e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
|
|
|
þ |
|
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2009 or
|
|
|
o |
|
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from _________ to _________ .
Commission file number 1-13796
Gray Television, Inc.
(Exact name of registrant as specified in its charter)
|
|
|
Georgia
|
|
58-0285030 |
|
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification Number) |
|
|
|
4370 Peachtree Road, NE, Atlanta, Georgia
|
|
30319 |
|
|
|
(Address of principal executive offices)
|
|
(Zip code) |
(404) 504-9828
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
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 periods 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 whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer: o
|
|
Accelerated filer: þ
|
|
Non-accelerated filer: o
|
|
Smaller reporting company: o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practical date.
|
|
|
Common Stock, (No Par Value)
|
|
Class A Common Stock, (No Par Value) |
|
|
|
42,861,009 shares outstanding as of July 31, 2009
|
|
5,753,020 shares outstanding as of July 31, 2009 |
INDEX
GRAY TELEVISION, INC.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Assets: |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
9,786 |
|
|
$ |
30,649 |
|
Trade accounts receivable, less allowance for doubtful accounts
of $1,372 and $1,543, respectively |
|
|
51,472 |
|
|
|
54,685 |
|
Current portion of program broadcast rights, net |
|
|
3,100 |
|
|
|
10,092 |
|
Deferred tax asset |
|
|
1,830 |
|
|
|
1,830 |
|
Marketable securities |
|
|
|
|
|
|
1,384 |
|
Prepaid and other current assets |
|
|
3,970 |
|
|
|
3,167 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
70,158 |
|
|
|
101,807 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
153,758 |
|
|
|
162,903 |
|
Deferred loan costs, net |
|
|
1,428 |
|
|
|
2,850 |
|
Broadcast licenses |
|
|
818,981 |
|
|
|
818,981 |
|
Goodwill |
|
|
170,522 |
|
|
|
170,522 |
|
Other intangible assets, net |
|
|
1,599 |
|
|
|
1,893 |
|
Investment in broadcasting company |
|
|
13,599 |
|
|
|
13,599 |
|
Other |
|
|
4,629 |
|
|
|
5,710 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,234,674 |
|
|
$ |
1,278,265 |
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements. |
|
|
|
|
|
|
|
|
3
GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Liabilities and stockholders equity: |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Trade accounts payable |
|
$ |
6,843 |
|
|
$ |
11,515 |
|
Employee compensation and benefits |
|
|
8,554 |
|
|
|
9,603 |
|
Accrued interest |
|
|
13,573 |
|
|
|
9,877 |
|
Other accrued expenses |
|
|
4,293 |
|
|
|
9,128 |
|
Interest rate hedge derivatives |
|
|
17,602 |
|
|
|
|
|
Dividends payable |
|
|
|
|
|
|
3,000 |
|
Federal and state income taxes |
|
|
4,181 |
|
|
|
4,374 |
|
Current portion of program broadcast obligations |
|
|
8,181 |
|
|
|
15,236 |
|
Acquisition related liabilities |
|
|
885 |
|
|
|
980 |
|
Deferred revenue |
|
|
8,792 |
|
|
|
10,364 |
|
Current portion of long-term debt |
|
|
8,080 |
|
|
|
8,085 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
80,984 |
|
|
|
82,162 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
|
787,769 |
|
|
|
792,295 |
|
Program broadcast obligations, less current portion |
|
|
1,094 |
|
|
|
1,534 |
|
Deferred income taxes |
|
|
137,970 |
|
|
|
143,975 |
|
Long-term deferred revenue |
|
|
3,099 |
|
|
|
3,310 |
|
Long-term accrued dividends |
|
|
10,500 |
|
|
|
|
|
Accrued pension costs |
|
|
19,530 |
|
|
|
18,782 |
|
Interest rate hedge derivatives |
|
|
|
|
|
|
24,611 |
|
Other |
|
|
1,973 |
|
|
|
2,306 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,042,919 |
|
|
|
1,068,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note H) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, no par value; cumulative; redeemable;
designated 1.00 shares, issued and outstanding 1.00 shares,
($100,000 aggregate liquidation value) |
|
|
92,785 |
|
|
|
92,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common stock, no par value; authorized 100,000 shares,
issued 47,511 shares and 47,179 shares, respectively |
|
|
453,121 |
|
|
|
452,289 |
|
Class A common stock, no par value; authorized 15,000 shares,
issued 7,332 shares |
|
|
15,321 |
|
|
|
15,321 |
|
Accumulated deficit |
|
|
(287,201 |
) |
|
|
(263,532 |
) |
Accumulated other comprehensive loss, net of income tax benefit |
|
|
(19,758 |
) |
|
|
(24,458 |
) |
|
|
|
|
|
|
|
|
|
|
161,483 |
|
|
|
179,620 |
|
|
|
|
|
|
|
|
|
|
Treasury stock at cost, common stock, 4,655 shares |
|
|
(40,115 |
) |
|
|
(40,115 |
) |
Treasury stock at cost, Class A common stock, 1,579 shares |
|
|
(22,398 |
) |
|
|
(22,398 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
98,970 |
|
|
|
117,107 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,234,674 |
|
|
$ |
1,278,265 |
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
4
GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues (less agency commissions) |
|
$ |
65,057 |
|
|
$ |
78,743 |
|
|
$ |
126,411 |
|
|
$ |
149,742 |
|
Operating expenses before depreciation, amortization
and gain on disposal of assets, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast |
|
|
45,167 |
|
|
|
48,460 |
|
|
|
90,821 |
|
|
|
98,476 |
|
Corporate and administrative |
|
|
3,592 |
|
|
|
2,722 |
|
|
|
7,638 |
|
|
|
6,261 |
|
Depreciation |
|
|
8,253 |
|
|
|
8,708 |
|
|
|
16,514 |
|
|
|
17,593 |
|
Amortization of intangible assets |
|
|
145 |
|
|
|
199 |
|
|
|
294 |
|
|
|
398 |
|
Gain on disposals of assets, net |
|
|
(1,098 |
) |
|
|
(84 |
) |
|
|
(2,620 |
) |
|
|
(1,005 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,059 |
|
|
|
60,005 |
|
|
|
112,647 |
|
|
|
121,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
8,998 |
|
|
|
18,738 |
|
|
|
13,764 |
|
|
|
28,019 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous income, net |
|
|
1 |
|
|
|
63 |
|
|
|
13 |
|
|
|
90 |
|
Interest expense |
|
|
(20,007 |
) |
|
|
(13,402 |
) |
|
|
(30,120 |
) |
|
|
(29,201 |
) |
Loss on early extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(8,352 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(11,008 |
) |
|
|
5,399 |
|
|
|
(24,695 |
) |
|
|
(1,092 |
) |
Income tax (benefit) expense |
|
|
(4,360 |
) |
|
|
2,184 |
|
|
|
(9,127 |
) |
|
|
(457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(6,648 |
) |
|
|
3,215 |
|
|
|
(15,568 |
) |
|
|
(635 |
) |
Preferred dividends (includes accretion of issuance cost
of $301, $0, $602, and $0, respectively) |
|
|
4,051 |
|
|
|
125 |
|
|
|
8,101 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net ((loss) income available to common stockholders |
|
$ |
(10,699 |
) |
|
$ |
3,090 |
|
|
$ |
(23,669 |
) |
|
$ |
(760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic per share information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders |
|
$ |
(0.22 |
) |
|
$ |
0.06 |
|
|
$ |
(0.49 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
48,506 |
|
|
|
48,235 |
|
|
|
48,498 |
|
|
|
48,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted per share information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders |
|
$ |
(0.22 |
) |
|
$ |
0.06 |
|
|
$ |
(0.49 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
48,506 |
|
|
|
48,273 |
|
|
|
48,498 |
|
|
|
48,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
$ |
|
|
|
$ |
0.03 |
|
|
$ |
|
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
5
GRAY TELEVISION, INC.
CONDENSED CONSlOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE LOSS (Unaudited)
(in thousands except for number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Class A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
Common |
|
|
Other |
|
|
|
|
|
|
Common Stock |
|
|
Common Stock |
|
|
Accumulated |
|
|
Treasury Stock |
|
|
Treasury Stock |
|
|
Comprehensive |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Deficit |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Total |
|
Balance at December 31,
2008 |
|
|
7,331,574 |
|
|
$ |
15,321 |
|
|
|
47,178,948 |
|
|
$ |
452,289 |
|
|
$ |
(263,532 |
) |
|
|
(1,578,554 |
) |
|
$ |
(22,398 |
) |
|
|
(4,654,750 |
) |
|
$ |
(40,115 |
) |
|
$ |
(24,458 |
) |
|
$ |
117,107 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,568 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,568 |
) |
Gain on derivatives, net
of
income tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,700 |
|
|
|
4,700 |
|
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,101 |
) |
Issuance of common stock:
401(k) plan |
|
|
|
|
|
|
|
|
|
|
332,099 |
|
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
|
7,331,574 |
|
|
$ |
15,321 |
|
|
|
47,511,047 |
|
|
$ |
453,121 |
|
|
$ |
(287,201 |
) |
|
|
(1,578,554 |
) |
|
$ |
(22,398 |
) |
|
|
(4,654,750 |
) |
|
$ |
(40,115 |
) |
|
$ |
(19,758 |
) |
|
$ |
98,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
6
GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
Operating activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(15,568 |
) |
|
$ |
(635 |
) |
Adjustments to reconcile net loss to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
16,514 |
|
|
|
17,593 |
|
Amortization of intangible assets |
|
|
294 |
|
|
|
398 |
|
Amortization of deferred loan costs |
|
|
181 |
|
|
|
238 |
|
Amortization of restricted stock awards |
|
|
122 |
|
|
|
198 |
|
Amortization of stock option awards |
|
|
576 |
|
|
|
491 |
|
Write-off loan acquisition costs from early extinguishment of debt |
|
|
8,352 |
|
|
|
|
|
Amortization of program broadcast rights |
|
|
7,531 |
|
|
|
7,672 |
|
Payments on program broadcast obligations |
|
|
(7,656 |
) |
|
|
(6,441 |
) |
Common stock contributed to 401(K) Plan |
|
|
133 |
|
|
|
1,569 |
|
Deferred income taxes |
|
|
(9,010 |
) |
|
|
(409 |
) |
Gain on disposal of assets, net |
|
|
(2,620 |
) |
|
|
(1,005 |
) |
Pension expense net of contributions |
|
|
752 |
|
|
|
1,504 |
|
Other |
|
|
(311 |
) |
|
|
(304 |
) |
Changes in operating assets and liabilities, net
of business acquisitions: |
|
|
|
|
|
|
|
|
Receivables and other current assets |
|
|
4,001 |
|
|
|
4,211 |
|
Accounts payable and other current liabilities |
|
|
(7,306 |
) |
|
|
(4,143 |
) |
Accrued interest |
|
|
4,392 |
|
|
|
(3,700 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
377 |
|
|
|
17,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(10,224 |
) |
|
|
(6,176 |
) |
Proceeds from assets sales |
|
|
573 |
|
|
|
254 |
|
Payments on acquisition-related liabilities |
|
|
(352 |
) |
|
|
(330 |
) |
Other |
|
|
405 |
|
|
|
(25 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(9,598 |
) |
|
|
(6,277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Proceeds from borrowings on long-term debt |
|
|
|
|
|
|
16,000 |
|
Repayments of borrowings on long-term debt |
|
|
(4,531 |
) |
|
|
(85,462 |
) |
Deferred loan costs |
|
|
(7,111 |
) |
|
|
|
|
Dividends paid, net of accreted preferred dividend |
|
|
|
|
|
|
(2,896 |
) |
Issuance of preferred stock |
|
|
|
|
|
|
68,638 |
|
Other |
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(11,642 |
) |
|
|
(3,730 |
) |
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(20,863 |
) |
|
|
7,230 |
|
Cash and cash equivalents at beginning of period |
|
|
30,649 |
|
|
|
15,338 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
9,786 |
|
|
$ |
22,568 |
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
7
GRAY TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE A BASIS OF PRESENTATION
The accompanying condensed balance sheet as of December 31, 2008, which was derived from
audited financial statements, and the unaudited condensed consolidated financial statements as of
and for the period ended June 30, 2009 of Gray Television, Inc. (we, us, or our) 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, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial statements. In our opinion, all adjustments
(consisting of normal recurring accruals) 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 fiscal year ended December 31, 2008 (fiscal 2008).
Seasonality
Broadcast advertising revenues are generally highest in the second and fourth quarters each
year, due in part to increases in advertising in the spring and 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. Operating results for the three-month and six-month periods
ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year
ending December 31, 2009.
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 consolidated
financial statements and the notes to the unaudited consolidated financial statements. Our actual
results could differ from these estimates. Estimates are used for the allowance for doubtful
accounts in receivables, valuation of goodwill and intangible assets, amortization of program
rights and intangible assets, stock-based compensation, pension costs, income taxes, employee
medical insurance claims, useful lives of property and equipment, contingencies and litigation.
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 potentially dilutive common shares,
including restricted stock and stock options. 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, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Weighted-average shares outstanding basic |
|
|
48,506 |
|
|
|
48,235 |
|
|
|
48,498 |
|
|
|
48,194 |
|
Stock options and restricted stock |
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding diluted |
|
|
48,506 |
|
|
|
48,273 |
|
|
|
48,498 |
|
|
|
48,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
NOTE A BASIS OF PRESENTATION (Continued)
Earnings Per Share (Continued)
For the periods where we reported losses, all common stock equivalents are excluded from the
computation of diluted earnings per share, since the result would be antidilutive. Securities that
could potentially dilute earnings per share in the future, but which were not included in the
calculation of diluted earnings per share because to do so would have been antidilutive for the
periods presented, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Dilutive securities outstanding at end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options |
|
|
1,926 |
|
|
|
2,113 |
|
|
|
1,926 |
|
|
|
2,113 |
|
Non-vested restricted stock |
|
|
100 |
|
|
|
183 |
|
|
|
100 |
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,026 |
|
|
|
2,296 |
|
|
|
2,026 |
|
|
|
2,296 |
|
Common stock equivalents included in diluted
weighted-average shares outstanding |
|
|
|
|
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive securities excluded from diluted
weighted-average shares outstanding |
|
|
2,026 |
|
|
|
2,258 |
|
|
|
2,026 |
|
|
|
2,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss)
Our total comprehensive income includes net income (loss) and other comprehensive income
(loss) items listed in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net (loss) income |
|
$ |
(6,648 |
) |
|
$ |
3,215 |
|
|
$ |
(15,568 |
) |
|
$ |
(635 |
) |
Change in value of cash flow hedges, net of
income tax |
|
|
2,162 |
|
|
|
7,039 |
|
|
|
4,700 |
|
|
|
473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net (loss) income |
|
$ |
(4,486 |
) |
|
$ |
10,254 |
|
|
$ |
(10,868 |
) |
|
$ |
(162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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.
9
NOTE A BASIS OF PRESENTATION (Continued)
Property and Equipment (Continued)
The following table lists components of property and equipment by major category (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Property and equipment: |
|
|
|
|
|
|
|
|
Land |
|
$ |
22,471 |
|
|
$ |
22,452 |
|
Buildings and improvements |
|
|
50,427 |
|
|
|
49,766 |
|
Equipment |
|
|
292,470 |
|
|
|
296,013 |
|
|
|
|
|
|
|
|
|
|
|
365,368 |
|
|
|
368,231 |
|
Accumulated depreciation |
|
|
(211,610 |
) |
|
|
(205,328 |
) |
|
|
|
|
|
|
|
|
|
$ |
153,758 |
|
|
$ |
162,903 |
|
|
|
|
|
|
|
|
Accounting forDerivatives
We use swap agreements to convert a portion of our variable rate debt to a fixed rate, thus
managing exposure to interest rate fluctuations. These risk management activities are transacted
with one or more highly rated institutions, reducing the exposure to credit risk in the event of
nonperformance by the counterparty. We do not enter into derivative financial investments for
trading purposes.
Under these swap agreements, we receive floating interest at the London interbank offered rate
(LIBOR) and pay fixed interest. The variable LIBOR rate is reset in three-month periods for the
swap agreements. Depending on which rate is lower, the variable LIBOR rate is reset in one-month or
three-month periods for the hedged portion of our variable rate debt. Upon entering into the swap
agreements, we designated them as hedges of variability of our floating-rate interest payments
attributable to changes in three-month LIBOR, the designated interest rate. During the period of
each swap agreement, we recognize the swap agreements at their fair value as an asset or liability
in our balance sheet and mark the swap agreements to their fair value through other comprehensive
income. We recognize floating-rate interest expense from our debt as interest expense in earnings.
We recognize the offsetting effect of payments to or receipts from the swap agreements as an
addition or offset to interest expense.
Hedge effectiveness is evaluated at the end of each quarter. We compare the notional amount,
the variable interest rate and the settlement dates of the swap agreements to the hedged portion of
the debt. Historically, the swap agreements have been highly effective hedges. However, to the
extent that any hedge ineffectiveness might occur, it is recognized in earnings during the period
that it occurred.
Upon entering into a swap agreement, we document our hedging relationships and our risk
management objectives. Our swap agreements do not include written options. Our swap agreements are
intended solely to modify the payments for a recognized liability from a variable rate to a fixed
rate. Our swap agreements do not qualify for the short-cut method of accounting because the
variable rate debt being hedged is pre-payable. See Note C Long-Term Debt for further
disclosure of our policies regarding derivatives.
Subsequent Events
We evaluated subsequent events through August 7, 2009, the date of filing this Quarterly
Report on Form 10-Q with the Securities and Exchange Commission.
10
NOTE A BASIS OF PRESENTATION (Continued)
Recent Accounting Pronouncements
As of January 1, 2009, we adopted the requirements of the following accounting pronouncements
without any impact upon our financial statements:
|
|
|
Staff Position (FSP) No. 157-2, Effective Date of Statement of Financial
Accounting Standards (SFAS) No. 157 |
|
|
|
|
SFAS No. 141(R), Business Combinations |
|
|
|
|
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements an
amendment of Accounting Research Bulletin No. 51 |
|
|
|
|
FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled
in Cash Upon Conversion |
|
|
|
|
FSP No. Emerging Issues Task Force (EITF) 03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities |
|
|
|
|
FSP No. SFAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan
Assets |
|
|
|
|
EITF Issue No. 07-1, Accounting for Collaborative Arrangements |
|
|
|
|
EITF Issue No. 07-5, Determining Whether an Instrument (or Embedded Feature) Is
Indexed to an Entitys Own Stock |
The disclosure requirements of SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, which took effect on January 1, 2009, are presented in Note C Long-Term
Debt.
The disclosure requirements of FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets, which took effect on January 1, 2009, are presented in Note I Goodwill and
Intangible Assets.
As of June 30, 2009, we adopted the requirements of the following accounting pronouncements:
|
|
|
FSP No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments, is effective for interim reporting periods ending after June 15, 2009.
This FSP amends Financial Accounting Standards Board (FASB) Statement No. 107,
Disclosures about Fair Value of Financial Instruments, to require disclosures about
fair value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. This FSP also amends APB Opinion
No. 28, Interim Financial Reporting, to require those disclosures in summarized
financial information at interim reporting periods. As this pronouncement is only
disclosure-related, it did not have an impact on our financial position and results of
operations. The disclosure requirements of this FSP are presented in Note D Fair
Value Measurement. |
|
|
|
|
SFAS No. 165, Subsequent Events, is effective for interim reporting periods
ending after June 15, 2009. As this pronouncement is only disclosure-related, it did
not have an impact on our financial position and results of operations. The
disclosure requirements of this FSP are presented below , in Note K New York Stock
Exchange Continued Listing Requirements and in
Note L Subsequent Event. |
|
|
|
|
FSP No. 157-4, Determining Fair Value When the Volume and Level of Activity for
the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly, is effective for interim reporting periods ending after June 15,
2009. We adopted the requirements of this accounting pronouncement without any impact
upon our financial statements. |
Changes in Classifications
The classification of certain prior period amounts in the accompanying condensed consolidated
balance sheets have been changed in order to conform to the current year presentation.
11
NOTE B MARKETABLE SECURITIES
We have historically invested excess cash balances in a highly rated enhanced cash fund
managed by Columbia Management Advisers, LLC, a subsidiary of Bank of America, N.A. (Columbia
Management). We refer to this investment fund as the Columbia Fund.
On December 6, 2007, Columbia Management initiated a series of steps which included the
temporary suspension of all immediate cash distributions from the Columbia Fund and changed its
method of valuation from a
fixed asset valuation to a fluctuating asset valuation. Since that date, Columbia Management has
commenced the liquidation of the Columbia Fund and is distributing cash to investors as quickly as
practicable.
During the six-month periods ended June 30, 2009 and 2008, we recorded a mark-to-market
expense of $2,100 and $75,000, respectively.
During the six-month period ended June 30, 2009, we received cash distributions totaling $1.4
million representing our remaining investment in the Columbia Fund at market value. This final
distribution approximated the market value of the investment recorded as of December 31, 2008.
As of December 31, 2008, our remaining balance in the Columbia Fund was $1.4 million which was
net of a $290,000 mark-to-market reserve.
NOTE C LONG-TERM DEBT
Long-term debt consists of our senior credit facility as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Long-term debt: |
|
|
|
|
|
|
|
|
Senior credit facility current portion |
|
$ |
8,080 |
|
|
$ |
8,085 |
|
Senior credit facility long-term portion |
|
|
787,769 |
|
|
|
792,295 |
|
|
|
|
|
|
|
|
Total long-term debt including current portion |
|
$ |
795,849 |
|
|
$ |
800,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowing ability under our senior credit facility |
|
$ |
27,134 |
|
|
$ |
12,262 |
|
|
|
|
|
|
|
|
|
|
Leverage ratio as defined under our senior credit facilty: |
|
|
|
|
|
|
|
|
Actual |
|
|
7.98 |
|
|
|
7.14 |
|
Maximum allowed |
|
|
8.25 |
|
|
|
7.25 |
|
Our senior credit facility consists of a term loan and a revolving loan. The amounts
outstanding under our senior credit facility as of June 30, 2009 and December 31, 2008 were
comprised solely of the term loan. The revolving loan did not have an outstanding balance as of
June 30, 2009 or December 31, 2008. The commitment fee was 0.50% on the available credit under the
senior credit facility. Our average debt balance was $798.6 million and $913.9 million during the
six-month periods ended June 30, 2009 and 2008, respectively. The average interest rates on our
total debt balances were 7.2% and 6.1% during the six-month periods ended June 30, 2009 and 2008,
respectively. These average interest rates include the effects of our interest rate swap agreements
as described below.
Under the revolving loan of our amended senior credit facility, the maximum credit available
under the facility is $50.0 million. The amount that we can draw upon the revolving loan is
limited by the restrictive covenants of our senior credit facility. As of June 30, 2009 and
December 31, 2008, we could have drawn $27.1 million and $12.3 million, respectively, of the $50
million maximum amount under the revolving loan.
12
NOTE C LONG-TERM DEBT (Continued)
Amendment of Senior Credit Facility
Effective as of March 31, 2009, we amended our senior credit facility. The terms of our
amended senior credit facility include, but are not limited to, an increase in the maximum ratio
allowed under our leverage ratio covenant for the year ending December 31, 2009, a general increase
in the restrictiveness of our remaining covenants and increased interest rates. In order to obtain
this amendment, we incurred loan issuance costs of approximately $7.1 million including legal and
professional fees. These fees were funded from our existing cash balances. The amendment of our
senior credit facility was determined to be significant and as a result we recorded a loss on early
extinguishment of debt of $8.4 million. The amendment to our senior credit facility is included in
our Annual Report on Form 10-K for fiscal 2008 (the 2008 Form 10-K) as Exhibit 10.10.
Without this amendment, we would not have been in compliance with the leverage ratio covenant
and such noncompliance would have caused a default under the agreement. This amendment increased
our cash interest rate by 2% per annum (200 basis points) and beginning April 1, 2009, requires an
additional 3% per annum (300 basis point) facility fee. For the period beginning April 4, 2009 and
ending April 30, 2010, the annual facility fee for the term loan and the revolving loan will accrue
and be payable on the respective term loan and revolving loan maturity dates. For the period
beginning after April 30, 2010 and for the remaining term of the senior credit facility, the annual
facility fee will be payable in cash on a quarterly basis and interest will accrue at an annual
rate of 6.5% on the facility fee balance accrued as of April 30, 2010.
As stated above, our senior credit facility requires us to maintain our leverage ratio, as
defined in the agreement, below certain maximum amounts. As of December 31, 2008, our leverage
ratio was 7.14 compared to the maximum allowed by our senior credit facility of 7.25. As of March
31, 2009, our leverage ratio was 7.48 compared to the maximum ratio allowed by the amended senior
credit facility of 8.00. As of June 30, 2009, our leverage ratio was 7.98 compared to the maximum
ratio allowed by the amended senior credit facility of 8.25. Prior to the amendment, the maximum
total net leverage ratio allowed would have been 7.25 as of March 31, 2009 and June 30, 2009.
The continuing general economic recession, including the significant decline in advertising by
the automotive industry, has adversely impacted our ability to generate cash from operations during
the current period and the recent past. If these general economic trends do not begin to gradually
improve, then our ability to maintain adequate liquidity and/or compliance with our leverage ratio
covenant will come under increased pressure. Compliance with the leverage ratio covenant on or
after March 31, 2010 will depend on the interrelationship of our ability to reduce outstanding debt
and/or the results of our operations during the intervening future periods. Based upon our
financial projections as of the date of filing this Quarterly Report on Form 10-Q, we are likely
not to be in compliance with our leverage ratio as of March 31, 2010.
In the future, if we are unable to maintain compliance with these covenants, including the
leverage ratio test, we would use reasonable efforts to seek an amendment or waiver to our senior
credit facility. However, in such circumstances, we could provide no assurances that any amendment
or waiver would be obtained nor of its terms. In the future, if we are unable to obtain any
required waivers or amendments, we would be in default under the senior credit facility and any
such default could allow a majority of the lenders to demand an acceleration of the repayment of
all outstanding amounts under our senior credit facility.
Interest Rate Swap Agreements
We entered into three swap agreements during fiscal 2007 for the purpose of converting $465.0
million of our variable rate debt under our senior credit facility to fixed rate debt. These swap
agreements continued to be in effect during the six-month period ended June 30, 2009. As of June
30, 2009, the swap agreements had a negative market value of $17.6 million which was recorded as an
other current liability. As of December 31, 2008, our swap agreements had a negative market value
of $24.6 million. For the six-month periods ended June 30, 2009 and 2008, we recorded income, net
of tax, on derivatives as other comprehensive income of $4.7 million and $473,000, respectively.
Our three swap agreements are our only existing hedging activities and will expire in April of
2010.
13
NOTE C LONG-TERM DEBT (Continued)
Interest Rate Swap Agreements (Continued)
Beginning in April of 2009, we chose to place our long-term debt, that is being hedged, into a
one-month LIBOR contract that is renewed monthly rather than a three-month LIBOR contract that is
renewed quarterly. By doing so, we have taken advantage of the lower one-month LIBOR rate. As a
result, any hedge ineffectiveness resulting from selecting the
one-month LIBOR rate has been
recognized in our statement of operations.
See Note A Basis of Presentation for further disclosure of our policies regarding
derivatives.
NOTE D FAIR VALUE MEASUREMENT
We are parties to financial instruments which are defined, with certain exceptions, as cash,
evidence of an ownership interest in an entity and certain contracts. These financial instruments
are listed below as of June 30, 2009 and December 31, 2008 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
June 30 2009 |
|
December 31, 2008 |
|
|
Recorded |
|
Fair |
|
Recorded |
|
Fair |
|
|
Value |
|
Value |
|
Value |
|
Value |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
9,786 |
|
|
$ |
9,786 |
|
|
$ |
30,649 |
|
|
$ |
30,649 |
|
Marketable securites |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,384 |
|
|
$ |
1,384 |
|
Investment in broadcasting company |
|
$ |
13,599 |
|
|
$ |
13,599 |
|
|
$ |
13,599 |
|
|
$ |
13,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt including current portion |
|
$ |
795,849 |
|
|
$ |
512,243 |
|
|
$ |
800,380 |
|
|
$ |
312,100 |
|
Interest rate swap agreements |
|
$ |
17,602 |
|
|
$ |
17,602 |
|
|
$ |
24,611 |
|
|
$ |
24,611 |
|
Fair value of cash and cash equivalents is based upon quoted prices (unadjusted) in active
markets for identical assets. These inputs are Level 1 in the fair value hierarchy.
Fair value of our marketable securities, long-term debt including current portion and interest
rate swap agreements is based on quoted prices of similar assets in active markets. Valuation of
these items does entail significant amount of judgment and the inputs that are significant to the
fair value measurement are Level 2 in the fair value hierarchy.
Fair value of investment in broadcasting company is based on unobservable inputs that are
considered Level 3 in the fair value hierarchy.
NOTE E
PREFERRED STOCK
As of June 30, 2009 and December 31, 2008, we had 1,000 shares of Series D Perpetual Preferred
Stock outstanding. The no par value Series D Perpetual Preferred Stock has a liquidation value of
$100,000 per share for a total liquidation value of $100.0 million as of June 30, 2009 and December
31, 2008.
Dividends on our Series D Perpetual Preferred Stock accrued at 12.0% per annum through
December 31, 2008 after which the dividend rate increased to 15.0% per annum. We did not fund the
Series D Perpetual Preferred Stock cash dividend payments due on January 15, 2009, April 15, 2009
or July 15, 2009 that had accumulated for the three-month periods ended December 31, 2008, March
31, 2009 and June 30, 2009. Our accrued Series D Perpetual Preferred Stock dividend balance as of
June 30, 2009 and December 31, 2008 was $10.5 million and $3.0 million,
respectively. Such deferral of dividend payments is allowable under the terms of the Series D
Perpetual Preferred Stock. When three consecutive cash dividend payments with respect to the
Series D Perpetual Preferred Stock
14
NOTE E
PREFERRED STOCK (Continued)
remain unfunded, the dividend rate will increase from 15.0% per annum (or $15 million) to 17.0% per
annum (or $17 million). Thus, our Series D Perpetual Preferred Stock dividend began accruing at
17.0% per annum on July 16, 2009 and will accrue at that rate as long as at least three consecutive
cash dividend payments remain unfunded.
While any Series D Perpetual Preferred Stock dividend payments are in arrears, we are
prohibited from repurchasing, declaring and/or paying any cash dividend with respect to any equity
securities having liquidation preferences equivalent to or junior in ranking to the liquidation
preferences of the Series D Perpetual Preferred Stock including our common stock and Class A common
stock. We can provide no assurances when any future cash payments will be made on any accumulated
and unpaid Series D Perpetual Preferred Stock cash dividends presently in arrears or that become in
arrears in the future. The Series D Perpetual Preferred Stock has no mandatory redemption date but
may be redeemed at the stockholders option on or after June 30, 2015. The deferral of paying cash
dividends on our Series D Perpetual Preferred Stock and the corresponding suspension of paying cash
dividends on our common and Class A common stock was made to reallocate cash resources to support
our ability to pay increased interest costs and/or fees associated with the amendment to our senior
credit facility.
NOTE F 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, 2009 and 2008, respectively (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Service cost |
|
$ |
774 |
|
|
$ |
671 |
|
|
$ |
1,551 |
|
|
$ |
1,456 |
|
Interest cost |
|
|
550 |
|
|
|
482 |
|
|
|
1,100 |
|
|
|
962 |
|
Expected return on plan assets |
|
|
(501 |
) |
|
|
(406 |
) |
|
|
(1,003 |
) |
|
|
(882 |
) |
Loss amortization |
|
|
102 |
|
|
|
26 |
|
|
|
205 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
925 |
|
|
$ |
773 |
|
|
$ |
1,853 |
|
|
$ |
1,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six-month period ended June 30, 2009, we contributed $1.1 million to our pension
plans. During the remainder of the fiscal year ended December 31, 2009 (fiscal 2009), we expect
to contribute an additional $3.2 million to our pension plans.
NOTE G STOCK-BASED COMPENSATION
We recognize compensation expense for share-based payment awards made to our employees and
directors including stock options and restricted shares under our 2007 Long-Term Incentive Plan and
the Directors Restricted Stock Plan. The following table provides our share-based compensation
expense and related income tax benefit for the three-month and six-month periods ending June 30,
2009 and 2008, respectively (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Stock-based compensation expense, gross |
|
$ |
345 |
|
|
$ |
395 |
|
|
$ |
698 |
|
|
$ |
689 |
|
Income tax
benefit associated with stock-based compensation |
|
|
(135 |
) |
|
|
(154 |
) |
|
|
(272 |
) |
|
|
(269 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense, net |
|
$ |
210 |
|
|
$ |
241 |
|
|
$ |
426 |
|
|
$ |
420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
NOTE G STOCK-BASED COMPENSATION (Continued)
Long-term Incentive Plan
During the six-month period ended June 30, 2009, we did not grant any options to our employees
to acquire our common stock. During the six-month period ended June 30, 2008, we granted options to
our employees to acquire 1.3 million shares of our common stock. The common stock purchase price
per the option agreements was equal to the common stocks closing market price on the date of the
grant. The fair value for each stock option granted was estimated at the date of grant using the
Black-Scholes option pricing model.
A summary of stock option activity related to our common stock for the six-month periods ended
June 30, 2009 and 2008 is as follows (option amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2009 |
|
2008 |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
Options |
|
Price |
|
Options |
|
Price |
Common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding
beginning of period |
|
|
1,949 |
|
|
$ |
8.31 |
|
|
|
842 |
|
|
$ |
9.96 |
|
Options granted |
|
|
|
|
|
$ |
|
|
|
|
1,323 |
|
|
$ |
7.53 |
|
Options exercised |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Options expired |
|
|
(12 |
) |
|
$ |
12.37 |
|
|
|
(41 |
) |
|
$ |
8.24 |
|
Options forfeited |
|
|
(11 |
) |
|
$ |
8.11 |
|
|
|
(34 |
) |
|
$ |
8.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding
end of period |
|
|
1,926 |
|
|
$ |
8.29 |
|
|
|
2,090 |
|
|
$ |
8.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
643 |
|
|
$ |
9.87 |
|
|
|
738 |
|
|
$ |
10.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of
options granted during the period |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
1.77 |
|
For the six-month period ended June 30, 2009, we did not have any options outstanding for
our Class A common stock. As of June 30, 2009, the market price of our common stock was less than
the exercise prices for all of our outstanding stock options. Therefore, as of that date, our
options had no intrinsic value.
During the six-month period ended June 30, 2009, we did not grant any shares of
restricted stock to our directors. During the six-month period ended June 30, 2008, we granted
55,000 shares of our common stock, in total, to our directors under the Directors Restricted Stock
Plan. The unearned compensation is being amortized as an expense over the vesting period of the
restricted common stock. The total amount of unearned compensation is equal to the market value of
the shares at the date of grant net of accumulated amortization.
16
NOTE G STOCK-BASED COMPENSATION (Continued)
Long-term Incentive Plan
The following table summarizes our non-vested restricted shares during the six-month period
ended June 30, 2009 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Number of |
|
Average |
|
|
Shares |
|
Fair Value |
Restricted Stock: |
|
|
|
|
|
|
|
|
Non-vested common restricted shares, December 31, 2008 |
|
|
100 |
|
|
$ |
6.64 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested common restricted shares, June 30, 2009 |
|
|
100 |
|
|
$ |
6.64 |
|
|
|
|
|
|
|
|
|
|
NOTE H COMMITMENTS AND CONTINGENCIES
Legal Proceedings and Claims
We are 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 these actions,
will not materially affect our financial position.
Sports Marketing Agreement
On October 12, 2004, the University of Kentucky (UK) jointly awarded a sports marketing
agreement to us and IMG World, Inc. (IMG). The 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.
On July 1, 2006, the terms between us and IMG concerning the UK sports marketing agreement
were amended. The amended 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
would separately retain all local broadcast advertising revenue and pay all local broadcast
expenses for activities under the agreement. Under the amended 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
pay the unpaid portion of the license fee to UK. As of June 30, 2009, the aggregate license fees to
be paid by IMG to UK over the remaining portion of the full ten-year term (assuming, the option to
extend is exercised) for the agreement is approximately $49.3 million. If advances are made by us
on behalf of IMG, IMG will then reimburse us for the amount paid within 60 days subsequent to the
close of each contract year ending on June 30th. IMG has also agreed to pay interest on any advance
at a rate equal to the prime rate. As of June 30, 2009 and December 31, 2008, no amounts were
outstanding as an advance to UK on behalf of IMG under this agreement.
NOTE I GOODWILL AND INTANGIBLE ASSETS
Our intangible assets are primarily comprised of network affiliations and broadcast licenses.
We did not acquire any network affiliation agreements or broadcast licenses or have any of our
network affiliation agreements or broadcast licenses renew during the six-month period ended June
30, 2009. Upon renewal of such intangible assets, we expense all related fees as incurred. There
were no triggering events that required a test of impairment of our intangible assets during the
six-month period ended June 30, 2009.
17
NOTE J INCOME TAXES
Our recorded income tax expense (benefit) and incurred effective income tax rate are as
follows for the respective periods (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Income tax (benefit) expense |
|
$ |
(4,360 |
) |
|
$ |
2,184 |
|
|
$ |
(9,127 |
) |
|
$ |
(457 |
) |
Effective income tax rate |
|
|
40 |
% |
|
|
40 |
% |
|
|
37 |
% |
|
|
42 |
% |
The effective income tax rate for the six-month period ended June 30, 2009 as compared to the
six-month period ended June 30, 2008 decreased as a percentage of pre-tax loss primarily as a
result of increases to our reserve for uncertain tax positions during the period ended June 30,
2008 and decreases to our reserve for uncertain tax positions during the period ended June 30,
2009.
NOTE K NEW YORK STOCK EXCHANGE CONTINUED LISTING REQUIREMENT
The New York Stock Exchange (NYSE) requires all listed companies to maintain compliance with
certain criteria to remain listed on the NYSE. Prior to June 30, 2009, among these listing
criteria were requirements for a minimum average market capitalization of $25 million and a minimum
average per share stock price of $1.00 over the most recent 30 trading-day period. On June 30,
2009, the NYSE permanently reduced the minimum market capitalization requirement from $25 million
to $15 million and temporarily suspended the minimum per share stock price requirement until July
31, 2009. As of June 30, 2009, our average market capitalization was $33.2 million and our average
per share stock price for our common stock and Class A common stock were $0.49 and $0.60,
respectively. If our average per share stock price does not meet the minimum criteria as of July
31, 2009 and the criteria suspension is not extended beyond July 31, 2009, the NYSE could initiate
delisting procedures against us on or about October 7, 2009. If that were to occur, we would seek
an alternate exchange for trading of our common stock and Class A common stock.
NOTE L SUBSEQUENT EVENT
On July 30, 2009, we announced that Gray had been selected to be a management advisor for
seven television stations that are currently operated by Young Broadcasting, Inc. as a Debtor in
Possession under a Chapter 11 Bankruptcy filing.
Gray will provide operational management services for these television stations. We
anticipate promptly entering into a definitive management agreement for these services. The
Bankruptcy Court has already approved the agreement. The definitive agreement should provide Gray
with a $2.2 million per year management fee and further provide us an opportunity to earn
additional specified incentive fees if certain performance targets are exceeded. The management
services are currently expected to be provided through December 31, 2012.
18
Item 2. 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. (we, us or our) should be read in conjunction with our financial statements
contained in this report and in our Annual Report filed on Form 10-K for the fiscal year ended
December 31, 2008, or the 2008 Form 10-K.
Overview
We own 36 television stations serving 30 television markets. Seventeen of the stations are
affiliated with CBS, ten are affiliated with NBC, eight are affiliated with ABC and one is
affiliated with FOX. The combined station group has 21 markets with stations ranked #1 in local
news audience and 21 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, 2008
ratings reports. Of the 30 markets that we serve, we operate the #1 or #2 ranked station in 29 of
those markets. The combined TV station group reaches approximately 6.1% of total U.S. TV
households. In addition, we currently operate 38 digital second channels including one affiliated
with ABC, four affiliated with FOX, seven affiliated with CW, 16 affiliated with MyNetworkTV and
one affiliated with Universal Sports Network, plus eight local news/weather channels and one
independent channel in certain of our existing markets. With 17 CBS affiliated stations, we are the
largest independent owner of CBS affiliates in the United States.
Our operating revenues are derived primarily from broadcast and internet advertising and from
other sources such as production of commercials, tower rentals and retransmission consent fees.
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.
Internet advertising is sold on our stations websites. These advertisements are sold as
banner advertisements on the websites, pre-roll advertisements or video and other types of
advertisements.
Most advertising contracts are short-term and generally run only for a few weeks.
Approximately 66.8% of the net revenues of our television stations for the six-month
period ended June 30, 2009 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 was 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 advertising in the spring and 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, whose spending typically is
heaviest during the fourth quarter.
The primary broadcast 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.
19
Revenue
Set forth below are the principal types of revenues, less agency commissions, earned by us for
the periods indicated and the percentage contribution of each to our total revenues (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local |
|
$ |
43,272 |
|
|
|
66.5 |
% |
|
$ |
49,495 |
|
|
|
62.9 |
% |
|
$ |
82,558 |
|
|
|
65.3 |
% |
|
$ |
95,214 |
|
|
|
63.6 |
% |
National |
|
|
12,373 |
|
|
|
19.0 |
% |
|
|
18,479 |
|
|
|
23.4 |
% |
|
|
25,248 |
|
|
|
20.0 |
% |
|
|
34,816 |
|
|
|
23.2 |
% |
Internet |
|
|
2,711 |
|
|
|
4.2 |
% |
|
|
3,048 |
|
|
|
3.9 |
% |
|
|
5,275 |
|
|
|
4.2 |
% |
|
|
5,677 |
|
|
|
3.8 |
% |
Political |
|
|
942 |
|
|
|
1.4 |
% |
|
|
4,951 |
|
|
|
6.3 |
% |
|
|
1,951 |
|
|
|
1.5 |
% |
|
|
8,024 |
|
|
|
5.4 |
% |
Retransmission
consent |
|
|
3,959 |
|
|
|
6.1 |
% |
|
|
801 |
|
|
|
1.0 |
% |
|
|
7,599 |
|
|
|
6.0 |
% |
|
|
1,447 |
|
|
|
1.0 |
% |
Production and other |
|
|
1,628 |
|
|
|
2.5 |
% |
|
|
1,763 |
|
|
|
2.2 |
% |
|
|
3,470 |
|
|
|
2.7 |
% |
|
|
4,184 |
|
|
|
2.8 |
% |
Network compensation |
|
|
172 |
|
|
|
0.3 |
% |
|
|
206 |
|
|
|
0.3 |
% |
|
|
310 |
|
|
|
0.3 |
% |
|
|
380 |
|
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
65,057 |
|
|
|
100.0 |
% |
|
$ |
78,743 |
|
|
|
100.0 |
% |
|
$ |
126,411 |
|
|
|
100.0 |
% |
|
$ |
149,742 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
Three Months Ended June 30, 2009 (2009 three-month period) Compared To Three Months Ended June
30, 2008 (2008 three-month Period)
Revenue. Total revenue decreased $13.7 million, or 17%, to $65.1 million in the 2009
three-month period due primarily to decreased local, national, internet and political advertising
revenues, decreased production and other revenue and decreased network compensation revenue. These
decreases were partially offset by increased retransmission consent revenue in the current period.
Retransmission consent revenue increased $3.2 million, or 394%, to $4.0
million reflecting the more profitable terms of our recently renewed contracts. Local advertising
revenues decreased approximately $6.2 million, or 13%, to $43.3 million. National advertising
revenues decreased approximately $6.1 million, or 33%, to $12.4 million. Local and national
advertising revenue decreased due to reduced spending by advertisers in the current economic
recession. Historically, our industrys largest advertiser category has been the automotive
industry. The current recession has significantly reduced the automotive industrys advertising
expenditures. Our automotive advertising revenue decreased approximately 48% compared to the
comparable period in the prior year. Internet advertising revenues decreased $0.3 million, or 11%,
to $2.7 million due to the same factors affecting our local and national advertising revenue but to
a lesser extent. Political advertising revenues decreased $4.0 million, or 81%, to $0.9 million
reflecting decreased advertising from political candidates during the off year of the two-year
political advertising cycle. Production and other revenue decreased $0.1 million, or
8%, to $1.6 million.
Broadcast expenses. Broadcast expenses (before depreciation, amortization and gain on
disposal of assets) decreased $3.3 million, or 7%, to $45.2 million in the 2009 three-month period,
due primarily to a reduction in compensation expense of $2.3 million, facility fees of $0.3 million
and professional services of $0.3 million, partially offset by an increase in bad debt expense of
$0.6 million. Payroll expense decreased primarily due to a reduction in the number of employees.
As of June 30, 2009 and 2008, we employed 2,216 and 2,331 total employees, respectively, in our
broadcast operations which included full-time and part-time employees. Professional services
decreased primarily due to lower national representation fees which are paid based upon a
percentage of our lower national revenue. Facility fees decreased primarily due to lower
electricity expense resulting from the discontinuance of our analog broadcasts. Bad debt expense
increased primarily due to an increased reserve for receivables due from Chrysler LLC.
Corporate and administrative expenses. Corporate and administrative expenses (before
depreciation, amortization and gain on disposal of assets) increased $0.9 million, or 32%, to $3.6
million in the 2009 three-month period due primarily to an increase in compensation expense of $0.6
million and an increase in professional services
expense of $0.4 million. This increase in compensation expense was primarily due to increased
incentive compensation-related expenses. During the first five months of 2008, we accrued
compensation expense for
20
executive officer bonuses. During the 2008 three-month period, we determined that these
executive bonuses would not be paid and as a result the associated accrued expenses were reversed
which resulted in a reduction of compensation expense of $780,000. Executive bonuses have not been
accrued in fiscal 2009 and as a result we did not have a reduction in fiscal 2009 which was similar
to that of the three-month period ended June 30, 2008. Professional services increased primarily
due to an increase in legal expenses of $145,000 and an increase in consulting expenses of $100,000
resulting from a consulting agreement with our former Chairman. During the 2009 and 2008
three-month periods, we recorded non-cash stock-based compensation expense of $345,000 and
$395,000, respectively.
Depreciation. Depreciation of property and equipment decreased $0.5 million, or 5%, to $8.3
million during the 2009 three-month period. The decrease in depreciation was the result of reduced
capital expenditures in recent years compared to that of prior years. As a result, more assets
acquired in prior years have become fully depreciated than have been purchased in recent years.
(Gain) loss on disposal of assets. Gain on disposal of assets increased $1.0 million to $1.1
million during the 2009 three-month period as compared to the comparable period in the prior year.
The Federal Communications Commission (the FCC) has mandated that all broadcasters operating
microwave facilities on certain frequencies in the 2 GHz band relocate to other frequencies and
upgrade their equipment. The spectrum being vacated by broadcasters has been reallocated to third
parties who, as part of the overall FCC-mandated spectrum reallocation project, must provide
affected broadcasters with new digital microwave replacement equipment at no cost to the
broadcaster and also reimburse them for certain associated out-of-pocket expenses. During the
three-month period ended June 30, 2009, we recognized a gain of $1.7 million on the disposal of
assets associated with the spectrum reallocation project. We did not recognize a similar gain in
the three-month period ended June 30, 2008.
Interest expense. Interest expense increased $6.6 million, or 49%, to $20.0 million for the
2009 three-month period. This increase was attributable to an increase in average interest rates
partially offset by a decrease in our average principal outstanding. Average interest rates have
increased due to an increase in the margin that we pay over and above the market London Interbank
Offered Rate (LIBOR). This margin increased as a result of our amendment of our senior credit
facility on March 31, 2009. Our debt balance decreased as a result of repayments funded by our
issuance in fiscal 2008 of the Series D Perpetual Preferred Stock. Our average debt balance was
$797.5 million and $901.8 million during the 2009 and 2008 three-month periods, respectively. The
average interest rates, including the effects of our interest rate swap agreements, on our total
debt balances was 9.5% and 5.6% during the 2009 and 2008 three-month periods, respectively.
Income tax expense or benefit. We recognized an income tax benefit of $4.4 million in the
2009 three-month period compared to an income tax expense of $2.2 million in the 2008 three-month
period. The effective income tax rate was 40% for each of the three-month periods ended June 30,
2009 and 2008.
Six Months Ended June 30, 2009 (2009 six-month period) Compared To Six Months Ended June 30, 2008
(2008 six-month period)
Revenue. Total revenue decreased $23.3 million, or 16%, to $126.4 million in the 2009
six-month period due primarily to decreased local, national, internet and political advertising
revenue, decreased production and other revenue and decreased network compensation revenue. These
decreases were partially offset by increased retransmission consent revenue in the current period.
Retransmission consent revenue increased $6.2 million, or 425%, to $7.6 million reflecting the more
profitable terms of our recently renewed contracts. Local advertising revenue decreased
approximately $12.7 million, or 13%, to $82.6 million. National advertising revenue decreased
approximately $9.6 million, or 27%, to $25.2 million. Local and national advertising revenue
decreased due to reduced spending by advertisers in the current economic recession. Historically,
our industrys largest advertiser category has been the automotive industry. The current recession
has significantly reduced the automotive industrys advertising expenditures. Our automotive
advertising revenue decreased approximately 45% compared to comparable period of the prior year.
The negative effects of the recession were partially offset by increased advertising during the
Super Bowl. Net advertising revenue associated with broadcast of the 2009 Super Bowl on our ten
NBC affiliated stations approximated $750,000 which is an increase from the approximate $130,000 of
Super Bowl revenues earned in 2008 on our then six FOX affiliated channels. Internet advertising
revenue
21
decreased $0.4 million, or 7%, to $5.3 million due to the same factors affecting our local and
national advertising revenue but to a lesser extent. Political advertising revenue decreased $6.1
million, or 76%, to $2.0 million reflecting decreased advertising from political candidates during
the off year of the two-year political advertising cycle. Production and other revenue decreased
$0.7 million, or 17%, to $3.5 million.
Broadcast expenses. Broadcast expenses (before depreciation, amortization and gain on
disposal of assets) decreased $7.7 million, or 8%, to $90.8 million in the 2009 six-month period,
due primarily to a reduction in compensation expense of $4.5 million, professional services of $0.7
million, facility fees of $0.2 million and supply fees of $0.4 million, partially offset by an
increase in bad debt expense of $0.1 million. Compensation expense decreased primarily due to a
reduction in the number of employees. As of June 30, 2009 and 2008, we employed 2,216 and 2,331
total employees, respectively, in our broadcast operations which included full-time and part-time
employees. Professional services decreased primarily due to lower national representation fees
which are paid based upon a percentage of our lower national revenue. Facility fees decreased
primarily due to lower electricity expense resulting from the discontinuance of our analog
broadcasts. Supply fees decreased due to lower gasoline costs and controls on supply purchases.
Bad debt expense increased primarily due to an increased reserve for receivables due from Chrysler
LLC.
Corporate and administrative expenses. Corporate and administrative expenses (before
depreciation, amortization and gain on disposal of assets) increased $1.4 million, or 22%, to $7.6
million. The increase was due primarily to increases in compensation expense and professional
service expense. This increase in compensation expense was primarily due to an increase in
severance expense of $135,000 and an increase in relocation expense of $350,000. Professional
services increased primarily due to an increase in legal expenses of $547,000 and an increase in
consulting expense of $200,000 resulting from a consulting agreement with our former Chairman.
During the 2009 six-month period and the 2008 six-month period, we recorded non-cash stock-based
compensation expense of $698,000 and $689,000, respectively.
Depreciation. Depreciation of property and equipment decreased $1.1 million, or 6%, to $16.5
million for the 2009 six-month period. The decrease in depreciation was the result of reduced
capital expenditures in recent years compared to that of prior years. As a result, more assets
acquired in prior years have become fully depreciated than have been purchased in recent years.
(Gain) loss on disposal of assets. Gain on disposal of assets increased $1.6 million to $2.6
million during the 2009 six-month period as compared to the comparable period in the prior year.
The FCC has mandated that all broadcasters operating microwave facilities on certain frequencies in
the 2 GHz band relocate to other frequencies and upgrade their equipment. The spectrum being
vacated by broadcasters has been reallocated to third parties who, as part of the overall
FCC-mandated spectrum reallocation project, must provide affected broadcasters with new digital
microwave replacement equipment at no cost to the broadcaster and also reimburse them for certain
associated out-of-pocket expenses. During the six-month periods ended June 30, 2009 and 2008, we
recognized gains of $3.3 million and $1.0 million, respectively, on the disposal of assets
associated with the spectrum reallocation project.
Interest expense. Interest expense increased $0.9 million, or 3%, to $30.1 million for the
2009 six-month period. This increase was attributable to an increase in average interest rates
partially offset by a decrease in our average principal outstanding. Average interest rates have
increased due to an increase in the margin that we pay over and above the market LIBOR. This
margin increased as result of our amendment of our senior credit facility on March 31, 2009. Our
debt balance decreased as a result of repayments funded by our issuance in fiscal 2008 of the
Series D Perpetual Preferred Stock. Our average debt balance was $798.6 million and $913.9 million
during the 2009 six-month period and the 2008 six-month period, respectively. The average interest
rates on our total debt balances was 7.2% and 6.1% during the 2009 and 2008 six-month periods,
respectively. These interest rates include the effects of our interest rate swap agreements.
Loss on early extinguishment of debt. On March 31, 2009, we amended our senior credit
facility. In order to obtain this amendment, we incurred loan issuance costs of approximately $7.1
million including legal and professional fees. These fees were funded from our existing cash
balances. In connection with this transaction, we reported a loss on early extinguishment of debt
of $8.4 million in the 2009 six-month period.
22
Income tax expense or benefit. We recognized an income tax benefit of $9.1 million in the
2009 six-month period compared to an income tax benefit of $0.5 million in the 2008 six-month
period. The effective income tax rate was 37% for the 2009 six-month period and 42% in the 2008
six-month period. The effective income tax rate decreased as a percentage of pre-tax loss primarily
as a result of increases to our reserve for uncertain tax positions during the period ended June
30, 2008 and decreases to our reserve for uncertain tax positions during the period ended June 30,
2009.
Liquidity and Capital Resources
General
The following table presents data that we believe is helpful in evaluating our liquidity and
capital resources (in thousands).
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2009 |
|
2008 |
Net cash provided by operating activities |
|
$ |
377 |
|
|
$ |
17,237 |
|
Net cash used in investing activities |
|
|
(9,598 |
) |
|
|
(6,277 |
) |
Net cash used in financing activities |
|
|
(11,642 |
) |
|
|
(3,730 |
) |
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents |
|
$ |
(20,863 |
) |
|
$ |
7,230 |
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
June 30, 2009 |
|
December 31, 2008 |
Cash and cash equivalents |
|
$ |
9,786 |
|
|
$ |
30,649 |
|
Long-term debt including current portion |
|
$ |
795,849 |
|
|
$ |
800,380 |
|
Preferred stock |
|
$ |
92,785 |
|
|
$ |
92,183 |
|
Borrowing ability under senior credit facility |
|
$ |
27,134 |
|
|
$ |
12,262 |
|
|
|
|
|
|
|
|
|
|
Leverage ratio as defined under our senior credit facilty: |
|
|
|
|
|
|
|
|
Actual |
|
|
7.98 |
|
|
|
7.14 |
|
Maximum allowed |
|
|
8.25 |
|
|
|
7.25 |
|
Senior Credit Facility
Effective as of March 31, 2009, we amended our senior credit facility. The terms of our
amended senior credit facility include, but are not limited to, an increase in the maximum ratio
allowed under our leverage ratio covenant for the year ending December 31, 2009, a general increase
in the restrictiveness of our remaining covenants and increased interest rates. In order to obtain
this amendment, we incurred loan issuance costs of approximately $7.1 million including legal and
professional fees. These fees were funded from our existing cash balances. The amendment of our
senior credit facility was determined to be significant and as a result we recorded a loss on early
extinguishment of debt of $8.4 million. The amendment to our senior credit facility is included in
our Annual Report on Form 10-K for fiscal 2008 (the 2008 Form 10-K) as Exhibit 10.10.
Without this amendment, we would not have been in compliance with the leverage ratio covenant
and such noncompliance would have caused a default under the agreement. This amendment increased
our cash interest rate by 2% per annum (200 basis points) and beginning April 1, 2009, requires an
additional 3% per annum (300 basis point) facility fee. Our senior credit facility is comprised of
a revolving loan and a term loan. For the period beginning April 4, 2009 and ending April 30,
2010, the annual facility fee for the term loan and the revolving loan will accrue and be payable
on the respective term loan and revolving loan maturity dates. For the period beginning after April
30, 2010 and for the remaining term of the senior credit facility, the annual facility fee will be
payable in cash on a quarterly basis and interest will accrue at an annual rate of 6.5% on the facility
fee balance accrued as of April 30, 2010.
23
The amount outstanding under our senior credit facility as of June 30, 2009 and December 31,
2008 was $795.8 million and $800.4 million, respectively, comprised solely of the term loan. The
revolving credit facility did not have an outstanding balance as of June 30, 2009 or December 31,
2008. Under the revolving loan of our amended senior credit facility, the maximum credit available
under the facility is $50.0 million. The amount that we can draw upon the revolving loan is
limited by the restrictive covenants of our senior credit facility. As of June 30, 2009 and
December 31, 2008, we could have drawn $27.1 million and $12.3 million, respectively, of the $50
million maximum amount under the revolving loan.
As stated above, our senior credit facility requires us to maintain our leverage ratio, as
defined in the agreement, below certain maximum amounts. As of December 31, 2008, our leverage
ratio was 7.14 compared to the maximum allowed by our senior credit facility of 7.25. As of March
31, 2009, our leverage ratio was 7.48 compared to the maximum ratio allowed by the amended senior
credit facility of 8.00. As of June 30, 2009, our leverage ratio was 7.98 compared to the maximum
ratio allowed by our amended senior credit facility of 8.25. Prior to the amendment, the maximum
total net leverage ratio allowed would have been 7.25 as of March 31, 2009 and June 30, 2009.
Assuming we maintain compliance with our senior credit facility leverage ratio covenant, we
believe that current cash balances, cash flows from operations and any available funds under the
revolving credit line of our senior credit facility will be adequate to provide for our capital
expenditures, debt service and working capital requirements through June 30, 2010. As of June 30,
2009, we are in compliance with all covenants under the senior credit facility.
The continuing general economic recession, including the significant decline in advertising by
the automotive industry, has adversely impacted our ability to generate cash from operations during
the current period and the recent past. If these general economic trends do not begin to gradually
improve, then our ability to maintain adequate liquidity and/or compliance with our leverage ratio
covenant will come under increased pressure. Compliance with the leverage ratio covenant on or
after March 31, 2010 will depend on the interrelationship of our ability to reduce outstanding debt
and/or the results of our operations during the intervening future periods. Based upon our
financial projections as of the date of filing this Quarterly Report on Form 10-Q, we are likely
not to be in compliance with our leverage ratio as of March 31, 2010.
In the future, if we are unable to maintain compliance with these covenants, including the
leverage ratio test, we would use reasonable efforts to seek an amendment or waiver to our senior
credit facility. However, in such circumstances, we could provide no assurances that any amendment
or waiver would be obtained nor of its terms. In the future, if we are unable to obtain any
required waivers or amendments, we would be in default under the senior credit facility and any
such default could allow a majority of the lenders to demand an acceleration of the repayment of
all outstanding amounts under our senior credit facility.
Series D Perpetual Preferred Stock
Dividends on our Series D Perpetual Preferred Stock accrued at 12.0% per annum through
December 31, 2008 after which the dividend rate increased to 15.0% per annum. We did not fund the
Series D Perpetual Preferred Stock cash dividend payments due on January 15, 2009, April 15, 2009
or July 15, 2009 that had accumulated for the three-month periods ended December 31, 2008, March
31, 2009 and June 30, 2009. Our accrued Series D Perpetual Preferred Stock dividend balance as of
June 30, 2009 and December 31, 2008 was $10.5 million and $3.0 million, respectively. Such deferral
of dividend payments is allowable under the terms of the Series D Perpetual Preferred Stock. When
three consecutive cash dividend payments with respect to the Series D Perpetual Preferred Stock
remain unfunded, the dividend rate will increase from 15.0% per annum (or $15 million) to 17.0% per
annum (or $17 million). Thus, our Series D Perpetual Preferred Stock dividend began accruing at
17.0% per annum on July 16, 2009 and will accrue at that rate as long as at least three consecutive
cash dividend payments remain unfunded.
While any Series D Perpetual Preferred Stock dividend payments are in arrears, we are
prohibited from repurchasing, declaring and/or paying any cash dividend with respect to any equity
securities having liquidation preferences equivalent to or junior in ranking to the liquidation
preferences of the Series D Perpetual Preferred
24
Stock including our common stock and Class A common stock. We can provide no assurances when
any future cash payments will be made on any accumulated and unpaid Series D Perpetual Preferred
Stock cash dividends presently in arrears or that become in arrears in the future. The Series D
Perpetual Preferred Stock has no mandatory redemption date but may be redeemed at the stockholders
option on or after June 30, 2015. The deferral of paying cash dividends on our Series D Perpetual
Preferred Stock and the corresponding suspension of paying cash dividends on our common and Class A
common stock was made to reallocate cash resources to support our ability to pay increased interest
costs and/or fees associated with the amendment to our senior credit facility.
Net Cash Provided By (Used In) Operating, Investing and Financing Activities
Net cash provided by operating activities was $0.4 million in the 2009 six-month period
compared to $17.2 million in the 2008 six-month period. The decrease in cash provided by
operations is primarily due to a decrease in revenue and an increase in corporate expenses
partially offset by a decrease in broadcast expenses.
Net cash used in investing activities was $9.6 million in the 2009 six-month period compared
to net cash used in investing activities of $6.3 million for the 2008 six-month period. The
increase in cash used in investing activities was largely due to increased spending for equipment
resulting from our transition to digital from analog broadcasting.
Net cash used in financing activities in the 2009 six-month period was $11.6 million. Net
cash used in financing activities in the 2008 six-month period was $3.7 million. This increase in
cash used was due primarily to payments in 2009 of $7.1 million for the amendment of our senior
credit facility. Also, we did not pay any common stock or preferred stock dividends in the
six-month period ended June 30, 2009. In the 2008 six-month period, we issued Series D Perpetual
Preferred Stock and used the net proceeds to reduce our outstanding long-term debt balance. We did
not issue any Series D Perpetual Preferred Stock in the 2009 six-month period.
Income Taxes
We file a consolidated federal income tax return and such state or local tax returns as are
required. Although we may earn taxable operating income in future years, as of June 30, 2009, we
anticipate that through the use of our available loss carryforwards we will not pay significant
amounts of federal or state income taxes in the next several years. However, we estimate that we
will pay state income taxes in certain states over the next several years.
Capital Expenditures
Capital expenditures in the 2009 six-month period and the 2008 six-month period were $10.2
million and $6.2 million, respectively. The 2009 six-month period included, in part, capital
expenditures relating to the conversion of analog broadcasts to digital broadcasts upon the final
cessation of analog transmissions while the 2008 six-month period did not contain comparable
projects.
Other
During the 2009 six-month period, we contributed $1.1 million to our pension plans. During
the remainder of fiscal 2009, we expect to contribute an additional $3.2 million to our pension
plans.
We do not believe that inflation has had a significant impact on our results of operations nor
is inflation expected to have a significant effect upon our business in the near future.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. GAAP requires us to make
judgments and estimations that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. We consider our accounting
policies relating to intangible assets and income taxes to be critical policies that require
judgments or estimations in their application where variances in those judgments or estimations
could make a significant difference to future reported results. Our
policies concerning intangible assets are disclosed below. See our 2008 Form 10-K for a full disclosure of our policies
concerning income taxes.
25
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 within a market, future
operating expenses, costs of capital and appropriate discount rates. We believe that the
assumptions we utilize in analyzing potential impairment of broadcast licenses and/or goodwill for
each of our 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.
To estimate the fair value of our reporting units, we utilize a discounted cash flow model.
We believe that a discounted cash flow analysis is the most appropriate methodology to test the
carrying value of long-term assets with a demonstrated long-lived / enduring franchise value. We
believe the results of the discounted cash flow and market multiple approaches provide reasonable
estimates of the fair value of our reporting units because these approaches are based on our actual
results and best estimates of fiscal 2009 annual performance, as well as considering a number of
other factors, including but not limited to, future market revenue growth, market revenue shares
and operating profit margins in future periods. We have consistently used these approaches in
determining the value of our goodwill. We also consider a market approach utilizing market
multiples to corroborate the discounted cash flow analysis. We believe that this methodology is
consistent with the approach that any strategic market participant would utilize if they were to
value one of our television stations.
As of June 30, 2009 and December 31, 2008, the book value of our broadcast licenses
and goodwill was approximately $819.0 million and $170.5 million, respectively. During the fourth
quarter of 2008, we recorded a non-cash impairment expense of $338.7 million resulting from a
write-down of $98.6 million in the carrying value of our goodwill and a write-down of $240.1
million in the carrying value of our broadcast licenses.
We test for impairment of broadcast licenses and goodwill on an annual basis on the last day
of each fiscal year. However, we will test for impairment during any reporting period if certain
triggering events were to occur. No such triggering events occurred in the six-month period ended
June 30, 2009. Therefore, the two most recent impairment testing dates were as of December 31,
2008 and 2007. A summary of the significant assumptions used in our impairment analysis of
broadcast licenses and goodwill as of December 31, 2008 and 2007 are presented below. Following the
summary of assumptions is a sensitivity analysis of those assumptions. Our reporting units,
allocations of our broadcast licenses and goodwill and our methodologies were consistent as of both
testing dates.
26
Summary:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2008 |
|
2007 |
|
|
(dollars in millions) |
Pre-tax impairment charge: |
|
|
|
|
|
|
|
|
Broadcast licenses |
|
$ |
240.1 |
|
$ |
|
Goodwill |
|
$ |
98.6 |
|
$ |
|
|
|
|
|
|
|
|
|
|
Significant assumptions: |
|
|
|
|
|
|
|
|
Forecast period |
|
|
10 years |
|
|
10 years |
Increase or (decrease) in market advertising revenue for
projection year 1 compared to latest historical
period (1) |
|
|
(15.8)% to (2.3)% |
|
|
9.7% to 26.1% |
Positive or (negative) advertising revenue growth rate
for forecast period (1) |
|
|
1.1% to 3.4% |
|
|
(2.6)% to (1.1)% |
Operating cash flow margin: |
|
|
|
|
|
|
|
|
Broadcast licenses |
|
|
11.0% to 50.0% |
|
|
9.7% to 58.7% |
Goodwill |
|
|
11.5% to 50.0% |
|
|
9.7% to 58.7% |
Discount rate: |
|
|
|
|
|
|
|
|
Broadcast licenses |
|
|
10.50% |
|
|
8.00% |
Goodwill |
|
|
11.50% |
|
|
8.00% |
|
|
|
(1) |
|
Assumptions relating to advertising growth rates can vary significantly from year to
year depending on if the first year of the respective projection period is an even or odd
numbered year reflecting the significant cyclical impact of political advertising in even
numbered years. The fiscal 2007 analysis anticipated substantial increases in revenues for
fiscal 2008. As a result, overall future revenue growth rates, throughout the projection
period for each station, are low given the cyclical high starting point of these
projections. Conversely, since the fiscal 2008 analysis anticipated cyclically low
revenues for fiscal 2009, the subsequent growth rates are higher given this low starting
point for the projections. |
|
|
|
|
|
|
|
|
|
|
|
Hypothetical Increase In Recorded |
|
|
Impairment Charge |
|
|
As of December 31, 2008 |
|
|
Broadcast License |
|
Goodwill |
|
|
(in millions) |
Hypothetical change: |
|
|
|
|
|
|
|
|
A 100 basis point decrease in advertising revenue
growth rate throughout the forecast period |
|
$ |
111.3 |
|
|
$ |
22.7 |
|
A 100 basis point decrease in operating cash flow
margin throughout the forecast period |
|
$ |
22.6 |
|
|
$ |
3.6 |
|
A 100 basis point increase in the applicable discount
rate |
|
$ |
107.2 |
|
|
$ |
23.8 |
|
A 5% reduction in the fair value of broadcast licenses
and enterprise values |
|
$ |
33.6 |
|
|
$ |
8.1 |
|
A 10% reduction in the fair value of broadcast licenses
and enterprise values |
|
$ |
69.3 |
|
|
$ |
16.2 |
|
|
|
|
|
|
|
|
|
|
These non-cash impairment charges do not have any direct impact on our liquidity, senior
credit facility compliance or future results of operations. Our historical operating results may
not be indicative of our future operating results. Our future ten-year discounted cash flow
analysis which fundamentally supports our fiscal 2008 impairment charges reflected assumptions
relating to the impact of the current general economic recession and dislocation of the credit
markets. As a result, we lowered our projected overall advertising revenues available in each of
our markets throughout our ten-year projection period and we in turn lowered our projections for
individual television station revenues, operating cash flow margins and net cash flows for our
impairment testing in fiscal 2008
27
compared to fiscal 2007. The current general economic climate has also caused us to assume
that the general economic conditions would begin a gradual recovery in the fiscal year ended
December 31, 2010 but that future growth rates in advertising revenues would be lower than rates
assumed in previous years.
In addition, the current dislocation of the credit markets caused us to increase our assumed
discount rate to 10.5% for valuing broadcast licenses and to 11.5% for valuing goodwill in fiscal
2008 as compared to the 8.0% discount rate used to value both broadcast licenses and goodwill in
fiscal 2007. The discount rates used in our impairment analysis were based upon the after-tax rate
determined using a weighted-average cost of capital calculation for media companies. In
calculating the discount rates, we considered estimates of the long-term mean market return,
industry beta, corporate borrowing rate, average industry debt to capital ratio, average industry
equity capital ratio, risk free rate and the tax rate. We believe using a discount rate based on a
weighted-average cost of capital calculation for media companies is appropriate because it would be
reflective of rates active participants in the media industry would utilize in valuing broadcast
licenses and/or broadcast enterprises.
Valuation of Broadcast Licenses
Broadcast licenses of television stations acquired prior to January 1, 2002 are 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 book value of these
broadcast licenses as of June 30, 2009 and December 31, 2008 was approximately $341.0 million. The
pre-tax impairment charge recorded as of December 31, 2008 for these broadcast licenses
approximated $129.6 million. We did not record a similar impairment charge during the six-month
period ended June 30, 2009.
Broadcast licenses of television stations acquired after December 31, 2001 are valued 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 book value of these broadcast licenses as of June 30, 2009 and
December 31, 2008 was approximately $478.0 million. The pre-tax impairment charge recorded as of
December 31, 2008 for these broadcast licenses approximated $110.5 million. We did not record a
similar impairment charge during the six-month period ended June 30, 2009.
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, Business Combinations
(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, we 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 us to record an impairment charge in the first quarter of the
fiscal year ended December 31, 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).
28
Valuation of Goodwill
For purposes of testing goodwill impairment, each of our individual television stations is a
separate reporting unit. We review each television station 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, we then perform, on a notional basis, a purchase price
allocation applying the guidance of SFAS No. 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.
To estimate the fair value of our reporting units, we utilize a discounted cash flow model.
We believe that a discounted cash flow analysis is the most appropriate methodology to test the
carrying value of long-term assets with a demonstrated long-lived / enduring franchise value. We
believe the results of the discounted cash flow and market multiple approaches provide reasonable
estimates of the fair value of our reporting units because these approaches are based on our actual
results and best estimates of fiscal 2009 annual performance, as well as considering a number of
other factors, including but not limited to, future market revenue growth, market revenue shares
and operating profit margins in future periods. We have consistently used these approaches in
determining the value of our goodwill. We also consider a market approach utilizing market
multiples to corroborate the discounted cash flow analysis. We believe that this methodology is
consistent with the approach that any strategic market participant would utilize if they were to
value one of our television stations.
Valuation of Network Affiliation Agreements
Some broadcast companies may use methods to value acquired network affiliations different than
those that we use. These different methods may result in significant variances in the amount of
purchase price allocated to these assets among broadcast companies.
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.
We ascribe 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, we believe 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.
We have acquired a total of 19 television stations since 2002. The methodology we used to
value these stations was based on our evaluation of the broadcast licenses acquired and the
characteristics of the markets in which they operated. Given our assumptions and the specific
attributes of the stations we acquired during 2002 through 2009, we 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, we believe that these
broadcasting companies include in their network affiliation valuation amounts related to attributes
which we believe are more appropriately reflected in the value of the broadcast license or
goodwill.
29
If we were to assign higher values to all of our network affiliations and less value to our
broadcast licenses or goodwill and if it is further assumed that such higher values of the network
affiliations are definite-lived intangible assets, this reallocation of value might have a
significant impact on our operating results. It should be noted that there is a diversity of
practice and some broadcast companies have considered such network affiliation intangible assets to
have a life ranging from 15 to 40 years depending on the specific assumptions utilized by those
broadcast companies.
The following table reflects the hypothetical impact of the hypothetical reassignment of value
from broadcast licenses to network affiliations for all our prior acquisitions (the first
acquisition being in 1994) and the resulting increase in amortization expense assuming a
hypothetical 15-year amortization period as of our most recent impairment testing date of December
31, 2008 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total |
|
|
|
|
|
|
Value reassigned to |
|
|
|
|
|
|
Network |
|
|
As |
|
Affiliation Agreements |
|
|
Reported |
|
50% |
|
25% |
Balance Sheet (As of December 31, 2008): |
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses |
|
$ |
818,981 |
|
|
$ |
487,969 |
|
|
$ |
653,475 |
|
Other intangible assets, net (including network
affiliation agreements) |
|
|
1,893 |
|
|
|
332,905 |
|
|
|
167,399 |
|
Statement of Operations
(For the year ended December 31, 2008): |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
792 |
|
|
|
37,884 |
|
|
|
19,338 |
|
Operating loss |
|
|
(258,895 |
) |
|
|
(295,987 |
) |
|
|
(277,441 |
) |
Net loss |
|
|
(202,016 |
) |
|
|
(224,642 |
) |
|
|
(213,329 |
) |
Net loss available to common stockholders |
|
|
(208,609 |
) |
|
|
(231,235 |
) |
|
|
(219,922 |
) |
Net loss available to common stockholders,
per share basic and diluted |
|
$ |
(4.32 |
) |
|
$ |
(4.79 |
) |
|
$ |
(4.55 |
) |
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.
Market Capitalization
When we test our broadcast licenses and goodwill for impairment, we also give consideration to
our market capitalization. During 2008, we experienced a decline in our market capitalization due
to a decline in our stock price. As of December 31, 2008, our market capitalization was less than
our book value and it remains less than book value as of the date of this filing. We believe the
decline in our stock price has, in part, been influenced by the current national credit crises and
national economic recession. We believe that it is appropriate to view the current credit crisis
and recession as relatively temporary in relation to reporting units that have demonstrated
long-lived / enduring franchise value. Accordingly, we believe that a variance between market
capitalization and fair value can exist and that difference could be significant at points in time
due to intervening macroeconomic influences.
Recent Accounting Pronouncements
Various authoritative accounting organizations have issued accounting pronouncements that we
will be required to adopt at a future date. Either we have reviewed these pronouncements and
concluded that their adoption will not have a material affect upon our liquidity or results of
operations or we are continuing to evaluate the pronouncements. See Note A. Description of Business and Summary of Significant Accounting
Policies of our audited consolidated financial statements included elsewhere herein for further
discussion of recent accounting principles.
30
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report, the
words believes, expects, anticipates, estimates and similar words and expressions are
generally intended to identify forward-looking statements. Statements that describe our projected
senior credit facility compliance, our anticipated contract to manage
Young Broadcasting stations and NYSE continued listing compliance are also forward-looking
statements. Readers of this Quarterly Report are cautioned that any forward-looking statements,
including those regarding the intent, belief or current expectations of our management, are not
guarantees of future performance, results or events and involve risks and uncertainties, and that
actual results and events may differ materially from those contained in the forward-looking
statements as a result of various factors including, but not limited to, those listed in Item 1A of
our 2008 Form 10-K and the other factors described from time to time in our filings with the
Securities and Exchange Commission (the SEC). The forward-looking statements included in this
Quarterly Report are made only as of the date hereof. We undertake no obligation to update such
forward-looking statements to reflect subsequent events or circumstances, except as required by
law.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
We believe that the market risk of our financial instruments as of June 30, 2009 has not
materially changed since December 31, 2008. The market risk profile on December 31, 2008 is
disclosed in our 2008 Form 10-K.
Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was
carried out under the supervision and with the participation of management, including the Chief
Executive Officer (CEO) and the Chief Financial Officer (CFO), of the effectiveness of our
disclosure controls and procedures. Based on that evaluation, the CEO and the CFO have concluded
that our disclosure controls and procedures are effective to ensure that information required to be
disclosed by us in reports that we file or furnish under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms, and to ensure that such information is accumulated and
communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions
regarding required disclosures. There were no changes in our internal control over financial
reporting during the six months ended June 30, 2009 identified in connection with this evaluation
that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information contained in Note H Commitments and Contingencies to our unaudited
Condensed Consolidated Financial Statements filed as part of this Quarterly Report on Form 10-Q is
incorporated herein by reference.
Item 1A. Risk Factors
Please refer to Part I, Item 1A in our 2008 Form 10-K for a complete description of our risk
factors. There have been no subsequent material changes in our risk factors.
31
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were voted upon at our 2009 Annual Meeting of Shareholders, on June 10,
2009, and votes were cast as indicated:
(a) Our shareholders voted on the election of the following nominees for director and votes
were cast as indicated. Each nominee was elected as a director:
|
|
|
|
|
|
|
|
|
|
|
Class A Votes and |
|
|
Common Stock Votes |
Nominee |
|
For |
|
Withheld |
Richard L. Boger |
|
|
86,423,618 |
|
|
|
914,300 |
|
Ray M. Deaver |
|
|
86,237,909 |
|
|
|
1,100,009 |
|
T. L. Elder |
|
|
86,445,885 |
|
|
|
892,033 |
|
Hilton H. Howell, Jr. |
|
|
86,359,277 |
|
|
|
978,641 |
|
William E. Mayher, III |
|
|
86,451,185 |
|
|
|
886,733 |
|
Zell B. Miller |
|
|
86,474,879 |
|
|
|
863,039 |
|
Howell W. Newton |
|
|
86,461,978 |
|
|
|
875,940 |
|
Hugh E. Norton |
|
|
85,367,268 |
|
|
|
1,970,650 |
|
Robert S. Prather, Jr. |
|
|
86,494,066 |
|
|
|
843,852 |
|
Harriett J. Robinson |
|
|
86,448,371 |
|
|
|
889,547 |
|
J. Mack Robinson |
|
|
86,375,006 |
|
|
|
962,912 |
|
(b) Our shareholders voted on a proposal to amend our Employee Stock Purchase Plan, or ESPP,
to increase by 600,000 the number of shares of our common stock reserved for issuance under our
ESPP. The proposal was approved.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Votes and Common Stock Votes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker |
|
|
For |
|
Against |
|
Abstain |
|
Non-Votes |
Amendment of our ESPP |
|
|
61,671,887 |
|
|
|
458,869 |
|
|
|
313,052 |
|
|
|
24,894,109 |
|
Item 6. Exhibits
Exhibit 31.1 Rule 13(a) 14(a) Certificate of Chief Executive Officer
Exhibit 31.2 Rule 13(a) 14(a) Certificate of Chief Financial Officer
Exhibit 32.1 Section 1350 Certificate of Chief Executive Officer
Exhibit 32.2 Section 1350 Certificate of Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities 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.
(Registrant)
|
|
Date: August 7, 2009 |
By: |
/s/ James C. Ryan
|
|
|
|
James C. Ryan, |
|
|
|
Senior Vice President and Chief Financial Officer |
|
33