NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated balance sheet of Gray Television, Inc. (and its consolidated subsidiaries, except as the context otherwise provides,“Gray,” the “Company,” “we,” “us,” and “our”) as of December 31, 2013, which was derived from the Company’s audited financial statements as of December 31, 2013, and our accompanying unaudited condensed consolidated financial statements as of June 30, 2014 and for the periods ended June 30, 2014 and 2013 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Our operations consist of one reportable segment. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013 (the “
2013
Form 10-K”). Our financial condition as of, and operating results for the six-month period ended, June 30, 2014 are not necessarily indicative of the financial condition or results that may be expected for any future interim period or for the year ending December 31, 2014.
Seasonality and Cyclicality
Broadcast advertising revenues are generally highest in the second and fourth quarters each year. This seasonality results partly from increases in consumer advertising in the spring and retail advertising in the period leading up to and including the holiday season. Broadcast advertising revenues are also typically higher in even-numbered years due to increased spending by political candidates, political parties and special interest groups in advance of elections. This political spending typically is heaviest during the fourth quarter.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and the notes to the unaudited condensed consolidated financial statements. Our actual results could differ materially from these estimates. The most significant estimates we make relate to our allowance for doubtful accounts in receivables, valuation of goodwill and intangible assets, amortization of program broadcast rights and intangible assets, stock-based compensation, pension costs, income taxes, employee medical insurance claims, useful lives of property and equipment and contingencies.
Variable Interest Entity
During the year ended December 31, 2013, we entered into a series of transactions with the News-Press Gazette Company and Excalibur Broadcasting, LLC (collectively with its subsidiaries, “Excalibur”), pursuant to which we acquired the non-license assets, and Excalibur acquired the license assets, of KJCT-TV and associated low power stations (collectively, “KJCT-TV”), in the Grand Junction, Colorado market. In connection therewith, we entered into a shared services agreement, pursuant to which we provide certain services, including back-office, engineering and sales support, and a lease agreement, pursuant to which we provide studio and office space, to Excalibur. We have also entered into a put and call option agreement with Excalibur, pursuant to which we have the right to purchase, and Excalibur has the right to require us to purchase, the license assets of KJCT-TV, upon receipt of Federal Communications Commission (“FCC”) approval (the “KJCT-TV Option”). In connection with the consummation of Excalibur’s acquisition of KJCT-TV’s license assets, Excalibur incurred debt which Gray has guaranteed. The assets of Excalibur can only be used to settle the obligations of Excalibur. In compliance with FCC regulations, Excalibur maintains complete responsibility for and control over programming, finances, personnel and operations of KJCT-TV. See Note 3 “Long-term Debt” for more information.
We consolidate a VIE when we are determined to be the primary beneficiary. In accordance with U.S. GAAP, in determining whether we are the primary beneficiary of a VIE for financial reporting purposes, we consider whether we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and whether we have the obligation to absorb losses or the right to receive returns that would be significant to the VIE.
Based on the terms of our agreements with, the significance of our investment in, and our guarantee of the debt of, Excalibur, we have determined that Excalibur is a VIE of Gray. We believe we are the primary beneficiary of Excalibur because, subject to the ultimate control of the licensees, we have the power to direct the activities which significantly impact the economic performance of Excalibur through the services we provide, and our obligation to absorb losses and earn returns that would be considered significant to Excalibur. Included in our condensed consolidated statements of operations for the six months ended June 30, 2014 and 2013 is revenue of $0.9 million and $0.0 million, respectively, attributable to Excalibur.
The carrying amounts and classification of the assets and liabilities of Excalibur described above have been included in our consolidated balance sheets as of June 30, 2014 and December 31, 2013 as follows (in thousands):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Assets:
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
473
|
|
|
$
|
473
|
|
Accounts receivable, net
|
|
|
292
|
|
|
|
524
|
|
Current portion of program broadcast rights, net
|
|
|
11
|
|
|
|
42
|
|
Prepaid and other current assets
|
|
|
6
|
|
|
|
7
|
|
Total current assets
|
|
|
782
|
|
|
|
1,046
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
790
|
|
|
|
883
|
|
Deferred loan costs, net
|
|
|
225
|
|
|
|
174
|
|
Broadcast licenses
|
|
|
4,161
|
|
|
|
4,161
|
|
Other intangible assets, net
|
|
|
459
|
|
|
|
575
|
|
Total assets
|
|
$
|
6,417
|
|
|
$
|
6,839
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
32
|
|
|
$
|
14
|
|
Employee compensation and benefits
|
|
|
56
|
|
|
|
8
|
|
Accrued interest
|
|
|
-
|
|
|
|
2
|
|
Other accrued expenses
|
|
|
18
|
|
|
|
13
|
|
Accrued expenses due to Gray
|
|
|
1,276
|
|
|
|
651
|
|
Current portion of program broadcast obligations
|
|
|
11
|
|
|
|
45
|
|
Current portion of long-term debt
|
|
|
200
|
|
|
|
200
|
|
Total current liabilities
|
|
|
1,593
|
|
|
|
933
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
|
2,700
|
|
|
|
2,800
|
|
Other long-term liabilities
|
|
|
2,124
|
|
|
|
3,106
|
|
Total liabilities
|
|
$
|
6,417
|
|
|
$
|
6,839
|
|
The assets of Excalibur can only be used to settle the obligations of Excalibur and may not be sold, or otherwise disposed of, except for assets sold or replaced with others of like kind or value. Other long-term liabilities of $2.1
million and $3.1
million, representing the fair value of the KJCT-TV Option as of June 30, 2014 and December 31, 2013, respectively, and accrued expenses due to Gray of $1.3
million and $0.7
million as of June 30, 2014 and December 31, 2013, respectively, were eliminated in our consolidated financial statements. The terms of the KJCT-TV Option provide for the acquisition of the license assets of KJCT-TV at an exercise price that was less than the carrying value of such assets as of June 30, 2014.
Earnings Per Share
We compute basic earnings per share by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the relevant period. The weighted-average number of common shares outstanding does not include restricted shares. These shares, although classified as issued and outstanding, are considered contingently returnable until the restrictions lapse and, in accordance with U.S. GAAP, are not included in the basic earnings per share calculation until the shares vest. Diluted earnings per share is computed by including all potentially dilutive common shares, including restricted shares and shares underlying stock options, in the denominator of the diluted weighted-average shares outstanding calculation, unless their inclusion would be antidilutive.
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding for the three-month and six-month periods ended June 30, 2014 and 2013 (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding-basic
|
|
|
57,862
|
|
|
|
57,561
|
|
|
|
57,855
|
|
|
|
57,542
|
|
Common stock equivalents for stock options
and restricted stock
|
|
|
449
|
|
|
|
378
|
|
|
|
443
|
|
|
|
278
|
|
Weighted-average shares outstanding-diluted
|
|
|
58,311
|
|
|
|
57,939
|
|
|
|
58,298
|
|
|
|
57,820
|
|
Accumulated Other Comprehensive Loss
Our accumulated other comprehensive loss balances as of June 30, 2014 and December 31, 2013 consist of adjustments to our pension liability and income tax benefit as follows (in thousands):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Accumulated balances of items included in accumulated
other comprehensive loss:
|
|
|
|
|
|
|
|
|
Increase in pension liability
|
|
$
|
(17,064
|
)
|
|
$
|
(17,064
|
)
|
Income tax benefit
|
|
|
(6,655
|
)
|
|
|
(6,655
|
)
|
Accumulated other comprehensive loss
|
|
$
|
(10,409
|
)
|
|
$
|
(10,409
|
)
|
Consolidated Statement of Comprehensive Income
Our comprehensive income for the three-month and six-month periods ended
June 30, 2014 and 2013
consists entirely of net income. Therefore, a consolidated statement of comprehensive income is not presented.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed principally by the straight-line method. Maintenance, repairs and minor replacements are charged to operations as incurred; major replacements and betterments are capitalized. The cost of any assets sold or retired and the 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. The following table lists components of property and equipment by major category (in thousands):
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
Useful Lives
|
|
|
|
2014
|
|
|
2013
|
|
|
(in years)
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
30,821
|
|
|
$
|
25,656
|
|
|
|
|
|
Buildings and improvements
|
|
|
65,154
|
|
|
|
59,021
|
|
|
|
7 to 40
|
|
Equipment
|
|
|
365,051
|
|
|
|
323,603
|
|
|
|
3 to 20
|
|
|
|
|
461,026
|
|
|
|
408,280
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(269,578
|
)
|
|
|
(264,659
|
)
|
|
|
|
|
Total property and equipment, net
|
|
$
|
191,448
|
|
|
$
|
143,621
|
|
|
|
|
|
Allowance for Doubtful Accounts
Our allowance for doubtful accounts is equal to at least 85% of our receivable balances that are 120 days old or older. We may provide allowances for certain receivable balances that are less than 120 days old when warranted by specific facts and circumstances. We generally write-off accounts receivable balances when the customer files for bankruptcy or when all commonly used methods of collection have been exhausted.
Recent Accounting Pronouncements
We have reviewed all recently issued accounting pronouncements. Of those pronouncements that have been issued but are not yet effective, we do not anticipate a material impact upon our financial statements upon our adoption of those pronouncements. None of the pronouncements that became effective and were adopted by us during the six months ended June 30, 2014
had a material effect upon our results of operations or financial position.
2. Acquisitions
During the six-month period ended June 30, 2014, we completed the four acquisitions described below: the Hoak Acquisition, the KNDX Acquisition, the KEVN Acquisition and the WQCW Acquisition (collectively, the “2014 Acquisitions”). The 2014 Acquisitions are expected to, among other things, increase our revenues and cash flows from operating activities, and allow us to operate more efficiently and effectively, including by increasing our scale and providing us the ability to negotiate more favorable terms in our agreements with third parties.
Hoak Acquisition
On June 13, 2014, we completed the acquisition of 100% of the capital stock of certain wholly owned subsidiaries of Hoak Media, LLC (“Hoak”) for total cash consideration of approximately $298.4 million, which included a base purchase price of $290.8 million and a working capital adjustment of $7.6 million (the “Hoak Acquisition”). The subsidiaries owned and operated twelve television stations as described in the table below. The Hoak Acquisition also included the assumption of Hoak’s interest in certain operating agreements, and the acquisition of certain non-license assets, of KHAS-TV, which serves the Lincoln-Hastings, Nebraska market, from Hoak. On June 13, 2014, we transferred the programing of KHAS-TV to KSNB-TV, a station owned by Gray which also serves the Lincoln-Hastings, Nebraska, television market. We used borrowings under the 2014 Senior Credit Facility, as defined below, to fund the purchase price to complete the Hoak Acquisition.
The following stations were acquired in the Hoak Acquisition:
|
|
Network
|
|
|
|
Market
|
|
Station
|
|
Affiliation
|
|
Market
|
|
Rank
|
|
|
|
|
|
|
|
|
|
|
KSFY-TV
|
|
ABC
|
|
Sioux Falls, SD
|
|
|
111
|
|
KABY-TV*
|
|
ABC
|
|
Sioux Falls, SD
|
|
|
111
|
|
KPRY-TV*
|
|
ABC
|
|
Sioux Falls, SD
|
|
|
111
|
|
KVLY-TV
|
|
NBC
|
|
Fargo-Valley City, ND
|
|
|
116
|
|
KNOE-TV
|
|
CBS
|
|
Monroe- El Dorado, LA
|
|
|
137
|
|
KFYR-TV
|
|
NBC
|
|
Minot-Bismarck-Dickinson, ND
|
|
|
145
|
|
KMOT-TV*
|
|
NBC
|
|
Minot-Bismarck-Dickinson, ND
|
|
|
145
|
|
KUMV-TV*
|
|
NBC
|
|
Minot-Bismarck-Dickinson, ND
|
|
|
145
|
|
KQCD-TV*
|
|
NBC
|
|
Minot-Bismarck-Dickinson, ND
|
|
|
145
|
|
KALB-TV
|
|
NBC/CBS
|
|
Alexandria, LA
|
|
|
179
|
|
KNOP-TV
|
|
NBC
|
|
North Platte, NE
|
|
|
208
|
|
KIIT-LP
|
|
FOX
|
|
North Platte, NE
|
|
|
208
|
|
* satellite station
Parker Broadcasting, Inc. (“Parker”) owns KXJB-TV, which is affiliated with the CBS network and serves the Fargo, North Dakota market, and KAQY-TV, which is affiliated with the ABC network and serves the Monroe, Louisiana market. As a component of the Hoak Acquisition, Gray assumed Hoak’s rights under certain agreements with Parker to provide back-office services, sales support and limited programming to KXJB-TV and KAQY-TV
(collectively the “Parker Agreements”)
.
For additional information on Parker, see “Pending Parker Acquisitions” below.
KNDX Acquisition
On May 1, 2014, we acquired certain assets of KNDX-TV and its satellite station KXND-TV, as well as certain non-license assets of low power stations KNDX-LP and KXND-LP, from Prime Cities Broadcasting, Inc. (“Prime Cities”). These four stations served as the Fox network affiliates for the Minot-Bismarck, North Dakota television market. On June 13, 2014, we transferred the programing of KNDX-TV and KXND-TV to the television stations that we acquired from Hoak in the Minot-Bismarck, North Dakota, television market. On June 27, 2014, we acquired the low power FCC licenses of KNDX-LP and KXND-LP from Prime Cities. We refer to the acquisition of these assets from Prime Cities as the “KNDX Acquisition.” The total cash consideration to complete the KNDX Acquisition was $7.5 million, which was funded from a combination of cash from operations and borrowings under our 2012 Senior Credit Facility, as defined below.
KEVN Acquisition
On May 1, 2014, we acquired 100% of the equity interests in KEVN, Inc. from Mission TV, LLC (the “KEVN Acquisition”). KEVN, Inc. owned and operated KEVN-TV and its satellite station, KIVV-TV (collectively the “KEVN Stations”). The KEVN Stations are affiliated with the Fox network and serve the Rapid City, South Dakota market. The total purchase price to complete the KEVN Acquisition was approximately $8.8 million which included a base purchase price of $7.8 million and a working capital adjustment of $1.0 million. The cash consideration to complete the KEVN Acquisition was funded from a combination of cash from operations and borrowings under our 2012 Senior Credit Facility.
WQCW Acquisition
On April 1, 2014, we acquired the assets of WQCW-TV, Portsmouth, Ohio and WOCW-LP, Charleston, West Virginia from Lockwood Broadcast Group (collectively, the "WQCW Acquisition"). WQCW-TV and WOCW-LP serve as the CW affiliate for the Charleston/ Huntington, West Virginia television market, where we own and operate WSAZ-TV, the market's NBC affiliate. The consideration to complete the WQCW Acquisition was approximately $5.5 million, which was funded from cash from operations.
Preliminary Fair Value Estimates:
The preliminary fair value estimates of the acquired assets, assumed liabilities and resulting goodwill from the 2014 Acquisitions are summarized as follows (in thousands):
|
|
Hoak
|
|
|
KNDX
|
|
|
KEVN
|
|
|
WQCW
|
|
|
|
Acquisition
|
|
|
Acquisition
|
|
|
Acquisition
|
|
|
Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
615
|
|
|
$
|
-
|
|
Accounts receivable
|
|
|
10,732
|
|
|
|
-
|
|
|
|
565
|
|
|
|
-
|
|
Other current assets
|
|
|
511
|
|
|
|
39
|
|
|
|
96
|
|
|
|
45
|
|
Property and equipment
|
|
|
45,223
|
|
|
|
2,576
|
|
|
|
3,888
|
|
|
|
991
|
|
Broadcast licenses
|
|
|
91,958
|
|
|
|
500
|
|
|
|
1,675
|
|
|
|
3,691
|
|
Goodwill
|
|
|
130,342
|
|
|
|
1,839
|
|
|
|
2,767
|
|
|
|
802
|
|
Other intangible assets
|
|
|
35,411
|
|
|
|
2,584
|
|
|
|
1,786
|
|
|
|
15
|
|
Other non-current assets
|
|
|
-
|
|
|
|
15
|
|
|
|
29
|
|
|
|
-
|
|
Current liabilities
|
|
|
(3,595
|
)
|
|
|
(36
|
)
|
|
|
(265
|
)
|
|
|
(45
|
)
|
Other long-term liabilities
|
|
|
-
|
|
|
|
(17
|
)
|
|
|
(32
|
)
|
|
|
-
|
|
Deferred income tax liabilities
|
|
|
(12,134
|
)
|
|
|
-
|
|
|
|
(2,339
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
298,448
|
|
|
$
|
7,500
|
|
|
$
|
8,785
|
|
|
$
|
5,499
|
|
The amounts in the table above are based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates.
Accounts receivables are recorded at their fair value which represents the amount that we expect to collect. Contractual amounts are approximately $0.2 million more than their recorded fair value.
The amount related to property and equipment will be depreciated over their estimated useful lives ranging from 3 years to 40 years.
The amount related to other intangible assets represents the estimated fair values of retransmission agreements of $23.0 million; advertising contracts of $1.4 million; advertising relationships of $11.5 million; and favorable leases of $3.9 million. These intangible assets are being amortized over their estimated useful lives of approximately 4.2 years for retransmission agreements; approximately 1.0 year for advertising contracts; approximately 5.1 years for advertising relationships; and approximately 8.2 years for leases.
Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, as well as future synergies that we expect to generate from the 2014 Acquisitions. We have preliminarily recorded $135.8
million of goodwill in connection with the 2014 Acquisitions. Of the goodwill recognized in connection with the 2014 Acquisitions, approximately $85.7 million is deductible for income tax purposes.
The fair values of assets acquired and liabilities assumed were based upon preliminary valuations and the estimates and assumptions are subject to change within the measurement period as additional information is obtained. Any such changes could be material and could result in significantly different fair values from those set out above.
Preliminary Pro Forma Financial Information
The following table sets forth certain unaudited pro forma results of operations of the Company for the six months ended June 30, 2014 and 2013 assuming that the Hoak Acquisition, along with transactions necessary to finance the Hoak Acquisition, occurred on January 1, 2013 (in thousands, except per share data):
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Revenue (less agency commissions)
|
|
$
|
232,123
|
|
|
$
|
195,138
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,581
|
|
|
$
|
2,348
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income per share
|
|
$
|
0.18
|
|
|
$
|
0.04
|
|
This pro forma financial information is based on each of Gray’s and Hoak’s historical results of operations, adjusted for the effect of preliminary fair value estimates and other acquisition accounting adjustments, and is not necessarily indicative of what our results would have been had we completed the Hoak Acquisition on January 1, 2013 or on any other historical date, nor is it reflective of our expected results of operations for any future period. The pro forma adjustments for the six months ended June 30, 2014 and 2013 reflect (i) depreciation expense and amortization of finite-lived intangible assets related to the fair value of the assets acquired, (ii) additional interest expense related to the financing of the Hoak Acquisition, (iii) the loss from early extinguishment of debt as if our amendment and restatement of our 2014 Senior Credit Facility had ocurred in 2013 rather than 2014 and (iv) the related tax effects of the adjustments. This pro forma financial information has been prepared based on estimates and assumptions which we believe are reasonable as of the date hereof, and are subject to change based on, among other things, changes in the fair value estimates or underlying assumptions.
In connection with completing the Hoak Acquisition, we incurred
$4.6
million of transaction related costs, primarily related to legal, consulting and other professional services, which were included within operating expenses. These costs were not included in the 2014 pro forma amounts presented above. In addition, 2013 pro forma
net income was adjusted to include these costs as if they were incurred in the 2013 period as they were directly attributable to the Hoak Acquisition.
Net revenues and operating income of the businesses acquired in the Hoak Acquisition included in our actual condensed consolidated statements of operations for the six months ended June 30, 2014 were
$3.3
million and
$1.0
million, respectively.
Pro forma financial information for each of the KNDX Acquisition, the KEVN Acquisition and the WQCW Acquisition is not included in the table above, as such information is not material to our financial statements.
Pending Parker Acquisitions
On June 13, 2014, Gray entered into a separate stock purchase agreement with Parker (the “Parker Acquisitions”) pursuant to which we intend to acquire two wholly owned subsidiaries of Parker for $6.7 million. In connection with entering into the agreement to complete the Parker Acquisitions, we paid $5.36 million of the acquisition price to Parker and we have recorded this deposit as a current asset on our condensed consolidated balance sheet as of June 30, 2014. We currently anticipate that we will complete the Parker Acquisitions in 2014 and at that time the Parker Agreements will terminate.
3
.
Long-term Debt
As of June 30, 2014 and December 31, 2013, l
ong-term debt consisted of the following (in thousands):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Long-term debt including current portion:
|
|
|
|
|
|
|
|
|
2014 Senior Credit Facility
|
|
$
|
525,000
|
|
|
$
|
-
|
|
2012 Senior Credit Facility
|
|
|
-
|
|
|
|
159,000
|
|
2020 Notes
|
|
|
675,000
|
|
|
|
675,000
|
|
Excalibur Loan
|
|
|
2,900
|
|
|
|
3,000
|
|
Other
|
|
|
3
|
|
|
|
48
|
|
Total outstanding principal
|
|
|
1,202,903
|
|
|
|
837,048
|
|
Plus unamortized premium on our 2020 Notes
|
|
|
5,395
|
|
|
|
5,826
|
|
Less current portion
|
|
|
(5,453
|
)
|
|
|
(224
|
)
|
Net carrying value
|
|
$
|
1,202,845
|
|
|
$
|
842,650
|
|
|
|
|
|
|
|
|
|
|
Borrowing availability under the 2014 Senior Credit Facility
|
|
$
|
40,000
|
|
|
$
|
-
|
|
Borrowing availability under the 2012 Senior Credit Facility
|
|
$
|
-
|
|
|
$
|
30,000
|
|
Senior Credit Facility
On June 13, 2014 (the “Closing Date”), Gray entered into an amendment and restatement of its then existing senior credit facility (the “2012 Senior Credit Facility”) in the form of a new agreement (the “2014 Senior Credit Facility”).
The 2014 Senior Credit Facility provides total commitments of $575.0 million, consisting of a $525.0 million term loan facility (the “2014 Term Loan”) and a $50.0 million revolving credit facility (the “ 2014 Revolving Credit Facility”).
On the Closing Date, we borrowed $525.0 million under the 2014 Term Loan. Proceeds from borrowings under the 2014 Term Loan were used to repay all amounts outstanding under the 2012 Senior Credit Facility, to fund the cash purchase price to complete the Hoak Acquisition and to pay related fees and expenses, as well as for general corporate purposes.
2014 Term Loan borrowings bear interest, at our option, at either the Base Rate (as defined below) plus 1.75% to 2.0% or the London Interbank Offered Rate (“LIBOR”) plus 2.75% to 3.0%, subject to a LIBOR floor of 0.75%, in each case based on a first lien leverage ratio test as set forth in the 2014 Senior Credit Facility (the “First Lien Ratio Test”). The 2014 Term Loan also requires us to make quarterly principal repayments equal to 0.25% of the outstanding principal amount of the 2014 Term Loan beginning
September 30, 2014.
Borrowings under the 2014 Revolving Credit Facility bear interest, at our option, based on the Base Rate plus 1.0% to 1.5% or LIBOR plus 2.0% to 2.5%, in each case based on the First Lien Ratio Test. Base Rate is defined as the greatest of (i) the administrative agent’s prime rate, (ii) the overnight federal funds rate plus 0.50% and (iii) one-month LIBOR plus 1.0%. We are required to pay a commitment fee on the average daily unused portion of the 2014 Revolving Credit Facility, which rate may range from 0.375% to 0.50% on an annual basis, based on the First Lien Ratio Test.
The 2014 Revolving Credit Facility matures on June 13, 2019 and the 2014 Term Loan matures on June 13, 2021.
Excluding accrued interest, the amount outstanding under our 2014 Senior Credit Facility as of June 30, 2014 consisted solely of a 2014 Term Loan balance of $525.0
million. Our maximum borrowing availability was limited under the
2014 Senior Credit Facility
by our required compliance with certain restrictive covenants, including a first lien net leverage ratio covenant. Also as of June 30, 2014, we had a $10.0 million letter of credit outstanding under the 2014 Revolving Credit Facility, which reduced our borrowing availability thereunder to $40.0 million as of that date. As of June 30, 2014, the interest rate on the balance outstanding under the 2014 Senior Credit Facility was 3.8%. Also, a
s of June 30, 2014, we had a deferred loan cost balance, net of accumulated amortization, of $5.8
million related to the 2014 Senior Credit Facility.
Prior to the amendment and restatement, the 2012 Senior Credit Facility consisted of a revolving loan (the “2012 Revolving Credit Facility”) and a term loan (the “2012 Term Loan”). Excluding accrued interest, the amount outstanding under our 2012 Senior Credit Facility as of December 31, 2013 consisted solely of a 2012 Term Loan balance of $159.0 million. Also as of December 31, 2013, we had a $10.0 million letter of credit outstanding under the 2012 Revolving Credit Facility, which reduced our borrowing availability thereunder to $30.0 million as of that date. As of December 31, 2013, the interest rate on the balance outstanding under the 2012 Senior Credit Facility was 4.8%. Also, as of December 31, 2013, we had a deferred loan cost balance, net of accumulated amortization, of $3.9 million related to the 2012 Senior Credit Facility.
In connection with the entry into the 2014 Senior Credit Facility, we incurred loan issuance costs of approximately $7.1
million, including bank fees and other professional fees.
The amendment and restatement of the 2012 Senior Credit Facility was determined to be a significant modification and, as a result, we recorded a related loss from early extinguishment of debt of $4.9
million in the six-month period ended June 30, 2014.
7½% Senior Notes due 2020 (the “2020 Notes
”)
As of June 30, 2014 and December 31, 2013, we had $675.0 million of
our 2020 Notes
outstanding; the coupon interest rate and the yield on the 2020 Notes was 7.5% and 7.3%, respectively, on each date,
and we had a deferred loan cost balance, net of accumulated amortization, of $12.3
million and $13.2
million, respectively, related to our 2020 Notes.
Excalibur Loan
The Excalibur Loan is a term loan between a third party and Excalibur, a VIE whose financial condition and results we consolidate with ours in accordance with U.S. GAAP. As of June 30, 2014 and December 31, 2013, the balance outstanding of the Excalibur Loan was $2.9
million and $3.0
million, respectively. As of each of June 30, 2014 and December 31, 2013, the interest rate on the balance outstanding under the Excalibur Loan was 4.75%
.
The deferred loan cost balance, net of accumulated amortization, of the Excalibur Loan as of June 30, 2014 and December 31, 2013 was $0.2
million.
Collateral, Covenants and Restrictions
Our obligations under the 2014 Senior Credit Facility are secured by substantially all of the assets, including real estate, of Gray and substantially all of its subsidiaries. In addition, substantially all of Gray’s subsidiaries are joint and several guarantors of those obligations and Gray’s ownership interests in those subsidiaries are pledged to collateralize its obligations under the 2014 Senior Credit Facility. Excalibur is not a guarantor of, and its assets are not pledged to secure our obligations under, the 2014 Senior Credit Facility. Gray Television, Inc. is a holding company with no independent assets or operations. For all periods presented, the 2020 Notes have been fully and unconditionally guaranteed, on a joint and several, senior unsecured basis, by substantially all of Gray Television, Inc.'s subsidiaries. Any subsidiaries that do not guarantee such notes are "minor" (as defined in Rule 3-10(h) of Regulation S-X). As of June 30, 2014, there were no significant restrictions on the ability of Gray Television, Inc.'s subsidiaries to distribute cash to Gray or to the guarantor subsidiaries. Excalibur is not a guarantor of the 2020 Notes. The Excalibur Loan is secured by substantially all of Excalibur’s assets, and we have jointly and severally guaranteed Excalibur’s obligations under the Excalibur Loan, including the payment of all unpaid principal and interest.
The 2014 Senior Credit Facility contains affirmative and restrictive 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, payments on certain other debt and share repurchases, (g) limitations on mergers, and (h) at all times at which amounts are outstanding under the 2014 Revolving Credit Facility, maintenance of a total leverage ratio not to exceed certain maximum limits, as well as other customary covenants for credit facilities of this type. The 2020 Notes include covenants with which we must comply and the Excalibur Loan includes covenants with which Excalibur must also comply, each of which are typical for borrowing transactions of their respective nature. As of June 30, 2014 and December 31, 2013, we and Excalibur were in compliance with all required covenants under our respective debt obligations.
See Note 1 “Basis of Presentation” for more information about Excalibur.
4
.
Fair Value Measurement
To determine fair value, we utilize market data or assumptions that market participants would use in pricing an asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized into a hierarchy that gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (“Level 1”) and the lowest priority to unobservable inputs that require assumptions to measure fair value (“Level 3”). Level 2 inputs are those that are other than quoted prices on national exchanges included within Level 1 that are observable for the asset or liability either directly or indirectly (“Level 2”).
Fair Value of Other Financial Instruments
The estimated fair value of other financial instruments is determined using market information and appropriate valuation methodologies. Interpreting market data to develop fair value estimates involves considerable judgment. The use of different market assumptions may have a material effect on the estimated fair value amounts. Accordingly, the estimates presented are not necessarily indicative of the amounts that we could realize in a current market exchange, or the value that ultimately will be realized upon maturity or disposition.
The carrying amounts of the following instruments approximate fair value due to their short term to maturity: (i) accounts receivable, (ii) prepaid and other current assets, (iii) accounts payable, (iv) accrued employee compensation and benefits, (v) accrued interest, (vi) other accrued expenses, (vii) acquisition-related liabilities and (viii) deferred revenue.
The carrying amount of our long-term debt was
$1,208.3
million and
$842.9
million, respectively, and the fair value was
$1,257.2
million and
$877.5
million, respectively, as of June 30, 2014 and December 31, 2013. We classify our long-term debt within Level 2 of the fair value hierarchy. Fair value of our long-term debt is based on observable estimates provided by third-party financial professionals as of June 30, 2014 and December 31, 2013.
5
. Retirement Plans
The following table provides the components of net periodic benefit cost for our pension plans for the three-month and six-month periods ended June 30, 2014 and 2013, respectively (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Service cost
|
|
$
|
1,300
|
|
|
$
|
1,325
|
|
|
$
|
2,644
|
|
|
$
|
2,649
|
|
Interest cost
|
|
|
1,034
|
|
|
|
917
|
|
|
|
2,103
|
|
|
|
1,834
|
|
Expected return on plan assets
|
|
|
(1,057
|
)
|
|
|
(830
|
)
|
|
|
(2,151
|
)
|
|
|
(1,659
|
)
|
Loss amortization
|
|
|
244
|
|
|
|
742
|
|
|
|
496
|
|
|
|
1,484
|
|
Net periodic benefit cost
|
|
$
|
1,521
|
|
|
$
|
2,154
|
|
|
$
|
3,092
|
|
|
$
|
4,308
|
|
During the six-month period ended June 30, 2014, we contributed $2.7 million to our pension plans. During the remainder of the year ending December 31, 2014, we expect to contribute an additional $3.4 million to our pension plans.
6. Stock-based Compensation
We recognize compensation expense for stock-based payment awards made to our employees and directors, including stock options and restricted shares under our 2007 Long-Term Incentive Plan, as amended (the “2007 Incentive Plan”) and our Directors’ Restricted Stock Plan. The following table provides our stock-based compensation expense and related income tax benefit for the three-month and six-month periods ended June 30, 2014 and 2013, respectively (in thousands).
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Stock-based compensation expense, gross
|
|
$
|
980
|
|
|
$
|
1,327
|
|
|
$
|
3,052
|
|
|
$
|
1,464
|
|
Income tax benefit at our statutory rate associated
with stock-based compensation
|
|
|
(382
|
)
|
|
|
(518
|
)
|
|
|
(1,190
|
)
|
|
|
(571
|
)
|
Stock-based compensation expense, net
|
|
$
|
598
|
|
|
$
|
809
|
|
|
$
|
1,862
|
|
|
$
|
893
|
|
2007
Long-
T
erm Incentive Plan
The 2007 Long-Term Incentive Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, and performance awards to acquire shares of our Class A common stock or common stock, or the receipt of other awards based on our performance, to our employees and non-employee directors.
During the six-month period ended
June 30, 2014
, we granted 312,961 shares of restricted common stock to our employees, of which 68,991 shares vested on the date of grant; 127,316 shares will vest on January 17, 2015; and 58,327 shares will vest on each of January 17, 2016 and January 17, 2017. Also during the six-month period ended
June 30, 2014
, we granted 194,413 shares of restricted Class A common stock to an employee, of which 31,821 shares vested on the date of grant; 75,412 shares will vest on January 17, 2015; and 43,590 shares will vest on each of January 17, 2016 and January 17, 2017. Also during the six-month period ended
June 30, 2014
, we granted 41,881
shares of restricted Class A common stock to our non-employee directors, all of which will vest on January 1, 2015.
During the six-month period ended June 30, 2013, we granted
318,852
shares of restricted common stock to our employees, of which 107,224 shares vested in the year ended December 31, 2013; 70,542 shares vested on March 19, 2014; and 70,542 will vest on each of March 19, 2015 and March 19, 2016.
D
uring the six-month period ended June 30, 2013, we granted 63,210
shares of restricted common stock to our non-employee directors. These shares vested on January 1, 2014.
Directors’ Restricted Stock Plan
The Directors’ Restricted Stock Plan authorizes the grant of restricted stock awards to our non-employee directors. During the six-month periods ended June 30, 2014 and 2013,
w
e did not grant any restricted stock awards under the Directors’ Restricted Stock Plan.
A summary of restricted common stock activity for the six-month periods ended June 30, 2014 and 2013 is as follows:
|
|
Six Months Ended
|
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Number of
|
|
|
Fair Value
|
|
|
Number of
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Shares
|
|
|
Per Share
|
|
Restricted stock - common:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding - beginning of period
|
|
|
274,838
|
|
|
$
|
4.43
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
312,961
|
|
|
$
|
11.78
|
|
|
|
382,062
|
|
|
$
|
5.20
|
|
Vested
|
|
|
(202,743
|
)
|
|
$
|
6.93
|
|
|
|
(107,224
|
)
|
|
$
|
7.16
|
|
Outstanding - end of period
|
|
|
385,056
|
|
|
$
|
9.09
|
|
|
|
274,838
|
|
|
$
|
4.43
|
|
A summary of restricted Class A common stock activity for the six-month periods ended June 30, 2014 and 2013 is as follows:
|
|
Six Months Ended
|
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
|
|
|
|
|
Weighted-average
|
|
|
|
|
|
|
Weighted-average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Number of
|
|
|
Fair Value
|
|
|
Number of
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Shares
|
|
|
Per Share
|
|
Restricted stock - class A common:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock - beginning of period
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
236,294
|
|
|
$
|
9.80
|
|
|
|
-
|
|
|
$
|
-
|
|
Vested
|
|
|
(31,821
|
)
|
|
$
|
9.75
|
|
|
|
-
|
|
|
$
|
-
|
|
Restricted stock - end of period
|
|
|
204,473
|
|
|
$
|
9.81
|
|
|
|
-
|
|
|
$
|
-
|
|
A summary of stock option activity related to our common stock for the six-month periods ended June 30, 2014 and 2013 is as follows:
|
|
Six Months Ended
|
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
|
Number of Shares Underlying Options
|
|
|
Weighted- Average Exercise Price
|
|
|
Number of Shares Underlying Options
|
|
|
Weighted- Average Exercise Price
|
|
Stock options - common:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding - beginning of period
|
|
|
274,746
|
|
|
$
|
1.99
|
|
|
|
1,316,068
|
|
|
$
|
5.98
|
|
Options granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Options exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
(30,000
|
)
|
|
$
|
3.36
|
|
Options expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
(921,500
|
)
|
|
$
|
7.64
|
|
Options forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Options outstanding - end of period
|
|
|
274,746
|
|
|
$
|
1.99
|
|
|
|
364,568
|
|
|
$
|
1.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
137,376
|
|
|
$
|
1.99
|
|
|
|
158,510
|
|
|
$
|
1.99
|
|
For the six-month period ended June 30, 2014, we did not have any stock options outstanding for our Class A common stock. The aggregate intrinsic value of our outstanding stock options was $3.1 million based on the closing market price of our common stock on June 30, 2014.
7
. Commitments and Contingencies
Acquisition Commitments
As of
June 30, 2014
, we were party to various agreements to complete pending acquisitions pursuant to which we are obligated to pay an additional aggregate of approximately $4.2
million. Completion of these acquisitions is subject to various conditions, some of which are outside of our control, and which include, in some instances, the approval of the acquisition by the FCC. No assurances of the timing of such approvals can be provided.
Legal Proceedings and Claims
From time to time, we are or may become subject to legal proceedings and claims that arise in the normal course of our business. In our opinion, the amount of ultimate liability, if any, with respect to known actions, will not materially affect our financial position. However, the outcome of any one or more matters cannot be predicted with certainty, and the unfavorable resolution of any matter could have a material adverse effect on us.
Sports Marketing Agreement
On October 12, 2004, the University of Kentucky (“UK”) awarded a sports marketing agreement jointly to us and IMG Worldwide, Inc. (“IMG”) (the “UK Agreement”). The UK Agreement expires April 15, 2015.
The UK Agreement provides that we will share in profits in excess of certain amounts specified by the agreement, if any, but not losses. The agreement also provides that we will separately retain all local broadcast advertising revenue and pay all local broadcast expenses for activities under the agreement. Under the agreement, IMG agreed to make all license fee payments to UK. However, if IMG is unable to pay the license fee to UK, we will then be required to pay the unpaid portion of the license fee to UK. As of June 30, 2014, the aggregate license fee to be paid by IMG to UK over the remaining term of the agreement is approximately $9.0 million. If we make advances on behalf of IMG, IMG is required to reimburse us for the amount paid within 60 days after the close of each contract year, which ends on June 30th. IMG has also agreed to pay interest on any advance at a rate equal to the prime rate. During the six-month period ended June 30, 2014, we did not advance any amounts to UK on behalf of IMG under this agreement. As of June 30, 2014, we do not consider the risk of non-performance by IMG to be high.
8
. Goodwill and Intangible Assets
During the six months ended June 30, 2014, we acquired various television broadcast stations and broadcast licenses. As a result of these acquisitions, our goodwill and intangible balances increased during the six months ended June 30, 2014. See Note 2 “Acquisitions” for more information regarding these transactions. A summary of changes in our goodwill and other intangible assets, on a net basis, for the six months ended June 30, 2014 is as follows (in thousands):
|
|
Net Balance at
|
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
Net Balance at
|
|
|
|
December 31,
|
|
|
And
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2013
|
|
|
Adjustments
|
|
|
Impairments
|
|
|
Amortization
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
184,409
|
|
|
$
|
135,718
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
320,127
|
|
Broadcast licenses
|
|
|
838,982
|
|
|
|
97,824
|
|
|
|
-
|
|
|
|
-
|
|
|
|
936,806
|
|
Definite lived intangible
assets
|
|
|
2,644
|
|
|
|
39,796
|
|
|
|
-
|
|
|
|
(1,468
|
)
|
|
|
40,972
|
|
Total intangible assets
net of accumulated
amortization
|
|
$
|
1,026,035
|
|
|
$
|
273,338
|
|
|
$
|
-
|
|
|
$
|
(1,468
|
)
|
|
$
|
1,297,905
|
|
As of June 30, 2014 and December 31, 2013, our intangible assets and related accumulated amortization consisted of the following (in thousands):
|
|
As of June 30, 2014
|
|
|
As of December 31, 2013
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
Intangible assets not
subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
|
$
|
990,505
|
|
|
$
|
(53,699
|
)
|
|
$
|
936,806
|
|
|
$
|
892,681
|
|
|
$
|
(53,699
|
)
|
|
$
|
838,982
|
|
Goodwill
|
|
|
320,127
|
|
|
|
-
|
|
|
|
320,127
|
|
|
|
184,409
|
|
|
|
-
|
|
|
|
184,409
|
|
|
|
$
|
1,310,632
|
|
|
$
|
(53,699
|
)
|
|
$
|
1,256,933
|
|
|
$
|
1,077,090
|
|
|
$
|
(53,699
|
)
|
|
$
|
1,023,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject
to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network affiliation
agreements
|
|
$
|
1,265
|
|
|
$
|
(1,265
|
)
|
|
$
|
-
|
|
|
|
1,264
|
|
|
$
|
(1,264
|
)
|
|
$
|
-
|
|
Other definite lived
intangible assets
|
|
|
55,621
|
|
|
|
(14,649
|
)
|
|
|
40,972
|
|
|
|
15,826
|
|
|
|
(13,182
|
)
|
|
|
2,644
|
|
|
|
$
|
56,886
|
|
|
$
|
(15,914
|
)
|
|
$
|
40,972
|
|
|
$
|
17,090
|
|
|
$
|
(14,446
|
)
|
|
$
|
2,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangibles
|
|
$
|
1,367,518
|
|
|
$
|
(69,613
|
)
|
|
$
|
1,297,905
|
|
|
$
|
1,094,180
|
|
|
$
|
(68,145
|
)
|
|
$
|
1,026,035
|
|
Upon renewal of intangible assets such as network affiliations and broadcast licenses, we expense all related fees as incurred.
9. Income Taxes
For the three-month and six-month periods ended June 30, 2014 and 2013, our income tax expense and effective income tax rates were
as follows (dollars in thousands)
:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Income tax expense
|
|
$
|
876
|
|
|
$
|
3,573
|
|
|
$
|
1,735
|
|
|
$
|
5,224
|
|
Effective income tax rate
|
|
|
35.5
|
%
|
|
|
41.0
|
%
|
|
|
37.7
|
%
|
|
|
46.5
|
%
|
We estimate our differences between taxable income or loss and recorded income or loss on an annual basis. Our tax provision for each quarter is based upon these full year projections, which are revised each reporting period. These projections incorporate estimates of permanent differences between U.S. GAAP income or loss and taxable income or loss, state income taxes and adjustments to our liability for unrecognized tax benefits to adjust our statutory Federal income tax rate of 35.0% to our effective income tax rate.
For the six-month period ended June 30, 2014, these estimates
increased or decreased our statutory Federal income tax rate of 35.0% to our effective income tax rate of
37.7%
as follows: state income taxes added 1.7% and permanent differences between our U.S. GAAP income and taxable income added 1.2%, while adjustments to our reserve for uncertain tax positions resulted in a reduction of 0.2%.
For the six-month period ended June 30, 2013, these estimates increased or decreased our statutory Federal income tax rate of 35.0% to our effective income tax rate of 46.5% as follows: an adjustment resulting from the expiration of certain unexercised stock options added
5.5%
, state income taxes added 4.7% and permanent differences between our U.S. GAAP income and taxable income added 1.7%, while adjustments to our reserve for uncertain tax positions resulted in a reduction of 0.4%.
10. Subsequent Events
WJRT-TV/WTVG-TV Acquisition
On July 24, 2014, we entered into an agreement to acquire all of the outstanding capital stock of WJRT Acquisition, Inc. and WTVG Acquisition, Inc. from SJL Holdings, LLC and SJL Holdings II, LLC, respectively, for an aggregate purchase price of approximately $128.0 million plus a working capital adjustment (the “WJRT-TV/WTVG-TV Acquisition”). WJRT Acquisition, Inc. and WTVG Acquisition, Inc. own and operate WJRT-TV and WTVG-TV, which are the ABC-affiliated television stations serving the Flint-Saginaw-Bay City, Michigan, and Toledo, Ohio, television markets, respectively. In addition, WTVG-TV expects to launch a multicast channel affiliated with the CW network on or about September 1, 2014. Gray expects to finance the WJRT-TV/WTVG-TV Acquisition through a combination of cash on hand and from one or more financing sources, depending on the cost and availability of any such financing. The WJRT-TV/WTVG-TV Acquisition is subject to receipt of regulatory and other approvals and is expected to close prior to December 31, 2014.