Plans to the Companys audited consolidated financial statements
included elsewhere herein for further information concerning the Companys retirement plans.
Off-Balance Sheet Arrangements
The Company has various operating lease commitments for equipment, land and office space. The
Company also has commitments for various syndicated television programs and for digital television
(DTV) equipment.
The Company has two types of syndicated television program contracts: first run programs and
off network reruns. The first run programs are programs such as Oprah and the off network programs
are programs such as Seinfeld. A difference between the two types of syndicated television
programming is that the first run programs have not been produced at the time the contract is
signed and the off network programs have been produced. For all syndicated television contracts the
Company records an asset and corresponding liability for payments to be made for the entire off
network contract periods and for only the current year of the first run contract periods. Only
the payments in the current year 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 and
delivered to the Company. The amounts for syndicated
television programming in the table below are for contracts that are not recorded on the
Companys balance sheet as of December 31, 2006.
Future minimum payments under operating leases with initial or remaining noncancelable lease
terms in excess of one year, obligations for syndicated television programs as described above and
39
commitments for DTV equipment that had been ordered but not yet been received are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated |
|
|
|
|
|
|
DTV |
|
|
Operating |
|
|
Television |
|
|
|
|
Year |
|
Equipment |
|
|
Lease |
|
|
Programming |
|
|
Total |
|
2007 |
|
$ |
637 |
|
|
$ |
1,176 |
|
|
$ |
3,071 |
|
|
$ |
4,884 |
|
2008 |
|
|
|
|
|
|
902 |
|
|
|
9,951 |
|
|
|
10,853 |
|
2009 |
|
|
|
|
|
|
648 |
|
|
|
8,732 |
|
|
|
9,380 |
|
2010 |
|
|
|
|
|
|
477 |
|
|
|
6,954 |
|
|
|
7,431 |
|
2011 |
|
|
|
|
|
|
242 |
|
|
|
2,746 |
|
|
|
2,988 |
|
Thereafter |
|
|
|
|
|
|
1,781 |
|
|
|
376 |
|
|
|
2,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
637 |
|
|
$ |
5,226 |
|
|
$ |
31,830 |
|
|
$ |
37,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The DTV equipment, operating lease and syndicated television programming amounts in the table
above are estimates of commitments that are in addition to liabilities accrued for on the Companys
balance sheet as of December 31, 2006.
On April 1, 2000, the Company entered into a rights sharing agreement with Host
Communications, Inc. (Host) a wholly owned subsidiary of TCM, and a related party, for the
marketing, selling and broadcasting of University of Kentucky (UK) sporting events and related
programming, production and other associated activities. This agreement terminated April 15, 2005.
As of December 31, 2005, Host owed $1.6 million to the Company under this contract, which was
reported as a related party receivable. This balance was collected during the first quarter of
2006.
On October 12, 2004, UK jointly awarded a new sports marketing agreement to the Company and
Host. The new agreement with UK commenced on April 16, 2005 and has an initial term of seven years
with the option to extend for three additional years. The aggregate license fees to be paid to UK
over the ten year term for the agreement will be approximately $80.5 million. At December 31, 2005,
Host owed $1.7 million to the Company under this contract, which was reported as a related party
investment. Under the agreement, the Company has paid $3.6 million to UK and recognized losses of
$81,000 and $137,000 during the years ended December 31, 2006 and 2005, respectively.
Effective on July 1, 2006, the agreement between the Company and Host was amended. The amended
agreement provides that the Company will share in profits in excess of certain amounts specified by
the agreement, if any, but not losses, of Hosts UK activities. The agreement also provides that
the Company would separately retain all local broadcast advertising revenue and pay all local
broadcast expenses for activities under the agreement. Under the amended agreement, Host agreed to
make all license fee payments to UK. However, if Host is unable to pay the license fee to UK, the
Company will then pay the unpaid portion of the license fee to UK. Host will then reimburse the
Company for the amount paid by the Company within 60 days subsequent to the close of each contract
year which ends on June 30th. Host also agrees to pay interest on this advance at a rate equal to
the prime rate. As of December 31, 2006, Host owed $1.7 million to the Company under this contract,
which was reported as a related party receivable. This balance was collected during the first
quarter of 2007.
40
Tabular Disclosure of Contractual Obligations as of December 31, 2006 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
|
|
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
Contractual Obligations |
|
Total |
|
|
2007 |
|
|
2008-2009 |
|
|
2010-2011 |
|
|
after 2012 |
|
Long-term debt obligations (1) |
|
$ |
852,307 |
|
|
$ |
4,500 |
|
|
$ |
24,000 |
|
|
$ |
400,807 |
|
|
$ |
423,000 |
|
Cash interest on long-term
debt obligations (2) |
|
|
314,405 |
|
|
|
64,847 |
|
|
|
127,733 |
|
|
|
107,263 |
|
|
|
14,562 |
|
Mandatorily redeemable
serial preferred stock(3) |
|
|
37,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,890 |
|
Cash dividends on
mandatorily redeemable
serial preferred stock(4) |
|
|
16,836 |
|
|
|
3,031 |
|
|
|
6,381 |
|
|
|
6,442 |
|
|
|
982 |
|
Operating lease obligations (5) |
|
|
5,226 |
|
|
|
1,176 |
|
|
|
1,550 |
|
|
|
719 |
|
|
|
1,781 |
|
Purchase obligations currently
accrued (6) |
|
|
1,618 |
|
|
|
1,519 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
Purchase obligations not
currently accrued (7) |
|
|
637 |
|
|
|
637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming obligations
currently accrued (8) |
|
|
15,688 |
|
|
|
12,975 |
|
|
|
2,094 |
|
|
|
542 |
|
|
|
77 |
|
Programming obligations
not currently accrued (9) |
|
|
31,830 |
|
|
|
3,071 |
|
|
|
18,683 |
|
|
|
9,700 |
|
|
|
376 |
|
Acquisition related liabilities(10) |
|
|
4,125 |
|
|
|
1,060 |
|
|
|
1,503 |
|
|
|
1,340 |
|
|
|
222 |
|
Obligation to University of
Kentucky (11) |
|
|
68,766 |
|
|
|
8,176 |
|
|
|
15,164 |
|
|
|
15,651 |
|
|
|
29,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,349,328 |
|
|
$ |
100,992 |
|
|
$ |
197,207 |
|
|
$ |
542,464 |
|
|
$ |
508,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Long-term debt obligations represent the current and all future payment obligations under
long-term borrowings referenced in FASB Statement of Financial Accounting Standards No. 47
Disclosure of Long-Term Obligations, as may be modified or supplemented. This obligation
consists of obligations under the Companys senior credit facility and the Companys 9 1/4%
Notes. These amounts are recorded as liabilities as of the current balance sheet date. As of
December 31, 2006, the Companys weighted average interest rate on the balance outstanding
under the senior credit facility and 9 1/4% Notes at December 31, 2006 was 7.63%. |
|
(2) |
|
Cash interest on long-term debt obligations represents estimated interest expense on
long-term debt obligations based upon the average debt balances expected in the future and
computed using the average interest rates for the year ended December 31, 2006. As of December
31, 2006, the Companys weighted average interest rate on the balance outstanding under the
senior credit facility and 9 1/4% Notes at December 31, 2006 was 7.63%. |
|
(3) |
|
Mandatorily redeemable serial preferred stock represents the cash due to be paid upon the
redemption of the Companys redeemable serial preferred stock on April 22, 2012. This
mandatorily redeemable serial preferred stock is convertible into the Companys common stock.
Therefore it is not known if this preferred stock will be redeemed for cash or converted into
the Companys common stock. |
41
|
|
|
(4) |
|
Cash dividends on mandatorily redeemable serial preferred stock represents dividends on the
Companys mandatorily redeemable serial preferred stock payable at 8.0% through April 22, 2009
and at 8.5% from that date through April 22, 2012. |
|
(5) |
|
Operating lease obligations represent payment obligations under non-cancelable lease
agreements classified as operating leases and disclosed pursuant to FASB Statement of
Financial Accounting Standards No. 13 Accounting for Leases, as may be modified or
supplemented. These amounts are not recorded as liabilities as of the current balance sheet
date. |
|
(6) |
|
Purchase obligations currently accrued generally represent payment obligations for DTV
equipment. It is the Companys policy to accrue for these obligations when the equipment is
received and the vendor has completed the work required by the purchase agreement. These
amounts are recorded as liabilities as of the current balance sheet date. |
|
(7) |
|
Purchase obligations not currently accrued generally represent payment obligations for DTV
equipment. It is the Companys policy to accrue for these obligations when the equipment is
received and the vendor has completed the work required by the purchase agreement. These
amounts are not recorded as liabilities as of the current balance sheet date. |
|
(8) |
|
Programming obligations currently accrued represent 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. |
|
(9) |
|
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. |
|
(10) |
|
Acquisition related liabilities represent certain obligations associated with acquisitions
of television stations that were completed in prior years. These amounts are recorded as
liabilities as of the current balance sheet date. |
|
(11) |
|
Obligation to University of Kentucky represents total obligations and excluding any
potential revenues under a sports marketing agreement awarded jointly to the Company and Host,
a related party. These amounts are not recorded as liabilities as of the current balance sheet
date. See Off-Balance Sheet Arrangements immediately preceding this table for additional
information concerning this obligation. |
Estimates of the amount, timing and future funding obligations under the Companys pension
plans 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. The Company expects to contribute approximately $3.0 million in total to the Companys
plan and the acquired pension plans during the year ended December 31, 2007.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make judgments and estimations that
affect the amounts reported in the financial statements and accompanying notes. Actual results
could differ from those estimates. The Company considers the following accounting policies to be
critical policies that
42
require judgments or estimations in their application where variances in
those judgments or estimations could make a significant difference to future reported results.
Valuation of Broadcast Licenses
As of December 31, 2006 the book value of the Companys broadcast licenses and goodwill was
approximately $1.1 billion and $269.5 million, respectively.
Broadcast licenses of television stations acquired by the Company prior to January 1, 2002
were valued using a residual basis methodology (analogous to goodwill) where the excess of the
purchase price over the fair value of all identified tangible and intangible assets was attributed
to the broadcast license. This residual basis approach will generally produce higher valuations of
broadcast licenses when compared to applying an income method as discussed below. The Companys
book value for these broadcast licenses was approximately $470.7 million as of December 31, 2006.
The Company values the broadcast licenses of any television station acquired after 2001 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 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. This income approach
will generally produce lower valuations of broadcast licenses when compared to applying a residual
method as discussed above. The Companys book value for these broadcast licenses was approximately
$588.4 million as of December 31, 2006.
At the September 2004 meeting of the Emerging Issues Task Force (EITF), the SEC Observer
clarified the SEC Staffs position on the use of the residual method for valuation of acquired
assets other than goodwill which is referred to as topic D-108. The SEC Staff believed that the
residual method did not comply with the requirements of SFAS No. 141 when used to value certain
intangible assets that arise from legal or contractual rights. Accordingly, the SEC Staff believed
that the residual method should no longer be used to value intangible assets other than goodwill.
Registrants were required to apply the income approach to such assets acquired in business
combinations completed after September 29, 2004, and perform impairment tests using an income
approach on all intangible assets that were previously valued using the residual method no later
than the beginning of their first fiscal year beginning after December 15, 2004.
Effective January 1, 2005, the Company adopted the provisions of this announcement and
performed a valuation assessment of its broadcast licenses using the income approach. The
implementation of this pronouncement did not require the Company to record an impairment charge in
the first quarter of 2005. However, applying the income approach to value broadcast licenses
originally valued using a residual method may place a greater possibility of future impairment
charges on those broadcast licenses due to the inherent miss-match of the fundamental assumptions
between the current valuation method (a hypothetical start-up value) in comparison to the method
utilized to first establish the initial value of the broadcast license (a mature stations residual
enterprise value).
Annual Impairment Testing of Broadcast Licenses and Goodwill
The annual impairment testing of broadcast licenses and goodwill for each individual
television station requires an estimation of the fair value of each broadcast license and the
fair value of the entire television station for evaluating goodwill. Such estimations generally
rely on analysis of public and private comparative sales data as well as discounted cash flow
analysis that inherently requires multiple assumptions relating to the future prospects of each
individual television station including, but not limited to, the long term market growth
characteristics, a stations viewing audience, station revenue shares
43
within a market, future
operating expenses, costs of capital and appropriate discount rates. The Company believes that the
assumptions it utilizes in analyzing potential impairment of broadcast licenses and/or goodwill for
each of its television stations are reasonable individually 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.
Valuation of Network Affiliation Agreements
Some broadcast companies may use methods to value acquired network affiliations different than
those that are used by the Company. These different methods may result in significant variances in
the amount of purchase price allocated to these assets among broadcast companies.
Some broadcasting companies account for network affiliations as a significant component of the
value of a station. These companies believe that stations are popular because they have generally
been affiliating with networks from the inception of network broadcasts, stations with network
affiliations have the most successful local news programming and the network affiliation
relationship enhances the audience for local syndicated programming. As a result, these broadcast
companies allocate a significant portion of the purchase price for any station that they may
acquire to the network affiliation relationship.
The Company ascribes no incremental value to the incumbent network affiliation relationship in
a 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. Instead, the Company believes that the value of a television station is
derived primarily from the attributes of its broadcast license. 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.
The Company has acquired a total of 19 television stations since 2002. The methodology the
Company used to value these stations was based on the Companys evaluation of the broadcast
licenses acquired and the characteristics of the markets in which they operated. Given the
Companys assumptions and the specific attributes of the stations the Company acquired during 2002
through 2006, the Company ascribed 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.
Certain other broadcasting companies have valued network affiliations on the basis that it is
the 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, the Company believes that
these broadcasting companies include in their network affiliation valuation amounts related to
attributes that the Company believes are more appropriately reflected in the value of the broadcast
license or goodwill.
If the Company were to assign higher values to all of its network affiliations and less value
to its broadcast licenses or goodwill and if it is further assumed that such higher values of the
network affiliations are definite lived intangible assets, this reallocation of value might have a
significant impact on the Companys operating results. It should be noted that there is a
diversity of practice and some
broadcast companies have considered such network affiliation intangible asset 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 hypothetical reassignment of value
from broadcast licenses to network affiliations for all prior acquisitions of the Company (the
first acquisition
44
being in 1994) and the resulting increase in amortization expense assuming a
hypothetical 15-year amortization period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total |
|
|
|
|
|
|
Value reassigned to |
|
|
|
|
|
|
Network |
|
|
As |
|
Affiliation Agreements |
|
|
Reported |
|
50% |
|
25% |
|
|
(In thousands, except per share data) |
Balance Sheet (As of December 31, 2006): |
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses |
|
$ |
1,059,066 |
|
|
$ |
728,054 |
|
|
$ |
893,560 |
|
Other intangible assets, net (including network
affiliation agreements) |
|
|
3,510 |
|
|
|
334,522 |
|
|
|
169,016 |
|
Statement of Operations
(For the year ended December 31, 2006): |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
2,453 |
|
|
|
39,545 |
|
|
|
20,999 |
|
Operating income |
|
|
87,991 |
|
|
|
50,899 |
|
|
|
69,445 |
|
Income (loss) from continuing operations |
|
|
11,711 |
|
|
|
(10,915 |
) |
|
|
398 |
|
Net income (loss) available to common stockholders |
|
|
8,464 |
|
|
|
(14,162 |
) |
|
|
(2,849 |
) |
Net income (loss) available to common stockholders,
per share basic |
|
$ |
0.17 |
|
|
$ |
(0.29 |
) |
|
$ |
(0.06 |
) |
Net income (loss) available to common stockholders,
per share diluted |
|
$ |
0.17 |
|
|
$ |
(0.29 |
) |
|
$ |
(0.06 |
) |
In future acquisitions, 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
The Company has approximately $163.6 million in federal operating loss carryforwards, which
expire during the years 2020 through 2026. Additionally, the Company has an aggregate of
approximately $207.5 million of various state operating loss carryforwards. The Company is
projecting taxable income in the carryforward periods. Therefore, management believes that it is
more likely than not that the Federal net operating loss carryforwards will be fully utilized.
A valuation allowance has been provided for a portion of the state net operating loss
carryforwards. Management believes that it will not meet the more likely than not threshold in
certain states due to the uncertainty of generating sufficient income. Therefore, the state
valuation allowance at December 31, 2006 and 2005 was $4.8 million and $4.6 million, respectively.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
Number 48, Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No.
109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in an enterprises financial
statements by prescribing a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. FIN 48 requires management to evaluate its open tax positions that exist on the date of
initial adoption in each jurisdiction. The
45
provisions of FIN 48 are effective beginning January 1,
2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to
the opening balance of retained deficit. We estimate the adoption of this standard will be an
increase or decrease to the opening balance of retained deficit for 2007 of $400,000 to $600,000
respectively, with no impact to the Companys consolidated cash flows.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157).
SFAS No. 157 establishes a common definition for fair value to be applied to US GAAP guidance
requiring use of fair value, establishes a framework for measuring fair value, and expands
disclosure about such fair value measurements. SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007. The Company is currently assessing the impact of SFAS No. 157 on its
consolidated financial position and results of operations.
In September 2006, the FASB issued FASB Staff Position (FSP) AUG AIR-1 Accounting for
Planned Major Maintenance Activities (FSP AUG AIR-1). FSP AUG AIR-1 amends the guidance on the
accounting for planned major maintenance activities; specifically it precludes the use of the
previously acceptable accrue in advance method. FSP AUG AIR-1 is effective for fiscal years
beginning after December 15, 2006. The implementation of this standard will not have a material
impact on our consolidated financial position or results of operations.
In September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) 108 Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements (SAB 108). SAB 108 requires that public companies utilize a dual-approach to
assessing the quantitative effects of financial misstatements. This dual approach includes both an
income statement focused assessment and a balance sheet focused assessment. The guidance in SAB 108
must be applied to annual financial statements for fiscal years ending after November 15, 2006. The
Companys adoption of SAB 108 did not have a material effect on its consolidated financial position
or results of operations.
Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private Securities
Litigation Reform Act
This Annual Report on Form 10-K contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. When used in this Annual Report, the words
believes, expects, anticipates, estimates and similar words and expressions are generally
intended to identify forward-looking statements. Statements that describe the Companys future
strategic plans, goals, or objectives are also forward-looking statements. Readers of this Annual
Report are cautioned that any forward-looking statements, including those regarding the intent,
belief or current expectations of the Company or management, are not guarantees of future
performance, results or events and involve risks and uncertainties, and that actual results and
events may differ materially from those 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 the Companys filings with the Securities and Exchange
Commission. The forward-looking statements included in this Annual Report are made only as of the
date hereof. The Company undertakes no obligation to update such forward-looking statements to
reflect subsequent events or circumstances.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Based on the Companys floating rate debt outstanding at December 31, 2006, a 100 basis point
increase in market interest rates would increase the Companys interest expense and decrease the
Companys income before income taxes for the year by approximately $6.1 million.
The fair market value of long-term fixed interest rate debt is also subject to interest rate
risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates
fall and decrease
46
as interest rates rise. The estimated fair value of the Companys total
long-term debt at December 31, 2006 was approximately $862.9 million, which was approximately $11.2
million more than its carrying value. A hypothetical 100 basis point decrease in the prevailing
interest rates at December 31, 2006 would result in an increase in fair value of total long-term
debt by approximately $2.5 million. Fair market values are determined from quoted market prices
where available or based on estimates made by investment bankers.
47
Item 8. Financial Statements and Supplementary Data.
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|
48
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control
over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the
supervision and with the participation of our management, including our CEO and CFO, we conducted
an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal
Control Integrated Framework, our management concluded that our internal control over financial
reporting was effective as of December 31, 2006. Management has excluded WNDU-TV from its
assessment of internal control over financial reporting as of December 31, 2006 because it was
acquired by the Company during 2006. WNDU-TV is a wholly-owned television station whose total
assets and total revenues represent 6.6% and 4.6%, respectively, of the consolidated financial
statement amounts as of and for the year ended December 31, 2006. Our managements assessment of
the effectiveness of our internal control over financial reporting as of December 31, 2006 has been
audited by McGladrey & Pullen, LLP, an independent registered public accounting firm, as stated in
their report which is included herein.
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Gray Television, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheet of Gray Television, Inc. as of December 31, 2006,
and the related statements of income, stockholders equity and comprehensive income, and cash flows
for the year ended December 31, 2006. We also have audited the 2006 financial statement schedule
of Gray Television, Inc. listed in Item 15(a). and managements assessment, included in the
accompanying Managements Report on Internal Control Over Financial Reporting, that Gray
Television, Inc. maintained effective internal control over financial reporting as of December 31,
2006, based on criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Gray Television Inc.s
management is responsible for these financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on these financial statements and financial statement schedule, an opinion on managements
assessment, and an opinion on the effectiveness of the companys internal control over financial
reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audit of financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, evaluating managements assessment,
testing and evaluating the design and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A companys 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
companys internal control over financial reporting includes those policies and procedures that (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; (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 (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys 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.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Gray Television, Inc. as of December 31, 2006 and the results
of its operations and its cash flows for the year ended December 31, 2006 in conformity with
accounting principles generally
50
accepted in the United States of America. Also, in our opinion, the related 2006 financial
statement schedule, when considered in relation to the basic consolidated financial statements
taken as a whole; presents fairly in all material respects the information set forth therein and in
our opinion, managements assessment that Gray Television, Inc. maintained effective internal
control over financial reporting as of December 31, 2006, is fairly stated, in all material
respects, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Furthermore, in our
opinion, Gray Television, Inc. maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2006, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
As discussed in Notes A and J to the consolidated financial statements, in 2006 the Company changed
its methods of accounting for share-based compensation and pension and other postretirement plans.
As described in Managements Report on Internal Control Over Financial Reporting, management has
excluded WNDU-TV from its assessment of internal control over financial reporting as of December
31, 2006 because it was acquired by the Company in a purchase business combination during 2006. We
have also excluded WNDU-TV from our audit of internal control over financial reporting. WNDU-TV is
a wholly-owned television station whose total assets and total revenues represent 6.6% and 4.6%,
respectively, of the related consolidated financial statement amounts as of and for the year ended
December 31, 2006.
/s/ McGladrey & Pullen, LLP
Ft. Lauderdale, Florida
March 14, 2007
51
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Gray Television, Inc.:
In our opinion, the consolidated balance sheet as of December 31, 2005 and the related consolidated
statements of income and comprehensive income, of stockholders equity and of cash flows for each
of the two years in the period ended December 31, 2005 present fairly, in all material respects,
the financial position of Gray Television, Inc. and its subsidiaries at December 31, 2005, and the
results of their operations and their cash flows for each of the two years in the period ended
December 31, 2005, in conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule for each of the two
years in the period ended December 31, 2005 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the responsibility of
the Companys management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 16, 2006
52
GRAY TELEVISION, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Assets: |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,741 |
|
|
$ |
9,315 |
|
Trade accounts receivable, less allowance for doubtful accounts
of $1,033 and $564, respectively |
|
|
60,346 |
|
|
|
58,436 |
|
Current portion of program broadcast rights, net |
|
|
10,459 |
|
|
|
8,548 |
|
Related party receivable |
|
|
1,710 |
|
|
|
1,645 |
|
Deferred tax asset |
|
|
600 |
|
|
|
1,091 |
|
Other current assets |
|
|
2,302 |
|
|
|
2,149 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
80,158 |
|
|
|
81,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment: |
|
|
|
|
|
|
|
|
Land |
|
|
20,741 |
|
|
|
20,011 |
|
Buildings and improvements |
|
|
44,601 |
|
|
|
35,903 |
|
Equipment |
|
|
264,738 |
|
|
|
220,787 |
|
|
|
|
|
|
|
|
|
|
|
330,080 |
|
|
|
276,701 |
|
Accumulated depreciation |
|
|
(142,960 |
) |
|
|
(113,940 |
) |
|
|
|
|
|
|
|
|
|
|
187,120 |
|
|
|
162,761 |
|
|
|
|
|
|
|
|
|
|
Deferred loan costs, net |
|
|
11,584 |
|
|
|
13,954 |
|
Broadcast licenses |
|
|
1,059,066 |
|
|
|
1,023,428 |
|
Goodwill |
|
|
269,536 |
|
|
|
222,394 |
|
Other intangible assets, net |
|
|
3,510 |
|
|
|
3,658 |
|
Investment in broadcasting company |
|
|
13,599 |
|
|
|
13,599 |
|
Related party investment |
|
|
|
|
|
|
1,682 |
|
Other |
|
|
3,714 |
|
|
|
2,394 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,628,287 |
|
|
$ |
1,525,054 |
|
|
|
|
|
|
|
|
See accompanying notes.
53
GRAY TELEVISION, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Liabilities and stockholders equity: |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Trade accounts payable |
|
$ |
7,848 |
|
|
$ |
4,803 |
|
Employee compensation and benefits |
|
|
11,408 |
|
|
|
9,567 |
|
Current portion of accrued pension costs |
|
|
|
|
|
|
3,051 |
|
Accrued interest |
|
|
10,832 |
|
|
|
4,463 |
|
Other accrued expenses |
|
|
6,569 |
|
|
|
12,366 |
|
Dividends payable |
|
|
2,207 |
|
|
|
|
|
Federal and state income taxes |
|
|
2,616 |
|
|
|
1,833 |
|
Current portion of program broadcast obligations |
|
|
12,975 |
|
|
|
10,391 |
|
Acquisition related liabilities |
|
|
1,060 |
|
|
|
4,033 |
|
Deferred revenue |
|
|
3,786 |
|
|
|
697 |
|
Current portion of long-term debt |
|
|
4,500 |
|
|
|
3,577 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
63,801 |
|
|
|
54,781 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
|
847,154 |
|
|
|
788,932 |
|
Program broadcast obligations, less current portion |
|
|
2,713 |
|
|
|
960 |
|
Deferred income taxes |
|
|
282,540 |
|
|
|
253,341 |
|
Long-term deferred revenue |
|
|
4,215 |
|
|
|
2,190 |
|
Other, including non-current portion of accrued pension costs |
|
|
10,659 |
|
|
|
4,764 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,211,082 |
|
|
|
1,104,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note K) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Serial Preferred Stock, no par value; cumulative; convertible;
designated 5 shares, issued and outstanding 4 shares,
($37,890 and $39,640 aggregate liquidation value, respectively) |
|
|
37,451 |
|
|
|
39,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common Stock, no par value; authorized 100,000 shares,
issued 45,691 shares and 45,259 shares, respectively |
|
|
443,698 |
|
|
|
441,533 |
|
Class A Common Stock, no par value; authorized 15,000 shares,
issued 7,332 shares |
|
|
15,321 |
|
|
|
15,282 |
|
Retained deficit |
|
|
(20,026 |
) |
|
|
(22,662 |
) |
Accumulated other comprehensive loss, net of income tax benefit |
|
|
(2,429 |
) |
|
|
(1,257 |
) |
Unearned compensation |
|
|
|
|
|
|
(736 |
) |
|
|
|
|
|
|
|
|
|
|
436,564 |
|
|
|
432,160 |
|
Treasury Stock at cost, Common Stock, 3,124 shares and
2,222 shares, respectively |
|
|
(34,412 |
) |
|
|
(28,766 |
) |
Treasury Stock at cost, Class A Common Stock, 1,579 shares |
|
|
(22,398 |
) |
|
|
(22,398 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
379,754 |
|
|
|
380,996 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,628,287 |
|
|
$ |
1,525,054 |
|
|
|
|
|
|
|
|
See accompanying notes.
54
GRAY TELEVISION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenues (less agency commissions) |
|
$ |
332,137 |
|
|
$ |
261,553 |
|
|
$ |
293,273 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses before depreciation, amortization
and loss on disposal of assets, net |
|
|
191,502 |
|
|
|
161,905 |
|
|
|
158,305 |
|
Corporate and administrative |
|
|
15,097 |
|
|
|
11,896 |
|
|
|
12,174 |
|
Depreciation |
|
|
34,073 |
|
|
|
24,456 |
|
|
|
21,955 |
|
Amortization of intangible assets |
|
|
2,453 |
|
|
|
1,034 |
|
|
|
920 |
|
(Gain) loss on disposals of assets, net |
|
|
1,021 |
|
|
|
1,401 |
|
|
|
(496 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
244,146 |
|
|
|
200,692 |
|
|
|
192,858 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
87,991 |
|
|
|
60,861 |
|
|
|
100,415 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous income, net |
|
|
677 |
|
|
|
558 |
|
|
|
979 |
|
Interest expense |
|
|
(66,787 |
) |
|
|
(46,549 |
) |
|
|
(41,972 |
) |
Loss on early extinguishment of debt |
|
|
(347 |
) |
|
|
(6,543 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
21,534 |
|
|
|
8,327 |
|
|
|
59,422 |
|
Income tax expense |
|
|
9,823 |
|
|
|
3,723 |
|
|
|
22,905 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
11,711 |
|
|
|
4,604 |
|
|
|
36,517 |
|
Income (loss) from operations of discontinued publishing
and wireless operations net of income tax expense of
$0, $3,253 and $5,059, respectively |
|
|
|
|
|
|
(1,242 |
) |
|
|
7,768 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
11,711 |
|
|
|
3,362 |
|
|
|
44,285 |
|
Preferred dividends (includes accretion of issuance cost
of $111, $87 and $87, respectively) |
|
|
3,247 |
|
|
|
3,258 |
|
|
|
3,272 |
|
Deemed non-cash preferred stock dividend |
|
|
|
|
|
|
2,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
8,464 |
|
|
$ |
(2,286 |
) |
|
$ |
41,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic per share information: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
common stockholders |
|
$ |
0.17 |
|
|
$ |
(0.02 |
) |
|
$ |
0.67 |
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
(0.03 |
) |
|
|
0.16 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
0.17 |
|
|
$ |
(0.05 |
) |
|
$ |
0.83 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
48,408 |
|
|
|
48,649 |
|
|
|
49,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted per share information: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
common stockholders |
|
$ |
0.17 |
|
|
$ |
(0.02 |
) |
|
$ |
0.66 |
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
(0.03 |
) |
|
|
0.16 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
0.17 |
|
|
$ |
(0.05 |
) |
|
$ |
0.82 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
48,425 |
|
|
|
48,649 |
|
|
|
50,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
$ |
0.12 |
|
|
$ |
0.12 |
|
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
55
GRAY TELEVISION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
(in thousands except for number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
Class A |
|
|
Common |
|
|
Accumulated Other |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Common Stock |
|
|
Earnings |
|
|
Treasury Stock |
|
|
Treasury Stock |
|
|
Comprehensive |
|
|
Unearned |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
(Deficit) |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Income (Loss) |
|
|
Compensation |
|
|
Total |
|
Balance at December 31, 2003 |
|
|
7,331,574 |
|
|
$ |
11,037 |
|
|
|
44,032,138 |
|
|
$ |
392,436 |
|
|
$ |
(17,500 |
) |
|
|
(1,500,754 |
) |
|
$ |
(21,515 |
) |
|
|
(11,750 |
) |
|
$ |
(200 |
) |
|
$ |
(126 |
) |
|
$ |
(1,357 |
) |
|
$ |
362,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,285 |
|
Gain on derivatives, net of
income tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126 |
|
|
|
|
|
|
|
126 |
|
Recognition of minimum
pension liability, net of
income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,414 |
) |
|
|
|
|
|
|
(1,414 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,997 |
|
|
Common Stock cash dividends
($0.12) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,973 |
) |
Common Stock special cash
dividends ($0.12) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,871 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,871 |
) |
Preferred Stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,272 |
) |
Issuance of Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) plan |
|
|
|
|
|
|
|
|
|
|
214,843 |
|
|
|
3,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,155 |
|
Non-qualified stock plan |
|
|
|
|
|
|
|
|
|
|
524,585 |
|
|
|
5,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,540 |
|
Directors restricted stock
plan |
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(211 |
) |
|
|
|
|
Amortization of unearned
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
512 |
|
|
|
512 |
|
Purchase of Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65,000 |
) |
|
|
(712 |
) |
|
|
(1,606,400 |
) |
|
|
(20,594 |
) |
|
|
|
|
|
|
|
|
|
|
(21,306 |
) |
Purchase of Common Stock
from a director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75,000 |
) |
|
|
(1,140 |
) |
|
|
|
|
|
|
|
|
|
|
(1,140 |
) |
Income tax benefits relating to
stock plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
|
7,331,574 |
|
|
$ |
11,037 |
|
|
|
44,786,566 |
|
|
$ |
402,162 |
|
|
$ |
11,669 |
|
|
|
(1,565,754 |
) |
|
$ |
(22,227 |
) |
|
|
(1,693,150 |
) |
|
$ |
(21,934 |
) |
|
$ |
(1,414 |
) |
|
$ |
(1,056 |
) |
|
$ |
378,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
56
GRAY TELEVISION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (Continued)
(in thousands except for number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
Class A |
|
|
Common |
|
|
Other |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Common Stock |
|
|
Earnings |
|
|
Treasury Stock |
|
|
Treasury Stock |
|
|
Comprehensive |
|
|
Unearned |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
(Deficit) |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Income (Loss) |
|
|
Compensation |
|
|
Total |
|
Balance at December 31, 2004 |
|
|
7,331,574 |
|
|
$ |
11,037 |
|
|
|
44,786,566 |
|
|
$ |
402,162 |
|
|
$ |
11,669 |
|
|
|
(1,565,754 |
) |
|
$ |
(22,227 |
) |
|
|
(1,693,150 |
) |
|
$ |
(21,934 |
) |
|
$ |
(1,414 |
) |
|
$ |
(1,056 |
) |
|
$ |
378,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,362 |
|
Recognition of minimum
pension liability, net of
income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157 |
|
|
|
|
|
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,519 |
|
Spinoff of publishing and
wireless business |
|
|
|
|
|
|
4,245 |
|
|
|
|
|
|
|
31,758 |
|
|
|
(26,196 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,807 |
|
Common Stock cash dividends
($0.12) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,849 |
) |
Preferred Stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,258 |
) |
Deemed non-cash preferred
stock dividend |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,390 |
|
|
|
(2,390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) plan |
|
|
|
|
|
|
|
|
|
|
216,748 |
|
|
|
2,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,284 |
|
Non-qualified stock plan |
|
|
|
|
|
|
|
|
|
|
250,230 |
|
|
|
2,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,448 |
|
Directors restricted stock
plan |
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72 |
) |
|
|
|
|
Amortization of unearned
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
392 |
|
|
|
392 |
|
Purchase of Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,800 |
) |
|
|
(171 |
) |
|
|
(528,400 |
) |
|
|
(6,832 |
) |
|
|
|
|
|
|
|
|
|
|
(7,003 |
) |
Income tax benefits relating to
stock plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
|
7,331,574 |
|
|
$ |
15,282 |
|
|
|
45,258,544 |
|
|
$ |
441,533 |
|
|
$ |
(22,662 |
) |
|
|
(1,578,554 |
) |
|
$ |
(22,398 |
) |
|
|
(2,221,550 |
) |
|
$ |
(28,766 |
) |
|
$ |
(1,257 |
) |
|
$ |
(736 |
) |
|
$ |
380,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
57
GRAY TELEVISION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (Continued)
(in thousands except for number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
Class A |
|
|
Common |
|
|
Other |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Common Stock |
|
|
Earnings |
|
|
Treasury Stock |
|
|
Treasury Stock |
|
|
Comprehensive |
|
|
Unearned |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
(Deficit) |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Income (Loss) |
|
|
Compensation |
|
|
Total |
|
Balance at December 31, 2005 |
|
|
7,331,574 |
|
|
$ |
15,282 |
|
|
|
45,258,544 |
|
|
$ |
441,533 |
|
|
$ |
(22,662 |
) |
|
|
(1,578,554 |
) |
|
$ |
(22,398 |
) |
|
|
(2,221,550 |
) |
|
$ |
(28,766 |
) |
|
$ |
(1,257 |
) |
|
$ |
(736 |
) |
|
$ |
380,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,711 |
|
Gain on derivatives, net of
income tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
Derecognition of minimum pension
liability, net of income tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,257 |
|
|
|
|
|
|
|
1,257 |
|
Adjustment to pension liability upon
implementation of SFAS 158, net
of income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,432 |
) |
|
|
|
|
|
|
(2,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,539 |
|
Reclassification upon adoption
of SFAS 123(R) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(736 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
736 |
|
|
|
|
|
Common Stock cash dividends
($0.12) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,828 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,828 |
) |
Preferred Stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,247 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,247 |
) |
Issuance of Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) plan |
|
|
|
|
|
|
|
|
|
|
217,089 |
|
|
|
1,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,513 |
|
Officers restricted stock plan |
|
|
|
|
|
|
|
|
|
|
160,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors restricted stock plan |
|
|
|
|
|
|
|
|
|
|
55,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(902,200 |
) |
|
|
(5,646 |
) |
|
|
|
|
|
|
|
|
|
|
(5,646 |
) |
Spinoff of publishing and
wireless businesses |
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
335 |
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
|
7,331,574 |
|
|
$ |
15,321 |
|
|
|
45,690,633 |
|
|
$ |
443,698 |
|
|
$ |
(20,026 |
) |
|
|
(1,578,554 |
) |
|
$ |
(22,398 |
) |
|
|
(3,123,750 |
) |
|
$ |
(34,412 |
) |
|
$ |
(2,429 |
) |
|
$ |
|
|
|
$ |
379,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
58
GRAY TELEVISION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,711 |
|
|
$ |
3,362 |
|
|
$ |
44,285 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
34,073 |
|
|
|
26,090 |
|
|
|
23,656 |
|
Amortization of intangible assets |
|
|
2,453 |
|
|
|
1,034 |
|
|
|
975 |
|
Amortization of deferred loan costs |
|
|
2,269 |
|
|
|
1,709 |
|
|
|
1,831 |
|
Amortization of restricted stock awards |
|
|
807 |
|
|
|
391 |
|
|
|
512 |
|
Amortization of stock option awards |
|
|
285 |
|
|
|
|
|
|
|
|
|
Write off loan acquisition costs from early extinguishment of debt |
|
|
91 |
|
|
|
3,638 |
|
|
|
|
|
FCC license impairment expense |
|
|
|
|
|
|
3,206 |
|
|
|
|
|
Amortization of program broadcast rights |
|
|
14,234 |
|
|
|
11,577 |
|
|
|
11,137 |
|
Payments on program broadcast obligations |
|
|
(13,530 |
) |
|
|
(11,452 |
) |
|
|
(11,055 |
) |
Common Stock contributed to 401(K) Plan |
|
|
1,513 |
|
|
|
2,284 |
|
|
|
2,559 |
|
Deferred revenue, network compensation |
|
|
1,322 |
|
|
|
2,414 |
|
|
|
|
|
Deferred income taxes |
|
|
8,976 |
|
|
|
5,717 |
|
|
|
25,472 |
|
(Gain) loss on disposal of assets, net |
|
|
1,021 |
|
|
|
1,265 |
|
|
|
(451 |
) |
Other |
|
|
(58 |
) |
|
|
339 |
|
|
|
99 |
|
Changes in operating assets and liabilities, net of business acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
|
397 |
|
|
|
(2,181 |
) |
|
|
(1,749 |
) |
Other current assets |
|
|
2,035 |
|
|
|
(73 |
) |
|
|
271 |
|
Trade accounts payable |
|
|
1,093 |
|
|
|
1,363 |
|
|
|
893 |
|
Employee compensation, benefits and pension costs |
|
|
1,577 |
|
|
|
(3,100 |
) |
|
|
3,079 |
|
Accrued expenses |
|
|
(134 |
) |
|
|
2,295 |
|
|
|
70 |
|
Accrued interest |
|
|
6,369 |
|
|
|
230 |
|
|
|
193 |
|
Income taxes payable |
|
|
404 |
|
|
|
770 |
|
|
|
1,733 |
|
Deferred revenue other, including current portion |
|
|
2,952 |
|
|
|
(396 |
) |
|
|
(774 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
79,860 |
|
|
|
50,482 |
|
|
|
102,736 |
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of television businesses and licenses, net of cash acquired |
|
|
(85,295 |
) |
|
|
(208,250 |
) |
|
|
(1,023 |
) |
Purchases of property and equipment |
|
|
(41,139 |
) |
|
|
(37,161 |
) |
|
|
(36,295 |
) |
Proceeds from asset sales |
|
|
198 |
|
|
|
2,223 |
|
|
|
1,392 |
|
Payments on acquisition related liabilities |
|
|
(2,831 |
) |
|
|
(980 |
) |
|
|
(1,818 |
) |
Other |
|
|
(238 |
) |
|
|
(1,757 |
) |
|
|
192 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(129,305 |
) |
|
|
(245,925 |
) |
|
|
(37,552 |
) |
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings on long-term debt |
|
|
135,750 |
|
|
|
229,438 |
|
|
|
937 |
|
Repayments of borrowings on long-term debt |
|
|
(76,727 |
) |
|
|
(92,970 |
) |
|
|
(1,079 |
) |
Deferred loan costs |
|
|
|
|
|
|
(7,199 |
) |
|
|
(819 |
) |
Dividends paid, net of accreted preferred dividend |
|
|
(6,756 |
) |
|
|
(14,892 |
) |
|
|
(9,158 |
) |
Income tax benefit relating to stock plans |
|
|
|
|
|
|
419 |
|
|
|
820 |
|
Proceeds from issuance of Common Stock |
|
|
|
|
|
|
2,448 |
|
|
|
5,540 |
|
Purchase of Common Stock |
|
|
(5,646 |
) |
|
|
(7,004 |
) |
|
|
(21,306 |
) |
Purchase of Common Stock from Related Party |
|
|
|
|
|
|
|
|
|
|
(1,140 |
) |
Purchase of Preferred Stock from Related Party |
|
|
(1,750 |
) |
|
|
|
|
|
|
(360 |
) |
Distribution from spinoff of publishing and wireless businesses |
|
|
|
|
|
|
43,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
44,871 |
|
|
|
154,192 |
|
|
|
(26,565 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(4,574 |
) |
|
|
(41,251 |
) |
|
|
38,619 |
|
Cash and cash equivalents at beginning of period |
|
|
9,315 |
|
|
|
50,566 |
|
|
|
11,947 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
4,741 |
|
|
$ |
9,315 |
|
|
$ |
50,566 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
59
GRAY TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Description of Business and Summary of Significant Accounting Policies
Description of Business
Gray Television, Inc. is a television broadcast company headquartered in Atlanta, Georgia. As
of December 31, 2006, the Company operated 36 television stations serving 30 markets. Seventeen of
the stations are affiliated with CBS Inc., or CBS, ten of the stations are affiliated with the
National Broadcasting Company, Inc., or NBC, eight of the stations are affiliated with the
American Broadcasting Company, or ABC, one station is affiliated with FOX Entertainment Group,
Inc., or FOX, In addition, Gray currently operates 36 digital second channels including one
affiliated with ABC, five affiliated with FOX, seven affiliated with The CW Network, LLC (CW) and
15 affiliated with Twentieth Television, Inc. (MyNetworkTV), plus six local news/weather channels
and two independent channels in certain of its existing markets. With seventeen CBS affiliated
stations, the Company is the largest independent owner of CBS affiliates in the country. The
Companys operations consist of one reportable segment.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Revenue Recognition
Broadcasting advertising revenue is generated primarily from the sale of television
advertising time. Broadcast network compensation is generated by payments from the broadcast
networks to the Company. Advertising revenue is billed to the customer and recognized when the
advertisement is aired. Broadcast network compensation is recognized on a straight-line basis over
the life of the contract. Cash received which has not yet been recognized as revenue is presented
as deferred revenue.
Barter Transactions
The Company accounts for trade barter transactions involving the exchange of tangible goods or
services with its 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.
Trade barter revenue and expense recognized by the Company for each of the years ended December 31,
2006, 2005 and 2004 is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Trade barter revenue |
|
$ |
2,327 |
|
|
$ |
2,344 |
|
|
$ |
2,562 |
|
Trade barter expense |
|
|
(2,410 |
) |
|
|
(2,191 |
) |
|
|
(2,437 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(83 |
) |
|
$ |
153 |
|
|
$ |
125 |
|
|
|
|
|
|
|
|
|
|
|
In accordance with the Financial Accounting Standards Boards (the FASB) Statement No. 63,
Financial Reporting by Broadcasters, the Company does not account for barter revenue and related
barter expense generated from network programming. Neither does the Company account for barter
revenue and related barter expense generated from syndicated programming as such amounts are not
60
A. Description of Business and Summary of Significant Accounting Policies (Continued)
Barter Transactions (Continued)
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 have no effect upon net
income.
Advertising Expense
The Company recorded advertising expense of $1.8 million, $1.4 million and $1.1 million for
the years ended December 31, 2006, 2005 and 2004, respectively. Advertising expenses have increased
during the three year period as a result of the acquisition of stations and the expansion of
operations at existing stations through digital second channels.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual results
could materially differ from these estimated amounts which include impairment assessments of
long-lived assets (including goodwill and indefinite lived intangibles), income tax liabilities,
deferred tax assets and the value of network affiliations.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments that are readily convertible to known
amounts of cash and have a maturity of three months or less when purchased.
Allowance for Doubtful Accounts Receivable
The Company records a provision for doubtful accounts based on a percentage of local revenue
receivables that are over sixty days old and a percentage of national revenue receivables that are
over ninety days old. The Company recorded expenses for this allowance of $763,000,
$387,000 and $308,000 for the years ended December 31, 2006, 2005 and 2004,
respectively.
Program Broadcast Rights
Rights to programs available for broadcast under program license agreements are initially
recorded at the beginning of the license period for the amounts of total license fees payable under
the license agreements and are charged to operating expense over the period that the episodes 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 the license fees payable under the 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. Buildings, towers, improvements and equipment are generally depreciated over
estimated useful lives of approximately 35 years, 20 years, 10 years and 5 years, respectively.
Maintenance, repairs and
61
A. Description of Business and Summary of Significant Accounting Policies (Continued)
Property and Equipment (Continued)
minor replacements are charged to operations as incurred; major replacements and betterments are
capitalized. The cost of any assets sold or retired and related accumulated depreciation are
removed from the accounts at the time of disposition, and any resulting profit or loss is reflected
in income or expense for the period.
Deferred Loan Costs
Loan acquisition costs are amortized over the life of the applicable indebtedness using a
straight-line method which approximates the effective interest method.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes (SFAS 109). Under SFAS 109, deferred tax assets and liabilities
are recognized for future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to reverse. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Stock-Based Compensation Effect of Adoption of SFAS 123(R)
On January 1, 2006, Gray adopted Statement of Financial Accounting Standards No. 123(R) (SFAS
123(R)), Share Based Payment. Prior to January 1, 2006, Gray accounted for stock-based awards
under the intrinsic value method, which followed the recognition and measurement principles of APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The
intrinsic value method of accounting resulted in the recognition of expense over the vesting period
of restricted stock awards. The expense recognized was equal to the fair value of the restricted
shares on the date of grant based on the number of shares granted and the quoted price of our
common stock. Under the intrinsic value method we did not recognize any compensation costs for our
stock options because the exercise prices of the options were equal to the market prices of the
underlying stock on the date of grant.
Gray adopted SFAS 123(R) using the modified prospective method, which requires measurement of
compensation cost for all stock based awards at fair value on the date of grant and recognition of
compensation over the service period for awards expected to vest. The recognized expense is net of
expected forfeitures and the restatement of prior periods is not required. The fair value of
restricted stock is determined based on the number of shares granted and the quoted market price of
our common stock. The fair value of stock options is determined using the Black-Scholes valuation
model, which is consistent with our valuation techniques previously utilized for options in
footnote disclosures under Statement of Financial Accounting Standards No. 123, Accounting for
Stock Based Compensation, as amended by Statement of Financial Accounting Standards No. 148,
Accounting for Stock Based Compensation Transition and Disclosure.
On March 29, 2005, the Securities and Exchange Commission (SEC) published Staff Accounting
Bulletin No. 107 (SAB 107), which provides the SEC Staffs views on a variety of matters related
to
stock based payments. SAB 107 requires that stock based compensation be classified in the same
expense line items as cash compensation. The application of SFAS 123(R) had the following effect on
reported
62
A. Description of Business and Summary of Significant Accounting Policies (Continued)
Stock-Based Compensation Effect of Adoption of SFAS 123(R)(Continued)
amounts for the year ended December 31, 2006, relative to amounts that would have been reported
using the intrinsic value method under previous accounting (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 |
|
|
Previous |
|
SFAS |
|
|
|
|
Accounting |
|
123 (R) |
|
As |
|
|
Method |
|
Adjustments |
|
Reported |
Income from operations |
|
$ |
88,276 |
|
|
$ |
285 |
|
|
$ |
87,991 |
|
Income before income taxes |
|
$ |
21,819 |
|
|
$ |
285 |
|
|
$ |
21,534 |
|
Net income available to common stockholders |
|
$ |
8,635 |
|
|
$ |
171 |
|
|
$ |
8,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.17 |
|
|
$ |
|
|
|
$ |
0.17 |
|
Diluted |
|
$ |
0.17 |
|
|
$ |
|
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Cash flow from financing activities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Stock-Based Compensation Valuation Assumptions for Stock Options
No stock options were granted during the year ended December 31, 2006. The fair value for each
stock option granted in the years ended December 31, 2005 and 2004 was estimated at the date of
grant using the Black-Scholes option pricing model, using weighted average assumptions as follows:
risk free interest rate 3.81% and 3.53%; dividend yield of 0.86% and 0.90%; volatility of the
expected market price of the Companys stock of 30% and 30% and a weighted average expected life of
the options of 3.0 and 3.4 years, respectively. The Companys expected forfeitures were 2.5%.
Expected volatilities are based on historical volatilities of our common stock and Class A common
stock. The expected life represents the weighted average period of time that options granted are
expected to be outstanding giving consideration to the vesting schedules and our historical
exercise patterns. The risk free rate is based on the U.S. Treasury yield curve in effect at the
time of grant for periods corresponding to the expected life of the option. Expected forfeitures
were estimated based on historical forfeiture rates.
Stock based compensation for the years ended December 31, 2005 and 2004 was determined using
the intrinsic value method. The following table provides supplemental information for the years
ended December 31, 2005 and 2004 as if stock-based compensation had been computed under SFAS 123(R)
(in thousands, except per share data):
63
A. Description of Business and Summary of Significant Accounting Policies (Continued)
Stock-Based Compensation Valuation Assumptions for Stock Options (Continued)
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
Net income (loss) available to common stockholders, as reported |
|
$ |
(2,286 |
) |
|
$ |
41,013 |
|
Add: Stock-based employee compensation expense included
in reported net income, net of related tax effects |
|
|
|
|
|
|
|
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects |
|
|
(961 |
) |
|
|
(908 |
) |
|
|
|
|
|
|
|
Net income (loss) available to common stockholders, pro forma |
|
$ |
(3,247 |
) |
|
$ |
40,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
Basic, as reported |
|
$ |
(0.05 |
) |
|
$ |
0.83 |
|
Basic, pro forma |
|
$ |
(0.07 |
) |
|
$ |
0.81 |
|
|
|
|
|
|
|
|
|
|
Diluted, as reported |
|
$ |
(0.05 |
) |
|
$ |
0.82 |
|
Diluted, pro forma |
|
$ |
(0.07 |
) |
|
$ |
0.80 |
|
Accounting for Derivatives
The Company may use swap agreements to convert a portion of its variable rate debt to a fixed
rate basis, thus managing exposure to interest rate fluctuations. These risk management activities
may be transacted with one or more highly rated institutions, reducing the exposure to credit risk
in the event of nonperformance by the counter party. The Company does not enter into derivative
financial investments for trading purposes.
For periods where the Company has entered into a swap agreement, the Company recognizes
interest differentials from the interest rate swap agreements as adjustments to interest expense in
the period they occur. The differential paid or received as interest rates change is accrued and
recognized as an adjustment to interest expense. The amount payable to, or receivable from,
counter-parties is included in liabilities or assets. The fair value of the swap agreements is
recognized in the financial statements as an asset or liability depending on the circumstances.
During 2006, the Company entered into an interest rate swap agreement which expired on January
3, 2007. The agreement converted a combined notional amount of $100.0 million of floating rate
debt under
the senior credit facility to fixed rate debt. This swap agreement fixed the LIBOR component
of the total interest rate charged on this portion of the Companys debt at a weighted average
fixed rate of 5.05%. This interest rate swap agreement qualifies, is designated and is accounted
for as a cash flow hedge. The fair value at December 31, 2006 was insignificant. During 2005, the
Company did not enter into any interest rate swap agreements. During 2003, the Company entered into
four interest rate swap agreements which expired in November 2004. These four agreements converted
a combined notional amount of $50.0 million of floating rate debt under the senior credit facility
to fixed rate debt. These swap agreements fixed the LIBOR component of the total interest rate
charged on this portion of the Companys debt at a weighted average fixed rate of 1.87%.
64
A. Description of Business and Summary of Significant Accounting Policies (Continued)
Concentration of Credit Risk
The Company provides advertising air-time to national and local advertisers within the
geographic areas in which the Company operates. Credit is extended based on an evaluation of the
customers financial condition, and generally advance payment is not required. Credit losses are
provided for in the financial statements and consistently have been within managements
expectations.
For the year ended December 31, 2006, approximately 23% and 10% of the Companys broadcast
revenue was obtained from advertising sales to automotive and restaurant customers, respectively.
The Company experienced similar concentrations of revenue in the years ended December 31, 2005 and
2004. Although, the Companys revenues could be affected by changes within these industries, this
risk is in part mitigated by the diversity of companies from which these revenues are obtained.
Furthermore, the Companys large geographic operating area partially mitigates the effect upon the
Company from regional economic changes.
The Companys cash and cash equivalents are held by a single major financial institution;
however, risk of loss is mitigated by the size and the financial health of the institution.
Fair Value of Financial Instruments
The estimated fair value of the Companys long-term debt at December 31, 2006 and 2005 was
$862.9 million and $815.7 million, respectively. Estimated fair market value of the 91/4% senior
subordinated notes is based upon recent trading activity. The estimated fair market value of the
senior credit facility approximates recorded value as a result of the facilitys market interest
rate. The fair value of other financial instruments classified as current assets or liabilities
approximates their carrying value.
Earnings Per Share
Basic earnings per share are computed by dividing net income by the weighted-average number of
common shares outstanding during the period. The weighted-average number of common shares
outstanding does not include unvested restricted shares. These shares, although classified as
issued and outstanding, are considered contingently returnable until the restrictions lapse and
will not be included in the basic earnings per share calculation until the shares are vested.
Diluted earnings per share is computed by giving effect to all dilutive potential common shares,
including restricted stock and stock options. A reconciliation of the numerator and denominator
used in the calculation of historical basic and diluted earnings per share follows (in thousands):
65
A. Description of Business and Summary of Significant Accounting Policies (Continued)
Earnings Per Share (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Income from continuing operations |
|
$ |
11,711 |
|
|
$ |
4,604 |
|
|
$ |
36,517 |
|
Preferred dividends |
|
|
3,247 |
|
|
|
3,258 |
|
|
|
3,272 |
|
Deemed non-cash preferred stock dividend |
|
|
|
|
|
|
2,390 |
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
common stockholders |
|
|
8,464 |
|
|
|
(1,044 |
) |
|
|
33,245 |
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
(1,242 |
) |
|
|
7,768 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
8,464 |
|
|
$ |
(2,286 |
) |
|
$ |
41,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic |
|
$ |
48,408 |
|
|
$ |
48,649 |
|
|
$ |
49,643 |
|
Stock options, warrants, convertible preferred
stock and restricted stock |
|
|
17 |
|
|
|
|
|
|
|
527 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted |
|
$ |
48,425 |
|
|
$ |
48,649 |
|
|
$ |
50,170 |
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2006 and 2004, the Company generated net income; therefore,
common stock equivalents related to employee stock-based compensation plans, warrants and
convertible preferred stock were included in the computation of diluted earnings per share to the
extent that their exercise costs and conversion prices exceeded market value. For the year ended
December 31, 2005 the Company reported a net loss available to common stockholders, therefore,
common stock equivalents were not included because they were antidilutive. The number of
antidilutive common stock equivalents excluded from diluted earnings per share for the respective
periods are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
Antidilutive common stock equivalents excluded
from diluted earnings per share |
|
|
4,813 |
|
|
|
5,157 |
|
|
|
4,477 |
|
Investment in Broadcasting Company
The Company has an investment in Sarkes Tarzian, Inc. (Tarzian) whose principal business is
the ownership and operation of two television stations. The investment represents 33.5% 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 represents 73% of the equity of
Tarzian for purposes of dividends if paid as well as distributions in the event of any liquidation,
dissolution or other sale of Tarzian. This investment is accounted for under the cost method of
accounting and reflected as a non-current asset. The Company has no commitment to fund operations
of Tarzian and has neither representation on Tarzians board of directors nor any other influence
over Tarzians management. The Company believes the cost method is appropriate to account for this
investment given the existence of a single voting majority shareholder and the lack of management
influence.
66
A. Description of Business and Summary of Significant Accounting Policies (Continued)
Valuation and Impairment Testing of Intangible Assets
Approximately $1.3 billion, or 82%, of the Companys total assets as of December 31, 2006
consist of unamortized intangible assets, principally broadcast licenses and goodwill.
The Company values the broadcast licenses of television stations 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 station, assuming an initial 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 purposes of testing goodwill impairment, each of the Companys individual television
stations is a separate reporting unit. The Company reviews each television station acquired after
January 1, 2002 for possible goodwill impairment by comparing the estimated market value of each
respective reporting unit to the carrying value of that reporting units net assets. If the
estimated market values exceed the net assets, no goodwill impairment is deemed to exist. If the
fair value of the reporting unit does not exceed the carrying value of that reporting units net
assets, the Company then performs, on a notional basis, a purchase price allocation applying the
guidance of Statements of Financial Accounting Standards No. 141, Business Combinations (SFAS
141) by allocating the reporting units fair value to the fair value of all tangible and
identifiable intangible assets with residual fair value representing the implied fair value of
goodwill of that reporting unit. The carrying value of goodwill for the reporting unit is written
down to this implied value.
Related Party Transactions
For the years ended December 31, 2006, 2005 and 2004, the Company made payments to Georgia
Casualty and Surety Co. in the amounts of $320,000, $288,000 and $256,000, respectively, for
insurance services provided. Mr. J. Mack Robinson, the Companys Chairman and Chief Executive
Officer and his affiliates have an ownership interest in Atlantic American Corporation, a publicly
traded company, which is the parent company of Georgia Casualty and Surety Co.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
Number 48, Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No.
109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in an enterprises financial
statements by prescribing a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. FIN 48 requires management to evaluate its open tax positions that exist on the date of
initial adoption in each jurisdiction. The provisions of FIN 48 are effective beginning January 1,
2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to
the opening balance of retained deficit. We estimate the adoption of this standard will be an
increase or decrease to the opening balance of retained deficit for 2007 of $400,000 to $600,000
respectively, with no impact to the Companys consolidated cash flows.
67
A. Description of Business and Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements (Continued)
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No.
157). SFAS No. 157 establishes a common definition for fair value to be applied to US GAAP
guidance requiring use of fair value, establishes a framework for measuring fair value, and expands
disclosure about such fair value measurements. SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007. The Company is currently assessing the impact of SFAS No. 157 on its
consolidated financial position and results of operations.
In September 2006, the FASB issued FASB Staff Position (FSP) AUG AIR-1 Accounting for
Planned Major Maintenance Activities (FSP AUG AIR-1). FSP AUG AIR-1 amends the guidance on the
accounting for planned major maintenance activities; specifically it precludes the use of the
previously acceptable accrue in advance method. FSP AUG AIR-1 is effective for fiscal years
beginning after December 15, 2006. The implementation of this standard will not have a material
impact on our consolidated financial position or results of operations.
In September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) 108 Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements (SAB 108). SAB 108 requires that public companies utilize a dual-approach to
assessing the quantitative effects of financial misstatements. This dual approach includes both an
income statement focused assessment and a balance sheet focused assessment. The guidance in SAB 108
must be applied to annual financial statements for fiscal years ending after November 15, 2006. The
Companys adoption of SAB 108 did not have a material effect on the Companys consolidated
financial position or results of operations.
Changes in classifications
The classification of certain prior year amounts in the accompanying consolidated financial
statements have been changed in order to conform to the current year presentation.
B. Discontinued Operations
On December 30, 2005, the Company completed the spinoff of all of the outstanding stock of
Triple Crown Media, Inc. (TCM). Immediately prior to the spinoff, the Company contributed all of
the membership interests in Gray Publishing, LLC, which owned and operated the Companys Gray
Publishing and GrayLink Wireless businesses and certain other assets, to TCM. In the spinoff, each
of the holders of the Companys common stock received one share of TCM Common stock for every ten
shares of the Companys common stock and each holder of the Companys Class A common stock received
one share of TCM common stock for every ten shares of the Companys Class A common stock. As part
of the spinoff, the Company received an approximate $44 million cash distribution from TCM, which
Gray used to reduce its outstanding indebtedness on December 30, 2005. TCM is now quoted on the
NASDAQ National Market under the symbol TCMI. The financial position and results of operations of
the Gray Publishing and GrayLink Wireless businesses are presented on a discontinued operations
basis in the Companys consolidated balance sheet and statement of operations for all periods
presented.
In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, (SFAS No. 144), the balance sheet of the Company at
December 31, 2005 no longer includes the assets and liabilities of those businesses. The
Companys statement of stockholders equity for the year ended December 31, 2005 records the
related $26.2 million
68
B. Discontinued Operations (Continued)
decrease in retained earnings reflecting the distribution of the net carrying amounts of those
businesses to TCM. The statement of stockholders equity for the year ended December 31, 2005 also
records the $36.0 million distribution, net of tax, received from TCM, as a proportionate increase
to the balances of the Companys common stock and Class A common stock. The Company received an
additional distribution from TCM of $335,000 in 2006 related to the spinoff. This amount was also
allocated among the Companys common stock and Class A common stock accounts during the year ended
December 31, 2006.
The major classes of discontinued assets and liabilities included in the consolidated balance
sheet as of the day of the spinoff, December 30, were as follows (in thousands):
|
|
|
|
|
|
|
December 30, |
|
|
|
2005 |
|
Current assets from discontinued operations: |
|
|
|
|
Accounts receivable |
|
$ |
6,291 |
|
Inventories |
|
|
932 |
|
Other current assets |
|
|
300 |
|
|
|
|
|
Total |
|
$ |
7,523 |
|
|
|
|
|
|
|
|
|
|
Non-current assets from discontinued operations: |
|
|
|
|
Property, plant and equipment, net |
|
$ |
9,570 |
|
Intangibles, net |
|
|
17,579 |
|
Other non-current assets |
|
|
246 |
|
|
|
|
|
Total |
|
$ |
27,395 |
|
|
|
|
|
|
|
|
|
|
Current liabilities from discontinued operations: |
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
4,548 |
|
Deferred revenue |
|
|
1,922 |
|
|
|
|
|
Total |
|
$ |
6,470 |
|
|
|
|
|
|
|
|
|
|
Non-current liabilities from discontinued operations: |
|
|
|
|
Deferred income taxes |
|
$ |
1,512 |
|
Other non-current |
|
|
740 |
|
|
|
|
|
Total |
|
$ |
2,252 |
|
|
|
|
|
The Company has reclassified the former Gray Publishing and GrayLink Wireless revenues and
expenses for the years ended December 31, 2005 and 2004 to discontinued operations, net of income
tax in its consolidated statement of operations. The Company did not allocate interest on
corporate indebtedness to discontinued operations. The Company has included its third-party legal,
accounting, professional, printing and other costs of the transactions related to the spinoff as a
part of its discontinued
operations, net of income tax, in the consolidated statement of operations for the year ended
December 31, 2005. The following are the components of income from discontinued operations, net of
tax for the years ended December 31, 2005 and 2004, respectively (in thousands):
69
B. Discontinued Operations (Continued)
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
Operating revenues |
|
$ |
52,658 |
|
|
$ |
51,928 |
|
Operating expenses |
|
|
39,708 |
|
|
|
37,335 |
|
Transaction costs |
|
|
6,238 |
|
|
|
|
|
Depreciation |
|
|
1,634 |
|
|
|
1,701 |
|
Amortization of intangible assets |
|
|
|
|
|
|
55 |
|
Impairment of FCC licenses |
|
|
3,206 |
|
|
|
|
|
(Gain) loss on disposal of assets, net |
|
|
(136 |
) |
|
|
45 |
|
|
|
|
|
|
|
|
Operating income |
|
|
2,008 |
|
|
|
12,792 |
|
Miscellaneous income, net |
|
|
3 |
|
|
|
37 |
|
Interest expense |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
Income before income taxes |
|
|
2,011 |
|
|
|
12,827 |
|
Income tax expense |
|
|
3,253 |
|
|
|
5,059 |
|
|
|
|
|
|
|
|
Income (loss) from operations of discontinued publishing
and other operations net of income tax expense |
|
$ |
(1,242 |
) |
|
$ |
7,768 |
|
|
|
|
|
|
|
|
During the year ended December 31, 2005, the Company recorded a $3.2 million impairment charge
related to its wireless FCC licenses. The impairment of the FCC license was attributed to
increased competition from cellular telephones.
Related Party Transactions Associated With Discontinued Operations
For the years ended December 31, 2005 and 2004, the Company made payments to Georgia Casualty
and Surety Co. in the amounts of $153,000 and $143,000, respectively, for insurance services
provided to the Companys discontinued operations. Mr. J. Mack Robinson, the Companys Chairman
and Chief Executive Officer and his affiliates have an ownership interest in Atlantic American
Corporation, a publicly traded company, which is the parent company of Georgia Casualty and Surety
Co.
C. Purchase of Federal Communications License
On August 17, 2004, the Company completed the acquisition of an FCC television license for
WCAV-TV, Channel 19, in Charlottesville, Virginia from Charlottesville Broadcasting Corporation.
Grays cost to acquire that FCC license was approximately $1 million. WCAV-TV is a CBS network
affiliate. Gray also has an FCC license to operate a low power television station, WVAW-TV, in the
Charlottesville, Virginia television market. WVAW-TV is an ABC network affiliate.
On July 1, 2005, the Company acquired a third FCC license to operate a second low power
television station, WAHU-TV, in the Charlottesville, Virginia television market. WAHU-TV is a FOX
network affiliate. Grays original cost to acquire and/or construct the combined broadcast
facilities for these three stations was approximately $8.5 million.
70
D. Business Acquisitions
2006 Acquisition WNDU-TV
On March 3, 2006, the Company acquired Michiana Telecasting Corp., operator of WNDU-TV, from
The University of Notre Dame for a purchase price of $88.8 million, which included the contract
price of $85.0 million, working capital adjustments of $3.3 million and transaction costs of $0.5
million. WNDU-TV serves the South Bend Elkhart, Indiana television market and is an NBC
affiliate. To fund the acquisition, the Company borrowed $100.0 million under its senior credit
facility. These funds were used to fund the acquisition of WNDU-TV and to reduce portions of the
Companys then outstanding revolving credit facility debt.
The acquisition of WNDU-TV was consistent with the Companys acquisition strategy to acquire
dominant stations in mid size markets.
The acquisition of WNDU-TV was accounted for under the purchase method of accounting. Under
the purchase method of accounting, the results of operations of the acquired business are included
in the accompanying consolidated financial statements as of its acquisition date. The identifiable
assets and liabilities of the acquired business are recorded at their estimated fair values with
the excess of the purchase price over such identifiable net assets allocated to goodwill.
The following table summarizes the preliminary fair values of the assets acquired and the
liabilities assumed at the date of acquisition for WNDU-TV (in thousands):
|
|
|
|
|
|
|
WNDU-TV |
|
Cash |
|
$ |
3,311 |
|
Accounts receivable |
|
|
2,790 |
|
Current portion of program broadcast rights |
|
|
421 |
|
Other current assets |
|
|
61 |
|
Program
broadcast rights excluding current portion |
|
|
260 |
|
Property and equipment |
|
|
22,382 |
|
Broadcast licenses |
|
|
35,640 |
|
Goodwill |
|
|
46,556 |
|
Other intangible assets |
|
|
2,322 |
|
Trade payables and accrued expenses |
|
|
(2,633 |
) |
Current portion of program broadcast obligations |
|
|
(423 |
) |
Deferred income tax liability |
|
|
(21,646 |
) |
Program
broadcast obligations excluding current portion |
|
|
(195 |
) |
|
|
|
|
Total purchase price including expenses |
|
$ |
88,846 |
|
|
|
|
|
All of the goodwill recorded in association with the acquisition is not expected to be
deductible for income tax purposes. Broadcast licenses and goodwill are indefinite lived intangible
assets.
Pro Forma Operating Results (Unaudited)
This unaudited pro forma operating data does not purport to represent what the Companys
actual results of operations would have been had the Company acquired WNDU-TV on January 1, 2005
and should not serve as a forecast of the Companys operating results for any future periods. The
pro forma
71
D. Business Acquisitions (Continued)
2006 Acquisition WNDU-TV (Continued)
Pro Forma Operating Results (Unaudited)(Continued)
adjustments are based solely upon certain assumptions that management believes are reasonable under
the circumstances at this time. Unaudited pro forma operating data for the years ended December 31,
2006 and 2005, are as follows (in thousands, except per common share data):
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
Operating revenues |
|
$ |
334,722 |
|
|
$ |
276,244 |
|
Operating income |
|
|
87,771 |
|
|
|
60,398 |
|
Income from continuing operations, net of income tax |
|
|
11,301 |
|
|
|
2,157 |
|
Net income |
|
|
11,301 |
|
|
|
915 |
|
Preferred dividends |
|
|
3,247 |
|
|
|
3,258 |
|
Deemed non-cash preferred stock dividend |
|
|
|
|
|
|
2,390 |
|
Net income (loss) available to common stockholders |
|
$ |
8,054 |
|
|
$ |
(4,733 |
) |
|
|
|
|
|
|
|
|
|
Basic per share information: |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
common stockholders |
|
$ |
0.17 |
|
|
$ |
(0.07 |
) |
Income (loss) from discontinued operations, net of income tax |
|
|
|
|
|
|
(0.03 |
) |
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
0.17 |
|
|
$ |
(0.10 |
) |
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
48,408 |
|
|
|
48,649 |
|
|
|
|
|
|
|
|
|
|
Diluted per share information: |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
common stockholders |
|
$ |
0.17 |
|
|
$ |
(0.07 |
) |
Income (loss) from discontinued operations, net of income tax |
|
|
|
|
|
|
(0.03 |
) |
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
0.17 |
|
|
$ |
(0.10 |
) |
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
48,425 |
|
|
|
48,649 |
|
The pro forma results presented above include adjustments to reflect (i) additional interest
expense associated with debt to finance the acquisition, (ii) depreciation and amortization of
assets acquired and (iii) the income tax effect of such pro forma adjustments.
72
D. Business Acquisitions (Continued)
2005 Acquisitions
WSAZ-TV
On November 30, 2005, the Company completed the acquisition of WSAZ-TVs assets from Emmis
Communications Corp. for a purchase price of $185.8 million plus related transaction costs of
$602,000. WSAZ-TV, Channel 3, serves the Charleston Huntington, West Virginia television market
and is an NBC affiliate. To fund the acquisition, the Company borrowed $185.0 million under its
senior credit facility and used $1.0 million of cash on hand.
WSWG-TV (formerly WVAG-TV)
On November 10, 2005, the Company completed the acquisition of WSWG-TVs assets from P. D.
Communications LLC for a purchase price of $3.75 million plus related transaction costs of $83,000.
The total cost was $3.8 million. When purchased, the stations call letters were WVAG-TV. The
Company changed the stations call letters to WSWG-TV subsequent to the acquisition to emphasize
its focus on southwest Georgia. WSWG-TV, Channel 44, serves the Albany, Georgia television market.
WSWG-TV is currently affiliated with the CBS and the MyNetworkTV networks. The Company used cash
on hand to fund the acquisition.
KKCO-TV
On January 31, 2005, the Company completed the acquisition of KKCO-TVs assets from Eagle III
Broadcasting, LLC for a purchase price of $13.5 million plus related transaction costs of $700,000.
Total cost was $14.2 million. KKCO-TV, Channel 11, serves the Grand Junction, Colorado television
market and is an NBC affiliate. The Company used cash on hand to fully fund this acquisition.
The acquisitions of WSAZ-TV, WSWG-TV and KKCO-TV were accounted for under the purchase method
of accounting. Under the purchase method of accounting, the results of operations of the acquired
business are included in the accompanying consolidated financial statements as of its acquisition
date. The identifiable assets and liabilities of the acquired business are recorded at their
estimated fair values with the excess of the purchase price over such identifiable net assets
allocated to goodwill.
The following table summarizes the final fair values of the assets acquired and the
liabilities assumed at the date of acquisition for WSAZ-TV, WSWG-TV and KKCO-TV (in thousands):
73
D. Business Acquisitions (Continued)
2005 Acquisitions (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WSAZ-TV |
|
|
WSWG-TV |
|
|
KKCO-TV |
|
Accounts Receivable |
|
$ |
4,558 |
|
|
$ |
10 |
|
|
$ |
442 |
|
Current portion of program broadcast rights |
|
|
1,002 |
|
|
|
38 |
|
|
|
35 |
|
Other current assets |
|
|
35 |
|
|
|
|
|
|
|
48 |
|
Program broadcast rights exluding current portion |
|
|
|
|
|
|
69 |
|
|
|
|
|
Property and equipment |
|
|
12,721 |
|
|
|
500 |
|
|
|
1,111 |
|
Broadcast licenses |
|
|
91,137 |
|
|
|
1,554 |
|
|
|
8,338 |
|
Goodwill |
|
|
79,535 |
|
|
|
1,752 |
|
|
|
4,448 |
|
Other intangible assets |
|
|
2,310 |
|
|
|
26 |
|
|
|
67 |
|
Trade payables and accrued expenses |
|
|
(3,872 |
) |
|
|
(8 |
) |
|
|
(251 |
) |
Current portion of program broadcast obligations |
|
|
(1,028 |
) |
|
|
(38 |
) |
|
|
(35 |
) |
Program broadcast obligations exluding current portion |
|
|
|
|
|
|
(75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price including expenses |
|
$ |
186,398 |
|
|
$ |
3,828 |
|
|
$ |
14,203 |
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2006, the fair values of the assets and liabilities
acquired of WSAZ-TV were adjusted. The Company incurred $363,000 in additional professional fees
and $497,000 in amounts required to settle certain liabilities in excess of their original
estimates. The value of goodwill was increased by $860,000 to reflect the additional costs.
All of the goodwill recorded in association with the acquisitions is expected to be deductible
for income tax purposes. Broadcast licenses and goodwill are indefinite lived intangible assets.
Pro Forma Operating Results (Unaudited)
This unaudited pro forma operating data does not purport to represent what the Companys
actual results of operations would have been had the Company acquired KKCO-TV, WSWG-TV and WSAZ-TV
on January 1, 2004 and should not serve as a forecast of the Companys operating results for any
future periods. The pro forma adjustments are based solely upon certain assumptions that
management believes are reasonable under the circumstances at this time. Unaudited pro forma
operating data for the years ended December 31, 2005 and 2004, are as follows (in thousands, except
per common share data):
74
D. Business Acquisitions (Continued)
2005 Acquisitions (Continued)
Pro Forma Operating Results (Unaudited)(Continued)
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
|
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(Unaudited) |
|
Operating revenues |
|
$ |
282,131 |
|
|
$ |
326,986 |
|
Operating income |
|
|
69,873 |
|
|
|
116,154 |
|
Income from continuing operations, net of income tax |
|
|
4,705 |
|
|
|
41,523 |
|
Net income |
|
|
3,463 |
|
|
|
49,429 |
|
Preferred dividends |
|
|
3,258 |
|
|
|
3,272 |
|
Deemed non-cash preferred stock dividend |
|
|
2,390 |
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
(2,185 |
) |
|
$ |
46,157 |
|
|
|
|
|
|
|
|
|
|
Basic per share information: |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
common stockholders |
|
$ |
(0.02 |
) |
|
$ |
0.77 |
|
Income (loss) from discontinued operations, net of income tax |
|
$ |
(0.03 |
) |
|
|
0.16 |
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
(0.05 |
) |
|
$ |
0.93 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
48,649 |
|
|
|
49,643 |
|
|
|
|
|
|
|
|
|
|
Diluted per share information: |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
common stockholders |
|
$ |
(0.02 |
) |
|
$ |
0.76 |
|
Income (loss) from discontinued operations, net of income tax |
|
$ |
(0.03 |
) |
|
|
0.16 |
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
(0.05 |
) |
|
$ |
0.92 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
48,649 |
|
|
|
50,170 |
|
The pro forma results presented above include adjustments to reflect (i)
additional interest expense associated with debt to finance the respective acquisitions, (ii)
depreciation and amortization of assets acquired and (iii) the income tax effect of such pro forma
adjustments.
75
E. Long-term Debt
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Senior credit facility |
|
$ |
598,500 |
|
|
$ |
533,000 |
|
91/4% Senior Subordinated Notes due 2011 |
|
|
253,807 |
|
|
|
258,479 |
|
Other |
|
|
|
|
|
|
1,841 |
|
|
|
|
|
|
|
|
|
|
|
852,307 |
|
|
|
793,320 |
|
Less unamortized discount |
|
|
(653 |
) |
|
|
(811 |
) |
|
|
|
|
|
|
|
Total long-term debt including current portion |
|
|
851,654 |
|
|
|
792,509 |
|
Less current portion |
|
|
(4,500 |
) |
|
|
(3,577 |
) |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
847,154 |
|
|
$ |
788,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Availability capacity under the revolving portion of senior credit
facility |
|
$ |
97,000 |
|
|
$ |
58,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letter of credit outstanding |
|
$ |
|
|
|
$ |
8,500 |
|
|
|
|
|
|
|
|
Senior Credit Facility
As of December 31, 2006, the amount outstanding under the senior credit facility was $598.5
million, which included $3.0 million, $150.0 million, $346.5 million and $99.0 million under the
revolving facility, the term loan A facility, the term loan B facility, and the incremental
facility, respectively. Also as of December 31, 2006, the available capacity to borrow under the
revolving facility was $97.0 million.
On November 22, 2005, Gray amended its existing senior credit facility. The amended agreement
has a maximum term of six years (or seven years, with respect to the term loan B facility) and the
total amount available under the agreement is $600.0 million, consisting of a $100.0 million
revolving facility, a $150.0 million term loan A facility and a $350.0 million term loan B
facility. In addition, an incremental loan facility is also available under the senior credit
facility in the maximum amount of $400.0 million. Initially, Gray used the proceeds from the
credit facilities to finance the acquisition of WSAZ-TV, to refinance the indebtedness under the
previous senior credit facility, and for certain permitted working capital needs, investments and
acquisitions permitted under the facility. On January 31, 2006, Gray borrowed $100.0 million under
the incremental facility. Of the $100.0 million borrowed under the
incremental facility, $84.9 million was used for the acquisition of WNDU-TV and the remainder was
used to retire debt under the revolving facility.
As amended on November 22, 2005, the final maturity date for the revolving loan facility, the
term loan A facility, term loan B facility and the incremental facility is November 22, 2011,
November 22, 2011, November 22, 2012 and May 22, 2013, respectively. However, if the Company has
not refinanced its 91/4% Senior Subordinated Notes by December 15, 2010, the final maturity date will
be accelerated to June 15, 2011 for all four portions of the senior credit facility.
76
E. Long-term Debt (Continued)
Senior Credit Facility (Continued)
Under the senior credit facility, irrevocable stand by letters of credit for $8.5 million and
$18.6 million were issued on behalf of Gray and in lieu of an earnest money deposits for the then
pending acquisitions of WNDU-TV and WSAZ-TV. The WSAZ-TV letter of credit was cancelled on November
23, 2005 upon completion of the acquisition. The WNDU-TV letter of credit was cancelled on March 3,
2006 upon completion of the acquisition. Neither letter of credit was drawn upon.
Under the revolving and term facilities as amended, the Company, at its option, can borrow
funds at an interest rate equal to the London Interbank Offered Rate (LIBOR) plus a margin or at
the lenders base rate, generally equal to the lendersprime rate, plus a margin. The applicable
margin on the revolving and term facilities varies based on the Companys total leverage ratio as
defined in the loan agreement. Presented below are the ranges of applicable margins available to
the Company based on the Companys performance in comparison with the terms as defined in the loan
agreement:
|
|
|
Applicable Margin for |
|
Applicable Margin for |
Base Rate Advances |
|
LIBOR Advances |
0.00% 0.25%
|
|
0.625% 1.50% |
The weighted average interest rate on the balance outstanding under the senior credit facility
at December 31, 2006 and 2005 was 6.89% and 5.67%, respectively. As of December 31, 2006 and 2005,
the Company was charged a commitment fee equal to 0.50% and 0.375% per annum, respectively, of the
excess of the aggregate average daily available credit limit less the amount outstanding. This
commitment fee can range between 0.20% and 0.50% per annum.
The senior credit facility is collateralized by substantially all of the assets, excluding
real estate, of the Company and its subsidiaries. In addition, the Companys subsidiaries are
joint and several guarantors of the obligations and the Companys ownership interests in its
subsidiaries are pledged to collateralize the obligations. The amended agreement contains
affirmative and negative covenants that Gray 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, (g) limitations on mergers, as well as other customary covenants. Also, Gray
must not let its leverage ratio and senior leverage ratio exceed certain maximum limits and Gray
can not let its interest coverage ratio or fixed charge ratio fall below certain minimum limits.
The senior subordinated notes also contain similar restrictive provisions limiting the Companys
ability to, among other things, incur additional indebtedness, make certain acquisitions or
investments, sell assets or make certain restricted payments that include but are not limited to
purchases or redemptions of the Companys capital stock.
91/4% Senior Subordinated Notes
On December 21, 2001, the Company completed its sale of $180 million aggregate principal
amount of its Senior Subordinated Notes due 2011 (the 91/4% Notes). The net proceeds from the sale
of the 91/4% Notes were approximately $173.6 million. These senior subordinated notes have a coupon
of 91/4% and were priced at a discount to yield 9 3/8 %. On September 10, 2002, the Company completed
the sale of an additional $100 million principal amount of 91/4% Notes. The coupon on these
additional notes was 91/4% and they were issued at par. These additional notes were issued under the
same indenture and have the same terms as the Companys previously existing senior subordinated
notes. The additional senior
77
E. Long-term Debt (Continued)
91/4% Senior Subordinated Notes (Continued)
subordinated notes form a single series with the Companys then existing senior subordinated
notes and are collectively referred to as the 91/4% Notes.
Interest on the 91/4% Notes is payable semi-annually on December 15 and June 15, commencing June
15, 2002. The 91/4% Notes mature on December 15, 2011 and are redeemable, in whole or in part, at
the Companys option after December 15, 2006. If the 91/4% Notes are redeemed during the
twelve-month period beginning on December 15 of the years indicated below, they will be redeemed at
the redemption prices set forth below, plus accrued and unpaid interest to the date fixed for
redemption.
|
|
|
|
|
|
|
Percentage of the Principal |
Year |
|
Amount Outstanding |
2006 |
|
|
104.625 |
% |
2007 |
|
|
103.083 |
% |
2008 |
|
|
101.542 |
% |
2009 and thereafter |
|
|
100.000 |
% |
The 91/4% Notes are jointly and severally guaranteed (the Subsidiary Guarantees) by all of the
Companys subsidiaries (the Subsidiary Guarantors). The obligations of the Subsidiary Guarantors
under the Subsidiary Guarantees is subordinated, to the same extent as the obligations of the
Company in respect of the 91/4% Notes, to the prior payment in full of all existing and future senior
debt of the Subsidiary Guarantors (which will include any guarantee issued by such Subsidiary
Guarantors of any senior debt).
The Company is a holding company with no material independent assets or operations, other than
its investment in its subsidiaries. The aggregate assets, liabilities, earnings and equity of the
Subsidiary Guarantors are substantially equivalent to the assets, liabilities, earnings and equity
of the Company on a consolidated basis. The Subsidiary Guarantors are, directly or indirectly,
wholly owned subsidiaries of the Company and the Subsidiary Guarantees are full, unconditional and
joint and several. All of the current and future direct and indirect subsidiaries of the Company
are guarantors of the senior subordinated notes. Accordingly, separate financial statements and
other disclosures of each of the Subsidiary Guarantors are not presented because the Company has no
independent assets or operations, the guarantees are full and unconditional and joint and several
and any subsidiaries of the parent company other than the Subsidiary Guarantors are minor.
Loss on Early Extinguishment of Debt
The Company has incurred approximately $7.2 million and $820,000 in lender and legal fees for
the amendments of its senior credit facility during the years ending December 31, 2005 and 2004,
respectively. Portions of these fees have been capitalized, net of amounts written off in
accordance with EITF 98-14 Debtors Accounting for Changes in Line-of-Credit or Revolving-Debt
Arrangements and EITF 96-19 Debtors Accounting for a Modification or Exchange of Debt
Instruments. Based on these criteria, the Company has recognized a loss on early extinguishment of
debt to write off portions of the previously capitalized loan costs totaling $3.1 million in the
year ended December 31, 2005. No similar
78
E. Long-term Debt (Continued)
Loss on Early Extinguishment of Debt (Continued)
amounts were recognized in the years ended December 31, 2006 or 2004. Included in loss on early
extinguishment of debt in the year ended December 31, 2005 is $817,000 of costs incurred while
considering alternative financing transactions. Ultimately, the Company amended its senior credit
facility rather than completing one of the alternative transactions.
During the years ended December 31, 2006 and 2005, Gray repurchased $4.7 million and $21.5
million, respectively, face amount, of its 91/4% Notes in the open market. Associated with this
repurchase, Gray recorded a loss upon early extinguishment of debt of $347,000 and $2.6 million,
respectively, which consisted of premiums of $246,000 and $2.0 million, respectively, the write
off of unamortized deferred finance costs of $88,000 and $485,000, respectively, and an unaccreted
discount of $13,000 and $74,000, respectively. Gray used cash on hand of $4.9 million and $23.5
million, respectively, for the repurchases of its 91/4% Notes, which included amounts for the face
amount of the 91/4% Notes, premium and accrued interest.
Interest Rate Swap Agreements
On February 9, 2006, the Company entered into an interest rate swap agreement having a
notional amount of $100.0 million. Under this agreement the Company paid at an annual fixed rate
of 5.05% and receive interest at the 90 day LIBOR rate. The swap agreement expired on January 3,
2007. As of December 31, 2005, the Company was not engaged in any interest rate swap agreements.
Maturities
Aggregate minimum principal maturities on long-term debt as of December 31, 2006, were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Principal Maturities |
|
|
|
Senior Credit |
|
|
|
|
|
|
|
Year |
|
Facility |
|
|
91/4% Notes |
|
|
Total |
|
2007 |
|
$ |
4,500 |
|
|
$ |
|
|
|
$ |
4,500 |
|
2008 |
|
|
12,000 |
|
|
|
|
|
|
|
12,000 |
|
2009 |
|
|
12,000 |
|
|
|
|
|
|
|
12,000 |
|
2010 |
|
|
27,000 |
|
|
|
|
|
|
|
27,000 |
|
2011 |
|
|
120,000 |
|
|
|
253,807 |
|
|
|
373,807 |
|
Thereafter |
|
|
423,000 |
|
|
|
|
|
|
|
423,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
598,500 |
|
|
$ |
253,807 |
|
|
$ |
852,307 |
|
|
|
|
|
|
|
|
|
|
|
The Company made interest payments of approximately $58.0 million, $44.5 million and $39.8
million during 2006, 2005 and 2004, respectively.
79
E. Long-term Debt (Continued)
Subsequent Event
In March 2007, the Company initiated a refinancing of its outstanding indebtedness with plans
to redeem its outstanding 91/4% Notes and Series C Preferred Stock. See Note N.
Subsequent Event for further information.
F. Stockholders Equity
On May 26, 2004, the shareholders of the Company voted to amend the Companys articles of
incorporation to allow for an increase in the authorized number of shares of common stock from 50
million to 100 million. The Company is authorized to issue 135 million shares of all classes of
stock, of which 15 million shares are designated Class A common stock, 100 million shares are
designated common stock, and 20 million shares are designated blank check preferred stock for
which the Board of Directors has the authority to determine the rights, powers, limitations and
restrictions. The rights of the Companys common stock and Class A common stock are identical,
except that the Class A common stock has 10 votes per share and the common stock has one vote per
share. The common stock and Class A common stock receive cash dividends on an equal per share
basis.
On March 3, 2004, the Board of Directors authorized the Company to repurchase up to an
aggregate of two million shares of the Companys common stock or Class A common stock. On November
3, 2004, the Board of Directors increased, from two million to four million, the aggregate number
of shares of its common stock or Class A common stock authorized for repurchase. This
authorization supersedes any previously authorized share repurchases. There is no expiration for
this authorization. Shares repurchased under this authorization will be held as treasury shares
and used for general corporate purposes including, but not limited to, satisfying obligations under
the Companys employee benefit plans and long term incentive plan.
During the year ended December 31, 2006, the Company purchased 902,200 shares of the Companys
common stock at an average price of $6.21 per share for cost of $5.6 million. During the year ended
December 31, 2005, the Company purchased 528,400 shares of the Companys common stock for an
average price of $12.89 per share and purchased 12,800 shares of the Companys Class A common stock
for $13.37 per share for a combined cost of $7.0 million. During the year ended December 31, 2004,
the Company purchased 1,681,400 shares of the Companys common stock for an average price of $12.93
per share and purchased 65,000 shares of the Companys Class A common stock for $10.95 per share
for a combined cost of $22.4 million. Included in the purchases made during 2004 were 75,000
shares of the Companys common stock, which were purchased from a member of the Companys Board of
Directors, for $15.20 per share. The price paid was the market value of the shares on the New York
Stock Exchange on the date of sale. At December 31, 2006, the remaining shares authorized for
purchase total 810,200. Treasury stock is recorded at cost.
For the year ended December 31, 2006, the Company had declared but unpaid common stock
dividends of $1.4 million which remained a liability of the Company as of December 31, 2006. These
dividends were paid during the first quarter of 2007. For the year ended December 31, 2005, all
common stock dividends declared by the Company were paid during the year that the common stock
dividends were declared. As of December 31, 2004, the Company had declared but unpaid common stock
dividends of $5.9 million which remained a liability of the Company as of December 31, 2004. These
dividends were paid during the first quarter of 2005.
80
F.
Stockholders Equity (Continued)
As of December 31, 2006, the Company had reserved 8,665,497 shares and 20,687 shares of the
Companys common stock and Class A common stock, respectively, for future issuance under various
employee benefit plans and the potential conversion of the Companys preferred stock.
G. Redeemable Preferred Stock
In April of 2002, the Company issued $40.0 million of a redeemable and convertible preferred
stock to a group of private investors. The preferred stock was designated as Series C Preferred
Stock and has a liquidation value of $10,000 per share. The issuance of the Series C Preferred
Stock generated net cash proceeds of approximately $30.5 million, after transaction fees and
expenses and excluding the value of the Series A and Series B preferred stock exchanged into the
Series C Preferred Stock. As part of the transaction, holders of the Companys Series A and Series
B Preferred Stock have exchanged all of the outstanding shares of each respective series, an
aggregate liquidation value of approximately $8.2 million, for an equal number of shares of the
Series C Preferred Stock. The Series C Preferred Stock is the only currently outstanding preferred
stock of the Company.
The Series C Preferred Stock is convertible into the Companys common stock. On December 30,
2005, the Company spun off a portion of its assets to TCM. Due to the decrease in the market price
of the Companys common stock resulting from the TCM spin off, the Company decreased the conversion
price for the Series C Preferred Stock to $13.07 from $14.39 per share of the Companys common
stock. The new conversion price was effective as of December 30, 2005. The modification of the
conversion price resulted in a non-cash deemed dividend to the preferred stockholders totaling
approximately $2.4 million on December 30, 2005. See Note B. Discontinued Operations for further
discussion of the TCM spinoff.
The Series C Preferred Stock is redeemable at the Companys option on or after April 22, 2007
and is subject to mandatory redemption on April 22, 2012 at a value of $10,000 per share.
Therefore, the Company does not have any Series C Preferred Stock redemption requirements for the
five years subsequent to December 31, 2006. Dividends on the Series C Preferred Stock will accrue
at 8.0% per annum until April 22, 2009 after which the dividend rate shall be 8.5% per annum.
Dividends, when declared by the Companys Board of Directors may be paid at the Companys option in
cash or additional shares of Series C Preferred Stock.
On September 29, 2006, the Company repurchased 175 shares of the Companys Series C Preferred
Stock from Georgia Casualty & Surety Company at the liquidation price of $10,000 per share. Mr. J.
Mack Robinson, the Companys Chairman and Chief Executive Officer and his affiliates have an
ownership interest in Atlantic American Corporation, a publicly traded company, which is the parent
company of Georgia Casualty and Surety Co. On August 4, 2004, the Company repurchased 36 shares of
the Companys Series C Preferred Stock from the Companys Chairman and CEO, at the liquidation
price of $10,000 per share. The Company chose to repurchase these shares when they became
available and
after considering the Series C Preferred Stocks dividend rate in comparison to the interest
earned on the Companys cash investments. By repurchasing the Series C Preferred Stock, the Company
retired stock with a dividend accruing at an annual rate of 8.0% while it used cash that was
earning interest at a lower annual rate.
As of December 31, 2006, the carrying value and the liquidation value of the Series C
Preferred Stock was $37.5 million and $37.9 million, respectively. The difference between these two
values is the unaccredited portion of the original issuance cost. The original issuance cost, prior
to accretion, was $868,000 and it is being accreted over the estimated ten-year life of the Series
C Preferred Stock.
81
G. Redeemable Preferred Stock (Continued)
Subsequent Event
In March 2007, the Company initiated a refinancing of its outstanding indebtedness with plans
to redeem its outstanding 91/4% Notes and Series C Preferred Stock. See Note N.
Subsequent Event for further information.
H. Long-term Incentive Plan
On December 30, 2005, the Company completed the spinoff of TCM. As a result of the change in
the underlying value of the Companys common stock, on January 3, 2006, the Company adjusted the
exercise price and corresponding number of options in its incentive plans. The adjustment affected
all of the employees holding the Companys stock options. All of the other terms and conditions of
the options remained unchanged. The fair market value of the options outstanding prior to the
adjustment was equal to the fair market value of the outstanding options after the adjustment.
Therefore the adjustment did not result in an accounting charge for the Company.
On September 16, 2002, the shareholders of the Company approved the 2002 Long Term Incentive
Plan (the 2002 Incentive Plan), which replaced the prior long-term incentive plan, the 1992 Long
Term Incentive Plan. Originally, the 2002 Incentive Plan had 2.8 million shares of the Companys
common stock reserved for grants to key personnel for (i) incentive stock options, (ii)
non-qualified stock options,(iii) stock appreciation rights, (iv) restricted stock awards and (v)
performance awards, as defined by the 2002 Incentive Plan. On May 26, 2004, the shareholders of the
Company approved an amendment to the 2002 Incentive Plan, which increased the number of shares
reserved for issuance thereunder by two million shares to a total of 4.8 million shares. As of
December 31, 2006, 2.5 million shares were available for issuance under the 2002 Incentive Plan.
Shares of common stock underlying outstanding options or performance awards are counted against the
2002 Incentive Plans maximum shares while such options or awards are outstanding. Under the 2002
Incentive Plan, the options granted typically vest after a two-year period and expire three years
after full vesting. However, options will vest immediately upon a change in control of the
Company as such term is defined in the 2002 Incentive Plan. All options have been granted with
purchase prices that equal the market value of the underlying stock on the date of the grant.
During 2003, the Company granted 100,000 shares of restricted common stock to the Companys
president of which 80,000 shares were fully vested as of December 31, 2006. During 2003 and in
connection with this grant, the Company recorded a liability for unearned compensation of $1.4
million. On October 6, 2006, the Company granted 160,000 shares of restricted common stock to the
Companys president which will vest as follows: 64,000 shares on April 6, 2007, 48,000 shares on
October 6, 2007 and 48,000 shares on October 6, 2008.
On May 14, 2003, the Companys shareholders approved a restricted stock plan for its Board of
Directors (the Directors Restricted Stock Plan). The Company has reserved 1.0 million shares of
the Companys common stock for issuance under this plan and as of December 31, 2006 there were
880,000 shares available for award. The Directors Restricted Stock Plan replaced the Companys
non-employee director stock option plan. Under the Directors Restricted Stock Plan, each director
can be awarded up to 10,000 shares of restricted stock each calendar year. Under this plan, the
Company granted 55,000 and 5,000 shares of restricted common stock, in total, to its directors
during the year ended December 31, 2006 and 2005, respectively. Of the total shares granted to the
directors since the beginning of the directors plan, 62,000 shares were fully vested as of
December 31, 2006.
82
H. Long-term Incentive Plan (Continued)
Included in expenses recognized in the year ended December 31, 2006 is $1.1 million of
non-cash expense for stock-based compensation. For the years ended December 31, 2005 and 2004, the
Company recognized $392,000 and $512,000, respectively for all non-cash stock based compensation
related to restricted stock awards.
A summary of the Companys stock option activity for Class A common stock, and related
information, for the years ended December 31, 2006, 2005 and 2004 is as follows (in thousands,
except weighted average data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
Options |
|
Price |
|
Options |
|
Price |
|
Options |
|
Price |
Stock options outstanding
beginning of year |
|
|
19 |
|
|
$ |
17.81 |
|
|
|
19 |
|
|
$ |
17.81 |
|
|
|
19 |
|
|
$ |
17.81 |
|
Adjustment spinoff of TCM |
|
|
2 |
|
|
|
15.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding
end of period |
|
|
21 |
|
|
$ |
15.39 |
|
|
|
19 |
|
|
$ |
17.81 |
|
|
|
19 |
|
|
$ |
17.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
21 |
|
|
$ |
15.39 |
|
|
|
19 |
|
|
$ |
17.81 |
|
|
|
19 |
|
|
$ |
17.81 |
|
The exercise price for Class A common stock options outstanding as of December 31, 2006 is
$15.39. The weighted-average remaining contractual life of the Class A common stock options
outstanding is 1.9 years.
A summary of the Companys stock option activity for common stock, and related information for
the years ended December 31, 2006, 2005 and 2004 is as follows (in thousands, except weighted
average data):
83
H. Long-term Incentive Plan (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
Options |
|
Price |
|
Options |
|
Price |
|
Options |
|
Price |
Stock options outstanding
beginning of year |
|
|
1,664 |
|
|
$ |
11.20 |
|
|
|
1,753 |
|
|
$ |
10.75 |
|
|
|
2,245 |
|
|
$ |
10.49 |
|
Adjustment spinoff of TCM |
|
|
238 |
|
|
$ |
9.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted |
|
|
|
|
|
|
|
|
|
|
544 |
|
|
|
11.36 |
|
|
|
151 |
|
|
|
14.07 |
|
Options exercised |
|
|
|
|
|
|
|
|
|
|
(250 |
) |
|
|
9.78 |
|
|
|
(525 |
) |
|
|
10.56 |
|
Options forfeited |
|
|
(67 |
) |
|
|
9.67 |
|
|
|
(101 |
) |
|
|
10.58 |
|
|
|
(61 |
) |
|
|
9.18 |
|
Options expired |
|
|
(38 |
) |
|
|
9.02 |
|
|
|
(282 |
) |
|
|
10.09 |
|
|
|
(57 |
) |
|
|
12.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding
end of period |
|
|
1,797 |
|
|
$ |
9.82 |
|
|
|
1,664 |
|
|
$ |
11.20 |
|
|
|
1,753 |
|
|
$ |
10.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
1,574 |
|
|
$ |
9.77 |
|
|
|
1,458 |
|
|
$ |
11.12 |
|
|
|
1,435 |
|
|
$ |
10.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of
options granted during the year |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
2.67 |
|
|
|
|
|
|
$ |
3.44 |
|
Information concerning common stock options outstanding has been segregated into four groups
with similar option prices and is disclosed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Number of |
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Average |
|
Options |
|
Exercise Price |
Exercise Price |
|
Number of |
|
Exercise |
|
Remaining |
|
Outstanding |
|
Per Share of |
Per Share |
|
Options |
|
Price |
|
Contractual |
|
That Are |
|
Options That Are |
Low |
|
High |
|
Outstanding |
|
Per Share |
|
Life |
|
Exercisable |
|
Exercisable |
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
(in years) |
|
(in thousands) |
|
|
|
|
$ |
7.13 |
|
|
$ |
8.91 |
|
|
|
312 |
|
|
$ |
7.86 |
|
|
|
1.6 |
|
|
|
260 |
|
|
$ |
7.85 |
|
$ |
8.91 |
|
|
$ |
10.69 |
|
|
|
1,122 |
|
|
$ |
9.69 |
|
|
|
1.8 |
|
|
|
1,019 |
|
|
$ |
9.69 |
|
$ |
10.69 |
|
|
$ |
12.47 |
|
|
|
287 |
|
|
$ |
11.69 |
|
|
|
1.4 |
|
|
|
287 |
|
|
$ |
11.69 |
|
$ |
12.47 |
|
|
$ |
14.25 |
|
|
|
76 |
|
|
$ |
12.77 |
|
|
|
3.2 |
|
|
|
8 |
|
|
$ |
12.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,797 |
|
|
|
|
|
|
|
|
|
|
|
1,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The closing market price of the Companys common stock was less than the exercise price for
all of the Companys outstanding stock options. Therefore, outstanding options as of December 31,
2006 and options vested during the year ended December 31, 2006 had no intrinsic value. No options
were exercised during the year ended December 31, 2006.
84
H. Long-term Incentive Plan (Continued)
All of the Companys options for its Class A common stock are vested. The following table
summarizes the Companys non-vested options for its common stock and restricted shares during the
year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Number of |
|
Average |
|
|
Shares |
|
Fair Value |
Stock Options: |
|
|
|
|
|
|
|
|
Nonvested common stock options, December 31, 2005 |
|
|
206,000 |
|
|
$ |
2.59 |
|
Adjustment |
|
|
29,497 |
|
|
|
2.59 |
|
Vested |
|
|
(12,575 |
) |
|
|
2.59 |
|
|
|
|
|
|
|
|
|
|
Nonvested common stock options, December 31, 2006 |
|
|
222,922 |
|
|
$ |
2.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock: |
|
|
|
|
|
|
|
|
Nonvested common restricted shares, December 31, 2005 |
|
|
65,000 |
|
|
$ |
12.73 |
|
Granted |
|
|
215,000 |
|
|
|
6.98 |
|
Vested |
|
|
(42,000 |
) |
|
|
11.59 |
|
|
|
|
|
|
|
|
|
|
Nonvested common restricted shares, December 31, 2006 |
|
|
238,000 |
|
|
$ |
7.73 |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006, there was $1.6 million of total unrecognized compensation cost
related to all non-vested share based compensation arrangements. The cost is expected to be
recognized over a weighted average period of 0.9 years.
I. Income Taxes
Federal and state income tax expense (benefit) attributable to income from continuing
operations is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
51 |
|
|
$ |
351 |
|
|
$ |
1,069 |
|
State and local |
|
|
796 |
|
|
|
(757 |
) |
|
|
794 |
|
Deferred |
|
|
8,976 |
|
|
|
4,129 |
|
|
|
21,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,823 |
|
|
$ |
3,723 |
|
|
$ |
22,905 |
|
|
|
|
|
|
|
|
|
|
|
Significant components of the Companys deferred tax liabilities and assets are as follows (in
thousands):
85
I. Income Taxes (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Net book value of property and equipment |
|
$ |
23,280 |
|
|
$ |
17,832 |
|
Broadcast licenses, goodwill and other intangibles |
|
|
324,372 |
|
|
|
296,078 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
$ |
347,652 |
|
|
$ |
313,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Liability under supplemental retirement plan |
|
|
38 |
|
|
|
53 |
|
Allowance for doubtful accounts |
|
|
403 |
|
|
|
220 |
|
Liability under severance and leases |
|
|
136 |
|
|
|
98 |
|
Liability under health and welfare plan |
|
|
262 |
|
|
|
296 |
|
Liability for pension plan |
|
|
2,672 |
|
|
|
1,894 |
|
Federal operating loss carryforwards |
|
|
57,274 |
|
|
|
54,832 |
|
State and local operating loss carryforwards |
|
|
8,545 |
|
|
|
7,934 |
|
Alternative minimum tax carryforwards |
|
|
889 |
|
|
|
838 |
|
Other |
|
|
277 |
|
|
|
69 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
70,496 |
|
|
|
66,234 |
|
Valuation allowance for deferred tax assets |
|
|
(4,784 |
) |
|
|
(4,574 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
65,712 |
|
|
|
61,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, net |
|
$ |
281,940 |
|
|
$ |
252,250 |
|
|
|
|
|
|
|
|
The Company has approximately $163.6 million in federal net operating loss carryforwards,
which expire during the years 2020 through 2026. Additionally, the Company has an aggregate of
approximately $207.5 million of various state net operating loss carryforwards. The Company is
projecting taxable income in the carryforward periods. Therefore, Management believes that it is
more likely than not that the Federal net operating loss carryforwards will be fully utilized.
A valuation allowance has been provided for a portion of the state net operating loss
carryforwards. Management believes that it will not meet the more likely than not threshold in
certain states due to the uncertainty of generating sufficient income. Therefore, the state
valuation allowance at December 31, 2006 and 2005 was $4.8 million and $4.6 million, respectively.
In connection with the spinoff, described further in Note B Discontinued Operations, TCM
assumed a net deferred tax liability of approximately $1.5 million. This net deferred tax
liability is the result of differences between the book and tax basis of assets transferred in the
spinoff. The Company retained all net operating loss carryforwards.
A reconciliation of income tax expense at the statutory federal income tax rate and income
taxes as reflected in the consolidated financial statements is as follows (in thousands):
86
I. Income Taxes (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Statutory federal rate applied to income from
continuing operations before income taxes |
|
$ |
7,536 |
|
|
$ |
2,914 |
|
|
$ |
20,798 |
|
State and local taxes, net of federal tax benefit |
|
|
1,329 |
|
|
|
1,484 |
|
|
|
3,037 |
|
Change in valuation allowance |
|
|
210 |
|
|
|
(852 |
) |
|
|
(597 |
) |
Other items, net |
|
|
748 |
|
|
|
177 |
|
|
|
(333 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,823 |
|
|
$ |
3,723 |
|
|
$ |
22,905 |
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate on continuing operations |
|
|
45.6 |
% |
|
|
44.7 |
% |
|
|
38.5 |
% |
The Company did not record an income tax benefit related to employee stock plans for the year
ended December 31, 2006. The Company recorded income tax benefits related to employee stock plans
of $419,000 and $820,000 for the years ended December 31, 2005 and 2004, respectively. These
benefits were recorded directly to equity.
During the fourth quarter of 2006 the Company adopted SFAS No. 158, which requires that
employers recognize on a prospective basis the funded status of their defined benefit pension and
other postretirement plans on their consolidated balance sheet and recognize as a component of
other comprehensive income, net of tax, the gains or losses and prior service costs or credits that
arise during the period but are not recognized as components of net periodic benefit cost. In
connection with the adoption of SFAS 158, the Company increased its recorded non-current pension
liability by $1.9 million and other comprehensive expense by $1.2 million, net of a $750,000 income
tax benefit.
During the year ended December 31, 2005, the Company recorded a reduction in its minimum
pension liability as other comprehensive income which was net of a $101,000 tax expense. During
the year ended December 31, 2004, the Company recorded an increase in its minimum pension liability
as other comprehensive expense net of a $904,000 income tax benefit. The Company also recorded a
gain on derivatives as other comprehensive income in the year ended December 31, 2004 which was net
of an $84,000 tax expense.
The Company made income tax payments (net of refunds) of approximately $712,000, $356,000 and
$42,000 in 2006, 2005 and 2004, respectively. At December 31, 2006 and 2005, the Company had
current income taxes payable of approximately $2.6 million and $1.8 million, respectively.
The pretax income from discontinued operations for the years ended December 31, 2005 and 2004
was $2.1 million and $12.8 million, respectively. The income tax expense related to discontinued
operations for the years ended December 31, 2005 and 2004 was $3.3 million and $5.1 million,
respectively. For the year ended December 31, 2005, the Company incurred $6.2 million in legal,
accounting and other costs associated with the spinoff. These costs were nondeductible for income
tax purposes.
87
J. Retirement Plans
Implementation of accounting standard
During the fourth quarter of 2006, the Company adopted Statement of Financial Accounting
Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans (SFAS No. 158). SFAS No. 158 requires that employers recognize on a prospective basis the
funded status of their defined benefit pension and other postretirement plans on their consolidated
balance sheet and recognize as a component of other comprehensive income, net of tax, the gains or
losses and prior service costs or credits that arise during the period but are not recognized as
components of net periodic benefit cost. Upon the adoption of SFAS 158, for all three of the
Companys pension plans, the company increased its recorded pension liability by $1.9 million and
decreased other comprehensive income by $1.2 million, net of income taxes. The Company measures
plan obligations as of the year end balance sheet date.
Gray Pension Plan
The Company has a defined benefit pension plan covering substantially all full-time employees.
Retirement benefits are based on years of service and the employees highest average compensation
for five consecutive years during the last ten years of employment. The Companys funding policy
is consistent with the funding requirements of existing federal laws and regulations under the
Employee Retirement Income Security Act of 1974.
As discussed in Note B. Discontinued Operations, the Company completed the spinoff of its
publishing and other businesses on December 30, 2005. In accordance with the terms of the related
separation and distribution agreement the Company retained the pension obligation for its former
employees but is not required to provide benefits for additional service after the date of the
spinoff. In accordance with Statement of Financial Accounting Standards No. 88, Employers
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits (SFAS No. 88) the projected benefit obligation for those former employee participants
in the Companys plan has been curtailed resulting in a reduction in the unrecognized losses and
the projected benefit obligation at December 31, 2005 of approximately $1.1 million. This reduction
had no effect on the Companys statement of operations for the year ended December 31, 2005.
The measurement dates used to determine the benefit information for the Companys active
defined benefit pension plan were December 31, 2006 and 2005, respectively. The following
summarizes the plans funded status and amounts recognized in the Companys consolidated balance
sheets at December 31, 2006 and 2005, respectively (dollars in thousands):
88
J. Retirement Plans (Continued)
Gray Pension Plan (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Change in projected benefit obligation: |
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year |
|
$ |
25,498 |
|
|
$ |
21,816 |
|
Service cost |
|
|
2,711 |
|
|
|
2,915 |
|
Interest cost |
|
|
1,463 |
|
|
|
1,301 |
|
Actuarial (gains) losses |
|
|
(1,016 |
) |
|
|
1,030 |
|
Curtailment resulting from spinoff of TCM |
|
|
|
|
|
|
(1,083 |
) |
Benefits paid |
|
|
(951 |
) |
|
|
(481 |
) |
|
|
|
|
|
|
|
Projected benefit obligation at end of year |
|
$ |
27,705 |
|
|
$ |
25,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
17,879 |
|
|
$ |
12,995 |
|
Actual return on plan assets |
|
|
1,642 |
|
|
|
678 |
|
Company contributions |
|
|
3,078 |
|
|
|
4,687 |
|
Benefits paid |
|
|
(951 |
) |
|
|
(481 |
) |
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
21,648 |
|
|
|
17,879 |
|
|
|
|
|
|
|
|
Funded status of plan |
|
|
(6,057 |
) |
|
|
(7,619 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the statement of financial position
consist of: |
|
|
|
|
|
|
|
|
Accrued benefit cost |
|
$ |
(2,232 |
) |
|
$ |
(2,145 |
) |
Accumulated other comprehensive income |
|
|
(3,825 |
) |
|
|
(1,620 |
) |
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(6,057 |
) |
|
$ |
(3,765 |
) |
|
|
|
|
|
|
|
The accumulated benefit obligation for the defined benefit pension was $23.5 million and $21.6
million at December 31, 2006 and 2005, respectively. The increases in the accumulated benefit
obligation is due primarily to the current year $2.7 million in service cost representing
approximately 3.8% of current year covered payroll and $1.5 million in interest cost. 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 plan is invested. The long term
rate of return may be viewed as the sum of 3% inflation, 1% risk-free rate of return, and 3% risk
premium. The estimated rate of increase in compensation levels is based on historical compensation
increases for the Companys employees.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2006 |
|
2005 |
Weighted-average assumptions used to determine net periodic
benefit cost: |
|
|
|
|
|
|
|
|
Discount Rate |
|
|
5.75 |
% |
|
|
5.75 |
% |
Expected long-term rate of return on plan assets |
|
|
7.00 |
% |
|
|
7.00 |
% |
Estimated rate of increase in compensation levels |
|
|
5.00 |
% |
|
|
5.00 |
% |
89
J. Retirement Plans (Continued)
Gray Pension Plan (Continued)
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2006 |
|
2005 |
Weighted-average assumptions used to determine benefit obligations: |
|
|
|
|
|
|
|
|
Discount Rate |
|
|
6.00 |
% |
|
|
5.75 |
% |
Estimated rate of increase in compensation levels |
|
|
5.00 |
% |
|
|
5.00 |
% |
Pension expense is computed using the projected unit credit actuarial cost method. The net
periodic pension cost includes the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Components of net periodic pension cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
2,711 |
|
|
$ |
2,915 |
|
|
$ |
2,184 |
|
Interest cost |
|
|
1,463 |
|
|
|
1,300 |
|
|
|
1,035 |
|
Expected return on plan assets |
|
|
(1,346 |
) |
|
|
(943 |
) |
|
|
(806 |
) |
Recognized net actuarial loss |
|
|
338 |
|
|
|
479 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
3,166 |
|
|
$ |
3,751 |
|
|
$ |
2,468 |
|
|
|
|
|
|
|
|
|
|
|
Estimated future benefit payments are as follows (in thousands):
|
|
|
|
|
|
|
Amount |
Estimated future benefit payments for subsequent ten years: |
|
|
|
|
2007 |
|
$ |
629 |
|
2008 |
|
|
710 |
|
2009 |
|
|
809 |
|
2010 |
|
|
979 |
|
2011 |
|
|
1,121 |
|
2012-2016 |
|
$ |
8,408 |
|
The Companys pension plan weighted-average asset allocations by asset category are as
follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2006 |
|
2005 |
Asset category: |
|
|
|
|
|
|
|
|
Insurance general account |
|
|
32 |
% |
|
|
33 |
% |
Equity accounts |
|
|
66 |
% |
|
|
31 |
% |
Fixed income account |
|
|
2 |
% |
|
|
13 |
% |
Cash equivalents |
|
|
0 |
% |
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
90
J. Retirement Plans (Continued)
Gray Pension Plan (Continued)
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: |
|
|
|
|
|
|
|
|
|
|
|
|
Large cap equities |
|
|
23 |
% |
|
to |
|
|
91 |
% |
Mid cap equities |
|
|
0 |
% |
|
to |
|
|
15 |
% |
Small cap equities |
|
|
0 |
% |
|
to |
|
|
16 |
% |
International equities |
|
|
5 |
% |
|
to |
|
|
25 |
% |
Fixed income |
|
|
0 |
% |
|
to |
|
|
30 |
% |
Cash |
|
|
0 |
% |
|
to |
|
|
20 |
% |
The equity strategy is a diversified portfolio of attractively priced, financially sound
companies. The fixed income strategy is a portfolio of 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.
Acquired Pension Plans
In 2002 and 1998, the Company acquired companies with two underfunded pension plans (the
acquired pension plans). The acquired pension plans were frozen by their prior plan sponsors and
no new participants can be added to the acquired pension plans. Combined, the acquired pension
plans have 117 participants as compared to the Companys active plan which has approximately 2,300
participants and is described above. As of December 31, 2006 for the acquired pension plans, the
combined plan assets were $4.4 million and the combined projected benefit obligation was $5.2
million. The net liability for the two acquired pension plans is recorded as a liability in the
Companys financial statements as of December 31, 2006 and 2005. In connection with the adoption of
SFAS 158 as of December 31, 2006, the Company decreased its recorded pension liability by $278,000
and other comprehensive income by $170,000, net of income taxes for its two acquired plans.
Contributions
The Company expects to contribute approximately $3.0 million in total to the Companys active
plan and the acquired pension plans during the year ended December 31, 2007.
Capital Accumulation Plan
The Gray Television, Inc. Capital Accumulation Plan (the Capital Accumulation Plan) provides
additional retirement benefits for substantially all employees. The Capital Accumulation Plan is
intended to meet the requirements of section 401(k) of the Internal Revenue Code of 1986.
The Capital Accumulation Plan allows an investment option in the Companys common stock and
Class A common stock. It also allows for the Companys percentage match to be made by a
contribution
91
J. Retirement Plans (Continued)
Capital Accumulation Plan (Continued)
of the Companys common stock. The Company reserved 1,300,000 shares of the Companys common stock
for issuance under the Capital Accumulation Plan. As of December 31, 2006, 213,935 shares were
available for the plan.
Employee contributions to the Capital Accumulation Plan, not to exceed 6% of the employees
gross pay, are matched by Company contributions. The Companys percentage match amount is declared
by the Companys Board of Directors before the beginning of each plan year and is made by a
contribution of the Companys common stock. The Companys percentage match was 50% during each of
the three years ended December 31, 2006. The Company contributions vest, based upon each employees
number of years of service, over a period not to exceed five years.
In addition to the Companys matching contributions, the Company authorized a voluntary
contribution for 2006, 2005 and 2004 for active participants in the Capital Accumulation Plan.
This voluntary contribution was equal to 1%, 1% and 2% of each active participants earnings for
2006, 2005 and 2004, respectively. The 88,323 common shares in the amount of $647,000 associated
with the 2006 voluntary contribution were issued in the first quarter of 2007. The Companys
matching and voluntary contributions are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
Contributions to the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Accumulation Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matching contributions |
|
|
217 |
|
|
$ |
1,513 |
|
|
|
141 |
|
|
$ |
1,633 |
|
|
|
94 |
|
|
$ |
1,301 |
|
Voluntary contributions |
|
|
|
|
|
$ |
|
|
|
|
76 |
|
|
$ |
651 |
|
|
|
81 |
|
|
$ |
1,259 |
|
Also included in the contributions listed above are amounts related to the Companys
discontinued operations totaling $287,000 and $371,000 in the years ended December 31, 2005, and
2004, respectively.
Employee Stock Purchase Plan
On May 14, 2003, the Companys shareholders approved the adoption of the Gray Television, Inc.
Employee Stock Purchase Plan (the Stock Purchase Plan). The Stock Purchase Plan is intended to
qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code and to
provide eligible employees of the Company with an opportunity to
purchase the Companys common stock through
payroll deductions. An aggregate of 500,000 shares of the common stock were reserved for issuance
under the Stock Purchase Plan and are available for purchase, subject to adjustment in the event of
a stock split, stock dividend or other similar change in the common stock or the capital structure
of the Company. As of December 31, 2006, 365,198 shares were available under the Stock Purchase
Plan. The price per share at which shares of common stock may be purchased under the Stock
Purchase Plan during any purchase period is 85% of the fair market value of the common stock on the
last day of the purchase period. The Companys Board of Directors has the discretion to establish
a different purchase price for a purchase period provided that such purchase price will not be less
than 85% of the fair market value of the common stock on the transaction date.
92
K. Commitments and Contingencies
The Company has various operating lease commitments for equipment, land and office space. The
Company also has commitments for various syndicated television programs and for digital television
(DTV) equipment.
Future minimum payments under operating leases with initial or remaining noncancelable lease
terms in excess of one year, obligations for syndicated television programs as described above and
commitments for DTV equipment that had been ordered but not yet been received are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated |
|
|
|
|
|
|
DTV |
|
|
Operating |
|
|
Television |
|
|
|
|
Year |
|
Equipment |
|
|
Lease |
|
|
Programming |
|
|
Total |
|
2007 |
|
$ |
637 |
|
|
$ |
1,176 |
|
|
$ |
3,071 |
|
|
$ |
4,884 |
|
2008 |
|
|
|
|
|
|
902 |
|
|
|
9,951 |
|
|
|
10,853 |
|
2009 |
|
|
|
|
|
|
648 |
|
|
|
8,732 |
|
|
|
9,380 |
|
2010 |
|
|
|
|
|
|
477 |
|
|
|
6,954 |
|
|
|
7,431 |
|
2011 |
|
|
|
|
|
|
242 |
|
|
|
2,746 |
|
|
|
2,988 |
|
Thereafter |
|
|
|
|
|
|
1,781 |
|
|
|
376 |
|
|
|
2,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
637 |
|
|
$ |
5,226 |
|
|
$ |
31,830 |
|
|
$ |
37,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The DTV equipment, operating lease and syndicated television programming amounts in the table
above are estimates of commitments that are in addition to the liabilities accrued for on the
Companys balance sheet as of December 31, 2006.
Leases
The Company has 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, 2006, 2005 and 2004 were $1.5
million, $1.3 million and $1.2 million, respectively.
Related Party Contract
On April 1, 2000, the Company entered into a rights sharing agreement with Host
Communications, Inc. (Host) a wholly owned subsidiary of TCM, and a related party, for the
marketing, selling and broadcasting of University of Kentucky (UK) sporting events and related
programming, production and other associated activities. This agreement terminated April 15, 2005.
As of December 31, 2005, Host owed $1.6 million to the Company under this contract, which was
reported as a related party receivable. This balance was collected in full during the first quarter
of 2006.
On October 12, 2004, UK jointly awarded a new sports marketing agreement to the Company and
Host. The new agreement with UK commenced on April 16, 2005 and has an initial term of seven years
with the option to extend for three additional years. The aggregate license fees to be paid to UK
over the ten year term for the agreement will be approximately $80.5 million. At December 31, 2005,
Host owed $1.7 million to the Company under this contract, which was reported as a related party
investment. Under
93
K. Commitments and Contingencies (Continued)
Related Party Contract (Continued)
the new agreement, the Company has paid $3.6 million to UK and recognized losses of $81,000 and
$137,000 during the years ended December 31, 2006 and 2005, respectively.
On July 1, 2006, the agreement between the Company and Host was amended. The amended agreement
provides that the Company will share in profits in excess of certain amounts specified by the
agreement, if any, but not losses, of Hosts UK activities. The agreement also provides that the
Company would separately retain all local broadcast advertising revenue and pay all local broadcast
expenses for activities under the agreement. Under the amended agreement, Host agreed to make all
license fee payments to UK. However, if Host is unable to pay the license fee to UK, the Company
will then pay the unpaid portion of the license fee to UK. Host will then reimburse the Company for
the amount paid by the Company within 60 days subsequent to the close of each contract year which
ends on June 30th. Host also agrees to pay interest on this advance at a rate equal to the prime
rate. As of December 31, 2006, Host owed $1.7 million to the Company under this contract, which was
reported as a related party receivable. This balance was collected during the first quarter of
2007.
Legal proceedings and claims
The Company is subject to legal proceedings and claims that arise in the normal course of its
business. In the opinion of management, the amount of ultimate liability, if any, with respect to
these actions, will not materially affect the Companys financial position.
94
L. Goodwill and Intangible Assets
A summary of changes in the Companys goodwill and other intangible assets for the years ended
December 31, 2006 and 2005 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Balance at |
|
|
Acquisitions |
|
|
|
|
|
|
|
|
|
|
Net Balance at |
|
|
|
December 31, |
|
|
And |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2005 |
|
|
Adjustments |
|
|
Impairments |
|
|
Amortization |
|
|
2006 |
|
Goodwill |
|
$ |
222,394 |
|
|
$ |
47,142 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
269,536 |
|
Broadcast licenses |
|
|
1,023,428 |
|
|
|
35,638 |
|
|
|
|
|
|
|
|
|
|
|
1,059,066 |
|
Definite lived
intangible assets |
|
|
3,658 |
|
|
|
2,305 |
|
|
|
|
|
|
|
(2,453 |
) |
|
|
3,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
net of accumulated
amortization |
|
$ |
1,249,480 |
|
|
$ |
85,085 |
|
|
$ |
|
|
|
$ |
(2,453 |
) |
|
$ |
1,332,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Balance at |
|
|
Acquisitions |
|
|
|
|
|
|
|
|
|
|
Net Balance at |
|
|
|
December 31, |
|
|
And |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
Adjustments |
|
|
Impairments |
|
|
Amortization |
|
|
2005 |
|
Goodwill |
|
$ |
137,079 |
|
|
$ |
85,315 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
222,394 |
|
Broadcast licenses |
|
|
921,910 |
|
|
|
101,518 |
|
|
|
|
|
|
|
|
|
|
|
1,023,428 |
|
Definite lived
intangible assets |
|
|
2,832 |
|
|
|
1,859 |
|
|
|
|
|
|
|
(1,033 |
) |
|
|
3,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
net of accumulated
amortization |
|
$ |
1,061,821 |
|
|
$ |
188,692 |
|
|
$ |
|
|
|
$ |
(1,033 |
) |
|
$ |
1,249,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 and 2005, the Companys intangible assets and related accumulated
amortization consisted of the following (in thousands):
95
L. Goodwill and Intangible Assets (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 |
|
|
As of December 31, 2005 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
Intangible assets not
subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses |
|
$ |
1,112,765 |
|
|
$ |
(53,699 |
) |
|
$ |
1,059,066 |
|
|
$ |
1,077,127 |
|
|
$ |
(53,699 |
) |
|
$ |
1,023,428 |
|
Goodwill |
|
|
269,536 |
|
|
|
|
|
|
|
269,536 |
|
|
|
222,394 |
|
|
|
|
|
|
|
222,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,382,301 |
|
|
$ |
(53,699 |
) |
|
$ |
1,328,602 |
|
|
$ |
1,299,521 |
|
|
$ |
(53,699 |
) |
|
$ |
1,245,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject
to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network affiliation
agreements |
|
$ |
1,264 |
|
|
$ |
(666 |
) |
|
$ |
598 |
|
|
|
1,039 |
|
|
$ |
(447 |
) |
|
$ |
592 |
|
Other definite lived
intangible assets |
|
|
13,484 |
|
|
|
(10,572 |
) |
|
|
2,912 |
|
|
|
11,413 |
|
|
|
(8,347 |
) |
|
|
3,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,748 |
|
|
$ |
(11,238 |
) |
|
$ |
3,510 |
|
|
$ |
12,452 |
|
|
$ |
(8,794 |
) |
|
$ |
3,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangibles |
|
$ |
1,397,049 |
|
|
$ |
(64,937 |
) |
|
$ |
1,332,112 |
|
|
$ |
1,311,973 |
|
|
$ |
(62,493 |
) |
|
$ |
1,249,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2006, the Company recorded additional goodwill, broadcast licenses and definite
lived intangible assets related principally to the acquisition of WNDU-TV. During 2005, the Company
recorded additional goodwill, broadcast licenses and definite lived intangible assets related
principally to the acquisition of WSAZ-TV. The Company recorded amortization expense for the years
ended December 31, 2006, 2005 and 2004 of $2.5 million, $1.0 million and $920,000, respectively.
Based on the current amount of intangible assets subject to amortization, the amortization expense
for the succeeding five years is as follows: 2007: $808,000; 2008: $775,000; 2009: $560,000; 2010:
$461,000 and 2011: $108,000. As acquisitions and dispositions occur in the future, actual amounts
may vary from these estimates.
96
M. Selected Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarters |
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
(In thousands, except for per share data) |
|
Year Ended December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
68,234 |
|
|
$ |
81,391 |
|
|
$ |
80,592 |
|
|
$ |
101,920 |
|
Operating income |
|
|
11,016 |
|
|
|
23,726 |
|
|
|
19,956 |
|
|
|
33,293 |
|
Net income (loss) |
|
|
(2,554 |
) |
|
|
4,320 |
|
|
|
1,359 |
|
|
|
8,586 |
|
Net income (loss) available to common stockholders |
|
|
(3,369 |
) |
|
|
3,505 |
|
|
|
519 |
|
|
|
7,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) available to common
stockholders per share |
|
$ |
(0.07 |
) |
|
$ |
0.07 |
|
|
$ |
0.01 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) available to common
stockholders per share |
|
$ |
(0.07 |
) |
|
$ |
0.07 |
|
|
$ |
0.01 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
58,309 |
|
|
$ |
67,988 |
|
|
$ |
62,281 |
|
|
$ |
72,975 |
|
Operating income |
|
|
11,217 |
|
|
|
19,649 |
|
|
|
12,490 |
|
|
|
17,505 |
|
Income from continuing operations |
|
|
249 |
|
|
|
2,253 |
|
|
|
972 |
|
|
|
1,130 |
|
Income (loss) from discontinued operations, net of tax |
|
|
1,826 |
|
|
|
1,140 |
|
|
|
771 |
|
|
|
(4,979 |
) |
Net income (loss) available to common stockholders |
|
|
1,260 |
|
|
|
2,579 |
|
|
|
928 |
|
|
|
(7,053 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic per share information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(0.01 |
) |
|
$ |
0.03 |
|
|
$ |
0.00 |
|
|
$ |
(0.05 |
) |
Income (loss) from discontinued operations |
|
|
0.04 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
0.03 |
|
|
$ |
0.05 |
|
|
$ |
0.02 |
|
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted per share information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(0.01 |
) |
|
$ |
0.03 |
|
|
$ |
0.00 |
|
|
$ |
(0.05 |
) |
Income (loss) from discontinued operations |
|
|
0.04 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
0.03 |
|
|
$ |
0.05 |
|
|
$ |
0.02 |
|
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Because of the method used in calculating per share data, the quarterly per share data will
not necessarily add to the per share data as computed for the year.
During the fourth quarter of the year ended December 31, 2005, the Company recorded $3.6
million of transaction costs related to the completion of the spinoff of the Gray Publishing and
GrayLink Wireless businesses to TCM and recorded a $3.2 million impairment charge of the FCC
license for its wireless business. These amounts are included in the results of the discontinued
operations. See Note B. Discontinued Operations for further discussion of the TCM spinoff and
impairment charge. Also during the fourth quarter of the year ended December 31, 2005, the Company
modified the conversion price of the Companys Series C Preferred Stock. The modification of the
conversion price resulted in a non-cash deemed dividend to the preferred stockholders of
approximately $2.4 million. See Note G. Redeemable Preferred Stock for further discussion.
97
Note N. Subsequent Event
During the first quarter of 2007, Gray commenced a refinancing of its existing indebtedness to
(i) refinance its then outstanding senior credit facility, (ii) redeem all of its outstanding 91/4%
Notes and (iii) redeem all of its outstanding Series C Preferred Stock. This refinancing of the
senior credit facility is currently expected to be consummated
on or before March 31, 2007. The principal terms of the new senior credit facility are summarized
below.
The new senior credit facility has a total credit commitment of $1.025 billion and consists of
a $100 million revolving facility and a $925 million institutional term loan facility. The
revolving facility matures on the seventh anniversary of the closing and the term loan facility
matures on December 31, 2014. In addition, the term loan facility will require quarterly
installments of principal repayments equal to 0.25% of the total commitment beginning March 31,
2008. No permanent reductions to the revolving credit facility commitment will be required prior
to the final maturity date of that facility.
Under the new senior credit facility, the Company, at its option, can choose to pay interest
at a rate equal to the LIBOR rate plus a margin or at the lenders base rate, generally equal to
the lendersprime rate, plus a margin. The applicable margin for the revolving credit facility
varies based on the Companys leverage ratio as defined in the loan agreement. Presented below are
the ranges of applicable margins available to the Company based on the Companys performance in
comparison with the terms as defined in the new senior credit facility:
|
|
|
|
|
|
|
Applicable Margin for |
|
Applicable Margin for |
|
|
Base Rate Advances |
|
LIBOR Advances |
Revolving Credit Facility
|
|
0.00% 0.25%
|
|
0.625% 1.50% |
|
|
|
|
|
Term Loan Facility
|
|
0.25%
|
|
1.50% |
As of the consummation of the new senior credit facility, the initial applicable margins for
base rate advances and LIBOR advances under the revolving portion of the facility are 0.25% and
1.50%, respectively.
The Company shall pay a commitment fee on the average daily unused portion of the revolving
credit facility at an initial annual rate of 0.50% and may range from 0.20% to 0.50% on an annual
basis during the term of the new senior credit facility.
The new senior credit facility collateral consists of substantially all of the assets,
excluding real estate, of the Company and its subsidiaries. In addition, the Companys
subsidiaries are joint and several guarantors of the obligations and the Companys ownership
interests in its subsidiaries are pledged to collateralize the obligations. The new senior credit
facility contains affirmative and restrictive covenants that the Company 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, (g) limitations on mergers (h) maintenance of a
specified leverage ratio not to exceed certain maximum limits, as well as other customary covenants
for credit facilities of this type.
Upon the execution of the new senior credit facility, the Company will use the
initial draw under the new senior credit facility to fund the payoff of all outstanding amounts
under its existing senior credit facility.
98
Note N. Subsequent Event (Continued)
The new senior credit facility allows the Company up to two additional draw requests under the
term loan facility (subject to satisfaction of customary borrowing conditions) to (1) draw up to
$275 million to redeem all of the Companys existing and currently outstanding 91/4% Notes and (2)
draw up to $40 million to redeem all of the Companys Series C Preferred Stock plus in each
instance pay applicable accrued interest and/or dividends on its existing and currently outstanding
securities as of the draw date and related fees and expenses related to the refinancing and/or
redemption transactions. If the respective redemption transactions have not been completed at
specified dates during the second quarter of 2007, the corresponding commitments under the new
senior credit facility will permanently reduce.
As of the date of filing this annual report, the Company currently intends to redeem all of
the Companys existing and currently outstanding 91/4% Notes. The estimated funds needed to retire
the 91/4% Notes include the principal amount of $253.8 million and call premiums of $11.7 million
plus accrued interest through, but not including, the date of redemption.
As of the date of filing this annual report, the Company currently intends to redeem all of
the Companys Series C Preferred Stock. As of the date of filing this annual report, the Companys
outstanding Series C Preferred Stock had a liquidation value of 37.9 million.
During the first quarter of 2007, the Company anticipates recording a loss on early
extinguishment of debt relating to the refinancing of the Companys senior credit facility.
Dependent on the Companys final assessment of the effect of EITF 96-19, Debtors Accounting for a
Modification or Exchange of Debt Instruments on the refinancing of the senior debt, the recorded
loss on early extinguishment of debt during the first quarter of 2007 is currently estimated to
range from $0.5 million to $7.0 million.
In addition, assuming the redemption of the Companys existing and currently outstanding 91/4%
Notes is completed as planned, the Company anticipates recording an additional loss on early
extinguishment of debt during the second quarter of 2007 of approximately $16.5 million.
99
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of management, including the
Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), has evaluated the
effectiveness of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) of
the Securities Exchange Act of 1934, as amended) as of December 31, 2006. Based on that
evaluation, the CEO and the CFO have concluded that as of December 31, 2006, the Companys
disclosure controls and procedures are effective in recording, processing, summarizing and
reporting, on a timely basis, information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act.
Changes in Internal Control Over Financial Reporting
No change in the Companys internal control over financial reporting (as such term is defined
in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended December
31, 2006 that materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.
Managements Report on Internal Control Over Financial Reporting and Attestation Report of our
Independent Registered Public Accounting Firm
The Companys Managements Report on Internal Control over Financial Reporting and Attestation
Report of our Independent Registered Public Accounting Firm thereon are set forth in Item 8. of
this Annual Report on Form 10-K.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information set forth under the headings Election of Directors, Board Committees And
Membership Audit Committee, Section 16(a) Beneficial Ownership Reporting Compliance and
Corporate Governance Code of Ethics in the Companys definitive Proxy Statement for the 2007
Annual Meeting of Shareholders (to be filed within 120 days after December 31, 2006) is
incorporated herein by reference. In addition, the information set forth under Executive Officers
of the Registrant in Part I of this Report is incorporated herein by reference.
There have been no changes to the procedures by which stockholders may recommend nominees to
our Board of Directors since the Companys last disclosure of such procedures, which appeared in
the Companys definitive Proxy Statement for the Companys 2006 Annual Meeting of Shareholders.
100
Item 11. Executive Compensation.
The information set forth under the headings Executive and Director Compensation,
Compensation Discussion and Analysis, Compensation Committee Report and Compensation Committee
Interlocks and Insider Participation in the Companys definitive Proxy Statement for the 2007
Annual Meeting of Shareholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information set forth under the heading Share Ownership in the Companys definitive
Proxy Statement for the 2007 Annual Meeting of Shareholders 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, 2006.
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 (1) |
|
|
1,796,908 |
|
|
$ |
9.82 |
|
|
|
3,969,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,796,908 |
|
|
|
|
|
|
|
3,969,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans approved by
security holders (1) |
|
|
20,687 |
|
|
$ |
15.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
20,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
(1) |
|
Includes securities available for future issuance under the 2002 Long-Term Incentive
Plan. |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information set forth under the headings Transactions with Related Persons, Promoters and
Certain Control Persons and Director Independence in the Companys definitive Proxy Statement
for the 2007 Annual Meeting of Shareholders is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information set forth under the heading Independent Registered Public Accounting Firm
Fees in the Companys definitive Proxy Statement for the 2007 Annual Meeting of Shareholders
concerning principal accountant fees and services is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
|
(a) |
|
List of Financial Statements and Financial Statement Schedules. |
|
|
(1) |
|
Financial Statements. |
|
|
|
|
See Part II, Item 8 for the index of financial statements. |
|
|
(2) |
|
Financial statement schedules. |
The following financial statement schedule of Gray Television, Inc. and subsidiaries 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
Securities and Exchange Commission are not required under the related instructions or are
inapplicable and therefore have been omitted.
(b) Exhibits.
|
3.1 |
|
Restated Articles of Incorporation of Gray Television, Inc. (incorporated from
ex. 3.1 of 10-K for 1996) |
|
|
3.2 |
|
Amendment to the Restated Articles of Gray Television Inc., dated September 16,
2002 (incorporated by reference to Exhibit 3.4 of the Companys Annual Report on Form
10-K for the year ended December 31, 2002, File No. 1-13796) |
|
|
3.3 |
|
Articles of Amendment to the Restated Articles of Incorporation of Gray
Television, Inc. dated June 1, 2004 (incorporated by reference to Exhibit 3.1 of the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2005, File
No. 0-13796) |
102
|
3.4 |
|
Bylaws of Gray Television, Inc., as amended (incorporated by reference to Exhibit
3.2 of the Companys Annual Report on Form 10-K for the fiscal year ended December 31,
1996, File No. 0-13796) |
|
|
3.5 |
|
Amendment to Bylaws of Gray Television, Inc. dated January 6, 1999 (incorporated
by reference to Exhibit 3.3 of the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2005, File No. 0-13796) |
|
|
3.6 |
|
Amendment to Bylaws of Gray Television, Inc. dated April 6, 2006 (incorporated by
reference to Exhibit 3.1 of the Companys Current Report on Form 8-K filed April 12,
2006, File No. 0-13796) |
|
|
4.1 |
|
See Exhibits 3.1 and 3.3 for provisions of the Articles of Incorporation and
Bylaws defining rights of holders of the common stock |
|
|
4.2 |
|
Indenture, for the Companys 9 1/4% Senior Subordinated Notes due 2011, dated as of
September 15, 2001 (incorporated by reference to Exhibit 4.13 of the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2001, File No. 0-13796) |
|
|
4.3 |
|
Supplemental Indenture, for the Companys 9 1/4% Senior Subordinated Notes due
2011, dated as of September 10, 2002 (incorporated by reference to Exhibit 4.2 of the
Companys Current Report on Form 8-K, filed on September 9, 2002, File No. 0-13796) |
|
|
4.4 |
|
Registration Rights Agreement, dated as of December 21, 2001, by and among Gray
Television, Inc., First Union Securities, Inc., Banc of America Securities, LLC, and
Allen & Company, Incorporated (incorporated by reference to Exhibit 4.2 of the Companys
Registration Statement on Form S-4, Registration No. 333-86068) |
|
|
4.5 |
|
Registration Rights Agreement, dated as of April 22, 2002, by and among Gray
Television, Inc. and Certain Investors (incorporated by reference to Exhibit 4.1 of the
Companys Registration Statement on Form S-3, Registration No. 333-88694) |
|
|
10.1 |
|
Sixth Amended and Restated Loan Agreement, dated November 22, 2005, by and among
Gray Television, Inc., as Borrower, Wachovia Bank, National Association, as
Administrative Agent, Wachovia Capital Markets, LLC, as Sole Lead Arranger and Sole
Bookrunner, Bank of America, N.A., as Syndication Agent, and Deutsche Bank Trust Company
Americas, Allied Irish Banks PLC, Key Bank National Association, and Goldman Sachs Credit
Partners L.P., each as a Documentation Agent (incorporated by reference to Exhibit 99.1
of the Companys Current Report on Form 8-K, filed on November 29, 2005, File No.
1-13796) |
|
|
10.2 |
|
Preferred Stock Purchase Agreement, dated as of April 22, 2002, by and among Gray
Television, Inc. and Certain Investors (incorporated by reference to Exhibit 4.2 of the
Companys Registration Statement on Form S-3, Registration No. 333-88694) |
|
|
10.3 |
|
Exchange Agreement, dated as of April 22, 2002, by and among Gray Television, Inc.
and certain holders of the Companys preferred stock (incorporated by reference to
Exhibit 4.3 of the Companys Registration Statement on Form S-3, Registration No.
333-88694) |
103
|
10.4 |
|
Form of Preferred Stock Exchange and Purchase Agreement, between the Company and
Bull Run Corporation (incorporated by reference to Exhibit 10.17 to the Companys
Registration Statement on Form S-1, Registration No. 333-04338) |
|
|
10.5 |
|
Supplemental Pension Plan (incorporated by reference to Exhibit 10(a) of the
Companys Registration Statement on Form 10, File No. 0-13796)* |
|
|
10.6 |
|
2002 Long-Term Incentive Plan (incorporated by reference to the Companys
definitive Proxy Statement on Schedule 14A, filed on August 15, 2002)* |
|
|
10.7 |
|
Capital Accumulation Plan (incorporated by reference to Exhibit 10(i) to the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994, File
No. 0-13796)* |
|
|
10.8 |
|
Directors Restricted Stock Plan (incorporated by reference to Exhibit 10.12 of the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2002, File
No. 1-13796)* |
|
|
14.1 |
|
Code of Ethics as approved by the Companys board of directors on March 3, 2004.
(incorporated by reference to Exhibit 14.1 of the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2003, filed on March 12, 2004, File No. 1-13796) |
|
|
16.1 |
|
Letter re: Change in Certifying Accountant (incorporated by reference to the
Companys Current Report on Form 8-K, filed on May 26, 2006, File No. 1-13796 ) |
|
|
21.1 |
|
Subsidiaries of the Registrant |
|
|
23.1 |
|
Consent of McGladrey & Pullen, LLP |
|
|
23.2 |
|
Consent of PricewaterhouseCoopers LLP |
|
|
24.1 |
|
Power of Attorney (contained in the signature page of this Report) |
|
|
31.1 |
|
Rule 13 a 14 (a) Certificate of Chief Executive Officer |
|
|
31.2 |
|
Rule 13 a 14 (a) Certificate of Chief Financial Officer |
|
|
32.1 |
|
Section 1350 Certificate of Chief Executive Officer |
|
|
32.2 |
|
Section 1350 Certificate of Chief Financial Officer |
|
|
|
* |
|
Compensation Plan or Arrangement |
(c) |
|
Financial Statement Schedules The response to this section is submitted as a part of (a),
(1) and (2). |
104
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: March 15, 2007
|
|
By:
|
|
/s/ J. Mack Robinson |
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Mack Robinson, |
|
|
|
|
|
|
Chairman and Chief Executive Officer |
|
|
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints J. Mack Robinson, Robert S. Prather, Jr. and James C. Ryan, and each of them, as his true
and lawful attorneys-in-fact and agents, with full powers of substitution and resubstitution for
him, in his name place and stead, in any and all capacities, to sign any and all amendments to this
Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents may lawfully do or cause to be done by virtue hereof.
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: March 15, 2007
|
|
By:
|
|
/s/ William E. Mayher, III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William E. Mayher, III, |
|
|
|
|
|
|
Chairman of the Board |
|
|
|
|
|
|
|
|
|
Date: March 15, 2007
|
|
By:
|
|
/s/ J. Mack Robinson |
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Mack Robinson, Director, Chairman and |
|
|
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
|
|
Date: March 15, 2007
|
|
By:
|
|
/s/ Richard L. Boger |
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard L. Boger, Director |
|
|
|
|
|
|
|
|
|
Date: March 15, 2007
|
|
By:
|
|
/s/ RAY M. DEAVER. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ray M. Deaver, Director |
|
|
|
|
|
|
|
|
|
Date: March 15, 2007
|
|
By:
|
|
/s/ T. L. ELDER |
|
|
|
|
|
|
|
|
|
|
|
|
|
T. L. Elder, Director |
|
|
|
|
|
|
|
|
|
Date: March 15, 2007
|
|
By:
|
|
/s/ Hilton H. Howell, Jr. |
|
|
|